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Court of Appeals rules against city of Duluth's claim to casino profits

Members of the area press gather Monday at the tribal council chambers of the Fond du Lac Tribal Center as Chairwoman Karen Diver explains the decision of a three-member panel of the 8th Circuit Court of Appeals regarding Band payments to the city of Duluth. Wendy Johnson/

The tribal chambers of the Fond du Lac Tribal Center seemed charged with a new energy on Monday.

Fond du Lac Band Chairwoman Karen Diver, along with a smattering of press, members of the Reservation Business Committee and a handful of band members, were there to acknowledge a major 8th Circuit Court of Appeals victory for the Band.

The court's decision, filed earlier that morning by a three-judge panel, affirms an earlier U.S. District Court decision that relieved the Band from making any future payments to the city of Duluth out of the Fond du Luth casino's revenues.

"This is a huge vindication for the Band," said Diver, though she admitted that all options remain on the table as it looks to protect its own interests.

"The playing field will be determined by the city of Duluth," she said.

Duluth Mayor Don Ness called the move "devastating and far reaching" for the city of Duluth and taxpayers. Ness said the $6 million the city received annually from the Band was a primary funding source for rebuilding roads and added that not receiving that money puts the city's street reconstruction program at risk.

The ongoing legal battle has its roots with an August 2009 letter in which Diver told the city that the Band would stop sharing slot machine revenues from the Fond-du-Luth Casino, saying the contract developed between the two sides in the 1980s and renegotiated in the 1990s was entered into "under erroneous understandings that the city's consent was necessary to the creation of reservation land within the city." The city responded by filing suit in federal court asking that the Band be forced to resume sharing casino revenue.

The Band then upped the ante, asking the courts to force the city to return the $75.5 million in casino revenue it received since 1994. Being forced to repay that money could bankrupt the city, city officials said.

The district court ruled, however, that the Band could not recover the money it paid before 2009. The Band did not appeal that ruling, but Judge Susan Nelson did order the Band to honor a profit-sharing agreement that was in place with the city through April 2011. City officials said that amounts to some $12.4 million. On Dec. 21, 2011, the Band and the city both appealed aspects of Nelson's decisions.

At Monday's press session, Diver stated the Band regrets that the issue of payments to the city of Duluth had to come down to litigation.

"Ironically enough," she said, "the Band reached out to the city of Duluth in order to come up with some type of global settlement," explaining that the Band had offered to cover the costs of payments for certain services such as police, fire and streets for the time period in question. She said Mayor Don Ness declined to accept that offer unless there was some type of future revenue stream attached to it.

Diver stressed that the National Indian Gaming Commission has ruled that the type of contract entered into between the Band and the city of Duluth in 1994 is "inconsistent with federal law," and she claimed that the most recent ruling by the 8th Circuit Court validates that stance.

When asked if Monday's decision stands to threaten any future relationship between the Band and the city of Duluth, Diver replied, "There never was a relationship with the city of Duluth - only payments."

As the Band prepares to move forward in light of this week's court victory, Diver declined to speculate whether any future plans for the Duluth-based casino might involve the adjacent Carter Hotel, which was purchased by the Band last year. She did say, however, that a large part of the Band's motivation in challenging the arrangement with the city of Duluth in court was its desire to "reinvest in its [existing] property and give it a much-needed facelift."

"That's hard to do when the city was taking one-third of your revenues right off the top," she said.

Diver denied that the city of Duluth has any claim to the building that houses the Fond-du-Luth Casino and the land that it stands on, despite the original "lease" agreement signed between the two in 1994.

"It was not a lease in real terms," she explained. "The Band owns the land and building, but charging us 'rent' on the lease was the way the original agreements characterized the profit sharing."

She said the original "lease" agreement between the city of Duluth and the Fond du Lac Band was filed with the Bureau of Indian Affairs and the Department of Interior. But since the National Indian Gaming Commission ruled the agreements unlawful, the Department of Interior cancelled that lease last year.

All is not yet signed, sealed and delivered, however, when it comes to any retroactive payments the Band may owe the city for the payments withheld during the time period from 2009 through 2011. In its decision this week, the 8th Circuit remanded that issue back to Judge Nelson, saying that she could consider retroactive relief if she determines it to be appropriate.

For its part, the city believes it has a strong argument to present to Nelson in favor of receiving those payments, Duluth City Attorney Gunnar Johnson said during a City Hall news conference on Monday.

Johnson also said within the next 14 days the city will ask for the case to be heard by all the judges of the Eighth Circuit Court of Appeals, not just the three judges who arrived at the decision filed Monday morning.

In the meantime, Diver said the Fond du Lac Band will continue to protect its interests as it moves on into the future.

"If the city of Duluth would like to continue to fight one of their major employers - one who wants to continue to invest in the community - that's their choice," concluded Diver.