Seneca Nation of Indians v. New York

420 F.Supp.3d 89

SENECA NATION OF INDIANS, Petitioner,

v.State of NEW YORK, Respondent.

19-CV-735S

United States District Court, W.D. New York.

Signed November 8, 2019

Carol E. Heckman, Carson R. Cooper, Lippes Mathias Wexler Friedman LLP, John G. Horn, Harter, Secrest and Emery LLP, Buffalo, NY, Riyaz A. Kanji, David A. Giampetroni, Kanji & Katzen, PLLC, Ann Arbor, MI, Michele Mitchell, Seneca Nation of Indians, Salamanca, NY, for Petitioner.

Gregory M. Starner, White & Case LLP, New York, NY, for Respondent.

DECISION AND ORDER

WILLIAM M. SKRETNY, United States District Judge

I. INTRODUCTION

The underlying dispute here concerns whether the Seneca Nation of Indians is required to pay the State of New York hundreds of millions of dollars in revenue-sharing payments under the terms of a 2002 gaming compact. A controlling majority of arbitrators recently held that the compact requires such payments. While this binding determination has widespread, directly inverse ramifications for the citizens of each party, the correctness of the decision is not now at issue. Rather, the exceedingly narrow question before this Court is whether the panel majority "manifestly disregarded" governing law in reaching its determination. Because this Court finds that it did not, the State's cross-petition to confirm the arbitration award must be granted, and the Nation's petition and motion to vacate the award must be denied.

II. BACKGROUND¹

A. The Compact and the Underlying Dispute

Seventeen years ago, the Seneca Nation of Indians ("the Nation") and the State of New York ("the State") entered a compact setting forth the terms and conditions under which the Nation could conduct certain casino-style gaming in New York ("the Compact"). Essentially, the State agreed to provide the Nation exclusive rights to conduct gambling operations in a large portion of Western New York in exchange for graduated revenue-sharing payments from gaming devices² for which exclusivity existed ("the State Contribution"). (See Compact, Docket No. 2-6, § 12 (b)(1).)

The Compact became effective December 9, 2002, see Dep't of the Interior Indian Gaming Notice, 67 Fed. Reg. 72968-01 (Dec. 9, 2002), and provided for an initial term of 14 years, with automatic renewal for an additional seven years, unless either party objected to renewal in writing. ( Id. ) The Nation's obligation to pay the State Contribution began on December 31, 2002, the date the Nation first began gaming operations under the Compact. ( Id. ) For years 1-4, the State Contribution was 18%. ( Id. ) For years 5-7, it was 22%. ( Id. ) For years 8-14, it was 25%. ( Id. ) The Compact is silent with respect to the terms of any State Contribution in the 7-year renewal period.

During the initial 14-year period, the parties performed under the Compact: the State ensured exclusivity; the Nation paid the State Contribution.³ Toward the conclusion of the 14-year term, neither party delivered written objections to renewal to the other, resulting in automatic renewal of the Compact for an additional seven years on December 9, 2016. (See Compact, § 4 (c)(1).)

The dispute underlying the present action arose shortly thereafter when, on March 31, 2017, the Nation notified the State that its State Contribution for the last quarter of 2016 would be its final payment under the terms of the Compact. (See Declaration of Gregory M. Starner, Docket No. 9-3, Exhibit B.) In the Nation's view, the Compact required only 14 years of State Contribution under § 12 (b)(1), with no State Contribution due during the renewal period. The State, on the other hand, viewed the terms of the Compact as requiring a continuation of the State Contribution during the 7-year renewal period. Unable to resolve this dispute themselves, the parties submitted it to binding arbitration in accordance with § 14 of the Compact.

B. The Arbitration Proceedings

The parties submitted their dispute to a panel of three arbitrators as required under § 14 of the Compact: Hon. William G. Bassler, United States District Judge (ret.); Attorney Henry Gutman; and Dean Kevin Washburn, Dean of University of Iowa College of Law. By agreement of the parties, the panel bifurcated its consideration of liability and remedy after conducting full arbitration proceedings on December 12 and 13, 2018, resulting in a January 7, 2019 Partial Final Award (liability) (Docket No. 2-4), with Dissent (Docket No. 2-5); and an April 12, 2019 Final Award (remedy) (Docket No. 2-3). The panel heard testimony and received a written witness statement from Robert Williams, Deputy Secretary in the Office of New York Governor Andrew M. Cuomo; and received witness statements from Todd Gates, President of the Seneca Nation of Indians, and David Sheridan, Chief Financial Officer of the Seneca Gaming Corporation. (Partial Final Award, Docket No. 2-4, p. 5.) It also received other documentary evidence. (Id. at pp. 4-5.)

