proposed johnson act amendments seek to "clarify" distinction between class ii and class...

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4 GAMING LAW REVIEW Volume 10, Number 1, 2006 ©Mary Ann Liebert, Inc. Proposed Johnson Act Amendments Seek to “Clarify” Distinction Between Class II and Class III Gaming HEIDI MCNEIL STAUDENMAIER S OME OBSERVERS HAVE DESCRIBED the recent ac- tions of the United States Department of Justice (DOJ) as equivalent to a Category 5, or higher, hurricane rampaging through Indian Country. Others have referred to the situation as a runaway train bent on causing irreparable damage to tribal casinos. Regardless, DOJ’s proposed amendments to the Johnson Act have caused considerable concern and controversy since disclosed in the fall of 2005. DOJ first announced its plans at the 2005 Global Gaming Expo in Las Vegas and advised that the proposed legislation is intended to “bring clarity” to the $19 billion-plus tribal gaming industry. 1 Currently, under the federal Indian Gaming Regulatory Act (IGRA), tribes may conduct Class II gaming without the re- quirement of a tribal-state compact. 2 Class II gaming is defined in IGRA as bingo and games similar to bingo. 3 Electronic technologic aids to such games are permissible, while electronic facsimiles of “any game of chance or slot ma- chines of any kind” are not permitted. 4 Class III gaming is a “residual” category in which all other gaming is included (other than Class I or Class II gaming). 5 Class III gaming is only permitted under a negotiated compact be- tween the tribe and the state, thus providing significant controls and jurisdiction over the Class III gaming to the state. 6 In contrast, Class II gaming cannot be regulated by the states and is in the sole jurisdictional purview of the tribe and the National Indian Gaming Commission (NIGC). 7 The Johnson Act, as amended in 1962, makes criminal—both outside and inside “Indian Country”—the possession, use, sale or trans- portation of any “gambling device”. 8 IGRA ex- pressly exempts the Johnson Act prohibitions for any Class III gaming conducted pursuant to a tribal-state compact. 9 What has not been clear—or, at least, what DOJ has sought to ar- gue—is whether the Johnson Act still governs Class II gaming devices, or whether Class II de- vices are exempt from the Johnson Act prohi- bitions. In recent years, DOJ has persistently sought to label Class II games employing technologic aids as “gambling devices” subject to criminal enforcement under the Johnson Act, or alter- natively as Class III devices requiring a state- tribal compact. 10 The courts have consistently Heidi McNeil Staudenmaier is partner coordinator of the Snell & Wilmer Indian and Gaming Law Practice Group and is located in the firm’s Phoenix office. She is past pres- ident of the International Masters of Gaming Law and a founding member of that group. She also serves as associ- ate editor of Gaming Law Review. She may be contacted at (602) 382-6366 or [email protected]. 1 DOJ Proposes Major Change in Indian Gaming Law, INDI- ANZ.COM.IN.PRINT, at http://www.indianz.com/News/ 2005/010343.asp (Sept. 16, 2005). 2 25 U.S.C. §§ 2703(7), 2710(b)(1). 3 Id. at § 2703(7)(A). 4 Id. at § 2703(7)(B)(ii). 5 25 U.S.C. § 2703(8). 6 Id. at § 2710(d)(2)(c). 7 25 U.S.C. § 2710(b)(2). 8 15 U.S.C. § 1175(a) (2000). 9 25 U.S.C. § 2710(d)(3), (6). 10 See United States v. 103 Elect. Gambling Devices, 223 F. 3d 1091 (9th Cir. 2000); United States v. 162 Mega- Mania Gambling Devices, 231 F. 3d 713 (10th Cir. 2000); Diamond Game Enterprises v. Reno, 230 F. 3d 365 (D.C. Cir. 2000); United States v. Santee Sioux Tribe of Neb., 324 F. 3d 607 (8th Cir. 2003), cert. denied, 540 U.S. 1229 (2004); Seneca-Cayuga Tribe of Okla. v. National Indian Gaming Comm’n, 327 F. 3d 1019 (10th Cir. 2003), cert. denied, 540 U.S. 1218 (2004).

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Page 1: Proposed Johnson Act Amendments Seek to "Clarify" Distinction Between Class II and Class III Gaming

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GAMING LAW REVIEWVolume 10, Number 1, 2006©Mary Ann Liebert, Inc.

Proposed Johnson Act Amendments Seek to “Clarify”Distinction Between Class II and Class III Gaming

HEIDI MCNEIL STAUDENMAIER

SOME OBSERVERS HAVE DESCRIBED the recent ac-tions of the United States Department of

Justice (DOJ) as equivalent to a Category 5, orhigher, hurricane rampaging through IndianCountry. Others have referred to the situationas a runaway train bent on causing irreparabledamage to tribal casinos. Regardless, DOJ’sproposed amendments to the Johnson Act havecaused considerable concern and controversysince disclosed in the fall of 2005.

DOJ first announced its plans at the 2005Global Gaming Expo in Las Vegas and advisedthat the proposed legislation is intended to“bring clarity” to the $19 billion-plus tribalgaming industry.1 Currently, under the federalIndian Gaming Regulatory Act (IGRA), tribesmay conduct Class II gaming without the re-quirement of a tribal-state compact.2 Class IIgaming is defined in IGRA as bingo and gamessimilar to bingo.3 Electronic technologic aids tosuch games are permissible, while electronicfacsimiles of “any game of chance or slot ma-chines of any kind” are not permitted.4

Class III gaming is a “residual” category inwhich all other gaming is included (other thanClass I or Class II gaming).5 Class III gaming isonly permitted under a negotiated compact be-tween the tribe and the state, thus providingsignificant controls and jurisdiction over theClass III gaming to the state.6 In contrast, ClassII gaming cannot be regulated by the states and

is in the sole jurisdictional purview of the tribeand the National Indian Gaming Commission(NIGC).7

The Johnson Act, as amended in 1962, makescriminal—both outside and inside “IndianCountry”—the possession, use, sale or trans-portation of any “gambling device”.8 IGRA ex-pressly exempts the Johnson Act prohibitionsfor any Class III gaming conducted pursuantto a tribal-state compact.9 What has not beenclear—or, at least, what DOJ has sought to ar-gue—is whether the Johnson Act still governsClass II gaming devices, or whether Class II de-vices are exempt from the Johnson Act prohi-bitions.

In recent years, DOJ has persistently soughtto label Class II games employing technologicaids as “gambling devices” subject to criminalenforcement under the Johnson Act, or alter-natively as Class III devices requiring a state-tribal compact.10 The courts have consistently

Heidi McNeil Staudenmaier is partner coordinator of theSnell & Wilmer Indian and Gaming Law Practice Groupand is located in the firm’s Phoenix office. She is past pres-ident of the International Masters of Gaming Law and afounding member of that group. She also serves as associ-ate editor of Gaming Law Review. She may be contacted at(602) 382-6366 or [email protected].

1 DOJ Proposes Major Change in Indian Gaming Law, INDI-ANZ.COM.IN.PRINT, at http://www.indianz.com/News/2005/010343.asp (Sept. 16, 2005).2 25 U.S.C. §§ 2703(7), 2710(b)(1).3 Id. at § 2703(7)(A).4 Id. at § 2703(7)(B)(ii).5 25 U.S.C. § 2703(8).6 Id. at § 2710(d)(2)(c).7 25 U.S.C. § 2710(b)(2).8 15 U.S.C. § 1175(a) (2000).9 25 U.S.C. § 2710(d)(3), (6).10 See United States v. 103 Elect. Gambling Devices, 223F. 3d 1091 (9th Cir. 2000); United States v. 162 Mega-Mania Gambling Devices, 231 F. 3d 713 (10th Cir. 2000);Diamond Game Enterprises v. Reno, 230 F. 3d 365 (D.C.Cir. 2000); United States v. Santee Sioux Tribe of Neb., 324F. 3d 607 (8th Cir. 2003), cert. denied, 540 U.S. 1229 (2004);Seneca-Cayuga Tribe of Okla. v. National Indian GamingComm’n, 327 F. 3d 1019 (10th Cir. 2003), cert. denied, 540U.S. 1218 (2004).

