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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): December 31, 1997
MULTIMEDIA GAMES, INC.
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(Exact name of registrant as specified in its charter)
Texas 0-28318 74-2611034
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(State or other (File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
7335 S. Lewis Avenue, Suite 204, Tulsa, Oklahoma 74136
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (918) 494-0576
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Item 5. Other Events
U.S. Attorney Investigation
On January 2, 1998, Multimedia Games, Inc. (the "Company") issued a
press release announcing that representatives of the U.S. Attorney for the
Northern District of Oklahoma and of the Federal Bureau of Investigation had
conducted a search of the Company's headquarters in Tulsa and had seized
equipment relating to the Company's MegaMania bingo game. The seizure, which
occurred around 9:00 A.M. on New Year's Eve day, caused a temporary disruption
in the play of MegaMania on the Company's MegaMania network. MegaMania play
was resumed around midnight at more than 90% of the Company's MegaMania
network. Play was not resumed at two bingo halls operated by the Cherokee
Nation in Oklahoma and at one bingo hall operated by the Seneca Cayuga tribe in
Oklahoma, because the MegaMania player stations located in those halls had been
"seized as evidence" according to the U.S. Attorney. The Company's other bingo
operations were not affected. A copy of the press release is attached as
Exhibit 99.1 and is incorporated herein by reference.
MegaMania has been designed and is operated as a Class II game within
the definition of bingo set forth in the Gaming Act. In a written opinion
dated July 23, 1997, the Company was informed by the National Indian Gaming
Commission ("NIGC"), of the NIGC's determination that MegaMania constituted a
Class II game. The Company has relied on the NIGC's opinion in conducting its
operations and believes that the NIGC made its determination with a complete
and accurate understanding of the facts and the applicable law.
The Gaming Act classifies games that may be played on Indian land into
three categories. Class I gaming includes traditional Indian social and
ceremonial games and is regulated only by the tribes. Class II gaming includes
bingo, pull-tabs, lotto, punch boards, tip jars, instant bingo, certain card
games played under limited circumstances and other games similar to bingo if
those games are played at the same location where bingo is played. Class III
gaming consists of all forms of gaming that are not Class I or Class II, such
as video casino games, slot machines, most table games (e.g., blackjack and
craps) and keno.
Generally speaking, Class II gaming may be conducted on Indian lands
if the state in which the Indian reservation is located permits such gaming for
any purpose by any person. Class III gaming, on the other hand, may only be
conducted pursuant to a compact reached between the Indian tribe and the state
in which the tribe is located.
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On January 5, 1998, the Company issued a press release announcing that
it has filed an action in Federal court for the Northern District of Oklahoma
seeking a prompt declaration that the Company's MegaMania bingo game is a legal
Class II game as permitted by the Indian Gaming Regulatory Act. Joining MGAM
in the action was the Seneca Cayuga tribe of Oklahoma, whose bingo hall has
been shut down by federal agents since New Year's Eve. In accordance with
federal court rules, MGAM also requested an immediate court-ordered settlement
conference as part of its efforts to obtain an early resolution of its dispute
with Steve Lewis, the U.S. Attorney for the Northern District of Oklahoma, who
was named as a defendant in the Company's complaint. A copy of the press
release is attached as Exhibit 99.2 and is incorporated herein by reference.
Item 7. Financial statements, Pro forma Financial Information and
Exhibits.
Exhibit 99.1 Press Release issued January 2, 1998.
Exhibit 99.2 Press Release issued January 5, 1998.
Exhibit 99.3 Complaint For Declaratory Relief filed in the
Northern District of Oklahoma on January 5,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MULTIMEDIA GAMES, INC.
Dated: January 6, 1998 By: /s/ Frederick E. Roll
-----------------------------
Frederick E. Roll
Vice President - Finance and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO.
99.1 Press Release issued January 2, 1998.
99.2 Press Release issued January 5, 1998.
99.3 Complaint For Declaratory Relief filed in the
Northern District of Oklahoma on January 5,
1998.
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Exhibit 99.1
MULTIMEDIA GAMES ANNOUNCES TEMPORARY
DISRUPTION OF MEGAMANIA GAME
January 2, 1998
TULSA, Oklahoma - (BUSINESS WIRE) -January 2, 1998. Multimedia
Games, Inc. (MGAM) reported today that representatives of the U.S. Attorney for
the Northern District of Oklahoma and of the Federal Bureau of Investigation
had conducted a search of the Company's headquarters in Tulsa in order to
gather evidence relating to the Company's MegaMania bingo game. The search,
which began around 9:00 A.M. on New Year's Eve day, caused a temporary
disruption in the play of MegaMania on the Company's MegaMania network.
