Tens of millions at stake in spat between Duluth, casino

A long-running and contentious dispute between the city of Duluth and the Fond du Lac Band of Lake Superior Chippewa is back in federal court, where a judge could determine if a revenue-sharing agreement is legal.

The legal battle is over tens of millions of dollars in casino revenue the Band once agreed to share with the financially struggling city.

In a one-of-a-kind arrangement in 1994, the downtown casino signed a contract that gives Duluth 19 percent of gross revenue from slot machines — about $6 million a year. City officials use the money to maintain city streets.

Fond du Lac Chairwoman Karen Diver said the city has received way too much, and the Band doesn't owe it a penny more.

"To date the city has gotten over $80 million," she said. "I would think that the tab is clear."

When expenses are factored in, the city's take amounts to about a third of the casino's total revenue.

Duluth's cut is significantly larger than most other deals in the country, and no other casino in Minnesota shares revenue with a local government.

But the circumstances are also unique. When the Fond-du-Luth casino opened, there was not yet a federal law governing Indian gaming.

Duluth Mayor Don Ness said the federal government never would have allowed it to open without the city's support.

"It hadn't happened in any other city, and Duluth was the first one and at a time when the federal government wasn't necessarily in favor of those sorts of arrangements," Ness aid. "Yet it happened in Duluth because the band and the city were working together advocating for it to happen."

Now the former partners are warring over the money. In 2009 the Band reduced its rent payment to the city, citing an accounting change. The city sued. Then, under a new tribal council, the Band stopped paying the city altogether.

Last year, U.S. District Court Judge Richard Nelson ruled against the Band, and told the tribe it must follow the terms of the contract.

So, last month the two sides met to negotiate a second 25-year revenue-sharing agreement.

"It was going well," Ness said. "Finally, a light at the end of the tunnel."

Then, in July, a bombshell from federal regulators arrived in the city's fax machine. The National Indian Gaming Commission said the contract was too generous to Duluth, and gave the city too much authority over the casino's operations.

Diver said that left the Band caught between the court and the commission and their two opposing rulings. The Band is asking the court to reopen the initial agreement between the two parties, so that it can be revised to comply with federal law.

Duluth city attorney Gunnar Johnson said the gaming commission's opinion does not trump the federal courts, which have consistently ruled in favor of the city.

"It's a political agency in Washington, and admittedly even by the opposing counsel, that represents the Band, it's not a fair process for a non-Indian group like the city," Johnson said. He said the commission "is stacked in favor of a Band."

The city also argues that the Band violated a non-abrogation clause in the contract, by actively soliciting an opinion from the National Indian Gaming Commission.

At stake for the city is nearly $11 million in unpaid rent from the past two years. The city also stands to potentially gain millions more in a second 25-year agreement.

Ness said the two sides should work together to increase revenue for both of them.

"Let's focus our energies working together so that the pie can grow by 50 percent and then we don't need to have this argument based on the status quo," he said.

But Diver, the Fond du Lac chairwoman, is smarting over local criticism that the Band is greedy. She said the casino employs about 300 people, two-thirds of whom are not Indians.

"People didn't like tribes when they were poor, and they relied on services," she said. "Now finally tribes have some means to address their own needs, and people don't seem to like that either."

The law appears to be on the Band's side, said Steve Light, who co-directs the Institute for the Study of Tribal Gaming Law and Policy at the University of North Dakota.

"The original intent under the Indian Gaming Regulatory Act was to ensure that tribes are the sole and primary interest that benefit from gaming — not cities, not states, and not the federal government," Light said. "So it all starts with tribes."

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