Bettor Racing, Inc. v. National Indian Gaming Comm. , 812 F.3d 648 ( 2016 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 15-1335
___________________________
Bettor Racing, Inc.; J. Randy Gallo
lllllllllllllllllllll Plaintiffs - Appellants
v.
National Indian Gaming Commission
lllllllllllllllllllll Defendant - Appellee
Flandreau Santee Sioux Tribe
lllllllllllllllllllllIntervenor Defendant - Appellee
____________
Appeal from United States District Court
for the District of South Dakota - Sioux Falls
____________
Submitted: October 20, 2015
Filed: January 29, 2016
____________
Before MURPHY, COLLOTON, and BENTON, Circuit Judges.
____________
BENTON, Circuit Judge.
The National Indian Gaming Commission (“NIGC”) fined Bettor Racing, Inc.
$5 million for violations of the Federal Indian Gaming Regulatory Act. The Act
requires NIGC to approve all contracts for the operation of gaming activities at tribal
casinos. 25 U.S.C. § 2711(a). Contract approval “shall be evidenced by a
Commission document dated and signed by the chairman. No other means of
approval shall be valid.” 25 C.F.R. § 533.1(b). “[T]he regulations mandate that any
management contract that does not receive approval is void, and that any attempted
modification of an approved contract that does not comply with the regulations and
does not receive approval, is also void.” Turn Key Gaming, Inc. v. Oglala Sioux
Tribe, 164 F.3d 1092, 1094 (8th Cir. 1999). The Act further requires tribes to
maintain the “sole proprietary interest” in the gaming activities; management
contractors cannot collect more than 30% (or in some cases 40%) of the net revenues.
§§ 2710(b)(2)(A), 2711(c).
Bettor Racing contracted to operate its pari-mutuel betting business at the
casino of the Flandreau Santee Sioux Tribe. NIGC did not approve the contract until
after Bettor Racing had begun operating at the casino. The parties made two
modifications to the contract, creating a check-swap scheme: Bettor Racing would
pay the full amount due under the initial contract and the Tribe would repay Bettor
Racing with a “bonus.” NIGC approved neither. Under the check-swap scheme,
Bettor Racing received more than 40% of the net revenues.
NIGC sent a “Notice of Violation” to the Tribe and Bettor Racing. The Tribe
settled with NIGC; Bettor Racing did not. NIGC found Bettor Racing had committed
three violations of the Act: (1) managing a tribal gaming operation without an
approved management contract, (2) operating under unapproved modifications, and
(3) holding a proprietary interest in the pari-mutuel betting operation. The Notice
offered Bettor Racing the chance to correct the violations by reimbursing the Tribe
$4,544,755.1 Bettor Racing did not make this payment. NIGC issued a Civil-Fine
Assessment, fining Bettor Racing $5 million for the three violations. Bettor Racing
1
Bettor Racing paid an uncontested $1,081,578 to the tribe, so the total amount
due under the Notice was $3,463,177.
-2-
appealed the Notice and Civil-Fine Assessment. The Office of Hearing Examiners
granted summary judgment to NIGC.
Bettor Racing sought judicial review, arguing NIGC (1) acted arbitrarily and
capriciously in finding the three violations, (2) acted arbitrarily and capriciously and
in violation of the Eighth Amendment in setting the fine, and (3) denied Bettor
Racing due process by making the determinations without holding a hearing. The
Tribe intervened. On cross-motions for summary judgment, the district court2
dismissed the case. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.
I.
This court reviews de novo a district court’s decision on whether an agency
action violates the Administrative Procedure Act. Friends of the Norbeck v. United
States Forest Serv., 661 F.3d 969, 975 (8th Cir. 2011). An agency’s decision is set
aside only if “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with the law.” 5 U.S.C. § 706(2)(A). A decision is arbitrary and
capricious if
the agency has relied on factors which Congress has not
intended it to consider, entirely failed to consider an
important aspect of the problem, offered an explanation for
its decision that runs counter to the evidence before the
agency, or is so implausible that it could not be ascribed to
a difference in view or the product of agency expertise.
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983). This court will not substitute its own judgment so long as the agency has
“examine[d] the relevant data and articulate[d] a satisfactory explanation for its action
2
The Honorable Karen E. Schreier, United States District Judge for the
District of South Dakota.
-3-
including a rational connection between the facts found and the choice made.” Id.
(quotation omitted).
II.
Bettor Racing challenges the three violations, insisting it acted without
requisite scienter because the Tribe represented that NIGC had approved the initial
contract, modifications, and check-swap scheme. Rejecting this argument, NIGC
concluded that scienter “is neither expressly nor impliedly required to establish
wrongful intent or intent to violate the law. In other words, the lack of knowledge
cannot be raised as an affirmative defense.”
NIGC has the authority to “levy and collect appropriate civil fines . . . against
. . . a management contractor engaged in gaming for any violation. . . .” 25 U.S.C.
§ 2713(a)(1) (emphasis added). The Act is silent as to scienter. NIGC’s
interpretation controls unless “arbitrary, capricious, or manifestly contrary to the
statute.” TeamBank, N.A. v. McClure, 279 F.3d 614, 619 (8th Cir. 2002), quoting
Chevron, U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844
(1984).
