Sault Ste. Marie Tribe of Chippewa Indians v. Granholm

Court of Appeals for the Sixth Circuit
475 F.3d 805 (2007)

ELI5:

Rule of Law:

When a contract term has a plain meaning but is alleged to have a different technical meaning within a specialized industry, a court must consider extrinsic evidence to determine whether a latent ambiguity exists, and if so, to resolve that ambiguity.

Facts:

In 1993, the Hannahville Indian Community and the Governor of Michigan entered into a Consent Judgment governing tribal casino operations.
The agreement required Hannahville to pay 2% of its 'net win' from slot machines to local governments.
The agreement defined 'net win' as the 'total amount wagered' minus the 'total amount paid to players.'
Around 1998, Hannahville's Island Resort and Casino began giving customers free promotional 'Quicksilver tokens' for use in specific slot machines.
These tokens could not be redeemed for cash, but the machines paid out any winnings in real money.
When calculating its 'net win,' Hannahville assigned a value of zero cents to each Quicksilver token wagered.
This accounting method created a net loss on those machines, as they paid out real money but registered zero dollars wagered, thereby lowering the casino's overall reported 'net win' and its payments to the government.
The Governor of Michigan argued the tokens should be valued at twenty-five cents each, based on the casino's own internal reports and advertisements.

Procedural Posture:

The Hannahville Indian Community and other tribes originally sued the Governor of Michigan in federal district court to compel negotiation of gaming compacts under the Indian Gaming Regulatory Act.
The parties settled the lawsuit by entering into a Stipulation and Consent Judgment in 1993, with the district court retaining jurisdiction for enforcement.
On January 25, 2005, the Governor of Michigan filed a Motion to Enforce the Stipulation and Consent Judgment in the district court, alleging Hannahville was improperly calculating its 'net win'.
The district court found the term 'wager' to be unambiguous and refused to consider extrinsic evidence offered by Hannahville regarding gaming industry standards.
The district court granted the Governor's motion, ruling that the promotional tokens must be valued at twenty-five cents each and ordering Hannahville to pay $1,027,378.00 plus interest.
Hannahville Indian Community, as appellant, appealed the district court's final judgment to the U.S. Court of Appeals for the Sixth Circuit; the Governor of Michigan is the appellee.

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Issue:

Is the term 'wager' in a consent judgment latently ambiguous when applied to promotional casino tokens with no cash value, thereby requiring a court to consider extrinsic evidence of gaming industry standards to determine its meaning?

Opinions:

Majority - Clay, J.

Yes, the term 'wager' is latently ambiguous in this context. A latent ambiguity arises when a term that appears clear on its face becomes unclear when applied to specific facts, particularly when the term may have a technical meaning within a specialized industry. Under Michigan law, when a party presents plausible extrinsic evidence suggesting such a technical meaning, the court must consider that evidence to determine if an ambiguity exists. Hannahville offered relevant evidence from gaming industry standards (such as the AICPA Guide and Nevada Gaming Commission rules) showing that promotional plays are often treated as having no monetary value for revenue calculation. The district court committed reversible error by refusing to consider this evidence to determine if an ambiguity existed. The error was compounded when the court selectively considered the Governor's extrinsic evidence to assign a twenty-five cent value to the tokens while ignoring Hannahville's evidence to the contrary.

Concurring - Katz, D.J.

Yes, the district court's decision should be reversed. The concurrence is limited to the conclusion that the district court erred by accepting and relying on extrinsic evidence from the Defendant while refusing to consider extrinsic evidence offered by the Plaintiff on the same issue. This procedural error justifies reversal and remand. However, the author notes that the district court's original opinion was well-reasoned based on the evidence before it, and suggests that on remand, the district court may reach the same ultimate conclusion unless the newly admitted evidence compels a different result.

Analysis:

This decision reinforces the doctrine of latent ambiguity, emphasizing that a court's inquiry into contract meaning is not always confined to the document's 'four corners.' It establishes that when a term may have a specialized trade usage, a court must examine relevant extrinsic evidence to determine if an ambiguity exists before interpreting the contract. The ruling also underscores the principle of evidentiary fairness, prohibiting a court from selectively considering one party's extrinsic evidence while excluding the other's. This precedent impacts future contract disputes in specialized fields by requiring courts to engage with industry customs and standards to ascertain the parties' true intent.

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