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CATSKILL DEVELOPMENT v. PARK PLACE ENTERTAINMENT

May 14, 2001

CATSKILL DEVELOPMENT, L.L.C., MOHAWK MANAGEMENT, L.L.C., AND MONTICELLO RACEWAY DEVELOPMENT COMPANY, L.L.C., PLAINTIFFS,
v.
PARK PLACE ENTERTAINMENT CORP., DEFENDANT.



The opinion of the court was delivered by: McMAHON, District Judge.

MEMORANDUM AND DECISION GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS

Plaintiffs Catskill Development, L.L.C. ("Catskill"), Mohawk Management, L.L.C. ("Mohawk") and Monticello Raceway Development Co., L.L.C. ("Monticello") (collectively, the "Catskill Group"), bring this action in diversity against Park Place Entertainment Corp. ("Park Place"), claiming tortious interference with contractual relations, interference with prospective business relationships, unfair competition, and violations of the Donnelly Act, N.Y. Gen. Bus. Law § 340. Plaintiffs allege that defendant, one of the world's largest casino companies, wrongfully induced officials of the St. Regis Mohawk Nation ("Mohawks") to terminate the Mohawks' contractual agreements and business relationships with plaintiffs relating to the development and management of a proposed $500 million Native American casino at the Monticello Raceway in Sullivan County, New York (the "Casino Project").

The case is before me on defendant's motion to dismiss. For the reasons below, I grant defendant's motion to dismiss plaintiffs' claims for tortious interference with contractual relations, for unfair competition, and for violations of the Donnelly Act. The motion to dismiss plaintiffs' claim for interference with prospective business relations is denied.

I. BACKGROUND

The factual allegations below are taken from plaintiffs' complaint and documents relied on within or attached to the complaint.

A. Tribal Gaming in New York

Casino gambling is illegal in New York State. However, a federal statute, the Indian Gaming Regulatory Act ("Gaming Act" or "IGRA"), 25 U.S.C. § 2701 — 2721 (1988), permits different types of gaming, including casino gambling, on Native American land under specified conditions.

The act classifies gaming activities into three different categories. Tribes have exclusive jurisdiction over Class I gaming, which includes social games and traditional forms of Indian gaming connected to tribal ceremonies. 25 U.S.C. § 2703 (6), 2719(a)(1). Class II gaming, defined by the Gaming Act to include "the game of chance commonly known as bingo (whether or not electronic, computer or other technologic aids are used in connection therewith) . . . including (if played in the same location) pull-tabs, lotto, punch boards, tip jars, instant bingo, and other games similar to bingo . . .," are regulated by the National Indian Gaming Commission (NIGC).*fn1 All other gaming activity (including both electronic gaming devices and traditional casino games, such as card tables, craps, roulette, and slot machines) is Class III gaming.

The Gaming Act permits Native American tribes to petition the Governor of their host state for a so-called "compact" that would allow Class III gaming on reservation lands and/or on lands to be acquired and held in trust by the United States Government for the benefit of the tribe. 25 U.S.C. § 2710(d)(3). These compacts define which types of Class III gaming activities the Tribes can conduct, and usually provide that a portion of the gaming revenues will go to the State. (Compl. at 26-28.) Any compact between the state and the Tribe must be approved by the Secretary of the Interior. § 2710(d)(3)(B).

To date, only two tribes in New York have successfully petitioned the Governor for compacts: the Oneida Nation received its compact in 1992, and the St. Regis Mohawk Tribe in 1993. The Oneidas opened a casino in western New York, near Syracuse, and sometime after 1996, the Mohawks opened a small casino on their Akwesasne Reservation near the Canadian border. (Compl. at 26-30.) See also Hearing on Indian Gambling Before the Senate Comm. on Indian Affairs, 1994 WL 377835 (F.D.C.H. July 19, 1994) (statement of Ray Halbritter, Nation Representative, Oneida Indian Nation of New York); Robert D. McFadden, Cuomo Accepts Mohawk Plan for a Casino, N.Y. Times, Oct. 16, 1993, at 125; James Dao, Accord Signed for a Casino in New York State, N Y Times, Mar. 11, 1993, at B1.

