Supreme
Court axes 2003 gaming contract
By
David Ziemer
Wisconsin Law Journal
May
19, 2004
| “Any
attempt to read Article IV, sec. 24 as altering the types of games that may be
negotiated for under the compact would impair the compact to which the parties
agreed, and would, therefore, run afoul of the United States and Wisconsin constitutional
clauses against impairment of contract.” The Dissent |
The
Wisconsin Supreme Court held on May 13 that the governor did not have authority
to enter the 2003 compacts with state Indian tribes, providing for perpetual duration,
and expanding the permissible games to include keno, roulette, poker, craps, and
variations on blackjack.
History
Traditionally,
Article IV, Section 24 of the Wisconsin Constitution permitted no gambling of
any kind. In 1965, it was amended to permit promotional contests. In 1973, it
was amended to permit charitable bingo, and in 1977, charitable raffles.
In
1987, it was amended to permit a state-operated lottery, and pari-mutuel on-track
betting. Also in 1987, the U.S. Supreme Court held that a state could not enforce
its gambling laws on Indian lands, if it had adopted a civil/regulatory approach
to gambling rather than criminal/prohibitory. Shortly thereafter, Congress passed
the Indian Gaming Regulatory Act (IGRA) to establish standards for the operation
of gambling by Indian tribes.
In
1991, a Wisconsin federal district court held that the state was required to negotiate
over casino games with two Chippewa bands. Lac du Flambeau Band of Lake Superior
Chippewa Indians. v. State of Wisconsin, 770 F.Supp. 480 (W.D.Wis.1991). The court
found that Wisconsin’s approach to gambling had become regulatory with the
1987 amendments, rather than prohibitory.
Pursuant
to the decision, the governor reached compact agreements with 11 tribes in the
state, permitting slot machines, blackjack, and pull-tabs. The compacts provided,
“The Tribe may not operate any Class III gaming not expressly enumerated
in this section of this Compact unless this compact is amended...”
The
compacts were for durations of seven years, with a provision for automatic extension
for terms of five years, unless either party served written notice of nonrenewal.
In
1993, Article IV, Section 24, was amended to provide, “Except as provided
in this section, the legislature may not authorize gambling in any form.”
In
1998, the compacts were amended, and extended five years.
In
2003, the compacts were again amended. The 2003 amendments expanded the permissible
games to include variations on blackjack, pari-mutuel wagering on horses and dogs,
keno, roulette, craps, and poker.
The
amendments also made the compacts permanent unless both the tribe and State agree
to their nonrenewal. Finally, the compacts added a liquidated damage clause, and
provided that the state and tribes waive sovereign immunity.
Mary
Panzer, majority leader of the Wisconsin Senate, and John G. Gard, Speaker of
the Wisconsin Assembly, brought an original action against the governor in the
Wisconsin Supreme Court, challenging the lawfulness of the 2003 amendments.
The
court held that the 2003 amendments were unlawful in a decision by Justice David
T. Prosser Jr. Chief Justice Shirley S. Abrahamson, and Justices Ann Walsh Bradley
and N. Patrick Crooks filed a joint dissent.
Separation
of Powers
The
court began by setting forth, “We are mindful that this decision will require
both a renegotiation of certain compact terms and a reconsideration of the Wisconsin
state budget. At the same time, the decision does not invalidate any gaming rights
the [Forest County Potawatomi] Tribe had as of the 1998 amendments. In addition
to those rights, this decision permits pari-mutuel wagering on live simulcast
horse, harness, and dog racing events and does not prohibit additional sites.”
The
court held that the governor does not have wholly unlimited power, pursuant to
sec. 14.035, to negotiate compacts, but that there are “certain implicit
limits.” The statute provides, “The governor, may, on behalf of this
state, enter into any compact that has been negotiated under 25 U.S.C. 2710(d).”
The
court held that one of those implicit limits is on entering compacts of permanent
duration, because this circumvents the procedural safeguards that ensure that
delegated power may be curtailed or reclaimed by future legislative action.
The
court concluded, “If the Governor’s action with respect to the duration
term were allowed to stand, all the procedural safeguards that might possibly
rein in the governor’s authority would be ineffective. The legislature would
be powerless to alter the course of the state’s position on Indian gaming
by repealing or amending sec. 14.035. The electorate might be able to voice its
displeasure, and the Governor might in theory pay a heavy political price, but
the voters would be powerless to elect a governor who could impact the terms that
had already been agreed to.”
