Tribe Owed $36.2M for Gaming-License Snafu

SAN FRANCISCO (CN) - California misrepresented how many gaming licenses were available when negotiating a contract for casino-style gambling on an Indian tribe's land, and the tribe is entitled to $36.2 million in restitution, the Ninth Circuit ruled Monday.

In 1999, the Pauma Band of Luiseno Mission Indians joined more than 60 other tribes in signing a compact with the state of California allowing them to operate Class III gambling. The compact contained a provision limiting the number of licenses available statewide for tribes based on a complex formula.

The state informed the tribes in 2003 that the collective license pool had been exhausted, and Pauma received only 200 licenses instead of its requested 750, according to the Ninth Circuit panel's opinion.

In response, Pauma and several other tribes began negotiating with the state to amend the compact to grant an unlimited number of licenses, but since the state demanded more money per operable license during negotiation, only five tribes - including Pauma - ultimately concluded such amendments, in 2004.

During the course of several ensuing lawsuits, the Ninth Circuit held that the state had originally miscalculated the number of available licenses in the 1999 compact - the compact actually allowed for 40,201, but the state calculated 32,151 - according to the opinion.

Pauma sued California for misrepresentation, and a federal judge found for the tribe, granting injunctive relief from the "exorbitantly expensive" 2004 amendment prices it had paid for the same machines it acquired under the 1999 compact, and permitting Pauma to revert to the 1999 compact rate.

On Monday, the Ninth Circuit upheld the decision. Writing for the three-judge panel, Circuit Judge Richard Tallman said that "a contract provision has only one true meaning - what it meant when written - even though the parties may later dispute the correct interpretation."

"When dealing with interpretation of a contract there is no such thing as a 'change in the law' - once a final judicial decision determines what the contested language supports, that is it," he said.

Tallman said that, contrary to the state's argument, "the formula for calculating the license pool never changed - it just took over a decade to reach a final judicial interpretation which settled a longstanding dispute over the number of licenses it authorized."

"Therefore, in December 2003, the state misrepresented an existing fact to the tribes - including Pauma - that no further licenses were available when, in fact, there were 8,050 more licenses under the correct interpretation of the formula," he said.

The panel also affirmed the trial court's $36.2 million award to Pauma, finding that the state was not entitled to a setoff of the award since Pauma would have made the same profits by acquiring the same number of gambling machines under the 1999 compact if the state had not miscalculated.

While the court should have called the award rescission and restitution rather than specific performance, Tallman said that since neither side challenged the calculation of the remedy the panel could affirm it.

He also said that Pauma's suit is not barred by the Eleventh Amendment because the state contractually waived its sovereign immunity for claims arising out of the compacts at issue.

In a separate dissent, Southern District of Iowa Chief District Judge John Jarvey - sitting by designation - said he does not believe California committed misrepresentation by interpreting the compact differently than a later court decision, since the license limit provision was "hopelessly ambiguous."

"Because extrinsic evidence was rejected and the number determined as a matter of law, all parties to the compact were on equal footing with respect to their ability to interpret this ambiguous provision," Jarvey said.

Tribe attorney Cheryl Williams with Williams & Cochrane in Temecula, California, called the court's decision "a momentous one with far-reaching impacts for all tribes."

"Today's Ninth Circuit decision in the tribe's favor is the culmination of a six-year battle in which the court system played hot potato with a politically charged case involving lots of money and an incredible amount of damning evidence against the state - transferring the case to three different district judges, requiring the tribe to file four different summary judgment motions to get a single claim heard, and watching on as the state filed two appeals to stop that from happening.

"The opinion means that states will be held accountable for misrepresentations made to tribes during gaming compact negotiations, and that states will not be able to reap the rewards of their own overreach," Williams said.

Officials from California did not immediately respond to request for comment on Monday morning.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit