Can Connecticut grant only the Mashantucket Pequot and Mohegan tribes the right to operate an off-reservation joint casino without losing the slot-machine revenue Connecticut already gets from those tribes?

Plain-English summary

Connecticut had a long-running revenue arrangement with the Mashantucket Pequot Tribal Nation and the Mohegan Tribe under which the Tribes paid the state about a quarter of slot-machine revenue from their reservation casinos in exchange for the state not licensing slot operators outside the reservations. Special Act 15-7 set up a process by which the Tribes, jointly, could pursue an off-reservation gaming facility, with final authorization to come from later legislation. By early 2017 that authorization legislation was pending. Governor Malloy asked the AG to assess three risks: (1) constitutional challenges to giving the Tribes an exclusive right to operate the new casino, (2) the risk that submitting the required compact amendments to the U.S. Department of the Interior could disrupt the existing revenue-sharing deal, and (3) the implications for future tribal gaming claims.

The AG's bottom line was that none of the risks could be confidently mitigated. On the constitutional side, an MGM-led lawsuit had already been filed and the State had won dismissal only on standing grounds, meaning a future challenge against actual authorizing legislation would likely reach the merits of the equal-protection and commerce-clause claims. On the federal-approval side, the Department had issued a non-binding "technical assistance" letter saying the existing exclusivity arrangement would not be affected by the new casino, but the AG cautioned that the letter was not binding, that a new administration might take a different view, and that there was no guarantee the Secretary would not use the amendment review as an opening to reexamine the entire revenue-sharing structure. On future tribal gaming, the AG reaffirmed its 2015 view that authorizing the Tribes to operate off-reservation gaming would strengthen any future claim by newly recognized tribes to gaming rights under IGRA.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Connecticut's tribal-gaming relationship with the Mashantucket Pequot and Mohegan tribes operates through two compacts (the Mashantucket Pequot Gaming Procedures and the Mohegan Compact) plus two memoranda of understanding governing video-facsimile (slot-machine) games. Under the MOUs, the State agreed not to allow commercial slot operations by anyone else, and in exchange the Tribes pay roughly 25% of slot revenue. Section 15(a) of the Compacts terminates the slot moratorium if state law is "amended to expressly authorize the operation of any video games of chance for any purpose by any person, organization or entity."

Special Act 15-7 established a request-for-proposals process under which a tribal-business entity, jointly owned by the two Tribes, could solicit municipalities for an off-reservation casino site. The Special Act expressly forbade actual gaming operations until subsequent legislation authorized them. By 2017 the Tribes had moved through site selection and the General Assembly was considering the authorizing legislation.

The AG's earlier April 15, 2015 letter had laid out the three categories of risk. This 2017 opinion was a refresh in light of intervening events: the MGM lawsuit, the Interior Department's April 2016 technical-assistance letter, the change in presidential administrations, and updated submissions from the Tribes' counsel.

On constitutional risk, KG Urban Enterprise, LLC v. Patrick raised the prospect that giving an Indian tribe a state-law preference in gaming licensing could be reviewed as a racial classification (and thus subject to strict scrutiny) rather than a political one. United Haulers and the dormant commerce clause provided a separate angle, on the theory that an in-state gaming preference discriminated against out-of-state operators. The MGM suit had already raised both claims; the State won dismissal on standing because Special Act 15-7's preliminary RFP process did not yet injure MGM. Once authorizing legislation passed, the AG warned, that defense would no longer be available.

On Interior approval, the AG explained that compact amendments need Secretary of the Interior sign-off under IGRA, and that the Secretary has a free hand to decide what review to conduct. The April 25, 2016 technical-assistance letter from Acting Assistant Secretary Roberts said the proposed amendments reflected "the unique circumstances" of the Tribes and the State, and that the existing exclusivity would not be affected. But the letter expressly disclaimed binding effect, did not address the scope of review, and predated the change in administration. The AG also noted that Trump's earlier business activity in Connecticut casino gaming added unpredictability. Former Interior Secretary Salazar (writing for MGM) had argued that submission of the amendments would trigger a broader review and potentially invalidate the existing payment arrangements as exceeding amounts Interior had previously approved.

On future tribal gaming, IGRA permits a federally recognized tribe to conduct Class III gaming on Indian lands if the state "permits such gaming for any purpose by any person, organization, or entity." Authorizing the Tribes to operate off reservation would, the AG reiterated, materially strengthen the claim of any newly recognized Connecticut tribe to its own gaming rights.

