Letter to Bill Kekahbah, Kaw Gaming, Inc.

RE: Review of Development Agreement between Kaw Gaming, Inc. and Cherokee
Nation Hospitality Consulting, LLC

August 10, 2018

Page 5 of 6

The parties can extend the length of the agreement by written agreement,'” but the
Developer’s scope of work relates to completing the Project, not during the Project’s
operation as a casino.

b. Amount of Revenue:

KGlI currently projects the Project to cost approximately $125 million.'® The
Developer’s fee is 1.2% of the Project’s costs,!® or approximately $1.5 million. This total
amount is relatively small compared to the Project’s total cost. Even more relevant is that
the Developer’s fee will be paid almost entirely before the Project opens as a gaming
operation. The Developer’s fee is based on the prior month’s Project costs. As stated
above, the Developer will complete almost all of its scope of work prior to the Project
opening as a casino, meaning most of the Developer’s fee will be paid either before the
Project opens or shortly thereafter.

c. Control of the Gaming Operations:

The Developer has no control over KGI’s gaming operations at the Project. The
scope of work relates to pre-opening development and construction, not the casino’s
operation post-opening.”

The term for the Development Agreement is relatively short, the Developer’s fee
is small relative to the Project’s total cost (and is not tied to KGI’s gaming revenues), and
the Developer has no control over KGI’s gaming operation. The Developer’s scope of
work (and any possible control) is limited to pre-opening services. Accordingly, the
Development Agreement does not violate IGRA’s sole proprietary interest requirement.

For these reasons, the Development Agreement is a not a management contract
that requires the Chair’s approval, and the Development Agreement does not violate
IGRA’s sole proprietary interest requirement. It is my understanding that the draft
Development Agreement is represented to be in substantially final form, and if the
Development Agreement changes in any material way prior to closing or is inconsistent
with assumptions made herein, this opinion shall not apply. Further, this opinion is
limited to the Development Agreement listed above. This opinion does not include or
extend to any other agreements not submitted for review.

Please note that it is my intent that this letter be released to the public through the
NIGC’s website. If you have any objection to this disclosure, please provide a written
statement explaining the grounds for the objection and highlighting the information that

17
Id.
‘8 Telephone conversation with Robert Rossette, counsel for KGI (Aug. 3, 2018).
® DA § 3a).
29 See generally DA, Exhibit A (Tasks).


Letter to Bill Kekahbah, Kaw Gaming, Inc.

RE: Review of Development Agreement between Kaw Gaming, Inc. and Cherokee
Nation Hospitality Consulting, LLC

August 10, 2018

Page 4 of 6

will also provide a recommended punch list and advise KGI regarding any warranty
issues.’ These are the only tasks that Developer will perform when the Project is
potentially open as a casino.

Under the Development Agreement, the Developer is not tasked to provide any
advice or recommendations regarding the operation of the Project as a gaming operation.
The tasks are not broad and open-ended; rather, they are finite, based on the progress of
the design and construction of the Project, and have clear deliverables (meetings, site
visits, and recommendations). Though the Development Agreement does not state when
each task must be completed, the Developer’s scope of work is completed shortly after
the Project is completed. The Developer’s relationship does not continue, open-ended,
after the completion of the Project.

b. Type of Fee:

The Developer’s fee is a percentage of “all costs incurred by or on behalf of KGI
in connection with the pre-development, development, and commencement of operations
of the Project[.]”'* The Developer’s fee has no relationship to the Project’s performance
as a casino and is similar to a construction manager or architect’s fee charged based on a
project’s total cost. Additionally, the Developer is only entitled to its fee as long as the
Development Agreement is effective. If the Development Agreement is terminated, the
Developer’s fee is prorated up to the calendar month in which termination occurs.'> The
percentage fee here does not indicate that the Developer will be able to manage the
Project after it opens as a casino.

In my opinion, the Development Agreement is not a management contract that
requires the NIGC Chair’s approval because its scope of work is for pre-opening tasks,
the scope of work is clearly defined, the relationship is not open-ended and has clear
deliverables, and the fee is a percentage but does not relate to gaming revenues.

II. The Development Agreement does not violate IGRA’s sole proprietary interest
requirement.

a. Term:

The term of the Development Agreement is the earlier of 1) the completion of the
Developer’s tasks; 2) 18 months from the Project’s financing; or 3) June 30, 2020,'° The
largest possible term is therefore approximately 22 months, a relatively short relationship.

13 Id.

"4 Td. at §3(a).
'S Id. at § 1(b).
"6 Td. at § 1(a).


Letter to Bill Kekahbah, Kaw Gaming, Inc.

