The opinion
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RINCON BAND OF LUISENO MISSION
INDIANS OF THE RINCON
RESERVATION, AKA Rincon San
Luiseno Band of Mission Indians,
AKA Rincon Band of Luiseno No. 08-55809
Indians,
Plaintiff-Appellee, D.C. No.
3:04-cv-01151-
v. WMC
ARNOLD SCHWARZENEGGER,
Governor of California; STATE OF
CALIFORNIA,
Defendants-Appellants.
RINCON BAND OF LUISENO MISSION
INDIANS OF THE RINCON
RESERVATION, AKA Rincon San
Luiseno Band of Mission Indians,
AKA Rincon Band of Luiseno No. 08-55914
Indians, D.C. No.
Plaintiff-Appellee-Cross-Appellant,
3:04-cv-01151-
v. WMC
ARNOLD SCHWARZENEGGER, OPINION
Governor of California; STATE OF
CALIFORNIA,
Defendants-Appellants-Cross-
Appellees.
Appeal from the United States District Court
for the Southern District of California
William McCurine, Magistrate Judge, Presiding
5873
5874 RINCON BAND v. SCHWARZENEGGER
Argued and Submitted
November 4, 2009—Pasadena, California
Filed April 20, 2010
Before: Thomas G. Nelson, Jay S. Bybee and
Milan D. Smith, Jr., Circuit Judges.
Opinion by Judge Milan D. Smith, Jr.;
Dissent by Judge Bybee
RINCON BAND v. SCHWARZENEGGER 5877
COUNSEL
Peter H. Kaufman, Deputy Attorney General of the State of
California, San Diego, California; Marc Le Forestier, Deputy
Attorney General of the State of California, Sacramento, Cali-
fornia, for the defendants-appellants/cross-appellees.
5878 RINCON BAND v. SCHWARZENEGGER
Kimberly A. Demarchi, Lewis & Roca LLP, Phoenix, Ari-
zona; Scott D. Crowell, Crowell Law Offices, Kirkland,
Washington, for the plaintiffs-appellees/cross-appellants.
Steven J. Bloxham, Fredericks Peebles & Morgan LLP, Sac-
ramento, California, for the amicus.
OPINION
MILAN D. SMITH, JR., Circuit Judge:
The Indian Gaming Regulatory Act (IGRA), 25 U.S.C.
§ 2701 et seq., provides that a state must negotiate in good
faith with its resident Native American tribes to reach com-
pacts concerning casino-style gaming on Native American
lands. Defendants-Appellants/Cross-Appellees the State of
California (the State) and Governor Arnold Schwarzenegger
(Governor Schwarzenegger) (collectively as parties to this lit-
igation, the State) appeal the district court’s finding that, in
violation of IGRA, 25 U.S.C. § 2710(d)(3)(A), the State nego-
tiated in bad faith with Plaintiff-Appellee/Cross-Appellant the
Rincon Band of Luiseno Mission Indians (Rincon) concerning
amendments to the parties’ existing tribal-state gaming com-
pact.
The district court based its bad faith finding on the State’s
repeated insistence that Rincon pay a portion of its net reve-
nues into the State’s general fund, which the district court
determined to be an attempt by the State to impose a tax on
the tribe in violation of 25 U.S.C. § 2710(d)(4).
The State challenges the district court’s characterization of
its requests as an attempt to impose a tax, and argues that
even if it was attempting to impose a tax, that alone is insuffi-
cient to support the finding of bad faith. We affirm.1
1
Because we affirm the district court’s finding of bad faith on the issue
of the State’s demands for revenue sharing, we do not reach any of the
alternative grounds for a finding of bad faith asserted by Rincon on cross-
appeal.
RINCON BAND v. SCHWARZENEGGER 5879
FACTUAL AND PROCEDURAL BACKGROUND
The 1999 Compacts
In the fall of 1999, the State (through then-governor Gray
Davis) and Rincon negotiated a compact granting Rincon the
right to operate casino-style (class III2) gaming on its lands
located near San Diego, California, subject to certain limita-
tions.3 Simultaneously, the State’s negotiations also resulted
in similar compacts with dozens of other tribes across Califor-
nia. Although some of the 1999 compacts have since been
renegotiated, the 1999 compact between Rincon and the State
remains operative.
While negotiations over the 1999 compacts were pending,
the California Supreme Court handed down its decision in
Hotel Employees & Restaurant Employees International
Union v. Davis, 981 P.2d 990 (Cal. 1999). In that case, the
California Supreme Court determined that the California con-
stitution prohibited everyone in the state, including Indian
tribes, from operating Las Vegas-style casinos. As a major
consideration, and in order to make the proposed 1999 com-
pacts legally enforceable, the State sponsored a constitutional
amendment—Proposition 1A—that would authorize tribal
gaming in California.4
2
IGRA divides gaming into three classes. Class I involves traditional
tribal gaming; class II involves bingo and non-banked card games; class
III involves gambling not covered in class I or class II (such as casino-
style gaming, including slot machines and banked card games). 25 U.S.C.
§ 2703.
3
The compact included several terms that are irrelevant to the issues
addressed in this opinion. For context, however, we note that under the
1999 compact, Rincon was permitted to operate a certain number of
devices, plus draw additional device licenses from a limited statewide
pool. The 1999 compact thus reflected a system of limited gaming.
4
For a more detailed history of Proposition 1A and related state/tribe
negotiations concerning the 1999 compacts, see In re Indian Gaming
Related Cases, 331 F.3d 1094 (9th Cir. 2003) and Artichoke Joe’s Cal.
Grand Casino v. Norton, 353 F.3d 712 (9th Cir. 2003).
5880 RINCON BAND v. SCHWARZENEGGER
In March 2000, California voters approved Proposition 1A,
thereby vivifying the 1999 compacts. Not only did Proposi-
tion 1A permit tribes to conduct class III gaming lawfully, it
effectively gave tribes a state constitutional monopoly over
casino gaming in California. In re Indian Gaming Related
Cases, 331 F.3d 1094, 1103 (9th Cir. 2003) (Coyote Valley
II).
Revenue Sharing Under the 1999 Compacts
In consideration for the State’s efforts in securing the pas-
sage of Proposition 1A (without which the tribes would have
been barred from conducting class III gaming in the State of
California), the tribes agreed to share a portion of their
expected revenues. Flynt v. Cal. Gambling Control Comm’n,
129 Cal. Rptr. 2d 167, 175-77 (Ct. App. 2002). The State
originally took the position that the revenue should be for
general use, but abandoned that position during the negotia-
tions in favor of tribal proposals. See Coyote Valley II, 331
F.3d at 1102-03, 1113. The tribes agreed to pay a portion of
their revenues into two funds: the Revenue Sharing Trust
Fund (RSTF) and the Special Distribution Fund (SDF). See
id. at 1104-05. Monies paid into the RSTF are redistributed to
tribes who choose not to, or are unable to, conduct their own
gaming activities. Id. at 1105. Monies paid into the SDF, on
the other hand, are used to fund:
(a) grants for programs designed to address gam-
bling addiction; (b) grants for the support of state
and local government agencies impacted by tribal
gaming; (c) compensation for regulatory costs
incurred by the State Gaming Agency and the state
Department of Justice in connection with the imple-
mentation and administration of the compact; (d)
payment of shortfalls that may occur in the RSTF;
RINCON BAND v. SCHWARZENEGGER 5881
and (e) “any other purposes specified by the legisla-
ture.”5
Id. at 1106.
In Coyote Valley II, appellants questioned whether the
RSTF and SDF provisions of the 1999 compacts were lawful
since IGRA, 25 U.S.C. § 2710(d)(4), precludes states from
imposing taxes on Indian gaming. 331 F.3d 1094. We held
that the RSTF and SDF were permissible notwithstanding
§ 2710(d)(4) because, as more fully explained infra, the
nature of the revenue sharing and the constitutional exclusiv-
ity obtained in consideration for it were primarily motivated
by a desire to promote tribal interests. Id. at 1110-15. We fur-
ther concluded that by virtue of the 1999 compacts and Propo-
sition 1A, the State gave all tribes in California significant
opportunities to benefit from gaming without taking anything
significant for itself, beyond what was required to protect its
citizens from the adverse consequences of gaming, and to ful-
fill other regulatory and police functions contemplated by
IGRA. Id.
The 2003-2006 Compact Renegotiations
Operating under its 1999 compact, Rincon began to gener-
ate significant revenue that enabled it to improve tribal gov-
ernmental functions and become economically self-sufficient.
By 2003, Rincon desired to expand its operations beyond
what the 1999 compact permitted. Accordingly, in March of
that year, Rincon notified the State of its interest in renego-
tiating certain provisions of the 1999 compact.
5
In this opinion, we focus only on subsections (a), (b) and (e) of the
SDF. Subsection (c) is expressly authorized by § 2710(d)(3)(C)(iii), and
the State does not rely upon it in its quest because it seeks to deposit funds
into its general fund, not one with earmarked uses. Subsection (d) is effec-
tively part of the RSTF so it need not be analyzed separately. We have
previously construed subsection (e) to cover only those purposes directly
related to gaming. Coyote Valley II, 331 F.3d at 1113-14.
5882 RINCON BAND v. SCHWARZENEGGER
Negotiations began in 2003 in response to Rincon’s
request, but in October of that year, California voters recalled
Governor Davis and elected Governor Schwarzenegger in his
stead. Although negotiations eventually reconvened, they
quickly assumed a decidedly different tone. Instead of
requesting funds to help defray the costs of gaming, or to ben-
efit Indian tribes, the State demanded that Rincon pay a sig-
nificant portion of its gaming revenues into the State’s general
fund.
The State made its first offer to Rincon on November 10,
2005.6 The State offered Rincon the opportunity to operate
900 additional devices plus the 1600 devices Rincon already
operated, but only if Rincon would agree to pay the State 15%
of the net win on the new devices, along with an additional
15% annual fee based on Rincon’s total 2004 net revenue. In
exchange for the 15% revenue share demanded, the State
offered Rincon an “exclusivity provision.”7
6
In June 2004, Rincon filed the present suit in order to force the State
to expedite negotiations. The offers described herein were both IGRA
negotiations and on-the-record settlement negotiations.
7
Specifically, the State offered:
1. The State would agree to allow the Tribe to operate an addi-
tional 900 Gaming Devices outside of the licensing pool estab-
lished by the Tribe’s existing compact as long as the total number
of Gaming Devices in operation by the Tribe do [sic] not exceed
2500 Gaming Devices[;]
2. The Tribe would be required to maintain its existing Gaming
Device licenses, but the parties would negotiate over the amount
of the contributions made by the Tribe to the [RSTF] in connec-
tion therewith;
3. The Tribe would pay annually to the State 15% of the aver-
age net win for each of the additional Gaming Devices outside of
the licensing system that it operates pursuant to the compact
amendment, provided that the average net win is calculated on
the basis of all Gaming Devices operated by the Tribe;
4. The Tribe would pay to the State, for the duration of the
compact term, an annual fee equal to 15% of the net win in Fiscal
RINCON BAND v. SCHWARZENEGGER 5883
Rincon countered that, in order to obtain additional devices,
it would agree to some per device fees. Rincon emphasized,
however, that the use of any fees it paid had to be limited to
paying for the costs of regulating gaming, building infrastruc-
ture needed to support gaming operations, and mitigating
adverse impacts caused by gaming operations. Rincon further
stated that “with all due respect, we are not asking for exclu-
sivity and the State’s analysis does not hold water as it relates
to Rincon in its current circumstance.”
Rincon also noted that Proposition 1A already provided for
tribal gaming exclusivity, so it was not seeking whatever fur-
ther exclusivity might provide. Rincon’s lands are located in
the middle of a saturated tribal gaming market. Accordingly,
no form of tribal exclusivity could shelter Rincon from sub-
stantial competition. As long as the proposed exclusivity pro-
vision related only to freedom from non-tribal competition,
“exclusivity” would not provide Rincon with any meaningful
economic advantages that would warrant the tribe making the
requested payments.
The State interpreted Rincon’s counterproposal for limited-
use, per device fees and its rejection of exclusivity to be a
Year 2004 from the Gaming Devices in operation at the Tribe’s
casino;
5. The term of the amended compact would be the same as that
of theexisting compact;
6. A portion of the Tribe’s payment to the State could be
designed for San Diego County and CalTrans, which amount
would be negotiated between the Tribe and the State . . . [;]
7. Except as set forth in paragraphs 5 and 8, the amendment
would contain the same non-economic provisions as the Pala
Compact Amendment;
8. The Tribe [would] be afforded an exclusivity provision, the
terms of which [would] be subject to further negotiation . . . the
exclusivity provisions would be “similar” to the Pala compact
amendment. . . .
5884 RINCON BAND v. SCHWARZENEGGER
request that the State agree to allow Rincon to operate addi-
tional devices beyond the 1999 compact limits “without offer-
ing the State anything meaningful in return.” The State held
firm in its demand that a portion of tribal gaming revenues be
paid into the State’s general fund, rather than into an ear-
marked fund.
Rincon re-countered with an offer substantially mirroring
its previous offer, but offering slightly increased per device
fees. Rincon also presented several expert reports on the
financial impact the State’s offer would have on Rincon. By
Rincon’s calculations,
the State’s offer . . . would require Rincon to pay an
additional $23 million in fees for the machines cur-
rently in play at Rincon’s gaming operation pursuant
to the 1999 Compact. . . . By imposing the 15% fee
on the Tribe’s net win as of Fiscal year 2004, the
Tribe would be required to pay 15 to 20 times what
it is paying now without adding a single machine
onto the gaming floor! The State’s proposal is a
poorly disguised tax, which is impermissible under
IGRA.
The State made its next counteroffer on October 23, 2006.
That offer included substantially the same terms as its
November 10, 2005 offer, but offered that the compact term
would be extended for five years, and that Rincon would pay
an annual fee equal to 10% (instead of 15%) of its net win
based on fiscal year 2005 (instead of 2004). The State noted
that the terms it was offering Rincon were similar to those
already accepted by a handful of other tribes and approved by
the Department of the Interior. At Rincon’s request, on Octo-
ber 31, 2006, the State made an alternative offer to allow Rin-
con to operate 400 additional devices with no other changes
to the existing compact. In exchange for the 400 additional
devices, Rincon would have to pay $2 million annually to the
RINCON BAND v. SCHWARZENEGGER 5885
RSTF, plus 25% of Rincon’s net win on those additional 400
devices to the State’s general fund.
The State accompanied this last counteroffer with its own
expert analysis comparing the value to Rincon of continuing
to operate its current 1600 devices under the 1999 compact to
the value to Rincon of accepting the State’s counteroffer of
2500 devices with a 10% annual fee. The State’s expert con-
cluded that if Rincon accepted the State’s offer, it would pay
California $38 million and retain $61 million in net revenue.
If Rincon maintained its operations under the 1999 compact,
it would pay the State nothing and retain $59 million in net
revenue. Hence, according to the State’s expert, Rincon stood
to gain $2 million in additional revenues if it accepted the
amendment. In contrast, the State stood to gain $38 million.
Rincon rejected the State’s counteroffer, and the record of
negotiations then closed.
Having reached an impasse, the parties filed cross-motions
for summary judgment in the district court. The district court
granted summary judgment in favor of Rincon, and this
timely appeal followed.
JURISDICTION AND STANDARD OF REVIEW
IGRA grants district courts original federal jurisdiction
over tribal claims that a state has failed to negotiate in good
faith concerning class III gaming rights. 25 U.S.C.
§ 2710(d)(7)(A)(i). California has waived its Eleventh
Amendment immunity from such suits.8 Cal. Gov’t Code
8
Many states have not waived their Eleventh Amendment immunity
under IGRA as California has. The dissent’s reliance on the prevalence of
compacts containing revenue sharing provisions is therefore suspect
because that reliance ignores the fact that many of the states involved in
those compacts would not permit tribes to challenge state demands as
made in bad faith. See, e.g., Seminole Tribe of Florida v. Florida, 517 U.S.
44 (1996) (holding that IGRA did not abrogate state Eleventh Amendment
5886 RINCON BAND v. SCHWARZENEGGER
§ 98005; Hotel Employees, 981 P.2d at 1011. We have juris-
diction under 28 U.S.C. §§ 1291 and 1292(a)(1).
Summary judgment is appropriate if there is no genuine
issue of material fact and, even making all reasonable infer-
ences in favor of the nonmoving party, the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c);
Bodett v. CoxCom, Inc., 366 F.3d 736, 742 (9th Cir. 2004).
The State argues that the district court erred in granting sum-
mary judgment against it on the issue of whether it negotiated
in good faith. See 25 U.S.C. § 2710(d)(7)(B)(iii-iv). Whether
the negotiations were conducted in good faith is a mixed
question of law and fact that we review de novo. Coyote Val-
ley II, 331 F.3d at 1107 (citing Diamond v. City of Taft, 215
F.3d 1052, 1055 (9th Cir. 2000)).
immunity, so Florida state actors could not be sued by tribe to force good
faith negotiations); Mescalero Apache Tribe v. New Mexico, 131 F.3d
1379, 1384-85 (10th Cir. 1997) (holding that New Mexico has not waived
its Eleventh Amendment immunity to IGRA suits); Ponca Tribe of Ok. v.
Oklahoma, 89 F.3d 690 (10th Cir. 1996) (same for Oklahoma); Santee
Sioux Tribe of Ne. v. Nebraska, 121 F.3d 427, 431 (8th Cir. 1997) (same
for Nebraska); Sault Ste. Marie Tribe of Chippewa Indians v. Michigan,
800 F. Supp. 1484 (W.D. Mich. 1992) (same for Michigan). Tribes in
states that have not waived their Eleventh Amendment immunity for
IGRA suits have no recourse to challenge the validity of revenue sharing,
and some therefore choose to accept revenue sharing rather than go with-
out a compact. See Pueblo of Sandia v. Babbitt, 47 F. Supp. 2d 49, 51, 56-
57 & n.7 (D.D.C. 1999) (explaining that the Department of the Interior
believed the revenue sharing provision was illegal, but also believed that
it had no choice but to allow the compact to go into effect because the
tribe would have no recourse against the state to obtain a legal compact).