Common questions

Did the AG say the casino would definitely be ruled unconstitutional?

No. The AG said the constitutional challenges were "not at all insubstantial" and that the State had defenses that might succeed, but predicted that the relative novelty of the legal questions made outcomes hard to forecast with confidence. The AG specifically warned that once authorizing legislation passed, the State would lose the standing/ripeness defenses that had defeated MGM's first lawsuit.

Why was the Interior Department review such a concern when the Department had said the deal would not be disturbed?

Two reasons. First, the technical-assistance letter expressly disclaimed binding effect and did not commit the Department to any particular scope of review on a future formal amendment submission. Second, the letter came under one administration, and the formal review would happen under another. The AG also observed that Interior had not formally acted on the 1994 Mashantucket MOU, only on the Mohegan one, leaving an opening for the Department to argue the Mashantucket arrangement was never valid.

Could legislation be drafted to avoid these risks?

The AG did not propose a clean path. Removing the federal-approval requirement (so the deal would not need Interior review) eliminates one risk but trades it for the larger risk that the moratorium on slot exclusivity terminates by operation of state law, ending the revenue-sharing payments. Conditioning casino approval on Interior approval keeps revenue-sharing protection but pushes the question to a federal agency under a new administration whose intentions were unknown.

Does this matter to anyone outside Connecticut?

The legal framework here, IGRA Class III gaming, compact amendments, and the KG Urban equal-protection theory, recurs in any state that gives tribal operators a preferential gaming license. The AG's caution about how a state-tribe revenue-sharing arrangement can be exposed by a single compact amendment submission is a useful reference point for other AG offices.

Citations

Statutes and federal authorities

• 25 U.S.C. § 2710(d)(1)(B) (IGRA, conditions for tribal Class III gaming)
• 25 C.F.R. § 83.4(d) (BIA tribal acknowledgment regulations)
• Connecticut Special Act 15-7 (RFP process for joint tribal casino)

Cases

• KG Urban Enterprise, LLC v. Patrick, 693 F.3d 1 (1st Cir. 2012) (state tribal-gaming preference may face strict scrutiny as racial classification)
• United Haulers Ass'n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (2007) (commerce-clause framework for in-state economic preferences)
• MGM Resorts Int'l Global Gaming Dev. v. Malloy, No. 3:15cv1182(AWT) (D. Conn. June 23, 2016) (dismissed on standing)
• Amador County v. Salazar, 640 F.3d 373 (D.C. Cir. 2011) (third-party challenges to compact-amendment approvals)

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Original PDF: https://portal.ct.gov/-/media/ag/opinions/2017/2017-02_ag_casino_opinion_to_governor-pdf.pdf?rev=5f456ee4bf304c31bcf6cc6760b1455b

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

55 ELM STREET
P.O. BOX 120
HARTFORD, CT 06141-0120

GEORGE JEPSEN
ATTORNEY GENERAL

Office of the Attorney General

State of Connecticut

The Honorable Dannel P. Malloy
Governor
State Capitol
210 Capitol Avenue
Hartford, CT 06106

Dear Governor Malloy:

You have requested an opinion, in light of the enactment of Special Act 15-7 and the subsequent developments pursuant to it, of the risks associated with moving forward with the process for authorizing a casino gaming facility operated by an entity jointly owned by the Mashantucket Pequot Tribal Nation (MPTN) and the Mohegan Tribe of Indians of Connecticut (Mohegan) (collectively, Tribes). Specifically, you request an opinion about (1) the potential for success of constitutional challenges to the grant of an exclusive right to the Tribes to operate a casino; (2) the risks to the State's current revenue sharing arrangements with the MPTN and Mohegan if the Mashantucket Pequot Gaming Procedures and Mohegan Gaming Compact are amended to facilitate the operation of such a facility; and (3) the impact on future tribal gaming in Connecticut.

By way of initial background, Special Act 15-7 established a process under which a tribal business entity, registered with the Secretary of the State and owned exclusively by the MPTN and Mohegan, could issue requests for proposals to municipalities for the possible establishment of a casino gaming facility. The Special Act expressly provided that the tribal business entity was prohibited from establishing a casino gaming facility until subsequent legislation was enacted to permit the operation of such a facility. This process has since progressed such that the Tribes' evaluation of potential sites for a facility is concluding and the General Assembly is considering legislation to authorize gaming at such a facility.

