A New Era of Economic Termination?
Justice Department Announces an Effort to Restrict Class II Indian Gaming
By D. Michael McBride III

After experiencing a number of losses in court, the Justice Department recently announced a major legislative effort to amend and strengthen an existing federal criminal statute, the “Johnson” Gambling Devices Transportation Act, to restrict electronic Class II Indian gaming.1 The impact would make many games that are currently Class II under the Indian Gaming Regulatory Act (“IGRA”) subject to Johnson Act enforcement unless tribes voluntarily include the Class II games in compacts - and pay significant revenues to the states.2 The proposed legislation is available from the Justice Department Web site.3

The IGRA empowered tribes to operate Class II games free from state control, limits on numbers of games, and without sharing revenue. Additionally, the IGRA removed Class III compacted games from Johnson Act enforcement but remained silent regarding the application of the Johnson Act to electronic aids to the play of Class II games. Congress intended that the IGRA permit tribes to embrace technologic advances “with maximum flexibility” and use Class II technologic aids without state interference.4 Therefore, courts generally have rejected the Justice Department’s attempts to label technologic aids to IGRA Class II games as “gambling devices” subject to criminal enforcement under the Johnson Act.5

The proposed legislation would require tribes in Class II-heavy states such as Oklahoma, California and Florida to compact with the state for the vast majority of the electronic games currently in play. Otherwise, the tribes would face potential prosecution by the Justice Department. Such a change in the law overturns well-settled expectations of the Indian gaming industry and impacts the fragile economies of tribes, especially in those that rely on Class II gaming to support their governmental operations and community services.

The National Indian Gaming Association has estimated that the potential economic impact of the legislation could surpass $ 2.5 billion in revenue that tribal governments presently receive from electronic aids to the play of Class II games.6 Some tribal leaders have protested that if the Justice Department succeeds, it will have a devastating impact on the fragile funding for essential governmental programs including health care, law enforcement and social services.7 One tribal leader recently told how investors and banks have halted plans to finance tribal gaming expansions given the uncertainty caused by the Justice Department’s plans.8

In announcing the proposed legislation, the Justice Department said the changes were needed because technological advances had “blurred the lines” between classifications.9 Although the Justice Department claims the legislation would resolve uncertainty, tribal government representatives have also criticized the changes as containing considerable uncertainty and as running counter to the purposes of the IGRA.10 Norman Des Rosiers, the gaming commissioner for the Viejas Band of Kumeyaay Indians in California, called the amendments “entering into troubled waters” because the new definitions are far too broad and the exceptions quite ill-defined.11 The Justice Department’s efforts also seek to wrest regulatory control from the National Indian Gaming Commission, the sole federal agency with independent regulatory and oversight powers over Indian gaming.12

A bit of history is necessary for a full understanding of the situation. In the early 1950s, the United States Congress passed the Johnson Act to combat the proliferation of slot machines outside of Las Vegas, at that time one of the few jurisdictions in the country that had gaming. Congress amended the law in 1962 to broaden significantly the definition of what constituted a gambling device and apply the statute to Indian country. Also during the 1950s and early 1960s, Congress enacted laws that wiped out the legal existence of Indian tribes and retroceded jurisdiction and tribal sovereignty to states.13

Thereafter, a new era of self-determination took shape with the passage of the Indian Civil Rights Act in 196814 and the Indian Self-Determination and Education Assistance Act of 1975.15 Tribes have flourished under a policy of strengthening tribal governments, tribal sovereignty and self-determination. Following the Cabazon decision in 1987,16 which foreclosed state regulatory jurisdiction over gaming on Indian lands, Congress stepped in to regulate Indian gaming. The IGRA expresses Congress’ underlying goal to “promote economic development, tribal self-sufficiency and strong tribal government”.17 The IGRA has been the single most successful economic development legislation ever passed by Congress. Indian gaming revenues grew from $20 million in 1982,18 to $100 million in 1988,19 to approximately $5 billion in 1995, and to an estimated $19.4 billion in 2004, the most recent figures available.20 If the Justice Department gets its way, the Class II Indian gaming industry could suffer a significant setback to its explosive growth over the last decade.21