MegaMania play was resumed around midnight at more than 90% of the Company's
MegaMania network. Play was not resumed at two bingo halls operated by the
Cherokee Nation in Oklahoma and at one bingo hall operated by the Seneca Cayuga
tribe in Oklahoma, because the MegaMania player stations located in those halls
had been "seized as evidence" according to the U.S. Attorney. The Company's
other bingo operations were not affected. The temporary disruption is not
expected to have a material adverse impact upon the Company's revenues and
earnings.
Larry Sandel, of Hall, Estill, Hardwick, Gable, Golden & Nelson,
representing the Company stated,
"This is a sad day for justice for the people of Oklahoma and the
thousands of customers throughout the country that play and enjoy MegaMania.
It is especially sad for the sovereign Indian tribes that depend upon revenues
from bingo to meet the needs of their citizens.
We are shocked by the actions of the U.S. Attorney. MGAM has been
operating MegaMania as a legal Class II bingo game with the express approval of
the National Indian Gaming Commission (NIGC). The NIGC has been authorized by
Congress to regulate gaming on Indian lands. The Indian tribes who have been
most harmed by these actions have done nothing more than to meticulously follow
the clear directives of the NIGC. Just two weeks ago the Department of Justice
in Washington D.C. admitted before a Federal District Judge that MegaMania had
been sanctioned as a legitimate Class II game by the NIGC.
There is no reason for the U.S. Attorney to have taken these actions.
MGAM has repeatedly disclosed to the U.S. Attorney and the NIGC the method of
operation of MegaMania. For the U.S. Attorney to claim that it needs to seize
further evidence is absurd. In fact, just two days ago MGAM offered to meet
with the U.S. Attorney in January 1998 in order to resolve any open issues.
Instead of accepting yet another offer of cooperation, our offices get invaded
on New Year's Eve, our records get seized and the play of MegaMania is
temporarily disrupted. Fortunately,
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MGAM has been able to resume play so as to minimize the impact on its
customers.
These seizure tactics are another example of the harassing actions
taken by the U.S. Attorney for the past year and a half. Personnel from the
U.S. Attorney's office have previously met with our customers and competitors
in violation of Department of Justice investigative guidelines, to inform them
that the Company is under investigation. In fact, about the only way we ever
learn of what the U.S. Attorney is doing is through disclosures made to our
customers and competitors. We can only conclude that the U.S. Attorney is
purposely trying to economically harm MGAM, its employees and the Indian tribes
through an abuse of its investigative power.
MGAM intends to act promptly, vigorously and aggressively to protect
the valid interests of its shareholders, employees and the Indian tribes. We
expect to be supported in this effort by the sovereign Indian Nations, who once
again find themselves persecuted by the Federal government in what appears to
be a jurisdictional battle between two agencies over turf, aggravated by
political pressure from representatives of competing gaming interests. We have
put-up with the bullying and harassment of the U.S. Attorney long enough. We
are tired of having our civil rights violated and those of our Indian customers
and plan to take all necessary steps to end it. MGAM expects to be fully
vindicated on the merits"
On July 10, 1996, the NIGC issued its opinion that the Company's
MegaMania game is a Class II rather than a Class III gaming activity and the
Company has relied upon the opinion of the NIGC in operating its MegaMania game
since that time.
On October 16, 1996, the U.S. Attorney orally informed the Company
that the U.S. Attorney was conducting an independent investigation to determine
whether, in the opinion of the U.S. Attorney, the Company's MegaMania bingo
game constituted Class III or Class II gaming. MGAM subsequently met with
representatives of the NIGC and the U.S. Attorney on numerous occasions to
fully disclose all aspects of its MegaMania operations. Based upon these
exchanges, the Company agreed to implement certain changes to its MegaMania
game which the Company believed had been approved by the U.S. Attorney. The
NIGC evaluated the changes and informed the Company in a written advisory
opinion that the revised MegaMania game "constituted Class II gaming and that
tribes may play the revised game without risk of enforcement action by the
NIGC."
Multimedia Games, Inc. is the nations leading provider of linked,
high-stakes bingo games, electronic based interactive bingo games, and
associated data processing and communications products services to the Indian
gaming market.
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Exhibit 99.2
MULTIMEDIA GAMES SUES U.S. ATTORNEY
SEEKS IMMEDIATE HEARING ON MERITS OF MEGAMANIA
January 5, 1998
TULSA, Oklahoma - (BUSINESS WIRE) -January 5, 1998. Multimedia
Games, Inc. (MGAM) announced that it has filed an action in Federal court for
the Northern District of Oklahoma seeking a prompt declaration that the
Company's MegaMania bingo game is a legal Class II game as permitted by the
Indian Gaming Regulatory Act. Joining MGAM in the action was the Seneca Cayuga
tribe of Oklahoma, whose bingo hall has been shut down by federal agents since
New Year's Eve. In accordance with federal court rules, MGAM also requested an
immediate court-ordered settlement conference as part of its efforts to obtain
an early resolution of its dispute with Steve Lewis, the U.S. Attorney for the
Northern District of Oklahoma, who was named as a defendant in the Company's
complaint.
