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Pueblo of Isleta v. Grisham

United States District Court, D. New Mexico

March 30, 2019

PUEBLO OF ISLETA et al., Plaintiffs,
v.
MICHELLE LUJAN GRISHAM [1] et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          KIRTAN KHALSA UNITED STATES MAGISTRATE JUDGE.

         THIS MATTER is before the Court on: (1) Defendants' Motion for Summary Judgment on the Issue of Arbitrability (Doc. 55) (“Defendants' Summary Judgment Motion”), filed January 4, 2018; (2) Plaintiffs-in-Intervention Santa Ana, Santa Clara and San Felipe's and Plaintiff Tesuque's Motion for Summary Judgment (Doc. 67), and Plaintiffs Pueblo of Isleta's and Pueblo of Sandia's Motion for Summary Judgment and Supporting Authorities (Doc. 68) (collectively, “Pueblos' Summary Judgment Motions”), both filed April 10, 2018; (3) Defendants' Motion to Compel Discovery and for Sanctions (Doc. 81) (“Defendants' Motion to Compel”), filed June 8, 2018; (4) Plaintiffs' and Plaintiffs-in-Intervention's Consolidated Motion for Protective Order to Quash Defendants' Rule 30(b)(6) Deposition Notices (Doc. 84) (“Pueblos' Motion for Protective Order”), filed June 20, 2018; and (5) Defendants' Motion for Settlement Conference Pursuant to Rule 16 (Doc. 102) (“Defendants' Motion for Settlement Conference”), filed October 3, 2018.[2]

         Having reviewed the parties' submissions, the record, and the relevant law, and for the reasons set forth below, the Court finds that: (1) Defendants' Summary Judgment Motion should be DENIED; (2) the Pueblos' Summary Judgment Motions should be GRANTED; and, (3) Defendants' Motion to Compel, the Pueblos' Motion for Protective Order, and Defendants' Motion for Settlement Conference should be DENIED AS MOOT.

         I. INTRODUCTION

         Plaintiffs the Pueblos of Isleta, Sandia, and Tesuque, and Plaintiffs-in-Intervention the Pueblos of Santa Ana, Santa Clara, and San Felipe (collectively, “the Pueblos”), are six (6) federally recognized Indian tribes that operate casinos in New Mexico pursuant to identical gaming compacts with the State of New Mexico (“the State”). (Doc. 67-1 at 6; Doc. 68 at 10; Doc. 99 at 6-7.) Defendants are the State Governor, the State Gaming Representative, and the Chair and members of the State Gaming Control Board (“NMGCB”) in their official capacities. (Doc. 67-1 at 6-7; Doc. 68 at 10; Doc. 99 at 6-7.) The Pueblos and the State entered into gaming compacts in 2007 (“2007 Compacts”), and again in 2015 and 2016 (“2015 Compacts”). Inter alia, the compacts require the Pueblos to make quarterly revenue sharing payments to the State, in exchange for the Pueblos' nearly exclusive right to conduct certain kinds of gaming in New Mexico. (Doc. 67-3 at 20; Doc. 68-3 at 27.)

         In 2017, Defendants sent the Pueblos notices of non-compliance and notices to cease conduct, asserting that the Pueblos had miscalculated their revenue sharing obligations under the 2007 Compacts beginning as early as April 2011. (See, e.g., Docs. 1-8, 1-9, 1-10.) Specifically, Defendants claimed that, in calculating their revenue sharing payments, the Pueblos had improperly excluded the face value of free play and deducted the value of prizes won by patrons as a result of free play wagers from their Class III gaming machines' “Net Win.”[3] (Id.) Pursuant to the 2015 Compacts, which preserved Defendants' claims, Defendants instructed the Pueblos to make additional revenue sharing payments to the State under the 2007 Compacts. (Id.)

