NATIOZiAL INDIAN GAMING COMMISSION 

NOTICE OF VIOLATION 

NOV- E 1 -02 

TO: Karen Diver, Chaimroman (Via Certified U.S. Mail) 

Fond du Lac Reservation Business Committee 

Fond du LTC Band of Lake Superior Chippewa 

1720 Big Lake Road 

Cloquet. MN 55720 

A. Notification of Violation 

The National Indian Gaming Commission (the "NTGC") Oainvornan givcs noticc that 

the Fond du Lac Bznd of Lake Superior Chippewa (the "Band") cnteted into and operated 

under a series of agements that _grant the Ciry of Duluth. Minnesota (the "City") an 

unl~i~vfbll pmprictary interest in the Band's gaming acti~jty and prevent the Band from 

possessing the sole responsibility for tlze gaming activity. 

The agreements as written, and as the parties operated under thm, violate the Indian 

Gaming Regulatory Act ("IGRA"). 35 U.S.C. $ 271 0@)(2)[A); NIGC regulations, 25 

C.F.R. $# 522.4@)(1) and 522.6(s$; and the Band*s gaming ordinance, Fond IATC 

Gaming Orcli~~nnce 6 40 1. Specifically, the reIevant a_pements, all dated June 20, 1994. 

include: Sublease and Assignment of Gaming Rights Agreement; Tribal-City Accord: 

and Amendments to the Commission Agreement (the "1 994 A,mcements"). 

This noticc of violation @Ow is not issued lightly.qn 1994, NTGC"s first Chairman, 

Anthony Hope, tvrotc a letter to the parties stating that NIGC reviewed the agreements at 

issue here and found they were consistent rvith IGRA. Chairman Hope's review of the 

agments, which appears to have been complctcd over the course of three days, was the 

KIGC's second involvement 14th IGRA's mandate that tribes retain the "sole proprietary 

interest" in their gaming activity.' Four days later, Chairman Hope sent a two page 

1 I m awrc that the Band has sought relief from the consent decree intvlring this matter. Ci& qfDttiutIr 1: 

Fond dl1 IAC Rnnd ollrrk~ Sirperfor Chir,prnvn. 705 F.Supp.2d 890 (D.MN 20 10). In that case, the Court 

concluded. "'[iln may bc thar the armngement befiveen the Band and the City violates the IGRA in the eyes 

of the NIGC. But until the NIGC initiates an enforcement action regarding the Fond du Luth Casino and 

proceeds with that action to a final decision on the substantive issue ofproprietary interest. this Cow's 

view would constitute an advisory opinion." Id. at 907-903. 

The first involvement appears to have occurred less than a year earlier and in\vlved apmcntq between 

the Band and the City mtmd into in t 956. Chairman Iiope found that under the 1986 Agreernsntc "he 
"Report and Recommendation" to the District Court, stating that the agreements were 

consistent with IGRA. Unfortunately3 Chairman Hope's letter to the parties and his 

"Report and Recommendation" to the District Court do not contain any substantive 

analysis of the issues to support his statement that the agreements were consistent with 

IGRA. 

Based on NIGC's application of the sole proprietary interest requirement, I find that the 

1994 Ageernents violatc IGM. Tribes, not third parties, are to possess the sole 

proprietary interest in and responsibility for the gaming activity and to be the psimay 

beneficiaries of that activity. 25 U.S.C. $3 2710(b)(2)(A); 2702(2). As discussed in more 

dctail below. NEGC5s application of the sole proprietary interest requirement essentially 

examines three criteria: 1 ) the tm of the relationship; 2) the amount of revenue paid to 

the third party; and 53 the right of control provided to the third party over the gaming 

activity. Since the NIGC's inception, neither thc NIGC Chair nor the Commission has 

approved any agreement, management or othenvise, under tms similar to the 

agreements at issue hmc. 

In a 1993 letter to the Band and the City, Chairman Hope stated that agreements executd 

by the parties in I936 invoIving this gaming operation violated IGRA's sole proprietary 

interest requiscment. A close review of the I994 Agreements demonstrates that they 

incorporate many of the primary terms of the 1986 agreements that Chairman Hope 

stated violated IGM. The 1936 agreements providcd for a 25 year term with a 25 year 

renewal period. Tt7c 1994 Apments effectively pick up the remainder of the tern 

established in the 1956 a_erements. The 1994 Agreements have a 43 year term under 

which for the first 18 years the Band pays 19% of gross revenues fium video games of 

chance to the City. with an undetermined percentage of gross revenues to he paid to the 

City over the twenty five year term from 201 2 to 2036. The 1 936 Agreements provided 

for the City to reccivc 24.4% of the net revenues from all gaming activities. Payments 

made by the Tribe to thc City pursuant to the 1994 Agreements to rent the Tribe's own 

trust land appears to ha1.c actually exceeded the amounts the City would have reccivcd 

undm the 1996 Apeements. From approximately June 1994 to August 2009, the Band 

paid the City approximately S75,000,000 to rent the Band's own trust Imd. In return, the 

City aged not to enter into any other gaming ventures within 250 miIes of Duluth. 

Under the 1994 Ageements, the City maintains the authority to veto my amendments to 

the Band's gaming ordinance applicable to the Fond du Luth casino and has the right to 

review and object to the Band's licensing decisions. As discussed in more detail helow, 

the I 994 A,mcments carry forward the substantive provisions of the 1986 Ageemcnts 

Chairman Hope found to violate IGRA. 