RE: Review of Development Agreement between Kaw Gaming, Inc. and Cherokee
Nation Hospitality Consulting, LLC

August 10, 2018

Page 6 of 6

you believe should be withheld.”! If you object on the grounds that the information
qualifies as confidential commercial information subject to withholding under Exemption
Four of the Freedom of Information Act (FOIA),” please be advised that the information
was voluntarily submitted and, as such, that any withholding should be analyzed in
accordance with the standard set forth in Critical Mass Energy Project v. NRC? Any
claim of confidentiality should also be supported with “a statement or certification by an
officer or authorized representative of the submitter.””* Please submit any written
objection to FOIASubmitterReply@nigc.gov within thirty (30) days of the date of this
letter. After this time elapses, the letter will be made public and objections will no longer
be considered.” If you need any additional guidance regarding potential grounds for
withholding, please see the United States Department of Justice’s Guide to the Freedom
of Information Act at https://www.justice.gov/oip/doj-guide-freedom-information-act-0.

If you have any questions, please contact NIGC Staff Attorney Steve Iverson at
(202) 632-7003 or by email at steven_iverson@nige.gov.

Sincerely,

Mebyaltlor——

Michael Hoenig
General Counsel

ce: Robert Rosette, Rosette, LLP (rosette@rosettelaw.com)
Ronne Tiger, Tiger Law, PLLC (yonne@tigerlawpllc.com)

7195 C.F.R. § 517.7(c).

2 5 U.S.C. § 552(b)(4).

3 975 F.2d 871 (D.C. Cir. 1992).
495 CFR. § 517(0).

25 Id.


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August 10, 2018
Via First Class Mail

Bill Kekahbah

President, Kaw Gaming, Inc.
5640 N La Cann Road
Newkirk, OK 74647

Re: Review of Development Agreement between Kaw Gaming, Inc. and
Cherokee Nation Hospitality Consulting, LLC

Dear President Kekahbah:

This letter responds to your June 21, 2018 request for the National Indian Gaming
Commission’s Office of General Counsel to review a proposed Development Agreement
between the Kaw Gaming, Inc. (KGI) and Cherokee Nation Hospitality Consulting, LLC
(Developer). Specifically, you have asked for my opinion whether the Development
Agreement is a management contract requiring the NIGC Chair’s approval under the
Indian Gaming Regulatory Act. You also asked for my opinion whether the Development
Agreement violates IGRA’s requirement that a tribe have the sole proprietary interest in
its gaming activity.

In my review, I considered the following submission, which was unexecuted, but
was represented to be in substantially final form:

e “Development Agreement,” unsigned and no draft date, 20 pages including
Exhibits A and B; stamped “DocuSign Envelope ID: C924ABB2-B01D-4A4B-
B7BA-707186C4ABFC” in upper left corner; stamped “4844-1988-0540.1” in
lower left corner

It is my opinion that the Development Agreement is not a management contract
and does not require the approval of the NIGC Chair. It is also my opinion that the
Development Agreement does not violate IGRA’s sole proprietary interest requirements.

NEW MAILING ADDRESS: NIGC/DEPARTMENT OF THE INTERIOR 1849 C Street NW, Mail Stop # 1621 Washington, OC 20240 Tel: 202.632.7003 Fax: 202.632.7066

REGIONAL OFFICES Portland, OR; Sacramento, CA; Phoenix, AZ; St. Paul, MN; Tulsa OK; Oklahome City, OK
WWW.NIGC.Gov


Letter to Bill Kekahbah, Kaw Gaming, Inc.

RE: Review of Development Agreement between Kaw Gaming, Inc. and Cherokee
Nation Hospitality Consulting, LLC

August 10, 2018

Page 2 of 6

Authority:
I. Management Contracts

IGRA provides the NIGC with authority to review and approve gaming-related
contracts and collateral agreements to management contracts to the extent they implicate
management.’ The NIGC has defined the term management contract to mean “any
contract, subcontract, or collateral agreement between an Indian tribe and a contractor or
between a contractor and a subcontractor if such contract or agreement provides for the
management of all or part of a gaming operation.”” Though NIGC regulations do not
define management, the NIGC has explained that the term encompasses activities such as
planning, organizing, directing, coordinating, and controlling. A primary management
Official is “ ‘any person who has the authority to set up working policy for the gaming
operation.”* Further, management employees are “those who formulate and effectuate
management policies by expressing and making operative the decision of their
employer.”®

If a contract requires the performance of any management activity with respect to
all or part of the gaming operation, the contract is a management contract within the
meaning of 25 U.S.C. § 2711 and requires the NIGC Chairman’s approval.° Management
contracts not approved by the Chairman are void.’