Class II gaming continues to be very important to Indian tribes across the United States. The National Indian Gaming Association reports that out of 562 federally recognized Indian tribes, 224 engaged in Class II or III gaming.22 These tribal governments operate a total of 354 gaming facilities in 28 states within the United States.23 There are currently 249 tribal-state gaming compacts for Class III gaming in place.24 Although Indian gaming greatly impacts and benefits non-Indian communities-fully 75 percent of all tribal gaming casino employees are non-Indian25-Class II gaming remains vitally important to preserving tribal sovereignty. Indian casinos in Oklahoma employ more than 20,000 people currently.26

In the last decade, the National Indian Gaming Commission (“NIGC”) promulgated regulations to distinguish between Class II “technologic aids” and Class III “facsimiles.”27 In doing so, the NIGC adopted in 1992 the old 1950s-era Johnson Act definition of a gambling device, a law that was meant to prohibit gaming as a crime and not to encourage economic development, as is the policy of IGRA. The problem is the Johnson Act is so vague that bootstrapping its definition to carry out the IGRA provided no clarity.28

Many courts thereafter examined the conflict in the statutes and ruled that Congress intended that tribes have the ability to incorporate technology into Class II bingo and pull tabs and to use technological aids for these purposes. At least three federal circuit courts of appeals have ruled, in effect, that Class II technologic aids to the play of bingo and pulltabs are insulated from the Johnson Act prosecutions.29 At least one circuit, the 8th Circuit in Santee Sioux, ruled that IGRA did not prohibit the Johnson Act from applying to Class II games, but the particular game presented in that case was not a Johnson Act device.30

Frustrated, the Justice Department claims that Congress intended that there be a clear distinction between Class II and Class III gaming devices and continues, despite the numerous court defeats, to try to use the Johnson Act to assert its view.31 Moreover, the Justice Department wants to treat Class II devices the same as Class III devices despite the IGRA’s legal distinctions between Class II and III. Because of this purported lack of clarity and Congress’ unwillingness to accept the Justice Department’s view regarding the IGRA, the Justice Department now seeks to amend the Johnson Act.

Fundamentally, the Justice Department believes that IGRA Class II electronic games are “too fast” and “too lucrative,”32 and thus should be prohibited under threat of jail time and substantial fines, as well as seizure of gaming devices and money. The IGRA’s purpose on the other hand is to promote economic development and to allow incorporation of technology in Indian gaming. On Oct. 14, 2005, the Justice Department circulated proposed amendments to the Johnson Act33 as follows:

• The definition of “element of chance” will include
  

  (i) the operation of the machine, mechanical device, subassembly or essential part alone; or (ii) by the insertion into the machine, mechanical device, subassembly or essential part of physical materials or items containing, providing, or supplying the element of chance; or (iii) by the connection, linking, or attachment via any means of the machine, mechanical device, subassembly or essential part to another machine or mechanical, electromechanical or electronic device, including computers and computer software or programs, that generate, determine, supply, or provide the element of chance;

• The definition of “gambling device” will be broadly expanded to cover most of the electronic gaming devices currently played as Class II in Indian country, with only narrow and difficult to meet exceptions.
• Specifically, the Justice Department prescribes the following four-part test for the use of gaming devices in the Class II environment:

  (i) is limited to games that require the players to compete against other individuals in order to win one or more common prizes;
  (ii) requires the players to actively participate in the game;
  (iii) does not allow players to win prizes for games based, in whole or in part, on games that do not constitute Class II gaming; and
  (iv) is readily distinguishable from Class III games based on the manner in which the players participate in the game and the appearance of the game to the players, including but not limited to the speed of play and depictions or graphics used in the game.

There are additional standards for pull-tabs and bingo games.

