Judge dismisses Duluth's challenge to casino ruling

A federal judge has dismissed the city of Duluth's challenge to a National Indian Gaming Commission ruling that declared the city's downtown casino profit-sharing agreement illegal.

U.S. District Judge Colleen Kollar-Kotelly on Tuesday upheld a "notice of violation" issued by the NIGC in 2011. The agency's ruling nullified a 1994 agreement between the city and the Fond du Lac Band of Lake Superior Chippewa.

The city was receiving about $6 million annually from the Fond-du-Luth Casino before the band ended payments in 2009. Tuesday's decision comes as a blow to city officials who hoped to regain that source of revenue.

"It feels like the city of Duluth has not gotten a fair shake," City Attorney Gunnar Johnson said in response to the ruling. "The band has seen great benefit from casino operations, but there is no correlating benefit for the city of Duluth."

Fond du Lac Chairwoman Karen Diver called the decision an important step in a six-year legal battle that is still ongoing.

Diver said the ruling makes it clear that the NIGC acted within its scope by prohibiting the band from making future payments to the city.

"There has been rhetoric coming out of the city that the National Indian Gaming Commission was making political decisions and exceeded its regulatory authority," she said. "Clearly, this says they acted appropriately in issuing the notice of violation and have the ability to make these decisions in full."

In its ruling, the NIGC said that the city-band agreements violated the Indian Gaming Regulatory Act because they give the city of Duluth an unlawful proprietary interest in the band's gaming activity. The review was conducted at the request of the band.

The U.S. Department of Interior subsequently canceled a lease agreement that provided the city with 19 percent of all revenue from electronic gaming at the casino.

In response, the city filed suit in U.S. District Court in Washington, D.C., seeking to overturn the NIGC review, calling it "arbitrary" and "capricious." Among other arguments, city attorneys noted that the agency had signed off on the revenue-sharing agreement in 1994.

But, in her 15-page memorandum granting the NIGC's motion for dismissal, Kollar-Kotelly said the commission acted within its authority, even if it had ruled otherwise in the past.

"In issuing the (notice of violation) to the Band, the Commission followed the steps outlined by statute," the judge wrote. "It informed the Band which activities were contrary to the Act, informed the Band that it was required to stop performing under the 1994 Agreement with respect to the provisions that violated the Act, and informed the Band that further violations could result in fines or in temporary closure of the gaming facility."

Diver was critical of the city's decision to challenge the NIGC ruling in court.

"We understand that Congress created (the NIGC) and charged the agency with enforcing and interpreting the law," she said. "We've never questioned their authority. ... The NIGC says those agreements violate the law, and the band has to comply."

Johnson said the city remains frustrated by the "harsh result" of NIGC decision.

He noted that because the casino is in "Indian country," the band does not pay property taxes, but reaps the benefits of city streets, utilities, police and fire. The city previously used casino revenue for street repairs.

"The casino continues to operate in downtown Duluth and continues to benefit from city services," he said. "They pay nothing for being in downtown Duluth."

Johnson said the city is considering its options, which could include an appeal of the suit's dismissal.

The case is just one piece of a myriad of litigation that has had the city and band butting heads since August 2009.

The 8th U.S. Circuit Court of Appeals is expected to rule soon on the city's lawsuit seeking more than $13 million - including interest - in back payments from the casino. A federal judge previously awarded the payments to the city, but the band appealed.

In December, a judge dismissed a lawsuit by the city seeking to halt the band's efforts to expand its downtown reservation by placing the former Carter Hotel property into Indian country. However, the future of that property and its potential for casino expansion remain unclear.

While city and band officials have expressed a desire to reach a universal agreement, nothing appears to be on the horizon.

"Certainly we want to prevail in court cases, so that's what we're trying to do," Johnson said.