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GAMING LAW REVIEW Volume  Number   Mary Ann Liebert Inc GAMING LAW REVIEW Volume  Number   Mary Ann Liebert Inc

GAMING LAW REVIEW Volume Number Mary Ann Liebert Inc - PDF document

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GAMING LAW REVIEW Volume Number Mary Ann Liebert Inc - PPT Presentation

Negotiating Enforceable Tribal Gaming Management Agreements HEIDI MCNEIL STAUDENMAIER 31 INTRODUCTION INCE THE PASSAGE OF THE NDIAN AMING EGULATORY CT in 1988 IGRA a num ber of businesses including tribes and tribal entities have entered into casino ID: 45761

Negotiating Enforceable Tribal Gaming

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Gaming Management Agreements INCETHEPASSAGEOFTHEber of businesses (including tribes and tribalentities) have entered into casino managementother individuals and entities continue to ex-plore the business opportunities with tribalGaming Commission (NIGC) before such con-tracts are deemed valid and enforceable.sulting agreements do not need the approvala ÒdeclinationÓ letter from the NIGC statingagement contract under the IGRA. The recentcussed below) have highlighted the importanceseeking to obtain enforceable agreements withtribal casinos and recent case law interpretingthe relevant regulations.NIGC APPROVAL PROCESS FORThere are three prongs to the NIGC man-which can proceed simultaneously. Each prongmust be completed entirely before the man-financial review of the management contractnancing agreements; (2) compliance with theNational Environmental Policy Act (NEPA);and (3) finding of suitability of all companiesand individuals with a direct or indirect finan-of these prongs is time-intensive and requires Heidi McNeil Staudenmaier is a partner with thePhoenix, Arizona law firm of Snell & Wilmer, where her , 154 F.Supp. 2d 696, (S.D. N.Y. 2001);., 293 F.3d 419 (8th Cir. 2002).Although not addressed in this article, certain of thesequiredÑhas the same result; the document is invalid andperson or entity with a financial interest is deemed un-25 U.S.C. ¤ 2711(e)(1)(D); 25 C.F.R. ¤ 533.6(c). responsive to the NIGC process to keep it mov-The NIGC-promulgated regulations to the IGRA specifi-identifying which party will be responsible forproviding operating capital, hiring, firing,training and promoting employees, maintain-and engaging an independent auditor, hiringand supervising security personnel, establish-ing and administering employment practices,minimum include an adequate system of in-Generally Accepted Accounting Principles, area minimum guaranteed payment to the tribe ina sum certain that has preference over the re-tirement of development and constructionimum dollar amount for the recoupment of de-The longest contract term permitted by theIGRA is seven years. Any term limit soughtgreater than five years must be specifically re-the income projections for the particular gam-ing operation require the additional time.more than 30% of the net revenues, the sameisfied that the capital investment required andthe income projections for the gaming opera-tion require the additional fee). Even if themanagement fee is 30% or less, the NIGCChairman still must determine that such per-ating expenses, excluding management fees.Interest and depreciation can be included asIf a term of more than five years is sought,or more than 30% of net revenues is requestedAs a general matter, an Environmental As-sessment (EA) of the planned casino projecttain the issuance of a Finding of No Significant MCNEIL STAUDENMAIER 32 an extremely helpful checklist that enumerates each con-http://www.nigc.gov. pany want to risk receiving comments from theIf the casino project intends to include a ho-tel, retail center, golf course, or similar ancil-The background information for a finding of(1) each person with management responsibil-greatest direct or indirect financial interest inest in the contract (although NIGC has discre-tion to reduce scope of information sought forson with direct or indirect financial interest inThe type and specificity of background in-New Jersey. Even if an individual or entity iscenses held in good standing elsewhere.The NIGC has its own individual applicationforms, which need to be completed in their en-view and determine whether the submission isgal and financial review until all initial docu-longer, depending on the complexity of theopt to enter into consulting agreements. Theto be considered: how the compensation is de-termined (flat fee vs. percentage of