The proposed law would require the NIGC to certify Class II gambling devices and implement regulations classifying the distinctions between Class II and Class III. The Johnson Act also will empower the Justice Department exclusively to prosecute persons, organizations or tribes that either violate the NIGC regulations or that alter a game after it has previously been classified and certified. A grandfather clause of one year will apply to games that are subject to prior NIGC Class II determinations and classification opinions.34

The proposed amendments constitute a serious threat to a $20 billion industry that has brought jobs, health care, governmental infrastructure and higher standards of living throughout Indian country. The IGRA has been the most successful federal economic development policy for tribes in U.S. history. The proposed amendments are significant and would abrogate a Class II regulatory regime consisting of NIGC advisory opinions and court determinations settled for more than a decade. A change in the law would also divest much of the NIGC’s long-standing policy making authority under the IGRA.

The Justice Department likely will seek to bypass the Senate Committee on Indian Affairs and the House Natural Resources Committee that have authority to initiate legislation on Indian issues. Instead, the Justice Department will seek to submit the matter to the Judiciary Committee that handles criminal law and lacks knowledge and expertise regarding the unique federal and tribal government-to-government relationship, the federal trust responsibility and the self-determination policies involving Indian tribes.

The Justice Department also seeks to move with great speed. Less than a month after releasing the proposed amendments, the Justice Department hastily held what it called the first of three “consultation” meetings with tribal leaders. The Justice Department sent out notices for the first meeting about a week in advance. It was held in Tulsa on Nov. 1, 2005, at the 62nd Annual Meeting of the National Congress of American Indians. Numerous tribal leaders protested the purported consultation as violating long-standing executive branch policies for government-to-government consultations with Indian tribes.35 The leaders decried the failure to plan and hold regional meetings with tribes as the NIGC did with its Justice Department-halted effort to craft new classification regulations.36 Moreover, tribal leaders requested the Justice Department study the significant impact of the law change on Indian governments. The Justice Department set a deadline of Jan. 31, 2006, to receive comments from interested parties.

As Osage Nation Chief Jim Gray recently said, we must remember that Indian gaming does not exist without tribal sovereignty — one cannot exist without the other.37 Time will reveal whether the proposed amendment to the Johnson Act is simply an adjustment of criminal laws to distinguish between Class II and Class III Indian gaming or a calculated attempt to redefine tribal sovereignty to the detriment of tribes.

Author’s Note: The author thanks Brian S. Gaskill and Amanda Proctor of Sneed Lang, PC for their helpful comments and review.

1. The Gambling Devices Transportation Act, 15 U.S.C. § 1171, and et. seq. (2002) (“the Johnson Act”).
2. The Indian Gaming Regulatory Act, 25 U.S.C. § 2701, and et. seq. (2002) (the “IGRA”). The IGRA divides gaming into three classes (Class I, II and III) with differing extent of federal, tribal and state oversight. Generally, Class I games, such as traditional games, are regulated exclusively by tribes alone. Class I games are not commercially viable. Class II games consist of Bingo, pull-tabs and games similar to bingo and are regulated by tribes and the National Indian Gaming Commission (“NIGC”) without state involvement. Class III games consist of all other types of gaming including games typically associated with Las Vegas casinos, such as slot machines, and house banked card games. A tribe must enter a compact with a state to engage in Class III gaming. The NIGC has much a more limited role in regulating Class III gaming. A district court recently ruled that the NIGC does not have the power to regulate “minimum internal control standards” for Class III compacted gaming. See, Colo. River Indian Tribes v. Nat’l Indian Gaming Comm’n 383 F. Supp. 2d 123, 147-48 (D.D.C. 2005). For general background on Class II gaming see, Heidi McNeil Staudenmaier and Andrew D. Lynch, The Class II Gaming Debate: The Johnson Act vs. The Indian Gaming Regulatory Act, 74 MISS. L. J. 843 (2005).
3. www.usdoj.gov/otj/johnson.html (last visited Nov. 3, 2005.)
4. S. Rep. 100-446, 100th Cong., 2nd Sess., at p. A-9.
5. See, e.g.:

