By Katherine Guarino Baker, Joshua Kirschner, Caitlin Sullivan
The U.S. Court of Appeals for the Federal Circuit recently reversed the lower court decision in West Flagler Associates v. Haaland, reinstating a gaming compact between the State of Florida and the Seminole Tribe that effectively granted the Seminole Tribe the exclusive right to operate online sports betting throughout Florida.
The lower court had ruled that the compact authorized gaming outside of Indian lands in violation of the Indian Gaming Regulatory Act (“IGRA”).[1] On appeal, the U.S. Court of Appeals for the District of Columbia Circuit reversed, finding that while an IGRA gaming compact cannot authorize gaming outside Indian lands, it may properly address such gaming, as it was in the Florida-Seminole compact.[2] Coupled with a similar proposed rule issued by the U.S. Department of the Interior (DOI), this decision has the potential to disrupt the competitive market for commercial and tribal operators in the remote wagering and iGaming space.
The 2021 Gaming Compact between the Seminole Tribe of Florida and the State of Florida
In 2021, pursuant to IGRA, the Seminole Tribe and the State of Florida entered into a new compact, known as the 2021 Gaming Compact (the “Compact”),[3] that granted the Seminole Tribe a virtually exclusive[4] right to operate online sports betting throughout Florida. The Compact and enabling state legislation provided that consumers who are physically present in state, but not on the Tribe’s lands, may participate in online sports betting on the basis that such wagers are “deemed to be exclusively conducted by the tribe” at “its facilities where the sports book(s), including servers and devices to conduct the same are located.”[5]
As such, the Compact purported to allow online sports wagers to be made from off-reservation lands, almost anywhere in the state, so long as the server accepting the wager was located on the Tribe’s land. This arrangement is referred to as the “hub and spoke” model, wherein the tribe’s wager-accepting server is the hub, and the spokes are the consumers’ mobile devices across the state.[6]
The Legal Challenge
Following the April 2021 ratification of the Compact by Chairman Marcellus Osceola Jr. of the Seminole Tribe and Florida Gov. Ron DeSantis, the Compact was submitted to Secretary of the Interior Deb Haaland in accordance with the IGRA. Haaland did not take action to approve or reject the compact within the 45-day window allotted by law. Thereafter, the Compact was deemed approved as a matter of law pursuant to IGRA.
Secretary Haaland’s actions and the “deemed approval” of the Compact were immediately challenged by West Flagler Associates, a South Florida casino and pari-mutual operator. West Flagler challenged whether Haaland’s approval via inaction violated IGRA because such approval is allowed “only to the extent the compact is consistent with the provisions of [IGRA].”[7] West Flagler argued, in relevant part, that the Compact’s “online sports betting provisions unlawfully authorize class III gaming outside of Indian lands, in violation of IGRA.”[8]
The lower court held that the Compact’s language “deeming” bets placed outside Indian lands to occur on Indian lands impermissibly exceeded the scope of IGRA, and therefore Haaland was obligated to disapprove it.[9]
On appeal, the D.C. Circuit Court reversed the lower court’s decision and held that the Compact did not authorize online sports betting outside of tribal lands, but rather, permissibly addressed the subject. In other words, while a gaming compact entered into between a state and a tribe pursuant to IGRA can legally authorize a tribe to conduct gaming only on its own lands, IGRA does not prohibit a gaming compact from discussing other topics. For example, IGRA expressly allows states and tribes to negotiate the allocation of criminal and civil jurisdiction between them “directly related to the operation of gaming activities.”[10]
The Court determined that the Compact’s language “deeming” bets to occur on Indian lands is “directly related to the operation of” the Tribe’s sports book and addresses the agreement between the Seminole Tribe and Florida on the subject.[11] The Court found the allegation that the Tribe and Florida “sought to circumvent state constitutional law” irrelevant to the question before it, i.e., whether the Secretary’s no-action decision on the Compact complied with IGRA.[12] The Court explained that it is ultimately a question of state law whether a consumer may legally place bets from nontribal land within Florida.[13]
Indeed, the Court emphasized that its decision should not be read to mean that IGRA provides independent legal authority for gaming activity that occurs outside of Indian lands, where that activity would otherwise violate state law.[14] As illustrated in the decision, “[i]f the state statute . . . related to this action were to be challenged in Florida state court and were to fall, the compact that they crafted would give no independent authority for the Tribe to continue to receive bets from outside Indian lands.”[15]
Rather, the Court declined to address head-on whether the Compact’s “hub and spoke” method of deeming wagers to be placed on tribal lands is compatible with IGRA, general principles of tribal sovereignty and relevant case law. Traditionally, “there are some limits on what a tribe and a state can agree to in an IGRA gaming compact…” and the purpose of these limits is to prevent the “…backdoor to exercise regulatory power over tribes that they otherwise would not have.”[16] Here, however, the Court found that such regulatory overreach “is not a concern…”[17] because the plain language of the Compact does not say that wagers placed off tribal lands are “authorized,” merely that “the parties to the Compact have agreed that they both consider such activity (i.e., placing those wagers) to occur on tribal lands.”