In May 1999, the Mohawks' amended their compact with New York State to allow for the use of electronic gaming devices on the Akwesasne reservation casino. This authorization was set to expire on May 27, 2000. Defendant contends that the State and the Mohawks negotiated another electronic gaming amendment, which would be effective until May 27, 2005. (See Carpinello Decl. at Ex. 5.) They claim, however, that the amendment was twice rejected by the Secretary of the Interior, and is not currently in effect. (See Carpinello Decl. at Ex. G.) Plaintiffs do not dispute this. They argue, however, that while such an amendment "would have added electronic terminals," it would not have precluded approval of the [agreements made between Catskill and the Tribe] and Catskill's legal ability to open the [Monticello] facility. The agreements . . . do not legally require electronic terminals. (Mem. in Opp. to Def.'s Mot. to Dismiss at 25.) As the parties have not provided a copy of the existing compact between the Mohawks and New York State, I can not determine whether the compact would have to be amended in order for the Mohawks to even build a new casino somewhere other than on the Akwesasne reservation. However, it is clear that without an amendment, no Mohawk casino, whether at Monticello or somewhere else, could run electronic games.

In a decision of some significance to this case, New York State Supreme Court Justice Joseph C. Teresi held, on April 20, 2001, that because the New York State Constitution does not grant residual powers to the executive to bind the State to an Indian Gaming Compact, the Governor of New York was not empowered to enter into these compacts without legislative concurrence.*fn2 Saratoga County Chamber of Commerce, Inc. v. Pataki, Index No. 11971-99 (Sup.Ct. N.Y., April 10, 2001). Accordingly, Justice Teresi declared the 1993 Compact signed by the Governor and the Mohawks void and unenforceable. Moreover, Justice Teresi enjoined the Governor from entering into any future gaming compacts without prior legislative concurrence.

B. The Catskill Deal

In 1995, leaders of the Mohawk tribe opened discussions with Sullivan County businessmen who were looking to develop a gambling facility, using the Monticello Raceway in Monticello, New York, as a cornerstone for the operation. In October 1995, these businessmen formed Catskill to pursue the Casino Project and seek federal approval for the plan. (Compl. at ¶ 33-37.) Catskill planned to donate 30 acres to the Tribe, which would transfer the land to the U.S. Government to hold in trust for the Mohawks. Catskill would help the Mohawks operate the casino, and in return take a share of the revenues.

Catskill acquired the Monticello Raceway for $10,000,000 on June 3, 1996. Of the real property purchased, 29.31 acres adjacent to the Raceway were set aside for the casino. Catskill created Mohawk Management, a subsidiary of Alpha Hospitality, Inc., to provide technical and financial expertise to assist the Mohawks in obtaining financing and to manage, operate, and maintain the casino. Catskill also created Monticello Raceway Development to develop the casino property, and to assist the Mohawks in obtaining a loan to finance the construction, equipping, and operation of the casino. As the coordinating entity, Catskill acted for all plaintiffs in seeking the necessary local, state and federal approvals needed to build and operate the casino. (Compl. at 38-42.)

On July 31, 1996, the Mohawks and plaintiffs allegedly entered into a number of agreements, which plaintiffs claim were re-executed and affirmed a number of times through the year 2000 (although they do not attach copies of those agreements to the complaint). The agreements are as follows:

(1) A Land Purchase Agreement between the Regis Mohawk Gaming Authority and Catskill Development contemplating the transfer of the Raceway property from Catskill to the United States government to be held in trust for the Mohawks, in exchange for which the Mohawks would pay Catskill $10 million, the purchase price of the property. (Carpinello Aff. at A.)

