Pauma v. State of California

The doctrine of retroactivity does not apply to contracts.

In 1999, several tribes began negotiations with the State of California to operate Class III, casino-style, gambling (the “1999 Compact”). The Pauma Bank of Luiseno Mission Indians (“Pauma”) joined the 1999 Compact in 2000. A provision in the 1999 Compact limited the number of gaming licenses available to the tribes based on a formula. In December 2003, the State notified the tribes that their license pool was depleted, but did not provide an exact number. Pauma received only 200 licenses instead of the 750 that it requested. Thus, Pauma, and several other tribes, began renegotiating their compacts with the State to eliminate the license pool provision and get an unlimited number of licenses. The negotiations culminated in the 2004 Amendment where the State received substantially more money per license. Later, Pauma sued the State, claiming misrepresentation of the amount of licenses available in the State’s December 2003 notice. The district court awarded summary judgment to Pauma, stating that Pauma was entitled to rescission of the 2004 Amendment. The State appealed, arguing that retroactivity of the district court’s earlier decision regarding the amount of licenses available did not apply, causing there to be no misrepresentation. The Ninth Circuit explained that retroactivity does not apply to contracts, and therefore affirmed the lower court, holding that the State innocently misrepresented a material fact when it erroneously informed Pauma the 1999 Compact’s license pool had been depleted based on its miscalculation of the formula. Due to this misrepresentation, Pauma agreed to a more expensive 2004 Amendment. Therefore, the panel found that Pauma was entitled to rescission of the 2004 Amendment and restitution for the $36.2 million in overpayments made to the State. The panel noted that the Eleventh Amendment does not bar this suit because the State contractually waived its sovereign immunity. AFFIRMED.