         The Pueblos of Isleta, Sandia, and Tesuque filed this civil action on June 19, 2017 in response to Defendants' notices. (Doc. 1.) The Pueblos of Santa Ana and Santa Clara intervened on June 29, 2017, and the Pueblo of San Felipe intervened on August 31, 2017. (Docs. 11, 36.) In their complaints, the Pueblos ask the Court for a judgment declaring that: (1) Defendants' claims pursuant to the 2015 Compacts for additional revenue sharing payments under the 2007 Compacts[4]violate federal law, and the 2015 Compacts are therefore invalid and ineffective to preserve Defendants' unlawful claims, (Doc. 1 at 32-33); (2) neither the Pueblos' claims in this lawsuit nor Defendants' claims for additional revenue sharing payments are subject to arbitration under the 2015 Compacts, (id. at 33); and, (3) Defendants have no authority as a matter of federal law to pursue their claims for additional revenue sharing payments against the Pueblos. (Doc. 11 at 12; Doc. 36 at 12.) The Pueblos further ask the Court to enjoin Defendants from: (1) continuing to violate federal law by seeking to impose a tax, fee, charge, or other assessment on the Pueblos in the guise of asserting claims for additional revenue sharing payments under the 2007 and 2015 Compacts, (Doc. 1 at 34); (2) continuing their efforts to arbitrate the dispute over their claims that free play must be treated as revenue under the 2015 or 2007 Compacts, (id.); and, (3) taking any other action to attempt to enforce their unlawful claims against the Pueblos. (Doc. 11 at 12; Doc. 36 at 12); see Muscogee (Creek) Nation v. Pruitt, 669 F.3d 1159, 1166 (10th Cir. 2012) (“[U]nder Ex Parte Young, [209 U.S. 123 (1908)], a plaintiff may bring suit against individual state officers acting in their official capacities if the complaint alleges an ongoing violation of federal law and the plaintiff seeks prospective relief.”).

         II. FACTS [5]

         The Pueblos and the State entered into the 2007 Compacts pursuant to the Indian Gaming Regulatory Act (“IGRA”), 25 U.S.C. §§ 2701 et seq. (Doc. 55 at 3; Doc. 67-1 at 6; Doc. 68 at 12; Doc. 99 at 6-7, 10). Additionally, the State executed the 2007 Compacts pursuant to the New Mexico Compact Negotiation Act, N.M. Stat. Ann. §§ 11-13A-1 et seq., which provides that the Governor will approve and sign compacts “identical to a compact . . . previously approved by the legislature except for the name of the compacting tribe[.]” N.M. Stat. Ann. § 11-13A-4(J); (Doc. 68 at 12 n.6). Thus, the terms of each of the 2007 Compacts are identical except for the Pueblos' names. (Doc. 55 at 3; Doc. 67-1 at 7; Doc. 68 at 12 n.6; Doc. 99 at 6-7.)

         The 2007 Compacts authorized the Pueblos to conduct “any or all forms of Class III Gaming” on Indian Lands in New Mexico and to establish the “betting and pot limits, applicable to such gaming.” (Doc. 67-3 at 8; Doc. 68 at 7, 12; Doc. 68-2; Doc. 99 at 7.) Authorized forms of Class III gaming included gaming machines played “upon insertion of a coin, token or similar object, or upon payment of any consideration in any manner.” (Doc. 67-3 at 3-4; Doc. 68 at 12-13; Doc. 99 at 7.)

Subsection 4(C) of the 2007 Compacts provided in pertinent part:
Audit and Financial Statements. The Tribal Gaming Agency shall require all books and records relating to Class III Gaming to be maintained in accordance with generally accepted accounting principles. . . . Not less than annually, the Tribal Gaming Agency shall require an audit and a certified financial statement covering all financial activities of the Gaming Enterprise, including written verification of the accuracy of the quarterly Net Win calculation, by an independent certified public accountant licensed by the State. The financial statement shall be prepared in accordance with generally accepted accounting principles and shall specify the total amount wagered in Class III Gaming on all Gaming Machines at the Tribe's Gaming Facility for purposes of calculating “Net Win” under Section 11 of this Compact using the format specified therein.

(Doc. 1-2 at 10; Doc. 68-2 at 10; Doc. 67-3 at 9; Doc. 99 at 6-7.)[6]

         Section 7 of the 2007 Compacts pertaining to “Dispute Resolution” provided in relevant part:

