The National Indian Gaming Commission "overstepped its bounds" by issuing controversial Class III regulations, a federal judge concluded on Wednesday in a closely watched case.

In a 42-page decision with far-reaching implications, U.S. District Judge John D. Bates held that the Minimum Internal Control Standards (MICS) for Class III games are illegal. He said that the Indian Gaming Regulatory Act doesn't authorize the NIGC's authority over this critical segment of the $19 billion tribal casino industry.

"A careful review of the text, the structure, the legislative history and the purpose of the IGRA, as well as each of the arguments advanced by the NIGC, leads the court to the inescapable conclusion that Congress plainly did not intend to give the NIGC the authority to issue MICS for Class III gaming," Bates wrote.

The decision is a landslide victory for the Colorado River Indian Tribes of Arizona, who challenged the legality of the MICS when the NIGC tried to audit the tribe's casino books. As part of an administrative settlement with the Bush administration, the audit went forward under certain conditions while the tribe pursued the matter in court.

"Our objection to the audit is and always has been one of principle and tribal sovereignty," Chairman Daniel Eddy, Jr. said at the time.

Ruling from Washington, D.C., Bates agreed with CRIT on every major point and rejected NIGC's arguments. "Certainly the NIGC does not cite any such provision in its papers," the decision noted. "Instead, the Commission seeks to infer a broad Class III regulatory authority from the sum of its lesser Class III powers."

Bates acknowledged that the NIGC has authority to review tribal ordinances for Class III games, to review and approve Class III management contracts, to conduct background investigations of people involved with Class III facilities and to assess fees on Class III operations.

"These are important oversight responsibilities, but none approaches the sweeping authority the NIGC claims to regulate Class III gaming," Bates said in response.

Tribal-state compacts are the proper venue for rules like the MICS, Bates said, upholding arguments long advanced by CRIT, other tribes and organizations like the National Indian Gaming Association. Seven tribes and NIGA filed briefs in the case.

In spite of the major win, the dispute isn't likely to end due to Sen. John McCain (R-Arizona). Since becoming chairman of the Senate Indian Affairs Committee, he has promised strong oversight of the tribal gaming industry and has vowed to back the regulation of Class III games.

At a hearing in April, McCain singled out the tribe, whose lands are in Arizona and California, for taking on the NIGC. "I don't understand the logic of the suit," he said on April 27. "The purpose of IGRA was to regulate Class III gaming."

NIGC Chairman Phil Hogen testified at the hearing that "the MICS have been the single most comprehensive and effective tool the NIGC has developed to ensure consistent quality operation and regulation of gaming activity on Indian lands."

Shortly after the hearing, the NIGC went ahead and published revisions to the MICS, which were first issued during the Clinton administration. The rules everything from the management of casino cash to background checks on employees.

In the past, NIGC officials have gone to Congress to clarify their ability to issue the MICS. During the 108th Congressional session in 2003-2004, retired Sen. Ben Nighthorse Campbell (R-Colorado) sponsored amendments to IGRA that would affirm the agency's authority over Class III games. The bill never came up for a vote on the Senate floor.

In addition to striking down the MICS, Bates ruled that the administrative settlement over the audit is "unlawful." He said the $2,000 fine paid by CRIT is "invalid" because "the NIGC does not possess the authority to audit a gaming activity to ensure its compliance with an invalid regulation."

Bates stayed his order until September 7, 2005, so that the tribe and the state of Arizona to make changes, if necessary, to the gaming compact. At a hearing, McCain called the compact one of the best in the nation. State officials also have held it up as a model.

Get the Decision:
Colorado River Indian Tribes v. NIGC | Order (August 24, 2005)

Relevant Links:
Colorado River Indian Tribes - http://www.critonline.com
National Indian Gaming Commission - http://www.nigc.gov