## Facts

- Rincon Band of Luiseño Mission Indians operated class III gaming in California under a 1999 tribal–state compact that limited gaming devices and required certain fund contributions.
- In 2003, Rincon sought to renegotiate the compact to expand its class III gaming, including additional slot machines.
- California conditioned additional gaming device authorizations on Rincon’s agreement to pay a percentage of net gaming revenue to the State’s general fund (initially 15% of net win from additional machines, later reduced to 10%).
- The State also proposed an “exclusivity” provision as a concession supporting the requested payments.
- Rincon rejected the offer, asserting the general-fund payments were an impermissible tax under IGRA and that the proposed exclusivity was illusory because non-tribal casino-style gaming was already prohibited and the provision did not prevent competition from other tribes.
- The State’s projections indicated the arrangement would generate comparatively modest gains for Rincon (about $2 million annually) while producing substantially larger payments to the State (about $38 million annually).
- Rincon sued alleging California failed to negotiate in good faith under IGRA; the district court granted summary judgment for Rincon and ordered the parties to conclude a compact within 60 days or proceed to IGRA’s mediation process.
- California appealed.

## Issues

1. Whether conditioning additional class III gaming rights on payments to the State’s general fund constituted an impermissible tax on tribal gaming revenues under IGRA.
2. Whether California’s insistence on such payments showed a failure to negotiate in good faith as required by IGRA.

## Decision

- The Ninth Circuit affirmed summary judgment for Rincon.
- The court held California negotiated in bad faith under IGRA by demanding substantial general-fund payments unrelated to regulatory costs or other permissible IGRA purposes.
- The court treated the proposed payments as an impermissible tax in substance, not permissible “revenue sharing.”
- The court concluded the State did not offer meaningful concessions (including purported exclusivity) sufficient to justify revenue sharing consistent with IGRA’s requirement that tribes be the primary beneficiaries of gaming.
- Rincon was entitled to proceed under IGRA’s remedial process following a bad-faith finding (including mediation and potential federal procedures if necessary).

## Legal Principles

- IGRA requires states to negotiate tribal–state compacts for class III gaming in good faith. 25 U.S.C. § 2710(d)(3)(A).
- States generally may not tax tribal gaming revenues; permissible payments are limited to (i) assessments tied to the costs of regulating gaming or (ii) revenue sharing supported by meaningful concessions consistent with IGRA’s policies.
- Labeling a payment as “revenue sharing” does not control; the court evaluates economic substance, including whether the payment primarily serves to raise general state revenue.
- Revenue sharing must be tethered to a genuine, meaningful concession of value; a concession that merely restates existing state-law limits on non-tribal gaming is not sufficient.
- A state’s fiscal interests do not expand IGRA’s permissible negotiation subjects or allow treating tribal gaming as a general revenue source.

## Conclusion

The Ninth Circuit held that California violated IGRA’s good-faith negotiation duty by conditioning expanded gaming rights on large payments into the State’s general fund, which functioned as an unlawful tax and were not supported by meaningful concessions; the tribe could continue through IGRA’s remedies for bad-faith negotiations.


Rincon Band of Luiseño Mission Indians of the Rincon Reservation v. Schwarzenegger, 602 F.3d 1019 (9th Cir. 2010)