Rand does not have the sole ownership or control of the Fond Du LuZh Caqino. . . . [Tlhe cmino is 

opented as a joint venture in which the City has a si_enificttnt o~nmhip interest in the gaming operation 

and has substantial control over oprations." SPC September 24, 1993 Letter from Chairman Anthony J. 

Hope to Chairman Roben Peacock and Xlayor Garv Uoty. 
Undcr IGRA and NIGC regulations, the Chairwoman may issue a NOV to any pmon for 

violation of any provision of the IGRA, NIGC regulations, or an approved tribal gaming 

orclinance or resolution. 25 U.S.C. 8 271 3(a5; 25 C.F.R. $573.3(a). 

C. Applicable Federal and Tribal Laws 

1. IGRA requires that to lawfully operate Indian gaming. a tribe must have n 

tribal _earning ordinance approved by thc Chainvomm. 25 U.S.C. 68 

37 1 0ro)I. 1 1 )(A). 

2. IGU quires that the tribal gaming ordinance provide that the tribe 

"have the sole proprietary interest in and respocsibility for the conduct of 

any gaming activity." 25 W.S.C. @ $37 1 O(b)(Z)(A), (d)( 1 )(A)(ii). 

3. h' IGC repta?ions require that a tribe's saming ordinance provide that "he 

tribe shall have thc sole proprietary interest in and responsibility for the 

conduct of any gaming operation.'' 25 C.F.R. 6 8 522..?.@)(1), 522.4(c). 

4. The Band's ordinmcc approved by NIGC Chairman Anthony Hope on 

September 23, 1992, provides that the Band will have the "sole proprietary 

intcrest in and responsibility for the conduct of any gaming operation 

authorized by this Ordinance." Fond drr Lnc Ordinnncc 5 40 1. 

5. IGRA provides that class TIE gaming operations are only lawful if 

conducted pursuant to an ordinance that mcets the sequitemmts of 25 

U.5.C. 5 2710@). 25 U.S.C. 9 2710(d)(l){A)(ii). 

6. Failure to comply with any provision of IGRA, NIGC regulations, or an 

approved tribal gaming ordinance is grounds fu~ issuance of an NOV. 25 

C.S.C. 6 2713: 25 C.F.R. 6 573.3(5i), 

D. Circumstances of the Violation 

Backmound 

In 1 986, the Rand and the City entered into agreements whereby thc partics would bc coownas of a gaming operation on a parcel of trust land held by the Band in the city.? 

However, just nxro years latm IGRA was enacted, calling into question the legality of the 

awmments due to the fact that IGRA mandates that tribes have the sole proprietary 

interest in and responsibility for their gaming activity. 

The 1986 agreements that contain provisions camed fomrd in the 1994 Agreements are a Commission 

A-pement and a Business Lease both dated April 1. 1986 ('the 1986 Agreements''). 
In 1959, the Band filed suit in the United States District Coufl for the District of 

Minnesota allesng the agreements violated IGRA. On Novmbm 2, 1990, William 

LnvelI, Department of the Interior Associate Solicitor for Indizn Affairs, issued a letter 

opinins that the 1 986 Agccments violated IGRA's rcquircment that the Band have tlre 

soIc proprietary interest in the ~aming activity. This opinion relied on a number of 

factors, including thc substantial amount of net profits, the City's access to records and 

that the casino lvas opaated by the Fond Dufuth Economic Development Commission 

(the "Devdoprnent Commissian") cornprisd of rqresentatives of both the City and tl~c 

Band. The DcvcIoprnmt Commission had the power to '?icensc, regulate, and operate 

bingo and other ~arnjng.'' Solicitor Latrell's opinion noted that the Development 

Commission hcld "substantial control over the gaming facility*' and fudher explained 

that: 

Both the Band and the City have access to the books and 

records of the Commission, and tllc Commission is 

obligated to providc both parties financial records, profit 

and loss statcrnents, and other requested financial 

statements. Sections 1 3(b) and (c). Mom importantly, the 

City received 24.5% of the net profits from the gaming 

ivhit e the Band receives 25.5%. Section 14(c). The City's 

sllarc of the net revenues does not constitute compensation 

for services rcndered as the rnanagemcnt contractor for the 

Bmd"s casino but rather constitutes the City's share of the 

profits as a co-orvner of the gaming facility. 

The City asscsted "that only the chairman nf the newly created National Indian Gaming 

Commission may review thc a_prcernents." The District Court dismissed the suit without 

prejudice on December 26, 1990 to allow the Chairman of the newly formed NlGC to 

review the a-ments. 

On Scptemhcs 24,1993, KlGC Chairman Hope sent a letter to the Band and the City 

stating that the P9SG Agccmcnts vioIated IGRA's mandate that the Band maintain the 

sole proprietary interest in the gaming operation. Chairman Hope's analysis in this letter 

was consistent witl~ Solicitor Lavell's opinion. Specifically, Chairman Hope summarized: 

[F]t is apparent that under the Commission Agrccrncnt 

creating thc Fond Duluth Economic Developmcnt 

Commission (Commission), the Band does not have the 

solc otvnership or control of the Fond Du Luth Casino. In 

fact, under this Agreement the casino is operated as n joint 

venture in which the City has a significant ownership 

intlrrmt in the gaming operation and has substantid control 

over operations. . . . The City's assertion that, because the 

Commission is designated as a political subdivision of thc 

Band. the tribe has the solc control of the Fond du Luth 
operation. is plainly contradicted by the fact that the Band 

is unable to unilaterally abolish, regulate or conttol the 

Commission. To the contrary, the tcrms of the 

Commission Agcemcnt rcquire joint decision making as 

well as shared profits and access to books and records. 

