Federal Ruling Ends High Stakes Battle over Casino Money

By KBJR News 1

November 21, 2011 Updated Nov 22, 2011 at 10:44 AM CDT

Duluth, MN (Northland's NewsCenter) - There's been a major decision in a multi–million dollar, high stakes court battle, between the city of Duluth and the Fond du Lac Reservation.

Over the past 25 years the city of Duluth has received more than 80–million dollars in shared revenue disbursements from the Fond du Luth casino in downtown Duluth.

Under the original contract the band would be obligated to negotiate new shared revenue terms for a second 25 years.

But Monday Federal judge Susan Richard Nelson ruled that the band will not be required to re–negotiate a second 25 year agreement with the city and is no longer under any shared revenue obligations with Duluth for the Fond du Luth casino.

The issues in question are complex and date back over two decades for the city and the Fond Du Lac Band of Lake Superior Chippewa.

The creation of the Fond du Luth Casino evolved from a series of agreements in 1986 between Duluth and the Fond Du Lac Band of Lake Superior Indians.

Under the agreements the band purchased the old Sears Building in the rundown East side of Duluth's downtown.

With the city's approval the federal government put the land in trust and declared it part of the Fond Du Lac Reservation.

Under the original agreements the Duluth–Fond Du Lac Economic Development commission, comprised of Band and city appointees, managed the gaming operations and proceeds were split among the city, the band and the commission.

The Band received 25.5%, Duluth received 24.5% and the rest went to economic development, distributed by the commission. When the casino first opened no one could have imagined how many legal skirmishes would follow or how high the casino profits would climb.
Duluth's share alone is astounding.

According to Fond du Lac Tribal Chair, Karen Diver there has been over $80M given to the city of Duluth. “There is some feeling that we are prepaid for whatever Duluth may feel it’s entitled to,” Said Chair Diver.

But, Mayor Don Ness said the Band has also benefited from the agreements.

“They have a benefit of being one of only five or six casinos in the country that have an Indian gaming facility in the middle of downtown,” said Mayor Ness.

The original agreements between the city and the band were penned before the National Indian Gaming Act became law. The Act required Indian Tribes to have sole proprietary interest and responsibility for gaming activity. So when the Act took effect the original agreements between the city and the band fell out of compliance.

That led to revisions to the agreements in 1994 giving the band exclusive operation of the casino and reducing the "commission" to just two members; the Duluth Mayor and the Band Chair.

The city's financial cut was also reduced to 19% of gross revenues and classified as "Rent." The most recent court action stems from a 2009 decision by the band to withhold those rent payments.

FDL Chair Diver said, “It was the decision of the reservation business committee that we, to be compliant with the Indian Gaming Regulator Act, that those payments exceeded what would be allowed under the law...mainly the sole propriety interest of the tribe and its gaming enterprise.”

But Mayor Ness questioned that decision.

“We're in a situation right now where the band's position is we're going to take all the benefit and the city isn't going to take any benefit and it flies in the spirit of the '86 and '94 agreements,” the Mayor said.

Last year the validity of the 1994 contract agreements was upheld in Federal Court but the Judge did not offer an opinion on whether those contracts complied with the Indian Gaming Regulation Act's "Sole Proprietary Interest" principle.

But in July, the Chairwoman of the National Indian Gaming Commission did have an opinion. She issued a "notice of violation" against the band ordering it to cease its relationship with the city or face fines and a possible order of temporary closure of the casino.
According to Chair Diver that left the band between a rock and a hard place.

“With the notice of violation we were told we can't pay the city of Duluth and they can't have a part in management,” she said.

Mayor Ness disagreed with that interpretation.

“Well, obviously we take issue with many of the opinions expressed by Tracy Stevens who is a political appointee,” said Mayor Ness.

However, the decision from Federal Judge Susan Nelson upheld the political appointee's ruling, meaning the band is no longer under any obligation to negotiate any further contracts for shared revenue with Duluth.

Indian Gaming has brought huge changes for the city of Duluth and for the Fond du Lac Reservation.
Tuesday Barbara continues her special investigation following the money!

Barbara Reyelts