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Mashantucket Pequot Tribe v. Town of Ledyard

United States Court of Appeals, Second Circuit

July 15, 2013

TOWN OF LEDYARD; PAUL HOPKINS, Tax Assessor, Town of Ledyard; JOAN CARROLL, Tax Collector, Town of Ledyard, Defendants-Appellants, STATE OF CONNECTICUT, Intervenor-Defendant-Appellant.

Argued: March 18, 2013

The Town of Ledyard and State of Connecticut appeal from the judgment of the United States District Court for the District of Connecticut (Warren W. Eginton, Judge), holding that (1) nothing barred the court from exercising jurisdiction and (2) Connecticut's personal property tax, as applied to vendors leasing slot machines to the Mashantucket Pequot Tribe for use at Foxwoods casino, was barred by the Indian Trader Statutes, Indian Gaming and Regulatory Act, and pursuant to the balancing test enunciated in White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980). We hold that the district court (1) appropriately reached the merits of the case but (2) erred by finding the tax to be preempted.

ERIC D. MILLER (Benjamin S. Sharp, Jennifer A. MacLean, on the brief), Perkins Coie LLP, Seattle, WA and Washington, D.C., for Defendants-Appellants Town of Ledyard, Paul Hopkins, and Joan Carroll.

ROBERT J. DEICHERT, Assistant Attorney General, for George Jepsen, Attorney General of the State of Connecticut, Hartford, CT, for Intervenor-Defendant-Appellant State of Connecticut.

SKIP DUROCHER (Mary J. Streitz, James K. Nichols, on the brief), Dorsey & Whitney LLP, Minneapolis, MN, for Plaintiff-Appellee Mashantucket Pequot Tribe.

Before: Jacobs, Chief Circuit Judge, Cabranes and Wesley, Circuit Judges.

Wesley, Circuit Judge:

The Mashantucket Pequot Tribe (the "Tribe") challenges the Town of Ledyard's (the "Town") imposition of the State of Connecticut's (the "State") personal property tax on the lessors of slot machines used by the Tribe at Foxwoods Resort Casino and MGM Grand at Foxwoods (collectively "Foxwoods"), located in Ledyard, Connecticut. See Conn. Gen. Stat. §§ 12-40 et seq. (the "tax"). The Tribe filed complaints in August 2006 and September 2008 on behalf of two vendors who lease slot machines to the Tribe for use at Foxwoods. The Town and the State appeal from a ruling of the United States District Court for the District of Connecticut (Warren W. Eginton, Judge) denying their motions for summary judgment, granting summary judgment to the Tribe, and affording the Tribe injunctive and declaratory relief.

As a threshold matter, the Town and State assert that (1) the Tribe lacks standing; (2) the Tax Injunction Act, 28 U.S.C. § 1341, strips federal courts of jurisdiction over this action; and (3) principles of comity bar federal courts from deciding this action. On the merits, the Tribe defends the district court's order to invalidate the State's personal property tax as applied to the vendors, asserting that the tax is preempted (1) by the Indian Trader Statutes, 25 U.S.C. §§ 261-64; (2) by the Indian Gaming Regulatory Act ("IGRA"), 25 U.S.C. §§ 2701 et seq.; and (3) pursuant to the balancing test enunciated in White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980).

We hold that: the district court properly exercised jurisdiction, and the Tribe has standing to pursue this claim; neither IGRA nor the Indian Trader Statutes expressly bar the tax; and, under the Bracker test, federal law does not implicitly bar the tax because State and Town interests in the integrity and uniform application of their tax system outweigh the federal and tribal interests reflected in IGRA. The district court erred in granting summary judgment for the Tribe and in denying summary judgment for the Town and State.


I. The Tax

Connecticut imposes a generally-applicable personal property tax for the purpose of revenue collection for the municipalities that assess and collect the tax. State law requires nonresident owners of personal property, which includes slot machines, to file declarations spelling out the value of their property with the towns where their property is located. The towns apply a formula to the value of that property and bill the owners accordingly. Conn. Gen. Stat. § 12-43. To collect the tax, the Town relies heavily on "the willingness of taxpayers to comply with State law and file personal property declarations." Hopkins Decl. ¶ 8. This tax does not apply to Tribal property located on-reservation.

Connecticut's towns use these tax proceeds "to fund the operation of municipal government." Id. ¶ 5. The services provided by the Town include, inter alia, police and emergency-services functions, road maintenance, education, and trash collection. The Town maintains roads to and throughout the Indian reservation, provides emergency services to the Tribe, buses children living on-reservation to schools, and pays for the education of Tribal children on-reservation. The annual cost to the Town of educating Tribal children is at least $236, 258.[1]

II. The Gaming Procedures

The Mashantucket Pequot Gaming Enterprise (the "Enterprise") operates Foxwoods, the self-described largest casino and resort in the United States. The Enterprise employs 10, 000 people, of whom approximately 150 are Tribal members. Although the Tribe has other sources of income, including at least four types of taxes it imposes on on-reservation activities, the majority of the Tribe's revenue comes from the Enterprise. Slot machines are among the most popular Enterprise games.

