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Cachil Dehe Band of Wintun Indians of the Colusa Indian Community v. State of California

August 20, 2010

CACHIL DEHE BAND OF WINTUN INDIANS OF THE COLUSA INDIAN COMMUNITY, A FEDERALLY RECOGNIZED INDIAN TRIBE, PLAINTIFF-APPELLEE,
PICAYUNE RANCHERIA OF THE CHUKCHANSI INDIANS, INDIAN TRIBE, PLAINTIFF-INTERVENOR-APPELLEE,
v.
STATE OF CALIFORNIA; CALIFORNIA GAMBLING CONTROL COMMISSION, AN AGENCY OF THE STATE OF CALIFORNIA; ARNOLD SCHWARZENEGGER, GOVERNOR OF THE STATE OF CALIFORNIA, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Eastern District of California. Frank C. Damrell, Senior District Judge, Presiding. D.C. No. 2:04-cv-02265-FCD- KJM.

The opinion of the court was delivered by: McKEOWN, Circuit Judge

FOR PUBLICATION

Argued and Submitted February 8, 2010 -- San Francisco, California.

Before: Cynthia Holcomb Hall and M. Margaret McKeown, Circuit Judges, and David G. Campbell,*fn1 District Judge.

OPINION

Who knew that simple math could be so tricky? The parties to this dispute, the State of California and two California Indian tribes, signed Gaming Compacts intended "to initiate a new era of tribal-state cooperation" with respect to gaming in the state. Central to the Compacts is a formula to calculate the number of gaming devices California tribes are permitted to license. How to interpret this opaquely drafted and convoluted formula has preoccupied the parties for some time, as the result has significant economic implications. Indeed, math and money have led to a breakdown in the cooperative spirit envisioned by the Compacts.

The Compacts stem from the Indian Gaming Regulatory Act (IGRA), passed by Congress in 1988 and designed "to provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments." 25 U.S.C. § 2702(1). IGRA sets out three classes of lawful gaming; at issue here are slot machines and other gaming machines ("gaming devices") that are included under Class III. 25 U.S.C. § 2703(7)(B)(ii),(8). A tribal-state gaming agreement, known as a "compact," is required to conduct Class III gaming under IGRA. 25 U.S.C. § 2710(d)(1)(C).

In 1999, California and approximately 60*fn2 California Indian tribes signed substantively identical bilateral Gaming Compacts that authorized Class III gaming. The total number of slot machines allowed was restricted by contract language that authorized the continued operation of existing machines, permitted tribes who were not yet operating machines to operate up to 350 machines, and provided a formula for a limited license pool for the remaining machines. The primary issue in this appeal is the interpretation of the formula for the license pool, a mere two paragraphs in a 215-paragraph agreement. Unfortunately, these provisions are not a model of clarity. As a consequence, California and certain tribes have been mired in disputes for much of the period since the bilateral Compacts were signed.

This appeal springs from a disagreement between California and plaintiff Cachil Dehe Band of Wintun Indians of the Colusa Indian Community and plaintiff-intervenor Picayune Rancheria of the Chukchansi Indians ("Picayune") (collectively, "Colusa").*fn3 The parties agree that the formula sets a ceiling on the number of licenses in the pool. But the tribes claim the formula permits more licenses, while California maintains that it sets a lower limit. Acknowledging that the formula language is ambiguous, California and Colusa each offered different interpretations. The district court adopted yet a different formulation, introduced by Colusa as an alternative way to calculate the license pool. The parties also submitted extrinsic evidence purporting to explain their calculations.

Such a posture would normally suggest that summary judgment is inappropriate, even though contract interpretation is a matter of law. Nonetheless, both parties agreed that the matter should be decided on cross motions for summary judgment. An additional twist is that the parties' extrinsic evidence does not support their interpretations of the formula. As a result, we interpret the Compact de novo based on the plain meaning that adheres closest to the contract language.

We affirm in part the grant of summary judgment to Colusa because we agree that the limit on licenses exceeds that recognized by California. However, our interpretation of the governing provisions differs slightly from the district court's formulation. We also affirm the denial of California's motion for summary judgment. Finally, we uphold the remedy ordered by the district court of a license draw open to all eligible tribes, administered according to the process delineated in the Compacts. Before we wade into the somewhat mind-numbing discussion of numbers, it is useful to provide a background context for the formula.