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Page 2: Proposed Johnson Act Amendments Seek to "Clarify" Distinction Between Class II and Class III Gaming

rejected all such attempts since 2000.11 Most no-tably, the United States Supreme Court refusedin 2004 to accept review of two cases from theEighth and Tenth U.S. Circuit Courts of Ap-peal. This refusal left intact court rulings con-cluding that the gaming devices at issue wereClass II, not Class III games.12

The Santee Sioux and Seneca-Cayuga cases areinstructive of the tension between IGRA andthe Johnson Act, from DOJ’s perspective. At is-sue in the Santee Sioux case were certain LuckyTab II machines.13 Basing its decision on a D.C.Circuit ruling several years earlier, the EighthCircuit held that the devices could be operatedlegally in the tribal casino as Class II games andtherefore did not require a compact with theState of Nebraska.14

Similarly in the Seneca-Cayuga case, the TenthCircuit cited to prior case decisions and ruledthat the Magical Irish Instant Bingo DispenserSystem was not an illegal gambling device un-der the Johnson Act and that instead it was apermissible technologic aid to Class II gamingunder IGRA.15

The briefing on the petitions for writ of cer-tiorari in the foregoing cases underscored thelong-running dispute over the types of gamingdevices that tribes can offer at their casinos. Inits petition in the Santee Sioux case, DOJ con-tended the Eighth Circuit’s holding that “IGRAdoes not provide Tribes with any exemptionfrom the Johnson Act when they use gamblingdevices in the absence of an approved tribal-state compact,” conflicted with the Tenth Cir-cuit’s holding in Seneca-Cayuga.16 DOJ claimedthe Eighth Circuit erred in holding that theLucky Tab II was not a gambling device withinthe meaning of the Johnson Act.17 DOJ assertedthe Johnson Act is intended to define “gam-bling device” in the “most expansive termspossible, precisely to prevent ingenious manu-facturers from slipping their devices throughsome linguistic loophole”.18

DOJ’s views set forth in its petition in Seneca-Cayuga were equally scathing. There, DOJ con-tended the Tenth Circuit had “eviscerated theJohnson Act as a tool for policing casino-stylegaming in Indian Country.”19 DOJ argued “thecontinued application of the Johnson Act is es-sential to fulfilling Congress’s purpose in enact-ing IGRA to ensure the existence of a regulatory

regime for lucrative casino-style gaming that issufficient to protect against corruption.”20

In responding to DOJ, the tribes argued “theparticularities of how to define a Johnson Actgambling device is not an issue worthy of re-view.”21 The tribes claimed such an analysis isfact-intensive and not proper for SupremeCourt review.22 Based on its refusal to acceptreview of the DOJ petition, the Supreme Courtapparently agreed.

As a result of DOJ’s repeated failures in the ju-dicial system, DOJ apparently determined thatthe legislative route was the only option in itsquest to obtain the regulatory control over ClassII gaming that it sought. In revealing its amend-ment plans, DOJ opined that advances in tech-nology have “blurred the lines” between Class IIgames and Class III slot machines and the newproposed legislation would clarify the situation.23

Since early 2004, NIGC had been working ondrafting proposed regulations to IGRA, aimedat setting forth specific classification guidelinesand technical standards for Class II games.24

