A recent lawsuit filed by three tribal governments raises a major question: Did a law passed by the Legislature and signed by former Gov. Mary Fallin in 2017 violate state-tribal gaming compacts, opening the door for tribes to now seek damages?

In an unusual twist, the potential violation involved removing some restrictions on casino gaming at two tribally owned, but technically “commercial,” horse racetracks that also have slot machines. In providing flexibility to those two tribally owned facilities, lawmakers and former Gov. Fallin may have violated compact promises made regarding the “exclusivity” provided to all other tribal casinos in Oklahoma, based on language in the lawsuit.

News that the 2017 vote may have legal ramifications in 2020 caught lawmakers off guard.

“At the time, there were no objections raised about possible violations of the compacts,” said Sen. Kim David, a Porter Republican who was chair of the Senate Appropriations Committee in 2017 and one of the two authors of the legislation in question, House Bill 1836.

“We disagree with that interpretation of the lawsuit,” said John Estes, spokesman for House Speaker Charles McCall, R-Atoka. “The lawsuit makes no such allegation and the legislation—which was supported by numerous tribal nations—did not diminish the tribes’ exclusivity.”

A lawsuit filed on Dec. 31, 2019 by the Cherokee Nation, Chickasaw Nation, and Choctaw Nation asks a federal court to declare that the tribes’ gaming compacts with the state of Oklahoma automatically renewed on Jan. 1 for another 15-year term. 

However, the lawsuit also contains language regarding legal changes enacted in 2017.

“After the Compact went into effect, the State also expanded state-regulated electronic gaming by enacting changes in state law,” the lawsuit states. “State statutes originally restricted the conduct of Class III electronic gaming by organization licensees to specific days and times. However, in 2017, the State enacted amendments to those restrictions, effectively authorizing the conduct of Class III electronic gaming by organization licensees around the clock and throughout the week.”

Shortly after noting the 2017 changes, the lawsuit adds that tribal governments’ “obligation” to make exclusivity fee payments to Oklahoma government “is expressly contingent on the State not authorizing any additional form of electronic gaming that would diminish the Tribes’ ‘substantial exclusivity’ in Class III gaming. If the State breaches that commitment, it must pay liquidated damages to the compacting Tribes.”

The “organization licensees” referenced are two horse racetracks: the Remington Park racetrack in Oklahoma City and Will Rogers Downs in Rogers County. Both facilities, often called “racinos,” offer slot machines and are legally the only commercial casinos allowed in Oklahoma today. (A third horse racetrack allowed to have slot machines at the time state-tribal compacts were signed has since closed.)

All other Las Vegas-style gaming is done at tribal casinos. In return for monopoly rights, excluding slot machines at the two racetracks, tribal governments agreed through compacts to make “exclusivity” payments to Oklahoma government. Tribal casinos pay a rate of 4 percent to 6 percent on slot machines, and 10 percent on table games.

In contrast, the two commercial racinos pay tax rates that start at 35 percent on revenue up to $10 million and then increase to 50 percent on revenue of more than $70 million.

The Chickasaw Nation’s 15-year gaming compact, which gained federal approval in 2005 and is similar to compacts signed by other tribes, includes language in which the state of Oklahoma agreed “that it will not, during the term of this Compact, permit the nontribal operation of any machines or devices to play covered games or electronic or mechanical gaming devices otherwise presently prohibited by law with the state in excess of the number and outside of the designated locations authorized by the State-Tribal Gaming Act.”

Under the compact, any violation of that provision would result in the state government paying liquidated damages equal to 50 percent of any increase in adjusted gross revenue collected by the state. 

Prior to 2017, casino gaming at Oklahoma horse racetracks could be conducted only on days when live racing was underway or when wagers were accepted for simulcast races. State law limited the use of slot machines at racinos to no more than 106 total hours in any week, with a limit of no more than 18 hours in a single 24-hour period.

But under HB 1836, passed and signed into law in 2017, the weekly/daily restrictions on hours of operation for slot machines were stricken, and racinos were also allowed to offer casino gambling on Christmas Day.

Labor Commissioner Leslie Osborn, who then served as chair of the House Appropriations and Budget Committee, presented HB 1836 on the House floor on March 13, 2017. Osborn did not respond to a request for comment, but when she presented the bill in 2017, Osborn told legislators it “would actually let our tracks operate the same hours as the other entities in the state.”

Patty Marks, a partner at Fredericks Peebles & Patterson LLP, a law firm with offices across the nation that has done much work in American Indian law and tribal gaming, said the tribal lawsuit provisions on the 2017 changes appear to be focused on the compact language that barred state government from expanding nontribal gambling beyond levels originally authorized in 2005.

Marks, who has negotiated tribal/state compacts for Class III gaming in Michigan, Kansas, Arizona, North Dakota, and Minnesota, said it appears Oklahoma tribal governments can argue the 2017 changes violated the terms of gaming compacts.

“If you look at the compact during the period it was operable and unbreached, these are the rules,” Marks said. “And just like any contract that has damages provisions in it, one can always assert that they didn’t get the damages they were promised in writing.”

Under Oklahoma’s state-tribal gaming compacts, any commercial entity given post-2005 expanded casino gambling opportunity must pay tribal governments up to 50 percent of the money generated as a result of the expansion.

According to “State of the States 2019: The AGA Survey of the Commercial Casino Industry,” a publication of the American Gaming Association, Oklahoma’s two racinos generated significant increased revenue in the year following the 2017 changes. The report states that the gaming taxes paid by Oklahoma racinos in 2018 represented “an increase of 13.3 percent from the prior year.”

However, it is unlikely the tribes filing the lawsuit would seek damages from state racetracks because two of the three tribal governments filing the lawsuit also own those racetracks. When Oklahomans approved expansion of casino gambling in a 2004 vote, neither racetrack was a tribal government property. However, since that time both racetracks have been sold. The Remington Park racetrack is today owned by the Chickasaw Nation, while Will Rogers Downs is owned by the Cherokee Nation. However, both facilities are still considered commercial operations, and not tribal casinos, under existing law and state-tribal compacts.

For lawmakers, the more relevant portion of the compact may be provisions that say state government must pay up to 50 percent of revenue it collects off any expansion of gambling by non-tribal operators in violation of compact agreements.

In 2017, state analysts estimated the gaming authorized by HB 1836 would generate $2.75 million more per year for state government, based on the tax rates imposed on commercial gambling in Oklahoma. That suggests tribal governments could request millions in cumulative damages if HB 1836’s expansion violated state-tribal gaming compacts.

The lawsuit filed by the three tribal governments argues that state-tribal gaming compacts auto-renewed upon re-authorization of continued casino gaming at the two tribal-owned racetracks. The Oklahoma Horse Racing Commission granted that authorization on October 17, 2019. The portions of the lawsuit regarding the 2017 legal changes are included in a section discussing the link between casino activity at tribal-owned horse racetracks and auto-renewal of gaming compacts that govern all other tribal casinos.

While the lawsuit discusses the 2017 law, it does not include a specific request for damages as a result of the 2017 legislation.

When asked via email if the three tribal governments are claiming they “may have grounds to seek liquidated damages from the state of Oklahoma for the legal changes made in 2017,” Stephen Greetham, senior counsel for the Chickasaw Nation, responded, “The pleading speaks for itself and we will look forward to addressing the judge’s questions and Governor (Kevin) Stitt’s arguments as matters proceed in court.”