Gordon T. Graves, the Chairman and Chief Executive Officer of the
Company, stated,
"We filed this action as soon as the courthouse opened Monday
morning. We intend to obtain a prompt and final court ordered determination
that MegaMania is a legal Class II bingo game so that we can put a stop to the
kinds of actions taken by Mr. Lewis against our company over the last several
months. We are very confident in the merits of our case and believe that we
will prevail.
We are pleased that our good customer, the Seneca Cayuga tribe of
Oklahoma, has joined us in this action, although we are certainly unhappy with
the circumstances that they find themselves in as a result of Mr. Lewis'
actions. We expect that several other Indian tribes in Oklahoma as well as
other parts of the country will be joining MGAM in this action and will be
bringing their own actions in other courts. The unnecessary actions of Mr.
Lewis' office, which were intended to inflict the greatest possible harm on the
Indian tribes and Multimedia, have resulted in a coordinated and cooperative
effort among the Indian tribes who rely upon MegaMania for a significant part
of their bingo revenues. We of course welcome the support of the tribes.
Despite Mr. Lewis admitted intention to attempt to shut down
MegaMania nationwide, we were able to get MegaMania back in operation by New
Year's Day for over 90% of the tribal locations where MegaMania is played.
MGAM, with the support of the Indian tribes, intends to pursue every possible
avenue to assure that there will not be a repeat of Mr. Lewis's actions."
In its complaint for Declaratory Relief, MGAM described the several
determinations that it had received from the National Indian Gaming Commission
(NIGC) approving MegaMania as a Class II bingo game. The Company also cited
the National Indian Gaming Regulatory Act that designated "bingo and other
games similar to bingo" as legal Class II gaming activities that may be
conducted by Indian tribes.
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Exhibit 99.3
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OKLAHOMA
MULTIMEDIA GAMES, INC., a Texas corporation; and )
SENECA-CAYUGA TRIBE OF OKLAHOMA, )
)
Plaintiffs, )
)
vs. )
) CASE NO. 98-______
THE UNITED STATES DEPARTMENT OF JUSTICE; JANET RENO, )
Attorney General of the United States; and STEPHEN C. )
LEWIS, United States Attorney for the Northern )
District of Oklahoma, )
)
Defendants. )
COMPLAINT FOR DECLARATORY RELIEF
By this action, Multimedia Games, Inc. ("Multimedia"), and the
Seneca-Cayuga Tribe of Oklahoma ("Seneca-Cayuga") request a declaratory
judgment that Multimedia's Bingo aid "MegaMania," widely used by plaintiff
Seneca-Cayuga and other Indian tribes and nations in Oklahoma, and by Indian
tribes and nations nationwide, is permissible Class II gaming under the Indian
Gaming Regulatory Act, 25 U.S.C. Sections 2701 et seq. ("IGRA").
IGRA, enacted by Congress in 1988, provides an expansive definition of
Bingo and mandates that tribes are to be given maximum flexibility in employing
new technology in furtherance of
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Class II gaming. Not only is MegaMania a classic example of what Congress had
in mind when it encouraged maximum flexibility in the use of technology to aid
tribes in conducting Class II gaming, the National Indian Gaming Commission
("NIGC"), the agency entrusted by Congress to interpret the IGRA, has rendered
several advisory opinions to this effect, and none to the contrary.
Furthermore, when it suits its purposes in other litigation, the Department of
Justice ("DOJ") has repeatedly made concessions regarding the Class II nature
and characteristics of MegaMania.
Nevertheless, the DOJ, on December 31, 1997, entered Indian lands in
both the Eastern and Northern Districts of Oklahoma and seizing hundreds of the
MegaMania Bingo terminals and the Bingo ball blower. (Though the property was
"seized," U.S. Attorney Stephen C. Lewis told representatives of the Cherokee
Nation that he would not physically remove the Bingo terminals from the hall
for fear that the government would have to return them if the court did not
find them illegal.) Meanwhile, the very same United States Attorney has given
his blessing and approval to "Rocket Bingo -- The Classic Game," a virtually
identical electronic Bingo aid manufactured by one of Multimedia's competitors,
which supplies Bingo machinery to Indian gaming facilities that are competitors
of the plaintiff Indian Tribe.
The schism between the plain statutory language of IGRA, the
defendants' civil and criminal enforcement threats, and the NIGC
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advisory opinions has led to a confusing, incoherent, and intolerable
regulatory regime in which the Seneca-Cayuga, other Indian tribes and nations
and Multimedia cannot make sound decisions. The end result is that the
Seneca-Cayuga, other Indian tribes and nations, and Multimedia must either
forego the very Class II gaming that Congress intended that they be able to use
or risk criminal penalties and be subjected to searches, seizures, and other
forms of interference.