PROPOSED JOHNSON ACT AMENDMENTS 5

11 See id.12 See United States v. Santee Sioux Tribe of Neb., 324 F.3d 607 (8th Cir. 2003), cert. denied, 540 U.S. 1229 (2004);Seneca-Cayuga Tribe of Okla. v. Nat’l Indian GamingComm’n, 327 F. 3d 1019 (10th Cir. 2003), cert. denied, 540U.S. 128 (2004).13 These same machines were at issue in Diamond GameEnters. v. Reno, 230 F.3d 365 (D.C. Cir. 2000). There, thecourt ruled that underlying game involved pull-tabs, aClass II game, and that the machines simply facilitatedthe playing of paper pull-tabs. Thus, the court determinedthat the machines were Class II electronic aids and notClass III facsimiles.14 Santee Sioux, 324 F. 3d at 616.15 Seneca-Cayuga Tribe of Okla. v. National Indian Gam-ing Comm’n, 327 F. 3d 1019, 1043-44 (10th Cir. 2003), cert.denied, 540 U.S. 1218 (2004).16 Petition for Writ of Certiorari at 2, Santee Sioux (No. 03-762).17 Id.18 Id. at 9-10.19 Petition for Writ of Certiorari at 8, Seneca-Cayuga (No.03-740).20 Id. at 9.21 Opposition to Petition for Writ of Certiorari at 26,Seneca-Cayuga (No. 93-740).22 Id.23 J. Sweeney, Bill would limit definition of gaming devices,COPLEY NEWS SERVICE (Sept. 17, 2005).24 Press Release, Nat’l Indian Gaming Comm’n, NationalIndian Gaming Commission Selects Class II Game Clas-sifications Standards Advisory Committee Members(March 8, 2004), available at http://www.nigc.gov/nigc/documents/releases/PR030804.jsp.

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Just when NIGC was ready to issue proposedregulations and commence the official rule-making process early in 2005, DOJ advised thatit would oppose the proposed regulations. DOJcontended that the regulations did not go farenough in defining and regulating Class IIgaming devices.25

As a result of DOJ’s position, NIGC and DOJcommenced negotiations over the Class II defin-itions. These negotiations ultimately led to theJohnson Act amendment proposal. Needless tosay, the announcement immediately set off afirestorm of controversy within Indian Country.Many observers have predicted that the pro-posed amendments will do nothing but offerconsiderable litigation and similar challenges.26

The proposed legislation was released in Oc-tober, 2005, and is targeted to expressly includeClass II devices within the ambit of the John-son Act. The proposed amendments providethat the Johnson Act does not prohibit thetransportation of a gambling device for use inClass II gaming where 1.) the gambling devicehas been certified as a “Class II technologic aidpursuant to regulations adopted” by NIGC,and 2.) the “use of the gambling device in ClassII gaming is conducted pursuant to the re-quirements” of IGRA and NIGC.27

The critical language is in the proposed defi-nition of Class II gaming. Specifically, amended15 U.S.C. § 1175(d) would permit the exceptionof the use of any Class II gambling device withinIndian Country only if it:

(1) is limited to games that require the playersto compete against other individuals in or-der to win one or more common prizes;

(2) requires the players to actively participatein the game;

(3) does not allow players to win prizes forgames based on games that do not consti-tute Class II gaming; and

(4) is readily distinguishable from Class IIIgames based on the manner in which theplayers participate in the game and the ap-pearance of the game to the players, includ-ing but not limited to the speed of play anddepictions or graphics used in the game.28

These four elements proposed for defining aClass II technologic aid appear fraught with

ambiguities, leaving interpretation wide openfor court challenges. For instance, what does itmean for a player to “actively participate” inthe game with respect to element No. 2? Andhow does one determine whether a device is“readily distinguishable” from a Class III gamewhen considering the “speed of play and de-pictions or graphics used in the game?”

The proposed amendments also specificallydefine the terms “game commonly known asbingo” or “game similar to bingo” to mean:

A game which is played for prizes, includ-ing monetary prizes with cards bearingnumbers or other designations, in which theholder of the cards covers (daubs) suchnumbers or designations when objects, sim-ilarly numbered or designated, are drawnor electronically determined and the gameis won by the first person covering previ-ously designated arrangement of numbersor designations on such cards; and for thissubsection, the term “lotto” means a gameof chance played in the same manner as thegame of chance commonly known as bingo.In order for this exception to apply to gam-bling devices that are technologic aids forthe game commonly known as bingo,games similar to bingo, or lotto, the gamesplayed using the gambling device mustmeet the following requirements –

(A) during the game, the bingo card orcards must be displayed throughout thebingo game even if the bingo cards areelectronically generated;

(B) the bingo numbers or characters forthat game must be randomly drawn or de-termined after the start of play for thegame;

(C) the permissible minimum number ofball drops per bingo game shall be deter-mined by regulations issued by the Na-tional Indian Gaming Commission;

MCNEIL STAUDENMAIER6

25 Senate Panel supports NIGC on Class II rules, INDIANZ.COM.IN.PRINT, at http://www.indianz.com/news/2005/007901.asp (Apr. 29, 2005).26 DOJ Proposes Major Change in Indian Gaming Law, supra.27 A copy of the proposed amendments can be obtainedat http://www.usdoj.gov/otj/johnson.html.28 15 U.S.C. § 1175(d)(1)(B)(i)-(v).