BACKGROUND

I. Compacts under IGRA

Following a successful ballot initiative permitting California Indian tribes to run "Nevada and New Jersey"-type casinos, and in response to the likely imminent invalidation of that initiative, then-Governor Gray Davis invited California tribes to negotiate Class III gaming compacts. By that time- April 1999-a number of California tribes were already operating gaming devices, although without authorization under IGRA. These tribes operated around 19,000 devices statewide. In late August 1999, the California Supreme Court invalidated the ballot initiative permitting casino operation by Indian tribes. See Hotel Employees & Rest. Employees Int'l Union v. Davis, 21 Cal. 4th 585 (1999). California and the tribes, including Colusa, continued negotiating, however, intending to condition execution of the Compacts on the ratification of a constitutional amendment that would exempt Indian tribes from the prohibition on Class III gaming.

The final Compact negotiation sessions were held on September 8 and 9, 1999, and continued into the early hours of September 10. Late on September 9, the lead negotiator for California presented the entire draft Compact to the tribal representatives for approval. The representatives were given until September 10 to sign letters of intent to enter into bilateral Compacts with California. The Compacts required legislative ratification, and the end of the legislative session was fast approaching. Colusa's Chairman signed the tribe's letter of intent in the early hours of September 10. In total, about 60 tribes (the "Compact Tribes"), including Colusa and Picayune, entered into bilateral Class III gaming Compacts with California. These Compacts are substantially identical. See Artichoke Joe's Cal. Grand Casino v. Norton, 353 F.3d 712, 717-18 (9th Cir. 2003).

The California legislature ratified the agreements in September 1999. On the same day, the Governor's Press Office released an "information sheet" regarding the number of licenses available, stating that the Compacts authorized 44,448 gaming devices total statewide, including those already in operation. California voters ratified the constitutional amendment in March 2000, enabling the Compacts to be executed. Colusa and Picayune's Compacts went into effect on May 16, 2000.

While the Colusa Compact includes a variety of provisions relating to the operation and licensing of Class III gaming devices, the only provisions at issue in this appeal relate to the aggregate number of gaming devices authorized statewide in addition to those already in operation as of September 1, 1999, i.e., the size of the "license pool." The Compact provides a formula for determining that number, at § 4.3.2.2(a)(1):

The maximum number of machines that all Compact Tribes in the aggregate may license pursuant to this Section shall be the sum equal to 350 multiplied by the number of Non-Compact Tribes as of September 1, 1999, plus the difference between 350 and the lesser number authorized under Section 4.3.1.

The Compact defines Non-Compact Tribes as federally-recognized tribes that are operating fewer than 350 gaming devices, whether or not the tribe executed a Compact with the State. § 4.3.2(a)(1). In other words, some tribes are both Compact and Non-Compact Tribes under the agreement. Section 4.3.1, which is referenced by § 4.3.2.2(a)(1), states:

The Tribe may operate no more Gaming Devices than the larger of the following: (a) A number of terminals equal to the number of Gaming Devices operated by the Tribe on September 1, 1999; or (b) Three hundred fifty (350) Gaming Devices.

For convenience, we refer to §§ 4.3.1 and 4.3.2.2(a)(1) as the "License Pool Provisions."

A Compact Tribe may operate a certain number of gaming devices without securing licenses from the pool. This initial "free pass" covers either 350 devices or the number of devices the tribe was already operating as of September 1, 1999, whichever is larger. § 4.3.1. Colusa operated 523 gaming devices as of September 1, 1999, so it was permitted to continue operating all of those devices without licenses. A Compact Tribe must secure a license from the statewide pool for each additional device above the Tribe's "free pass" number, up to the maximum of 2000 devices per tribe. § 4.3.2.2(a).

The licenses are allocated from the license pool to Compact Tribes that request them according to a detailed draw process. § 4.3.2.2(a)(3). The draw process, which includes tiers of priority for different tribes, was designed to skew the distribution of the available licenses towards those Compact Tribes that did not yet conduct large gaming operations. § 4.3.2.2(a)(3).

II. Administration of the License Process

For the first two years, the license draw process was administered by an accounting agency engaged by the Compact Tribes, Sides Accountancy Corporation ("Sides"). In 2001, following complaints regarding the accounting and administration of the draws and Sides's unwillingness to provide certain information to California, Governor Davis issued an executive order creating the California Gambling Control Commission ("the Commission"), which took over the licensing process.

During its administration, Sides issued 29,398 licenses, exceeding by about 25% the 23,450 number that would have been available in the pool according to the Governor's summary "information sheet," which limited the total devices to 44,448 statewide, including those already in operation. After taking control, in 2002 the Commission evaluated the various interpretations of the License Pool Provisions that had been suggested and adopted an interpretation that authorized a license pool of 32,151 licenses. This number surpassed the number of licenses that Sides previously issued, allowing all of those licenses to remain valid. According to the Commission-and California, which has adopted the Commission's formulation-2753 licenses remained in the license pool for distribution after the Commission took charge.