Secondly,
the court held the governor had no authority to expand permissible class III gaming
to games expressly prohibited by the 1992 amendment to Article IV, Section 24.
| What
the court held Case:
Panzer v. Doyle, No. 03-0910-OA Issue:
Did the governor have authority in 2003 to amend compacts with state Indian tribes,
providing for perpetual duration of Indian casinos, and expanding the permissible
games to include keno, roulette, poker, craps, and variations on blackjack? Holding:
No. The state constitution prohibits those games, and bars the governor from authorizing
them in compacts; and the perpetual duration of the compacts exceeds the delegation
to negotiate compacts contained in sec. 14.035. Counsel:
For the petitioners there were briefs by Gordon B. Baldwin, University of Wisconsin
Law School, Ellen E. Nowak, legal counsel state assembly/speaker’s office, Stephen
L. Morgan and Murphy Desmond, S.C., Madison, and oral argument by Gordon B. Baldwin
and Stephen L. Morgan. For
the respondents the cause was argued by John S. Greene, assistant attorney general,
with whom on the brief was Peggy A. Lautenschlager, attorney general. |
The court
concluded, “The text of the constitution is absolutely clear: ‘Except
as provided in this section, the legislature may not authorize gambling in any
form.’
Nothing
in section 24 authorizes electronic keno, roulette, craps, and poker. These games
are specifically denied to the Wisconsin Lottery.”
The
court cited a federal district court decision for support, American Greyhound
Racing, Inc. v. Hull, 146 F.Supp.2d 1012 (D.Ariz.2001), vacated on other grounds,
305 F.3d 1015 (9th Cir.2002). American Greyhound held that IGRA does not require
a state to enter into compacts authorizing tribes to engage in gaming otherwise
prohibited by state law.
The
Supreme Court adopted the reasoning of the federal court as follows: “According
to the structure of sec. 2710(d)(1) and its plain terms, a compact cannot make
legal class III gaming not otherwise permitted by state law. The State must first
legalize a game, even if only for tribes, before it can become a compact term.”
Id. at 1067.
Discussing
the 1992 Lac du Flambeau case, the court noted that, until recently, it was the
only case in the country to conclude that, once a state regulates one form of
class III gaming, it must negotiate over all forms. The court stated, “the
continued vitality of Lac du Flambeau’s holding is very doubtful, and the
decisions’s statements regarding Wisconsin’s policy toward gaming have
been seriously undercut by the 1993 amendment to Article IV, Section 24.”
The
court added, “Unlike the expansive interpretation of the term ‘lottery’
that was at least plausible before 1993, our constitution is now quite clear that
the legislature may not authorize any gambling except that permitted by article
IV, section 24, and is very clear that certain games do not fall under the term
‘lottery’ .... The constitution is now specific about what the state-operated
lottery may do and what it may not do. Blackjack and other varieties of banking
card games, poker, roulette, craps, keno and slot machines are all games specifically
outside the scope of Section 24(6)’s authorized exception, and they do not
come within any other exception.”
The
court concluded, “The Tribe’s existing games such as slot machines and
blackjack must be sustained on the basis of the validity of the original compacts,
which were negotiated pursuant to court order before the 1993 constitutional amendment,
as well as constitutional and contract law.”
The
court acknowledged that its holding “raises inevitable questions about the
validity of the original 1992 FCP Gaming Compact and the 1998 amendments thereto,”
stating, “Clearly, the 1992 Compact encompasses games that were and are precluded
under our state’s criminal statutes.”
However,
finding that the 1992 compact was negotiated under a constitutional sec. 14.035,
and pursuant to an order of a federal court, the court stated, “Both the
tribes and the state have relied on the validity of the original compacts. Any
attempt at this point to impair these compacts would create serious constitutional
questions.”
After
reviewing various legislative recognition of the compacts, the court added, “Whether
the 1992 compact is durable enough to withstand a change in state law that alters
our understanding of what is ‘permitted’ in Wisconsin is a separate
question. The resolution of this question is likely to turn, at least in part,
on the application of the impairment of contracts clauses in the United States
and Wisconsin Constitutions as well as IGRA. Because these issues are not before
us, and because they may turn in large measure on unresolved questions of federal
law, our decision stops short of resolving these important questions.”
