5 N.Y.3d 243 (2005)
New York’s constitutional prohibition on commercial gambling does not prevent the state from entering into tribal-state compacts for casino gaming on Indian lands, authorizing video lottery terminals, or participating in multi-state lotteries, provided that such activities are consistent with federal law and state constitutional requirements regarding lottery proceeds.
Summary
This case addresses the constitutionality of New York legislation authorizing tribal-state compacts for casino gaming, video lottery terminals (VLTs), and participation in the multi-state Mega Millions lottery. Citizen taxpayers and state legislators challenged the laws, arguing they violated the state constitution’s prohibition on commercial gambling. The New York Court of Appeals upheld the legislation, finding that the Indian Gaming Regulatory Act (IGRA) preempts state law regarding gaming on Indian lands, and that VLTs and Mega Millions are permissible state-operated lotteries with proceeds dedicated to education. The court emphasized the strong presumption of constitutionality afforded to legislative enactments.
Facts
In 2001, New York enacted Chapter 383 of the Laws of 2001 to counter the economic effects of the September 11th attacks. The law contained provisions (parts B, C, and D) authorizing: (1) tribal-state compacts with the Seneca Nation and other tribes for casino gaming (Part B); (2) the use of video lottery terminals (VLTs) at racetracks (Part C); and (3) participation in a multi-jurisdictional lottery, Mega Millions (Part D). The Governor submitted a message of necessity to expedite the bill’s passage.
Procedural History
Plaintiffs sued, seeking a declaration that parts B, C, and D of Chapter 383 were unconstitutional. The Supreme Court granted summary judgment to the defendants, upholding the law. The Appellate Division modified the decision, declaring part C (VLTs) unconstitutional because of a provision requiring reinvestment of vendor fees in the racing industry, which it found violated the constitutional requirement that lottery proceeds be dedicated exclusively to education. Both plaintiffs and defendants appealed to the New York Court of Appeals.
Issue(s)
1. Whether the authorization for the Governor to enter into tribal-state compacts for casino gaming (Part B) violates the New York Constitution’s prohibition on commercial gambling, considering the federal Indian Gaming Regulatory Act (IGRA)?
2. Whether the authorization of Video Lottery Terminals (VLTs) at racetracks (Part C) constitutes a valid state-operated lottery under the New York Constitution?
3. Whether the provision requiring reinvestment of a portion of VLT vendor fees for enhancing purses and breeding funds (Part C) violates the constitutional requirement that lottery proceeds be dedicated exclusively to education?
4. Whether the State’s participation in the multi-state Mega Millions lottery (Part D) is constitutional, specifically whether it is “operated by the state” and whether the net proceeds are “applied exclusively to or in aid or support of education in this state” as required by the New York Constitution?
Holding
1. Yes, because IGRA preempts state law and permits class III gaming on Indian lands in states that allow such gaming for any purpose.
2. Yes, because the video lottery, utilizing electronic tickets and involving multiple participation, constitutes a valid lottery under the New York Constitution.
3. Yes, because the reinvestment provision is considered part of the vendor fee, representing a regulated use of the racetracks’ profits, and the legislature determines net proceeds.
4. Yes, because New York retains sufficient control over the sale of Mega Millions tickets within the state to be considered operating the lottery, and the net proceeds, less necessary administrative expenses, remain in New York and are dedicated to education.
Court’s Reasoning
Regarding tribal-state compacts, the court relied on IGRA, which allows class III gaming on Indian lands in states that permit such gaming for any purpose. The court determined that because New York allows some forms of class III gaming for charitable purposes, IGRA preempts the state’s general prohibition on commercial gambling. The court cited California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987), and Mashantucket Pequot Tribe v. State of Conn., 913 F.2d 1024 (2d Cir. 1990), emphasizing that IGRA was “intended to expressly preempt the field in the governance of gaming activities on Indian lands.” The court noted that through the compacting process, IGRA confers a benefit on the state by allowing it to negotiate and to have some input into how class III gaming will be conducted.
Regarding VLTs, the court reasoned that the key elements of a constitutional lottery are the sale of tickets and multiple participation. It found that the video lottery satisfied these elements because players purchase electronic tickets and compete against one another for prizes through a central system. The court found that it was of no constitutional significance that the tickets are electronic instead of paper. “The language of the Constitution is not so rigid as to prevent this type of update and modernization.”
The court further reasoned that the reinvestment of vendor fees was constitutional because it represented a regulated use of the racetracks’ profits, not a separate deduction from the state’s lottery proceeds. The court said, “These moneys are not a separate deduction, beyond other costs and expenses, from the amount paid to the racetracks as a vendor fee. Rather, they constitute simply a part of the vendor fee itself—but a part whose use the State has decided to regulate.”
Regarding Mega Millions, the court held that New York retained sufficient control over the lottery’s operation within the state to satisfy the constitutional requirement that it be “operated by the state.” It emphasized that New York retained the authority to specify where and how lottery tickets could be sold and to license ticket agents. The Court also concluded that the net proceeds of Mega Millions were applied exclusively to education, as required by the constitution, finding that the administrative expenses paid by New York were reasonable and necessary for the operation of the lottery.