The Commission notified the Compact Tribes that it would conduct a draw in September 2002. Colusa was placed in the third priority tier for the first draw, in which it requested and received 250 licenses. For the second draw in December 2003, Colusa was placed in the fourth priority tier. Although Colusa requested 377 licenses, it received none. In October 2004, the Commission conducted a third draw, and Colusa requested 341 licenses. Colusa was again placed in the fourth priority tier, and received only 73 licenses. From the three draws, Colusa secured 323 licenses in total; when added to the 523 devices in operation, the licenses drawn from the pool allowed Colusa to operate 846 devices, well under the individual limit of 2000 devices per Compact Tribe.

III. The Colusa Lawsuits

Immediately following the December 2003 draw, Colusa requested that California meet and confer regarding, among other issues, the size of the license pool and Colusa's placement within the lower priority tier for the 2003 draw. Following an unsuccessful meeting, Colusa initiated suit in October 2004.

Colusa's initial complaint alleged five claims for breach of the Compact. Only one claim-California's unilateral determination of the aggregate number of licenses authorized by the Compact under the License Pool Provisions-is at issue here; in its complaint, Colusa sought a declaration that the license pool consisted of "more than 62,000 Gaming Device licenses," and requested that the court order California to immediately issue 377 licenses to Colusa.

The district court dismissed four of the claims on the ground that Colusa was required to join other Compact Tribes as necessary parties under Federal Rule of Civil Procedure 19; the fifth claim was dismissed for failure to exhaust remedies. On appeal, we reversed and held that the non-party Compact Tribes did not have a protectable legal interest in the size of the license pool and were not required parties that must be joined under Rule 19. Colusa I, 547 F.3d at 972. We affirmed the dismissal of the unexhausted claim. Id. at 968 n.3.

While Colusa I was pending, California negotiated Compact amendments with at least five tribes. Neither Colusa nor Picayune entered an Amended Compact, although Colusa negotiated regarding a potential amendment. The Amended Compacts provided up to 22,500 additional gaming devices outside of the aggregate limits established by the original Compacts.

In June 2007, also during the time Colusa I was pending, Colusa filed a second suit, alleging California breached the Compact by refusing to conduct another round of draws, mis-counting multi-station games as equal to the number of terminals, and failing to negotiate in good faith. The district court consolidated Colusa's two actions. In January 2009, Picayune intervened, alleging the Commission breached the Compact by miscalculating the size of the license pool.

The parties cross-moved for summary judgment on the issue of the size of the license pool. On April 22, 2009, the district court granted summary judgment to Colusa on the aggregate number of gaming devices authorized by the Compact and on Colusa's placement within the priority tiers. The court entered final judgment on all claims on August 19, 2009, and ordered California to conduct a draw of the remaining licenses in the pool that would be open to all eligible Compact Tribes. California's request to stay the order for thirty days was denied. California timely appealed and then moved for a stay of the district court's remedy order. Following denial of the stay motion, in October 2009, California conducted a license draw open to all eligible Compact Tribes. In that draw, 1878 licenses were issued to ten Compact Tribes, including Colusa and Picayune.

ANALYSIS

[1] General principles of federal contract law govern the Compacts, which were entered pursuant to IGRA. Kennewick Irrigation Dist. v. United States, 880 F.2d 1018, 1032 (9th Cir.1989). In practical terms, we rely on California contract law and Ninth Circuit decisions interpreting California law because we "discern, and the parties note, no difference between [California] and federal contract law." Idaho v. Shoshone-Bannock Tribes, 465 F.3d 1095, 1098 (9th Cir. 2006) (employing Idaho contract law to interpret a tribal-state compact that was to be "construed in accordance with the laws of the United States").

The California Court of Appeal recently reviewed the court's role in interpreting contracts, according to California law:

The rules governing the role of the court in interpreting a written instrument are well established. The interpretation of a contract is a judicial function. (Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging (1968) 69 Cal. 2d 33, 39-40). In engaging in this function, the trial court "give[s] effect to the mutual intention of the parties as it existed" at the time the contract was executed. (Civ.Code, § 1636). Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract's terms. (Civ.Code, § 1639 ["[w]hen a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible"]; Civ.Code, § 1638 [the "language of a contract is to govern its interpretation"].

Wolf v. Walt Disney Pictures and Television, 162 Cal. App. 4th 1107, 1125-26 (Cal. Ct. App. 2008).

I. INTERPRETATIONS OF LICENSE POOL PROVISIONS OFFERED BY PARTIES

The License Pool Provisions are repeated here, to facilitate their explanation. The calculations fall naturally into two steps:

The maximum number of machines that all Compact Tribes in the aggregate may license pursuant to this Section shall be the sum equal to [Step 1] 350 multiplied by the Number of Non-Compact Tribes as of September 1, 1999, plus [Step 2] the difference ...


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