Wow – California Negotiated in Bad Faith?

As we discussed in our last post, a federal district court has held that California's revenue sharing demands in its negotiations with the Rincon Band of Luiseno Mission Indians amounted to an illegal tax, and therefore were evidence of the state's bad faith. What was the Band hoping to do – and what are the implications of this holding?

The Band sought to add 900 slot machines at its Harrah's Rincon Casino & Resort. In return, the state sought annual payments of 15% of the average net win for each of the new machines, as well as 10% of the net win on the existing machines. According to numbers crunched by Prof. Bill Eadington, who served as an expert witness for California, this would mean that the state would receive nearly $38M, while the Band's new profits from the deal, after making the required revenue sharing payments to the state, would be less than $2M. (The tribe’s income with or without the new machines would hover around $60 million.) The concessions offered by the state were "an agreement to reduce its fee payment in the future should gaming one day be opened up to non-tribal gaming establishments (a scenario the Court finds speculative and unlikely . . .), 900 more machines and five additional years to operate under its Compact." The court concluded that "[i]t is difficult to regard the State's proposed plan as anything more than a tax." And, the court expressly found that California negotiated in bad faith: "[T]he Court finds that the State's insistence on the payment of such a large fee to its general fund in return for concessions of markedly lesser value was in bad faith . . . ."

We believe this may be the first time a federal court has found that a state has negotiated in bad faith. In an early "scope of gaming" case, Mashantucket Pequot Tribe v. Connecticut, the Second Circuit avoided finding that the state had negotiated in bad faith, noting that the state's refusal to negotiate, whether or not in bad faith, could trigger IGRA's mediated negotiation process. The district court in Lac du Flambeau Band v. Wisconsin similarly avoided a finding of bad faith on the part of the state. Are we right? Let us know what you think!

Read more in Onell Soto's story in the San Diego Union-Tribune by clicking here.