Regulatory Updates

Playing With the Rules - Class II Reduced

Judith Shapiro
Judith Shapiro

by Judith Shapiro, Attorney at Law

The United States Department of Justice (DOJ) and the National Indian Gaming Commission (NIGC) have taken their struggle for the soul of Class II technological aids out of the back rooms and into the glare of governmental process. After more than a year of delay, the NIGC, on May 25, 2006, published its proposed rule governing the classification standards for Class II games when played through an electronic medium using "Electronic, Computer or other Technologic Aids," 71 Fed. Reg. 30238 (May 25, 2006). (On the same date, the NIGC proposed another rule defining as a facsimile any game of bingo, or similar to bingo, that incorporates all fundamental characteristics of the game into an electronic format. If complied with, the classification rules would provide an exemption to permit non-compact operation of such games.)

Two weeks later, on June 7, 2006, the DOJ forwarded its own Class II technological aid language to Congress for the purpose of amending the Johnson Act. DOJ seeks a requirement that Class II technological aids be operated only pursuant to a compact or compliance with NIGC regulations designed to "maintain a distinction" between Class II and Class III "gambling devices." The two proposals are the product of considerable mutual influence between the agencies, and, to some extent, of the strong comments of interested tribes. In the end, it is the tribes that may be most displeased with the result.

The current DOJ proposal to Congress retreats from last fall's detailed attempt to redefine and classify Class II technologic aids. It no longer asserts the right to oversee NIGC regulation, nor does this version of the Johnson Act amendment purport to specifically amend Class II gaming definitions. Instead, the proposed amendment would overrule the many significant court losses DOJ has suffered in attempting to exercise Johnson Act domination over Class II gaming. The proposal would govern Class II
technological aids under the Johnson Act, and subject them to criminal sanction unless authorized by compact or by NIGC regulation. The NIGC would be ordered to establish regulations that require Class II games to be distinct in structure, play, and appearance from Class III devices. The NIGC's proposed regulations appear to obey that command.

The proposed rule will not surprise those who have followed the past two years of the NIGC's progress towards classification. The newest draft succeeds in imposing even more restrictions than those developed in the first five drafts circulated for public comment. On the whole, the NIGC has opted to repudiate its own 2002 regulations in favor of an approach that eliminates most variants of bingo, slows the play of those that remain, and prevents any meaningful electronic play of pull tabs. If the regulations are adopted as proposed, tribes should be concerned about the commercial viability of Class II gaming. As a further implication, tribes unable to achieve good faith compact negotiations for new, renewed, or expanded compacts will lose alternatives and leverage in those negotiations.

The NIGC rulemaking includes a lengthy preamble attempting to justify the Commission's constricted view of Class II gaming in an electronic environment. The preamble mentions earlier court cases evaluating challenges to Class II aids, but applies only selective aspects of relevant case precedent. For example, the rules incorporate the conclusion of early pull tab cases that all-electronic pull tabs are Class III "facsimiles" and prohibited, even though the original reasoning may no longer be valid. But the regulations would impose additional restrictions and have no such case precedent. Under the proposal, for example, the player terminal may neither accumulate credits nor award cash. A player must, therefore, redeem any pull-tab winnings through a clerk or kiosk, and cannot merely transfer credit between machines. Without legal basis, this restriction greatly hinders player flexibility and use of current cashless technology.

Classic Bingo, Not Nostalgic
Court precedents on bingo are also treated selectively, in general and in particular.

"Whatever a nostalgic inquiry into the vital characteristics of the game as it was played in our childhood or home towns might discover, IGRA's three explicit criteria constitute the sole legal requirements of the game to count as Class II bingo."