(2) A Mortgage Agreement which would, upon execution, provide for a mortgage on the Mohawks' leasehold of the subject property. Defendant provides in its papers an unsigned copy of this agreement, claiming that it was never executed because it was dependent on the consummation of the land transfer described in the Land Purchase Agreement. Plaintiffs do not dispute that this agreement was never executed. (Id. at B.)

(3) A Gaming Facility Management Agreement granting Mohawk Management LLC the exclusive right to manage the day-to-day operations of the contemplated casino. Under the agreement, the parties are to establish a Management Business Board, with two members from Mohawk Management and two from the Tribe, to oversee the operations. Any action by the Board requires three of the four members to agree. Under the agreement, Mohawk Management is to negotiate and to enter into contracts for operation of the casino on behalf of and in the name of the Tribe, although contracts over $25,000 must be approved by the Board. The Tribe agrees to pay Catskill 35% of Net Revenues. (Id. at C.)

(4) A Shared Facilities Agreement between the Tribe and Catskill Development, LLC, under which the Tribe agrees to develop and build the casino, and Catskill agrees to improve and operate the racetrack. The agreement establishes a Shared Facilities Business Board, with the same representation and voting rules as the Management Business Board described above. (Id. at D.)

(5) A Development and Construction Agreement between the Tribe and Gaming Authority on one side, and Monticello Raceway Development Company, LLC on the other, in which the Tribe grants the developer the right to plan and to build the casino, and the developer agrees to help the Tribe obtain financing for the construction. The agreement establishes a Development Business Board, consisting of the same members as the Management Business Board, to approve certain aspects of the project, such as the budget and the choice of architect. The agreement was signed by the Gaming Authority, the Tribe, and the Monticello Raceway Development Company. (Id. at E.)

C. Federal and State Approval of Indian Gaming

The contemplated casino project between plaintiffs and the Mohawks was subject to regulatory approval by the Federal Government, and as discussed above, by New York State. Defendant argues that certain of the required approvals affect the validity of the agreements signed by plaintiffs and the Mohawks, in that the agreements could not become legally binding contracts without those approvals.

1. IGRA

The primary statute regulating Indian gaming is the IGRA. As explained above, the IGRA allows Indian tribes to conduct gaming operations on reservation lands and, under certain circumstances, on "off-reservation" lands. The Act established the National Indian Gaming Commission (NIGC) to regulate Indian gaming.

Under the Act, gaming management contracts*fn3 for Class III gaming must now be approved by the Commissioner of the NIGC. 25 U.S.C. § 2705(a), 2711(b). Regulations passed pursuant to the IGRA state that such contracts "shall become effective upon approval by the Chairman," 25 C.F.R. § 533.1, and that a gaming management contract not approved by the NIGC is void. 25 C.F.R. § 533.7. See also International Gaming Network v. Casino Magic Corp., 120 F.3d 135 (8th Cir. 1997) (noting that agreement to build and manage casino on tribal land was not binding on parties because it lacked NIGC approval); Casino Resource Corp. v. Harrah's Entm't, Inc., 243 F.3d 435 (8th Cir. 2001). In addition, collateral agreements*fn4 to the management contract that relate to Indian gaming must also be approved, and are thus void without approval. 25 U.S.C. § 2711(a)(3). See also U.S. ex. rel. Mosay v. Buffalo Bros. Mgmt., 20 F.3d 739, 743 (7th Cir. 1994) (explaining effect of IGRA on contracts with Indian tribes).

A separate section of the IGRA describes the approval process for planned "off-reservation" gambling projects on lands to be transferred and held in trust by the U.S. for the benefit of a tribe. Such a project must be expressly authorized by the Secretary of the Interior. IGRA § 20, 25 U.S.C. § 2719(b)(1)(a). See also Keweenaw Bay Indian Cmty. v. United States, 136 F.3d 469, 474 (6th Cir. 1998). The Section states that gaming shall not be conducted "on lands acquired by the Secretary in trust for the benefit of an Indian tribe after October 17, 1988," unless certain limited conditions are met. 25 U.S.C.A. § 2719(a). Under the exceptions to § 2719(a), gaming on newly acquired trust lands may be conducted when:

[t]he Secretary, after consultation with the Indian tribe and appropriate State, and local officials . . . determines that a gaming establishment on newly acquired lands would be in the best interest of the Indian Tribe and its members, and would not be detrimental to the surrounding community, but only if the Governor of the State in which the gaming activity is to be conducted concurs in the Secretary's determination. . . .