Chairman Hope deferred enforcement action for 30 days to allow the parties to negotiate 

a resolution. NIGC convened discussions bchveen the parties. and the Band and the City 

negotiated thc 1 994 Agrcmnents. 

By letter dated June 13, 1 994, thc parties submitted to NIGC the settIement agreement 

resulting from their negotiations. ?Tree days later, on June 1 6, 1 994. Chaimm Hope 

w~ote a letter to the parties stating: "UJe have reviewed the proposed settIement and have 

concluded that this agreement returns fill ownership and control of the Fond du Luth 

Casino to the Band and is consistent with the requirements of IGW." The letter 

contained only this conclusive statement with no supporting analysis." Basically, the 

letter articulated Chairman Hope's conclusion to not initiate an enforcement action. 

The parties then reached a settlement of the lawsuit. On dune 20, 1494. Chairman Hopc 

wrote a letter, entitled "Report and Recommendation of the Sational Indian Gaming 

Commission," to the HonorabIe Judge Mapuson even thou& KIGC was not a party to 

the litigation. Chairman Hope wrote 'Yo report that the settlement ageanent recently 

concluded between d~e Fond du Lac Band and the City of DuIuth returns ownership and 

control of the Fond du tuth Casino to the Band and is fdIy consistent with ERA. 

Accordingly, I recommend that this settlement agreement be approved." Chairman 

Hope's letter contained only this conclusive statement with no analysis to support it. The 

Court subsequently issued a Stipulation and Consent Order. 

As discusscd in more detail helow, Chaiman Hope's decision not to initiate an 

enforcement action is inconsistent with his 1993 letter given that the E 994 Ageements 

contain many "carried fonvard" provisions that are substantively identical to the 1986 

Agreements. The focus of my concem is on these same provisions which provide an 

cxtnordinarily long tm, an unjustified high level of compensation. and third party 

control over aspcers of the gaming activity. 

On May 17,201 0, as the first tmm of the 1994 Agreements was cornins to condusion, 

the Fond du Lac Band of Superior Chippewa Indians wrote to NIGC requesting that the 

NIGC Chair mediate a dispute involving the SubIcasc and Assipcnt of Gaming Rights 

Agrmnt betwcen the Bmd and the City of Duluth, Minnesota. The mediation request 

was made pursuant to the Sublease, which provides that if the parties do not reach 

4 As part of our setiew of this matter, NIGC staff members perfotmed a search of Commission records and 

were unable to locate any analysis associated with this letter. 

5 
agreement concmning thc renegotiation of the percentage of &TOSS revcnue to be paid for 

the period commencing April 1.201 1, the parties may rcquess the NIGC Chairman 

mediate for purposes of attempting to bring the parties to agcement. Scc Sublease and 

Assignrent of Gaming Ri~hts Agreement, Scc. 4.2.2.5. The SubIease further provides 

that if the Chairman "'refuses to mediate . . . the Band and the City shall submit the 

dispute to binding ahitration . . . ."Id. On August 13,2010, I wrote to the Bmd and the 

City informing them that I declined to mediate this issue. because it wouId most likely be 

unproductive. 

By letter dated August 16,201 0, the Band requested that the NIGC reexamine the 1994 

Acments to determine whether or not the changes to the I986 agcmnents. as 

memorialized in the I994 Agreements, conform to TGRA. Thus, the near conclusion of 

the first term under thc 1993 Agrments and the Band's request for review triggered 

KIGC's present rerietv. By letter datd Octobm 20.201 0, the City and the Band were 

advised that the 1994 Agreements would be examined by NIGC. For thzt purpose, the 

letter requested the parties provide their t.ie~vs of thc 1 994 ALmernents by Nclvcmbm I 9, 

30 1 0. Both parties timely submitted their views. 

In its submission, the Band arpes that the I994 Ageements ~iolate lGM% mandatc 

that the Band retain the sole proprietq interest in and responsibility for the gamin 

activity. Additionally. the Band vicws payments to the City as an impropcr tax on 

- gaming. Tl~c Band kses this conclusion on its view that the rental payment is n sham 

desiged to hide the true relationship bchx~~~ the parties. As support for this view, the 

Rand states that not only is it paying rent on a parccl it ox\ms but that the rental payment 

far exceeds rental rates in DulutSl and the casino does nos receive scniccs from the City 

above the scnrices receiucd by any other commercial businesses. Additionally. the Band 

highlights the Ions tcm of the ageement, the fact that rcnt is paid beforc expenses arc 

paid, and that the City offered no meaningful services in exchange for the rent. Finally, 

the Band points out that the City holds veto authority over any amendments to the 

gaming ordinance that appIy to the casino. &+ 

The City's view is that thc 1994 Agreements are analogous to a tribal-state compact. 

Tribal-state compacts ate approved by the Department of the Interior pursuant to 25 

U.S.C. 5 27 I O(d1(8$. The City retained Dr. Alan P. Meister to conduct a study of compact 

terms found in tribal-state compacts. Dr. Meister concluded that the 1 994 A~eeemcnts' 

tms werc consistent with tribal-state compacts in scgard to compensation. term. access 

to financial records. and controls on gaming regulation. According to the City, the 

papcnt to the City was designed to reff ect approximately onc-third of the casino's net 

revenue. Tne City notes that the I994 A-merncnts were entered into before the Band 

mterod a compact with thc State of Minnesota and therefore the exclusivity granted to the: 

Band wa-5 valuable consideration for thc ~cntd payments. Additionally. the City points to 

the fact that it supported the Band's trust acquisition of tlre casino propcrty in 1986, 

condemned pmpeftv to build a parking ramp for the casino, paid the Band to manage a 

parking ramp undcr an apemcnt that expired an Decrmbw 3 I, 20 10, and agd not ta 

entm into any similar agreements with another Indian tribc. Finally, the City argues that 
the revenue paid to it hy the Band is not a tax because it was nqotinted by the partics, 

rathcr than being imposed upon the Band by the City. 

