US ex rel. Bernard v. Casino Magic Corp. , 384 F.3d 510 ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 03-3043
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United States of America, *
ex rel. Maynard Bernard, *
*
Appellant, *
*
v. *
*
Casino Magic Corp., a Minnesota *
Corporation; Casino Magic American *
Corp., a Minnesota Corporation, *
*
Appellees. *
Appeals from the United States
District Court for the
District of South Dakota.
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No. 03-3149
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United States of America, *
ex rel. Maynard Bernard, *
*
Appellee, *
*
v. *
*
Casino Magic Corp., a Minnesota *
Corporation; Casino Magic American *
Corp., a Minnesota Corporation, *
*
Appellants. *
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Submitted: May 13, 2004
Filed: September 13, 2003
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Before MURPHY, HEANEY, and MAGILL, Circuit Judges.
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HEANEY, Circuit Judge.
This is the second time this case has come before this court. The first time, the
United States through its relator (collectively the United States or government)
disputed the legality of contracts involving a casino project between the Sisseton-
Wahpeton Sioux Tribe (the Tribe) and Casino Magic Corporation (Casino Magic).
We declared the contracts illegal and remanded for a determination of damages. On
summary judgment, the district court awarded the United States $350,000. Both
parties now appeal this amount. We affirm in part and reverse in part.
I. Background
In 1993, the Tribe contacted Casino Magic to help in the process of developing
a casino on the Tribe’s land. The two parties entered into three agreements that
defined their business relationship: the Consulting Agreement, the Construction and
Term Loan Agreement, and the Participation Agreement. The first round of litigation
centered on whether the three agreements, collectively, constituted a management
agreement that required approval from the National Indian Gaming Commission
(NIGC). United States ex rel. Bernard v. Casino Magic Corp., 293 F.3d 419 (8th Cir.
2002) (Bernard I). On appeal, we held that, taken together, the agreements did
constitute a management agreement. Id. at 426. Since they were not approved by the
NIGC, the agreements were invalid and the United States was entitled to recovery of
any fees paid by the Tribe for services rendered under the invalid contracts. Given
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that the record did not contain any fee information, we remanded for a determination
of “fees . . . paid by the Tribe to Casino Magic.” Id. at 427.
On remand, the district court awarded the United States $350,000. This amount
reflected the Tribe’s payments to Casino Magic pursuant to the terms of the
Consulting Agreement. Both parties appeal the district court’s determination. The
United States maintains that it should have been awarded the following additional
sums: the interest payments Casino Magic collected as a result of its construction loan
to the Tribe; the origination fee on the same loan; the prepayment penalty fee the
Tribe paid to Casino Magic; various indirect costs of the project that the Tribe
reimbursed to Casino Magic; and prejudgment interest. Casino Magic, on the other
hand, argues that because its out-of-pocket expenses on the casino project exceeded
$350,000, the United States is not entitled to any payment.
II. Analysis
We review a grant of summary judgment de novo. Hammond v. Northland
Counseling Ctr., Inc., 218 F.3d 886, 890 (8th Cir. 2000). If there is no genuine issue
as to any material fact, summary judgment is appropriate. Fed.R.Civ.P. 56(c). “When
ruling on a summary judgment motion, a court must view the evidence in the light
most favorable to the nonmoving party.” County of Mille Lacs v. Benjamin, 361 F.3d
460, 463 (8th Cir. 2004) (citation and internal quotation marks omitted).
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Twenty-five U.S.C. § 811 details the proper procedure for reimbursing the
United States when an agreement relative to Indian lands,2 between a tribe and a third
party, has not been properly approved:
All contracts or agreements made in violation of this section shall be null
and void, and all money or other thing of value paid to any person by any
Indian or tribe, or anyone else, for or on his or their behalf, on account
of such services, in excess of the amount approved by the Commissioner
and Secretary for such services, may be recovered by suit in the name of
the United States in any court of the United States . . . .
The disputed payments here fall into four basic categories: borrowing fees,
indirect costs, out-of-pocket expenses, and prejudgment interest. We examine each
category in turn and affirm the district court in its damages calculation in three out of
the four categories, reversing only the district court’s denial of prejudgment interest.
