Interior Department calls Duluth's casino contract invalid

The city of Duluth’s efforts to hold on to a casino revenue-sharing agreement with the Fond du Lac Band of Lake Superior Chippewa have been dealt another blow.

The U.S. Department of the Interior has announced it will cancel a lease agreement that once provided the city with 19 percent of all revenue from electronic gaming at the Fond-du-Luth Casino. That agreement used to pour about $6 million per year into city coffers. But the band halted payments to the city in 2009, touching off a legal battle that continues to be waged.

Federal authorities from the National Indian Gaming Commission and now the Department of the Interior have both deemed portions of a contract between the city and the band invalid, even though Interior officials signed off on the agreement when it was originally penned in 1986 and when it was renegotiated in 1994.

Stacked deck?

Mayor Don Ness said the process has been unfair because federal authorities considered only information the band supplied before concluding in the band’s favor. He said the city was never asked to provide its perspective before agency rulings were made. Ness said that instead of playing a fair and impartial role, agency officials appear to have chosen sides.

“They’re using the power of the federal government to be an advocate for the band at the expense of the citizens of Duluth,” he said.

Karen Diver, chairwoman of the Fond du Lac Band, said the findings have been clear and consistent, even if the results are not to the mayor’s liking.

Nedra Darling, spokeswoman for the Department of the Interior’s Indian Affairs division, said she was “stunned” by the mayor’s words but offered a measured response: “No one person works on these decisions. Each decision is an agency decision, and we have to comply with federal law.”

Darling said that in 2011, the National Indian Gaming Commission determined the lease agreements between the band and the city violated federal law. She said those agreements effectively allowed the city “to assert an ownership interest in the band’s gaming facility.”

“This act conflicts with the Indian Gaming Regulatory Act requirement that Indian tribes retain the ‘sole proprietary interest’ in tribal gaming facilities,” Darling said. “The Department of the Interior has determined that the lease agreements expressly prohibit the band’s trust lands from being used for an unlawful purpose and thus must be canceled. Our action ensures that activities on the band’s land comply with federal law.”

No appeal

The city of Duluth had sought to appeal the original notice of violation filed by the Gaming Commission in 2011, but was informed it did not have proper legal standing to do so. The city was told that only the band could appeal, and obviously it had little interest in asking the commission to revisit a decision that concluded all payments of casino revenues to the city should stop.

In January, Mayor Ness called a news conference to announce that unless the band agreed to hammer out a new — likely more modest — profit-sharing agreement, the city would exercise its rights to take punitive action under the terms of the casino agreement. He said potential actions could include closing the casino if the band refused to return to the bargaining table.

That threat drove the band to action, Diver said.

“Upon hearing all the mayor’s further rhetoric about his belief that the city could shut the casino down, the band sought a review of the lease agreement,” she said.

That review led to the latest determination that the lease must be canceled.

Mayor Ness unsuccessfully requested in writing that the Department of the Interior hold off on any potential action against the lease until a case still pending before the 8th Circuit Court of Appeals could be heard.

But again, the city lacked standing to ask for any further review by the Department of the Interior.

Only the Duluth-Fond du Lac Economic Development Commission was authorized to officially respond to the Department of the Interior’s findings, and it had just 10 days to do so. That commission was originally set up to oversee casino operations and is composed of just two members — Diver and Ness.

Ness sent two letters to the band seeking a commission meeting but to no avail.

“We couldn’t get the commission to respond because the band wouldn’t participate,” said City Attorney Gunnar Johnson, describing the Catch-22 scenario.

Johnson cited a written response from Diver on behalf of the band that said: “It is our intention, and our duty to the band membership, to restore the property to the exclusive control of the band and to bring the casino into compliance with federal law. A meeting of the Duluth-Fond du Lac Economic Development Commission at this time would be contrary to this objective.”

Diver contends that even if the band had wanted to meet with the city, by doing so it would have risked reprimand for failing to maintain sole proprietary control of gaming operations, as required under the Indian Gaming Regulatory Act.

In a letter announcing plans to strike down the lease, Donald Laverdure, the acting assistant secretary of the Department of the Interior’s Indian Affairs division, said the decision resulted from the Duluth-Fond du Lac Economic Development Commission’s failure to respond within the 10-day window.

“The city of Duluth never had a chance,” said a frustrated Ness. “The outcome of this process was predetermined. They never bothered to hear our side of the story or to give us any avenue to appeal.”

What now?

Johnson said the city is exploring its options, and it’s not yet clear whether the Department of the Interior’s cancellation of the lease agreement could be subject to challenge.

For the time being, however, he said the city will probably focus its efforts in the courts.

“We’ve begun to recognize that we’re not getting a fair shake with these federal agencies that are closely tied to the band,” Johnson said.

Diver suggested city leaders would not be questioning the leanings of agency officials if their decisions had been favorable to the city.

“The fact of the matter is that, whether these folks are political appointees or not, they are chosen by the federal government and ratified by Congress to uphold the law,” Diver said.

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