So said the Ninth Circuit in approving Megamania. After quoting that language, the Commission sets forth a modification that sidesteps the Ninth Circuit's admonishment and rejects earlier NIGC rules, by requiring the play of "classic," if not "nostalgic," bingo. The Commission notes that the IGRA's "three simple statutory criteria" are being blurred by technological advances - and proceeds to draw new and different lines, with multiple new criteria governing the play of the game of bingo, if through a
technologic aid. With those additional criteria, games of bingo and those similar to bingo will have fewer variations than those played on paper at the time IGRA was enacted, even if those might still be permitted as paper games.

The NIGC's first cut is to eliminate virtually all games that Congress might have allowed as "similar to bingo." The execution takes several steps:

1) The "Classic" bingo card must consists of a five by five grid (25 spaces), reflecting a ball draw numbered from 1 through 75. (One free space is permissible.)

2) A game similar to bingo reflects the only permissible variation in card size (minimum of three spaces) and size of ball draw (less than 75). (One free space is permissible, so long as there are a minimum of three others.)

3) All other game play criteria (and there are many new rules) apply equally to bingo and similar to bingo games.

The game play provisions then impose further limitations and greatly slow the play of the game. First, the Commission forbids "pre-drawn" balls, thereby banning the electronic play of "Bonanza Bingo," even as a game similar to bingo. The proposed rule adds more and longer time periods to the play of the bingo game, enshrining the "classic bingo" time lapse. For example, games may not begin before two seconds elapse or six players enroll. There must be multiple ball releases; the releases may not be instantaneous, and each release must take two seconds. Players must daub after the conclusion of each release (auto-daub is not permitted), with a full two seconds of daub time before the next release is permitted. Bonus prizes are permitted, but additional (two second) releases and (two second) daubs may be required. When the dust of departing players clears, each game cycle will have taken at least 10 seconds.

Playing with Appearances - This is Not a Slot
DOJ's Johnson act amendment would require the NIGC to adopt regulations that maintain a distinction between Class II technological aids and Class III devices "based upon internal and external characteristics of the gambling devices and the manner in which the games utilizing such gambling devices are played." The internal characteristics of Class II devices have always been different from
slot machines, in that results are determined by player competition in a game of bingo or pull tabs, rather than individual play against a slot machine's random number generator. And the NIGC has long required more player interaction in Class II than is customarily expected of slot players. But because appearances now control in place of technological or legal criteria, the proposed rule adds two new requirements: while the results of the bingo or pull-tab game may be presented through an alternative display (spinning reels, etc.), that alternative may consume no more than 49% of the game's display space. To further ensure distinctiveness to the casual eye, the NIGC would also require a player terminal to display the following legend, in two-inch letters: "THIS IS A GAME OF BINGO," "THIS IS A GAME SIMILAR TO BINGO," or "THIS IS A GAME OF PULLTABS."

The proposed rule would give tribes little recourse. Independent gaming laboratories, as licensed by the Commission, would certify games as complying with the regulations. With minimal "grandfathering," tribes would be permitted to place and operate only such certified games. Few, if any, existing games would comply, even those already approved by courts or by the NIGC itself. Only the NIGC Chairman may object to a classification decision. Tribes have no such option, except in defense of an enforcement action. Laboratories must be approved annually, and may lose that approval if the NIGC is dissatisfied with their certification decisions.

Implementing the DOJ's mandate would undercut the congressional intent in the IGRA to give tribes "maximum flexibility" in the use of new technology as a tool for economic self determination. There is no basis in the law for elevating a simplistic label requirement to equal importance with the established distinctions of game logic, player competition, and player interaction. Taken together, the NIGC and DOJ proposals defeat provisions in the IGRA that authorize Class II games to be played with technological aids. Even if the DOJ proposal is not enacted, the NIGC's rule would accomplish the ironic result of overturning favorable case law and construing all ambiguities against tribal interests, writing entire categories of games and game play out of a statute enacted to preserve and protect tribal sovereign gaming rights.

The NIGC proposes to conduct a series of tribal consultations, and will accept public comment through August 23, 2006. Tribes should be heard.

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