By the Act’s plain language, no scienter is required to establish a violation
under § 2713. Cf. § 2711(e)(1)(C) (prohibiting NIGC from approving a management
contract if a party has “knowingly and willfully” provided materially important false
statement). Nor is scienter required to justify a fine. See, e.g., Northern Wind, Inc.
v. Daley, 200 F.3d 13, 19 (1st Cir. 1999) (“As a general matter, scienter is not
required to impose civil penalties for regulatory violations when the regulation is
silent as to state of mind.”). Instead, NIGC considers scienter when determining the
seriousness of the violation, and thereby the amount of the fine. 25 C.F.R. § 575.4(d)
(“The Chairman may adjust the amount of a civil fine based on the degree of fault of
the respondent in causing or failing to correct the violation, either through act or
omission.”). This is a permissible construction of the statute. See Chevron, 467 U.S.
at 843.
-4-
Absent a scienter requirement, the undisputed facts establish the violations.
Bettor Racing operated its pari-mutuel betting business at the Tribe’s casino without
an NIGC-approved contract for about six months. During this time, a “consulting
agreement” stated Bettor Racing “will manage the Tribe’s pari-mutuel operation
pursuant to this agreement and not under the management agreement that is currently
under consideration by the National Indian Gaming Commission.” Bettor Racing
and the Tribe twice modified the contract; NIGC approved neither. The
modifications created a check-swap scheme. Bettor Racing paid the Tribe the full
amount due under the original agreement—an amount within the parameters of the
Act. The tribe then immediately paid Bettor Racing a “bonus,” making Bettor
Racing’s share of the net revenues 65% to 78% between 2004 and 2007. See also
City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 830 F. Supp. 2d
712, 723 (D. Minn. 2011), reversed in part on other grounds by City of Duluth v.
Fond du Lac Band of Lake Superior Chippewa, 702 F.3d 1147 (8th Cir. 2013)
(identifying three factors considered by NIGC in determining who has the sole
proprietary interest in a gaming operation: (1) the term of the relationship, (2) the
amount of revenue paid to the third party, and (3) the right of control provided to the
third party over the gaming activity).
These facts support NIGC’s finding that Bettor Racing (1) operated without an
NIGC-approved management contract, (2) operated under two unapproved
modifications, and (3) held the sole proprietary interest in the gaming operations.
The district court did not err in upholding the charged violations.
III.
The Indian Gaming Act authorizes fines of up to $25,000 per violation, per
day. § 2713(a)(1). Here, NIGC imposed a $5 million fine. Bettor Racing argues this
was not only arbitrary and capricious, but also in violation of the Eighth Amendment.
-5-
The NIGC is required to consider five factors in setting a fine for violations of
the Act: (1) economic benefit of noncompliance, (2) seriousness of the violation,
(3) history of violations, (4) negligence or willfulness, and (5) good faith after
notification of the violation. 25 C.F.R. § 575.4. The Eighth Amendment requires a
similar analysis of whether the alleged disproportionality is “excessive.” See United
States v. Dodge Caravan Grand SE/Sport Van, 387 F.3d 758, 763 (8th Cir. 2004).
“[I]f the value of the property forfeited is within or near the permissible range of fines
. . . the forfeiture almost certainly is not excessive.” Id.
NIGC recognized that Bettor Racing has not previously violated the Act.
However, other factors weigh against Bettor Racing. First, Bettor Racing has profited
from the violations by about $4.5 million. Second, the regulations explicitly identify
operating without an approved contract as a “substantial violation[].” 25 C.F.R.
§ 573.4(a)(7). Third, the check-swap scheme violates the Act’s stated policy of
ensuring “that the Indian tribe is the primary beneficiary of the gaming operation” and
protecting gaming “as a means of generating tribal revenue.” 25 U.S.C. § 2702.
Fourth, Bettor Racing did not act with ordinary care in structuring its relationship
with the Tribe. Bettor Racing’s president testified he knew about the statutory limit
on revenue and that the gaming license depended on NIGC’s approval of the
management contract. Fifth, Bettor Racing did not in good faith comply with the
Notice of Violation; it never reimbursed the tribe for the full amount due under the
management contract. Finally, the fine imposed is substantially less than the statutory
maximum.
The district court did not err in finding the fine both reasonable and
constitutional.
IV.
Bettor Racing contends NIGC violated its right to due process when the agency
dismissed the case on summary judgment without a hearing. Whether an agency’s
action violates the constitution is reviewed de novo. Business Commc’ns, Inc. v.
-6-
U.S. Dept. of Educ., 739 F.3d 374, 379 (8th Cir. 2013). “Due process prevents
government actors from depriving persons of liberty or property interests without
providing certain safeguards.” Id., citing Mathews v. Elridge, 424 U.S. 319, 332
(1976). Due process calls only for “protections as the particular situation demands.”
Mathews, 424 U.S. at 334. Due process does not always require “a hearing closely
approximating a judicial trial. . . .” Id. at 333.
This is not a case where “the evidence consists of testimony of individuals
whose memory might be faulty or who, in fact, might be perjurers or persons
motivated by malice, vindictiveness, intolerance, prejudice, or jealousy.” Business
Commc’ns, 739 F.3d at 380 (holding due process required an opportunity for cross-
examination when the decision depended “on the credibility of individual witness
testimony. . . .”). Rather, to reach its conclusion, NIGC relied on undisputed facts,
including the testimony of Bettor Racing’s president. Summary judgment without a
hearing was appropriate.
*******
The district court’s decision is affirmed.
______________________________
-7-