Should the Seneca-Cayuga, and other Indian tribes and nations, be
persuaded to forego MegaMania by the in terrorem effect that naturally follows
the misguided enforcement actions of the defendants, that result will not only
be extremely costly to Multimedia, but injurious to the Seneca-Cayuga and other
Indian tribes and nations as well. All of the Indian tribes and nations in
Oklahoma and other states who rely on MegaMania as a source of Class II gaming
income have significant problems of unemployment and poverty. Congress has
sanctioned Class II gaming precisely as a means to bring revenues to the Indian
tribes and nations. With respect to the Indian tribes and nations in Oklahoma,
including the Seneca-Cayuga, a significant portion of their revenues comes from
the MegaMania game.
The DOJ has taken advantage of the economic dependence of the
Seneca-Cayuga on MegaMania, and other Indian tribes and nations' dependence on
MegaMania, by seizing MegaMania terminals and central
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equipment on December 31, 1997, perhaps the busiest day of the year for gaming
on Indian lands. The DOJ has explicitly asserted that its action was designed
to have the likely effect of shutting down MegaMania everywhere in the United
States.
Multimedia has made every conceivable effort to cooperate with the
defendants, to learn their objections to the MegaMania game, and to alter the
game to meet every request of the NIGC and DOJ. All of Multimedia's efforts
have been peremptorily rebuffed by defendants. As a result of defendants'
conduct, the Seneca-Cayuga, other Indian tribes and nations that use the
MegaMania game and Multimedia are suffering irreparable harm, their members'
and employees' liberty placed at potential risk by defendants. Furthermore,
every day that the MegaMania terminals are not allowed to operate costs the
plaintiff Tribe thousands of dollars of revenue critical to the day-to-day
operations of their sovereign government.
Accordingly, to put at rest the issue of whether MegaMania is lawful
Class II gaming or unlawful Class III gaming, plaintiffs bring this action for
declaratory relief.
COUNT I
(DECLARATORY JUDGMENT)
PARTIES
1. Plaintiff Multimedia is a publicly held Texas corporation with
its principal place of business in Tulsa, Oklahoma. Multimedia manufactures
and markets for sale Megamania Bingo
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terminals (also known as Electronic Player Stations or "EPS"), and oversees the
equipment and maintenance of the MegaMania Bingo game. Multimedia is the
nation's leading provider of services for electronically-linked Class II Bingo
games, electronic-based interactive Bingo games, and associated data processing
and communications products and services to the Indian gaming market. The
MegaMania game operated by Multimedia is in all cases operated on behalf of
Indian tribes. By contracts approved by the Bureau of Indian Affairs ("BIA")
and the NIGC, all of the tribes who utilize MegaMania control the game through
tribal committees. These committees meet at various times of the year, hold
elections and approve any changes to the game.
2. Plaintiff Seneca-Cayuga Tribe of Oklahoma is a federally
recognized Indian Tribe, possessed of all sovereign powers and rights thereto
pertaining. The Seneca-Cayuga is responsible for overseeing and regulating
Class II gaming on Indian lands subject to its jurisdiction and enforcing the
IGRA pursuant to federally-approved tribal gaming ordinances. The
Seneca-Cayuga consists of approximately 2,000 members.
3. The Seneca-Cayuga operates only one Bingo hall. MegaMania is
played at that hall and is the most significant game operated at that hall.
This hall is located in Delaware County in the Northern District of Oklahoma.
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4. There are a total of 84 MegaMania Bingo terminals at the
Seneca-Cayuga Bingo hall. Of these, 47 are owned by the Seneca-Cayuga and 37
are under lease by the Seneca-Cayuga from Multimedia with an option to
purchase. The Seneca-Cayuga revenues from MegaMania have averaged
approximately $120,000 per month over the past six months.
5. The Seneca-Cayuga hall employs 60 individuals, 19 of whom will
be laid off within a week if MegaMania Bingo is not restored. The permanent
denial of MegaMania Bingo will likely cause the hall to fail, and cause all the
remaining employees to be laid off. Many of those employees are tribal
members, or individuals supporting tribal members. As the Tribe's hiring
practices are geared to support the needy in the community, hall employees
include a number of single mothers and individuals who are the sole support for
their families.
6. MegaMania Bingo has been the difference between the
Seneca-Cayuga hall remaining open, and its demise. Prior to the advent of
MegaMania, the hall could remain open only sporadically, and was usually closed
over the Christmas season. Since MegaMania began, the hall has remained open
year around. The revenues from MegaMania enabled the hall to recover from a
disastrous fire that occurred three years ago. The FBI's lengthy investigation
of this fire blocked the payment of insurance proceeds. Nevertheless, by
virtue of MegaMania, the Tribe funded the $30,000 needed to
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rehabilitate the hall building and continue operations. It has also enabled
the Tribe to rehabilitate and use other structures on its property that had
previously been vacant.
