Regulatory Updates

G2E Roundtable: Department of Justice Proposes Legislation That Could Alter the Landscape of Indian Gaming

by AJ Naff, Editor
Indian Gaming Magazine

What was originally planned as a roundtable discussion on the differences between Class II and Class III gaming resulted in a panel discussion of proposed legislation by the Department of Justice to clearly define the distinctions between Class II and Class III gaming machines. According to U.S. Attorney Thomas Heffelfinger, who participated in the panel, this legislation is intended to clearly define the legal parameters surrounding Class II gaming machines. While the legislation itself has yet to be circulated, it was met with speculation.

The Johnson Act, which was passed in 1951 to curtail illegal gaming operations, was amended in 1962 to broaden the definition of gambling devices and also specifically provided that gambling devices were not allowed in Indian Country. In 1988, the Indian Gaming Regulatory Act (IGRA) was enacted.

According to Phil Hogen, Chairman of the NIGC and panel member, IGRA specifically mentions the provisions in the Johnson Act forbidding gaming machines in Indian Country, stating that those provisions don't apply in cases of Class III gaming compacts. What wasn't made clear in IGRA, however, was the difference between those prohibited devices without a Class III compact and the devices allowed for Class II. An increased use of technology in Indian Country led to litigation and a series of cases were decided, ultimately resulting in Congress stating that Indian Country was allowed to use gaming devices for Class II without a gaming compact. The Department of Justice, advancing the Johnson Act, sat on the other side of the majority of those cases.

According to Hogen, the NIGC has the responsibility to set the guidelines for Class II and Class III distinctions and see to it those guidelines are followed. Instances have occurred, however, where tribes were using what were clearly Class III devices without a compact, resulting in closures and fines in excess of millions of dollars. These occurrences occupied a great deal of the NIGC's time and resources, which are ultimately the Indians' resources.

The NIGC Advisory Committee reviews games from vendors to determine their status as either Class II or Class III. For the most part, said Hogen, this committee was met with cooperation and was fairly successful. When the new commission came on board, said Hogen, it was right in the middle of several of these assessments. There were two opinions on the classification of these machines that required a lot of dialogue to resolve. According to Hogen, distinctions related to two games that were released in September of 2003 set forth with unprecedented clarity distinctions between Class II and Class III.

Still finding the process of clarifying these distinctions painstakingly slow, the NIGC asked tribes to nominate members to a Tribal Advisory Committee and received outstanding response and commitment. “The best minds that are out there in Indian gaming,” said Hogen, “told us of the
practical kinds of things we needed to have in mind as we wrote these regulations. Those drafts were far superior with their assistance than they would have been without them.” When the NIGC began the process of drafting distinctions between Class II and Class III, among those informed of the progress was the Attorney General, to whom the NIGC looked for clarification on a number of cases dealing specifically with the Johnson Act.

As the NIGC prepared to make a proposed rule to the Federal Registrar they received a letter from the Department of Justice. The letter informed the NIGC that if they moved forward with their proposed regulations they would be in violation of the Johnson Act. The NIGC stood down. This incident was discussed at a recent oversight hearing with the Senate on Indian Affairs Committee. The NIGC told the committee it required clarity and explained the process with which they were attempting to achieve it. The NIGC then conferred with the Department of Justice to resolve the issue. According to Hogen, nobody knows with any specificity how much of this multi-billion dollar industry is comprised of Class II and how much is comprised of Class III. “We are very eager to get this process completed,” said Hogen, “and for the process to be completed we need to reconcile the Johnson Act with the Indian Gaming Regulatory Act.”

Thomas Heffelfinger, United States Attorney for the District of Minnesota, then explained the position of the Department of Justice. “I am here today,” Heffelfinger stated, “to give you the outline for this legislative effort and to layout for you the process that we will follow to solicit direct input from anyone who has an interest in this.”