A. Borrowing Fees
In September 1994, Casino Magic loaned the Tribe $5 million (the Bridge
Loan) so it could begin construction on the casino. Nearly two years later, the Tribe
secured a loan with BNC National Bank of Bismarck (the Bank) for $17.5 million that
was to be paid in installments at the Tribe’s request. Casino Magic agreed to
contribute $5 million of the $17.5 million loan. The loan was set up such that twenty-
six lenders were each responsible for funding a percentage of the loan. When the
Tribe made a draw on the loan, each of the lenders contributed its respective
percentage share to the payment.
1
Though Congress eliminated this section in 2000, we rely on the version of the
statute that was in effect when the suit was filed. See United States ex rel. Steele v.
Turn Key Gaming, Inc., 260 F.3d 971, 973 (8th Cir. 2001).
2
For an agreement to be “relative” to the land, the agreement must “put in play
actual incidents and rights of property ownership.” Id. at 978-79.
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The Tribe’s first draw on the loan was for $6 million. Casino Magic was
required to contribute approximately $1.7 million; its proportionate share. The Tribe
used its first draw to pay off the Bridge Loan in full, so Casino Magic netted
approximately $2.3 million on the transaction – the difference between what the Tribe
owed Casino Magic on the Bridge Loan and what Casino Magic owed the Tribe due
to the first draw. Casino Magic did not charge interest or collect any fees on the
Bridge Loan.
When the Tribe made payments on the Bank’s loan, the Bank distributed the
payments to each of the lenders based on their percentage of participation. This was
also true of any interest payments the Bank accrued, and for the origination fee the
Bank charged to the Tribe. Additionally, Casino Magic collected approximately
$20,000 of the prepayment penalty the Tribe was charged for paying off the $17.5
million loan early.
The government argues that the district court erred by not including the
payments that Casino Magic received from the Tribe via the Bank – the interest fees,
the origination fee, and the prepayment penalty fee – in its damages award to the
government. Because these payments were made pursuant to the Construction and
Term Loan Agreement, the government reasons that the payments were made as part
of the overall management scheme created by the Consulting Agreement, the
Construction and Term Loan Agreement, and the Participation Agreement. Casino
Magic, on the other hand, maintains that the money it collected in connection with the
Bridge Loan and the bank loan were not due to management services rendered and are
therefore not within the purview of 25 U.S.C. § 81.
We agree with the district court that the government is not entitled to the return
of payments the Tribe made to Casino Magic in connection with the Bridge Loan or
the subsequent $17.5 million loan. It is true that in Bernard I we examined the
interplay between all three contracts in determining that a management agreement
implicating property rights existed between the Tribe and Casino Magic. The issue
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of damages, however, requires a slightly different analysis. According to the language
of 25 U.S.C. § 81, only fees resulting from illegal services, in this case management
fees, need to be returned. While there may have been language in the three
agreements between the Tribe and Casino Magic indicating that Casino Magic was
attempting to create a management relationship that required NIGC approval, it does
not follow that all of the payments it collected were solely as a result of the
unapproved management relationship. Casino Magic received those payments as a
result of its lender status, not because of management services it rendered that were
relative to the land. See United States ex rel. Yellowtail v. Little Horn State Bank,
828 F. Supp. 780, 787 (D. Mont. 1992) (finding loan agreements between a bank and
a tribe not to be service contracts as contemplated by 25 U.S.C. § 81 because the loan
agreements were not “relative” to the land). The district court was correct in its
interpretation of Bernard I: We required Casino Magic to return the management fees
it collected, and borrowing fees do not constitute management fees. See Bernard I,
293 F.3d at 426 (“The law is clear that management agreements must be approved by
the Chairman of the NIGC. Without that approval, invalid management fees must be
recovered on behalf of the Tribe.”).
B. Indirect Costs
The government has identified several costs the Tribe reimbursed to Casino
Magic that it maintains were not directly related to the casino project and should
therefore be returned by Casino Magic. These costs included licensing fees, Casino
Magic’s legal fees, and a donation to a men’s softball team (totaling approximately
$206,000). The government also cites to other, “unverifiable” expenses, totaling
$41,440.71 that it believes it is owed. As with the borrowing fees, we agree with the
district court that these indirect costs were not paid by the Tribe in exchange for
management services, or as a result of services rendered relative to the land, and are
therefore not recoverable under 25 U.S.C. § 81.
