Colorado River Indian Tribes v. National Indian Gaming Commission , 466 F.3d 134 ( 2006 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 8, 2006 Decided October 20, 2006
No. 05-5402
COLORADO RIVER INDIAN TRIBES, A FEDERALLY RECOGNIZED
INDIAN TRIBE,
APPELLEE
v.
NATIONAL INDIAN GAMING COMMISSION, ET AL.,
APPELLANTS
Appeal from the United States District Court
for the District of Columbia
(No. 04cv00010)
Todd S. Aagaard, Attorney, U.S. Department of Justice,
argued the cause and filed the briefs for federal appellants.
Edward J. Passarelli, Attorney, U.S. Department of Justice,
entered an appearance.
Gwenellen P. Janov argued the cause for appellee. With her
on the brief were Samuel D. Gollis and Kim Hoyt Sperduto.
Thomas M. Brownell and Scott D. Crowell were on the brief
for amici curiae National Indian Gaming Association, et al. in
support of appellee.
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Before: RANDOLPH and TATEL, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge RANDOLPH.
RANDOLPH, Circuit Judge: This is an appeal from an order
of the district court, Bates, J., granting summary judgment in
favor of the Colorado River Indian Tribes and against the
National Indian Gaming Commission, the Commission’s
Chairman, and two of its members. Colo. River Indian Tribes
v. Nat’l Indian Gaming Comm’n, 383 F. Supp. 2d 123 (D.D.C.
2005). The issue is whether the Indian Gaming Regulatory Act,
25 U.S.C. §§ 2701-2721, gives the Commission authority to
promulgate regulations establishing mandatory operating
procedures for certain kinds of gambling in tribal casinos.
Congress enacted the Indian Gaming Regulatory Act in the
wake of the Supreme Court’s decision that state gaming laws
could not be enforced on Indian reservations within states
otherwise permitting gaming, California v. Cabazon Band of
Mission Indians, 480 U.S. 202 (1987). The Act established the
Commission as an agency within the Department of the Interior.
25 U.S.C. § 2704(a). The Commission has the authority to
investigate and audit certain types of Indian gaming, to enforce
the collection of civil fines, and to “promulgate such regulations
and guidelines as it deems appropriate to implement the
provisions” of the Act. Id. § 2706; see Cabazon Band of
Mission Indians v. Nat’l Indian Gaming Comm’n, 14 F.3d 633,
634 (D.C. Cir. 1994).
The Tribe operates the BlueWater Resort and Casino on
Indian lands in Parker, Arizona. The casino offers what the Act
defines as “class II” and “class III” gaming. Class II gaming
includes bingo; “non-banking” card games; and pull-tabs, lotto,
and other games similar to bingo, if played in the same location.
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25 U.S.C. § 2703(7)(A), (B). Class III gaming includes most
conventional forms of casino gaming such as slot machines,
roulette, and blackjack. Id. § 2703(8); 25 C.F.R. § 502.4. Class
I gaming consists of social gaming for minimal prizes and
traditional forms of Indian gaming in connection with tribal
ceremonies. 25 U.S.C. § 2703(6).
The Act treats each gaming class differently. “Class I
gaming on Indian lands is within the exclusive jurisdiction of the
Indian tribes,” and is not subject to the Act. Id. § 2710(a)(1).
As to class II gaming, the Commission and the tribes share
regulatory authority: the tribes must enact a gaming ordinance
applying the Act’s minimum regulatory requirements; and the
Commission’s Chairman must approve the tribal ordinance
before gaming may occur. Id. § 2710(a)(2), (b). The Act
regulates how tribes engaging in class II gaming may make
payments to tribal members, id. § 2710(b)(3), and it requires an
annual outside audit of the gaming and various contracts, id.
§ 2710(b)(2)(C), (D).
Like class II gaming, class III gaming is lawful only if it
takes place on Indian land “in a State that permits such gaming
for any purpose by any person, organization, or entity . . ..” Id.
§ 2710(d)(1)(B). But unlike class II gaming, a tribe conducts
class III gaming pursuant to a compact with the state. Id.
§ 2710(d)(1)(C). The Secretary of the Interior must approve any
such compact before it may become effective. Id.
§ 2710(d)(3)(B). Thereafter, the “Tribal-State compact
govern[s] the conduct of gaming activities,” id. § 2710(d)(3)(A),
and the tribe’s class III gaming operations must be “conducted
in conformance” with the compact, id. § 2710(d)(1)(C). Tribal-
state compacts may contain provisions related to “standards for
the operation of such activity” and “any other subjects that are
directly related to the operation of gaming activities.” Id.
