Originally published 28 Aug, 2009 in GamblingCompliance Ltd by Peter Hecht

A court battle in California to overturn the state’s slot machine limits has ended in victory for the tribes who opposed the administration’s restrictive reading of their 1999 compacts.

California Indian tribes fighting to add slot machines without renegotiating 1999 state gambling agreements have won a court victory which could open up the Golden State market for 10,549 new slot machines. But they face two major obstacles: a weakened economy and the determined opposition of Governor Arnold Schwarzenegger.

he governor’s office announced this week that it will seek a legal stay to stop a court-ordered draw of new slot machine licenses by the California Gambling Control Commission and press on with an appeal in the case.

On August 19, US District Court Judge Frank C. Damrell issued a key ruling on behalf of a Northern California tribe, the Colusa Indian Community. The tribe was seeking to add slot machines to its casino north of Sacramento, but was blocked by a statewide cap imposed by former Governor Gray Davis.

Damrell’s ruling ordered the state to conduct a drawing to issue new slot machine licences. It followed his earlier decision that the Davis administration wrongfully set a statewide limit of 32,151 slots for 61 tribes that signed 1999 casino deals allowing a maximum of 2,000 machines each.

The statewide figure was based on the fact that many isolated tribes would only have market capacity for a few hundred slots or less.

But Damrell ruled that that the state set the slot machine limit unreasonably low and should have allowed the 1999 compact tribes a total of up to 42,700 machines.

Eleven California tribes exceeded the 2,000-per-tribe slot machine limit after negotiating amended compacts that paid the state tens of millions of dollars in revenue sharing payments in exchange for casino expansions.

Another half dozen tribes met the 2,000 limit under the 1999 compacts.

But Damrell’s ruling appears to be a huge victory for several tribes that complained they were not allowed to expand casinos under the 1999 gambling agreements. They said they were unwilling to be shaken down by the governor’s office to pay new revenues to the state for amended casino deals.

“This is an enormous vindication of the rights of the tribes obtained under the 1999 compact,” said George Forman, a lawyer who represents the Colusa tribe. “No longer can they be forced to make additional concessions in order to enjoy the benefits they have obtained.”

Damrell said the state must receive tribal applications and hold a draw for new licences within 45 days of his August 19 decision. The state tentatively set an October 2 date for the slot machine draw, but is hoping to stop it while appealing Damrell’s ruling to the US 9th Circuit Court of Appeals.

“The state will be filing an appeal and seeking a stay of the decision,” said Jeff Macedo, a spokesman for Schwarzenegger. “If a stay is granted, then the licence draw will not occur until after the 9th Circuit issues a decision on the appeal.”

Forman said it is unlikely California will see any rapid growth of casino slots due to the difficult economy and that fact that many 1999 compact tribes don’t reside in lucrative markets.

Even though the state may be forced to make more than 10,000 licences available, Forman said, “I would be surprised there would be even as many as 2,000 licences requested right now because of the economy. Once you get outside of the metropolitan areas of Southern California, the candidates that can operate as many as 2,000 slots become very rare.”

He predicted the state will see “incremental growth over a wide area” if Damrell’s decision stands.

In December, 2008, ten California tribes submitted requests for a total of 600 slot machine licenses. At the time, the state said it had only 75 licences available.

The Colusa tribe, which operates the 846-slot Colusa Casino Resort, went to court because it was denied permission to add 300 slots under its 1999 compact due to the statewide cap.

Another tribe, the San Pasqual Band of Mission Indians in San Diego County, filed a demand note for $555m it claimed it is owed because the state failed to honour its 1999 compact. The tribe wants to add 428 slot machines to reach 2,000.

San Pasqual Attorney Steven Warren Solomon, who filed a friend of the court brief supporting Colusa’s legal claim, said San Pasqual will immediately ask the California Gambling Control Commission for the additional slot machines licences, a move which will delight US slot machine manufacturers.

The Rincon Band of Luiseño Indians is seeking to add 400 slots to its casino in Valley View in San Bernardino County in Southern California.

In a statement, tribal lawyers Scott Crowell and Scott Wheat said Damrell’s ruling is “a huge victory for California tribes, likely providing enough gaming devices licences for every tribe that is seeking additional licenses”.

Solomon said many tribes would be reluctant to pay licensing fees of up to more than $4,000 per new slot machine given the difficult economy. But he said the state should now get out of the way of tribes that want to expand under their 1999 compacts.

“You would think that the state would want to stay out of internal tribal issues and worry about the real problems we have today in California,” Solomon said.