The tribe that runs the Fond-du-Luth Casino in downtown Duluth owes the city $10.4 million in back payments, a U.S. District Court judge ruled this week in a protracted dispute over gambling revenues.
But the fight isn’t over, yet.
In 2009, the Fond du Lac Band of Lake Superior Chippewa stopped paying the city “rent,” a slice of the casino’s gross revenue, as outlined in long-standing agreements. The opinion Tuesday ordered the band to pay Duluth the money it withheld from 2009 to 2011, leaving the amount of interest and some revenues to be sorted out at a later trial. (City attorney Gunnar Johnson said that by his count, the band owes about $12.4 million.)
City leaders applauded the ruling, saying it will restore millions they had been counting on for street repairs. The city received about $6 million from the casino annually.
“The casino was established in our downtown ONLY because of the common agreement between the band and the city, and that agreement should be honored,” Mayor Don Ness wrote on Facebook. “Had we not defended our rights, this $12 million would have been lost.”
This week’s ruling “really wasn’t a surprise to us,” because the same judge had issued a similar opinion before, said Karen Diver, chairwoman of the Fond du Lac band. The band’s leaders have not yet met with legal counsel, she added, but “it could be appealed.”
The band has paid the city about $75 million under a 1994 contract, according to Judge Susan Richard Nelson’s 23-page opinion. But it has also “benefited substantially” from those agreements, she wrote, earning $175 million in net profit from 1994 to 2009.
“And since the band stopped payments in 2009, it has profited more than $20 million while receiving the city’s services for free,” Nelson said.
Earlier this year, the 8th U.S. Circuit Court of Appeals ruled for the Fond du Lac band — agreeing that it does not have to honor its agreement to pay Duluth going forward.
Duluth has been “struggling since 2009 from being cut out of this casino arrangement that it entered into as a business deal in the mid-1980s,” Johnson said by phone Wednesday. Tribes across the country see the “huge value” of having an urban casino, he said.
“The Fond du Lac band got an urban casino,” he said. “Now they’re trying to have their casino but not give any benefit to the city” instrumental in establishing it.
Duluth leaders have been open to negotiating a modern agreement, Johnson added. “Instead of saying, let’s reformat this agreement so that it works for today’s age, they have basically just zeroed the city out and left us with nothing.”
But Diver argues that $75 million-plus is “probably adequate” compensation for the city’s role. The band is willing to pay for city services such as police and fire protection, using a kind of fee-for-service model, she said.
The band proposed to the city a settlement agreement with that kind of structure. The city rejected it.
Cities often “go to great lengths” to bring jobs to town, Diver said, offering incentives including tax-free zones. Yet with Fond-du-Luth, which employees about 300, the city is demanding a “disproportionate payment,” she said.
But the city points to deals between tribes and municipalities that are more lucrative.
“The city only rejected the amount the band was proposing,” Johnson said, “which was minimal.”
Diver said the band halted payments to the city when it began questioning the legality of its 1994 agreement with the city, which said that the band would pay 19 percent of its revenues to Duluth for 25 years, and for an unspecified rate for the succeeding 25 years.
While the dispute wound through federal court and arbitration, the band asked the National Indian Gaming Commission to review the 1994 consent agreement. It found that the agreement violated the Indian Gaming Regulatory Act, which requires tribes to have “sole proprietary interest” for tribal casinos.
In 2012 and 2013 rulings, district and appellate courts agreed that the commission had the proper legal authority to make that call.
Jenna Ross • 612-673-7168