A. In the event either party believes that the other party has failed to comply with or has otherwise breached any provision of this Compact, such party may invoke the following procedure:
1. The party asserting noncompliance shall serve written notice on the other party. The notice shall identify the specific Compact provision believed to have been violated and shall specify the factual and legal basis for the allegation of noncompliance[.]
2. In the event an allegation by the complaining party is not resolved to the satisfaction of such party within twenty (20) days after service of the notice set forth in Paragraph A(1) of this section, the complaining party may serve upon the other party a notice to cease conduct of the particular game(s) or activities alleged by the complaining party to be in noncompliance. Upon receipt of such notice, the responding party may elect to stop the game(s) or activities specified in the notice or invoke arbitration and continue the game(s) or activities pending the results of arbitration. The responding party shall act upon one of the foregoing options within ten (10) days of receipt of notice from the complaining party, unless the parties agree to a longer period, but if the responding party takes neither action within such period the complaining party may invoke arbitration by written notice to the responding party within ten (10) days of the end of such period.
3. The arbitrators shall be attorneys who are licensed members in good standing of the State Bar of New Mexico or of the bar of another state. . . . The arbitrators . . . shall permit the parties to engage in reasonable discovery, and shall establish other procedures to ensure a full, fair and expeditious hearing on the matters at issue. . . . The arbitrators shall make determinations as to each issue presented by the parties, but the arbitrators shall have no authority to determine any question as to the validity or effectiveness of this Compact or of any provision hereof.
4. All parties shall bear their own costs of arbitration and attorneys' fees.
5. The results of arbitration shall be final and binding, and shall be enforceable by an action for injunctive or mandatory injunctive relief against the State and the Tribe in any court of competent jurisdiction. For purposes of any such action, the State and the Tribe acknowledge that any action or failure to act on the part of any agent or employee of the State or the Tribe, contrary to a decision of the arbitrators in an arbitration proceeding conducted under the provisions of this section, occurring after such decision, shall be wholly unauthorized and ultra vires acts, not protected by the sovereign immunity of the State or the Tribe.
B. Nothing in Subsection 7(A) shall be construed to waive, limit or restrict any remedy that is otherwise available to either party to enforce or resolve disputes concerning the provisions of this Compact. Nothing in this Section shall be deemed a waiver of the Tribe's sovereign immunity. Nothing in this Section shall be deemed a waiver of the State's sovereign immunity.

(Doc. 67-3 at 15-16.)

         Section 11 of the 2007 Compacts, entitled “Revenue Sharing, ” provided in pertinent part:

A. Consideration. The Tribe shall pay to the State a portion of its Class III Gaming revenues identified in and under procedures of this Section, in return for which the State agrees that the Tribe has the exclusive right within the State to conduct all types of Class III Gaming described in this Compact, with the sole exception of the use of Gaming Machines, which the State may permit on a limited basis for racetracks and for veterans' and fraternal organizations . . . .
B. Revenue to State. The parties agree that . . . the Tribe shall make the quarterly payments provided for in Paragraph C of this Section. Each payment shall be made to the State Treasurer for deposit into the General Fund of the State.
C. Calculation of Payment Amounts.
1. As used in this Compact, "Net Win" means the total amount wagered in Class III Gaming at a Gaming Facility, on all Gaming Machines less:
(a) the amount paid out in prizes to winning patrons, including the cost to the Tribe of noncash prizes, won on Gaming Machines. The phrase “won on Gaming Machines” means the patron has made a monetary wager, and as a result of that wager, has won a prize of any value. Any rewards, awards or prizes, in any form, received by or awarded to a patron under any form of a players' club program (however denominated) or as a result of patron-related activities, are not deductible. The value of any complimentaries given to patrons, in any form, are not deductible;
(b) the amount paid to the State by the Tribe under the provisions of Section 4(E)(6) of this Compact [representing the State's regulatory costs related to the Tribe's gaming activities]; and
(c) the sum of two hundred seventy-five thousand dollars ($275, 000) per year as an amount representing tribal regulatory costs, which amount shall increase by three percent (3%) each year beginning on the first day of January occurring after the Compact has been in effect for at least twelve months.
2. The Tribe shall pay the State a percentage of its Net Win [ranging from 3 per cent to 10.75 per cent depending on the date and the amount of the Tribe's Annual Net Win] . . . .
3. . . . Any payment or any portion thereof that is not made within ten (10) days of the due date shall accrue interest at the rate of ten percent (10%) per annum, from the original due date until paid. . . .
D. Limitations.
1. The Tribe's obligation to make the payments provided for in Paragraphs B and C of this Section shall apply and continue only so long as this Compact remains in effect; and provided that that obligation shall terminate altogether in the event the State:
a) passes, amends, or repeals any law, or takes any other action, that would directly or indirectly attempt to restrict, or has the effect of restricting, the scope or extent of Indian gaming; . . .
d) licenses, permits or otherwise allows any non-Indian person or entity to engage in any other form of Class III gaming other than a state-sponsored lottery, pari-mutuel betting on horse racing and bicycle racing, operation of Gaming Machines, and limited fundraising by non-profit organizations, as set forth in subsection (D)(2) . . . .