Moreover, this reality—for better or worse—will prevent the proliferation
of lawsuits feared by our dissenting colleague. The dissent suggests that
25 C.F.R. §§ 291.1 et seq. is a potential vehicle for tribes to challenge
state demands, Dissent at 5971. n.27, but the only circuit court to consider
the question has held the regulations invalid. Texas v. United States, 497
F.3d 491 (5th Cir. 2007), cert. denied sub nom. Kickapoo Traditional
Tribe of Tex. v. Texas, 129 S. Ct. 32 (2008). The validity of the regulations
is not before us, and we therefore do not find it appropriate to rely on
them, or express any opinion as to their validity.
RINCON BAND v. SCHWARZENEGGER 5887
DISCUSSION
From the advent of colonists in North America, the new
arrivals promptly began encroaching on Indian lands, and fre-
quently treating Indians unfairly. To protect against further
“great Frauds and Abuses” perpetrated by the colonists
against the Indians, and to avoid war, the British Crown
assumed ultimate authority over Indian affairs. 1-1 Cohen’s
Handbook on Fed. Indian Law § 1.02 (Matthew Bender
2009). When our nation was formed, the federal government
essentially took the place of the Crown, with Congress being
granted the power to “regulate Commerce . . . with the Indian
tribes,” U.S. Const. art. I, § 8, cl. 3, and the President being
given the power to make treaties (including with Indian
tribes) with the consent of the Senate. U.S. Const. art. II, § 2,
cl. 2. According to the Supreme Court, the federal govern-
ment’s relationship to the tribes was that of a “ward to his
guardian.” Cherokee Nation v. Georgia, 30 U.S. (5 Pet.) 1, 17
(1831). Nevertheless, promises and treaties were repeatedly
broken or ignored as Indians were swept from their lands and
homes by states, hoards of settlers, and sometimes even by the
“guardian” federal government itself, when they wanted the
lands or resources possessed by those Indians. See Cohen’s,
supra, at §§ 1.02-1.03. Recounting one such instance, the
Supreme Court in United States v. Sioux Nation of Indians,
detailed the history of how, first by military force, then by
Congressional act, the government deprived the Sioux tribe in
South Dakota of much of its land because gold was discov-
ered in the Black Hills. 448 U.S. 371 (1980). Today, many
tribes have struck figurative gold with casino gaming and,
again, some state governments, just like their predecessors,
are maneuvering to take, or at least share in, some of that fig-
urative gold.
Mindful of this ignominious legacy, Congress enacted
IGRA to provide a legal framework within which tribes could
engage in gaming—an enterprise that holds out the hope of
providing tribes with the economic prosperity that has so long
5888 RINCON BAND v. SCHWARZENEGGER
eluded their grasp—while setting boundaries to restrain
aggression by powerful states. See S. Rep. No. 100-446, at 33
(1988) (statement of Sen. John McCain), reprinted in 1988
U.S.C.C.A.N. 3071, 3103; 134 Cong. Rec. at S12654 (state-
ment of Sen. Evans). In passing IGRA, Congress assured
tribes that the statute would always be construed in their best
interests. See, e.g., S. Rep. No. 100-446, at 13-14, as
reprinted in 1988 U.S.C.C.A.N. at 3083-84.
[1] Under IGRA, a tribe may conduct class III gaming only
once a compact with its home state is in effect. Because the
compact requirement skews the balance of power over gam-
ing rights in favor of states by making tribes dependent on
state cooperation, IGRA imposes on states the concomitant
obligation to participate in the negotiations in good faith. 25
U.S.C. § 2710(d)(3)(A). If a court finds that a state has failed
to negotiate in good faith, IGRA empowers the court to order
additional negotiations and, if necessary, to order the parties
into mediation in which a compact will be imposed.
§ 2710(d)(7).
In evaluating a State’s good faith, the district court:
(I) may take into account the public interest, public
safety, criminality, financial integrity, and adverse
economic impacts on existing gaming activities, and
(II) shall consider any demand by the State for direct
taxation of the Indian tribe or of any Indian lands as
evidence that the State has not negotiated in good
faith.
§ 2710(d)(7)(B)(iii) (emphasis added); see Coyote Valley II,
331 F.3d at 1108-09 (quoting at length S. Rep. No. 100-446,
at 13-14, as reprinted in 1988 U.S.C.C.A.N. at 3083-84,
which provides guidance on how Congress intended
§ 2710(d)(7)(B)(iii)(I) to be interpreted).
RINCON BAND v. SCHWARZENEGGER 5889
[2] In addition to specifying criteria for evaluating a state’s
good faith, IGRA outlines permissible tribe-state negotiation
topics.
(C) Any Tribal-State compact . . . may include provi-
sions relating to—
(i) 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 licens-
ing and regulation of such activity;
(ii) the allocation of criminal and civil jurisdiction
between the State and the Indian tribe necessary for
the enforcement of such laws and regulations;
(iii) the assessment by the State of such activities
in such amounts as are necessary to defray the costs
of regulating such activity;
(iv) taxation by the Indian tribe of such activity in
amounts comparable to amounts assessed by the
State for comparable activities;
(v) remedies for breach of contract;
(vi) standards for the operation of such activity
and maintenance of the gaming facility, including
licensing; and
(vii) any other subjects that are directly related to
the operation of gaming activities.
§ 2710(d)(3)(C). However, the list of permissible negotiation
topics is circumscribed by one key limitation on state negoti-
ating authority:
Except for any assessments that may be agreed to
under [§ 2710(d)(3)(C)(iii)], nothing in this section
5890 RINCON BAND v. SCHWARZENEGGER
shall be interpreted as conferring upon a State . . .
authority to impose any tax, fee, charge, or other
assessment upon an Indian tribe . . . . No State may
refuse to enter into the negotiations . . . based upon
the lack of authority in such State . . . to impose such
a tax, fee, charge, or other assessment.
25 U.S.C. § 2710(d)(4). IGRA limits permissible subjects of
negotiation9 in order to ensure that tribal-state compacts cover
9
Our dissenting colleague suggests that § 2710(d)(3)(C) is not exhaus-
tive, and then goes on to say that even if it is, reading the “catch-all” pro-
vision, § 2710(d)(3)(C)(vii), restrictively conflicts with Coyote Valley II.
Dissent at 5947-51. The language and structure of § 2710(d)(3)(C) sug-
gests it is exhaustive. There are seven categories of what “may” be negoti-
ated. Although “may” indicates permissiveness as the dissent explains, to
grant permission is not necessarily to grant carte blanche. What is “permit-
ted” is limited. Section 2710(d)(C)(vii) explicitly addresses unenumerated
topics, but limits them to those “directly related” to gaming. See Wiscon-
sin v. Ho-Chunk Nation, 512 F.3d 921, 933-34 (7th Cir. 2008) (reading
§ 2710(d)(3)(C) as exhaustive for jurisdictional purposes); see also Coyote
Valley II, 331 F.3d at 111 (noting that Congress “limit[ed] the proper top-
ics for compact negotiations to those that bear a direct relationship to the
operation of gaming activities” (emphasis added)). Significantly, what
compels a limited reading of the permitted topics is the canon of construc-
tion obligating us to construe a statute abrogating tribal rights narrowly
and most favorably towards tribal interests. See United States v. Winans,
198 U.S. 371, 381 (1905) (stating that “the treaty was not a grant of rights
to the Indians, but a grant of right from them,—a reservation of those
[rights] not granted”); Bryan v. Itasca County, 426 U.S. 373, 392 (1976)
(“[I]n construing this admittedly ambiguous statute, we must be guided by
that eminently sound and vital canon that statutes passed for the benefit
of dependent Indian tribes are to be liberally construed, doubtful expres-
sions being resolved in favor of the Indians.” (internal quotation marks,
citations, and ellipsis omitted)). The dissent is correct that Coyote Valley
II held that § 2710(d)(3)(C)(vii) is not ambiguous, and we do not hold oth-
erwise. Whether revenue sharing fits into the unambiguous phrase “di-
rectly related to gaming” however is a subject of significant dispute
between the parties. To help resolve the dispute, we, like the Coyote Val-
ley II court, consider relevant the Congressional directive to construe
ambiguities related to the issues covered by IGRA most favorably to tribal
interests. Coyote Valley II, 331 F.3d at 1111 (quoting S. Rep. No. 100-
446, at 15, reprinted in 1988 U.S.C.C.A.N. at 3085). Even if the dissent
is correct that resolution of this issue features a clash of “dueling canons,”
Congress’ specific invocation of the tribal canon persuades us which
canon must triumph here.
RINCON BAND v. SCHWARZENEGGER 5891
only those topics that are related to gaming10 and are consis-
tent with IGRA’s stated purposes, see Coyote Valley II, 331
F.3d at 1111, which are:
(1) 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;
(2) to provide a statutory basis for the regulation of
gaming by an Indian tribe adequate to shield it from
organized crime and other corrupting influences, to
ensure that the Indian tribe is the primary benefi-
ciary of the gaming operation, and to assure that
gaming is conducted fairly and honestly by both the
operator and players; and
(3) to declare that the establishment of independent
Federal regulatory authority for gaming on Indian
lands, the establishment of Federal standards for
gaming on Indian lands, and the establishment of a
National Indian Gaming Commission are necessary
to meet congressional concerns regarding gaming
and to protect such gaming as a means of generating
tribal revenue.
10
“Gaming by its very nature is a unique form of economic enterprise
and the Committee is strongly opposed to the application of the jurisdic-
tional elections authorized by this bill to any other economic or regulatory
issue that may arise between tribes and States in the future.” S. Rep. No.
100-446, at 14, as reprinted in 1988 U.S.C.C.A.N. 3071, 3084. See also
134 Cong. Rec. S12643-01, at S12651 (1988) (“There is no intent on the
part of Congress that the compacting methodology be used in such areas
such as taxation, water rights, environmental regulation, and land use. . .
. The exigencies caused by the rapid growth of gaming in Indian country
and the threat of corruption and infiltration by criminal elements in class
III gaming warranted the utilization of existing State regulatory capabili-
ties in this one narrow area.”) (statement of Sen. Inouye) (emphasis
added).
5892 RINCON BAND v. SCHWARZENEGGER
§ 2702 (emphasis added); see also Artichoke Joe’s, 353 F.3d
at 715.
Here, the State repeatedly demanded that Rincon agree to
pay into the State’s general fund 10-15% of Rincon’s annual
net win, and up to 25% of Rincon’s revenue from any new
devices Rincon would operate under an amended compact.
Once Rincon proffered evidence suggesting that the State had
acted in bad faith by attempting to impose taxation, “the bur-
den of proof [shifted to] the State to prove that the State has
negotiated with the Indian tribe in good faith to conclude a
Tribal-State compact governing the conduct of gaming activi-
ties.” § 2710(d)(7)(B)(ii). We conclude that the State failed to
meet its burden.
I. Taxation Demands “Shall” Be Considered Evidence of
Bad Faith
[3] Under § 2710(d)(7)(B)(iii)(II), a court must consider a
“demand” for a tax to be made in bad faith.11 A tax is “a
charge, usu[ally] monetary, imposed by the government on
persons, entities, transactions, or property to yield public rev-
enue.” Black’s Law Dictionary 1594 (9th ed. 2009) (emphasis
added). The State insisted that Rincon pay at least 10% of its
net profits into the State’s general fund. According to Califor-
nia Government Code § 16300, “[t]he General Fund consists
of money received into the treasury and not required by law
to be credited to any other fund.” No amount of semantic
sophistry can undermine the obvious: a non-negotiable, man-
datory payment of 10% of net profits into the State treasury
for unrestricted use yields public revenue, and is a “tax.”
Moreover, unlike what occurred in the 1999 negotiations,
11
In Coyote Valley II we were convinced that any inference of bad faith
had been rebutted, so we did not need to address this threshold inquiry into
whether the RSTF and SDF were taxes demanded by the State. Because
the bad faith question is more difficult in this case, we commence with the
threshold inquiry.
RINCON BAND v. SCHWARZENEGGER 5893
none of the State’s communications during the renegotiations
that occurred after the change in administration in 2003
reflected a willingness to take its general fund revenue shar-
ing demand off the table. The State repeatedly emphasized its
position that it would not give Rincon more devices or time
without a reciprocal benefit to the State, and the record
reveals that no other “benefit” was demanded besides mone-
tary payments into the general fund. Webster’s Third New
International Dictionary 598 (2002) defines “demand” as “to
call for as useful, necessary, or requisite: make imperative.”
The State’s repeated and forceful insistence on monetary pay-
ments to the general fund undoubtedly constitutes a “de-
mand.” Under the plain language of § 2710(d)(7)(B)(ii)(II),
the State’s demand for the payment of a tax is evidence of the
State’s bad faith.
Our dissenting colleague faults us for our characterization
of the 10-15% revenue share as a “tax,” primarily because he
contends we fail to appreciate the import of the word “im-
posed” in the definition of a “tax.” Dissent at 5934-37,
5943-45. He argues that IGRA merely creates a context for
“voluntary” negotiations, and that no matter how “hard line”
the State’s position is, it still has not attempted to exercise
authority to “impose” a tax.
The flaw in this argument—related to a faulty assumption
made throughout the dissent—is that it ignores the plain fact
that neither tribes nor states enter IGRA negotiations “volun-
tarily” in the way parties do in all the examples cited by the
dissent. IGRA negotiations are therefore distinguishable from
regular contract negotiations. When private parties, or inde-
pendent sovereign entities, commence contract negotiations,
they generally do so because each has something of value the
other wants, and each side has the right to accept or reject an
offer made, based on the desirability of the terms. If negotia-
tions fail, neither party has a right to complain. Not so in
IGRA negotiations. In IGRA, Congress took from the tribes
collectively whatever sovereign rights they might have had to
5894 RINCON BAND v. SCHWARZENEGGER
engage in unregulated gaming activities, but imposed on the
states the obligation to work with tribes to reach an agreement
under the terms of IGRA permitting the tribes to engage in
lawful class III gaming activities. If IGRA negotiations break
down between a state and a tribe because the state does not
come to the bargaining table in good faith, IGRA specifically
provides that courts, and the Secretary of the Interior, can
intervene to impose a gaming arrangement without the
affected state’s approval. See § 2710(d)(7)(B)(iii-vii). Thus,
while IGRA was designed to give states a voice in Indian
gaming, it was not designed to give states complete power
over tribal gaming such that each state can put the opportunity
to operate casinos up for sale to the tribe willing to pay the
highest price. See § 2702; see also Cheyenne River Sioux
Tribe v. South Dakota, 3 F.3d 273, 281 (8th Cir. 1993) (noting
that IGRA imposes mandatory duties upon states and gives
them incentives to negotiate, but that it also provides tribes
with alternative routes to a compact if the states choose not
to cooperate); Dalton v. Pataki, 835 N.E.2d 1180, 1189 (N.Y.
2005) (“IGRA confers a benefit on the state by allowing it to
negotiate and to have some input into how class III gaming
will be conducted.”).
The dissent claims that § 2710(d)(4) means only that IGRA
should not be interpreted as “conferring” upon states the “au-
thority to impose” taxes and fees. Dissent at 5925-26. But
nothing in IGRA can reasonably be construed as conferring
on states the power to impose anything; all the states are
empowered to do is negotiate. The logic underlying the dis-
sent is that there is no “imposition” when there is “negotia-
tion.” But by that logic, not only may states demand revenue
sharing like California has done here, they could take any
“hard-line” stance, such as demanding that a tribe agree to
waive its sovereign immunity from taxation, as a condition of
obtaining more gaming devices. No one disputes that requir-
ing a tribe to waive its sovereign immunity from state taxation
in order to obtain a compact is clearly contrary to IGRA. And
yet, if a tribe “agreed” to do so, the wavier of taxation immu-
RINCON BAND v. SCHWARZENEGGER 5895
nity would be no less “negotiated” than the revenue sharing
the dissent advocates here.
Exercising an authority to “impose” in the context of IGRA
must therefore relate to something the state does during the
negotiations process to extract an improper concession. In
other words, the only conceivable way a state could “impose”
something during negotiations is by insisting, over tribal
objections, that the tribe make a given concession—a conces-
sion beyond those specially authorized by § 2710(d)(3)(C)12
and contrary to the tribe’s sovereign interests—in order to
obtain a compact.13
The dissent acknowledges that in this case “California has
insisted that the Band share its gaming revenues as a condi-
tion to receiving authorization for additional gaming devices,”
but then concludes that this is simply “hard-line” negotiating
for revenue sharing, not imposing a tax. Dissent at 5933. If
there is a distinction between insisting on obtaining a share of
Rincon’s income as a non-negotiable condition of granting it
a compact, and demanding a tax or “refus[ing] to enter into
12
Indeed, the dissent overlooks the significance of § 2710(d)(4)’s intro-
ductory phrase: “Except for any assessments that may be agreed to under
[§ 2710(d)(3)(C)(iii).” Thus, § 2710(d)(4) clearly contemplates which fees
may be “agreed to,” and subsequently imposed by the state, in exchange
for basic gaming rights: only those described in § 2710(d)(3)(C)(iii).
13
Under § 2710(d)(4), it is not only “taxes” that are precluded, it is any
“tax, fee, charge, or other assessment.” Even if the dissent were correct
that the fees are not “taxes,” we fail to see how the State’s demands, which
the State itself described as “annual fees,” do not run afoul of this provi-
sion. The importance of the fact that the “demand” was for a “direct tax”
only matters as to the question of whether the court is required to take the
demand as evidence of bad faith under § 2710(d)(7)(B)(iii)(II), which
refers to direct taxation but not the other sorts of extracted payments
named in § 2710(d)(4). But under § 2710(d)(7)(B)(iii)(II), the language is
clear that what matters is the State’s “demand” for the tax. This shows that
the analysis must focus on what states “demand,” not what they may think
they have the authority to “impose” in the way the dissent interprets that
term.
