Regulatory Updates

Can Department of Justice Pull Plug on Class II Gaming?

Judith Shapiro
Judith Shapiro

by Judith Shapiro, Attorney at Law

For years before the Indian Gaming Regulatory Act (IGRA), the Johnson Act prohibited the manufacture, repair, sale, transportation, possession or use of any gambling device within Indian Country, with the United States Department of Justice (DOJ) as sole enforcement authority. States could legalize
gaming within their borders, but tribes could not. More than a quarter century later, in IGRA, the United States Congress acknowledged tribal sovereignty over gaming, but created classes of gaming with differing restrictions: Class III only with a compact, and subject to some State regulation, and Class II without a compact, tribally regulated, and subject to the oversight of a newly created agency, the National Indian Gaming Commission (NIGC). IGRA exempted compacted Class III devices from the Johnson Act, and expressly authorized Class II technological aids, but without reference to the Johnson Act. Over time, electronic player stations began to appear at Class II gaming facilities.

The Department of Justice now wants to change the rules. It has announced a legislative proposal that would reestablish an expanded Johnson Act as the primary statute regulating Class II technological aids, and would establish the DOJ as the primary enforcer of such Class II gaming.

Implementation of the IGRA has never been smooth. After the United States Supreme Court determined tribes could not sue states to enforce good faith Class III compacting, Class II gaming became a refuge, with technological development straining to bridge the economic gap. As it promulgated and then revised definitional regulations, the NIGC struggled to provide meaningful criteria on permissible Class II gaming through a series of "Advisory Opinions" on specific games. At times contradictory, and although defined as "non-binding," these, along with judicial opinions upholding certain other games, have been the primary guidance available to the industry.

For many years, the NIGC and the courts have agreed that a game could still be Class II even though it had been made more interesting, and therefore more profitable, through an "entertaining display" of the outcome of a game of bingo or pull tabs. For a Class II gaming hall, the most profitable entertainment involved something that looked like spinning reels, and thus gave the appearance, if not the reality, of playing at something other than bingo. This illusion did not change the central fact that bingo balls were drawn, matching designations daubed, and a winning outcome determined by achieving predesignated patterns, just as in paper bingo. But those displays are now threatened.
For years, the Justice Department has been fighting to obtain control of Class II gaming, and for years it has been losing that battle in the courts. In response to those cases, and recognizing the need for orderly classification, the NIGC recently produced five successive drafts of proposed regulations for classifying the essential elements of a permissible Class II technological aid. The DOJ now proposes to pre-empt that process, which included months of struggle with a Tribal Advisory Committee and masses of comments from potentially affected parties. While tribal critics expressed many objections to the NIGC draft regulations, the DOJ proposal is even more repressive. If enacted as drafted, it would substantially eliminate the use of technological aids to Class II gaming.

DOJ is now asking Congress to do what the courts would not – to give it veto power over Class II gaming. Rather than simply "clarifying" lines drawn by the IGRA, the DOJ proposes to amend the Johnson Act so as to recreate and expand a blanket prohibition on "gambling devices" in Indian Country. The amendments would retain the exemption for Class III gaming under a compact or procedures under IGRA § 2710, but would specifically outlaw all other devices except for those meeting a very limited exception for certain Class II aids. The first three elements of the exception, apparently based on NIGC precedent, would permit bingo-type games only so long as the game was between multiple players, actively participating, with outcome based solely on the bingo game. Those limitations are already met by Class II technological aids in use in Indian Country. The fourth element, however, is guided by the DOJ's stated opposition to any Class II game that is too "fast or lucrative." It requires that any game be "readily distinguishable" from Class II games based on players' interaction and game appearance, including game speed graphics. This provision alone threatens to shut down most of Class II gaming not conducted on paper. The DOJ proposal appears to prohibit a game that looks or feels like a Class III game: it would ban the entertaining facade, no matter how irrelevant to game outcome.

Other provisions work additional harm by prohibiting operation of games that do not themselves create random events, but link to others that do (DOJ's proposed definition of "element of chance"). This additional detail is apparently intended to preclude operation of terminals -such as pull-tab readers-that do not themselves incorporate chance events. DOJ would now ask Congress to prohibit the operation of a gambling device that does not itself provide any gambling event, but is connected to something that does.

DOJ also proposes to limit the number of games played through technological aids. More severely than the NIGC draft regulations, the proposal starkly redefines "bingo" as including lotto and "games similar to bingo," making all subject to the same defining characteristics - collapsing IGRA's separate enumeration of these distinct games into one limited version. This pinched definition would eliminate arguments for instant bingo, bonanza bingo, and the other variations available in paper form since before IGRA was enacted. Other elements of the proposal expressly require pull tab readers to read only "tangible" pull-tabs (no electronic deals) and would bar them from paying players' winnings - presumably requiring players to redeem individual pull tabs at cashier stations, and vastly slowing down play.

DOJ would also take over enforcement. While IGRA confers civil regulatory authority over Class II gaming on the NIGC, DOJ would assume power to impose criminal penalties, including fines and jail time, and targets would extend beyond Indian Country to outside vendors. The NIGC would be required to promulgate regulations to implement the new Johnson Act restrictions, but those regulations would require the concurrence of the Justice Department. Little would remain of the NIGC's ability to regulate based on the agency's expertise in the Indian Gaming Act. Class II gaming, delineated by DOJ controlled exceptions, would be a small island surrounded by crime patrols.

DOJ's proposal, unveiled at Las Vegas international gaming show, has now been distributed for comment and at least minimal consultation with Indian Country. Consultation sessions have been set in conjunction with upcoming NCAI and NIGA meetings. Unless it is significantly amended, the proposal will not, as DOJ insists, merely "clarify" the distinction between Class II and Class III gaming, but will eliminate any meaningful economic development opportunity without either a compact or Secretarial Procedures.

DOJ's proposal is not yet before Congress. The coming debate must resolve the proper role of the agencies, the proper limits of Class II gaming, and, ultimately, whether a dauber will be the last remaining technological aid to the play of bingo.

Judith Shapiro is a Washington, D.C. lawyer specializing in Indian law. She can be reached by calling (202) 723-6400 or email jshapirolaw@earthlink.net