§ 2710(d)(3)(C)(vi), (vii). The Commission must approve any
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tribal ordinances for regulating and conducting class III gaming
and any contracts the tribe enters into for the management of its
class III gaming. Id. § 2710(d)(1)(A)(iii), (d)(9).
The Colorado River Indian Tribes regulates gaming at its
BlueWater casino pursuant to a tribal ordinance and rules
contained in a tribal-state class III gaming compact with the
State of Arizona. See Gaming Ordinance of the Colo. River
Indian Tribes, Ord. No. 94-1 (Aug. 31, 1994); Colo. River
Indian Tribes and State of Ariz. Gaming Compact (Jan. 31,
2003) (Gaming Compact). Both the ordinance and the compact
contain their own internal control standards. The most recent
version of the compact requires the Tribe’s gaming agency to
create standards governing operating procedures that are at least
as stringent as those contained in the rules the Commission
promulgated in 1999. Gaming Compact § 3(b)(3)(B). The State
of Arizona monitors the Tribe’s compliance with the standards,
for which the Tribe reimburses the state about $250,000 per
year. The Tribe’s gaming agency employs twenty-nine
employees and has an annual budget of $1.2 million.
In 1999 the Commission promulgated regulations, which it
termed “Minimum Internal Control Standards,” governing class
II and class III gaming. See 64 Fed. Reg. 590 (Jan. 5, 1999)
(codified as amended at 25 C.F.R. pt. 542). The regulations take
up more than eighty pages in the Code of Federal Regulations.
No operational detail is overlooked. The rules establish
standards for individual games, see, e.g., 25 C.F.R. § 542.7, .8,
.10, customer credit, id. § 542.15, information technology, id.
§ 542.16, complimentary services, id. § 542.17, and many other
aspects of gaming. To illustrate, tribes must establish “a
reasonable time period” not to exceed seven days for removing
playing cards from play, but “if a gaming operation uses plastic
cards (not plastic-coated cards), the cards may be used for up to
three (3) months if the plastic cards are routinely inspected, and
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washed or cleaned in a manner and time frame approved by the
Tribal gaming regulatory authority.” Id. § 542.9(d), (e). To take
another example the district court mentioned, coin drops are
regulated differently according to the size of the gaming facility.
See id. § 542.21, .31, .41. There are rules prescribing the
number and type of employees who must be involved in the
removal of the coin drop, id. § 542.21(g)(1), the timing of the
removal of the coin drop, id. § 542.21(g)(2), the tagging and
transportation of the coin drop, id. § 542.21(g)(4), the manner in
which the coin drop must be housed while in the machine, id.
§ 542.21(g)(5), and the purposes for which a coin drop may be
used, id. § 542.21(g)(6).
In January 2001, the Commission sought to audit the
Tribe’s class III gaming at the BlueWater casino in order to
determine whether the Tribe was complying with the
regulations. The Tribe protested on the ground that the rules
exceeded the Commission’s authority under the Act. The
auditors departed and the Commission issued a notice of
violation. After administrative hearings, the Commission fined
the Tribe $2,000 for terminating the audit. Colo. River, 383 F.
Supp. 2d at 130. The Commission denied the Tribe’s objection,
citing its authority to “promulgate such regulations and
guidelines as it deems appropriate to implement the provisions”
of the Act, 25 U.S.C. § 2706(b)(10), among which is the
provision stating that one of the Act’s purposes is to protect the
integrity of gaming revenue, id. § 2702. In re Colo. River
Indian Tribes, NOV/CFA 01-01, 5-6 (Nat’l Indian Gaming
Comm’n May 30, 2002) (NIGC Final Order). The Commission
located its power to audit the casino in § 2706(b)(4), which
authorizes the Commission to “audit all papers, books, and
records respecting gross revenues of class II gaming conducted
on Indian lands and any other matters necessary to carry out the
duties of the Commission under this chapter . . ..” See NIGC
Final Order at 7. The Tribe brought an action in federal district
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court challenging the decision and the Commission’s statutory
authority to regulate class III gaming. The district court reached
the “inescapable conclusion” that Congress did not intend to
give such broad authority to the Commission, and therefore
vacated the Commission’s decision and declared the regulations
unlawful as applied to class III gaming. Colo. River, 383 F.
Supp. 2d at 132.