(Doc. 67-3 at 20-22.)

         Section 11 of the 2007 Compacts differed from Section 11 of the previous gaming compacts between the State and the Pueblos (“2001 Compacts”). (Doc. 99 at 9-10; Doc. 110 at 19-21; see Doc. 99-8.) Subsection 11(C) of the 2001 Compacts provided:

         C. Calculation of Payment Amounts.

1. As used in this Compact, "Net Win" means the total amount wagered in Class III Gaming at a Gaming Facility, on all Gaming Machines less:
(a) the amount paid out in prizes, including the cost to the Tribe of noncash prizes, won on Gaming Machines;
(b) the amount paid to the State by the Tribe under the provisions of Section 4(E)(5) of this Compact; and
(c) the sum of two hundred seventy-five thousand dollars ($275, 000) per year as an amount representing tribal regulatory costs, which amount shall increase by three percent (3%) each year beginning on the first day of January occurring after the Compact has been in effect for at least twelve months.

(Doc. 99-8 at 20-21.) The State and the Pueblos negotiated the changes from the 2001 Compacts to the 2007 Compacts, including the changes to Subsection 11(C). (Doc. 99 at 10-11; Doc. 99-7; Doc. 110 at 20-21.) The United States Secretary of the Interior (“the Secretary”) approved the 2007 Compacts on July 5, 2007. (Doc. 55 at 3; Doc. 67-1 at 6; Doc. 68 at 12; Doc. 99 at 6-7); 72 Fed. Reg. 36, 717-01, 2007 WL 1922332 (Jul. 5, 2007).

         In 2015 and 2016, the State and each of the Pueblos entered into the 2015 Compacts. Like the 2007 Compacts, all of the terms of the 2015 Compacts are identical to each other except for the Pueblos' names. (Doc. 55 at 4; Doc. 67-1 at 8; Doc. 68 at 15; Doc. 99 6-7.) Subsection 9(A) of the 2015 Compacts provides that the 2015 Compacts “fully supplant[] and replac[e]” the 2007 Compacts, except that under Subsection 9(B), the terms of the 2007 Compacts

(including, without limitation, any limited waiver of sovereign immunity and jurisdictional waivers and consents set forth therein) shall survive to permit the resolution of payment disputes. Such disputes shall be resolved through the procedures set forth in Section 7 of this Compact. Failure to abide by the procedures set forth in Section 7 or failure to comply with an arbitrator's final decision with respect to the parties' obligations under a Predecessor Agreement constitutes a breach of this Compact. This survival provision is intended to provide for the reasonable resolution of past disputes without hindering a Tribe's ability to obtain a new compact.

(Doc. 68-3 at 26.)

         Section 7 of the 2015 Compacts regarding “Dispute Resolution” provides in pertinent part:

A. In the event either party believes that the other party has failed to comply with or has otherwise breached any provision of this Compact, such party may invoke the following procedure within two (2) years from the date any alleged violation of this Compact is discovered or reasonably should have been discovered; or, if the State believes that, prior to the Effective Date of this Compact, the Tribe has failed to comply with or has otherwise breached any provision of a Predecessor Agreement affecting payment, the State may invoke the following procedure within two (2) years of the Effective Date of this Compact, as permitted in Section 9(B) of this Compact:
1. The party asserting noncompliance shall serve written notice on the other party. The notice shall identify the specific Compact provision believed to have been violated and shall specify the factual and legal basis for the allegation of noncompliance. The notice shall specifically identify the date, time and nature of the alleged noncompliance.
2. In the event an allegation by the complaining party is not resolved to the satisfaction of such party within twenty (20) days after service of the notice set forth in Paragraph A(1) of this Section, the complaining party may serve upon the other party a notice to cease conduct of the particular game(s) or activities alleged by the complaining party to be in noncompliance. Upon receipt of such notice, the responding party may elect to stop the game(s) or activities specified in the notice or invoke arbitration and continue the game(s) or activities pending the results of arbitration. The responding party shall act upon one of the foregoing options within ten (10) days of receipt of notice from the complaining party, unless the State and the Tribe (hereinafter the “parties”) agree to a longer period, but if the responding party takes neither action within such period the complaining party may invoke arbitration by written notice to the responding party within ten (10) days of the end of such period.
3. Unless the parties agree in writing to the appointment of a single arbitrator, or as otherwise provided below, the arbitration shall be conducted before a panel of three (3) arbitrators. . . . The arbitrators shall make determinations as to each issue presented by the parties, but the arbitrators shall have no authority to determine any question as to the validity or effectiveness of this Compact or of any provision hereof. . . .
4. The results of arbitration shall be final and binding, and shall be enforceable by an action for injunctive or mandatory injunctive relief against the State and the Tribe in any court of competent jurisdiction. For purposes of any such action, the State and the Tribe acknowledge that any action or failure to act on the part of any agent or employee of the State or the Tribe, contrary to a decision of the arbitrators in an arbitration proceeding conducted under the provisions of this Section, occurring after such decision, shall be wholly unauthorized and ultra vires acts, not protected by the sovereign immunity of the State or the Tribe.
B. Nothing in Subsection 7(A) shall be construed to waive, limit or restrict any remedy that is otherwise available to either party to enforce or resolve disputes concerning the provisions of this Compact. Nothing in this Section shall be deemed a waiver of the Tribe's sovereign immunity. Nothing in this Section shall be deemed a waiver of the State's sovereign immunity.

(Doc. 68-3 at 22-24.)

In addition, the Appendix to the 2015 Compacts provides that
Free Play and Point Play do not increase Net Win, and amounts paid as a result of Free Play or Point Play reduce Net Win for purposes of the revenue sharing calculation in Section 11(C). However, any form of credits with any cash redemption value increase Net Win when wagered on Gaming Machines and amounts paid as a result of such wagers reduce Net Win for purposes of calculating revenue sharing.

(Doc. 68-3 at 37.)

“Free Play” means play on a Class III Gaming Machine initiated by points or credits provided to patrons without monetary consideration, and which have no cash redemption value. . . .
“Point Play” means play on a Class III Gaming Machine initiated by points earned or accrued by a player through previous Gaming Machine play, players' clubs, or any other method, and which have no cash redemption value.

(Doc. 68-3 at 6-7.)

         The Secretary neither approved nor disapproved the 2015 Compacts within 45 days of their submission. (Doc. 55 at 4; Doc. 58 at 8; Doc. 67-1 at 8; Doc. 68 at 16-17; Doc. 99 at 6-7; see, e.g., Doc. 1-7 at 2.) As such, the 2015 Compacts are “considered to have been approved by the Secretary, but only to the extent the [Compacts are] consistent with the provisions of [IGRA].”[7] 25 U.S.C. § 2710(d)(8)(C). The United States Department of the Interior (“DOI”) sent letters to the Pueblos and the State explaining the Secretary's decision to neither approve nor disapprove the 2015 Compacts contemporaneously with the decision. (Doc. 1-4 at 5-6; Doc. 1-5 at 5-6; Doc. 1-6 at 4-5; Doc. 36-1 at 3-4; Doc. 58 at 8; Doc. 67-1 at 8; Doc. 67-4 at 3; Doc. 68 at 16; Doc. 99 at 6-7.) In one such letter, the DOI took the following position:

[w]e wish to commend the Tribe and the State for the successful resolution of the free play and point play issue. Free play and point play will now be treated according to industry standards and Generally Accepted Accounting Principles (GAAP) by excluding both from the definition of “net win, ” which forms the basis for revenue sharing calculations. We note, however, that Section 7 of the 2015 Compact reserves a two-year period from its effective date for the State to pursue its assertion that the Tribe's net win - and thus their revenue sharing payments - should include wins and losses arising from free play or point play. In light of its conflict with industry standards and GAAP, it is our view that such an assertion by the State to include such sums in revenue sharing calculations would constitute an impermissible tax on tribal gaming revenues in violation of IGRA.[8]

(Doc. 1-4 at 5; Doc. 1-5 at 5; Doc. 1-6 at 4; Doc. 36-1 at 3; Doc. 67-4 at 3.) In October 2017, the DOI reaffirmed its position regarding the State's claims for additional revenue sharing payments in reviewing the 2015 Compact between the State and the Pueblo of Pojoaque.[9] (Doc. 67-1 at 9; Doc. 67-5 at 2; Doc. 68 at 16; Doc. 99 at 6-7.)