7. Because MegaMania Bingo provides virtually all of the hall's
gross gaming win, all of the Tribe's social and economic development programs
will be severely impacted by a permanent denial of MegaMania Bingo. MegaMania
has heretofore provided the funding for the partially-completed day care
center, which will likely close if that funding cannot be continued. The
operation of the MegaMania game also provides funds for the Education Stipend
Program, which supports tribal members pursuing higher or vocational education.
The Tribe's ability to provide welfare payments to tribal members, and its
ability to continue to fund local charities will be severely curtailed.
Lighting and heating payments to low income elderly tribal members will also
have to be diminished or eliminated.
8. The Tribe is obligated to pay the Bureau of Indian Affairs
$5,000 per month to pay for the construction of the hall and had difficulty
doing so prior to joining the MegaMania network. However, since offering
MegaMania to its patrons, revenue from operating this game has permitted these
payments to remain current, along with payments that must be made pursuant to
National Indian Gaming Commission regulations and payments to the hall's
numerous local vendors. The local economy would be seriously impacted by
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the closing of the hall. The hall's income stream and its close proximity to
Grand Lake has made contemplated tribal projects for local economic development
viable, including a proposed golf course, a RV park and a motel. However, the
demise of MegaMania would doom those efforts.
9. Defendant Janet Reno is Attorney General of the United States
and is the senior officer of the Defendant United States Department of Justice
("DOJ") and has overall responsibility for administering the DOJ.
10. Defendant Stephen C. Lewis ("Lewis") is the United States
Attorney for the Northern District of Oklahoma.
JURISDICTION AND VENUE
11. This is an action seeking declaratory judgment arising under
the IGRA.
12. Jurisdiction of this action lies with the Court by reason of
28 U.S.C. Sections 1331 (Federal Question) and 28 U.S.C. Section 1362 (Indian
Tribes). The relief sought is authorized by that statute and, in addition, by
28 U.S.C. Section 2201 (Declaratory Judgments).
13. Venue properly lies in the Northern District of Oklahoma
pursuant to 28 U.S.C. Sections 1391(e)(1), (e)(2), and (e)(3).
BACKGROUND
BINGO
14. While the game of Bingo has many variants, one of the
traditional forms of Bingo is played on a "card" with a five-by-five grid of
numbers. The five columns are labelled "B," "I," "N,"
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"G," and "O," and consist of numbers from 1 to 15, 16 to 30, 31 to 45, 46 to
60, and 61 to 75, respectively. The center square, in the "N" column, is
typically a "free" square that is considered to be already covered. The object
of the game is to achieve "Bingo" by covering five numbers on the grid in a
row, either vertically, horizontally, or diagonally, as balls numbered from 1
to 75 are randomly drawn. The first player or players to do so win a prize.
Players participate by purchasing cards. In the traditional game known as
"ante-up" Bingo, the players have an opportunity to pay for or drop those cards
every time three numbers are called. Because there is no limit to the number
of balls that can be drawn, so long as players remain in the game, at least one
player will inevitably cover a straight Bingo pattern and win.
15. Traditionally common variations of bingo include awarding
bonus prizes for achieving Bingo with only a small number of balls being
randomly drawn and bonus prizes for having two, three, or four "corners" of the
card covered.
16. Experienced Bingo players often purchase and play several
cards at once. With MegaMania, four cards are the most that can be played at
one time.
17. The more players participating in an individual Bingo game,
the larger the prizes can be. Larger prizes, in turn, serve to attract
players.
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THE MEGAMANIA BINGO GAME
18. MegaMania is a system of networked computer terminals
("terminals," "Electronic Player Stations" or "EPS") that allow players at
Indian gaming facilities nationwide to participate in a live, large,
simultaneous Bingo game. A machine located until December 31, 1997, at the
Choctaw Indian gaming facility in Arrowhead, Oklahoma (and seized by the DOJ on
that day) "blows" approximately forty of seventy-five numbered ping pong balls
into a tube. A human operator calls the number from the balls that have been
blown into the tube and keys the numbers into a computer. Those numbers are
then uploaded live to the hundreds of MegaMania computer terminals or EPS
nationwide. Players have the option to play up to four cards in any given
game. The game will not begin unless there are at least 48 cards being played
by at least twelve people. Randomly generated cards are displayed at each EPS.
The player is given the option of keeping the card(s) displayed, asking for a
different card(s), or not playing the card(s) at all. Each card the player
plays costs twenty-five cents each time three numbered ping pong balls are
drawn.
19. A player aided by a MegaMania EPS is playing the same Bingo
game whether he or she is on Indian lands in California, Oklahoma, New York or
elsewhere. The numbers drawn are displayed by the individual EPS visually and
announced through audio as well. After a sequence of three numbers are drawn
and announced, the
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player must press a "Daub" button on the computer screen to daub, or cover, the
called numbers on each card being played. The cards on the EPS change color to
indicate the numbers which have been daubed. After each sequence of three
balls are called, the player is given eight seconds to make the option of
continuing to play his or her card or cards for another three ball draws for an
additional 25 cents per card, or dropping one or more of the cards from play.