The Court concluded that such a contractual agreement is not equivalent to authorizing or regulating activities otherwise outside the scope of IGRA, but is instead merely a “provision simply allocate[ing] jurisdiction between Florida and the Tribe, as permitted by [IGRA].”[18]
Where the Court deftly played the role of spectator as to the issue of the State’s exercise of jurisdictional reach into Tribal lands, it seemed to relish its turn as the “man in the arena” on the issue of whether the State’s grant to the Tribe of a “statewide monopoly over online sports betting” violates the equal protection clause of the Fifth Amendment.[19] To reach its conclusion that the State’s grant of a statewide monopoly does not violate the Fifth Amendment, the Court applied a rational basis standard of review.[20]
In doing so, it held that granting such a monopoly is “rationally related” to “promoting the economic development of federally recognized Indian tribes (and their members),” which is a stated purpose of IGRA.[21] Such a rational relationship between the intent of the Compact and enabling statutes and the “legitimate legislative purposes laid out in IGRA” defeats West Flagler’s equal protection challenge as a matter of law.
DOI’s Proposed Rule Validating the “Hub and Spoke” Model for Remote Wagering or Online Gaming in Tribal-State Compacts
As this firm discussed in its prior client alert on the subject, on Dec. 5, 2022, the DOI published a proposed rule consistent with the holding in West Flagler. Under the proposed rule, a gaming compact “may include provisions addressing [s]tatewide remote wagering or internet gaming.”[22] Furthermore, “a compact may specifically include provisions allocating State and Tribal jurisdiction over remote wagering or internet gaming originating outside Indian lands where:
(a) State law and/or the compact or amendment deem the gaming to take place, for the purposes of state and Tribal law, on the Tribe’s Indian lands where the server accepting the wagers is located [(the so-called “hub and spoke” model)];
(b) The Tribe regulates the gaming; and
(c) The player initiating the wager is not located on another Tribe’s Indian lands.[23]
In responding to public comments regarding the proposed rule, DOI reasoned that IGRA cloaks a Tribe and State with the joint authority to, “negotiate for ‘the application of the criminal and civil laws and regulations of the Indian Tribe or the State that are directly related to, and necessary for, the licensing and regulation of [remote wagering and internet gaming]’ and ‘the allocation of criminal and civil jurisdiction between the State and the Indian Tribe necessary for the enforcement of such laws and regulations.”[24]
In line with this reasoning, DOI noted that a compact may include provisions addressing Statewide remote wagering because “negotiation between a Tribe and State” over such activity “falls under these broad categories of criminal and civil jurisdiction.”[25] As part of its comment, the DOI also noted that “the ultimate legality of gaming activity outside Indian lands remains a question of State law, notwithstanding that a compact discusses the activity” and that “Congress in enacting IGRA did not contemplate the Department would address or resolve complex issues of State law during the [Secretary of the Interior’s] 45-day review period.”[26] This is well in line with the Federal Circuit Court’s decision in West Flagler. The Court’s decision does not allow compacts to “authorize” mobile sports wagering off of Tribal lands. The Court merely held that any gaming activity occurring beyond Tribal lands is not within IGRA’s scope and therefore is not governed by IGRA. As the Court clarified, this is true even in stances where the Compact “deems” off-reservation activity to be occurring on Tribal lands.[27]
Although the initial comment period for the proposed rule closed on March 1, 2023, additional comments were accepted through the end of June 2023. Although no formal date for finalization of the rule has been announced, the current Unified Agenda Timetable indicates that a Final Action will be taken in September 2023.[28] As of yet, there have not been any indications that further material changes to the rule should be expected prior to finalization.
Proposed Rule Regarding Tribal Remote Wagering and Internet Gaming Likely to Face Challenge
As discussed herein and in the prior client alert, finalization of this rule, coupled with the West Flagler decision, represent an inflection point in the gaming industry and may well lead to seismic shifts in both private sector competition and the relationship between states and tribes. As such, many opponents of the rule (or more generally of the expansion of gaming) have already indicated a desire to challenge the rule should it be finalized in its current form. One such opponent is state authorities who view the rule as an unjustified expansion of tribal sovereignty at the expense of state government authority.
For example, Montana Attorney General Austin Knudsen submitted public comment opposing the proposed rule. In his public comment, AG Knudsen argued that “the Proposed Regulations would bypass the legislative process and undercut the ability of Attorneys General to enforce state gaming laws.”[29] Knudsen further argued that by requiring a state “that allows any form of class III gaming” under its own laws must negotiate with tribes to allow all forms of class III gaming,” the proposed rule will require states to abridge state legislative prohibitions on certain forms of class III gaming.[30]
Knudsen also opposes the proposed rule’s expansion on statewide mobile gaming, arguing that states should have “primary authority” over these questions without improper intervention from DOI.[31] Knudsen’s letter is signed by 19 fellow Attorneys General indicating widespread opposition to the proposed rule as a usurpation of state powers and authority over the authorization and regulation of gaming activities.