         On April 13, 2017, in her capacity as the Acting State Gaming Representative, Defendant Becker sent letters to each of the Pueblos with the subject line “Notice of Noncompliance.” (Doc. 55 at 4-5; Doc. 58 at 7; Doc. 67-1 at 9; Doc. 68 at 17; Doc. 99 at 6-7; see, e.g., Docs. 67-6, 68-22, and 68-23.) In these letters, Defendant Becker asserted that, beginning as early as April 2011, the Pueblos had underreported their Net Win and underpaid the State pursuant to the revenue sharing provisions of the 2007 Compacts, and that “prizes awarded as a result of the use of ‘free play' are not deductible unless the face value of the ‘free play' is included in the calculation of the total amount wagered.” (Doc. 55 at 4-5; Doc. 67-1 at 9; Doc. 99 at 6-7; see, e.g., Doc. 67-6 at 1.) On this basis, Defendant Becker instructed the Pueblos to make additional revenue sharing payments to the State in specified amounts.[10] (Doc. 55 at 4-5; Doc. 67-1 at 9; Doc. 99 at 6-7; see, e.g., Doc. 67-6 at 1-2.) On May 19, 2017, the Pueblos sent responsive letters to Defendant Becker in which they objected to the State's requests for additional revenue sharing payments and asserted that the requests violated federal law and the terms of the 2007 Compacts. (Doc. 67-1 at 9; Doc. 67-7; Doc. 68 at 17; Doc. 68-18; Doc. 68-19; Doc. 99 at 6-7.)

         On May 31, 2017, Defendant Becker sent letters to each of the Pueblos with the subject line “Notice to Cease Conduct.” (Doc. 55 at 5; Doc. 58 at 7; Doc. 67-1 at 9; Doc. 68 at 17-18; Doc. 99 at 6-7; see, e.g., Docs. 67-8, 68-24, and 68-25.) These letters instructed the Pueblos to either “pay all sums due or . . . invoke arbitration.” (Doc. 55 at 5; Doc. 58 at 7; Doc. 67-1 at 9; Doc. 68 at 17-18; Doc. 99 at 6-7; see, e.g., Doc. 67-8 at 2.) However, the Pueblos neither made the additional revenue sharing payments requested in Defendant Becker's letters nor invoked arbitration. (Doc. 55 at 5; Doc. 58 at 7.) Rather, on June 19, 2017, Plaintiffs filed this civil action; and, on June 29, 2017, Plaintiffs-in-Intervention the Pueblos of Santa Ana and Santa Clara intervened. (Docs. 1, 11.)

         On June 30, 2017, Defendant Becker sent letters to each of the Pueblos with the subject line “Notice to Invoke Arbitration, ” in which she invoked arbitration pursuant to Section 7 of the 2015 Compacts on the State's behalf. (Doc. 58 at 8; Doc. 58-3 at 1; Doc. 62 at 5.) Plaintiff-in-Intervention the Pueblo of San Felipe then intervened in this action on August 31, 2017. (Doc. 36.)

         The Pueblos authorize patrons to play on Class III gaming machines using electronic free play credits. (Doc. 11 at 5; Doc. 36 at 4-5; Doc. 68 at 13; Doc. 82-1 at 4 Doc. 99 at 10; Doc. 110 at 20.) There is no difference in the payouts, prizes, or jackpots awarded to patrons for each instance of electronic free play versus cash play of the same face value. (Doc. 99 at 11; Doc. 110 at 21.) The Pueblos do not separately account for patrons' winnings from cash wagers and their winnings from electronic free play wagers. (Doc. 99 at 11; Doc. 110 at 21.) However, the Pueblos' slot accounting systems meter each instance of electronic free play and the face value of such free play, along with each instance of cash play, and this data is generated in daily reports. (Doc. 99 at 11; Doc. 110 at 21.)

         For federally recognized Indian tribes, the Governmental Accounting Standards Board (“GASB”) determines authoritative sources of generally accepted accounting principles (“GAAP”). (Doc. 67-10 at 5-6.) According to GASB statements, the American Institute of Certified Public Accountants' (“AICPA”) 2011 Audit and Accounting Guide-Gaming (“Gaming Guide”) was the authoritative source of GAAP for the Pueblos' gaming operations at the relevant times.[11] (Id. at 7-8; see also Doc. 99-12 at 3-4.)