5896 RINCON BAND v. SCHWARZENEGGER
the negotiations . . . based upon the lack of authority . . . to
impose such a tax, fee, charge, or other assessment,”
§ 2170(d)(4), it is a distinction without a difference. In either
case, the state is using its power over negotiations to force
Rincon to pay the State a portion of its income into the State’s
general fund (and not for any use for the benefit of Rincon or
other tribes) in order to engage in class III gaming. If
§ 2710(d)(4) means anything, it means that California cannot
do that—whatever one calls it.14
[4] In Coyote Valley II, we explained that IGRA requires
courts to consider a state’s demand for taxation as evidence
of bad faith, not conclusive proof. 331 F.3d at 1112-13 (citing
§ 2710(d)(7)(B)(iii)(II)). However, “[d]epending on the nature
of both the fees demanded and the concessions offered in
return, such demands might, of course, amount to an attempt
to impose a fee, and therefore amount to bad faith on the part
of a State.” Coyote Valley II, 331 F.3d at 1112 (internal quota-
tion marks omitted). For the reasons described in greater
detail infra, when the “nature of the fees” is general fund rev-
enue sharing—a bald demand for payment of a tax— the State
faces a very difficult task to rebut the evidence of bad faith
necessarily arising from that demand. See
§ 2710(d)(3)(B)(iii)(II).
Under IGRA, the State may attempt to rebut bad faith by
demonstrating that the revenue demanded was to be used for
“the public interest, public safety, criminality, financial integ-
rity, and adverse economic impacts on existing gaming activi-
ties.” § 2710(d)(3)(B)(ii). See S. Rep. No. 100-446, at 13-14,
14
Even if we were to accept the dissent’s interpretation of the meaning
of §§ 2710(d)(3)(C) and 2710(d)(4), that would only mean that IGRA is
silent on the issue of revenue sharing. The dissent takes silence as authori-
zation, but in doing so forgets that this is a statute affecting Indian tribes.
As such, we are obligated to construe ambiguities in the statute most
favorably towards tribal interests, which means that we are obligated to
construe the silence as a withholding of state authority to negotiate for that
term. See Bryan, 426 U.S. at 392.
RINCON BAND v. SCHWARZENEGGER 5897
as reprinted in 1988 U.S.C.C.A.N. at 3083-84. The State’s
need for general tax revenues is not in the list. Even if “the
public interest” or “financial integrity” could conceivably be
construed to implicate the State’s need for general funds,
IGRA’s purposes do not permit such a construction. Instead,
those terms clearly apply to protecting the State against the
adverse consequences of gaming activities. See § 2702; S.
Rep. No. 100-446, at 13-14, as reprinted in 1988
U.S.C.C.A.N. at 3083-84. Moreover, construing those terms
broadly in favor of the State’s interests would be inconsistent
with our obligation to construe IGRA most favorably towards
tribal interests. See Artichoke Joe’s, 353 F.3d at 728-30 (dis-
cussing Montana v. Blackfeet Tribes of Indians, 471 U.S. 759
(1985)); see also S. Rep. No. 100-446, at 15, as reprinted in
1988 U.S.C.C.A.N. at 3085 (stating Congressional intent that
courts interpret any ambiguities regarding
§ 2710(d)(3)(B)(ii)(I) in the way most favorable to tribal
interests).
Critically, the State does not even seek to justify its general
fund revenue sharing demands directly under any of the fac-
tors in § 2710(d)(7)(B)(ii)(I).15 Rather, the State relies on its
interpretation of our decision in Coyote Valley II. The State’s
reliance is misplaced. Coyote Valley II is an exceptional case
whose facts are readily distinguishable from those in this case.
II. Coyote Valley II
Coyote Valley II considered objections to, among other
things, the RSTF and SDF provisions of the 1999 compacts.
15
The State’s offers include reference to its desire to limit the number
of gaming devices operating in the State. Although a desire to prevent
excessive proliferation of casinos and gambling devices would likely be
a legitimate interest justifying State refusal to permit a tribe to expand its
gaming operations, such an interest is not at issue here. The State does not
rely on that interest in this case, but cf. supra n. 3, nor could the State
credibly do so since it has shown its willingness to permit nearly unlimited
gaming if the price is right.
5898 RINCON BAND v. SCHWARZENEGGER
We held those funds to be authorized subjects of negotiation
under 25 U.S.C. § 2710(d)(3)(C)(vii) (subjects “directly
related to the operation of gaming”). The SDF was clearly
“directly related” to gaming because all uses of SDF funds
were earmarked for gaming-related purposes. Coyote Valley
II, 331 F.3d at 1114. The RSTF funds similarly were related
to gaming because, by redistributing gaming funds from gam-
ing to non-gaming tribes, they are entirely consistent with the
IGRA goal of using gaming to foster tribal economic develop-
ment. Id. at 1111. Notably, we expressly declined to decide if
the RSTF or SDF were “taxes,” because they were decidedly
not “imposed” in bad faith. Rather, the tribes themselves sug-
gested them, and were willing to pay into them in exchange
for the “meaningful concession” of constitutional exclusivity.
Id. at 1112-15.
[5] Coyote Valley II thus stands for the proposition that a
state may, without acting in bad faith, request revenue sharing
if the revenue sharing provision is (a) for uses “directly
related to the operation of gaming activities” in
§ 2710(d)(3)(C)(vii), (b) consistent with the purposes of
IGRA, and (c) not “imposed” because it is bargained for in
exchange for a “meaningful concession.” The State’s offers in
this case fail on all three prongs of that proposition.
A. “Directly Related to the Operation of Gaming
Activities”
The State asserts that, like the RSTF and SDF, its revenue
sharing demands were authorized under § 2710(d)(3)(C)(vii)
because they involve a subject directly related to gaming. The
State misunderstands.
The State’s argument that general fund revenue sharing is
“directly related to the operation of gaming activities”
because the money is paid out of the income from gaming
activities is circular. Moreover, the very next section of the
statute precludes us from interpreting § 2710(d)(3)(C)(vii) in
RINCON BAND v. SCHWARZENEGGER 5899
the way the State suggests. See § 2710(d)(4) (stating explicitly
that states are not authorized to use negotiations to impose
assessments on tribes other than those “agreed to under para-
graph (3)(C)(iii)” (emphasis added)); see also Wisconsin v.
Ho-Chunk Nation, 512 F.3d 921, 932 (7th Cir. 2008) (describ-
ing revenue sharing agreements as being in tension with
§ 2710(d)(4)).
Crucially, in Coyote Valley II we did not conclude that
§ 2710(d)(3)(C)(vii) authorized the RSTF and SDF because
“revenue sharing” is a subject directly related to gaming.
Rather, we held that fair distribution of gaming opportunities
and compensation for the negative externalities caused by
gaming are subjects directly related to gaming, and the RSTF
and SDF were the means chosen by the parties to the 1999
compacts to deal with those issues. See Coyote Valley II, 331
F.3d at 1111, 1114.
[6] Whether revenue sharing is an authorized negotiation
topic under § 2710(d)(3)(C)(vii) thus depends on the use to
which the revenue will be put, not on the mere fact that the
revenue derives from gaming activities. General fund revenue
sharing, unlike funds paid into the RSTF and SDF, has unde-
fined potential uses. See Cal. Gov. Code § 16300 (providing
that the “General Fund consists of money received into the
treasury and not required by law to be credited to any other
fund.”). Therefore, payments into the general fund cannot be
said to be directly related to gaming. Indeed, in Coyote Valley
II we expressly recognized the distinction between general
fund revenue sharing and the RSTF and SDF.16 We noted that
16
This distinction also gave the Seventh Circuit pause in Ho-Chunk
Nation.
While we decline to use the case before us to weigh in on [the
contentious issue of revenue sharing], we do note that the terms
of the revenue-sharing agreements at issue in In re Indian Gam-
ing are distinct from the one contained in the Compact between
the Nation and the State. In In re Indian Gaming, the state’s use
5900 RINCON BAND v. SCHWARZENEGGER
the RSTF “provision does not put tribal money into the pocket
of the State,” id. at 1113, and reserved the question of whether
the SDF would be lawful if the funds were deposited straight
into the State’s general fund, id. at 1114 n.17. Consequently,
we hold that general fund revenue sharing is not “directly
related to the operation of gaming activities” and is thus not
an authorized subject of negotiation under
§ 2710(d)(3)(C)(vii). See Cabazon Band of Mission Indians v.
Wilson, 37 F.3d 430, 435 (9th Cir. 1994) (holding that where
fees go to the state’s general fund, the relationship between
the revenue payments and the costs incurred in regulating
gaming activities is attenuated).
[7] Ruling out § 2710(d)(3)(C)(vii) (authorizing negotia-
tions over subjects directly related to gaming not otherwise
listed in § 2710(d)(3)(C)) makes the applicability of
§ 2710(d)(4) (withholding authority to impose taxes or fees
other than those permitted under § 2710(d)(3)(C)(iii)) even
more apparent. The State was admittedly seeking “annual
fees” and objected to Rincon’s suggestion that any fees be
limited to § 2710(d)(3)(C)(iii) uses. That, combined with the
general notion that IGRA negotiations are supposed to be lim-
ited to gaming regulation, convinces us that there is no statu-
tory basis for authorizing tribe-state negotiations over general
fund revenue sharing. See Ho-Chunk Nation, 512 F.3d at 932-
33 (declining to decide whether general fund revenue sharing
is invalid, but noting that it was apparently not a subject “con-
of the payments made by the tribes was heavily restricted, with
all payments placed in two funds, one of which distributed gam-
ing revenue amongst non-gaming tribes, with the other designed
to fund programs to treat gambling addiction, support local agen-
cies impacted by Indian gaming, and finance other costs directly
related to gaming operations. Here, however, the Nation’s pay-
ments to the State are made without any restrictions or limits on
the manner in which the State may use those funds.
512 F.3d at 932 (internal citations omitted).
RINCON BAND v. SCHWARZENEGGER 5901
templated by Congress as being one of the matters tribes and
the states may negotiate over under the IGRA”).
B. Consistent with the Purposes of IGRA
[8] According to § 2702, IGRA is intended to promote
tribal development, prevent criminal activity related to gam-
ing, and ensure that gaming activities are conducted fairly. In
Coyote Valley II we construed the meaning of subjects “di-
rectly related to the operation of gaming” in
§ 2710(d)(3)(C)(vii) broadly to include revenue sharing
because the RSTF is consistent with the plain language of
§ 2702 (listing tribal economic self-sufficiency as one of
IGRA’s purposes). See Coyote Valley II, 331 F.3d at 1111. By
contrast, we cannot read § 2710(d)(3)(C)(vii) broadly here to
include general fund revenue sharing because none of the pur-
poses outlined in § 2702 includes the State’s general eco-
nomic interests. The only state interests mentioned in § 2702
are protecting against organized crime and ensuring that gam-
ing is conducted fairly and honestly. § 2702(2); see also S.
Rep. No. 100-446, at 2, 4, as reprinted in 1988 U.S.C.C.A.N.
at 3072-73, 3075.
Because the plain language of § 2702 does not support the
State’s position, the State misconstrues certain statements in
Coyote Valley II to say that the State’s pursuit of its economic
interests is at least not inconsistent with IGRA. As an initial
matter, we are reluctant to inject into the statute a purpose not
codified within it. See Exxon Mobile Corp. v. Allapattah
Servs., Inc., 545 U.S. 546, 568 (2005). But we need not
digress into that potentially complicated statutory analysis
because the State clearly misinterprets Coyote Valley II.
The State first points to our recognition in Coyote Valley II
that Congress acknowledged as legitimate the State’s “eco-
nomic interest in raising revenue for its citizens.” 331 F.3d at
1115 (quoting S. REP. NO. 100-446, at 13, as reprinted in
5902 RINCON BAND v. SCHWARZENEGGER
1988 U.S.C.C.A.N. at 3083). The State takes this quotation
out of context. The full quotation is:
A State’s governmental interests with respect to
class III gaming on Indian lands include the interplay
of such gaming with the State’s public policy, safety,
law and other interests, as well as impacts on the
State’s regulatory system, including its economic
interest in raising revenue for its citizens. It is the
Committee’s intent that the compact requirement for
class III not be used as a justification by a State for
excluding Indian tribes from such gaming or for the
protection of other State-licensed gaming enterprises
from free market competition with Indian tribes.
Coyote Valley II, 331 F.3d at 1115 (quoting S. Rep. No. 100-
446, at 13, as reprinted in 1988 U.S.C.C.A.N. at 3083).
[9] Although a grammatical analysis of the sentence could
conceivably suggest that a state’s “economic interests in rais-
ing revenue for its citizens” is one of the “impacts on the
State’s regulatory system,” such a construction would repre-
sent a distortion of the text. A more common sense approach
to interpreting Congress’s meaning here, as taken in Coyote
Valley II, is to read a state’s “interest in raising revenue” as
being “included” as one of the “State’s other interests.” 331
F.3d at 1115. And in context, the “other interests” are the
states’s own gaming systems like the California Lottery that
would, after IGRA, have to compete with Indian gaming.
IGRA itself, as well as clearer statements in the legislative
history, support this interpretation. See § 2710(d)(7)(B)(iii)(I)
(listing the state’s interest concerning “adverse economic
impacts on existing gaming activities” among the factors rele-
vant to a state’s good faith); see also, e.g., S. Rep. No. 100-
446, at 1-2, 14, as reprinted in 1988 U.S.C.C.A.N. at 3071-72
(acknowledging the problem that States and the gaming
industry may attempt to use the compact requirement to
impede tribal competition). Thus, neither the statute nor the
RINCON BAND v. SCHWARZENEGGER 5903
legislative history support interpreting the phrase “other inter-
ests . . . including its economic interest in raising revenue for
its citizens” to mean that states may tax tribes. In fact, all indi-
cations are to the contrary. See § 2710(d)(4); supra n.10.
The State next directs us to a similar statement from Coyote
Valley II that “Congress . . . did not intend to require that
States ignore their economic interests when engaged in com-
pact negotiations.” Coyote Valley II, 331 F.3d at 1115. The
State’s reliance on this statement is likewise misplaced. When
we said that Congress did not intend for states to ignore their
economic interests, we were not deciding whether states were
allowed to pursue their own economic objectives affirma-
tively through compact negotiations. Rather, we decided only
whether the State could require the tribes to pay into the SDF
to cover the government’s costs of dealing with the fallout of
gaming. It is one thing to ask the tribes to contribute funds so
the State is not left bearing the costs for gaming-related
expenses; it is quite another to ask the tribes to help fix the
State’s budget crisis. The State is therefore incorrect that pur-
suit of state general economic interests is consistent with
IGRA’s purposes.
[10] As already explained, IGRA’s stated purposes include
ensuring that tribes are the primary beneficiaries of gaming
and ensuring that gaming is protected as a means of generat-
ing tribal revenue. § 2702. We therefore find particularly per-
suasive the fact that the revenue sharing demanded in this
case would result in $38 million in additional net revenue to
the State compared to $2 million for the tribe. In such case,
it is the State, not the tribe, that would be the “primary benefi-
ciary” of the gaming rights under negotiation. See Cabazon
Band of Mission Indians, 37 F.3d at 433 (explaining that
where the state benefits “from the tribal gaming operation to
a considerably greater extent than the [tribe, the tribe would
not] be described as a ‘primary beneficiary[,’ and s]uch an
outcome contravenes the purposes of IGRA”).
5904 RINCON BAND v. SCHWARZENEGGER
C. “Meaningful Concessions”
Because we hold above that general fund revenue sharing
is neither authorized by IGRA nor reconcilable with its pur-
poses, it is difficult to imagine what concessions the State
could offer to rebut the strong suggestion of bad faith arising
from such demands. But even if it were possible to conjure up
an exceptional circumstance where such would be the case,
where, as here, the State demands significant taxes and fails
to offer any “meaningful concessions” in return, a finding of
bad faith is the only reasonable conclusion.
[11] The relevance of “meaningful concessions” arises
from § 2710(d)(4). We have interpreted § 2710(d)(4) as pre-
cluding state authority to impose taxes, fees, or assessments,
but not prohibiting states from negotiating for such payments
where “meaningful concessions” are offered in return. See
Coyote Valley II, 331 F.3d at 1112; see also Idaho v.
Shoshone-Bannock Tribes, 465 F.3d 1095, 1101 (9th Cir.
2006). In other words:
[t]he theory on which [revenue sharing] payments
were allowed [in Coyote Valley II] . . . was that the
parties negotiated a bargain permitting such pay-
ments in return for meaningful concessions from the
state (such as a conferred monopoly or other bene-
fits). Although the state did not have authority to
exact such payments, it could bargain to receive
them in exchange for a quid pro quo conferred in the
compact.
Shoshone-Bannock, 465 F.3d at 1101 (internal citation omit-
ted).
Importantly, we emphasized in Coyote Valley II that we
were not holding that “the State could have, without offering
anything in return, taken the position that it would conclude
a Tribal-State compact with [the tribe] only if the tribe agreed
RINCON BAND v. SCHWARZENEGGER 5905
to pay into the RSTF.” 331 F.3d at 1112. But, “[w]here . . .
a State offers meaningful concessions in return for fee
demands, it does not exercise ‘authority to impose’ anything.
Instead, it exercises its authority to negotiate, which IGRA
clearly permits.” Id. With this concept in mind, the State
argues that it offered “meaningful concessions” and therefore
merely exercised its authority to negotiate within the permis-
sible bounds of IGRA.
The State’s analogy fails. Unlike in Coyote Valley II, in
which the tribes proposed the revenue sharing provisions, see
331 F.3d at 1113, Rincon did not suggest revenue sharing;
indeed, Rincon has consistently objected to it. Additionally,
the State has not offered any “meaningful concessions.”
Just how “meaningful” the exclusivity provision at issue in
Coyote Valley II was at the time of the 1999 compacts cannot
be overstated. In 1999, the California constitution prohibited
casino-style gaming, and the State was therefore under no
obligation to allow tribes to conduct it, or even negotiate con-
cerning it. Rumsey Indian Rancheria of Wintun Indians v.