• Seneca-Cayuga Tribe v. Nat’l Indian Gaming Comm’n, 327 F.3d 1019, 1035 (10th Cir. 2003); cert. denied, 124 S.Ct. 1506 (Mar. 1, 2004) (“we hold that if a piece of equipment is a technologic aid to an IGRA Class II game, its use, sale, possession or transportation within Indian country is then necessarily not prescribed as a gambling device under the Johnson Act.”)
• U.S. v. 162 MegaMania Gambling Devices, 231 F.3d 713, 725 (10th Cir. 2000) (“MegaMania II”); (“Congress did not intend the Johnson Act to apply if the game at issue fits within the definition of a Class II game, and is played with the use of an electronic aid.”)
• Diamond Game Enters. v. Reno, 230 F.3d 365, 367 (D.C. Cir. 2000) (“Class II aids, permitted under IGRA, do not run afoul of the Johnson Act.”)(citing as authority Cabazon Band of Mission Indians v. National Indian Gaming Comm’n, 14 F.3d 633, 635 (D.C. Cir. 1994))
• U.S. v. Santee Sioux Tribe, 174 F. Supp. 2d 1001, 1005 (D. Neb. 2001) (“I conclude that the Johnson Act is not applicable to Class II devices.”), aff’d on other grounds, 324 F.3d 607 (8th Cir. 2003); cert. denied, 124 S.Ct. 1506 (Mar. 1, 2004).
• NIGC commentary to rule changes, 67 Fed. Reg. 41,166 (June 17, 2002).

But see, U.S. v. Santee Sioux Tribe, 324 F.3d 607, 611 (8th Cir. 2003); cert. denied, 124 S.Ct. 1506 (Mar. 1, 2004) (“Thus, the argument that the IGRA implicitly repeals the Johnson Act with respect to class II devices is not well taken, even though some version of this view had been expressed by several courts.”)

The Santee Sioux court thus held:

We find that the IGRA and the Johnson Act can be read together, are not irreconcilable, and the Tribe did not violate either act if it is to gain relief from the prior order of contempt.

324 F.3d at 612.

6. Comments of Mark Van Norman, Executive Director of National Indian Gaming Association to Gaming Sub-committee of the National Congress of American Indians meeting in Tulsa, Oklahoma on Nov. 1, 2005.
7. Comments of Tex Hall, President of the National Congress of American Indians and John Berry, Chairman of Quapaw Tribe, to Gaming Sub-committee of the National Congress of American Indians meeting in Tulsa, Oklahoma on Nov. 1, 2005.
8. Comments of Raymond Parker, Chippewa Cree Tribe, Montana to Gaming Sub-committee of the National Congress of American Indians meeting in Tulsa, Okla., on Nov. 1, 2005.
9. Thomas B. Heffelfinger, U. S. Attorney for D. Minn., comments to Global Gaming Expo., Indian gaming panel, Sept. 15, 2005, Las Vegas, Nev., and comments to Gaming Sub-committee of the National Congress of American Indians meeting in Tulsa, Okla., on Nov. 1, 2005. See also, Thomas B. Heffelfinger, comments before the Committee on Indian Affairs, United States Senate, April 27, 2005 at p. 4.
10. Global Gaming Expo, Gaming Panel, Las Vegas, Nev., Sept. 15, 2005.
11. Id.
12. S. Rep. 100-446, 100th Conf., 2nd Sess., p. A-1:

The bill [IGRA] establishes a National Indian Gaming Commission as an independent agency within the Department of the Interior. The Commission will have a regulatory role for Class II gaming and an oversight role with respect to Class III.