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C. Out-of-Pocket Expenses
Casino Magic maintains that it should not be required to pay any damages
because it expended over $600,000 of its own money in connection with the casino
project, and to allow the government to collect $350,000, without a deduction of out-
of-pocket expenses, would result in an unfair double-billing. To support its argument,
Casino Magic primarily relies on language from Bernard I stating, “If the agreements
were in fact invalid, the Tribe expects Casino Magic to return any fees paid to it under
the terms of the invalid agreements, excluding the Tribe’s secured loan repayment to
Casino Magic and any other out-of-pocket expenses.” Bernard I, 293 F.3d at 424.
Casino Magic’s reliance on this language from Bernard I is misplaced. This portion
of the opinion is merely stating what the parties’ expectations were – not what we
eventually held.
Additionally, Casino Magic cites to one case in which a South Dakota district
court found that a management agreement was not properly authorized by the United
States, but did not require the casino management company to return its fees to the
government. See Rita, Inc. v. Flandreau Santee Sioux Tribe, 798 F. Supp. 586 (D.
S.D. 1992). This case, however, does not intersect with ours. The district court in
Rita was deciding whether to grant a temporary restraining order that would have
prevented the tribe from removing the management company from the casino. In
deciding to deny the temporary restraining order, but allowing the case to go forward,
the district court stated that the tribe induced the management company into investing
$3 million in the casino – a fact that the district court stated may entitle the company
to “some relief.” Id. at 589. Rita does not, however, suggest that a management
company must return only the profits it obtained as the result of an illegal contract
under 25 U.S.C. § 81.
Casino Magic’s out-of-pocket expenses should not be deducted from the
damages award. The controlling statute, 25 U.S.C. § 81, does not contemplate such
a result: The statute says that “all money” paid for services should be returned,
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without any reference to compensating the third party for its expenditures. The
district court acted properly in excluding these costs from its damages calculation.
D. Prejudgment Interest
Finally, the district court denied the government’s request for prejudgment
interest. We review a district court’s decision to grant prejudgment interest for an
abuse of discretion. Children’s Broad. Corp. v. Walt Disney Co., 357 F.3d 860, 868
(8th Cir. 2004). The purpose of awarding prejudgment interest is to compensate the
prevailing party for its true money damages, to encourage settlements, and to deter
parties from benefitting from unfairly delaying litigation. Val-U Constr. Co. v.
Rosebud Sioux Tribe, 146 F.3d 573, 582 (8th Cir. 1998). To that end, generally
prejudgment interest should be awarded, absent exceptional circumstances. See Turn
Key Gaming, Inc. v. Oglala Sioux Tribe, 313 F.3d 1087, 1093 (8th Cir. 2002). Often
cited examples of such circumstances include the claimant’s bad faith, the claimant’s
assertion of frivolous claims, and the claimant’s repeated delay tactics. See e.g. City
of Milwaukee v. Cement Div., Nat’l Gypsum Co., 515 U.S. 189, 196 (1995); Stroh
Container Co. v. Delphi Indus., Inc., 783 F.2d 743, 752 (8th Cir. 1986).
There are no exceptional circumstances here that warrant the denial of
prejudgment interest. The district court explicitly recognized the justifications
underlying a grant of prejudgment interest, but cited two reasons for refusing to award
prejudgment interest. The entirety of the court’s analysis follows: “Casino Magic has
incurred $632,000 in out-of-pocket expenses for which it will not be reimbursed.
Furthermore, the reimbursement of $350,000 will make the Tribe whole again.” (Dist.
Ct. Op. at 8-9.)
The district court’s analysis of the equities in this case is incomplete in our
view. While it may be true that Casino Magic incurred out-of-pocket expenses for
which it will not be reimbursed, it is also true that Casino Magic profited from the
loan arrangement it had with the Tribe. The district court’s second rationale, that the
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Tribe would be made whole by the $350,000 damage award, ignores the time value
of money. The Tribe “has been denied the use of money which was legally due.”
Stroh Container Co., 783 F.2d at 752. An award of prejudgment interest recognizes
that the Tribe can only be made whole by awarding prejudgment interest. See Kansas
v. Colorado, 533 U.S. 1, 10 (2001) (“Our cases since 1933 have consistently
acknowledged that a monetary award does not fully compensate for an injury unless
it includes an interest component.”).
We do not find that the district court’s reasons for denying prejudgment interest
in this case rise to the level of exceptional circumstances that justifies deviating from
the general rule of awarding prejudgment interest. Accordingly, we reverse the
district court’s denial of prejudgment interest.
III. Conclusion
For the reasons stated above, we affirm the district court’s award of $350,000
to the government, but reverse and remand for a determination of prejudgment interest
owed to the government on that amount.
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