25 U.S.C. § 2719(b)(1)(A) Unlike Section 2711, there is no regulation related to Section 2719 which explicitly states that contracts creating off-reservation gambling projects are void without the Secretary's approval.

2. Section 81

Defendant argues that the agreements at issue in the present case also implicate an earlier statute relating to contracts with Indian parties, 25 U.S.C. § 81. Under Section 81, non-Indian parties contracting with Indian tribes must submit certain contracts to the Secretary of the Department of the Interior (through the Bureau of Indian Affairs) for approval. Contracts requiring approval under Section 81 and not approved by the BIA are invalid. See Green v. Menominee Tribe of Indians in Wisconsin, 47 Ct.Cl. 281, aff'd. 233 U.S. 558, 34 S.Ct. 706, 58 L.Ed. 1093 (1914).

At the time plaintiffs made their agreements, and until March 14, 2000, when Section 81 was amended, the statute read:

No agreement shall be made by any person with any tribe of Indians, or individual Indians not citizens of the United States, for the payment or delivery of any money or other thing of value, in present or in prospective, or for the granting or procuring any privilege to him, or any other person in consideration of services for said Indians relative to their lands, or to any claims growing out of, or in reference to, annuities, installments, or other moneys, claims, demands, or thing, under laws or treaties with the United States, or official acts of any officers thereof, or in any way connected with or due from the United States, unless such contract or agreement be executed and approved as follows:
Second. It shall bear the approval of the Secretary of the Interior and the Commissioner of Indian Affairs indorsed upon it.
. . . . All contracts or agreements made in violation of this section shall be null and void.

25 U.S.C. § 81 (1958) (emphasis added), amended by 25 U.S.C. § 81(a)-(e) (2000).

Prior to amendment, there was significant litigation on the question of which contracts were for "services relative to Indian lands" falling within the purview of Section 81. Some courts, analyzing whether a management contract between a tribe and an outside party was sufficiently related to Indian lands, applied the fact-specific inquiry used in Altheimer & Gray v. Sioux Mfg. Corp., 983 F.2d 803, 812 (7th Cir. 1993)*fn5; Penobscot Indian Nation v. Key Bank of Maine, 112 F.3d 538, 552 (1st Cir. 1997); U.S. ex rel. Mosay v. Buffalo Bros. Mgmt., Inc., 20 F.3d 739 (7th Cir. 1994); See also In re U.S. ex rel. Hall, 825 F. Supp. 1422, 1433 (D.Minn. 1993) (applying Altheimer to non-management contracts), aff'd. 27 F.3d 572, cert. denied 513 U.S. 1155, 115 S.Ct. 1112, 130 L.Ed.2d 1076. But see U.S. v. Hattum Family Farms, 102 F. Supp.2d 1154, 1161 (D.S.D. 2000) (declining to apply Altheimer).

Many parties contracting with an Indian tribe could not be certain approval was required unless and until the question was fully litigated. Thus, because of the harshness of the penalty (invalidation), most contracts, regardless of whether they fell within Section 81, were submitted to the BIA for Section 81 approval. See S.Rep. No. 106-150, Encouraging Indian Economic Development, To Provide for the Disclosure of Indian Tribal Sovereign Immunity in Contracts Involving Indian Tribes, and for Other Purposes, Sept. 8, 1999, at 5-7 (hereinafter "Senate Report").

The statute was amended in part to address this problem and to provide more guidance on the types of contracts that must be approved in order to be valid. See id. It now reads:

No agreement or contract with an Indian tribe that encumbers Indian lands for a period of 7 or more years shall be valid unless that agreement or contract, bears the approval of the Secretary of the Interior or a designee of the Secretary.

