Background & Facts
The Rincon Band sought to negotiate a new gaming compact with California under IGRA. Governor Schwarzenegger demanded that the Rincon Band agree to share a significant portion of its gaming revenue with the state as a condition of the compact. The revenue-sharing demand was essentially a tax on tribal gaming revenue — something IGRA does not authorize.
The Rincon Band argued that California's demand for revenue sharing constituted bad-faith negotiation under IGRA. IGRA permits states to negotiate for payments that are "directly related to the operation of gaming activities" — but not general revenue taxes disguised as compact terms.
The Ninth Circuit agreed with the tribe.
The Court's Holding
The Ninth Circuit held that California's demand for revenue sharing — a percentage of gaming revenue paid to the state's general fund — constituted bad-faith negotiation under IGRA. Revenue-sharing demands that function as a tax on tribal gaming revenue are not "directly related to the operation of gaming activities" and exceed the scope of permissible compact negotiation.
Key Holding:
California cannot demand revenue sharing as a condition of gaming compact negotiation. Revenue-sharing demands that function as a tax on tribal gaming are bad faith under IGRA. States may negotiate for costs "directly related to the operation of gaming" (regulation, law enforcement) but cannot demand a cut of revenue for the state's general fund.
Key Language
"A state's demand for a share of gaming revenue as a condition of negotiating a compact amounts to a tax on the tribe. IGRA expressly does not authorize state taxation of Indian gaming."
"The State may seek reimbursement for costs directly related to gaming regulation and public safety — but it may not use the compact process to extract revenue for the state treasury."
How This Case Supports ATN's Negotiating Position
Rincon Band limits California's leverage in any negotiations with ATN.
- 1. No revenue sharing demands. If California tries to demand a cut of ATN's cannabis licensing revenue as a condition of any tribal-state agreement, Rincon Band is the direct authority that such demands constitute bad faith.
- 2. Cannabis compact framework. If tribal cannabis evolves toward a compact model (similar to gaming), Rincon Band ensures California cannot use the compact process to extract revenue taxes from ATN's cannabis operations.
- 3. Binding 9th Circuit law. This is binding precedent for ATN's Mendocino Reservation — California courts and agencies must follow it.
- 4. Pairs with Big Lagoon. Together, Rincon Band (no revenue sharing) and Big Lagoon (must negotiate in good faith) define the boundaries of California's negotiating authority with Northern California tribes.
Related Cases
- Big Lagoon Rancheria v. California (2015) — California must negotiate in good faith
- Seminole Tribe v. Florida (1996) — IGRA enforcement and state sovereign immunity
- California v. Cabazon Band (1987) — Pre-IGRA framework for tribal gaming
- Bryan v. Itasca County (1976) — P.L. 280 grants no taxing authority
- Merrion v. Jicarilla Apache (1982) — Tribal taxing power is inherent; state has none