A player can choose to keep or drop any number of cards from the original group
of up to four. Once a card has been dropped, it cannot be played again during
that game.
20. When any player(s) reaches a straight line "Bingo" on one or
more cards, all players nationwide are notified of the existence of a potential
Bingo. All potentially winning players are given eight seconds to press a
button on the terminal to call the Bingo. If the player fails to press the
button within the allotted time, he or she is said to "sleep" the Bingo, and
the game continues. Upon calling the Bingo, the player wins a prize determined
by the number of cards being played and the number of balls that have been
drawn. The largest possible prize comes if the player is able to call Bingo
after only four ball draws, the lowest mathematically possible number of draws
which would conceivably allow a player to call Bingo. Additional prizes are
awarded for covering two, three or four corners of the card, as is done in many
traditional variations of Bingo.
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21. Once a player or players call Bingo anywhere where the game is
being played, the game ends nationwide, unless a corner prize has not been
awarded, in which case the game continues until a corner prize has been
awarded.
22. Tribes purchase EPS from Multimedia for approximately $5,500
per EPS or lease/purchase or rent EPS from Multimedia at varying monthly rates.
Systemwide, 85% of the monies wagered are paid out to players as prizes. The
remaining 15%, which averages approximately $64 per terminal per day, is
divided between the Tribe and Multimedia Games Inc. Multimedia uses its funds
for the maintenance and upkeep of the EPS as well as to pay the operating
expenses which include the salaries of the people who are involved in the ball
draws, communications expenses, accounting expenses, and other miscellaneous
expenses, plus a small profit.
23. Another example of a tribe which utilizes MegaMania is the
Cherokee Nation of Oklahoma ("Cherokee Nation"), a federally recognized Indian
Tribe, possessed of all sovereign powers and rights thereto pertaining. The
Cherokee Nation is responsible for overseeing and regulating Class II gaming on
Indian lands subject to its jurisdiction and enforcing the IGRA pursuant to
federally-approved tribal gaming ordinances.
24. The Cherokee Nation operates three Bingo halls where MegaMania is
utilized. These halls are located in Rogers and
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Delaware Counties in the Northern District of Oklahoma and in Sequoyah County
in the Eastern District of Oklahoma.
25. There are a total of 250 MegaMania electronic player stations at
the Cherokee Nation Bingo halls. Of these, 56 are owned by the Cherokee
Nation, 104 are under lease/purchase by the Cherokee Nation from Multimedia,
and 90 are rented by the Cherokee Nation from Multimedia. The Cherokee Nation
receives a substantial share of its gross gaming win from MegaMania. Dramatic
and dire adverse economic consequences will be visited upon the Cherokee Nation
if MegaMania Bingo is permanently denied.
THE STATUTORY SCHEME
26. IGRA, 25 U.S.C. Section 2701 et seq., created the NIGC to
regulate and oversee gaming on Indian land. The NIGC has civil enforcement
authority, as well as the authority to promulgate implementing regulations and
guidelines through formal rulemaking. From time to time, NIGC issues advisory
opinions to provide guidance as to the legality of particular gaming on Indian
lands.
27. Under IGRA, there are three classifications of gambling that
are subject to varying levels of federal and state oversight. Class I games
are social games of minimal value or traditional games that are part of tribal
ceremonies. Bingo and "other games similar to bingo" are Class II games.
Class III games are all games that are not Class I or Class II games, including
slot
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machines, blackjack, and "electric and electromagnetic facsimiles of any game
of chance." See 25 U.S.C. Section 2703.
28. All three classes of gaming are within the jurisdiction of the
Indian tribes under IGRA. However, Class II and Class III gaming are also
subject to regulatory approvals and oversight from the NIGC. Furthermore,
Class III gaming is only possible if it is authorized by a compact between a
tribe and a State. See 25 U.S.C. Section 2710.
29. The relevant provision of 25 U.S.C. Section 2703(7) (emphasis
added) reads:
(A) The term "class II gaming" means --
(i) the game of chance commonly known as bingo
(whether or not electronic, computer, or
other technologic aids are used in connection
therewith)--
(I) which is played for prizes,
including monetary prizes, with cards bearing
numbers or other designations,
(II) in which the holder of the card
covers such numbers or designations when objects,
similarly numbered or designated, are drawn or
electronically determined, and
(III) in which the game is won by the first
person covering a previously designated arrangement
of numbers or designations on such cards,
....
(B) The term "class II gaming" does not include--
...
(ii) electronic or electromechanical facsimiles of
any game of chance or slot machines of any kind.
