Morongo Band v. California: Reexamining Impermissible Compact Provisions

By Heidi McNeil Staudenmaier and Caitlin Vanderkarr

California has become a battlefield for state versus tribal governance. As of May 6, 2025, the Morongo Band of Mission Indians (Morongo Band), a federally recognized Indian Tribe located in the State of California, filed suit against California Governor Gavin Newsom (California) seeking an injunction and declaratory relief (Complaint).¹ The Morongo Band and California entered into a Gaming Compact (2018 Compact) effective January 22, 2018, with the caveat that such compact is approved by the U.S. Department of the Interior “only to the extent… [it is] consistent with IGRA.”² The Secretary of the Interior is authorized to disapprove a compact if it violates the Indian Gaming Regulatory Act (IGRA)’s trust obligations of the U.S. to tribes, or other Federal law.³

IGRA and Tribal-State Compacts

The IGRA tribal gaming classification system — classes I, II, and III — requires tribes seeking to conduct class III gaming to enter a “compact” with the state in which its lands are located.⁴ Given the stakes for both parties, compact negotiations may take years to finalize, and negotiations are required to be conducted by states “in good faith.”⁵

Compacts may contain provisions such as: (1) criminal and civil laws and regulations and licensing; (2) jurisdiction allocation; (3) “assessment by the State … in such amounts as are necessary to defray the costs of regulating such activity”; (4) breach of contract remedies; (5) standards and maintenance of gaming locations; and (6) “any other subjects that are directly related to the operation of gaming activities.”⁶

That list is “exhaustive” and a compact “may not include provisions that do not directly relate” to that list, according to Morongo Band’s Complaint, which cites the Chicken Ranch Rancheria v. California⁷ court decision.⁸ States are not permitted to charge fees, taxes, or assessments that exceed necessary sums to regulate tribal class III gaming, nor can states refuse to negotiate with tribes simply because they wish to charge an impermissible assessment.⁹

Morongo Band-California Compacts (1999 – 2024)

California and the Morongo Band entered in a compact in 1999 (1999 Compact).¹⁰ The following year, California voters passed a state Constitutional Amendment allowing for such compacts and class III tribal gaming.¹¹ In exchange for class III gaming in the 1999 Compact, the Morongo Band agreed to make payments to the Indian Gaming Special Distribution Fund (SDF) and Indian Gaming Revenue Sharing Trust Fund (RSTF).¹²

A 2006 compact amendment (2006 Amendment) increased the annual required Morongo Band contributions from the 1999 Compact by 9,091 percent for RSTF amounts, and required the Morongo Band to contribute an additional $36,700,000 to the California General Fund (CGF) plus “millions of dollars” more into the CGF “based on” class III “net win,” per the Morongo Band’s Complaint.¹³

The Morongo Band asked California to renegotiate in 2011 and a new compact was executed in 2017, becoming effective in January 2018, contingent upon consistency with IGRA (2018 Compact).¹⁴ In 2024, subsequent to the Chicken Ranch decision, the Morongo Band notified California that it believed certain 2018 Compact sections were not consistent with IGRA and therefore “unenforceable” as “never approved.”¹⁵

California receives around $5.75 billion annually in taxes and revenue share payments from tribal gaming,¹⁶ including the RSTF, SDF, and CDF. Given the sums involved, compact (in)validity could significantly impact both parties.

IGRA Compact Enforceability: Dispute

The Morongo Band, through its Complaint, contends the following compact provisions do not comply with IGRA or relate to class III gaming and should therefore be unenforceable (among others):

The Complaint alleges the parties agreed that some provisions are unenforceable under IGRA pursuant to Chicken Ranch, but a dispute exists as to enforceability of certain others.¹⁸

SDF Claims

Notably, the dispute over SDF contributions centers on calculation methodology. The Morongo Band Complaint contends that the SDF required contribution amounts exceed California’s “actual reasonable and necessary [regulatory] costs” because: (1) the State Gaming Agency is appropriated an amount chosen exclusively by the California legislature, and (2) the Morongo Band is required to provide a minimum payment to ensure the SDF is “‘solvent’ for at least three consecutive years.”¹⁹ The Morongo Band asserts that it pays into the SDF annually, although at a reduced rate (40 percent less) since 2020.²⁰ The Complaint further alleges that the Morongo Band has paid more than California’s actual regulatory costs since 2018, and that, moreover, California “does not know its actual annual costs of regulating” the Morongo Band, from 2018 to filing date.²¹

The Complaint claims that any payments in excess of the actual cost of California to regulate Morongo Band class III gaming “constitute[] a tax, fee, or assessment prohibited” by IGRA and “thus unenforceable.”²² The Complaint further alleges that California expenditures from the SDF are not related to regulating Morongo Band class III gaming.²³ As such, such provisions  are unenforceable under IGRA because the funds are being used to pay for “State-licensed non-tribal gambling” regulation, “law enforcement” unrelated to gaming, “salaries of State attorneys involved in litigation against tribes, including defense of this action,” and “State overhead… not otherwise directed related to the regulation” of Morongo Band class III gaming.²⁴

As states are often required to report on their financial activities, it is possible that the information included in California’s reports exacerbated tribal concerns over time, leading to the current litigation. For example, a 2022 letter by then-Acting California State Auditor Michael Tilden to the California Governor and Legislative Leaders could be viewed as support for the Morongo Band SDF allegations.²⁵ Tilden’s 2022 Letter included the following statements: (1) “the State has not effectively managed the” SDF; (2) the current reserve could cover “nearly four years’ expenditures, much more than what a best practice indicates is appropriate;” (3) California has “not aligned the distribution fund fees… with the State’s costs to regulate tribal gaming;” and (4) certain California charges that were “inappropriately charged” to that fund were not reimbursed and in fact “continue[] to [be] improperly charge[d]… for nontribal regulatory activities.”²⁶

