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Lawsuit against Red Hawk owners gets court date

Business Journal: Wednesday, May 12, 2010, 11:06am PDT Sacramento Business Journal - by Mark Anderson Staff writer

A lawsuit filed three years ago against the Shingle Springs Band of Miwok Indians seeking more than $100 million got a court date in El Dorado County Superior Court.

The tribe owns Red Hawk Casino, which it built two years ago with the help of partner Lakes Entertainment Inc. The suit was brought by an earlier development partner, Sharp Image Gaming Inc., which claims an existing exclusive right to offer gaming with the tribe dating back to the late 1990s.

The tribe’s attorneys had tried to get the court to change the venue to Los Angeles, but the transfer was denied Monday by El Dorado Superior Court Judge Patrick Riley

The trial date was set for Nov. 1 in El Dorado Superior Court for the suit brought three years ago by Sharp Image. Over the past three years, the tribe has appealed the venue of a state court and sought a federal court. The tribe also has fought to have the case dismissed outright based on tribal sovereignty. The appeals made it up the to the California Supreme Court, which ruled in March the trial had a right to be heard and that the venue was in a state court.

Sharp Image Gaming, a Chatsworth-based video gaming company, signed a contract with the Shingle Springs Rancheria to bankroll and supply machines for its casino in 1996.

Sharp Image built a concrete pad, hoisted a permanent 20,000-square-foot white tent and filled it with 400 slot machines.

The Crystal Mountain Casino was very short-lived. In fact, it closed on its opening day. The tribe’s access to the rancheria was only over private roads, and the neighbors got court orders to limit access to non-commercial uses.

That stifled economic development there for about a decade.

The tribe then chose to work with Minneapolis-based Lakes Entertainment Inc. to develop Red Hawk Casino and build an interchange from Highway 50 to the rancheria.

With Lakes backing the project, the tribe built a $200 million casino and parking garage as well as the $45 million interchange. It also signed a 20-year, $87 million contract with the county and agreed to fund $104 million in carpool lane construction.

But Sharp Image Gaming argues it still has the valid contract to be the tribe’s gaming partner and the supplier of its slot machines. The lawsuit demands the return of $7 million it invested in the effort and $100 million in damages.

Sharp Image is suing for damages because a management contract with a casino can be lucrative. The contracts can run up to seven years and allow companies managing the casino for a tribe to take a cut of profits, often up to a quarter. In good economic times, a 200,000-square-foot casino can generate about $200 million annually.

Red Hawk, however, opened during a recession. It already has changed executive management at the casino and went through a round of layoffs. Red Hawk agreed to the most generous revenue-sharing deal with the county of the three largest casinos in the region. The interchange and the local agreements saddle Red Hawk with almost $235 million in extra debt over 20 years.

Since Sharp Image filed its suit in May 2007, the tribe’s attorneys have sought to have the suit dismissed on the grounds that the company had no standing to sue a sovereign Native American nation, maintaining that the suit should have been filed in federal court.

That plea was denied by an El Dorado County judge in January 2008. The tribe appealed and was denied, again.

In January, it lost yet another appeal in the Third District Court of Appeals, so it took its case to the California Supreme Court. In March, the state’s high court denied the tribe’s petition for review.

 

 


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