Wilson, 64 F.3d 1250 (9th Cir. 1994). The State nonetheless
negotiated the 1999 compacts with dozens of tribes, and to
make the 1999 compacts fully operable, the State promoted a
constitutional amendment exempting tribes, and tribes alone,
from the constitutional prohibition. Flynt, 129 Cal. Rptr. 2d at
175-77; see also Artichoke Joe’s, 353 F.3d at 718.
The value of a monopoly is obvious, and the value of a
monopoly that cannot be altered except by the extraordinary
act of further constitutional amendment is even greater. Such
a benefit was well beyond anything IGRA required the State
to offer. See Coyote Valley II, 331 F.3d at 1111, 1115. Specif-
ically, IGRA provides that tribes can engage in class III gam-
ing to the same extent as others in the state. § 2710(d)(1).
Thus, IGRA only requires that states treat tribes equally.
However, with the strong encouragement of the then gover-
nor, California voters gave the tribes an economic opportunity
5906 RINCON BAND v. SCHWARZENEGGER
denied to everyone else. The State’s agreement (with the con-
sent of the voters) to confer such a substantial benefit on the
tribes proved that its request that more successful tribes finan-
cially assist the less fortunate ones (and that the tribes agree
to cover the costs of adverse impacts) was freely negotiated.
Indeed, in a rare example of generosity to tribes, the State
conferred a valuable economic right on the tribes in exchange
for a program under which all of the significant benefits of the
compact were to be enjoyed by the tribes themselves.
[12] In short, we approved exclusivity as a “meaningful
concession” in Coyote Valley II because it was exceptionally
valuable and bargained for. By contrast, in the current legal
landscape, “exclusivity” is not a new consideration the State
can offer in negotiations because the tribe already fully enjoys
that right as a matter of state constitutional law. Moreover, the
benefits conferred by Proposition 1A have already been used
as consideration for the establishment of the RSTF and SDF
in the 1999 compact. See Flynt, 129 Cal. Rptr. 2d at 177. “It
is elementary law that giving a party something to which he
already has an absolute right is not consideration to support
that party’s contractual promise.” Salmeron v. United States,
724 F.2d 1357, 1362 (9th Cir. 1983). The State asserts that it
would be unfair to permit Rincon to keep the benefit of exclu-
sivity conferred by Proposition 1A without holding the tribe
to an ongoing obligation to periodically acquiesce in some
new revenue sharing demand. While we do not hold that no
future revenue sharing is permissible, it is clear that the State
cannot use exclusivity as new consideration for new types of
revenue sharing since it and the collective tribes already
struck a bargain in 1999, wherein the tribes were exempted
from the prohibition on gaming in exchange for their contri-
butions to the RSTF and SDF. Flynt, 129 Cal. Rptr. 2d at 177.17
17
We are aware that a few tribes have renegotiated their compacts with
the State and accepted general fund revenue sharing in exchange for
revised exclusivity. We express no opinion concerning the validity of
those compacts. Those tribes agreed that the revised exclusivity offered,
RINCON BAND v. SCHWARZENEGGER 5907
The State offers various alternative arguments to support its
claim that it offered more than illusory consideration. We find
all of the State’s arguments unpersuasive.
1. Revised and Expanded Exclusivity
The State first claims that it offered Rincon revised and
expanded exclusivity, which had even greater economic value
than the exclusivity originally granted by Proposition 1A.
We first note that the State never defined the precise con-
tours of the exclusivity provision it proposed, giving us very
little upon which to base a finding that the State has met its
burden to show it offered a real, meaningful concession in the
form of a new and improved exclusivity provision. However,
we assume, as apparently the parties have done, that the
revised exclusivity provision would have been similar to the
one recently accepted by several other tribes, including the
Pala Band of Mission Indians. The Pala Band’s exclusivity
provision provides that (1) “the State shall not authorize any
person or entity other than an Indian tribe . . . to engage in any
Gaming Activities . . . within the Tribe’s core geographic
market” (San Diego, Riverside, Orange, and Los Angeles
Counties); and (2) if the State were to breach its obligation to
ensure geographic exclusivity, “the Tribe shall have the right
to enjoin such gaming” and “the right to cease the payments”
due to the State. Such a revised and expanded exclusivity
would be practically worthless to Rincon.
Since the passage of a constitutional amendment eliminat-
ing tribal gaming exclusivity is extremely unlikely, neither the
and the financial benefits they would receive from amending their 1999
compacts, were satisfactory to them. In this case, to the contrary, the gen-
eral fund revenue sharing demanded by the State in exchange for a revised
exclusivity was not freely accepted by Rincon, and was demonstrably not
of significant value to Rincon.
5908 RINCON BAND v. SCHWARZENEGGER
injunctive relief18 nor the monetary19 remedies contingent
upon that event have anything more than speculative value to
Rincon. In addition, Rincon did not request or desire a revised
local tribal gaming exclusivity provision because such a
provision— which would not apply to other tribes—would
not protect Rincon against the high degree of tribal competi-
tion it experiences in its core geographic market. Freedom
from nontribal competition in its core geographic market
therefore provides Rincon with no significant additional eco-
nomic advantages over whatever value Rincon receives from
the statewide exclusivity it already enjoys.
[13] More importantly, even if there were some enhanced
value in the proposed revised and expanded exclusivity provi-
sion, the calculations presented by the State’s own expert
reveal that the financial benefit to Rincon from the amend-
ments proposed would be negligible: Rincon stood to gain
only about $2 million in additional revenues compared to the
State’s expected $38 million. Thus, in stark contrast to Coyote
18
Even if a constitutional amendment eliminating the nontribal casino
ban were imminent, the value of the proposed injunctive remedy is ques-
tionable. We are unaware of any authority that would permit a court to
enjoin a constitutional amendment on the grounds that it violated Rincon’s
contract.
19
The State suggests the amended monetary remedy is superior to the
monetary remedy provided under the 1999 compact because, although
both compacts provide for the end of revenue sharing in the event exclu-
sivity is lost, the Pala compact amendment permits continued gaming,
whereas the 1999 compact requires termination. We are unconvinced that
the continuation of gaming regime is better for Rincon than the termina-
tion regime. The Pala compact amendment would permit termination of
revenue sharing if tribal exclusivity is lost in Rincon’s core geographic
market (which is a benefit Rincon would not enjoy in any event, see supra
pp. 5883, 5907). The 1999 compact provides for termination whenever
tribal exclusivity is lost anywhere statewide. Also, because IGRA requires
the State to negotiate with Rincon in good faith, termination may not actu-
ally result in a loss of gaming—Rincon could obtain a new compact. Thus,
under the 1999 termination option, Rincon has greater opportunities for
essentially the same monetary relief.
RINCON BAND v. SCHWARZENEGGER 5909
Valley II, the relative value of the demand versus the conces-
sion here strongly suggests the State was improperly using its
authority over compact negotiations to impose, rather than
negotiate for, a fee. See Coyote Valley II, 331 F.3d at 1112.
Under IGRA and Coyote Valley II, that is bad faith.
[14] Our conclusion is buttressed by the fact that the State
never wavered from its general fund revenue sharing
demands. We do not mean to suggest that the State is guilty
of bad faith whenever it takes a “hard line” negotiating posi-
tion. Indeed, in Coyote Valley II we upheld the State’s ability
to insist on certain provisions. See Coyote Valley, 331 F.3d at
1116 (finding that it was not bad faith for the State to insist
on a particular labor standards provision). As already sug-
gested supra, a “hard line” stance is not inappropriate so long
as the conditions insisted upon are related to legitimate state
interests regarding gaming and the purposes of IGRA. See
§ 2710(d)(3)(B)(iii)(I). We hold only that a state may not take
a “hard line” position in IGRA negotiations when it results in
a “take it or leave it offer” to the tribe to either accept non-
beneficial provisions outside the permissible scope of
§§ 2710(d)(3)(C) and 2710(d)(4), or go without a compact.
Cf. NLRB v. Ins. Agents’ Int’l Union, 361 U.S. 477, 485
(1960).
2. More Devices and Time
The State’s next argument is that, at the very least, it is
entitled to some new consideration in exchange for giving
Rincon expanded gaming rights, and the increased revenue
share it requested was the only possible new consideration it
could seek.
The State is correct that general contract principles dictate
that new or additional consideration for a compact amend-
ment is required. However, as already explained, IGRA does
not permit the State and the tribe to negotiate over any sub-
jects they desire; rather, IGRA anticipates a very specific
5910 RINCON BAND v. SCHWARZENEGGER
exchange of rights and obligations, defined in
§§ 2710(d)(3)(C) and (d)(4). Cf. Cal. Const., art. XV, § 1
(limiting the permissible scope of loan contract negotiations
by prohibiting, subject to penalty, negotiation for usurious
interest rates).
[15] As held above, general fund revenue sharing is not a
state public policy interest directly related to gaming and is
not an authorized negotiation topic under § 2710(d)(3)(C).
Therefore, gaming rights that tribes are entitled to negotiate
for under IGRA, like device licensing and time, see
§ 2701(d)(3)(C)(vi),20 cannot serve as consideration for gen-
eral fund revenue sharing; the consideration must be for
something “separate” than basic gaming rights. See Dissent at
5957 (quoting Courtney J.A. DaCosta, Note, When “Turn-
about” Is Not “Fair Play”: Tribal Immunity under the Indian
Gaming Regulatory Act, 97 Geo. L.J. 515, 543-44 (2009)). In
order to obtain additional time and gaming devices, Rincon
may have to submit, for instance, to greater State regulation
of its facilities or greater payments to defray the costs the
State will incur in regulating a larger facility. See 25 U.S.C.
§ 2710(d)(3)(C)(i, iii). Rincon need not, however, submit to
demands that it assist the State in addressing its budget crisis.
We are further influenced by the fact that the Department
of the Interior, the executive agency charged with approving
gaming compacts, also interprets IGRA in this way. As stated
by the Assistant Secretary of Indian Affairs,
It is the position of the Department to permit
revenue-sharing payments in exchange for quantifi-
able economic benefits over which the State is not
required to negotiate under IGRA, such as substan-
20
“[L]icensing issues under clause vi may include agreements on days
and hours of operation, wage and pot limits, types of wagers, and size and
capacity of the proposed facility.” S. Rep. No. 100-446, at 13, reprinted
in 1988 U.S.C.C.A.N. at 3084.
RINCON BAND v. SCHWARZENEGGER 5911
tial exclusive rights to engage in Class III gaming
activities. We have not, nor are we disposed to,
authorize revenue-sharing payments in exchange for
compact terms that are routinely negotiated by the
parties as part of the regulation of gaming activities,
such as duration, number of gaming devices, hour of
operation, and wager limits.21
To hold otherwise would effectively mean that states could
put gaming rights “up for sale.”22 That would be inconsistent
with IGRA’s spirit, and its express refusal to allow states to
use their right to engage in compact negotiations as a means
to extract fees. § 2710(d)(4).
3. “Exclusive Gaming Rights”
Next, the State argues that the value of its offers during
compact negotiations should be analyzed as a whole, not
piecemeal. Specifically, the State contends that we should
evaluate its offer not simply by considering the value of the
exclusivity provision itself, but rather the value of the entire
bundle of “exclusive gaming rights” that Rincon would obtain
under an amended compact. Viewing its offer in this way, the
State contends it negotiated in good faith.
21
We take judicial notice of this statement by the Assistant Secretary
pursuant to Federal Rule of Evidence 201.
22
Congress considered amending IGRA in 2003, although no definitive
action has since been taken. During the discussions, a representative from
the Department of the Interior stated to Congress that the Department was
seriously concerned about having to make decisions about the legitimacy
of revenue sharing agreements, and wanted Congress to give it clear guid-
ance so that it could avoid seeing “more and more of these revenues going
to the States under these compacts.” S. HRG. 108-475, at 33-34 (statement
of Acting Deputy Assistant Sec’y for Policy and Econ. Dev. for the Dep’t
of the Interior Skirbine). The Department representative summarized, “we
do not believe it was the intent of IGRA to have all the provisions up for
sale.” Id. at 33.
5912 RINCON BAND v. SCHWARZENEGGER
If there is a meaningful distinction between “exclusivity”
and “gaming rights” as stand alone terms and “exclusive gam-
ing rights,” it is too minuscule to see. Because exclusivity
exists independent of the current compact negotiations, the
negotiations concern only the extent of gaming rights, which
are, by nature as a result of California constitutional law,
exclusive. Were we to accept the State’s view that whenever
it negotiates with a tribe, it offers “meaningful concessions”
because the gaming rights offered will, as a matter of law, be
exclusive, we would effectively be holding that, as a matter
of law, the State is entitled to insist on significant general
fund revenue sharing whenever a tribe wants to renegotiate
basic terms. We reject the State’s view. As explained in Part
II.C.2, supra, IGRA entitles tribes to negotiate for basic class
III gaming rights without being forced to accept revenue shar-
ing.
[16] Further, we disagree that the State makes “meaningful
concessions” whenever it offers a bundle of rights more valu-
able than the status quo.23 As previously explained, IGRA
endows states with limited negotiating authority over specific
items. Accepting the State’s “holistic” view of negotiations
would permit states to lump together proposals for taxation,
land use restrictions, and other subjects along with IGRA
23
The dissent takes this statement out of context. At oral argument, the
State argued that as long as the tribe would be better off with the new
compact concerning “exclusive” gaming rights than the tribe was under its
old one, the State could demand revenue sharing as its reward. Although
we do not inquire into the adequacy of consideration as a general rule,
when the consideration must necessarily be divided into two parts—that
which IGRA contemplates and that which is outside of IGRA—we cannot
bundle the rights being negotiated and compare the whole to the status quo
as our method for determining whether the concessions are meaningful.
The consideration in exchange for the revenue sharing must be indepen-
dently meaningful in comparison to the status quo, i.e. not illusory (or ille-
gal) if standing alone.
RINCON BAND v. SCHWARZENEGGER 5913
class III gaming rights. Such a construction of IGRA would
violate the purposes and spirit of that law.24 See supra, n.10.
III. Other Evidence of Good Faith
The State raises one final argument in support of its posi-
tion. Specifically, the State contends that it genuinely believed
its revenue sharing demands were authorized by Coyote Val-
ley II, approved by the Department of the Interior, and fair
because other tribes had accepted them. The State therefore
urges us to find that its demands, even though herein held
improper under IGRA, were nonetheless made in good faith.
[17] IGRA does not provide express guidance about
whether good faith is to be evaluated objectively or subjec-
tively. However, we are influenced by the factors outlined in
§ 2710(d)(7)(B)(iii), which lend themselves to objective anal-
ysis and make no mention of unreasonable beliefs. Further,
the structure and content of § 2710(d) make clear that the
function of the good faith requirement and judicial remedy is
to permit the tribe to process gaming arrangements on an
expedited basis, not to embroil the parties in litigation over
their subjective motivations. We therefore hold that good faith
should be evaluated objectively based on the record of negoti-
ations, and that a state’s subjective belief in the legality of its
requests is not sufficient to rebut the inference of bad faith
created by objectively improper demands.25 See Mashantucket
24
“I hope the States will be fair and respectful of the authority of the
tribes in negotiating these compacts and not take unnecessary advantage
of the requirement for a compact.” 134 Cong. Rec. at S12651 (statement
of Sen. Inouye).
25
Interestingly, on the question of the scope of discovery permissible in
IGRA negotiations, the State has taken the position that good faith should
be proved based on the objective course of negotiations. See also Fort
Independence Indian Cmty. v. California, No. Civ. S-08-432, 2009 WL
1283146, at *3 (E.D. Cal. May 7, 2009) (agreeing with the State that good
faith should be based on objective factors). The State cannot have it both
ways. If the State wants to avoid discovery and limit review of good faith
to the official record of negotiations, the State cannot defend itself on the
good faith question by claiming its objectively improper demands were
made with an innocent intent.
5914 RINCON BAND v. SCHWARZENEGGER
Pequot Tribe v. Connecticut, 913 F.2d 1024, 1033 (2d Cir.
1990) (“The statutory terms are clear, and provide no excep-
tion for sincere but erroneous legal analyses.”).
[18] Here, the State’s belief that IGRA permitted the reve-
nue sharing it sought was objectively unreasonable. IGRA
expressly condemns state attempts to compel fees for pur-
poses other than those specified in § 2710(d)(3)(C)(iii). The
State does not even attempt to fit its general fund revenue
sharing demand within § 2710(d)(3)(C)(iii). While Coyote
Valley II held that § 2710(d)(3)(C)(vii) might also authorize
revenue sharing, that case involved exceptional circumstances
and turned on the specialized, limited uses of the revenue. As
explained supra, the rationale for permitting revenue sharing
under 2710(d)(3)(C)(vii) in Coyote Valley II is not present in
this case, and the State was unreasonable to rely on Coyote
Valley II for propositions not decided, or expressly reserved.
See supra pp. 5897-99. Further, the Department of the Interior
has frequently noted its concerns about the legitimacy of gen-
eral fund revenue sharing. See, e.g., supra nn. 21 & 22 and
accompanying text; New Mexico v. Pueblo of Pojoaque, 30 F.
App’x 768, 768 (10th Cir. 2002) (order); Mescalero Apache
Tribe v. New Mexico, 131 F.3d 1379, 1382 n.2 (10th Cir.
1997); Pueblo of Sandia v. Babbitt, 47 F. Supp. 2d 49, 51
(D.D.C. 1999). The Department of the Interior has approved
compacts with general fund revenue sharing provisions
agreed to by other California tribes, but has done so reluc-
tantly, and only after the tribes themselves confirmed the
desirability of the amendments.26 Often, the Secretary simply
permits compacts with revenue sharing provisions to go into
26
In approving the compact amendments referenced by the State, the
Secretary noted that “the Department has sharply limited the circum-
stances under which Indian tribes can make direct payments to a State for
purposes other than defraying the costs of regulating gaming activities,”
but agreed to approve the compacts at issue because the tribes themselves
had confirmed that the exclusivity provision constituted “meaningful geo-
graphical exclusivity” and that the “amount of payment to the State [was]
appropriate in light of the exclusivity right conferred.”
