How the “Friendly Lawsuit” Began

The Indian Gaming Regulatory Act (IGRA), passed by Congress in 1988, permits tribes to conduct certain types of gaming (Class III) only if they enter a compact with the state. IGRA requires states to negotiate in good faith with tribes regarding any form of gaming that is authorized in the state for any person or purpose.

From the outset of Gaming Compact negotiations between the State of Washington and the Tribes, the two sides could not agree as to whether slot machines and other machine games were legal in Washington, and therefore a subject of negotiation under IGRA. The Tribes argued that failure to negotiate for machines was an act of bad faith by the state.

IGRA provided for settlement of bad faith claims by filing suit in federal court. However, several states, including Washington, asserted that they were not subject to such lawsuits because of the State's sovereign immunity. The U.S. Supreme Court accepted this argument, effectively eliminating the dispute resolution process under IGRA where states assert immunity defenses.

In 1994, to resolve the impasse over slot machines, several tribes and former Governor Lowry and Attorney General Christine Gregoire on behalf of the State agreed to a limited waiver of immunity for the purpose of a consensual lawsuit (the "friendly lawsuit"). The parties agreed to present to the federal court the question of what types of gaming devices, if any, are permitted under Washington State Law, and they agreed to be bound by the decision of the court.

The Court’s Decision and Resulting Negotiations

On September 26, 1997, the court issued its order and held that the State was not required to negotiate slot machines, but that other gambling devices were subject to negotiation as long as they did not constitute:

1) Mechanical or lottery devices activated by the insertion of a coin or by the insertion of any object purchased by any person taking a chance by gambling in respect to the device.

2) Electronic or mechanical devices or video terminals which allow for individual play against such devices or terminals.

12 tribes that had tribal/state compacts for gaming negotiated a compact amendment with the Gambling Commission staff and the Attorney General's office over machines that fit within the Court's order. An "Agreement in Principle" was reached in June 1998 on a gaming device modeled after the state lottery.

Terms of the Proposed Compact Amendment (Appendix X)

A gaming system operated under the standards of the new amendment (Appendix X) would be called a “Tribal Lottery System” (TLS).

Types of Games: On-line Lottery & Electronic "Scratch" Tickets

Games would use an electronic "smart" card or other cashless instrument

• No cash in or out of the machines

On-line lottery games

• Limited to 5 (consistent with the state’s lottery)
• Drawings could occur no more than every 30 minutes

Electronic "Scratch" Ticket Games – finite number of tickets with pre-determined number of winners and losers

Game allowed winnings (credits) to be replayed

Minimum prize payout – 75%

No handles on player terminals; no mechanical spinning reels

Maximum $5.00 per wager

3 year moratorium on "machine" gambling negotiations–technical corrections still allowed

• 425 for first year
• May increase to 675 after 12 months
• Tribes could obtain machine rights from other tribes; cap of 1,500 machines per tribe

Tribes were to pay all outstanding regulatory bills

State would play a major role in regulation

Tribes paid approximately $250,000 in "start up" regulatory costs

• Included approximately 3 FTE’s: 2 technical staff and 1 agent
  • Basic testing equipment

Tribes would be required to make charitable and community contributions

An independent lab would test system components, then the State would approve or disapprove, with samples of equipment delivered to the State for the purpose of determining compliance

Future regulatory costs

• If there were disputes about the state’s regulatory bills, the tribes would pay the undisputed amount and put the disputed amount in an escrow account

Timelines

A standing committee of the Legislature (Commerce and Labor Committee) held a public hearing on November 6, 1998; no comments were forwarded to the Commission.

The Gambling Commission had 45 days to hold hearings and to take a final vote on the amendments; was passed by a vote of 5:2 on November 12, 1998.

The agreement was forwarded to Governor Locke, who signed it on November 23, 1998.

Soon all tribes with Class III gaming compacts had adopted Appendix X and were operating tribal lottery systems and/or leasing their machine allocations to other tribes.

Amendments to Appendix X

After the moratorium on changes to Appendix X expired, several of the tribes with larger casinos negotiated to operate more terminals than the initial 1500 machine cap. In addition, some tribes wanted to operate terminals at more than one gaming facility. The terms of the negotiated agreements varied from tribe to tribe.

Appendix X2

In 2006, the number of player terminals in the state was approaching the maximum allowed under Appendix X. The state and the tribes re-entered negotiations for a new compact amendment. The tribes wanted more player terminal allocations, higher wagers, unlimited hours of operation, and player terminals that accepted cash directly instead of just cashless instruments. The state wanted increased technical and operational controls on the tribal lottery systems, and support for smoking cessation and problem gambling programs. The resulting agreement was Appendix X2, which provided the following:

• Each tribe would have a base allocation of 975 terminals.
• There would be a 2,500 cap on terminals at a single facility (some allocations could still be obtained from other tribes).
• $20 wagers would be allowed on 15% of a tribe’s terminals.
• The Muckleshoot, Puyallup, and Tulalip Tribes, which had multiple casinos, would each be authorized a maximum of 3,500 terminals, which could increase to 4,000 after three years, but no than 2,500 machines could be at a single facility.
  •  0.13% of the net win from Class III gaming would go to organizations that helped reduce problem gambling.
  •  0.13% of the net win from the machines would go to organizations that helped discourage tobacco use.
• Tribes would be required to make contributions to the community by providing for such programs as governmental services, law enforcement, job training, health care, and public works.
• Tribes would set the operating hours of their casinos.
• Technical and operational security measures to protect the tribal lottery systems from theft and fraud would be clarified and expanded.

In March, 2007, Governor Christine Gregoire and twenty-seven tribes signed Appendix X2. Tribes began converting their tribal lottery systems to cash-in systems compliant with the new security requirements.