Conclusion
Based on the West Flagler decision, IGRA alone cannot be used to authorize gaming activity that occurs outside of Indian lands. This means that state law will ultimately dictate how tribes can enter the remote wagering market. On Monday, Aug. 14, 2023, Plaintiff-Appellee West Flagler filed a petition for a hearing en banc before the D.C. Circuit Court of Appeals.[32] If the petition is denied, West Flagler may file a petition for writ of certiorari with the United States Supreme Court. Alternatively, West Flagler or other interested party, could follow the guidance of the Court and challenge the Compact (and enabling statute) before the Florida state courts based on an argument that the Compact’s “deeming” clause is unconstitutional and ask the court to declare that the State is incorrect in deeming wagers placed off of tribal lands to have occurred on tribal lands based solely on server location. Further, an interested plaintiff may extend this line of thought to argue that such wagers placed off of tribal lands violate the 2018 Florida constitutional amendment prohibiting the expansion of gaming in Florida without a statewide voter referendum approving it. To date, it appears that no such challenges have been filed.
For the time being, it appears Judge Friedrich’s previous order staying any further actions that would allow the Seminole Tribe to offer sports wagering in Florida will stay in place pending the outcome of West Flagler’s petition.[33]
Nelson Mullins’ Gaming Industry Group includes an experienced team of Native American law, gaming, and government relations attorneys and policy advisors who regularly advise clients on these types of matters. Tribes, Native organizations, and individuals that are interested in these proposed regulations, applying for a land into trust application, negotiating a Class III tribal state gaming compact, or otherwise providing services to a tribal gaming operator should retain qualified counsel to assist them with the process and ensure compliance with applicable law.
[1] W. Flagler Assocs. v. Haaland, 573 F. Supp. 3d 260, 275 (D.D.C. 2021).
[2] W. Flagler Assocs., Ltd. v. Haaland,71 F.4th 1059, 1065 (D.C. Cir. 2023).
[3] 2021 Gaming Compact Between the Seminole Tribe of Florida and the State of Florida (April 23, 2021) [hereinafter “Compact”].
[4]See Compact § XII. The Compact provides the Seminole Tribe with the exclusive right to operate certain covered games without state authorized competition. In return, the Seminole Tribe agrees to make revenue share payments to the State of Florida based on its net winnings. If the State of Florida enters into a compact with another Indian tribe and authorizes sports betting in the state but not on Indian lands, the Seminole Tribe’s revenue share payments to the state are reduced by 25% (but may not be less than 10% of the net win received by the Seminole Tribe from the operation and play of sports betting during each revenue sharing cycle, including the net win received by the Seminole Tribe from pari-mutuel sports betting).
[5] Compact § IV(A).
[6] Letter from Bryan Newland, Principal Deputy Sec’y, U.S. Dep’t of Interior for Indian Aff. to The Honorable Marcellus W. Osceola, Jr., Chairman, Seminole Tribe of Florida (Aug. 6, 2021).
[7] W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059, 1064 (D.C. Cir. 2023) (quoting Amador Cnty. v. Salazar, 640 F.3d 373, 376, 395 U.S. App. D.C. 110 (D.C. Cir. 2011)).
[8] Id. at 1065.
[9]W. Flagler Assocs. v. Haaland, 573 F. Supp. 3d 260, 275 (D.D.C. 2021).
[10] W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059, 1062 (D.C. Cir. 2023).
[11] Id. at 1066.
[12] Id. at 1068.
[13] Id.
[14] Id.
[15] Id.
[16] Id. at 1065.
[17] Id.
[18] Id. at 1068.
[19] Id. at 1070.
[20] Id.
[21] 29 U.S.C. § 2702(1); seealso W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059, 1070 (D.C. Cir. 2023) (citing Am. Fed’n of Gov’t Emps., AFL-CIO v. United States, 330 F.3d 513, 522-23 (D.C. Cir. 2003).
[22] 87 Fed. Reg. at 74947.
[23] Id.
[24] Id. at 74919.
[25] Id.
[26] Id.
[27] W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059, 1065 (D.C. Cir. 2023) (citing Michigan v. Bay Mills Indian Cmty., 572 U.S. 782, 795 (2014)).
[28] Bureau of Indian Affairs, Class III Tribal State Gaming Compacts, Unified Agenda, https://www.regulations.gov/docket/BIA-2022-0003/unified-agenda.
[29] Public Comment of Austin Knudsen, Attorney General for the State of Montana, March 1, 2023, https://www.regulations.gov/comment/BIA-2022-0003-0022.
[30] Id.
[31] Id.
[32] Appellees’ Petition for Rehearing En Banc, W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059 (D.C. Cir. 2023) (Case No. 21-5265).[33]See Clerk’s Order, W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059 (D.C. Cir. 2023) (Case No. 21-5265); see also Fed. R. App. P. 41(b) (“The court’s mandate must issue 7 days after the time to file a petition for rehearing expires, or 7 days after entry of an order denying a timely petition for panel rehearing, petition for rehearing en banc, or motion for stay of mandate, whichever is later. The court may shorten or extend the time by order”).