RINCON BAND v. SCHWARZENEGGER 5915
effect “only to the extent they are consistent with IGRA,” thus
leaving open the precise question at issue. The State therefore
could not reasonably have relied on the Department of the
Interior’s approval of certain other compacts as proof that its
demands to Rincon were lawful. This is especially true since
IGRA anticipates that, even if some tribes agree to a waiver
of their rights not to be taxed by a state, such a waiver cannot
be a basis for the State expecting the same from Rincon. See
Shoshone-Bannock, 465 F.3d at 1101-02; S. Rep. No. 100-
446, at 5, as reprinted in 1988 U.S.C.C.A.N. at 3075-76
(explaining that “it is the Committee’s intention that to the
extent tribal governments elect to relinquish rights in a tribal-
State compact that they might have otherwise reserved, the
relinquishment of such rights shall be specific to the tribe so
making the election, and shall not be construed to extend to
other tribes”).
[19] The State’s demand for 10-15% of Rincon’s net win,
to be paid into the State’s general fund, is simply an imper-
missible demand for the payment of a tax by the tribe. See
§ 2710(d)(3)(B)(iii); § 2710(d)(4). None of the State’s argu-
ments suffices to rebut the inference of bad faith such an
improper demand creates.
In so holding, we are mindful that many states, and espe-
cially California, are currently writhing in the financial maw
created by the clash of certain mandatory state expenditures
at a time when state revenues have plummeted from historic
levels. However, we are also keenly aware of our nation’s
too-frequent breach of its trust obligations to Native Ameri-
cans when some of its politically and economically powerful
citizens and states have lusted after what little the Native
Americans have possessed. In developing IGRA, Congress
anticipated that states might abuse their authority over com-
pact negotiations to force tribes to accept burdens on their
sovereignty in order to obtain gaming opportunities. See, e.g.,
134 Cong. Rec. S12643-01, at S12651 (1988) (Statement of
Sen. Evans); see also S. Rep. No. 100-446, at 33 (statement
5916 RINCON BAND v. SCHWARZENEGGER
of Sen. John McCain), reprinted in 1988 U.S.C.C.A.N. at
3103. That is why the good faith requirement exists, and why
IGRA condemns state taxation demands.
CONCLUSION
[20] We AFFIRM the district court’s finding that the State
of California negotiated with Rincon in bad faith by condi-
tioning its agreement to expand Rincon’s class III gaming
rights on Rincon’s agreement to pay a percentage of its reve-
nues to the State’s general fund. The district court’s order
compelling the parties to reach a compact or submit their best
offers to a mediator pursuant to § 2710(d)(7) is effective
forthwith.
AFFIRMED.
BYBEE, Circuit Judge, dissenting:
In 1999, the Rincon San Luiseno Band of Mission Indians
(“the Band”) negotiated a compact with the State of Califor-
nia to operate a casino—known as Harrah’s Rincon Hotel &
Casino—in San Diego County. Under the terms of that com-
pact, the Band was authorized to operate up to 1,600 Nevada-
style gaming devices. The compact remains in effect until
2020. In 2003, the Band requested that California renegotiate
the compact so that the Band could increase the number of
devices from 1,600 to 2,500. Throughout an exchange of pro-
posals, the State demanded that the Band contribute a percent-
age of its gaming revenues to the State’s general fund. The
negotiations failed, resulting in no increase in gaming devices
for the Band and no revenues for the State. Unhappy with the
course of the negotiations, the Band brought suit under the
Indian Gaming Regulatory Act (“IGRA”), 25 U.S.C. § 2701
et seq., claiming that the State had negotiated in bad faith and
requesting mandatory mediation.
RINCON BAND v. SCHWARZENEGGER 5917
In In re Indian gaming Related Cases (“Coyote Valley II”),
we held that when “a State offers meaningful concessions in
return for fee demands . . . . it exercises its authority to negoti-
ate, which IGRA clearly permits.” 331 F.3d 1094, 1112 (9th
Cir. 2003). Going well beyond anything we said in Coyote
Valley II, the majority holds (1) the State’s demand for “gen-
eral fund revenue sharing [is] a bald demand for payment of
a tax,” Maj. Op. at 5896 (emphasis omitted); (2) “general
fund revenue sharing . . . is . . . not an authorized subject of
negotiation” under IGRA, id. at 5900; and therefore (3) the
State’s “demand for payment of a tax [is] . . . evidence of [the
State’s] bad faith,” id. at 5896. The majority concludes that
the State has negotiated in bad faith and orders the parties to
amend their compact or submit to mediation.
I respectfully disagree with all of these propositions. First,
we have long held that the power to tax is defined by the sov-
ereign’s power to impose the tax. California has exercised no
such power here. The majority has confused California’s
hardball negotiations with the taxing power. California has
not claimed any authority to tax the Band and, if these negoti-
ations fail, the Band will not have added one penny to the
State’s coffers. Second, IGRA is silent on the particular ques-
tion whether states and tribes may include revenue sharing in
their negotiations. But the Act provides that the parties “may
include provisions relating to . . . any other subjects that are
directly related to the operation of gaming activities,” 25
U.S.C. § 2710(d)(3)(C)(vii), and we held in Coyote Valley II
that the parties could negotiate over “fee demands.” The
majority now holds that such fee demands cannot include
general revenue sharing derived from the operation of gaming
activities, but are limited to fees spent on the regulation of
gaming alone. This restriction takes from the State its primary
incentive in negotiating gaming compacts with the tribes.
Third, even if I thought California had imposed a tax on the
Band, I do not believe the State has negotiated in bad faith.
By its constitution, California has granted the tribes the exclu-
sive right to offer Nevada-style gaming in the State. That
5918 RINCON BAND v. SCHWARZENEGGER
structure puts the State and the Band into a bilateral monopoly
situation in which each side has powerful economic incentives
to negotiate at the margins. At the least, the State has offered
the Band a more than fifty percent increase in the number of
authorized gaming machines and a twenty-five year extension
on its contract on terms comparable to other tribes with Cali-
fornia compacts. The offered terms are well within the range
of good faith negotiations. Of course, whether the Band
should accept the State’s offer is a very different question
from whether the State has negotiated in bad faith. But absent
the majority’s intervention, both sides would have strong
incentives to continue negotiations.
The impact of the majority’s decision may not be readily
apparent from its opinion, but the holding that California has
negotiated in bad faith because its demand for general reve-
nue sharing is a tax and not an authorized subject of negotia-
tion does not just upset the apple cart—it derails the whole
train. If the majority is correct, then there is nothing for Cali-
fornia to do but to authorize whatever devices the Band
wants. The Band wins. Everything.
Moreover, the damage is not confined to the Rincon Band.
The revenue sharing provision that the majority strikes from
the negotiations is found in fifteen other compacts that Cali-
fornia has recently negotiated or renegotiated with tribes. All
of those compacts were approved by the Secretary of the Inte-
rior. Those tribes now have a powerful argument that their
compacts must be renegotiated (again) in light of the majori-
ty’s decision. The damage, moreover, is not confined to our
circuit. Every state that has negotiated a compact in recent
years—including Connecticut, Florida, Michigan, New York,
New Mexico, Oklahoma, and Wisconsin—has negotiated a
similar revenue sharing provision, one that was also approved
by the Secretary. The result is going to be chaos as tribe after
tribe seeks to reopen negotiations concluded and duly
approved. Nothing in IGRA compels our intervention in these
negotiations.
RINCON BAND v. SCHWARZENEGGER 5919
I respectfully dissent.
I
Since the framing of the Constitution, Indian tribes have
occupied a “unique legal posture . . . in relation to the federal
government.” WILLIAM C. CANBY, JR., AMERICAN INDIAN LAW
1 (5th ed. 2009). “[T]ribes are independent entities with inher-
ent powers of self-government,” but “the independence of the
tribes is subject to exceptionally great powers of Congress,”
which “has a responsibility for the protection of the tribes and
their properties . . . .” Id. at 1-2. The presence of fifty sover-
eign states complicates the relationship: “the power to deal
with and regulate the tribes is wholly federal; the states are
excluded unless Congress delegates power to them.” Id. at 2.
“[I]n assessing state regulation that does not involve taxa-
tion,” the Supreme Court has taken a functional approach to
try to “balance[ ] federal, state, and tribal interests.” Okla. Tax
Comm’n v. Chickasaw Nation, 515 U.S. 450, 458 (1995).
However, state taxation of Indians or Indian tribes, where a
“State attempts to levy a tax directly on an Indian tribe or its
members inside Indian country,” has produced, “instead of a
balancing inquiry, a more categorical approach.” Id. at 458
(quotation marks omitted).1
1
Like the unique relationship between Congress and the tribes, see U.S.
CONST. art. I, § 8, cl. 3 (giving Congress the power “[t]o regulate com-
merce with foreign nations, and among the several states, and with the
Indian Tribes”), the special tax immunity enjoyed by Indian tribes has its
roots in the Constitution, see id. art. I, § 2, cl. 3 (“Representatives and
direct Taxes shall be apportioned among the several States which may be
included within this Union, according to their respective Numbers, which
shall be determined by adding to the whole Number of free Persons,
including those bound to Service for a Term of Years, and excluding Indi-
ans not taxed, three fifths of all other Persons.” (emphasis added)); see
also id. amend. XIV, § 2 (“Representatives shall be apportioned among
the several states according to their respective numbers, counting the
whole number of persons in each State, excluding Indians not taxed.”).
5920 RINCON BAND v. SCHWARZENEGGER
The Supreme Court’s approach to tribal sovereign immu-
nity has evolved over time. As Chief Justice Marshall
explained in Worcester v. Georgia, 31 U.S. 515 (1832), at the
time of the framing there was a “universal conviction that the
Indian nations possessed a full right to the lands they occu-
pied, until that right should be extinguished by the United
States, with their consent: that their territory was separated
from that of any state within whose chartered limits they
might reside, by a boundary line, established by treaties: that,
within their boundary, they possessed rights with which no
state could interfere: and that the whole power of regulating
the intercourse with them, was vested in the United States.”
Id. at 560.2 By the late twentieth century, the Supreme Court
had “reject[ed] . . . the broad assertion that the Federal Gov-
ernment has exclusive jurisdiction over the Tribe for all pur-
poses and that the State is therefore prohibited from enforcing
its revenue laws against any tribal enterprise whether the
enterprise is located on or off tribal land” in favor of “more
individualized treatment of particular treaties and specific fed-
eral statutes, including statehood enabling legislation, as they,
taken together, affect the respective rights of States, Indians,
and the Federal Government.” Mescalero Apache Tribe v.
Jones, 411 U.S. 145, 147-48 (1973) (quotation marks omitted)
(citing McClanahan v. Ariz. State Tax Comm’n, 411 U.S. 164
(1973). But “[e]ven so, in the special area of state taxation,
absent cession of jurisdiction or other federal statutes permit-
ting it,” the Supreme Court found “no satisfactory authority
for taxing Indian reservation lands or Indian income from
activities carried on within the boundaries of the reservation,”
holding that “such taxation [wa]s not permissible absent con-
gressional consent.” Id. at 148.
2
“The source of federal authority over Indian matters has been the sub-
ject of some confusion, but it is now generally recognized that the power
derives from federal responsibility for regulating commerce with Indian
tribes and for treaty making.” McClanahan v. Ariz. State Tax Comm’n,
411 U.S. 164, 172 n.7 (1973) (citing U.S. CONST. art. I, § 8, cl. 3; id. art.
II, § 2, cl. 2 (additional citations omitted)).
RINCON BAND v. SCHWARZENEGGER 5921
In short, “[a]bsent cession of jurisdiction or other federal
statutes permitting it . . . a State is without power to tax reser-
vation lands and reservation Indians.” Okla. Tax Comm’n,
515 U.S. at 458 (quotation marks omitted). A tax levied
directly on persons or property is known as a “direct tax,” and
“Indian tribes, like the Federal Government itself, are exempt
from direct state taxation and . . . this exemption is lifted only
when Congress has made its intent to do so unmistakably
clear.” Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163,
183 n.14 (1989) (quotation marks omitted).
II
Against this intricate backdrop of federal-state-tribal rela-
tions, tribal gaming emerged.
A
In the 1970s, bingo halls began to open on tribal land, often
in derogation of state gambling laws. See Coyote Valley II,
331 F.3d at 1095; Flynt v. Cal. Gambling Control Comm’n,
129 Cal. Rptr. 2d 167, 172-73 (Ct. App. 2002). When states
attempted to regulate or shut down tribal bingo halls, the
tribes argued that their sovereign status immunized them from
state gambling regulation. Id.; see Barona Group of Captain
Grande Band of Mission Indians v. Duffy, 694 F.2d 1185 (9th
Cir. 1982); Seminole Tribe v. Butterworth, 658 F.2d 310, 312
(5th Cir. 1981), cert. denied, 455 U.S. 1020 (1982); Oneida
Tribe of Indians v. Wisconsin, 518 F. Supp. 712 (W.D. Wis.
1981). Tribal bingo halls—and state attempts to regulate them
—attracted national attention as the stakes and profit from
these establishments skyrocketed. See James Coates, U.S.
fears big-money bingo will draw mob to Indian tribes, CHI.
TRIB., Dec. 1, 1985, at 4; Howard LaFranchi, States vs. Indian
Bingo, CHRISTIAN SCI. MONITOR, Feb. 24, 1986, at 3; Lenore
Look, Hearing to Air Complaints on Misuse of Tribes’ Bingo
Revenue, L.A. TIMES, May 24, 1985, at A1; Iver Peterson,
5922 RINCON BAND v. SCHWARZENEGGER
Bingo That Doesn’t Get Any Bigger, N.Y. TIMES, Nov. 3,
1985, at E4.
California was right in the middle of the bingo battles: in
the mid-1980s, the State attempted to enforce its gambling
statutes against tribes operating bingo halls within its borders,
and the tribes responded by filing suit in federal court, argu-
ing that the State did not have regulatory jurisdiction over
tribal lands. Coyote Valley II, 331 F.3d at 1095. In response,
the State argued that Congress had expressly consented to the
State’s exercise of jurisdiction over tribal gaming activities in
Public Law 83-280, which granted five states, including Cali-
fornia, jurisdiction over criminal violations on tribal land.
Pub. L. 83-280 (Aug. 15, 1953), codified as amended at 18
U.S.C. § 1162, 28 U.S.C. § 1360, and 25 U.S.C. §§ 1321-
1326; see Coyote Valley II, 331 F.3d at 1095. In 1987, the
Supreme Court ruled in favor of the tribes, holding that Public
Law 83-280 did not expressly authorize state jurisdiction over
activities on tribal land that were regulated, rather than wholly
prohibited, under state law. See California v. Cabazon Band
of Mission Indians, 480 U.S. 202, 210-12 (1987). Since “Cali-
fornia regulate[d] rather than prohibit[ed] gambling in general
and bingo in particular,” the State’s attempts to regulate tribal
bingo were not authorized by Public Law 280, id. at 211, and
“[s]tate regulation would impermissibly infringe on tribal
government,” id. at 222.
Legislation concerning tribal gaming had percolated in
Congress for several years prior to Cabazon, but prior to the
Court’s decision in that case, it was unclear that congressional
action was required to allow state regulation of tribal gaming.
The Cabazon decision answered this question in the affirma-
tive, and the year after Cabazon, Congress passed the Indian
Gaming Regulatory Act, Pub. L. 100-497 (Oct. 17, 1988),
codified at 25 U.S.C. § 2701 et. seq.
B
In IGRA, Congress created a “cooperative federalis[t]”
framework that “balance[d] the competing sovereign interests
RINCON BAND v. SCHWARZENEGGER 5923
of the federal government, state governments and Indian
tribes, by giving each a role in the regulatory scheme.” Coyote
Valley II, 331 F.3d at 1096 (quoting Artichoke Joe’s v. Nor-
ton, 216 F. Supp. 2d 1084, 1092 (E.D. Cal. 2002)). Recogniz-
ing that different types of gaming presented different
regulatory burdens, IGRA outlined three classes of gaming
and gave the respective sovereigns differing degrees of regu-
latory authority with respect to each gaming class. States were
given very little regulatory authority over what Congress
deemed class I and class II gaming—consisting of social
games with prizes of minimal value, 25 U.S.C. § 2703(6), and
bingo and certain non-banked card games, id. §§ 2703(7)(A)-
(B), respectively. States could not regulate class I gaming on
tribal lands at all, id. § 2710(a)(1), and if a state allowed any
class II gaming within its borders, it had to allow tribes to
conduct such class II gaming on tribal lands subject only to
tribal and federal regulation, id. §§ 2710(a)(2) and
2710(b)(1)(A)-(B). By contrast, class III gaming—consisting
of banked card games such as blackjack and baccarat, slot
machines and other electronic gaming machines, and other
Nevada-style gaming activities, id. §§ 2710(b)(7)(B) and
2710(b)(8)—was “subject to a greater degree of federal-state
regulation than either class I or class II gaming.” Coyote Val-
ley II, 331 F.3d at 1097. In particular, IGRA allowed class III
gaming activities on tribal lands only (1) “in a State that per-
mits such gaming for any purpose by any person, organiza-
tion, or entity,” 25 U.S.C. § 2710(d)(1)(B), and (2)
“conducted in conformance with a Tribal-State compact
entered into by the Indian tribe and the State under [25 U.S.C.
§ 2710(d)(3) et seq.] that is in effect,” id. § 2710(d)(1)(C).
IGRA’s compact requirement represented a unique
approach to a unique situation. The prospect of class III gam-
ing on tribal lands implicated important—and potentially
divergent—interests of two sovereign parties, states and
tribes. At the same time, however, Congress recognized that
the respective interests of states and tribes with respect to
class III gaming were neither identical nor mutually exclu-
5924 RINCON BAND v. SCHWARZENEGGER
sive. Faced with this situation, Congress came up with a solu-
tion as old as the free market itself: allow states and tribes to
bargain over the terms of their class III gaming relationship.