As you indicate, on April 15, 2015, prior to the enactment of Special Act 15-7, we provided a letter to the legislative leadership about various legal issues raised by the possible enactment of legislation authorizing MPTN and Mohegan to jointly operate a gaming facility off of reservation land (2015 Letter). The 2015 Letter summarized the nature of the existing gaming arrangements between the State and the MPTN and Mohegan, and discussed each of the legal issues that you raise. A copy of the 2015 Letter is attached.

Our 2015 letter identified certain legal risks to the State's interests. We must exercise caution in providing a full legal analysis in a public letter given our responsibility to defend the State's interests in any existing, and perhaps future, litigation or other proceedings relating to these topics. We note two additional and important caveats. First, clear legal guidance in this area is sparse, and the factual and historical backdrop to our analysis is unique. Second, your questions call for predictions as to how a federal government agency within a new presidential administration will, as a matter of policy, choose to exercise its authority. As a result, forecasting likely legal or administrative outcomes is unusually difficult. However, for the reasons discussed below, we reiterate that we remain concerned about the risks associated with each of the identified issues. Moreover, we cannot say with any degree of reasonable certainty that those risks are negligible or that they have been or can be substantially mitigated.

Potential for Success of Constitutional Challenges

As to the first issue you raise, the 2015 Letter indicated that third parties could claim that granting an exclusive right to conduct gaming to the Tribes off of reservation land violates the equal protection clause of the U.S. Constitution. 2015 Letter, at 2 n.1 (citing KG Urban Enterprise, LLC v. Patrick, 693 F.3d 1 (1st Cir. 2012)). In KG Urban, the court raised serious questions about whether a state law that provided a preference to an Indian tribe in granting gaming licenses would be subject to strict judicial scrutiny as a racial, rather than a political, classification, and thus presumptively unconstitutional. KG Urban, 693 F.3d at 18-20. The 2015 Letter also noted that a third party could assert a claim under the commerce clause of the United States Constitution that the granting of an exclusive right to the Tribes for the purpose of protecting in-state economic interests was unconstitutional discrimination against interstate commerce. 2015 Letter, at 2 n.2 (citing United Haulers Ass'n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (2007)). We indicated in the 2015 Letter that we were unable to predict with any certainty how a court might resolve such claims.

After the enactment of Special Act 15-7, MGM Resorts International Global Gaming Development, LLC (MGM) brought an action in federal court challenging the constitutionality of the Special Act and asserting both equal protection and commerce clause claims of the sort we discussed in the 2015 Letter. Those claims rely, in substantial part, on legislative history materials that are alleged to demonstrate an explicit intention through Special Act 15-7 to discriminate in favor of a specific in-state entity and against out-of-state competitors. This office successfully moved to dismiss MGM's lawsuit on the basis that MGM did not suffer any real injury under the Special Act's preliminary process and therefore lacked standing to sue at this point. MGM Resorts Int'l Global Gaming Dev. v. Malloy, No. 3:15cv1182(AWT) (D. Conn. June 23, 2016). In dismissing MGM's action, the court did not reach the claims' merits. MGM has appealed the dismissal to the United States Court of Appeals for the Second Circuit, and the appeal presently awaits a decision from the court.

If the state were to pass a law permitting only the Tribes to operate a casino, we would be unable to present in a future challenge the same arguments asserted in the motion to dismiss, i.e., standing, ripeness and justiciability based upon the preliminary nature of the process established by Special Act 15-7. Thus, there is an increased likelihood that a court would reach the merits of equal protection or commerce clause challenges.

As noted, we must be circumspect in our comments in light of our responsibility to defend such claims if, as is foreseeable, they are asserted and their merits litigated. To be sure, legislation currently pending to approve a joint tribal casino does not explicitly reference or rely upon the process that was previously established in Special Act 15-7 and that is currently being challenged in litigation. However, it is foreseeable that any legislation resulting in approval of the joint tribal entity's operation of a casino will be challenged as effectuating and furthering an allegedly discriminatory intent first manifested in Special Act 15-7 in violation of the commerce and equal protection clauses of the United States Constitution.

We do believe that there are potentially meritorious defenses that we would be able to raise against these constitutional claims, including that the special nature of state-tribal relationships permits special legislative treatment and requires judicial deference. However, the relative novelty of the legal issues such claims would present makes it difficult to predict their outcome with confidence. We caution that the potential of equal protection or commerce clause challenges succeeding in this context is not at all insubstantial.