Page 21 of 49 pages
<PAGE> 15
30. The Senate Report on IGRA explained what was meant by the
phrase "electronic, computer, or other technological aids" found in Section
2703(A)(i) and by the phrase "electronic or electromechanical facsimiles of any
game of chance" found in Section 2703(B)(ii) as follows:
The Committee intends that tribes be given the opportunity to
take advantage of modern methods of conducting class II games
and the language regarding technology is designed to provide
maximum flexibility. In this regard, the Committee recognizes
that tribes may wish to join with other tribes to coordinate
their class II operations and thereby enhance the potential of
increasing revenues. . . . Simultaneous games participation
between and among reservations can be made practical by use of
computers and telecommunications technology as long as the use
of such technology does not change the fundamental
characteristics of the bingo or lotto games and as long as
such games are otherwise operated in accordance with
applicable Federal communications law. In other words, such
technology would merely broaden the potential participation
levels and is readily distinguishable from the use of
electronic facsimiles in which a single participant plays a
game with or against a machine rather than with or against
other players."
Senate Report No. 100-446 at 9, reprinted in 1988 U.S.C.C.A.N. 3071, 3079
(emphasis added).
31. IGRA authorized the NIGC to promulgate regulations and
guidelines necessary to implement the provisions of the Act. 25 U.S.C.
Sections 2704, 2706(b)(10). Because of the interplay between IGRA and the
Johnson Act, 15 U.S.C. Section 1171 et seq., the NIGC must be able to interpret
that interplay in order to have any meaningful regulatory authority under IGRA.
32. The Johnson Act is not mentioned in the substantive provisions
of IGRA regarding Class II aids. Indeed, the Johnson
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<PAGE> 16
Act is only introduced into the definition of a Class II aid by regulations,
and even then only negatively as what a Class II aid is not. The Johnson Act
itself, however, is remarkably broad. It arguably sweeps within its scope any
device or component of a device designed and manufactured primarily for use in
connection with gambling. This swath includes devices which Congress
undisputedly intended to be permissible Class II aids. Under normal canons of
statutory construction, the more recent and more specific statute (IGRA), would
control over the more general and earlier statute (The Johnson Act). Despite
this potential friction between the two statutes, the NIGC has approved
numerous electronic aids as Class II aids under IGRA.
33. The NIGC has, in turn, interpreted the meaning of the
statutory language "electronic, computer, or other technologic aid" in 25
C.F.R. Section 502.7, which reads:
Electronic, computer or other technologic aid means a device
such as a computer, telephone, cable, television, satellite or
bingo blower and that when used--
(a) Is not a game of chance, but merely assists a player of
the playing of a game;
(b) Is readily distinguishable from the playing of a game of
chance on an electronic or electromechanical facsimile; and
(c) Is operated according to applicable Federal communications
law.
34. The NIGC explained this regulation by stating that "Congress
intended to classify as Class II gaming such technology that would enhance the
playing of Class II theme games, but not
Page 23 of 49 pages
<PAGE> 17
technology that would constitute a gambling device under the Johnson Act. For
example, the Commission recognizes as falling within the scope of Class II
technology devices that allow bingo players to keep track of cards, bingo
blowers, or similar devices that may help in performing one function of bingo."
See Definitions Under The Indian Gaming Regulatory Act; Rule, 57 Fed. Reg.
12,386 (1992).
THE NEED FOR CLARIFICATION
35. Multimedia believes, and the NIGC has opined on a number of
occasions, that Multimedia's MegaMania Bingo constitutes Class II gaming.
Nevertheless, defendants contend that MegaMania is Class III gaming and, in
furtherance of this contention, have so advised the plaintiffs and Multimedia's
customers, and have seized, and now claim to possess as the United States'
property, scores of the MegaMania terminals as well as Multimedia's
ball-blowing equipment, computers, network servers, modems, software databases
and computer programs used to support the play of MegaMania. The issue raised
by defendants' position and actions is critical to plaintiffs. If plaintiffs
are engaged in Class III gaming without a Tribal-State compact or regulatory
approvals, then they are in potential violation of a number of federal criminal
statutes as well as the IGRA. Moreover, if Multimedia were to sell machines
for use in Class III gaming without a Tribal-State compact or regulatory
approval, it would potentially be subject to prosecution under the Johnson Act,
15 U.S.C. Section 1175.
Page 24 of 49 pages
<PAGE> 18
36. Because Indian gaming is so heavily regulated, and because the
funds from Indian gaming are so critical to the economic well-being of tribes,
tribal governments make the utmost efforts to avoid even the appearance of
impropriety.
THE NIGC APPROVES THE FIRST VERSION OF MEGAMANIA
37. In November 1995, Multimedia began informal discussions with
NIGC regarding an earlier version of MegaMania ("the original MegaMania" or
"the first version of MegaMania") and a classification of the original
MegaMania as Class II gaming. In this version, no ball-blower was used;
instead, numbers were selected randomly by computer as specifically permitted
in IGRA's definition of Bingo. Moreover, this version did not require the
player to daub his or her own card or to call Bingo. In addition, this version
provided both the traditional straight line Bingo game and the traditional
shotgun Bingo game, where a prize is won if two of three or three of three
sequentially called groups of numbers are on one of the player's cards.