As the Senate Report for IGRA explained:
In the Committee’s view, both State and tribal gov-
ernments have significant governmental interests in
the conduct of class III gaming. States and tribes are
encouraged to conduct negotiations within the con-
text of the mutual benefits that can flow to and from
tribe [sic] and States. This is a strong and serious
presumption that must provide the framework for
negotiations. A tribe’s governmental interests
include raising revenues to provide governmental
services for the benefit of the tribal community and
reservation residents, promoting public safety as
well as law and order on tribal lands, realizing the
objectives of economic self-sufficiency and Indian
self-determination, and regulating activities of per-
sons within its jurisdictional borders. A State’s gov-
ernmental interests with respect to class III gaming
on Indian lands include the interplay of such gaming
with the State’s public policy, safety, law and other
interests, as well as impacts on the State’s regulatory
system, including its economic interest in raising
revenue for its citizens. It is the Committee’s intent
that the compact requirement for class III not be
used as a justification by a State for excluding Indian
tribes from such gaming or for the protection of
other State-licensed gaming enterprises from free
market competition with Indian tribes.
S. REP. NO. 100-446, at 13 (1988), as reprinted in 1988
U.S.C.C.A.N. 3071, 3083.
At the same time, Congress recognized that it was not
drafting IGRA against a blank legal slate. The Senate Report
acknowledged the “long [ ] and well-established principle of
RINCON BAND v. SCHWARZENEGGER 5925
Federal-Indian law as expressed in the United States Constitu-
tion, reflected in Federal statutes, and articulated in decisions
of the Supreme Court, that unless authorized by an act of
Congress, the jurisdiction of State governments and the appli-
cation of state laws do not extend to Indian lands.” Id. at 5,
reprinted in 1988 U.S.C.C.A.N. at 3075. “Consistent with
these principles, the Committee . . . developed a framework
for the regulation of gaming activities on Indian lands which
provide[d] that in the exercise of its sovereign rights, unless
a tribe affirmatively elects to have State laws and State juris-
diction extend to tribal lands, the Congress w[ould] not unilat-
erally impose or allow State jurisdiction on Indian lands for
the regulation of Indian gaming activities.” Id. at 6, reprinted
in 1988 U.S.C.C.A.N. at 3075. “The mechanism for facilitat-
ing the unusual relationship in which a tribe might affirma-
tively seek the extension of State jurisdiction and the
application of state laws to activities conducted on Indian land
[wa]s a tribal-State compact.” Id. at 6, reprinted in 1988
U.S.C.C.A.N. at 3076.
In enacting IGRA, Congress was not only aware of the
complicated legal framework governing state-tribal relations,
but was legislating directly in response to a Supreme Court
decision in this area Cabazon Band. Recognizing the special
consideration given to tribal immunity against taxation by the
states absent congressional consent, Congress took care to
ensure that IGRA’s compact requirement did not “[lift] the
Indians’ exemption from state taxes.” Cabazon Band, 480
U.S. at 215 n.17. Congress did this in two ways: First, Con-
gress explained that IGRA’s compact provision did not con-
stitute the “express congressional authorization” required
under Cabazon Band and related precedents to abrogate tribal
immunity to taxation, stating that “[e]xcept for any assess-
ments that may be agreed to under paragraph (3)(C)(iii) of
this subsection, nothing in this section shall be interpreted as
conferring upon a State or any of its political subdivisions
authority to impose any tax, fee, charge, or other assessment
upon an Indian tribe . . . to engage in a class III activity.” 25
5926 RINCON BAND v. SCHWARZENEGGER
U.S.C. § 2710(d)(4) (emphases added). Second, recognizing
that states might demand that tribes abrogate their immunity
to direct taxation as part of compact negotiations, Congress
declared such a practice to be evidence of bad faith on behalf
of the state making the demand. See id. § 2710(d)
(7)(B)(iii)(II) (a court “shall consider any demand by the State
for direct taxation of the Indian tribe or of any Indian lands
as evidence that the State has not negotiated in good faith”).
Providing a proper context to 25 U.S.C. §§ 2710(d)(4) and
(d)(7)(B)(iii)(II) clarifies the congressional intent behind these
provisions. These subsections are not concerned with States
negotiating a “piece of the pie” with respect to class III gam-
ing revenue: Congress expressly authorized State “assessment
. . . of [class III gaming] activities,” 25 U.S.C.
§ 2710(d)(3)(C)(iii), used deliberately narrow language in
subsections (d)(4) and (d)(7)(B)(iii)(II), and, after recognizing
that “[a] state’s governmental interests with respect to class
III gaming on Indian lands include . . . impacts on the State’s
regulatory system, including its economic interest in raising
revenue for its citizens,” encouraged States and tribes “to con-
duct negotiations within the context of the mutual benefits
that can flow to and from tribe [sic] and states.” S. REP. NO.
100-446, at 13, reprinted in 1988 U.S.C.C.A.N. 3071, 3083
(emphasis added). Rather, subsections (d)(4) and
(d)(7)(B)(iii)(II) are concerned with the possibility that a State
might use IGRA as pretext to impose taxes directly on an
Indian tribe or its lands, where the tribe would otherwise be
immune, see S. REP. NO. 100-446, at 14, reprinted in 1988
U.S.C.C.A.N. 3071, 3084 (“The Committee . . . view[s] the
concession to any implicit tribal agreement to the application
of State law as unique and does not consider such agreement
to be precedent for any other incursion of State law onto
Indian lands.”), as well as the converse—using the threat of
direct taxation to discriminate against tribes in favor of pri-
vate gaming interests, see id. at 13 (“It is the Committee’s
intent that the compact requirement for class III gaming not
be used as a justification by a State for excluding Indian tribes
RINCON BAND v. SCHWARZENEGGER 5927
from such gaming or for the protection of other State-licensed
gaming enterprises from free market competition with Indian
tribes.”).
In sum, §§ 2710(d)(4) and (d)(7)(B)(iii)(II) were motivated
not by a concern that states might generate revenue from class
III gaming conducted on Indian lands—indeed, the legislative
history of IGRA contemplates this very eventuality, S. REP.
NO. 100-446, at 13, reprinted in 1988 U.S.C.C.A.N. 3071,
3083 (recognizing a State’s “economic interest in raising rev-
enue for its citizens”)—but by a concern that states might use
IGRA and the promise of class III gaming to otherwise
impose taxes on Indian tribes and their land.
The majority treats §§ 2710(d)(4) and (d)(7)(B)(iii)(II) as
though these sections delegate to Article III judges the
responsibility of conducting a broad, standardless review of
the overall “fairness” of negotiated compacts, but this is sim-
ply not the case. As explained above, §§ 2710(d)(4) and
(d)(7)(B)(iii)(II) were limited, carefully-worded responses to
specific issues arising from the background of tribal-state
relations under the Constitution. Moreover, IGRA already
assigns to the Secretary of the Interior—the government offi-
cial “charg[ed by Congress] . . . with broad responsibility for
the welfare of Indian tribes,” Udall v. Littell, 366 F.2d 668,
672 (D.C. Cir. 1966) (Burger, J.), and who owes “the Indians
. . . [a] duty of care and protection,” Rainbow v. Young, 161
F. 835, 838 (8th Cir. 1908) (Van Devanter, J.); see 25 U.S.C.
§ 2 (Secretary of the Interior, through the Commissioner of
Indian Affairs, “shall . . . have the management of all Indian
affairs and of all matters arising out of Indian relations”); 43
U.S.C. § 1457 (charging the Secretary of the Interior “with
the supervision of public business relating to . . . Indians”)—
broad authority to approve or disapprove tribal-state com-
pacts, and enumerates specific standards against which a
tribal-state compact is to be reviewed by the Secretary. See 25
U.S.C. § 2710(d)(3)(B) (“[A] Tribal-State compact . . . shall
take effect only when notice of approval by the Secretary [of
5928 RINCON BAND v. SCHWARZENEGGER
the Interior] of such compact has been published by the Secre-
tary in the Federal Register.”); id. § 2710(d)(8) et seq. (“The
Secretary may disapprove a [Tribal-State] compact . . . only
if such compact violates—(i) any provision of this chapter,
(ii) any other provision of Federal law that does not relate to
jurisdiction over gaming on Indian lands, or (iii) the trust obli-
gations of the United States to Indians.”).
C
As we explained in Coyote Valley II, “[t]he passage of
IGRA did not end the fight over Indian gaming in California.”
331 F.3d at 1098. After IGRA’s passage, numerous California
tribes sought to negotiate class III gaming compacts with the
State. Id. Among the class III games the tribes sought to offer
were banked card games and slot machine-like electronic
gaming machines. However, at the time these particular
games were not permitted under California law, even though
California permitted other forms of class III gaming such as
non-electronic keno and lotto. Id.; see Rumsey Indian Ran-
cheria of Wintun Indians v. Wilson, 64 F.3d 1250, 1257-58
(9th Cir. 1994). During the Administration of Governor Pete
Wilson, the State refused to negotiate with the tribes with
respect to banked card games and slot machine-like gaming
machines, arguing that under 25 U.S.C. § 2710(d)(1)(B)
(“class III gaming shall be lawful on Indian lands only if such
activities are . . . located in a State that permits such gaming
for any purpose by any person, organization, or entity”), a
state need only negotiate with tribes with respect to class III
games and devices otherwise allowed under state law. Coyote
Valley II, 331 F.3d at 1098. In Rumsey, we agreed with the
State, holding that “IGRA does not require a state to negotiate
over one form of Class III gaming simply because it has legal-
ized another, albeit similar form of gaming. . . . In other
words, a state need only allow Indian tribes to operate games
that others can operate, but need not give tribes what others
cannot have.” 64 F.3d at 1258.
RINCON BAND v. SCHWARZENEGGER 5929
For the next few years, numerous tribes continued to offer
class III gaming activities that were categorically prohibited
under California state law; in response, the Wilson adminis-
tration refused to negotiate compacts covering class III games
the State did permit. Id. at 1099. In 1998, a coalition of Cali-
fornia tribes drafted a ballot proposition that would amend
state law—but not the State Constitution—to require the State
to enter into compacts with Indian tribes that allowed
otherwise-illegal class III gaming activities including banked
card games and slot machines. Id. at 1100. This ballot propo-
sition passed by a wide margin, but was ruled unconstitutional
by the California Supreme Court, as the California Constitu-
tion provided that the “Legislature has no power to authorize,
and shall prohibit casinos of the type currently operating in
Nevada and New Jersey.” CAL. CONST. art. IV, § 19(e); see
Hotel Employees & Rest. Employees Int’l Union v. Davis, 981
P.2d 990, 994 (Cal. 1999).
In early 1999—while Hotel Employees was pending before
the California Supreme Court, but prior to the court’s decision
in that case—the administration of newly-elected Governor
Gray Davis reversed the Wilson Administration’s non-
negotiation policy and began compact negotiations with tribes
regarding class III gaming that would include banked card
games and slot machines. Coyote Valley II, 331 F.3d at 1102-
03. After the Hotel Employees decision was filed in August
1999, the Davis Administration proposed an amendment to
Article IV, Section 19 of the California Constitution that
would exempt tribal gaming from the prohibition on Nevada-
style casinos, subject to the requirement that class III gaming
be conducted pursuant to a tribal-state compact; this proposed
amendment was to be placed on the ballot in March 2000 as
Proposition 1A. Id. at 1103 & n.11. Also in the late summer
of 1999, the United States Department of Justice announced
that it planned to proceed with enforcement actions against
California tribes engaged in unauthorized class III gaming if
those tribes did not enter into compacts with the State before
October 13, 1999. Id. at 1103.
5930 RINCON BAND v. SCHWARZENEGGER
The Davis Administration and the tribes engaged in com-
pact negotiations throughout August and September of 1999.
The basic quid pro quo in these 1999 negotiations was as fol-
lows: First, the State offered the tribes the exclusive right—
with this exclusivity embodied in a constitutional amendment,
see CAL. CONST. art. 4, § 19(f)—to conduct Nevada-style class
III gaming, including house-banked slot machines and black-
jack, see 1999 Tribal-State Gaming Compact (“1999 Com-
pact”) § 12.4, http://www.cgcc.ca.gov/enabling/tsc.pdf (last
visited Apr. 6, 2010). In exchange, the tribes offered a variety
of concessions including, as relevant here, (1) limits on the
number of class III gaming devices a tribe could operate, see
id. § 4.3; and (2) “Revenue Distribution,” see id. § 5.0-5.3,
under which a gaming tribe was required to remit to the State
a percentage of its average net win from class III gaming
devices in operation on September 1, 1999, to be deposited in
a “Special Distribution Fund” (“SDF”). Id. § 5.1(a).3 Under
the 1999 Compact’s “Revenue Distribution” provisions,
[t]he State’s share of the Gaming Device revenue
[was to] be placed in the Special Distribution Fund,
available for appropriation by the Legislature for the
following purposes: (a) grants, including any admin-
istrative costs, for programs designed to address
gambling addiction; (b) grants, including any admin-
istrative costs, for the support of state and local gov-
ernment agencies impacted by tribal government
gaming; (c) compensation for regulatory costs
incurred by the State Gaming Agency and the state
Department of Justice in connection with the imple-
3
The 1999 compact also provided for revenue sharing between gaming
and non-gaming tribes through the creation of a “Revenue Sharing Trust
Fund” (“RSTF”). Id. § 4.3.2 et seq. The RSTF provision required gaming
tribes to pay, on a quarterly basis, a per-device annual fee into the RSTF
for distribution to non-gaming tribes in California. Id. § 4.3.2.2(2). The
RSTF provisions of the 1999 Compact were solely directed at gaming and
non-gaming tribes—”[i]n no event [was] the State’s General Fund [ ] obli-
gated to make up any shortfall or pay any unpaid claims.” Id. § 4.3.2.1(b).
RINCON BAND v. SCHWARZENEGGER 5931
mentation and administration of the Compact; (d)
payment of shortfalls that may occur in the Revenue
Sharing Trust Fund; and (e) any other purposes spec-
ified by the Legislature.
Id. § 5.2. If a tribe failed to timely pay its required share of
gaming device revenues to the State, the tribe would be
charged interest “in addition to any other remedies the State
m[ight] have,” id. § 5.3(b); if “more than two quarterly contri-
butions” by the tribe were overdue, the tribe would be prohib-
ited from conducting class III gaming, id. § 5.3(e).
On September 10, 1999, 57 tribes, including the Band,
signed letters of intent to enter the 1999 Compact. In March
2000, Proposition 1A was ratified by California voters. Two
months later, the United States Secretary of the Interior
approved the Tribal-State compacts entered into between the
State and 60 tribes, including the Band. Coyote Valley II, 331
F.3d at 1107; see 65 Fed. Reg. 31189 (May 16, 2000). The
Band currently operates its “Harrah’s Rincon” casino pursu-
ant to the 1999 Compact. Under this compact, which does not
expire until 2020, the Band is authorized to operate 1600
gaming devices. Notably, because the Band operated fewer
than 200 gaming devices on September 1, 1999, it is not
required to make—and never has made—revenue sharing
payments to the SDF under its existing compact. See 1999
Compact § 5.1(a) (“The Tribe shall make contributions to the
Special Distribution Fund . . . only with respect to the number
of Gaming Devices operated by the Tribe on September 1,
1999.”).
By 2003, California was awash in debt and faced a $38 bil-
lion dollar budget deficit. See generally Mark Simon, Recall
Election set for Oct. 7: Fiscal Crisis and voter resentment led
to recall, S.F. CHRON., July 25, 2003, at A1. As Governor
Davis faced recall by the California voters, the State executed
three new gaming compacts in August and September of
2003. See http://www.cgcc.ca.gov/compacts.asp (last visited
5932 RINCON BAND v. SCHWARZENEGGER
Apr. 6, 2010). These compacts were nearly identical to the
1999 Compacts, although they differed in one important
respect: instead of requiring the compacting tribe to remit a
percentage of its gaming device net win to the Special Distri-
bution Fund, these compacts called for the revenue sharing
with the State’s general fund. See, e.g., La Posta Band of Mis-
sion Indians Tribal-State Gaming Compact § 4.3.1(a), http://
www.cgcc.ca.gov/compacts/8132009/laposta.pdf (last visited
Apr. 6, 2010) (“The La Posta Tribe may operate no more than
350 Gaming Devices. From and after the first day of opera-
tion of its first Gaming Facility, the La Posta Tribe shall pay
five percent (5%) of its Net Win from the operation of Gam-
ing Devices to the California Gambling Control Commission,
or such other State entity as may be designated by the Gover-
nor, for deposit into the General Fund.”). All three compacts
executed in 2003 calling for general fund revenue sharing
were approved by the Department of the Interior.
http://www.cgcc.ca.gov/compacts.asp (last visited Apr. 6,
2010).
In October 2003, Gray Davis was recalled, and Arnold
Schwarzenegger was elected governor of California. The Sch-
warzenegger Administration has continued the late-term prac-
tice of the Davis Administration by negotiating general fund,
rather than Special Distribution Fund, revenue sharing in new
and amended tribal compacts. At present, fifteen Tribal-State
compacts in California provide for general fund revenue shar-
ing. See http://www.cgcc.ca.gov/Tribal/2009/GF%20Paying
%20Tribes%20for%20Website%2003-04-09.pdf (last visited
Apr. 6, 2010). Each of these compacts has been approved by
the Secretary of the Interior.
III
When Congress drafted IGRA, it did so against a well-
defined legal background prohibiting states from directly tax-
ing Indian tribes and tribal lands without express congressio-
nal authorization. With this history expressly in mind, see S.
RINCON BAND v. SCHWARZENEGGER 5933
REP. NO. 100-446, at 5, reprinted in 1988 U.S.C.C.A.N. 3071,
3075, Congress drafted two very specific provisions explain-
ing (1) that IGRA’s compact provisions, which allowed states
to bargain with tribes over class III gaming regulation, did not
authorize the states to impose a tax on the tribe, 25 U.S.C.