IGRA defines slot machines as Class III games. See 25 C.F.R. § 502.4. The Final Mashantucket Pequot Gaming Procedures, promulgated by the Secretary of the Interior, governs the Tribe's use of Class III games. See Dist. Ct. Doc. No. 221-13, 56 Fed. Reg. 24996 (1991), 56 Fed. Reg. 15746-01 (1991) ("Gaming Procedures"). Under the Gaming Procedures, the State licenses gaming employees, requires enterprises to register before providing gaming, and collects compensation from the Tribe. Gaming Procedures at §§ 5-6. The Enterprise pays twenty-five percent of all proceeds from video facsimile games[2] to the State. These payments exceeded $1.5 billion from 2003 to 2011. The Enterprise also "reimburse[s] the State for law enforcement and regulatory services related to [] gaming;" this payment was, in total, approximately $56.8 million from 2003-2011.

III. The Lease Agreements and Modifications

The Enterprise obtains slot machines from different vendors, including Atlantic City Coin & Slot Company ("AC Coin")[3] and WMS Gaming Incorporated ("WMS") (collectively the "vendors"). AC Coin is incorporated and based in New Jersey; WMS is a Delaware corporation with headquarters in Illinois. AC Coin and WMS sell some of their slot machines, but they offer some of their most popular proprietary games by lease only.[4]

AC Coin began leasing slot machines to the Tribe in 1997-98. These leases provided that "[t]axes and any license fees applicable to the use and operation of the [machines] shall be paid by [the] [c]asino." AC Coin Lease 10/11/2000. The agreements further provided that the Tribe:

agrees to defend, indemnify, and hold harmless A.C. Coin, its agents, employees, officers, and directors from and against any and all liabilities, obligations, losses, damages, injuries, claims, demands, penalties, costs and expenses . . . of whatsoever kind or nature . . . arising out of the use, operation and possession of the [machines], provided such liabilities are not the direct result of the negligent or intentional conduct of A.C. Coin or its agents, officers, and directors.

Id. "AC Coin has used, and continues to use, this standard form tax and indemnification language . . . in leases for both its tribal and non-tribal lessees." McCormick Aff. 2. AC Coin has paid Connecticut's personal property tax on slot machines leased to the tribes that operate both Foxwoods and Mohegan Sun, another Connecticut-based, Indian-run casino. Despite the permissive language in its leases, AC Coin has not sought or received reimbursement for the taxes that it has paid on gaming equipment leased to other casinos and had not sought reimbursement from the Tribe prior to this lawsuit.

WMS also leased slot machines to the Tribe pursuant to standard form leases, beginning in 1998. A 1998 lease with the Tribe contained standard language requiring that:

[t]axes, licenses and permit fees applicable to the installation or operation of the [machines] shall be paid by the [Tribe]. [The Tribe] shall indemnify and defend WMS from and against any penalty, liability and expense . . . arising from [the Tribe's] failure to remit such taxes or from any delinquency with respect to such remittance.

WMS Lease Agreement 10/15/98. Like AC Coin, WMS "has not sought reimbursement nor has it ever been reimbursed for personal property taxes it has paid on gaming equipment leased to casinos by any casino or Indian tribe, including the . . . Enterprise and the Mohegan Sun casino." Town Rule 56(a)(1) Statement 7. Similarly, WMS "does not change the pricing, or lease rate, of leased slot machines because of personal property tax; the tax is not a factor in lease pricing." Id.

In the late 1990s, the Tribe decided that its vendors should not be subject to the tax. Despite the vendors' initial reluctance, the Tribe persuaded the vendors to modify the lease agreements to reflect this decision. The modified AC Coin lease indicated:

Foxwoods represents that it is not subject to any state or local taxes for any services or sales or leases occurring at Foxwoods' premises and . . . AC Coin agrees not to file with the local towns or any other applicable jurisdiction, including specifically the Town of Ledyard, a list of property or equipment provided under the Agreement or to pay such tax with respect to such equipment except in the event that AC Coin is legally obligated to do so. In the event [that] AC Coin becomes legally obligated to file and/or pay taxes, AC Coin agrees to immediately notify Foxwoods of such obligation and to reasonably cooperate with Foxwoods in contesting such tax filing and/or payment if so requested by Foxwoods . . . . Foxwoods agrees to hold harmless and/or reimburse AC Coin within thirty (30) days for any taxes or any related cost or expense paid in accordance with this provision.

Town Rule 56(a)(1) Statement 4-5.

The modified language in the WMS lease agreement was substantially identical. See id. Despite the modifications, WMS and AC Coin continued to pay personal property taxes until the Tribe pressured them to stop.

IV. Court Actions among the Parties

In 2006, AC Coin pursued and lost an administrative appeal of the tax to the Town's Board of Assessment Appeals. In August 2006, the Tribe and AC Coin filed the complaint in this action in the United States District Court for the District of Connecticut.

In July 2008, the Town filed suit in Connecticut Superior Court to collect unpaid property taxes from WMS. In September 2008, the Tribe sued in federal court to enjoin the enforcement of the tax against WMS. The district court consolidated the two federal actions. The Superior Court has stayed Connecticut's action against WMS pending resolution of this case. Town of Ledyard v. WMS Gaming, KNL-cv08-5007839 (Conn. Sup. Ct.). The State intervened as a defendant in both federal cases. As relevant here, the parties filed cross-motions for summary judgment, which the district court resolved in favor of the Tribe.


The Town and State offer three independent reasons to dismiss this case for lack of jurisdiction: (1) standing, (2) the Tax Injunction Act ("TIA"), and (3) comity. The Tribe argues that jurisdiction was proper and that we should affirm the district court's opinion that the tax is preempted by (1) the Indian Trader Statutes, (2) IGRA, and (3) the Bracker balancing test. We find that (1) the district court properly ...

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