Based on a thorough review of thc parties' submissions and the 1994 Agreements, I 

conclude that thr 1994 Agreements, as written and as impIemcnted, violate IGRA's 

mandate that the Band retain the sale proprietary interest in and responsibiIity for its 

gaming activity. 

Sllnrc qf tlre I)rqfirs nnd Tcsm 

As discussed, the I956 Agemats created an economic darcioprncnt commission to 

manage the gaming operation. The commission was comprised of four members fmrn the 

Band and three members appointed by the City. The Band received 25.5% of the nct 

revenues md the City recei\wl24.5%. ?Idle remaining 50% of thc net revenues went to 

thc Development Commission to be used for development on thc Band's reservation and 

within downtown Duluth. 

The E 994 A~mmcnts changed the percenta_ges of revenue distribution, with the City 

retaining 19% of gross rcllc.nrres and the Tribe receiving the remainder. Bas4 on this 

change, the City appears to have actual1 y rcceivcd more money than it \vould have under 

the 1086 Agreements. This apparent increase in revenue was most likely a result of the 

City's sharc being based on the gross rcvcnucs rather than net revenues. 

'IV~ilc the stnrcture of tlzc cconornic development commission was chansed in the I994 

Agreecments by limiting its membership to the Mayor of the City and the Band's Chair. 

thc I994 Agreements requirc thc Band to lease its trust land on which the cwino is 

situated tkom the commission in exchange for a rent of 19% of the _mss rcvmuc from 

video games of chance. AIE of the rmt payments are permanently assigned from the 

commission to the City. This structure appears deliberately designed to disguise 

payments of revenue of the casino to the City as rmt payments. The Band is paying rcnt 

cm a property it already owns and, according to the Summary Appraisal Rcpott supplifd 

by the Band, for a far highw rental rate than market rentaI mtes. 

Tl~e 1986 Agreements were for a term of 25 years with an automatic 25 ycar renewal 

unless the commission was dissolved. The inl tial term of the 1994 A_gmrnents was for 

13 years, which has expired. Nonetheless. under thc 1994 A-wments, thc City is 

entitled to an extension for an additional 25 years. The result is that the City will have a 

role in the Rand's sarning. and certain controI over it, for an extremely long period of 

time. In fact. exactly the same end date as envisioned in the 1986 Agreements. 

In sum. while some of the financial tms and the business structure changed between the 

1956 and 1994 Apcments, it is apparent that the Ions term of the agreements stayed the 

same while the City's sharc of the casino revenue appears to have increased. I am aware 

that the Band and the City arc currently involved in arbitration to determine the rental 
rate for the second tm. Regardless of the outcomr of this arbitration, it is my vier17 that 

performance under the 1994 Agmcnts will prevent the Band from maintaining the solc 

proprietary intcrest in and responsibility for the gaming activity. While the percentage of 

income paid to the City is an important factor in my decision, as detailed below, it is not 

tile only factor. A reduction in the fee will not remcdy fees paid aver thc last 17 years, the 

additional hvcnty-five year term and the regulatory responsibi I ity and control issues. 

Recqiilnro~ Respomibilih. and Control owr tlrc Grmling Fnciliv 

Thc 1994 Agreements also grant the City the power to review and consent to any changes 

to thc Band's gaming ordinance and regulations. See 1994 Tribal - City Accord 

C"Accord*'), The Accord "governs the Band's conduct of gaming activities" at the Fond 

Du Luth casino. Specifically, the Accord pmvides that the Band may not modify its 

gaming orclinance or regulations, as they apply to the Fond Du Luth casino, unless the 

City of Duluth consents to the modification or thc modification is required by Fedcral Iaiv 

or a tribal-state compact. See Accord $ 6(c). Furthcr, the Accord provides the City with 

the right to revictr and object to thc Band's licensing decisions. See Accord S26Cj). One 

of the primary PU~OSCS of IGRA is to provide a statutory basis for tribcs to regulate their 

own gaming activity. Spe 25 U.S.C. $2702(2). The licensing of kcy mplayccs and 

primary rnana~ernent officials is a core component of that re~latory responsibility. Thus. 

the City's polver to directly control the reslation of thc Band's gaming activity infrin_rcs 

on the R,md*s authority as confirmed by Congress. Accordin_rly, the Band does not retain 

the sole proprietary inzcrcst in. and responsibility for, the gamins activity, 

Section 16 of the Tribal-City Accord requires the Band to provide the City's 

representative acccss to review and copy any and all records of the gaming opention. 

This levcl of access is unusual considering that lGRA does not grant the City alyv role in 

thc rcmlation of Indian gaming.5 This level of access is the type usually afforded to a 

business partner. Indeed, Chaiman Hope found that this IcveI of acccss provided for in 

t11c 1986 A~cmcnts violated IGRA. Spe September 24, 1993, Letter from Chaiman 

Anthony Hope to Chaiman Robert Peacock and Mayor Gary Duty. 

It is also broader access than nded for the City to ~~rify that it is receiving the correct percentage of 

revenue. 
As summarized in the chad below, the substantive terms of thc 1986 and 1994 

Agreements are almost identical. 