25. U.S.C. § 81(b) (2000). The Senate Report on the bill discussed the types of contracts that should not come within Section 81. By replacing the phrase "relative to Indian lands" with "encumbering Indian lands," it explained that the bill will:

no longer apply to a broad range of commercial transactions. Instead, it will only apply to those transactions where the contract between the tribe and a third party could allow that party to exercise exclusive or nearly exclusive proprietary control over the Indian lands.

Senate Report at 9. The statute requires the Secretary to develop regulations specifying the types of contracts that fall within Section 81. As of the date of this opinion, no such regulations exist.

3. Relationship between the IGRA and Section 81

Indian gaming has been subject to regulation under both Section 81 and the IGRA.

Prior to passage of the IGRA, certain management contracts for Indian gaming establishments were held to be subject to Section 81's invalidation provision. See generally Barona Group of Capitan Grande Band of Mission Indians v. American Mgmt. & Amusement, Inc., 840 F.2d 1394 (9th Cir. 1987); A.K. Mgmt. Co. v. San Manuel Band of Mission Indians, 789 F.2d 785 (9th Cir. 1986); Pueblo of Santa Ana v. Hodel, 663 F. Supp. 1300 (D.D.C. 1987); Shakopee Mdewakanton Sioux Cmty. v. Pan American Mgmt. Co., 616 F. Supp. 1200 (D.Minn. 1985), dismissed on other grounds, 789 F.2d 632; Wisconsin Winnebago Bus. Comm. v. Koberstein & Ho-Chunk Mgmt., 762 F.2d 613 (7th Cir. 1985). See also Citizen Band Potawatomi Indian Tribe of Oklahoma v. Enter. Mgmt. Consultants, Inc., 734 F. Supp. 455 (W.D.Okla. 1990) (IGRA held not to apply) Although these holdings were very fact specific, the inquiry usually centered on the level of control the tribe retained over the operations.

At least in part, the IGRA was passed in response to the uncertainty over these holdings. Congress noted in the text of the statute that "[f]ederal courts have held that [Section 81] requires Secretarial review of management contracts dealing with Indian gaming, but does not provide standards for approval of such contracts." P.L. 100-497 (1988). See also Senate Report at 5-7. Thus, as one court has explained:

When section 81 is read in conjunction with the [IGRA], two distinct, successive regulatory regimes can be seen. One is administered by the [BIA] under section 81, the other by the [NIGC] under the [IGRA]. In the first regime, contracts relating to Indian lands, including casino management contracts, must be submitted to the Bureau for approval under criteria undefined by statute or regulation; failure to submit exposes the contractor to the fell sanction of a qui tam suit. In the second regime, a class of contracts — casino management contracts — are carved out of section 81 and subjected to the exclusive regulatory authority of the new Commission administering the new Act, along with certain contracts — contracts collateral to casino management contracts — that never were subject to section 81. 25 U.S.C. § 2711(a)(3); 25 C.F.R. § 502.5.

U.S. ex rel. Mosay v. Buffalo Bros. Mgmt., Inc., 20 F.3d 739, 743 (7th Cir. 1994). Congress expressly reaffirmed the NIGC's obligation to approve gaming management contracts when it amended Section 81. 25 U.S.C. § 81(f)(2) (Supp. June 2000) (stating that nothing in Section 81 "shall be construed to amend or repeal the authority of the [NIGC] under the [IGRA]")

The court in Mosay questioned the continuing applicability of Section 81 to Indian gaming management contracts, and to other agreements that fall within the IGRA:

We doubt that the qui tam provision of section 81 remains applicable to contracts now governed by the Indian Gaming Regulatory Act. Contractors would be subject to enormous legal risk that one of their contracts with an Indian tribe might be held to be a collateral agreement that they should have but failed to file, in which event they would have to repay everything they had received under the contract. Qui tam liability would expand indefinitely at the very moment that Congress had created a new ...

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