Supreme Court axes 2003 gaming contract

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The Wisconsin Supreme Court held on May 13 that the governor did not have authority to enter the 2003 compacts with state Indian tribes, providing for perpetual duration, and expanding the permissible games to include keno, roulette, poker, craps, and variations on blackjack.

History

Traditionally, Article IV, Section 24 of the Wisconsin Constitution permitted no gambling of any kind. In 1965, it was amended to permit promotional contests. In 1973, it was amended to permit charitable bingo, and in 1977, charitable raffles.

In 1987, it was amended to permit a state-operated lottery, and pari-mutuel on-track betting. Also in 1987, the U.S. Supreme Court held that a state could not enforce its gambling laws on Indian lands, if it had adopted a civil/regulatory approach to gambling rather than criminal/prohibitory. Shortly thereafter, Congress passed the Indian Gaming Regulatory Act (IGRA) to establish standards for the operation of gambling by Indian tribes.

In 1991, a Wisconsin federal district court held that the state was required to negotiate over casino games with two Chippewa bands. Lac du Flambeau Band of Lake Superior Chippewa Indians. v. State of Wisconsin, 770 F.Supp. 480 (W.D.Wis.1991). The court found that Wisconsin’s approach to gambling had become regulatory with the 1987 amendments, rather than prohibitory.

Pursuant to the decision, the governor reached compact agreements with 11 tribes in the state, permitting slot machines, blackjack, and pull-tabs. The compacts provided, “The Tribe may not operate any Class III gaming not expressly enumerated in this section of this Compact unless this compact is amended…”

The compacts were for durations of seven years, with a provision for automatic extension for terms of five years, unless either party served written notice of nonrenewal.

In 1993, Article IV, Section 24, was amended to provide, “Except as provided in this section, the legislature may not authorize gambling in any form.”

In 1998, the compacts were amended, and extended five years.

In 2003, the compacts were again amended. The 2003 amendments expanded the permissible games to include variations on blackjack, pari-mutuel wagering on horses and dogs, keno, roulette, craps, and poker.

The amendments also made the compacts permanent unless both the tribe and State agree to their nonrenewal. Finally, the compacts added a liquidated damage clause, and provided that the state and tribes waive sovereign immunity.

Mary Panzer, majority leader of the Wisconsin Senate, and John G. Gard, Speaker of the Wisconsin Assembly, brought an original action against the governor in the Wisconsin Supreme Court, challenging the lawfulness of the 2003 amendments.

The court held that the 2003 amendments were unlawful in a decision by Justice David T. Prosser Jr. Chief Justice Shirley S. Abrahamson, and Justices Ann Walsh Bradley and N. Patrick Crooks filed a joint dissent.

Separation of Powers

The court began by setting forth, “We are mindful that this decision will require both a renegotiation of certain compact terms and a reconsideration of the Wisconsin state budget. At the same time, the decision does not invalidate any gaming rights the [Forest County Potawatomi] Tribe had as of the 1998 amendments. In addition to those rights, this decision permits pari-mutuel wagering on live simulcast horse, harness, and dog racing events and does not prohibit additional sites.”

The court held that the governor does not have wholly unlimited power, pursuant to sec. 14.035, to negotiate compacts, but that there are “certain implicit limits.” The statute provides, “The governor, may, on behalf of this state, enter into any compact that has been negotiated under 25 U.S.C. 2710(d).”

The court held that one of those implicit limits is on entering compacts of permanent duration, because this circumvents the procedural safeguards that ensure that delegated power may be curtailed or reclaimed by future legislative action.

The court concluded, “If the Governor’s action with respect to the duration term were allowed to stand, all the procedural safeguards that might possibly rein in the governor’s authority would be ineffective. The legislature would be powerless to alter the course of the state’s position on Indian gaming by repealing or amending sec. 14.035. The electorate might be able to voice its displeasure, and the Governor might in theory pay a heavy political price, but the voters would be powerless to elect a governor who could impact the terms that had already been agreed to.”

Secondly, the court held the governor had no authority to expand permissible class III gaming to games expressly prohibited by the 1992 amendment to Article IV, Section 24.

The court concluded, “The text of the constitution is absolutely clear: ‘Except as provided in this section, the legislature may not authorize gambling in any form.’

Nothing in section 24 authorizes electronic keno, roulette, craps, and poker. These games are specifically denied to the Wisconsin Lottery.”

The court cited a federal district court decision for support, American Greyhound Racing, Inc. v. Hull, 146 F.Supp.2d 1012 (D.Ariz.2001), vacated on other grounds, 305 F.3d 1015 (9th Cir.2002). American Greyhound held that IGRA does not require a state to enter into compacts authorizing tribes to engage in gaming otherwise prohibited by state law.

The Supreme Court adopted the reasoning of the federal court as follows: “According to the structure of sec. 2710(d)(1) and its plain terms, a compact cannot make legal class III gaming not otherwise permitted by state law. The State must first legalize a game, even if only for tribes, before it can become a compact term.” Id. at 1067.

Discussing the 1992 Lac du Flambeau case, the court noted that, until recently, it was the only case in the country to conclude that, once a state regulates one form of class III gaming, it must negotiate over all forms. The court stated, “the continued vitality of Lac du Flambeau’s holding is very doubtful, and the decisions’s statements regarding Wisconsin’s policy toward gaming have been seriously undercut by the 1993 amendment to Article IV, Section 24.”