13. See, e.g. Public Law 280. 67 Stat. 588 (1953), as amended, 18 U.S.C. § 1161-62, 25 U.S.C. § 1321-22, 28 U.S.C. § 1360 (1953) (retroceding civil and criminal jurisidiction from tribes to states.
14. 82 Stat. 77, 25 U.S.C. § 1301 et. seq.
15. 25 U.S.C. §450 et. seq.
16. California v. Cabazon Band of Mission Indians, 480 U.S. 202 107 S.Ct. 1083, 94 L.Ed.2d 244 (1987).
17. 25 U.S.C. § 2702 (1).
18. Id. note 9, Heffelfinger comments to United States Senate, April 27, 2005 at p. 3.
19. Id.
20 Fox Butterfield, Indians’ Wish List: Big City Sites for Casino, THE NEW YORK TIMES, April 8, 2005; National Indian Gaming Association Web site, www.indiangaming.org/library/indian-gaming-facts/index.shtml (providing figures through 2002) and National Indian Gaming Commission Web site: www.nigc.gov/nigc/tribes/pr_revenue_2003.jsp (providing figures through 2003) each Web site last visited, Nov. 3, 2005.
21. See Maria Green, In a Class by Itself: Class II Gaming Poised for Growth, But Some Legal Questions Remain, I nt’l. Gaming & Wagerning Bus. March 2004.
22. NIGA “Indian Gaming Facts” available at www.indiangaming.org/library/indian-gaming-facts/index.shtml (last visited Nov. 3, 2005).
23. Id.
24. Id.
25. Id.
26. Comments of Brian Foster, Chairman of Oklahoma Indian Gaming Association to Gaming Sub-Committee of the National Congress of American Indians, Nov. 1, 2005
27. See NIGC commentary to 2002 rule changes, 67 FED. REG. 41,166 (June 17, 2002).
28. See, Timothy W. Woolsey and Elizabeth L. Homer, Recent Developments in Class II Gaming, Indian L. Newsletter at 9, 27-30 (April 2005)(published by the Indian Law Section of the Wash. State Bar Assoc.) available on the Internet at www.wkgshare.com/niba/ 04_05IndianLawNewsletter.pdf (last visited Nov. 3, 2005).
29. See cases cited at n. 5.
30. U.S. v. Santee Sioux Tribe, 324 F.3d 607, 611 (8th Cir. 2003); cert. denied, 124 S.Ct. 1506 (Mar. 1, 2004) (“Thus, the argument that the IGRA implicitly repeals the Johnson Act with respect to class II devices is not well taken, even though some version of this view had been expressed by several courts.”)
31. Id. note 9, Heffelfinger comments to United States Senate, April 27, 2005 at p. 4:

It is the Department of Justice’s position that whether machine gaming is characterized as Class II or Class III, the Johnson Act prohibits the gambling devices absent a Tribal-State compact. It is also the Department’s position that the IGRA intented a clear distinction between Class III games that require a compact and Class II gaming which does not. Manufacturers of gaming equipment have attempted to use creative engineering to blur the line between these two classes.

32. Letter from the Justice Department to Congress, June 15, 2002, William E. Moschella, Office of the Assistant Attorney General to Senator Ben Nighthorse Campbell, Chairman of the Senate Committee on Indian Affairs commenting on S. 1529 that would amend the IGRA. Mr. Moschella specifically criticized § 2(a) which would clarify that the Johnson Act does not apply to IGRA Class II games. The letter is on file with this author. He wrote at page 2:

The Department believes that the amendment may well result in more lucrative Class II gaming with the use of high speed machines that are virtually indistinguishable to a player from machines in Class III gaming.

33. See supra, n. 3.
34. The proposed amendment provides:

(4) The provisions of this Section shall not bar the continued use until no later than one year after the date of the enactment of this Act for gambling devices used as technologic aids that were in actual operation on [May 1, 2005], if the gambling device remains in operation at the same location where the gambling device was located and in actual operation on [May 1, 2005], and either (i) the Chairman or General Counsel of the National Indian Gaming Commission had issued a written advisory opinion prior to [May 1, 2005], concluding that the gambling device was Class II unless a federal court has adjudicated otherwise, or (ii) a United States Circuit Court of Appeals ruled prior to [May 1, 2005], that the gambling device was Class II.

35. See, Executive Order 13175 of Nov. 6, 2000, 65 Fed. Reg. 67249 (Nov. 9, 2000)
36. Id. n. 7, comments of President Tex Hall and Chairman Berry.
37. Global Gaming Expo., tribal leaders luncheon, Sept. 15, 2005.

About the Author

D. Michael McBride III directs the Indian and gaming law practice group at Sneed Lang, PC in Tulsa. He is past chair of the OBA’s Indian Law Section and is a member of the International Masters of Gaming Law. Mr. McBride represents tribes and tribal entities as well as entities and individuals doing business with tribes.