1. The Partial Final Award

Judge Bassler and Attorney Gutman formed the panel majority.⁴ They first found that the relevant terms of the Compact were ambiguous as it concerned the Nation's obligation to pay the State Contribution during the 7-year renewal period. (Partial Final Award, p. 6.) They then turned to the extrinsic evidence to resolve the ambiguity, interpreting the Compact "to require the Nation to make revenue sharing payments in the renewal period (Years 15-21) at 25% of net drop of each category of gaming device for which exclusivity exists." (Id. at p. 6.) Essentially, the majority found that the State Contribution and exclusivity were directly linked, making the State Contribution due during all periods of exclusivity. (See, e.g., id. at p. 44 ("The essential bargain of the Parties' agreement is a commercial agreement wherein exclusivity payments are made in consideration for exclusivity.").)

Regarding ambiguity, the majority found that the Compact terms were ambiguous as to whether the Nation's obligation to share revenue ended after the fourteenth year of the Compact or whether it continued upon renewal for the 7-year renewal period. (Id. at p. 24.) First examining the purpose of the Compact (§ 12 (b)), the majority found that it was intended to provide the Nation with an "exclusive franchise" in exchange for a revenue share to the State for each category of gaming device for which exclusivity existed. (Id. at pp. 24-27.) Second, the majority found that the term of the compact (§ 4 (b)) was 14 years, with a 7-year renewal option, as opposed to the straight 21-year term advocated by the Nation. (Id. at pp. 27-30.) Finally, after examining the renewal (§ 4 (c)) and other provisions of the Compact, the majority concluded that "it is ambiguous whether the term ‘renew’ means that the State Contribution payments continue at the 25% rate in effect when the initial 14-year term ended, or whether ‘renew’ means to continue with the original terms that did not expressly provide for any State Contribution payments in Years 15-21." (Id. at pp. 30-36.)

Regarding the extrinsic evidence, the majority found that it supported the State's position. It held that " ‘renewal’ of the Compact means that the Nation's obligation to pay State Contribution in consideration for exclusivity rights continues in the renewal period for as long as exclusivity exists." (Id. at pp. 47-48.) In reaching this determination, the majority considered the parties' prior negotiations (id. at pp. 37-41), their post-execution communications (id. at pp. 41-45), and the surrounding facts and circumstances (id. at pp. 45-47).

As directly relevant here, the majority addressed the Nation's argument that the State's position could not stand because the Secretary of the Interior did not approve revenue sharing upon renewal of the Compact, as required by the Indian Gaming Regulatory Act ("IGRA"), 25 U.S.C. § 2710 (d)(8). (Id. at pp. 42-43.) Affirmatively recognizing that it had no authority to usurp the Secretary's approval authority, the majority found that it was nonetheless empowered to determine whether the terms of the already-approved Compact provided for revenue-sharing payments upon renewal. (Id. at p. 42.) And in that regard, the majority found no evidence that the Secretary understood the Compact to contain a State Contribution-free 7-year renewal period at the time of approval. (Id. ) The majority was further unpersuaded that its adoption of the State's position would be "approving" an additional seven years of payments without legal or economic warrant to do so, finding instead that "it would simply be finding that the terms of renewal in the Compact deemed approved by the Secretary included revenue sharing payment obligations." (Id. at p. 43.)

Finally, in addition to examining the extrinsic evidence, the majority weighed the parties' positions in terms of common sense, absurdity, and commercial reasonableness, concluding that each favored the State's interpretation. (Id. at pp. 49-53.)

Consequently, after examining the Compact as a whole and finding the renewal provision ambiguous, the majority found that " ‘renewal means that the Compact was continued on the same terms and conditions that were in place immediately prior to expiration of the Compact's initial term which entailed revenue sharing for exclusivity." (Id. at p. 54.) It therefore held that "the Nation is obligated to make State Contribution payments of 25% of net drop payable on a quarterly basis during the seven-year renewal period." (Id. at pp. 54-55.)

2. The Dissent

Taking the opposite view of the Compact terms and extrinsic evidence, Dean Washburn dissented. He viewed the terms of the Compact as unambiguously providing for only 14 years of State Contribution, with no State Contribution due in the 7-year renewal period. (Dissent, Docket No. 2-5, pp. 4-5.) He further viewed the extrinsic evidence, the context of the negotiations, and the intent of the parties as failing to support the State's position that the parties meant for the Compact to provide for...