The City has conccded as much. highlighting the fact that many provisions from the 1986 

Ageanents were "'carried fonvard in the 1994 Agements." SPP City Brief at Z 1. 

Specifically, thc City points to the exclusivity provision undcr which it is prcvcntcd from 

entering a simiIar agcment with another Indian tribe. 

Term 

It is my conclusion that the 1994 Agrements carq fonvard more than just discrete 

provisions of the f 956 Agreements but rather carry forward thc joint venture intent 

embodied in the 1936 Apcments. The parties share in the profits, with the City 

assuming no risk, providing no serviccs commensurate with the payments received and 

the City retains contrnl oxFm the gaming operation. 

First, the I993 Agreements continue the profit sharing mechanism of the 1986 

Agccments. Thc City's condemnation of the land, construction of a parking garage, and 

support of the trust acquisition all occurred well before the 1994 Agreements. Such 

actions by the City are not continuing and do not amount to quantifiable "scrviccs" 

bearing a rationat relationship to the $75 million dollars providd by the Trihe over the 

past 13 years. 

1986.&reernents -- 1 1994 Aoreements F-- 

25 years wit11 automatic 25 i 1 3 years with an automatic 

b See 1986 Busincss Lcase Agreement 4. 7 Scc 199-1 Suhlcme and .k.si~nment of Gaming Rights 5 3.1. s TIlis apemcnz is rctmactivc to September 30, 1993. Id. 

See 1 9x6 Commisinn rZZmment 2 14(c). 

10 See I994 Sublease and i2ssignmcnt of Gaming Rights 4 4.2.2.2. 

l1 See 1986 Commission :.~ment 8 11. 

See 1991 Tribal-City Accord $8 6,26. 

" See 1994 Tribal-City Accord 9 2ti(j). 

l4 See 19R6 Commission Agreement 13. '' See 1994 Tribal-City Accord $ 16. 

year extension 

(1 986 - 2036.50 years)' 

25 year extension' 1 

I (1994 - 2036,42 

1 9% of grossr" - 

(approximately 2696 to 3.3% 

of net) 

Ordinance and Rcplations 

may only be amended with 

approval of the city."The 

City has the right to review 

and object to licensing 

de~cmtinations.~~ 

City retains - right A to acccss" 

Compensation to CiQ 1 

24.5% of netg 

Regulation of Gaming 

I 

! 

I 

L Access to Rccords 

I 

Joint controI behvccn City 

and ~ribe' ' 

City retains ri&t to 
Even in 

support 

gaming 

. the context of a tribal-state compact, which is specifically provided for by IGM, 

of a trust acquisition is not of tangible economic benefit justifying a share of 

revenue. On March 7,2002, the Secretary of the Interior disapproved a compact 

between the Jena Band of Choctow Indians and the State of Louisiana under which the 

State was to receive 15.5% of the Jena Band's net revenues in exchange for the State's 

support for a trust acquisition. The Assistant Secretary of Indian Affairs noted that the 

location of the trust acquisition would "yieId a substantial economic benefit to the Band'" 

but disapproved the compact because: 

In our view, the intangible value of the State's support far 

the Band's application to take land in trust in Vinton, 

Louisiana, and have the parcel declared part of the Band's 

initial reservation for purposes of Section 20 of IGRA, is 

not the type of quantifiable economic benefit that would 

justify our approval of the revenue-sharing payments 

proposed under this Compact. 

See March 7, 2002, Letter from Assistant Secretary - Indian Affairs Neal McCaleb to 

Tribal Chief B. Cheryl Smith. 

Second, the City's comparison of the 1994 Agreements with tribal-state compacts is 

misplaced and unpersuasive. Under IGRA, tribal-state compacts are fundamentaIly 

different than the agreements at issue here. Cities are not parties to such compacts. By 

law, compacts between an Indian tribe and a state provide for regulation of class 111 

gaming. Interior has approved some compacts that provide for a share of the net revenue 

if the State provides an on-going tangible benefit such as exclusivity from non-Indian 

gaming. Here, the City's reliance an the exclusivity granted under the 1994 Agreements 

is particularly dubious. The 250 mile area of excIusivity could not prevent another Indian 

tribe or a non-Indian entity from operating gaming because the City's jurisdiction does 

not extend beyond the City's limits. A city cannot step into a state's shoes for purposes of 

a compact, as it simply lacks the authority to do so. The City admitted as much, stating 

that "municipalities ate, under IGRA, statutoriIy different than states." Thus, any similarity 

between the terms of the 1994 Agreements and any compact is irrelevant to the analysis 

here. IGRA's requirements relating to the terms of a compact are controlled by 25 

U.S.C. 5 271 0(d)(3), whereas the 1 994 Agreements are fmd to violate a wholly separate 

requirement of IGRA, 25 U.S.C. 3 2710(b)(2)(A). 

Despite the City" recognition that municipalities are different than states, it argues that 

payments made by the Band to the City are allowable under IGRA because 

8 27 10 permits tribes to find local government operations out of net gaming revenues. 

While funding local government operations is an allowable use of net gaming revenue, in 

this instance the payments to the City are from gross gaming revenue. More importantly, 

just because it may be a proper use does not mean that the 1994 Agreements conform to 

IGRA's mandate that the Band have the sole proprietary interest in its gaming activity. 

IGRA's sole proprietary interest mandate is violated by the high amount of revenue being 
conveyed to the City, the length of the term of the 1994 Agments, and the City's right 

of control 01-cr the regulation of the gaming under the 1994 A-memcnts. 