Risks to Current Revenue Sharing Arrangements

The 2015 Letter discussed in detail the basis of the State's relationship with the Tribes under the Mashantucket Procedures and the Mohegan Compact (together, the Compacts) and the corresponding Memoranda of Understanding (MOUs) that provide for revenue sharing from the operation of video facsimile games (colloquially known as video slot machines). See 2015 Letter, at 2-3. In the 2015 Letter, we advised that legislation authorizing the Tribes to operate a gaming facility off reservation land could constitute a change in state law that would end the moratorium on operating video facsimile games and permit the Tribes to operate video facsimile games free of the payment requirements under the MOUs. Id. at 4. We accordingly recommended that the Compacts be amended to make clear that such legislation would not trigger the termination of the moratorium, and that the amendments be submitted to the Secretary of the Interior for approval. We cautioned, however, that

there is no certainty as to whether the Secretary would approve the amendment or what the scope of the Secretary's review would be. In particular, it is unclear if the Secretary's review would encompass the broader context of the compacts, including the MOUs and their payment requirements to the State.

Id. at 5.

Since the 2015 Letter, there have been several developments, but none completely resolves the concerns we previously expressed, namely that the Secretary's review might extend to raising objections about the existing payment arrangements.

First, on April 25, 2016, Acting Assistant Secretary — Indian Affairs Lawrence S. Roberts issued a "technical assistance" letter in response to the requests of the Tribes to review proposed amendments to the Compacts. It stated that the proposed amendments reflected "the unique circumstances" of the Tribes and the State and that it was their view that the Tribes' "existing exclusivity arrangement would not be affected by a new State-authorized casino that is jointly and exclusively owned" by the Tribes.

For several reasons, the technical assistance letter does not resolve completely the concerns we previously raised about the risks associated with amending the Compacts. First, the letter itself expressly provides that it should not be construed as a preliminary decision or advisory opinion, and that any compact amendment would still require formal final approval. More importantly, the technical assistance letter does not directly address the concerns we raised: the likelihood of approval and the scope of the Secretary's review. Instead, the technical assistance letter's nonbinding guidance seemed to address the separate question of whether, absent amendments to the MOUs and Compacts, legislation authorizing a gaming facility would affect the "existing exclusivity arrangement." The Interior Department, however, lacks jurisdiction to adjudicate disputes arising out of gaming compacts. The federal courts have exclusive jurisdiction over such disputes. Moreover, for the reasons set forth in our 2015 Letter, we continue to believe that passing such legislation absent amendments to the Compacts and MOUs poses serious risks to the State's agreements with the Tribes.

While the technical assistance letter may have been intended to provide the Tribes and the State with some assurance that the proposed amendments would be approved and that the Department did not intend to revisit the existing exclusivity arrangement, it did not offer meaningful insights into the standards or considerations that would govern the breadth and substance of its review. Its reference to the "existing exclusivity arrangements," which are contained in the MOUs, not the Compacts to which the proposed amendments related, suggests that the Department would review and consider the entirety of the relationships between the Tribes and the State, including the MOUs, if proposed amendments to the Compacts were submitted.

The Mohegan Tribe also submitted to our office a letter from its counsel, Dentons, suggesting that the Secretary could not, when reviewing the proposed amendments, alter or disapprove the existing Compacts or revenue sharing arrangements. We acknowledge that there are many factors supporting Dentons' conclusions. Those factors include the Secretary's historical practice of rejecting very few compact amendments, the fact that the existing revenue sharing arrangements between the State and the Tribes have been in place for decades, and the State's and Tribes' longstanding reliance on their validity and enforceability. We also credit Dentons' representation that the Secretary's actions have, in the past, been limited to approving (expressly or by inaction) or rejecting proposed amendments, and that there appears to be little or no precedent for an amendment review resulting in the disapproval of existing compact provisions. In other words, we agree with Dentons that it would be highly unusual, if not unprecedented, for the Secretary, in the context of reviewing proposed amendments, to affirmatively invalidate or modify existing payment arrangements not directly related to the terms of the proposed amendments.

Additionally, we note facts suggesting that the BIA has long been aware of the existing MOUs without questioning their validity. The Mohegan MOU was included with its Compact submission to the Department of the Interior and the Assistant Secretary for Indian Affairs, to whom the Secretary had delegated his authority to approve compacts under IGRA, approved both the Mohegan Compact and the Mohegan MOU. Although the Mashantucket MOU was never submitted to the Department of the Interior, the Department was aware of the Mashantucket MOU at the time it approved the Mohegan Compact and MOU. Indeed, in approving the Mohegan MOU, the Department's letter specifically acknowledged that "the federally recognized Indian tribes in Connecticut" had purchased "a valuable right from the State" because the State had agreed to "not allow commercial operation of slots by any other entity as long as the tribes continue to make the agreed payments." See December 5, 1994 Approval Letter from the Department of the Interior to the Mohegan Tribe (emphasis added).