There was a time when the Commission agreed with the
district court’s view of the Act. The first Chairman of the
Commission notified the Inspector General of the Department
of the Interior in 1993 that “the regulation of class III gaming
was not assigned to the Commission but was left to the tribes
and the states . . ..” Memorandum from Anthony J. Hope,
Chairman, Nat’l Indian Gaming Comm’n to the Assistant
Inspector General for Audits, Dep’t of the Interior 2 (Oct. 18,
1993). He explained that this was why the Commission had not
imposed “gaming control standards” on class III gaming: “the
Act assigns those responsibilities to the tribes and/or the states.”
Id. The Commission’s Chairman took the same position when
he testified before Congress the following year. See Manner in
which Gaming Activities Are Regulated by the Several States
and the Role of the Federal Government in the Regulation of
Indian Gaming Activities: Hearing Before the S. Comm. on
Indian Affairs, 103d Cong. 7-8 (1994) (testimony of Chairman
Hope, Nat’l Indian Gaming Comm’n). Despite many legislative
efforts since then, all of which are cited in Judge Bates’s careful
opinion, 383 F. Supp. 2d at 142 n.13, Congress has never
amended the Act to confer any such express power on the
Commission.
Even now the Commission concedes that no provision of
the Act explicitly grants it the power to impose operational
standards on class III gaming. Section 2706 grants the
Commission authority over several aspects of class II regulation.
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Thus, the Commission “shall monitor class II gaming,” and
“inspect and examine all premises located on Indian lands on
which class II gaming is conducted . . ..” 25 U.S.C.
§ 2706(b)(1), (2). It “may demand access to and inspect,
examine, photocopy, and audit all papers, books, and records
respecting gross revenues of class II gaming conducted on
Indian lands and any other matters necessary to carry out the
duties of the Commission under this chapter . . ..” Id.§ 2706(b)(4). While the statute grants the Commission audit
authority over “any other matters necessary to carry out [its]
duties,” the statute does not indicate that these duties extend to
class III regulation. Instead, the main provision dealing with the
regulation of class III gaming – § 2710(d) – contemplates joint
tribal-state regulation. The Act describes tribal-state compacts
as agreements “governing the conduct of [class III] gaming
activities.” Id. § 2710(d)(3)(A). A compact may contain
provisions relating to “the application of the criminal and civil
laws and regulations of the Indian tribe or the State that are
directly related to, and necessary for, the licensing and
regulation of” class III gaming, id. § 2710(d)(3)(C)(i),
“standards for the operation of such activity,” id.
§ 2710(d)(3)(C)(vi), and “any other subjects that are directly
related to the operation of [class III] gaming activities,” id.
§ 2710(d)(3)(C)(vii). That the Act sets up concurrent tribal-state
regulation of class III gaming, not tribal-state-Commission
regulation, is evident from § 2710(d)(5): “Nothing in this
subsection shall impair the right of an Indian tribe to regulate
class III gaming on its Indian lands concurrently with the State,
except to the extent that such regulation is inconsistent with, or
less stringent than” – not Commission regulations, but – “the
State laws and regulations made applicable by any Tribal-State
compact entered into by the Indian tribe under paragraph (3) that
is in effect.” Contrast this provision with § 542.4(c) of the
regulations, which states that if a standard in the Commission’s
regulations is more stringent than a standard in a tribal-state
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compact, the Commission’s regulation “shall prevail.” 25
C.F.R. § 542.4(c). There are other indications that Congress
intended to leave the regulation of class III gaming to the tribes
and the states, including the fact that the Secretary of the Interior
– rather than the Commission – approves (or disapproves) tribal-
state compacts regulating class III gaming. 25 U.S.C.
§ 2710(d)(3)(B). The significance of this provision and others
is thoroughly discussed in Judge Bates’s opinion in the district
court, 383 F. Supp. 2d at 135-38, and need not be repeated here.