As noted above. with the exception of this matter, sincc the YIGC's inception, neithcr the 

NlGC Chair nor the Commission has approved any ayeement, managanent or 

othenvise, under terns similar to the I994 Ageemcnts. When Chairman Hope stated 

that the 1994 ayccments were consistent with IGRA and did not initiate an cnforcment 

action, it appcats that the NIGC had only reviewed the 1956 agreements under the soIe 

proprietary interest mandate. Indeed, Chairman Hope's brief letters do not provide any 

analysis supporting his statement. Further, Chaimzn Hope's recommendation to the 

U.S. District Court could not constitute a formal azency approval of the 1994 

Agreements because IGRA limits the Chair authority to approval of tribal gaming 

ordinances and ma~agement contracts. See 25 U.S.C. 95 37 1 OCe) and 27 P 1 (b). Thus. the 

1994 Agments fall outside of any review under IGRA because they are not an 

ordinance or manasement contract. 

Finally, 1 disagree with the City's position that mforcment at this time would ignore the 

policics underlying IGU and create a new remedy. The NIGC is the agency Congas 

charged with enforcing the proxisions of IGRh and approved tribal ordinanccs. 25 U.S.C. 

$271 3. Therefore, 1 may appropriately exercise my cnforcment discretion regarding 

these violations. 

i\*IGC ngcnq. octio~r & MGC OGC legal opinions - sole proprictnrq: inters? 

"Proprietary interest" is not defincd in the IGM or NIGC regulations. However, 

"proprietary interest" must be construed in favor of protecting tribal interests and 

consistent with IGRA's purpose that tribes are to be the primary beneficiades of thc 

L. miming activity. See Rincon Rnnd ofltiise~to Indictns rt. Sclr~t-~rencg~~cl; 602 F.3d 1 0 1 9, 

1029 n. 9 [gth Cir. 201 0). IGRA's legislative histov supports the Agency's application of 

"proprietary intcrcst." stating that "the tribe must bc thc sole owner of the gaming 

enterprise." S. Rep. 100-446. 1988 U.S.C.C.A.N. 307 1-3 106,3078. "Enterprise" is 

dcfined as "a business venture or undertaking". Black's Lnw Dictionary, 7" Edition 

(1999). Despite the brevity of this Ie$sIative history, Congress' intent of "'proprietary 

interest" appears to be consistent with the common! y understood meaning of proprietary 

interest, n-hile emphasizing the notion that mtities other than tribes are not to share in the 

otvnmhip of gaming wrte~rises. 

Black's Law Dictionary defines "prnpridary interest" as "the interest held by a property 

owner togctlln with all appurtenant rights . . ." Rlack's Law Dictionary, 71h Edition 

(1 999). ''O~t~ncr." is defined as "one \vho has the right to possess, use and convey .. something." Id. Apprlrtcnant is defined as ls'be1on_ring to; accessory or incident to . . . . Id. 

Case law defines "proprietary interest" as "'one who has an interest in, control of, or 

present use of certain property." Evnns r: United Stores, 349 F.?d 653 (51h Cir. 1965). As 

one court explained: 

Rle 1994 Agreements are contrary to the Agency's articulation of the sole proprietary 

intcrest requirement. In 2007, thc NIGC Chairman took enforcement action asainst an 

illegal manager of an Indian gaming facility for violating the sole proprietary interest 

mandate. Scc Notice of Violation 207-02 (May 16,2007). The 2007 notice of violation 

was based on an outside entity's control over many aspects of the daily opcration of a 

tribal gaming facility and the high level of compensation. In that action, the individual 

was found to be managins the blackjack operation without an approved management 

cuntract. The individual received 40% of the blackjack revenues and 20°/n of the net win 

from gaming rnacllinc revenue, 

Additionally, earlier this year I took action against a Tribe and a manager of an Indian 

earning facility for violating IGRA's requirement that a tn%e "have the sole proprietary C 

interest in and rmponsibiIity for the conduct of any gaming activity.'' See Notice of 

Violation = NOV- 1 2-01. In that matter, a non-tribal entity was operating an off-track 

bctting operation for a fiveyear tm and receiving more than 70% of the net rcvenue. 

Furtha? since 2003 the OGC issued over 50 legal opinions analyzing the mandate. AItm 

receiving such legal opinions, thc parties, when nccessarv, often amend such ageements 

to avoid an enforcement action. OGC legal opinions concerning the sole proprietary 

intercst mandate have focused primarily on three critaia in its analysis of the 

rcquircment. The opinions examine: I) the term of the relationship; 2) the amount. of 

revcnuc paid to the third part5 and 3) right of controI over the gaming activity provided 

to the third party, These critefia are consistent with the commonly understood definition 

of "proprietary interest." 

Accordindy. final agency actions by NIGC and OGC legaI opinions have found an 

improper proprietary interst in apemerits under which a party, other than a tribe, 

receives a high level of compensation, for a long period of time. and possesses somc 

aspect of control. The cornpmsation in these instances was typically based on a 

significant pcrcentagc of net gaming revenuel%nd ofiften had tnms beyond 5 ynrs. Scr 

April 22,2004 Letter from OGC to Eric Mason. 

Similar to this matter, OGC has analyzed other agreements that provide for rental 

payments based on a percentage of gamins revenue. Id. In 30057 the OGC issued an 

opinion finding that a co;tmctor had obtained a proprietary intercst in n hibe's gamins 

activity. SCC~ JOGC Letter to 7 2 !1n that situation, the tfibe lvas 

rquircd to p4 350% of its net gaming re\=ue as rent for a period of tcn yem. The OGC 

opined: 

Although the 35% payment is called a "rent incmtivc" 

payncnt, this Iabel rnischamcterizes what is reaIIv a profitsharing oiranpment. 11e moncy is going tor -"for 

'kcnting" a building and equipment to the Tfie =both of 

which the Tribe had aIrczrdy paid for by September of 2000. 