§ 2710(d)(4); and (2) that in the context of compact negotia-
tions, a state’s demand for otherwise-prohibited direct taxa-
tion of a tribe or its lands would be evidence of bad faith, id.
§ 2710(d)(7)(b)(iii)(II). These provisions were carefully
worded to respond to a specific problem—the possibility that
IGRA’s class III gaming provisions might be interpreted by
states as an “express congressional authorization” for direct
taxation or, relatedly, that states might use compact negotia-
tions to demand abrogation of a tribe’s immunity to direct tax-
ation.
The majority steps into these stalled negotiations with an
astonishing proposition: a demand for revenue sharing by the
State is “simply an impermissible demand for the payment of
a tax by the tribe” prohibited by § 2710(d)(4), Maj. Op. at
5915, and under § 2710(d)(7)(B)(iii)(II) “is evidence of the
State’s bad faith,” id. at 5893. The majority orders the parties
either to reach a compact or submit to mediation, but in either
case, there is only one outcome: The Band wins. California
loses.
In my view, the majority has failed to recognize the legal
and historical differences between taxation and revenue shar-
ing. A tax is imposed by the state and may be collected by the
state, under penalty of law, over the objections of its citizens.
Revenue sharing, by contrast, is typically negotiated by the
parties and then enforced through the law of contract. If the
parties fail to agree to revenue sharing in the first instance,
neither side can unilaterally compel the other to share reve-
nues; there is no contract. Here, California has insisted that
the Band share its gaming revenues as a condition to receiving
authorization for additional gaming devices. To date, Califor-
nia has nothing to show for its negotiations and, under long-
5934 RINCON BAND v. SCHWARZENEGGER
established principles, no power to compel the Band to pay it
a percentage of its revenues. California and the Band are inde-
pendent sovereigns; they may negotiate an agreement or not,
but neither has the power to tax the other. Thus, California’s
insistence on revenue sharing may be “a hard line stance,”
Maj. Op. at 5909, but it is not a tax.
A
The majority has confounded two distinct and well-defined
concepts: “taxation” and “revenue sharing.” As described by
the majority:
Under § 2710(d)(7)(B)(iii)(II), a court must consider
a “demand” for a tax to be made in bad faith. A tax
is “a charge, usu[ally] monetary, imposed by the
government on persons, entities, transactions, or
property to yield public revenue.” Black’s Law Dic-
tionary 1594 (9th ed. 2009) (emphasis added). The
State insisted that Rincon pay at least 10% of its net
profits into the State’s general fund. According to
Cal. Govt. Code § 16300, “[t]he General Fund con-
sists of money received into the treasury and not
required by law to be credited to any other fund.” No
amount of semantic sophistry can undermine the
obvious: a non-negotiable, mandatory payment of
10% of net profits into the State treasury for unre-
stricted use yields public revenue, and is a “tax.”
Maj. Op. at 5892 (footnote omitted). Indeed, at every turn, the
majority has equated revenue sharing with taxation. See id. at
5896 (“when the ‘nature of the fees’ is general fund revenue
sharing—a bald demand for payment of a tax—the State faces
a very difficult task to rebut the evidence of bad faith neces-
sarily arising from that demand”); id. at 5915 (“The State’s
demand for 10-15% of Rincon’s net win, to be paid into the
State’s general fund, is simply an impermissible demand for
the payment of a tax by the tribe.”). The majority fundamen-
RINCON BAND v. SCHWARZENEGGER 5935
tally errs when it declares that “general fund revenue sharing
[is] a bald demand for payment of a tax.” Maj. Op. at 5896.
In a definition quoted by the majority itself, Black’s Law Dic-
tionary defines a “tax” as “[a] charge, usu[ally] monetary,
imposed by the government on persons, entities, transactions,
or property to yield public revenue.” BLACK’S LAW DICTIONARY
1594 (9th ed. 2009) (emphasis added). Webster’s Third New
International Dictionary and The Oxford English Dictionary
feature nearly identical definitions. See WEBSTER’S THIRD NEW
INTERNATIONAL DICTIONARY 2345 (1993) (defining “tax” as “a
usu[ally] pecuniary charge imposed by legislative or other
public authority upon persons or property for public purposes:
a forced contribution of wealth to meet the public needs of a
government” (emphases added)); XVII THE OXFORD ENGLISH
DICTIONARY 677 (2d ed. 1989) (defining “tax” as “[a] compul-
sory contribution to the support of government, levied on per-
sons, property, income, commodities, transactions, etc., now
at fixed rates, mostly proportional to the amount on which the
contribution is levied” (emphases added)).4 Whether the dic-
tionary of record is Black’s, Webster’s 3d, or The Oxford
English Dictionary, there are three components to the defini-
tion of “tax”: (1) a monetary contribution; (2) imposed by the
government; (3) to yield public revenue. The majority focuses
on the first and third components—a monetary contribution
yielding public revenue—but completely ignores the second
component—the requirement that a charge be “imposed” or
“levied” by the government before it can be deemed a “tax.”
See Maj. Op. at 5892-95. Yet, the fact that a monetary pay-
ment to the government is imposed, and not bargained-for, is
the essential characteristic that defines a tax.
We have had occasion to consider what constitutes a tax,
4
“Levied” is simply a tax term of art for “imposed.” See BLACK’S LAW
DICTIONARY 991 (9th ed. 2009) (defining “levy” as “[t]o impose or assess
(a fine or tax) by legal authority”); WBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY 1301 (1993) (defining “levy” as “to impose or collect (as a tax
or tribute) by legal process or by authority”).
5936 RINCON BAND v. SCHWARZENEGGER
and have “applied this tax definition: (1) An involuntary pecu-
niary burden (2) imposed by the state legislature (3) for a pub-
lic purpose (4) under the state’s police or taxing power. Our
point in so refining the definition of a tax was to distinguish
taxes from debts for voluntarily assumed obligations . . . .”
George v. Uninsured Employers Fund (In re George), 361
F.3d 1157, 1160 (9th Cir. 2006) (emphases added). As we
explained in In re Lorber Industries of California, Inc., “[i]n
general, . . . charges can be classified as a tax only if they con-
stitute ‘a pecuniary burden laid upon individuals or property
for the purpose of supporting the Government’ or to support
‘some special purpose authorized by it.’ Taxes are not equiva-
lent to debts, which are voluntary obligations based on
express or implied contracts. Taxes are levied without the
consent or voluntary action of the taxpayer.” 675 F.2d 1062,
1066 (9th Cir. 1982) (emphasis added) (quoting New Jersey
v. Anderson, 203 U.S. 483, 492 (1906)); see also Nat’l Cable
Television Ass’n v. United States, 415 U.S. 336, 340-41 (1974).5
5
IGRA also recognized the distinction between a tax and a direct tax.
Compare 25 U.S.C. § 2710(d)(4) (discussing the “impos[ition] of any tax,
fee, charge, or other assessment upon an Indian tribe”) with 25 U.S.C.
§ 2710(d)(7)(B)(iii)(II) (discussing “any demand by the State for direct
taxation of the Indian tribe or of any Indian lands”). A direct tax is
[a] tax that is imposed on property, as distinguished from a tax
on a right or privilege. A direct tax is presumed to be borne by
the person upon whom it is assessed, and not “passed on” to
some other person.
BLACK’S LAW DICTIONARY 1595 (9th ed. 2009). See also Pollock v. Farm-
ers’ Loan & Trust Co., 157 U.S. 429, 588 (1895) (Field, J., concurring)
(“Direct taxes, in a general and large sense, may be described as taxes
derived immediately from the person, or from real or personal property,
without any recourse therefrom to other sources for reimbursement.”),
superseded by U.S. CONST. amend. XVI; Quarty v. United States, 170 F.3d
961, 970 (9th Cir. 1999) (“In contrast to an excise or indirect tax, which
is levied upon the use or transfer of property even though it might be mea-
sured by the property’s value, a direct tax is levied upon the property
itself.” (quotation marks and citations omitted); LAURENCE H. TRIBE,
AMERICAN CONSTITUTIONAL LAW 843 (3d ed. 2000) (“A direct tax is one
imposed upon property as such, rather than on the performance of an
act.”).
RINCON BAND v. SCHWARZENEGGER 5937
The majority, however, simply sidesteps the “imposition”
requirement by slapping the conclusory labels “non-
negotiable” and “mandatory” on proposed revenue sharing
payments that are neither. If the “payment of 10% of net prof-
its into the State treasury for unrestricted use[,] yield[ing]
public revenue” that the majority derides as a “non-
negotiable, mandatory” tax, Maj. Op. at 5892, were either
non-negotiable or mandatory, how is it that the State has not,
to date, received one dime of general fund revenue from the
Tribe? The answer, of course, is that the State’s proposed
10% general fund revenue sharing payments are both negotia-
ble (indeed, the 10% figure is just one of several revenue
sharing proposals put forth by the State in negotiations with
the Tribe) and subject to the Tribe’s agreement in exchange
for additional machines.
Perhaps the majority simply means that a fixed, agreed-to
“payment . . . into the State treasure for unrestricted use yields
public revenue, and is a tax,” but this cannot be right, either.
A purchaser of a bond—whether issued by a state, a munici-
pality, or by the federal government—makes a monetary con-
tribution that yields public revenue. But a bond is not a “tax.”
Indeed, a bond is not a “tax” even if its proceeds go to a
State’s general fund. The reason for this is simple: even
though a bond purchaser pays money to the government to
support its functions, this payment is not “imposed” on the
purchaser; rather, the bond purchaser pays money to support
the government in exchange for something of value, a future
interest stream. Under the majority’s definition, another “ob-
vious” tax would be simply gifting ten percent of one’s net
revenue to the federal government. Such a gift would, after
all, be a monetary contribution yielding public revenue. But
although helpful to the public fisc, this voluntary contribution
would not be a “tax.”
B
We must contrast “taxation” with “revenue sharing,” in
which two parties—whether private firms or sovereign enti-
5938 RINCON BAND v. SCHWARZENEGGER
ties agree to split a certain proportion of revenues from a
specified source.
Revenue sharing is ubiquitous. Private entities engage in
revenue sharing in areas as diverse as movie rentals, see
Brooks Barnes, Movie Studios See a Threat in Growth of Red-
box, N.Y. TIMES, Sep. 6, 2009, at B1 (Redbox and Para-
mount), sports arenas, see Ken Belson and David M.
Halbfinger, Possible Truce Between New Jersey Arenas
Could Come at a Cost to Fans, N.Y. TIMES, Dec. 12, 2009, at
B16 (Izod Center and Prudential Center in northern New Jer-
sey), newspapers and web portals, see Evan Hessel, Yahoo!’s
Dangerous Newspaper Deal?, FORBES ONLINE, June 22, 2009,
http://www.forbes.com/2009/06/22/advertising-newspapers-
internet-business-media-yahoo.html (last visited Apr. 6, 2010)
(five newspapers and Yahoo!), and, of course, casinos, see,
e.g., Introduction to Slots and Video Gaming 76, International
Game Technology, http://media.igt.com/Marketing/
PromotionalLiterature/IntroductionToGaming.pdf (last visited
Apr. 6, 2010) (slot machines and gaming venues).
Moreover, revenue sharing is hardly confined to the private
realm. Since the 1880s, the federal government has contracted
with private parties to operate “contract postal units”
(“CPUs”), which are “postal facilities operated by private par-
ties on private property pursuant to revenue-sharing contracts
with the government.” Cooper v. United States Postal Serv.,
577 F.3d 479, 485 (2d Cir. 2009). In exchange for the right
to operate a postal facility, a CPU submits all of its revenues
to the Postal Service, which then repays a portion of the reve-
nue to the CPU. Like the federal government, state and local
governments also enter into revenue-sharing contracts with
private firms. For example, under a federal program adminis-
tered by the U.S. Department of Transportation, a number of
state and local governments contract with a private firm to
collect and analyze traffic data. See Eric Lipton, U.S. System
for Tracking Traffic Flow is Faulted, N.Y. TIMES, Dec. 13,
2009, at A22; see also Federal Highway Administration
RINCON BAND v. SCHWARZENEGGER 5939
Report No. MH-2010-030, Transportation Technology Inno-
vation and Demonstration Program (Dec. 8, 2009),
http://www.oig.dot.gov/sites/dot/files/TTID_12_8_2009 .pdf
(last visited Apr. 6, 2010) (“TTID Report”). The private firm
is supposed to remit to these state and local governments a
percentage of the money it makes from selling its traffic data,
which Congress has described as revenue sharing, not a tax.
See Pub. L. 105-178, § 5117(b)(3)(B)(iii) (June 9, 1998); see
generally TTID Report at 6-8.
Federal, state and local governments have long entered into
revenue sharing agreements with each other. “A form of gen-
eral revenue sharing was actually in operation as early as
1836[,] when nearly $28 million was deposited with State
governments. In [the twentieth] century, congressional
attempts to secure Federal tax sharing date back to 1949[,]
when a Member of Congress from Kansas introduced a bill to
transfer to State treasuries 1 percent of Federal individual and
corporate income taxes raised within the State.” Council of
and for the Blind of Del. County Valley, Inc. v. Regan, 709
F.2d 1521, 1523 n.2 (D.C. Cir. 1983) (en banc) (quotation
marks, ellipses, brackets, and citation omitted); see also 43
U.S.C. § 1608 et seq. (requiring the United States and the
State of Alaska to pay to Native Alaskans two percent of
annual gross revenue from the disposition of minerals
removed from that state; Congress titled this program “reve-
nue sharing”).
Perhaps the most prominent example of broad-based inter-
governmental revenue sharing was the State and Local Fiscal
Assistance Act of 1972, Pub. L. 92-512, 86 Stat. 919, more
commonly known as the Revenue Sharing Act. See generally
President Richard Nixon, Statement About the General Reve-
nue Sharing Bill (Oct. 20, 1972) (transcript available at
http://www.presidency.ucsb.edu/ws/index.php?pid=3636 (last
visited Apr. 6, 2010)). Under the Revenue Sharing Act, Con-
gress “g[ave] legal effect to a concept which had been pro-
posed intermittently for more than 20 years—that the federal
5940 RINCON BAND v. SCHWARZENEGGER
government make general revenue grants to state and local
governments with no strings attached.” Council of and for the
Blind of Del. County Valley, Inc., 709 F.2d at 1523. For just
over a decade (the program was allowed to expire in 1983),
the federal government paid billions of dollars to state and
local government general funds with “no strings . . .
attached.” See S. REP. NO. 92-1050, at 3876 (1972), reprinted
in 1972 U.S.C.C.A.N. 3874, 3876; Goolsby v. Blumenthal,
590 F.2d 1369, 1371 (5th Cir. 1979) (en banc).6
As these examples demonstrate, there is a long history of
revenue sharing in the United States. It has taken two forms.
First, there is vertical revenue sharing, where one government
decides to share its revenues with another (smaller) govern-
mental entity. In this form of revenue sharing, the smaller
entity has no continuing demand on the revenues; it appears
that the decision by the larger entity to engage in revenue
sharing is one of largesse and can be amended at any time.
The second form is horizontal or negotiated revenue sharing,
where two sovereigns, two private entities, or a sovereign and
a private entity negotiate revenue sharing as a matter of con-
tract. Horizontal revenue sharing is a voluntary matter, to be
agreed upon by the parties as a part of their overall negotia-
tions. No one has ever thought that horizontal revenue sharing
is a form of taxation.
C
The ultimate question, then, is whether California’s
demand for a share of the Band’s gaming revenues is direct
taxation or a form of revenue sharing. The answer is critical
to the resolution of this case. In my view, the answer is not
a difficult one.
6
States have their own forms of intergovernmental revenue sharing. For
example, California has decided to share its cigarette tax revenues with its
counties and cities, but not with the Indian tribes within its borders. CAL.
REV. & TAX § 30462; see Chemehuevi Indian Tribe v. Cal. State Bd. of
Equalization, 800 F.2d 1446, 1450 (9th Cir. 1986).
RINCON BAND v. SCHWARZENEGGER 5941
IGRA requires that tribes and states “enter[ ] into a Tribal-
State compact governing the conduct of gaming activities.” 25
U.S.C. § 2710(d)(3)(A). Congress’s chosen words here—
“ ‘enter,” “compact,” and “governing”—are the language of
treaties and other sovereign-to-sovereign agreements. Since
the states are barred from entering into “any Treaty, Alliance,
or Confederation,” U.S. CONST. art. I, § 10, cl. 1, Congress
chose an appropriate word: “compact”—the very definition of
which implies negotiation between equal parties. See BLACK’S
LAW DICTIONARY 318 (9th ed. 2009) (defining “compact” as
“[a]n agreement or covenant between two or more parties,
esp. between governments or states”). Notably, the tribal-state
compacts in IGRA, which derive their existence from a con-
gressional enactment and must be approved by the Secretary
of the Interior, resemble very closely the interstate compacts
described by the Constitution’s Compact Clause. See U.S.
CONST. art. I, § 10, cl. 3 (“No State shall, without the Consent
of Congress . . . enter into any Agreement or Compact with
another State . . . .”). An interstate compact, even if it involves
the exchange of funds, is not interstate taxation, but “[a] vol-
untary agreement between states enacted into law in the par-
ticipating states upon federal congressional approval.”
BLACK’S LAW DICTIONARY 318 (9th ed. 2009). Critically,
“[i]nterstate compacts, like treaties, are presumed to be the
subject of careful consideration before they are entered into,
and are drawn by persons competent to express their meaning,
and to choose apt words in which to embody the purposes of
the high contracting parties.” New Jersey v. Delaware, 552
U.S. 597, 615-16 (2008) (quotation marks omitted).