Our position has been, and remains, that both MOUs were contemplated and permissible under the terms of the Compact moratoria and therefore are valid and enforceable. They have been in place for more than twenty years and have never been called into question by the Interior Department. Moreover, its staff, in issuing the recent technical assistance letter, appears to have given at least some consideration to the MOUs without casting any aspersions on them, explicitly referencing the exclusivity arrangements in the MOUs in concluding that the Tribes' exclusivity is not likely to be impacted.

In sum, we concur with Dentons that the Interior Department, were it to follow past practice, would likely review a proposed amendment without disturbing or casting doubt upon the existing MOU provisions governing payment arrangements.

However, it cannot be ignored that there has been a change in presidential administrations. There is no guarantee that the Interior Department will follow past practice in the exercise of its authority, nor even that it will adhere to the limited views expressed in the technical assistance letter. Notably, in his past business ventures, President Trump was actively involved in pursuing casino gaming interests in Connecticut, and the significance of those activities, among other things, for our present considerations is, at best, difficult to judge.

Thus, we cannot assure you that, in evaluating proposed amendments to the Compacts, the Secretary's review would necessarily not undertake at least some consideration and discussion of the validity under IGRA of the MOUs' revenue sharing arrangements. The technical assistance letter is not binding and, as noted, a new presidential administration is now in place. The fact that the Interior Department has never called the payment arrangements into question and that it referenced the Mashantucket MOU in its letter approving the Mohegan MOU and Compact is not conclusive evidence that it deems the Mashantucket MOU valid notwithstanding the fact that it was never submitted to and formally approved by the Department.

Ken Salazar, a former Secretary of the Interior and now private attorney, has provided you with a letter on behalf of MGM that details a variety of predicted potential negative consequences that might arise in the event proposed compact amendments are submitted to the Secretary. He also submitted written testimony to the Public Safety and Security Committee reiterating his view that the proposed amendments likely would not be approved and that the mere submission of those amendments likely would trigger a broader review of the existing payment arrangements. Secretary Salazar concluded that there is a substantial risk that the Department would invalidate the existing revenue sharing arrangement on the grounds that they far exceed amounts the Department has previously approved and that Connecticut state law impermissibly directs those funds to the State's General Fund.

The potential outcomes Secretary Salazar predicts would be inconsistent with the Department's general practice of leaving undisturbed existing compact provisions when reviewing compact amendments. We caution, however, that should the Secretary's review or decision on a proposed amendment include a discussion or analysis casting doubt in some way on the validity of the existing payment arrangements, the State and its tribal partners would confront difficult questions about the legality and enforceability of the MOUs.

As we emphasized in the 2015 Letter, "[g]iven the unique nature and history of the State's gaming relationships with the Tribes, there is very little in the way of legal precedent or guidance that allows for a confident analysis of these complex and uncertain legal questions." 2015 Letter, at 5. Developments since then, including the technical assistance letter, have not completely eliminated these uncertainties. Weighing such uncertainties against the current challenges to the State's gaming industries is of course ultimately a policy decision.

Future Tribal Gaming

As to the third issue, the potential implications for future tribal gaming, the 2015 Letter noted that the enactment of legislation authorizing the Tribes to engage in gaming activities off reservation land would "significantly increase the likelihood that newly acknowledged tribes would succeed in asserting rights to casino gaming under IGRA." 2015 Letter, at 6. IGRA provides that a federally recognized tribe may engage in Class III gaming activities on Indian lands, subject to a tribal-state compact, if such activities are located in a state that "permits such gaming for any purpose by any person, organization, or entity..." 25 U.S.C. § 2710(d)(1)(B). We have no reason to change our assessment of this issue.

Conclusion

In sum, the risks attendant to authorizing a casino gaming facility operated by an entity jointly owned by the MPTN and Mohegan, while impossible to quantify with precision, are not insubstantial and cannot be mitigated with confidence. We are not in a position to opine on the nature or extent of the economic or other benefits that may result from approving such an entity or whether any such benefits justify the risks described in this letter, however minimal they may be.

We trust this is responsive to your questions, and we remain available to discuss these issues further with you or your staff.

GEORGE JEPSEN
ATTORNEY GENERAL