Maine’s Tribal iGaming Experiment Heads to Federal Court

In a surprise move, Churchill Downs has chosen a rather fraught legal path by suing Maine for issuing a license that they claim grants a race based monopoly on online casino games in the State. Governor Mills allowed LD 1164 to pass into law earlier in January which granted the tribes of the Wabanaki Nation exclusive rights to operate what would be the nation’s eighth legal iGaming market.

In its lawsuit filed in the US District Court in Portland the company alleges that the issuance of these licenses violates the Equal Protection Clause of both the US and Maine constitution. The complaint also raises a rather interesting Dormant Commerce Clause challenge alleging that the statute discriminates against out of state commercial interests. 

While this case centers on Maine, make no mistake its impact could be felt far beyond the Pine Tree State.

Core of Churchill Downs’ Challenge

It all boils down to LD1164’s decision to grant exclusive rights to operate online casinos to Maine’s four federally recognized tribes:

• Penobscot and Passamaquoddy Tribes

• Houlton Band of Maliseet Indians

• Mi'kmaq nation

By restricting online gaming licenses solely to these tribal entities, Churchill Downs alleges that this effectively creates a race based monopoly, which shuts out non tribal based commercial operators. Churchill Downs owned Oxford Casino has around three hundred workers in the state, paid over $40 million in gaming taxes and asserts that it would have applied for an iGaming license if permitted.

They also point out that commercial casinos in the state are prohibited in the statute from partnering with tribes thus shutting the door to even an indirect path for them into this market.

Equal Protection

The biggest question at stake here is does the law create a race-based classification or is it simply a political one? If it's the former, Maine has to show a compelling interest as well as show that the law is narrowly constructed to achieve its stated goal, usually an uphill battle.

If the latter, then the law would be reviewed under the much more deferential, at least to the state, rational basis standard. This requires only that the law is reasonably related to a legitimate government purpose.

While historically courts have tended to side with states and tribes on this question, Maine is anything but a typical tribal gaming jurisdiction.

Maine and the Indian Claims Settlement Act (MICSA)

Unlike tribes in most states, Maine’s four tribes fall outside the Federal Indian Gaming regulatory Act (IGRA). They instead are governed by the Maine Indian Claims Settlement Act, (MICSA) which much more tightly hews them to state jurisdiction and limits their gaming rights.

This is in fact a long simmering reason for LD-1164. In most states the tribes would have had a pathway to class III gaming through the IGRA once a state permits that form of gaming. Unfortunately in Maine, the Claims settlement which was finalized in 1980, eight full years before passage of the IGRA, removed that right.

That is why specific legislation like the online casino bill was deemed necessary to grant the tribes something like comparable economic access to casino gaming. Churchill Downs argues that this bill however created a state based economic preference, not a federal accommodation.

Maine didn’t just recognize existing gaming authority under federal law but actually granted it. And in this case, they have much more legal traction than in a state where the tribes operate under IGRA and federal statutes.

The Commerce Clause

While a bit more tangential, the Commerce Clause claim can be seen to add a little pressure. Though it should be a straightforward argument for the State. The lawsuit states that the law will unlawfully burden interstate commerce by excluding out of state non tribal entities.

But courts have long given states room on gaming when it comes to Commerce Clause claims, simply because gambling is heavily regulated to begin with, states have been given broad discretion by the courts to structure gaming markets as they see fit, and there is simply no constitutional right to be allowed to offer casino gaming.

Job Losses and Economic Impact

The rest of Churchill Downs claims rest on economic harm with “studies” that purport to show losses to land base casinos of over 15%. While their workforce is only slightly more than 300 they claim statewide that the two legal commercial casinos in the State might see hundreds of jobs lost and tens of millions in reduced economic activity.

These stats are more likely aimed at politicians and labor unions than actual court precedent. Projected economic harm is seldom seen as a reason to overturn a law on its own. But they may help establish standing as well as reinforce the purported stakes for the legislature and the governor.

National Interest

Maine will be a very small iGaming market by population and revenue standards, but the lawsuit definitely puts a bright spotlight on tribal exclusive digital gaming models. That’s especially true of those operating without land-based casinos but as purely online entities.

Tribes in states like California where tribal governments wield vast political influence, but where ongoing legal and legislative debates have left the law unsettled on online exclusivity will be paying very close attention. In Florida the tribe won a case in front of the Supreme court which gave it the right to offer sports betting across the state, but they are eyeing online casinos as well.

What Happens Next?

The most likely outcome is not a wholesale invalidation of Maine’s new iGaming law, at least not from the courts. It’s much more likely we will see some form of judicial clarification or even eventual legislative adjustment if the courts find parts of the new statute constitutionally vulnerable.

Maine does have a People’s Veto. This provision allows citizens to gather enough signatures that any non emergency legislation passed is then brought to a statewide vote. This needs to take place within 90 days of the legislative adjournment. They just returned to session and won’t adjourn until mid April, meaning those opposed to the bill need only to gather around 67,000 signatures before July of this year to put the law on hold until it can be placed on a ballot.

So regardless of whether this case ends in dismissal, modification, or a protracted litigation slugfest, there is every chance that the people of Maine will still have the final say. And it underscores the larger reality that when it comes to gambling bills mixed with tribal interests, there is just no way to guess where the collision of federal IGRA law, state inherent police power to regulate gaming, and challenges under the equal protection and commerce clause of the federal constitution will eventually end up.

For Maine, and for other states considering similar paths, the Churchill Downs lawsuit is a timely reminder that the next chapter of iGaming won’t just be written in the state house but also in the court house.