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Minnesota Supreme Court: Carter Hotel case belongs in federal court

The Carter Hotel building in downtown Duluth. (File / News Tribune)

The Minnesota Supreme Court ruled Wednesday that state courts lack the jurisdiction to consider Duluth's challenge of an effort to have the Carter Hotel taken off the city's tax rolls and placed in trust as "Indian country."

The Fond du Lac Band of Lake Superior Chippewa purchased the downtown hotel, located next to the Fond-du-Luth Casino at 29 N. Second Ave. E., in December 2010 and then filed papers with the U.S. Department of the Interior seeking to have the property designated as reservation land.

The city of Duluth took the band to court, claiming that the band had violated a 1986 agreement with the city that said the creation of any additional "Indian country" in Duluth would require the city's approval and consent.

But the band and the city signed a subsequent agreement in 1994, when the prior agreement was deemed to be inconsistent with the Indian Gaming Regulatory Act. The 1994 agreement included a limited waiver of sovereign immunity by the band consenting to be sued by the city only in U.S. District Court for any claim arising out of the agreement. The 1994 agreement also rendered portions of the 1986 agreement "dormant."

Minnesota District Court Judge Mark Munger cited that 1994 agreement when he declined to hear the case in May 2012, referring the matter instead to a federal court venue.

The Minnesota Court of Appeals reversed that decision in April 2013, sending the matter back to state district court.

But, the Minnesota Supreme Court decided to take up the case, ultimately overturning the ruling by the Court of Appeals and instructing the city to file papers with the U.S. District Court for the District of Minnesota if it wished to pursue its complaint against the band.

Henry Buffalo, an attorney for the band, said the city would have been wise to follow Judge Munger's lead from the start.

"I don't understand why we had to waste so many of the band's and the city's resources just to get to this point," he said.

Duluth City Attorney Gunnar Johnson said the band and the city worked together to bring the Fond-du-Luth Casino downtown in 1986, recognizing it could be mutually beneficial. "As part of that deal, both parties agreed that if the band was going to expand operations at some point in the future, it would require the city's approval and consent," he said.

But Buffalo said the Indian Gaming Regulatory Act dramatically altered the scene from 1986.

"It was a whole different ballgame by the time of the 1994 agreement," he said, noting that the newer agreement called for any disputes to be settled not in a state or tribal court but in a federal venue.

Johnson stressed the importance of obtaining an injunction against the band in a timely fashion.

"If the band is able to get the federal government to put this property into trust before the city can get an injunction, we'll probably never be able to pull it out again. And the band has been working feverishly to get this property into trust," he said.

Although the band has not yet laid out its future plans for the Carter Hotel property, it proposes to raze the existing building. In an earlier interview, tribal Chairwoman Karen Diver had suggested the property might be used to accommodate an expansion of the existing casino.

The city of Duluth has argued the 84-year-old hotel building should be preserved as part of a designated historic downtown district.

The city and band have been at odds over the casino since 2009, when band leadership determined they could no longer justify sharing revenue from video slot machines with the city. Duluth had received about $6 million annually from the casino, but the National Indian Gaming Commission concurred with the band in its determination that the existing revenue-sharing agreement was improper.

The payments from the casino to the city have ceased, but a legal battle continues.

"It's too bad that the city can't see its way to reach some sort of global resolution," Buffalo said. "All they want to do is complain about the band."

Johnson said the city simply seeks a fair deal and a hand in shaping any future plans for the casino.

"We still need to provide them with public safety services, and they still use city streets, not to mention water, sewer and all the other regular municipal services they receive from the city," he said.