In the Department of Justice's view, defining the clarity between Class II and Class III machines is fundamental to the legislative solution. “Congress intended there to be a clear, bright-line distinction between what is a Class II gaming device and what is a Class III gaming device,” said Heffelfinger. This need for clarity, according to the U.S. Attorney, arises not only from IGRA but also from the
Johnson Act.

According to the Department of Justice, the Johnson Act is a federal statute concerning the manufacture, transport, repair, reconditioning and use of gambling devices. Section 1175 of the Johnson Act, according to Heffelfinger, specifically prohibits the manufacture, repair, sale, transport, possession or use of gambling devices in Indian Country. The Department of Justice does acknowledge, however, that IGRA does permit Class III machines pursuant with state compacts.

According to Heffelfinger, IGRA established that Class II gaming doesn't require a compact with the state. “But,” stated Heffelfinger, “the Indian Gaming Regulatory Act did not provide for an express and clear exemption over the Johnson Act from the use of gambling devices as technological aids to Class II gaming in Indian Country.” According to Heffelfinger, it is therefore the fact that the gambling devices were handled differently within IGRA as it applies to the Johnson Act that has led to a lot of the litigation to which Chairman Hogen eluded.

The courts of appeals, continued Heffelfinger, forced to address this issue, have split in their decisions as to whether there is an implied repeal of the Johnson Act that would permit the use of Class II devices in Indian Country. “It is the Department of Justice's position, and has been for a lot longer than I've been a U.S. Attorney,” continued Heffelfinger, “that IGRA did not intend to repeal the Johnson Act with respect to Class II gaming.”

The split decisions from the courts, according to Heffelfinger, have led to confusion as to what is legal and illegal. “Each new machine, each new technological advancement now exists in an aura of uncertainty,” said Heffelfinger. “There is a great need for clarity, for clarifying what constitutes a Class II gaming device under IGRA.” Heffelfinger went on to state that due to advances in technology, it is possible that a device can fall within the legal boundaries of both the Johnson Act and IGRA.
According to Heffelfinger, the purpose of the legislation presented by the Department of Justice is to resolve the confusion and uncertainty surrounding Class II and Class III distinctions and to allow the use of gaming devices in Indian Country for use as technological aids in Class II gaming under certain circumstances. “This is provided in the proposed statute,” said Heffelfinger, “by providing an exemption in the Johnson Act that sets forth these specific requirements that must be met in order for the device to qualify for that exemption.”

In the view of the Department of Justice, with the passage of this legislation the NIGC will be in a position to issue much-needed classification regulations in a manner that will comply with the law and implement the law. It is also the position of the Department of Justice that with this legislation, the parameters of legal Class II gaming will be clearly defined, which will allow tribes and developers to offer clearly legal games. “As I said,” stated Heffelfinger, “this clarity is needed because the line between Class II and Class III has been blurred by technological advancements, which have resulted in faster play, and Class II machines very closely resemble Class III slot machines.”

Once the panel concluded, the floor was opened up to questions. Attorney Elizabeth Homer began, “ I haven't seen the legislation, obviously none of us has, but it just surprises me that there does at least sound like, from what you've described, a much greater DOJ presence over the rule-making and the other activities of the NIGC, which was intended and created to be an independent regulatory agency of the United States.”

Heffelfinger responded by saying the Department of Justice has a lot of confidence in the NIGC, but restated the DOJ's obligation to enforce provisions of the Johnson Act, which was in existence prior to IGRA. “The challenge is,” stated Heffelfinger, “our ability to perform our responsibilities because of lack of a clear distinction between Class II and Class III. Our attempt here, and we think
legislation is the best way to resolve this, is to provide that clear distinction.”

This issue, far from a conclusion, carries with it serious consequences for the Indian gaming industry. As the legislation is disseminated throughout Indian Country in the coming months, a clearer picture of those consequences will unfold.

Since this panel convened, the Department of Justice has posted its proposed amendments at www.usdoj.gov/otj/johnson.html