- - 

I b The IGR4 dcfines net revenues as "gross revenues of an Indian gaming activity Iess amounts paid out as, 

or paid for, prizes and totaI operating expenses, excluding mnnagment fms." See 25 U.S.C. 2703/9). 
six months after the Casino opcned - cm land thafis trust 

land. In other ~vords. the documents enable 

-. - 

to collect 

a large amount of money, over n lengtlty penod of time, for 

doing nothing - performing no ongoing services, for the 

Tribc, and, once the original costs of building, equipping 

and financing were paid, giving the Tribe nothing in return. 

Id at 5. This casc was highlighted by former Chair Hogen to the Senate Committee on 

Indian Affairs as an cxample of a violation of IGRA's sole proprietary interest rnandatc. 

2005 SCM Letter at 5. Chair Hogen further cited '"an even more egcgious example" 

under which a tribe made substantial payments far a five year term followed by "a 10- 

year obligation to pay 16% of gross revenue[.]" Id. 

However, in some instances the OGC opined that the high level of compensation and the: 

Tong term were warranted because of the risk assumed by the third party or because of the 

naturc of the sewiccs. Set October 18,2005 OGC Letter to Arnold Samuel. Specifically, 

in one instance. the OGC statd: 

Ibllen we arc presented with contracts, such as this one, 

where the developer is receiving a high level of 

compensation for a long period of time, we are compelled 

to examine wl~ethcr or not the agreement givcs the 

DcvcIopct a proprietary intcrest in the gaming operation. 

In our analysis wre look to factors such as thc risk to the 

developer, the ability of the Tribe to acquire otha 

financing. ad what smices, if any, the Tribe is receiving 

in rcturn for agreeing to the terms of the contract. 

In its sole proprietary interest analysis, OGC also examines control over thc regulatory 

functions of thc tribe. such as Iicensing. Sec Mason Lettcs at 5. The: right of control over 

tribal regulatory decisions is an indicator that the tribe is not maintainins sole 

sesponsibi lity for the conduct of the gaming. 

The same indicia of a proprietary interest found in those instances - the long term, hish 

compensation with little or no risk, and contml - me embodied in the 1 994 Ageerncnts. 

Indeed, the 1994 Agments' terms in these key respects are more epc5ous than the 

examples former Chair Hogcn highlishted to the Senate Committee on Indian Affaiss and 

many of the ngrc~mentse.r-iavcd by OGC concluding that they violated 1GRA's 

requirement that a tribe have the sole proprietary interest in and responsibility for XRc 

conduct of any gaming activity. 

Based on the factors described herein. specifically, the hi& level of compsation 

coupled with a Ion3 term as well as control ever the gaming regulation, I conclude that 
the 1994 Agrements vioIatc IGRA" mandate that the Band retain .the sole proprietary 

intmcst in and responsibility for the gaming activity. 

In summarv, thc facts below demonstrate the Tribe's violation of IGRA's requirement 

that the Tribe retain the soIc proprietary intcrest in and responsibility for the gaming 

act it6iy. 

F. Facts of Violation 

1. Tkc Band is a federally recognized Indian tribe. 

2. The Band operates the Fond du Luth Casino ("the Casino") located in 

Duluth. Minnesota on land placed into trust prior to October 1 7, 1958, 

3. The Casino opmcd on April I, 1986 and has continued in opention since 

that. time. 

4. In 1 989. the Band and the State of Minnesota entered into a compact that 

nras qIpr0~ed by the Secretary of the Interior. 

5. On June 30.1994, as part of a settlement agreement, the Band and the City 

entered into the 1 994 A~eemcnts. 

6. The 1994 Agreements included. but were not Iimitcd to, the following: 

Suhlease and Assignment of Gaming Rights A-mement; Tribal-City 

Accord; and Arnndrnents to the Commission r2gemmt. 

7. The Band and the City filed with the United Statcs District Court for the 

District of Minnesota a Stipulation and Consent Order sceking the Court's 

approval of the 1994 Apcments and issuance of thc Consent Order. 

(9. On July 28, 1 994, the Court signed the Stipulation and Consent Order. 

9. From Junc 1994 through Aupst 2009, the Band and the City opcmted 

pursuant to the 7 994 A_pxrnents. 

10. Section I(i)(a) of the Commission Ammdmcnt created a Dc~elopmerit 

Commission comprised of the Mayor of the City and the Chairperson of 

the Band. 

1 1. Section 4 of the Suhleasc requires the Band to pay the Development 

Commission rent for a building that the Band owms located on a parcel 

that is held in trust by the United States for its benefit. 
12. Section 3.8 of the Sublease provides that rcntal payments undcr thc 

Sublease have bewt permanently assiged from the DcvcIopment 

Commission to the City and are paid directly to the City. 

1 3. The initial term of the Sublease is from September 30, t 993 until March 

31.201 1. 

14. Section 3.2 of the Sublease provides that it is to run for an additional 25 

year tenn after March 3 I, 201 1 and the Sublease will expire in 2036. 

15. Thc long tm of this agreement is a factor that demonstrates the City's 

proprieta~ interest in the 3and"s gaming activity and that the Band does 

not have thc sole proprietary intercst in and responsibility for the gaming 

activity. 

16. Section 4.2 of the Sublease requires the Band to pay rent in an amount 

equal to 19 percent of gross revenues from videa games of chance for the 

initial term of 17 years. 

