                    Proposed Legislation to Establish the
                    National Indian Gaming Commission

A bill that proposes to create an “independent commission” within the Department o f the Interior
   to regulate gambling on Indian reservations and that would give the commission the power,
   inter alia, to impose civil fines, gives rise to several constitutional issues. The extent to which
   Congress may restrict the removal o f subordinate executive officers such as the members of
   the Indian Gaming Commission is unclear, but such restrictions should be avoided. Further­
   more, consistent with the Appointments Clause, the authority to waive a federal statute should
   be subject to the approval of a principal officer, such as the Secretary of the Interior.

Under the Due Process Clause, civil penalties imposed by members of the Indian Gaming
  Commission should be imposed by an unbiased administrative judge rather than an interested
  official.

Under the Fourth Amendment, the Indian Gaming Commission may conduct w arrantless searches
  o f gam bling establishm ents, which are part o f a closely regulated industry, only if: (1) there is
  a substantial government interest; (2) the searches are necessary to further the regulatory
  scheme; and (3) the statute provides a constitutionally adequate substitute for a warrant. The
  first and second requirements are met in this case. The third requirement may be m et by
  providing notice in the statute that inspections will be made on a regular basis and will have a
  particular scope.

                                                                                           July 24, 1987

      M   em orandum        O p in io n    for th e     A s s is t a n t A t t o r n e y G e n e r a l ,
                       Land     and    N   atural       R e s o u r c e s D iv is io n


   This responds to your request for our views on S. 1303, a bill that would
establish a National Indian Gaming Commission (Commission) within the
Department of the Interior to regulate gambling on Indian reservations. We
have several comments.
   First, the Commission is established as “an independent commission” within
the Department of the Interior. S. 1303, § 5(a). As a part of the Department of
the Interior, the Commission is subordinate to the Secretary of the Interior and
cannot be independent of that authority. Section 5(b)(5) states that the four
members appointed by the Secretary may only be removed for cause. The
extent of Congress’ power to place limitations on the removal of subordinate
executive officers is unclear,1 and in this context, should be avoided. The
Secretary is responsible for the actions of the Commission’s members, a
majority of whom he appoints, and will be charged with defending them if they
are sued or act in a controversial fashion. Limiting his removal power will
 1 Cf. United States v. Perkins, 116 U.S. 483 (1886).

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handicap his supervisory authority. This is especially important given that the
Commission is acting in an area that will undoubtedly attract criminals and
 subject the Commissioners to a variety of pressures. If enacted as is, we would
read the “for cause” provision broadly, in order to give the Secretary maximum
flexibility. To provide the Secretary with adequate authority to supervise the
Commission’s members, however, we urge that he be given the clear right to
remove the members at will.
   Second, § 4, which prohibits gaming on certain Indian lands, does not apply
“if the Indian tribe . . . obtains the concurrence of the Governor of the State,
and the governing bodies of the county or municipality in which such lands are
located” to the tribe’s obtaining the land. Id., § 4(b). This provision would give
individuals not appointed in accordance with the Appointments Clause, U.S.
Const, art. II, § 2, cl. 2, the authority to waive a federal statute. In order to avoid
the constitutional problems inherent in such a situation, § 4(b) should be
revised to begin: “Subject to the approval of the Secretary.” This would insure
that implementation of the statute remained in the hands of a properly ap­
pointed Executive Branch officer.
   Third, we are concerned by § 15(a)(1), which permits the Chairman of the
Commission to levy civil fines of up to $25,000 against the managers of the
gambling establishments.2 “Fines collected pursuant to this section shall be
utilized by the Commission to defray its operating expenses.” Id? The use of
civil penalties to supplement the Commission’s appropriation raises due pro­
cess concerns. The Due Process Clause requires that such fines be assessed by
a neutral tribunal. Ward v. Monroeville, 409 U.S. 57, 62 (1972). Although it is
true that Commission members will not benefit personally from any civil fines
imposed,4 the provision raises questions about how impartial the Chairman will
be in levying fines when he knows the proceeds will be applied directly to the
“operating expenses” of the Commission.
   The Supreme Court addressed this issue most recently in Marshall v. Jerrico,
Inc., 446 U.S. 238 (1980).5 In upholding the assessment provision at issue in
Marshall, the Court highlighted several factors. First, the Court noted that the
regional administrator levying the fine did not have the role of a judge, as in
Ward and Tumey, but was akin to a prosecutor. Prosecutors, the Court said,
need not be entirely neutral and detached, as judges must be. Marshall, 446 U.S. at
248. The regional administrator had the role of a prosecutor because the employer
was “entitled to a de novo hearing before an administrative law judge,” where the
administrator would have to prove his case. Id. at 247. Thus, the first level of
adjudication (rather than accusation) was before an unbiased judge.
  2 The m anager m ay have the Commission hear the evidence against him before the Fine is collected by the
C hairm an. S. 1303, § 15(a)(2).
  3 O perating expenses are not defined.
  4 See Tumey v. Ohio, 273 U.S. 510, 523 (1927).
  5 Marshall involved the pow er of a D epartm ent o f L abor regional adm inistrator to assess a civil penalty of
up to $1000 against em ployers who violated the child labor laws. The penalties collected in each region were
returned to the national office, which allocated them for various parts o f the program, including the regional
offices. The statute was challenged on the ground that regional adm inistrators w ould assess extra fines in the
hope that som e o f the m oney would be retu rn ed to their regions.