The NIGC has issued guidance to determine the difference between a consulting
agreement and a management contract. ® An agreement that identifies finite tasks or
assignments to be performed, specifies the dates by which such tasks are to be completed,
and provides for compensation based on an hourly rate, a daily rate, or a fixed fee is more
likely to be a consulting agreement. By contrast, a contract that does not provide for finite
tasks or assignments to be performed, is open-ended as to the dates by which the work is
to be completed, and provides for compensation that is not tied to specific work
performed is more likely to be a management contract.

' Catskill Development LLC v. Park Place Entertainment Corp., Catskill Development LLC y. Park Place
Entertainment Corp, 547 F.3d 115, 131 (2nd Cir. 2008); Machal Inc. v. Jena Band of Choctaw Indians, 387
F. Supp. 2d 659, 666 (W.D. La. 2005) (“collateral agreements are subject to approval by the NIGC, but
only if that agreement ‘relate[s] to the gaming activity.””); Jena Band of Choctaw Indians v. Tri-
Millennium Corp., 387 F. Supp. 2d 671, 677-78 (W.D. La. 2005).

225 CFR. § 502.15.

3 NIGC Bulletin No. 94-5 (“Approved Management Contracts v. Consulting Agreements (Unapproved
Management Contracts are Void)”).

425 CFR. § 502.19(b)(2).

5 N.L.R.B. v. Bell Aerospace Co., 416 U.S. 267, 288 (1974).

° NIGC Bulletin No. 94-5.

725 C.F.R. § 533.7; see also Wells Fargo Bank v. Lake of the Torches Econ. Dev. Corp., 658 F.3d 684, 686
(7th Cir, 2011).

* NIGC Bulletin No. 94-5.


Letter to Bill Kekahbah, Kaw Gaming, Inc.

RE: Review of Development Agreement between Kaw Gaming, Inc. and Cherokee
Nation Hospitality Consulting, LLC

August 10, 2018

Page 3 of 6

Il. Sole Proprietary Interest.

IGRA requires that “the Indian tribe will have the sole proprietary interest and
responsibility for the conduct of any gaming activity.” ° Proprietary interest is not defined
in the IGRA or the NIGC’s regulations. As discussed in NIGC Notice of Violation No.
11-02, OGC legal opinions concerning the sole proprietary interest requirement have
focused primarily on three criteria: 1) the term of the relationship; 2) the amount of
revenue paid to the third party; and 3) a third party’s right to exercise control over all or
any part of the gaming activity." ° Accordingly, final agency actions by NIGC and OGC
legal opinions have typically found an improper proprietary interest in agreements under
which a party, other than a tribe, receives a high level of compensation, for a long period
of time, and possesses some aspect of control."!

Analysis:

KGI is a corporation wholly owned by the Tribe and operates the Tribe’s gaming
ventures. KGI wants to hire the Developer, a corporation wholly owned by the Cherokee
Nation Businesses, LLC, which in turn is wholly owned by the Cherokee Nation of
Oklahoma. Developer will assist in the development and construction of a new gaming
facility in Braman, Oklahoma (the “Project”).

I. The Development Agreement is not a management contract that requires the
Chair’s review and approval.

a. Scope of Work and Time of Performance:

The Development Agreement addresses how KGI and the Developer will interact
during the design and construction of the Project. The Developer has specific and finite
responsibilities to perform during the term of the agreement. Most importantly, a vast
majority of the Developer’s tasks will be performed before the Project opens as a gaming
operation. The Developer’s tasks include providing advice and recommendations to KGI
regarding design and construction, including, but not limited to, budgets, site surveys,
hiring construction and other development professionals, change orders, and inspecting
the construction work. '? Once construction is completed for the Project, the Developer

° 25 U.S.C. § 2710(b)(2)(A); see also 25 C.F.R. §§ 522.4(b)(I) and 522.6(c).

' NIGC Notice of Violation No. 11-02 is available at https://www.nige.gov/images/uploads/enforcement-
actions/NOV 1 102redacted.pdf; see also City of Duluth v. Fond du Lac Band of Lake Superior Chippewa,
830 F. Supp. 2d 712, 723 (D. Minn. 2011), aff'd in pertinent part, 702 F.3d 1147 (8th Cir. 2013)
(discussing NIGC adjudication of proprietary interest provision); see also Bettor Racing, Inc. v. Nat'l
Indian Gaming Com’n, 812 F.3d 648, 652 (8th Cir. 2016).

" City of Duluth, 830 F. Supp. at 723-24.

” DA, Exhibit A.