casino rev-enues), length of term, and whether the Òcon-point in the future.Based on recent court decisions, it is stronglyNIGC for review and the issuance of a decli-nation letter. The NIGC can usually issue suchhis management agreement for a consultingcases, discussedin the next Section, would likely concur with NEGOTIATING TRIBAL GAMING MANAGEMENT AGREEMENTS 33 25 C.F.R. ¤ 531.1 (b) (16).1725 C.F.R. ¤ 537.1.18NIGC Bulletin 94-5, (October 1994). agreement or document is deemed valid andCatskill Development (Catskill) for the pur-Shared Facilities Agreement (collectively, theAgreement (LPA) was entered into betweenCatskill (which had purchased the land for$10 million for the purpose of building theAgreement executed between the Mohawkfairs (BIA) for review and, where required, ap-Prior to receiving NIGC approval,Park Place Entertainment (Park Place) and theMohawk Tribe entered into similar agree-ments, irrespective of the existing agreementsAs a result of the termination, Catskill suedPark Place for tortious interference with con-Catskill Agreements, there was no legitimatelyCollateral agreements executed in con-tracts are included in the definition ofvoid absent NIGC approval. ... Each ofthe agreements executed by the parties re-lates either directly or indirectly to rightsor obligations created between the Tribethe Management Agreement.agement Agreements or collateral agreements,no enforceable contract existed and thus therewas no basis for claiming tortious interference, the plaintiffs sought reconsideration of thecourtÕs ruling regarding the invalidity of thea reversal of the decision that included the LPAPursuant to theLPA, Catskill purportedly spent $10 million forIn seeking reconsideration, Catskill assertedFollowing an extensive review of the prior MCNEIL STAUDENMAIER 34 ), 144 F. Supp. 2d 215,. at 232Ð33 (citing C.F.R. ¤ 533.7).), 154 F. Supp. 2d 696 ever, the court further determined that, becauseeral agreements were As a result,held that the Mortgage Leasehold AgreementThe court relied on a letterBased upon the Eighth CircuitCourt of AppealsÕ decision in in June of 2002 (see discussion be-low), Park Place sought reconsideration oflateral agreement and should be deemed voidand unenforceable. In essence, Park PlaceAfter considerable discussion of the ex-The court noted that none of the parties (in-cluding the judge) had paid sufficient attentionto the NIGC regulations applicable to the re-view of all management contracts. Specifically,The court next examined the definition ofmanagement contract at 25 C.F.R. ¤ 502.15 asBased on its review of these definitions, thewithin the NIGCÕS definition of an agreementa result, because the LPA had not receivedand of no effect.U.S. v. Casino Magic Corp.U.S. v. Casino Magic Corp.Wahpeton Sioux Tribe (Sioux Tribe) enteredparties also entered into a Secured Loan Agree-ment under which Casino Magic would lendThe two parties subsequently entered into a NEGOTIATING TRIBAL GAMING MANAGEMENT AGREEMENTS 35 293 F.3d 419 (8th Cir. 2002).154 F.Supp. 2d 696 (S.D.N.Y. 2001).293 F.3d 419 (8th Ctr. 2002).154 F.Supp. 2d 696 (S.D.N.Y. 2001).144 F.Supp. 2d 215 (S.D.N.Y. 2001).2002 U.S. Dist LEXIS 15520 (S.D.N.Y., Aug. 22, 2002).293 F.3d 419 (8th Cir. 2002). Òdeclination letter.Ó The NIGC thereafter is-ing Agreement was not required pursuant toSubsequently, the Sioux Tribe entered into aConstruction and Term Loan Agreement withOn appeal, the Eighth Circuit Court of Ap-persuasiveÓ and reversed. In so ruling, theEighth Circuit relied on the NIGC decision anddetermined that the agreements, considered to-soned that the BNC loan agreement transferredticipation Agreement enhanced the ownershipagement responsibilities of the Tribe.sumed the risk of proceeding without havingCASINOMAGICWhat lessons can be learned from the derscore the need of parties pursuing any typeunenforceable agreements, without remedy orrecourse. Further, the holding of the case counsels that, even if an agreementsequent agreements negotiated which relate tois still applicable (or seek a new declination let-The Native American gaming industry hasexploded over the past few years, with no slow-down in sight. As more and more businessescontinue to explore opportunities with tribalgaming operations, it is incumbent for these in-NIGC approval process for management agree- MCNEIL STAUDENMAIER 36 . at 423.46United States Ex. Rel. Maynard Bernard v. Casino MagicCorp., Civ. 98Ð1033, slip op. at 14 (Order granting motionfor summary judgment, D.S.D. April 23, 2001).47See id48