After
also finding the waiver of sovereign immunity invalid, the court granted the relief
sought, and declared the 2003 amendments to have been entered without authority.
The
Dissent
Three
justices, Abrahamson, Bradley, and Crooks dissented from the majority opinion
on all issues, stating, “we conclude that the Governor properly exercised
his power pursuant to Wis. Stat. sec. 14.035. Likewise, the duration provision
is valid, as similar provisions are commonplace and recognize the government’s
need to enter into long-term contracts. Furthermore, the majority’s application
of the 1993 Wisconsin constitutional amendment to outlaw certain gaming substantially
impairs the contractual relationship between the State and the Tribe and violates
the federal and state constitutional impairment of contracts clause. Finally,
the issue of sovereign immunity is not ripe and fails on the merits. Thus we conclude
that the 2003 amendments are valid and that the majority opinion raises substantial
federal issues, rendering this court a stopping point on the parties’ way
to the federal courts.”
Rejecting
the majority’s conclusion that there are implicit limits on the governor’s
authority to enter compacts, the dissenters wrote: “as long as a compact
does not contravene a statute or constitutional provision, the governor may enter
into it under Wis. Stat. sec. 14.035, embracing those conditions and provisions
the governor deems will best promote the interests of the government. The majority
opinion’s conclusion that a stricter standard (whatever that means) exists
for delegation from the legislature to the governor ignores the constitutionally
granted executive power vested in a governor.”
Turning
to the perpetual nature of the compacts, the dissent wrote, “The majority
fails to acknowledge that the 2003 duration provision is substantively similar
to those in the original 1992 compact and 1998 amendments. It likewise fails to
grasp that compacts of long-term or indefinite duration are commonplace throughout
the country. Contrary to the majority’s conclusion that the compacts are
invalid because they bind future legislatures, such compacts reflect the government’s
need to enter agreements that extend well beyond a current legislative session.”
The
dissent also found that the added games were permissible, because at the time
of the 1992 compact, the state and tribes were free to negotiate for any type
of Class III game. The dissent reasoned, “Any Class III games that would
be outlawed by Article IV, sec. 24 could be negotiated for and permitted in an
amended compact, given Section XXVI of the 1992 compact. This provision overrides
any subsequent changes in state law, including those brought about by the amendment
to Article IV, sec. 24. The changes to the compact made in the 1998 and 2003 amendments
are permissible given the fact that they involve automatic extensions as well
as amendments to the 1992 compact. That compact, in Section XXVI, clearly states
that the provisions of the compact apply over any changes in state or tribal law.
A conclusion to the contrary patently ignores the basic provisions contracted
for by the parties involved.”
The dissent
added, “The majority opinion concedes that the 1992 compact was valid when
the parties agreed to it. The majority correctly worries that questions regarding
the validity of the 1992 compact and 1998 amendments, after the amendment to Article
IV, sec. 24, might raise impairment of contract concerns. We conclude that any
attempt to read Article IV, sec. 24 as altering the types of games that may be
negotiated for under the compact would impair the compact to which the parties
agreed, and would, therefore, run afoul of the United States and Wisconsin constitutional
clauses against impairment of contract.”
The
court concluded, “While it may have been foreseeable that state or tribal
law could change, the parties planned for this by including Section XXVI in the
compact.
If
the amendment to Article IV, sec. 24 is held to affect the 2003 amendments to
the compact, which merely continue the 1992 compact, as amended in 1998, the parties’
contract will be substantially impaired. The types of Class III games that can
be, and were, negotiated for as permitted games will be prohibited, and those
which could have been allowed in 1992 will never be permitted.”
Finally,
the dissenters concluded that the Supremacy Clause of the U.S. Constitution preempts
application of the state constitutional amendment in this case, reasoning, “the
majority’s formulation of the scope-of-gaming issues as state law cannot
mask the obvious federal nature of the case. Here, the petitioners have sought
a declaratory judgment centered on the meaning and application of a federal statute
and the validity of a federally approved compact. Accordingly, this court lacks
jurisdiction to adjudicate the dispute.”
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David
Ziemer can be reached by email.