         The Gaming Guide provides that “monetary credits may be played [on slot machines] using bills, coins, tickets, electronic wagering credits recorded on cards, or by other means.” (Doc. 67-11 at 3 & n.3.)[12] The Gaming Guide defines “free play” as “[f]ree wagering offered by a gaming entity to provide cashable benefits that increase the customer's odds of winning, changing the basic odds of the game.” (Doc. 67-10 at 8; Doc. 68-4 at 11.) “In these circumstances the gaming entity is providing a chance for the customer to win a slot machine outcome for no cost (i.e. ‘free').” (Doc. 67-10 at 11.) The Gaming Guide defines a gaming entity's “net win” as “the difference between [the entity's] gaming wins and losses before deducting costs and expenses. Also called gross gaming revenue.” (Doc. 68-4 at 12; Doc. 99-12 at 16.) Similarly, according to the Gaming Guide, “gross gaming revenue” is “the difference between gaming wins and losses from banked games before deducting incentives or adjusting for changes in progressive jackpot liability accruals.”[13] (Doc. 67-10 at 10; Doc. 99-12 at 9.)

         Under GAAP, the face value of free play is not included in net win. (Doc. 67-10 at 9-13.) The Gaming Guide states that

the use of free play will not trigger accounting recognition because revenue is measured based on an aggregate daily (or shift) basis, rather than on a per bet or per customer basis. Because revenue is the net win from gaming activities, the use of the benefit has no effect on the reporting of net win or loss from gaming activities. For example, if a customer bets $5 of his or her own cash and wins $1, the gaming entity reports revenue of $4. If a customer bets $5 of his or her own cash, uses $5 of credits from his or her club card, and wins $1, the gaming entity reports revenue of $4. In each transaction, the net win is $4.

(Doc. 67-10 at 8; Doc. 68 at 12; Doc. 99 at 7.) GAAP “permit no recognition in revenue for free play . . . so that the gaming entities [do] not overstate gross gaming revenue.” (Doc. 67-10 at 11 (emphases in original).)

         In addition, under GAAP, the value of prizes won by patrons as a result of free play wagers must be deducted from net win.

GAAP requires that the gross gaming revenue or net win is calculated using the cash value of what remains ‘in' the machine - such as cash, coins, electronic money transfers, tickets with cash redemption values. Thus in complying with GAAP all cash/cash equivalent payouts must be considered without regard as to whether the value was paid as the result of a paid bet or a free play bet.

(Id. at 12.) In contrast, the cost of “complimentaries” such as free food, drinks, and hotel rooms, [14]and the cost of loyalty program points redeemed for cash or merchandise are not deducted from net win under GAAP. (Id. at 13-14.)

         The Gaming Guide's treatment of free play and prizes won by patrons as a result of free play wagers is consistent with “economic reality and the representational faithfulness required by GAAP.” (Id. at 9-10, 16.) In general, “revenue” consists of “the economic resources provided by customers to the entity for the products or services the entity provides to the customers.” (Id. at 9.) “Revenues represent actual or expected cash in-flows (or the equivalent) that have occurred.” (Id. at 11.) Thus, “providing a product or service to a customer for no . . . consideration provided by the customer does not create revenue.” (Id. at 12.) In the context of the gaming industry, a gaming entity's “revenue is the net win or loss from gaming activities”; and, free play is not included in a gaming entity's revenue because it does not represent actual or expected cash in-flow or its equivalent. (Id. at 8, 12.)

         III. ANALYSIS

         A. Defendants' Summary Judgment Motion

         The Court will first consider Defendants' Summary Judgment Motion, because it raises the threshold issue of whether the parties' dispute must be submitted to arbitration. “Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Jones v. Kodak Med. Assistance Plan, 169 F.3d 1287, 1291 (10th Cir. 1999); Fed.R.Civ.P. 56(a). “A dispute is genuine when the evidence is such that a reasonable [factfinder] could return a verdict for the nonmoving party, and a fact is material when it might affect the outcome of the suit under the governing substantive law.” Bird v. W.Valley City, 832 F.3d 1188, ...


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