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(D) after each ball drop, the numbers orcharacters on the bingo balls are to be re-vealed to the players one at a time withsufficient time for the players to take anovert action to cover or daub the bingocard after each ball drop; and

(E) a minimum number of two individ-ual players are required for play of a bingogame to commence.(3) In order for this exception to apply togambling devices that are technologic aidsfor the game of pull-tabs and instant bingo(hereinafter referred to as pull-tabs), thegambling device shall –

(A) store and dispense pull-tabs from adeal or portion thereof that are printed onpaper, plastic, or other tangible mediumand may in addition, electronically displaythe actual contents of pull-tabs that areprinted on paper, plastic, or other tangiblemedium; and

(B) the machine cannot directly payoutwinnings to the player nor dispense vouch-ers or receipts representing such win-nings.29

Any gaming device that fails to meet the cri-teria set forth in the amendments will not qual-ify for an exemption under the Johnson Act andwill be viewed as illegal to operate without atribal-state compact. Tribes will face criminalpenalties for violating the Johnson Act in ad-dition to civil fines and enforcement byNIGC.30

The amendments also make it a criminal of-fense to violate any of the NIGC’s civil regula-tions or to alter a gaming device after the de-vice has received a classification determinationfrom the NIGC.31 In implementing the JohnsonAct amendments, the NIGC hopefully will beable to salvage certain of the regulations it hadworked on for so long.32

The proposed legislation does include agrandfather clause. For one year, tribes will beable to operate machines that either NIGC or aU.S. Circuit Court of Appeals previously clas-sified as Class II, but, pursuant to the amendedlanguage, the machines would fall within theClass III category.33 Such a result will essen-

tially reverse some of the favorable Class II de-terminations discussed above.

Interestingly, Class II games at present makeup only about 10 percent of the tribal gamingmarket. The more lucrative Class III machinesmake up 80 percent. The remaining 10 percentfall into the “gray” market category as towhether the machine is really Class II or ClassIII.34

Sen. John McCain (R-Ariz.) has voiced hissupport over clarifying the differences betweenClass II and Class III games. During a hearingin April 2005, Senator McCain stated:

Being one of the authors of the [IGRA], weenvisioned Class II to be the standardbingo game, the standard pull tab—not anelectronic device that closely resembles aslot machine. I believe [the distinction] hasbeen blurred by technology and I am go-ing to try to act, and this committee [will]act, so that there is a distinction.35

It is unknown when the Johnson Act amend-ments will actually be introduced before Con-gress, although DOJ is hopeful that it will hap-pen as early as mid-2006. NIGC has beenengaging in government-to-government con-sultations with tribes throughout the fall of2005, continuing into early 2006. Based on theseconsultations and subsequent discussions/ne-gotiations with DOJ, a final draft of the legis-lation will be prepared.

As of January, 2006, no one seems willingto predict the final form of the amendments,nor the anticipated success of passing theamendments into law. The only almost sure-fire guarantee is that, regardless of the finalform of the amendments, they will be contro-versial and will most certainly be challengedin the courts.

29 Id. at § 1175(d)(2)-(3).30 Id. at § 1176.31 Id. at § 1175 (e) and § 1176.32 Id. at § 1175 (a) and (f).33 Id. at § 1175(d)(4).34 DOJ Proposes Major Change in Indian Gaming Law, supra.35 Senate Indian Affairs Committee Hearing, 109thCongr., 1st Sess. (Apr. 27, 2005) (statement of Sen. JohnMcCain).

PROPOSED JOHNSON ACT AMENDMENTS 7

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