The court added, “Unlike the expansive interpretation of the term ‘lottery’ that was at least plausible before 1993, our constitution is now quite clear that the legislature may not authorize any gambling except that permitted by article IV, section 24, and is very clear that certain games do not fall under the term ‘lottery’ …. The constitution is now specific about what the state-operated lottery may do and what it may not do. Blackjack and other varieties of banking card games, poker, roulette, craps, keno and slot machines are all games specifically outside the scope of Section 24(6)’s authorized exception, and they do not come within any other exception.”

The court concluded, “The Tribe’s existing games such as slot machines and blackjack must be sustained on the basis of the validity of the original compacts, which were negotiated pursuant to court order before the 1993 constitutional amendment, as well as constitutional and contract law.”

The court acknowledged that its holding “raises inevitable questions about the validity of the original 1992 FCP Gaming Compact and the 1998 amendments thereto,” stating, “Clearly, the 1992 Compact encompasses games that were and are precluded under our state’s criminal statutes.”

However, finding that the 1992 compact was negotiated under a constitutional sec. 14.035, and pursuant to an order of a federal court, the court stated, “Both the tribes and the state have relied on the validity of the original compacts. Any attempt at this point to impair these compacts would create serious constitutional questions.”

After reviewing various legislative recognition of the compacts, the court added, “Whether the 1992 compact is durable enough to withstand a change in state law that alters our understanding of what is ‘permitted’ in Wisconsin is a separate question. The resolution of this question is likely to turn, at least in part, on the application of the impairment of contracts clauses in the United States and Wisconsin Constitutions as well as IGRA. Because these issues are not before us, and because they may turn in large measure on unresolved questions of federal law, our decision stops short of resolving these important questions.”

After also finding the waiver of sovereign immunity invalid, the court granted the relief sought, and declared the 2003 amendments to have been entered without authority.

The Dissent

Three justices, Abrahamson, Bradley, and Crooks dissented from the majority opinion on all issues, stating, “we conclude that the Governor properly exercised his power pursuant to Wis. Stat. sec. 14.035. Likewise, the duration provision is valid, as similar provisions are commonplace and recognize the government’s need to enter into long-term contracts. Furthermore, the majority’s application of the 1993 Wisconsin constitutional amendment to outlaw certain gaming substantially impairs the contractual relationship between the State and the Tribe and violates the federal and state constitutional impairment of contracts clause. Finally, the issue of sovereign immunity is not ripe and fails on the merits. Thus we conclude that the 2003 amendments are valid and that the majority opinion raises substantial federal issues, rendering this court a stopping point on the parties’ way to the federal courts.”

Rejecting the majority’s conclusion that there are implicit limits on the governor’s authority to enter compacts, the dissenters wrote: “as long as a compact does not contravene a statute or constitutional provision, the governor may enter into it under Wis. Stat. sec. 14.035, embracing those conditions and provisions the governor deems will best promote the interests of the government. The majority opinion’s conclusion that a stricter standard (whatever that means) exists for delegation from the legislature to the governor ignores the constitutionally granted executive power vested in a governor.”

Turning to the perpetual nature of the compacts, the dissent wrote, “The majority fails to acknowledge that the 2003 duration provision is substantively similar to those in the original 1992 compact and 1998 amendments. It likewise fails to grasp that compacts of long-term or indefinite duration are commonplace throughout the country. Contrary to the majority’s conclusion that the compact
s are invalid because they bind future legislatures, such compacts reflect the government’s need to enter agreements that extend well beyond a current legislative session.”

The dissent also found that the added games were permissible, because at the time of the 1992 compact, the state and tribes were free to negotiate for any type of Class III game. The dissent reasoned, “Any Class III games that would be outlawed by Article IV, sec. 24 could be negotiated for and permitted in an amended compact, given Section XXVI of the 1992 compact. This provision overrides any subsequent changes in state law, including those brought about by the amendment to Article IV, sec. 24. The changes to the compact made in the 1998 and 2003 amendments are permissible given the fact that they involve automatic extensions as well as amendments to the 1992 compact. That compact, in Section XXVI, clearly states that the provisions of the compact apply over any changes in state or tribal law. A conclusion to the contrary patently ignores the basic provisions contracted for by the parties involved.”

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The dissent added, “The majority opinion concedes that the 1992 compact was valid when the parties agreed to it. The majority correctly worries that questions regarding the validity of the 1992 compact and 1998 amendments, after the amendment to Article IV, sec. 24, might raise impairment of contract concerns. We conclude that any attempt to read Article IV, sec. 24 as altering the types of games that may be negotiated for under the compact would impair the compact to which the parties agreed, and would, therefore, run afoul of the United States and Wisconsin constitutional clauses against impairment of contract.”

The court concluded, “While it may have been foreseeable that state or tribal law could change, the parties planned for this by including Section XXVI in the compact.

If the amendment to Article IV, sec. 24 is held to affect the 2003 amendments to the compact, which merely continue the 1992 compact, as amended in 1998, the parties’ contract will be substantially impaired. The types of Class III games that can be, and were, negotiated for as permitted games will be prohibited, and those which could have been allowed in 1992 will never be permitted.”

Finally, the dissenters concluded that the Supremacy Clause of the U.S. Constitution preempts application of the state constitutional amendment in this case, reasoning, “the majority’s formulation of the scope-of-gaming issues as state law cannot mask the obvious federal nature of the case. Here, the petitioners have sought a declaratory judgment centered on the meaning and application of a federal statute and the validity of a federally approved compact. Accordingly, this court lacks jurisdiction to adjudicate the dispute.”

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David Ziemer can be reached by email.