17. T31c rental rate for the extended term of 25 years will be determined 

according to the tmms of section 4.2.2.5 of the Sublease. 

I 3. Rent payments made under the Sublease arc p!aced in an account that can 

be spent on the general operations for the City without regard to my 

prm-isfun of sen-ices from the City to thc Tribe. 

19. The following table shows the division nf gaming revenues for thc Casino 

from P 994 throug!! 2008. 

Year Gaming Net 

Tnwrne pmcertta_pc of 

Net Revenue 

Rcnt paid to City Rent as 
20. Benvecn June 1994 and August 6,2009, the Band paid the City 

approximately 375,874,407.66 to mt its own buildins on trust property 

I~eld for its benefit by the United States. 

21. Thc City assumed no financial or other risk in the der~elopmcnt of the 

casino and the 1993 Apements do not convey any substantial benefits to 

the Tribe. The high lcvd of compensation and lack of financial or other 

risk by the City is a factor that dmonstrates the Band does not have the 

sole proprietary interest in and responsibility for the gaming rrctivi ty. 

32. On August 6,2009, the Band ceased making payments to the City 

pursuant to Band Resolution #I3 1 6/09. 

23. The payments the City receives arc a factor that demonstrates it has a 

pr0prietm-y interest in the gaming activity and hat the Band does not havc 

thc solc proprietary interest in and responsibility for thc gaming activity. 

24. According to information received from the Band and thc City. the Casino 

rcueives the same level of municipal services that any other citiacn or 

bu~inoss within the City would receive. 

25. Under section 3 of the 1994 Commission Amcndrnmts, the City has 

agreed not to enter any agcemcnt with another tribal government within 

250 miles of the Duluth City Hall that is similar to the one entered into 

with thc Band without prior approval of the Band. 

26. Xo ~fhm federally recognized Tribe has lands cligiblc for gaming within 

250 miles of the Dulrith City Hall and no other gaming comparable to the 

Band's is permissible in Duluth. 

27. Section 6(c) ofthe Tribal-City Accord requires that any change in the 

Band's gaming ordinance or reyulations will only be eeectivc after the 

City has consented in writing unless the change is required by fcdcral law 

or hy Tribal-State compact. 

25. Section I6 of the Tribal-City Accord _grants the City the ri@t to revicw 

and voice objections to the Band's licensing of casino cmployecs. 

29. City control over the gaming activity is a factor that demonstrates that the 

Band does not have the sole proprietary interest in and responsibility for 

the ~arning activity. 
30. Section 16 of the Tribal-City Accord requires the Band to pmvide a 

representativc of the City access to review and copy any and all records of 

the gaming operations. 

3 1. Unfettered access to records of thc casino is a factor that demonstrates the 

Band docs not have the sole proprietary interest in and responsibility for 

the gaming activity. 

Based on thc totality of the above circumstances set forth above. the City possesses a 

proprietary interest in the gaming operation and responsibility for the operation in 

violation of EGRA, KIGC regulations, and the Fond du Lac Gaming Ordinance. See 25 

'U.S.C. 27EO@)(2)(h). (d)(l)(A)(ii): 25 C.F.R.3 522.61~): Fond d~r Lnc G~rning 

Ordinnnc~ 6 40 I. 

G. Measures Required to Corsect the Violation 

The Band must cease petfommce under the 1994 Agcments of those provisions 

identified in this XQV as violatin? TGRA. This applics to the entire 42 ?car term of the 

1994 Agreemmts. 

Witl~in 30 days after senrice of this NOV, the Band may appeal to the full Commission 

under 25 C.F.R. Part 577 by submitting a notice of appeal, and, if desired. request for 

hearing to thc National Indian Gaming Commission, I44 1 L Street NW7, Ninth Floor, 

lt'ashington, DC 20005. The Band has a right to assistance of counsel in such an appcal. 

rZ notice of appcal must reference this Notice of Violation. 

Within ten days after filin~ a notice of appeal, thc Band must file with the Commission a 

supplemental statement that states with particularity the rclief desired and the punds 

therefore and that includes. when available. suppofling evidence in the form of affidavits. 

If the Band wishes to present oral testimony or uritncsses at the hearing, the Band must 

incIude a rcqucst to do so with the supplemental statement. The rcqucst to presmt om1 

testimony or ~ritncsses must specify thc names of proposed witnesses and the ~cneral 

naturc of their expcctd testimony* whether a dosed hearing is requested and why. Thc 

Band may waive its ri@t to an oral hcaring and instead elect to have the matter 

detmincd by the Ccr~mission solely on the basis of mitten submissions. 
I. Fine-Order of Temporaw CIosure-Submission of Informa& 

The violation cited abve ma!- result in the assessment of a civil fine against the Band in 

an amount not to L)SCCC~ S35.000 per vio1ation per day. The violation cited above may 

also result in the issuance of an order of ternpov cIos~rc if the violation is not 

comcted. Under 25 C.F.R. 575.5(a). the Band may suSmit witten information about 

the violation to the Chairwoman within F 5 days after senice ofthis notice of violation 

(or such longer period as the Chairwoman may _mnt for good cause). The Chainyoman 

shall consider any information submitted in determining the fncts surrounding the 

violation and the amount of the civil he. if any. 

Dated this 13 of July, 30 1 3 

Tracie L. Stevens. Chairwoman 

cc: Hen? Buffalo. Esq.. Fond du Lac Band 

Robert C. Maki Esq., City of D~zltrth 

Shann R. Reed, Esq.. Cie of Duluth 

Fond du Lac Tribal Gamins Commission