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   By contrast, under S. 1303 the Chairman (and the Commission) are not
analogous to prosecutors: they do not have to prove their case before an
independent administrative law judge. The Chairman’s decision to levy a fine
is reviewed not by an independent administrative law judge but by the Com­
mission, which is as interested in the matter as the Chairman. Thus, the
Chairman and the Commission constitute the initial level of adjudication for
the owners. The next level of adjudication is in the court of appeals. S. 1303,
§ 16. The M arshall opinion seems to indicate that if a financially interested
administrator acts as a judge, the “rigid requirements of Tumey and Ward,
designed for officials performing judicial or quasi-judicial functions” apply.
Marshall, 446 U.S. at 248.
   Moreover, the Court in M arshall emphasized that the penalties collected by
the regional administrators constituted “substantially less than 1%” of the
agency’s budget. Id. at 245. In fact, the agency returned money each year to the
Department of the Treasury because it was not even using up its appropriation,
so that the collection of penalties did not “resulft] in any increase in the funds
available to the [agency] over the amount appropriated by Congress.” Id. at
246. In light of these figures, the Court did not believe that there was “a
realistic possibility that the [administrator’s] judgment will be distorted by the
prospect of institutional gain as a result of zealous enforcement efforts.” Id. at
251. The Commission’s initial appropriation is $2,000,000. S. 1303, § 20. We
cannot say at this point how much money the Commission will collect in
penalties, but there is certainly a significant possibility that the Commission
may generate more than 1 percent of its operating expenses from assessing
penalties of up to $25,000 per offense.
   As the Supreme Court has said, one of the most important functions served
by having an impartial and disinterested judge is the preservation of a fair
adjudicative process: “Indeed, ‘justice must satisfy the appearance of justice.’”
Marshall, 446 U.S. at 243 (citation omitted). While we cannot state definitively
whether the penalty provision in S. 1303 would survive court scrutiny, we do
believe it would provide a serious ground for attack. We would therefore
recommend that this provision be eliminated. If it is not, we recommend that
the amount of money collected be used as a credit against the Commission’s
appropriation, rather than as a supplement to it, or that some cap be placed on
the amount that the Commission may retain.
   Our next concern with the bill is that it would permit the Commission to
inspect the premises and records of any establishment where gambling is
conducted. S. 1303, § 7(b)(2), (4). As we noted last year when commenting on
an earlier version of this bill,6 the Supreme Court has recognized the applicabil­
ity of the Fourth Amendment to commercial enterprises, but has created certain
exceptions: first, for closely regulated industries in which owners have reduced
expectations of privacy; and second, for laws providing such a regular and
certain pattern of inspections that there is a predictable and guided federal
  6 M emorandum for Stephen S Trott, A ssistant A ttorney G eneral, Criminal Division from C harles J.
C ooper, A ssistant A ttorney G eneral, O ffice o f Legal Counsel (Apr 1, 1986).

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regulatory presence.7 The Supreme Court has held that closely regulated indus­
tries include the liquor trade, firearms, mining, and, in its most recent decision
in this area, automobile junkyards. New York v. Burger , 482 U.S. 691 (1987).
We think it is fair to assume that gambling would be considered a closely
regulated industry in the United States.
   In B urger, the Supreme Court held that warrantless inspections of closely
regulated industries are permissible if three criteria are met. First, there must be
a substantial federal interest at stake. Id. at 702. Regulation of gambling on
Indian reservations in order to prevent the infiltration of organized crime is
certainly an important federal interest. Second, warrantless inspections must be
necessary to further the regulatory scheme. Id. As with the scheme upheld in
Burger, effective inspections of gambling establishments require surprise.
Otherwise, the owners would have ample time to hide or destroy ledgers or
other evidence of malfeasance. Third, the statute must provide “a ‘constitution­
ally adequate substitute for a warrant.’” Id. at 703 (quoting Donovan v. Dewey,
452 U.S. 594, 603 (1981)). In Burger, this condition was met because:
            [t]he statute informs the operator of a vehicle dismantling busi­
            ness that inspections will be made on a regular basis. Thus [he]
            knows that the inspections . . . do not constitute discretionary
            acts by a government official but are conducted pursuant to
            statute. [The statute] also sets forth the scope of the inspection
            and, accordingly, places the operator on notice as to how to
            comply with the statute.
Id. at 711 (citations omitted). The only restraint on the scope of the inspection
identified by the Court was limiting the inspections to regular business hours. Id.
   S. 1303 puts the operators of gambling establishments on notice that they
will be inspected and lists the items that are subject to inspection, thus placing
operators on notice as to the scope of what can be examined. Accordingly, our
only suggestion is that the bill be amended to state that inspections will take
place during regular business hours.8

                                                                     D o u g l a s W . K m ie c
                                                          D eputy Assistant Attorney General
                                                               Office o f Legal Counsel




  1 See Donovan v. Dewey, 452 U.S. 594, 598 (1981); Marshall v. Barlow's Inc., 436 U.S. 307, 311 (1978);
United States v. Biswell , 406 U.S. 3 1 1 ,3 1 3 (1972); Colonnade Catering Corp. v. United States, 397 U.S. 72,
75 (1970); See v. City o f Seattle, 387 U .S. 541, 542 (1967).
  * E arlier cases such as Donovan also req u ired inspections on m ore than an annual basis: Donovan upheld a
statutory schem e in part because it provided for irregular inspections at least twice a year. 452 U.S. at 604.
Burger does not ap p ear to in sist on this facto r, but such a provision would provide further protection against
constitu tio n al attack.

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