As a sovereign (a state) negotiating a compact with another
sovereign (an Indian tribe), California has no “authority to
impose any tax” on the Band. 25 U.S.C. § 2710(d)(4). It may
“demand” that the Band share a portion of its gaming reve-
nues with the State, but “demands” are part and parcel of
negotiations; as in negotiations between private parties, the
State has no authority to impose such a requirement unilater-
ally. This case is the best proof of this principle. California
5942 RINCON BAND v. SCHWARZENEGGER
can demand general revenue sharing until it is hoarse, but it
will not get revenue from the Band until the Band agrees. The
State’s strategy is aggressive, and aggression in negotiations
comes with the risk that the deal will fall through. California
is running that risk. For all of its posturing and demands, Cali-
fornia has, to date, not one penny to show for its negotiations
with the Band.7
In the tribal-state compacts California has negotiated since
2003, it has secured revenue sharing from other tribes. It has
not imposed revenue sharing, but rather obtained it through
sovereign-to-sovereign negotiations. When “two equal sover-
eigns,” S. REP. NO. 100-446, at 13, reprinted in 1988
U.S.C.C.A.N. 3071, 3083; Coyote Valley II, 331 F.3d at 1112,
negotiate a percentage of gross revenue to be paid from one
party to the other in exchange for other concessions, this is
revenue sharing—even if the revenue is not earmarked for a
specific fund. Revenue sharing is not a “tax,” and it is cer-
tainly not “direct taxation of [a] tribe or . . . [its] lands.” 25
U.S.C. § 2710(d)(7)(B)(iii)(II). The majority errs when it
holds otherwise.
IV
Although much of the majority opinion is devoted to hold-
7
I do not doubt for a moment that a tribe would regard a demand for
revenue sharing with the same disdain it would the imposition of a tax.
That is, a tribe may equate revenue sharing and taxation because they have
the same economic effect on its welfare. But the legal difference between
the two is significant, for reasons I have described above.
A simple example illustrates my point about the difference between an
economic and a legal effect. Whether my landlord raises my rent by $100
a month or the government increases my income taxes by $100 a month,
the economic impact on me is the same: I am out an additional $100 a
month. But there are legal and political consequences where government
imposes additional taxes that are not found in the rent increase. No one
would mistake the rent increase for a tax, even though my checkbook
can’t tell the difference between the two.
RINCON BAND v. SCHWARZENEGGER 5943
ing that California’s revenue sharing proposal is a tax, the
majority stops short of conceding that all revenue sharing pro-
visions are prohibited. See Maj. Op. at 5906 (“[W]e do not
hold that no future revenue sharing is permissible . . . .”). The
majority qualifies its concern so long as two conditions are
satisfied: First, that the State has offered “meaningful conces-
sions,” Coyote Valley II, 331 F.3d at 1111, and second, that
the purposes for which the State intends to use the revenue are
directly related to the operation of gaming activities, see 25
U.S.C. § 2710(d)(3)(C) (“Any Tribal-State compact negoti-
ated under subparagraph (A) may include provisions relating
to . . . (vii) any other subjects that are directly related to the
operation of gaming activities.”). In my view, the majority has
misread both requirements.
A
In Coyote Valley II, we held that where California “offered
meaningful concessions in return for its demands, it did not
‘impose’ [a putative tax] within the meaning of § 2710(d)(4).”
331 F.3d at 1111. We expressed concern that, if a state
demanded revenue from a tribe without offering anything in
return, then the revenue demand might constitute an “im-
pose[d ] tax, fee, charge, or other assessment,” which IGRA’s
compact provisions did not authorize. 25 U.S.C. § 2710(d)(4).
However, we did not actually decide whether such a demand
would constitute the imposition of a tax, fee, or charge,
because we found that California had offered concessions in
the negotiating process:
We do not hold that the State could have, without
offering anything in return, taken the position that it
would conclude a Tribal-State compact with Coyote
Valley only if the tribe agreed to pay into the RSTF.
Where, as here, however, a State offers meaningful
concessions in return for fee demands, it does not
exercise “authority to impose” anything. Instead, it
5944 RINCON BAND v. SCHWARZENEGGER
exercises its authority to negotiate, which IGRA
clearly permits.
Coyote Valley II, 331 F.3d at 1112. Similarly, in Shoshone-
Bannock Tribes, we observed that § 2710(d)(4) was not a bar
where “the parties negotiated a bargain permitting such pay-
ments in return for meaningful concessions from the state
(such as a conferred monopoly or other benefits).” 465 F.3d
at 1101. We reasoned that “[a]lthough the state did not have
authority to exact such payments, it could bargain to receive
them in exhange for a quid pro quo conferred in the compact.”
Id.
The majority goes one step beyond Coyote Valley II and
Shoshone-Bannock Tribes. Unfortunately, it goes in the
wrong direction. Instead of allowing the parties to work out
their differences through the negotiating process, it finds that
the State did not offer “meaningful concessions” to the Band
because it “disagree[s] that the State makes ‘meaningful con-
cessions’ whenever it offers a bundle of rights more valuable
than the status quo.” Maj. Op. at 5912. The majority’s state-
ment mangles the phrase “meaningful concessions”: it is hard
to think what concession could be more meaningful than “a
bundle of rights more valuable than the status quo.”
The majority’s novel conception of “meaningful conces-
sions” finds no support in IGRA and conflicts with our expla-
nation of “meaningful concessions” in Coyote Valley II, the
Department of the Interior’s reading of the Act, and centuries
of contracts jurisprudence as well.
A “meaningful concession” is something conceded or
granted that is real to at least one of the parties and not merely
nominal or illusory. Notably, this is exactly how we described
the requisite “concessions” under 25 U.S.C. § 2710(d)(4) in
Coyote Valley II: “If [ ] offered concessions by a State are
real, § 2710(d)(4) does not categorically prohibit fee
RINCON BAND v. SCHWARZENEGGER 5945
demands.” 331 F.3d at 1112 (emphasis added). Simply put,
“meaningful” implies “non-negligible,” but no more.
The Department of Interior has also interpreted “meaning-
ful concessions” along the same line. As described in an
IGRA review letter by the Principal Deputy Assistant Secre-
tary of the Interior:
As our previous compact decision letters have stated,
in order to determine whether revenue sharing vio-
lates 25 U.S.C. § 2710(d)(4), we first look to
whether the State has offered meaningful conces-
sions. We have traditionally viewed this concept as
one where the State concedes something that it was
otherwise not required to negotiate that provides a
benefit to the Tribe, i.e. exclusivity or some other
benefit.
Absentee Shawnee Tribe Oklahoma, Dept. of Interior IGRA
Rev. Ltr. (Dec. 17, 2004), http://www.nigc.gov/Portals/0/
NIGC%20Uploads/readingroom/compacts/Absentee%20
Shawnee%20Tribe%20of%20Oklahoma/absenteeshawnee
121704.pdf (last visited Apr. 6, 2010) (emphasis added).
DOI’s interpretation of “meaningful concession[ ]” as “the
State conced[ing] something that it was otherwise not required
to negotiate” accords with the phrase’s plain meaning and
also falls neatly within black-letter contract law.
This understanding of “meaningful concession[ ]” dovetails
nicely with one of the most venerable concepts in the com-
mon law—the doctrine of consideration. Under the common
law of contracts, a court will not weigh the adequacy, in the
sense of market equivalence, of bargained-for consideration,
but will determine whether putative consideration is nominal
or a “sham.” See 4 JOSEPH M. PERILLO ET AL., CORBIN ON
CONTRACTS §§ 5.14, 5.17 (2d ed. 1995). Thus, a court will
make a threshold inquiry to make sure that what is exchanged
is not a “pretense,” but will not assign its own subjective valu-
5946 RINCON BAND v. SCHWARZENEGGER
ation to each side’s respective concessions. In the words of a
leading treatise, this approach to contract law is the very cor-
nerstone of market exchange:
We have a free market, under our common law, for
the reason that the courts have left it free. They do
not require that one person shall pay as much as oth-
ers may be willing to pay, or that one person shall
receive as little as others may be willing to receive
for a like article. The contracting parties make their
own contracts, agree upon their own exchanges, and
fix their own values.
4 CORBIN ON CONTRACTS § 5.14.
In light of our own explanation of the phrase in Coyote Val-
ley II, DOI’s understanding of the phrase, and black letter
contract law, there can be little doubt that when we used the
phrase “meaningful concessions” in Coyote Valley II, we
were describing exactly what the majority rejects: a State
makes “meaningful concessions” whenever it offers a bundle
of rights more valuable than the status quo. Courts have not
traditionally tipped the scales of negotiations between two
well-represented parties, and there is no warrant in IGRA or
in Coyote Valley II to do so here. Coyote Valley II states the
applicable test as plainly as words will allow: “If . . . offered
concessions by a State are real, § 2710(d)(4) does not cate-
gorically prohibit fee demands.” 331 F.3d at 1112 (emphasis
added).
B
Equally infirm is the majority’s restricted reading of
§ 2710(d)(3)(C)(vii) and its conception of what a state may do
with the revenue it has bargained for. In the end analysis, I
think that the majority has turned Coyote Valley II on its head.
The majority now holds that “[w]hether revenue sharing is an
authorized negotiation topic . . . depends on the use to which
RINCON BAND v. SCHWARZENEGGER 5947
the revenue will be put, not on the mere fact that the revenue
derives from gaming activities.” Maj. Op. at 5899. As
described by the majority, the RSTF and SDF addressed “fair
distribution of gaming opportunities and compensation for the
negative externalities caused by gaming” and did not “ ‘put
tribal money into the pocket of the State.’ ” Id. at 5899-90
(quoting Coyote Valley II, 331 F.3d at 1113). But whereas in
Coyote Valley II we simply held that the RSTF and SDF were
permissible subjects of negotiation, the majority now holds
that the RSTF and SDF represented the outer limits of permis-
sible negotiation. Thus, the majority answers the question we
reserved in Coyote Valley II and holds that “general fund rev-
enue sharing is not ‘directly related to the operation of gaming
activities’ and is thus not an authorized subject of negotia-
tion.” Maj. Op. at 5900 (quoting 25 U.S.C.
§ 2710(d)(3)(C)(vii)); see also id. at 5910 (“[G]eneral fund
revenue sharing is not a state public policy interest directly
related to gaming and is not an authorized negotiation topic
. . . .”).
I have two responses to the majority’s analysis. First, I do
not think that § 2710(d)(3)(C) is so limited. The listing of sub-
jects that are appropriate for State-Tribe negotiations is per-
missive: the compact “may include provisions relating to” the
items on the list. 25 U.S.C. § 2710(d)(3)(C) (emphasis added).
In United States v. Redman, 35 F.3d 437 (9th Cir. 1994), we
interpreted the phrases “may consider,” “shall consider,” and
“should consider” in successive versions of the Sentencing
Guidelines. Id. at 440-41. The 1989 amendment to § 5G1.3(c)
of the Guidelines provided that the court “may consider” a
reasonable incremental penalty to be a sentence for the instant
offense, while the 1991 amendment to this section used the
phrase “shall consider,” and the 1992 amendment to the same
section used the phrase “should consider.” Id. We noted that
“Webster defines the word ‘may’ as ‘have permission to[,]’
WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1396
(1986) . . .[,] ‘[s]hall’ is defined as being ‘used in laws, regu-
lations and directives to express what is mandatory[,]’ id. at
5948 RINCON BAND v. SCHWARZENEGGER
2085[, and] ‘[s]hould’ is used to express what is ‘probable or
expected[,]’ id. at 2104,” and reasoned:
The meaning of the current “should consider” lan-
guage in § 5G1.3 can be discerned by reference to
the earlier iterations of the Guideline. Under the
1989 [“may consider”] amendment, courts had com-
plete discretion to employ the commentary methodol-
ogy or not when deciding on a reasonable
incremental penalty. The 1991 [“shall consider”]
amendment stripped courts of all discretion in the
matter. . . . The “should consider” language in the
current version falls somewhere between the “may
consider” language in the 1989 amendment and the
“shall impose” mandate of the 1991 version.
Redman, 35 F.3d 440-441 (citations omitted). In short, we
have interpreted the word “may” as Webster’s Third New
International Dictionary defines it: as a grant of permission
rather than an prescriptive limitation. Section 2710(d)(3)(C),
which enumerates a number of subjects which a Tribal-State
compact “may include provisions relating to,” identifies these
interests as permitted subjects of negotiation, but neither
explicitly nor implicitly restricts negotiations to these interests.8
8
The majority opines that “[t]he language and structure of
§ 2710(d)(3)(C) suggest it is exhaustive.” Maj. Op. at 5890 n.9. But the
majority’s analysis on this point runs contrary to our longstanding inter-
pretation of the compact requirement’s closest legal analog: the “good
faith bargaining” requirement in the National Labor Relations Act. See In
re Indian Gaming Related Cases (“Coyote Valley I”), 147 F. Supp. 2d
1011, 1020-21 (N.D. Cal. 2001) (“Like IGRA, the NLRA imposes a duty
to bargain in good faith, but does not expressly define ‘good faith.’ . . .
The Court does not intend to import federal case law interpreting the
NLRA wholesale into its interpretation of the IGRA . . . . However, the
Court considers the NLRA case law for guidance in interpreting a standard
undefined by the IGRA.”), aff’d, Coyote Valley II, 331 F.3d 1094.
Under section 158 of the NLRA, 29 U.S.C. § 158 et seq., there is an
“[o]bligation to bargain collectively,” defined as “the performance of the
RINCON BAND v. SCHWARZENEGGER 5949
See generally COHEN’S HANDBOOK OF FEDERAL INDIAN LAW 873
(2005 ed.) (“Tribes and states may include a wide variety of
subjects in the gaming compacts. . . . More than 200 tribal-
state compacts have been approved, and they are often subject
to amendments, as well as new negotiations if they have sun-
set provisions. It is thus impossible to generalize about the
content of provisions . . .”).
Even if the list outlined in § 2710(d)(3)(C)(i)-(vii) were
exclusive—a proposition that runs contrary to the dictionary
definition of “may,” our interpretation of the term “may” as
used in other congressional enactments, and our longstanding
interpretation of § 158(d) of the NLRA—the State’s revenue-
sharing proposal would still be an authorized subject of nego-
tiation, as it falls within § 2710(d)(3)(C)(vii), a catch-all pro-
vision authorizing negotiation of “any other subjects that are
directly related to the operation of gaming activities.” The
majority reads this clause very restrictively, explaining that
mutual obligation of the employer and the representative of the employees
to meet at reasonable times and confer in good faith with respect to wages,
hours, and other terms and conditions of employment . . . .” Id. § 158(d).
The list “wages, hours, and other terms and conditions of employment”
could easily be read to comprise the entirety of permissible subjects that
could be collectively bargained; i.e., the list could be read as “exhaustive,”
an interpretation the majority believes is compelled by the language and
structure of § 2710(d)(3)(C) in IGRA. Like the subjects in 25 U.S.C.
§ 2710(d)(3)(C), the subjects in 29 U.S.C. § 158(d) include a broad final
clause—in IGRA, “any other subjects that are directly related to the opera-
tion of gaming activities,” and in the NLRA, “other terms and conditions
of employment.” Yet 29 U.S.C. § 158(d) has not been interpreted to estab-
lish an “exhaustive” list of subjects that may be negotiated in collective
bargaining. Instead, we have interpreted § 158(d) as setting out
“[m]andatory subjects—’wages, hours, and other terms and conditions of
employment’—[that] must be bargained collectively in good faith,”
Retlaw Broad. Co. v. NLRB, 172 F.3d 660, 665 (9th Cir. 1999), but which
are not the only subjects subject to collective bargaining. Rather, “all other
subjects are permissive subjects,” which “deal with a wide range of mat-
ters deemed to fall outside the framework of mandatory terms.”
Id.(quotation marks omitted).
5950 RINCON BAND v. SCHWARZENEGGER
“[w]hether revenue sharing is an authorized negotiation topic
under § 2710(d)(3)(C)(vii) [ ] depends on the use to which the
revenue will be put, not on the mere fact that the revenue
derives from gaming activities,” Maj. Op. at 5899; see also id.
at 5890 n.9, but its reading of § 2710(d)(3)(c)(vii) cannot be
reconciled with our decision in Coyote Valley II.
In Coyote Valley II, we rejected the tribe’s request “to read
§ 2710(d)(3)(C)(vii) narrowly and to hold that it does not
encompass a provision like the RSTF.” 331 F.3d at 111.
Instead, “we h[e]ld that § 2710(d)(3)(C)(vii) authorize[d] the
RSTF provision . . . .” 331 F.3d at 1111. Critically, the RSTF
did not use revenue for gaming purposes. Rather, the RSTF
distributed revenue to non-gaming tribes, who could use it
however they saw fit; the RSTF was effectively a contribution
to the non-gaming tribes’ general revenue funds. The RSTF
certainly used revenue for the benefit of Indian tribes, but it
did not use revenue for any purpose directly related to gam-
ing. Our express holding in Coyote Valley II that “the RSTF
provision clearly falls within [§ 2710(d)(3)(C)(vii)’s] scope,”
id., is irreconcilable with the “use” restriction relied on by the
majority.
The majority also runs afoul of Coyote Valley II when it
declares that “what compels a limited reading [of
§ 2710(d)(3)(C)(vii)] is the canon of construction obligating
us to construe a statute abrogating tribal rights narrowly and
most favorably towards tribal interests.” Maj. Op. at 5890 n.9.
This canon, which “we regard [ ] as a mere guideline and not
a substantive law,” Williams v. Babbitt, 115 F.3d 657, 663 n.5
(9th Cir. 1997) (quotation marks omitted), only applies to
“ambiguous provisions,” Montana v. Blackfeet Tribe of Indi-
ans, 471 U.S. 759, 766 (1985). Yet in Coyote Valley II, we
held that § 2710(d)(3)(C)(vii) “is not ambiguous and that the
RSTF provision clearly falls within its scope,” rejecting the
tribe’s argument that the RSTF provision was unauthorized
under § 2710(d)(3)(C)(vii) based on the principle that “we
should interpret any ambiguities on these issues in a matter
RINCON BAND v. SCHWARZENEGGER 5951
that will be most favorable to tribal interests.” 331 F.3d at
1111 (quotation marks omitted). Since we have expressly held
that § 2710(d)(3)(C)(vii) is not ambiguous, the canon that
ambiguities in statutes should be construed in favor of Indian
tribes is inapplicable. Once again, the majority is simply
wrong on this point.9
Instead of rigidly imposing a gaming-only restric
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