Prior to the 2022 Letter, a 2015 report (2015 Report) to the Joint Legislative Budget Committee (JLBC) by California’s Gambling Control Commission (Commission) indicated that California spent $521.7 million from the SDF for the period of 2003 – 2015.²⁷ The 2015 Report also included the following expenditure breakdown: 31.5 percent by the Department of Justice (DOJ), 13.3 percent by Problem Gaming and the Department of Public Health, and 12.5 percent by the Commission.²⁸ DOJ activities specified in the 2015 Report included providing California assistance in negotiating compacts, litigation costs relating to Compacts and tribal suits against California, legal advice relating to investigations of tribal casino activity, legal advice relating to taxation and the environment as applied to class III gaming, and legal representation of the Commission against tribal employees.²⁹ Given the timing of the litigation and the reports predating it, the Morongo Band could intend to use the 2022 Letter and the 2015 Report in support of its SDF allegations.

RSTF Claims

The Morongo Band further alleges in the Complaint that the compact-required RSTF payments, which increased 450 percent between the 2006 and 2018 Compacts, violate IGRA because the Morongo Band must give up significant sums without any meaningful state concession.³⁰ The Complaint asserts this harm is exacerbated because the tribal beneficiaries of the fund — tribes without class III gaming — are only eligible to receive 12 percent of what California receives annually from Morongo Band (and other tribes).³¹

The Complaint claims that “excess” RSTF funds transferred by Legislative directive into the TNGF violate IGRA because the Morongo Band was not consulted on and did not agree to such funds’ classification as California “discretionary grants” that cannot be used for gaming or per-capita distribution, thus the TNGF contributions constitute a state-imposed tax or fee.³²

A recent letter may also add to the tensions of this litigation. On May 7, 2025, the Commission issued a letter (2025 Letter) to the JLBC stating that RSTF payments to California tribes without class III gaming would total $78.1 million in 2025-26, with the RSTF containing $136.9 million — an undistributed excess of $58.8 million.³³

RDF & LCBF Claims

The Morongo Band Complaint criticizes California’s requirement that the Morongo Band’s Casino Resort Spa must pay $10 million annually (up to $100 million cumulative) to the Rainy Day Fund (RDF).³⁴ The Complaint asserts that the RDF fees constitute a “tax” or “fee” prohibited by IGRA, as spa services are unrelated to class III gaming and the Morongo Band cannot access its own contributions under the RDF except under limited circumstances and with prior notice to California.³⁵

The Morongo Band contends that it is mandated to pay $15-$24 million annually (depending on the RDF fund balance) to the Local Community Benefit Fund (LCBF), a Morongo Band grant fund usable only with California’s permission and for limited purposes.³⁶  The Complaint alleges that the LCBF contributions constitute an imposition by California rather than a negotiated “meaningful concession” and are not “directly related” to class III gaming.³⁷ The Complaint further asserts that such imposition is inconsistent with IGRA’s purpose and reflects “bad faith” on the part of California, as such concept was discussed in Rincon Band of Luiseño Mission Indians v. Schwarzenegger, and thus the LCBF provisions are not enforceable.³⁸

Legal Imposition Claims

Finally, the Complaint lists several compact legal requirements unrelated to class III gaming that California allegedly imposed on the Morongo Band that the Morongo Band “otherwise would not be subject to,” including the Americans with Disabilities Act (ADA),³⁹ Title VII of the Civil Rights Act,⁴⁰ California’s Minimum Wage Law,⁴¹ California’s tort laws, California’s unemployment insurance and income tax requirements, California’s spousal and child support laws, and a Tribal Labor Relations Ordinance imposed by California.⁴²

Request for Relief

A tribe may bring suit in federal court alleging that a state did not negotiate in good faith, and if the court finds in favor of that tribe, the court may order the parties to “conclude such a compact within a 60-day period.”⁴³ In making that finding, a court may contemplate public considerations (safety and interest) and “criminality, financial integrity, and adverse economic impacts on existing gaming activities,” but the court is required to presume that “any demand by the State for direct taxation of the Indian tribe… [i]s evidence that the State has not negotiated in good faith.”⁴⁴

Pursuant to IGRA, the Morongo Band requests the court: (i) declare the disputed provisions unenforceable; (ii) declare that California failed to provide “meaningful concessions” when requiring certain payments; (iii) issue a permanent injunction and preliminary judgment preventing California from enforcing such unenforceable 2018 Compact provisions; (iv) order California to provide an accounting of its “reasonably and necessarily incurred costs” in administering regulation of Morongo Band’s 2018 Compact and allow offsets of future GSDF amounts if such payments “have exceeded the costs” reasonable and necessary to regulate the Morongo Band’s gaming activity; (v) determine RSTF obligations and order reductions and prohibit future TNGF transfers; and (vi) order California to pay Morongo Band’s legal costs and other just relief from funds other than the GSDF, RSTF, or TNGF.⁴⁵

The contours of IGRA have long been litigated, particularly in California, as previous publications have detailed. To date, California has rebuffed tribal efforts to reduce its receipt of compact-related tribal revenues as the tribes have pressed to retain more of their class III gaming revenues. In light of nuanced legal interpretations, it is likely that IGRA-related litigation will continue to dominate and shape California’s gaming landscape. For both parties, the stakes are high. To be sure, both tribes and states outside of California will be watching as this litigation moves forward.