As against this, the Commission offers three main
arguments. One is that the Commission has “oversight”
authority over class III gaming, that the dictionary defines
“oversight” to mean “supervision,” and that the Commission’s
regulation of class III gaming falls within that definition. The
trouble is that the Act does not use the word “oversight.” The
Commission relies not on statutory language, but on a sentence
from the Senate committee report on the Act: “The Commission
will have a regulatory role for class II gaming and an oversight
role with respect to class III gaming.” S. REP. NO. 100-446, at
1 (1988), reprinted in 1988 U.S.C.C.A.N. 3071, 3071. But just
two sentences before the “oversight” passage, the report states
that the Senate bill “provides for a system for joint regulation by
tribes and the Federal Government of class II gaming on Indian
lands and a system for compacts between tribes and States for
regulation of class III gaming.” Id. One might wonder why the
Committee would rely on tribal-state compacts to regulate class
III gaming. The report gives this explanation: “the Committee
notes that there is no adequate Federal regulatory system in
place for class III gaming, nor do tribes have such systems for
the regulation of class III gaming currently in place. Thus a
logical choice is to make use of existing State regulatory
systems, although the adoption of State law is not tantamount to
an accession to State jurisdiction. The use of State regulatory
systems can be accomplished through negotiated compacts but
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this is not to say that tribal governments can have no role to play
in regulation of class III gaming – many can and will.” Id. at 13.
In addition to the point that a committee report is not law, it is
perfectly clear that whatever the Senate committee thought
“oversight” might entail, the committee did not foresee the
Commission regulating class III gaming.
The Commission’s other arguments proceed from the text
of the Act. The Commission is funded by a percentage of each
tribe’s gross gaming revenues from class II and class III gaming.
25 U.S.C. § 2717(a). To this end, tribes must submit annual
“outside audits” to the Commission of their class II and class III
gaming operations. Id. § 2710(b)(2)(C), (d)(1)(A)(ii). From this
the Commission infers that it has the authority to regulate the
handling and accounting of gaming receipts in order to ensure
the integrity of audits. We cannot see how the right to receive
an outside audit, presumably conducted in accordance with
Generally Accepted Auditing Standards, translates into a power
to control gaming operations. Under the Securities Exchange
Act of 1934, public companies must file reports necessary to the
protection of investors. See 15 U.S.C. § 78m(a). If the public
company happened to be in the casino business, such as
Harrah’s Entertainment, Inc., the Commission’s logic here
would entitle the SEC to dictate the details of how Harrah’s
conducts its casino operations because the SEC receives reports
from the company. The SEC obviously has no such authority,
and neither does the Commission.
This brings us to the Commission’s third argument –
namely, that its regulations are valid in light of its authority to
“promulgate such regulations and guidelines as it deems proper
to implement the provisions of [the Act].” 25 U.S.C.
§ 2706(b)(10). Mourning v. Family Publications Service, Inc.,
411 U.S. 356 (1973), the Commission tells us, states a canon of
statutory interpretation for general rulemaking provisions such
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as this – regulations promulgated pursuant to such statutes are
valid so long as they are “reasonably related to the purposes of
the enabling legislation.” Id. at 369 (quoting Thorpe v. Housing
Auth. of Durham, 393 U.S. 268, 280-81 (1969)). Judge Bates
rejected this argument and so do we. An agency’s general
rulemaking authority does not mean that the specific rule the
agency promulgates is a valid exercise of that authority. See
Goldstein v. SEC, 451 F.3d 873, 878 (D.C. Cir. 2006). So here.
See Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 92
(2002) (“Our previous decisions, Mourning included, do not
authorize agencies to contravene Congress’ will in this
manner.”).
In arguing that the regulations implement the provisions of
the Act, the Commission points to § 2702, the Act’s general
declaration of policy, which it says embodies the congressional
purpose to promote integrity in Indian gaming, a purpose the
Commission’s regulations further. But this cannot carry the
Commission as far as it needs to go. We have observed before
that “[a]ll questions of government are ultimately questions of
ends and means.” Nat’l Fed’n of Fed. Employees v. Greenberg,
983 F.2d 286, 290 (D.C. Cir. 1993); see Bd. of Governors of the
Fed. Reserve Sys. v. Dimension Fin. Corp. 474 U.S. 361, 373-74
(1986). Agencies are therefore “bound, not only by the ultimate
purposes Congress has selected, but by the means it has deemed
appropriate, and prescribed, for the pursuit of those purposes.”
MCI Telecomms. Corp. v. AT&T, 512 U.S. 218, 231 n.4 (1994).
The Commission is correct that Congress wanted to ensure the
integrity of Indian gaming, but it is equally clear that Congress
wanted to do this in a particular way. The declared policy is
therefore not simply to shield Indian tribes “from organized
crime and other corrupting influences” and “to assure that
gaming is conducted fairly and honestly by both the operator
and players,” 25 U.S.C. § 2702(2), but to accomplish this
through the “statutory basis for the regulation of gaming”
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provided in the Act, id. This leads us back to the opening
question – what is the statutory basis empowering the
Commission to regulate class III gaming operations? Finding
none, we affirm.
So ordered.