Appeals court reverses Duluth's $12 million victory over casino

In a move Mayor Don Ness called devastating for the city of Duluth and taxpayers, the Eighth Circuit Court of Appeals reversed a lower court’s decision requiring the Fond du Lac Band of Lake Superior Chippewa to pay the city an estimated $12.4 million in casino revenue back payments.

The Court of Appeals sent the question of whether the band owes the city any payments from the downtown Fond-du-Luth Casino for 2009-11 back to U.S. District Court Judge Susan Nelson.

“Obviously, we are quite pleased with the ruling,” Fond du Lac Chairwoman Karen Diver said. “We will have to go back to the district court, Judge Nelson, but she has more options before her now. We are glad that the band’s position has been affirmed again.”

For its part, the city believes it has a strong case in favor of receiving the payments to argue before Nelson, City Attorney Gunnar Johnson said during a City Hall news conference. In the meanwhile, within the next 14 days the city will ask for the case to be heard by all the judges of the Eighth Circuit Court of Appeals, not just the three judges who arrived at the decision filed Monday morning.

Their decision upholds Nelson’s Nov. 21, 2011, decision releasing the band from any obligation to share with the city any future profits from the Fond-du-Luth Casino. Before 2009, when the band ceased making payments to the city, Duluth had received about $6 million a year in casino payments.

But Nelson did order the band to honor a profit-sharing agreement that was in place with the city through April 2011. City officials said that amounts to about $12.4 million. On Dec. 21, 2011, the band and the city both appealed aspects of Nelson’s decisions.

“The consequences of this ruling are significant,” Ness said during Monday’s news conference. “There will be no revenue going forth. It puts $12.4 million at risk.”

Ness said the $6 million the city received annually from the band was a primary funding source for rebuilding roads. Not receiving that money puts the city’s street reconstruction program at risk.

“We can find an agreement that will benefit both parties,” Ness said, except that there seems to be little willingness on the band’s part to talk, because it believes it has the backing of the federal government. He referred to the July 2011 notice filed by the National Indian Gaming Commission saying the casino contract between the city and band violated gambling laws.

The ongoing legal battle has its roots with an August 2009 letter in which Diver told the city that the band would stop sharing slot machine revenues from the Fond-du-Luth Casino, saying the contract between the two sides in the 1980s and renegotiated in the 1990s was entered into “under erroneous understandings that the city’s consent was necessary to the creation of reservation land within the city.” The city responded by filing suit in federal court asking that the band be forced to resume sharing casino revenue.

The band upped the ante in October 2009, asking the courts to force the city to return the $75.5 million in casino revenue it received since 1994. Being forced to repay that money could bankrupt the city, city officials said.

The district court ruled that the band could not recover the money it paid before 2009. The band did not appeal that ruling.

Monday’s ruling has national significance, Ness said, because there are 209 similar agreements between tribes and other governments across the nation. Any unit of government that believes it has a binding contract with a tribe to share revenue from a casino could find out otherwise, he said.

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