38. On January 23, 1996, Multimedia made a formal request to the
NIGC to have the original MegaMania classified as Class II gaming.
39. Multimedia provided additional documentation and information
regarding Bingo and the original MegaMania to the NIGC on February 2, 1996;
February 8, 1996; June 25, 1996; June 27, 1996; and July 2, 1996.
40. On July 10, 1996, the NIGC issued a five-page, single-spaced,
written determination that "the MegaMania system conforms
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<PAGE> 19
with the definition of 'bingo.' Therefore, MegaMania is a Class II game.
Further, the EPS utilized to link players and bingo halls is a technologic aid
as defined in 25 C.F.R. Section 502.7."
41. The Commission further noted:
Utilization of the EPS does not transform the MegaMania system
into a gambling device which would be prohibited pursuant to
the Johnson Act. 25 U.S.C. Section 1171(a). The EPS merely
links participant players located at various Indian gaming
facilities into a bingo game played live at another location.
. . . [I]n MegaMania the bingo numbers or designations are
selected at one location and are downloaded simultaneously to
all participating EPS's. The EPS is merely a screen
projecting the game that is conducted live at Creek Nation
where actual bingo balls are being drawn. The EPS displays
the numbers being drawn, marks the numbers matched, and
records the amount of winnings received when a jackpot or
consolation prize is won. This does not change the fact that
one bingo game is being played and does not alter the
fundamental characteristics of that bingo game.
[Emphasis added.]
42. These determinations are correct; they are, in addition, a
reasonable interpretation of the statute and are entitled to substantial
deference. The DOJ has conceded, in papers filed in connection with other
litigation (see below), that the NIGC advisory opinion of July 10, 1996,
sanctioned MegaMania as a Class II game and further noted that:
[T]he NIGC chair concluded in the July, 1996 opinion that the
Electronic Player Station used to play MegaMania was not a
gambling device.
[Emphasis added.]
Page 26 of 49 pages
<PAGE> 20
See DOJ Memorandum in Opposition to Motion For Leave to Join in the Pending
Motion for Preliminary Injunction, filed on May 16, 1997, in the Lucky Tab II
litigation described below.
43. The NIGC has, in the past, assured those concerned that a
statement of its views that a particular form of gaming is Class II eliminates
risk in connection with the use of the particular gaming device. Thus, for
example, on March 21, 1995, the NIGC issued an "Immediate Release" stating that
"[u]ntil such time as the Commission renders its opinion, tribes are taking a
risk if they purchase or lease [a] device for use in their class II gaming
facilities." No suggestion was made in this release that tribes or others who
received such advisory opinions would be taking risks if the devices in
question were purchased or leased after a favorable opinion had been issued.
MULTIMEDIA INSTALLS THE ORIGINAL MEGAMANIA
44. In reliance on the NIGC affirmative determination of July 10,
1996, Multimedia offered to several Indian tribes and nations to install
MegaMania terminals in their gaming halls, spent millions of dollars procuring
and installing those terminals in over thirty of those halls throughout the
United States, and entered into contracts with various Indian tribes and
nations to operate MegaMania in their Bingo halls.
THE DEPARTMENT OF JUSTICE INTERFERES
WITH MULTIMEDIA'S MEGAMANIA CUSTOMER RELATIONSHIPS
45. In the summer of 1996, Multimedia learned from third parties
that the U.S. Attorney for the Northern District of
Page 27 of 49 pages
<PAGE> 21
Oklahoma, Stephen C. Lewis, was interested in MegaMania. A Multimedia
attorney, Graydon Dean Luthey, Jr., contacted Mr. Lewis by telephone and by
letter on June 18, 1996, indicating that Multimedia would be eager to meet with
Mr. Lewis or the FBI if they had interest in any Multimedia product.
Multimedia received no response.
46. On August 15, 1996, Mr. Luthey again wrote to Mr. Lewis, noted
that he had not heard from either him or any of his assistants nor anyone else
in response to his June 18th offer, and repeated his offer.
47. As a result of these contacts, Multimedia officials met with
Assistant United States Attorney ("AUSA") Catherine Depew Hart and two FBI
agents at Multimedia headquarters in Tulsa, Oklahoma, on October 4, 1996. AUSU
Hart and the FBI agents requested to visit the Creek Nation Bingo Hall to
observe the MegaMania game in operation. Multimedia officials asked AUSU Hart
in what she was interested, but she refused to say. AUSU Hart was told by
Multimedia officials of the need to obtain permission before entry onto Indian
land, but AUSU Hart declined to seek such permission.
48. On October 4-5, 1996, AUSU Hart, along with two FBI agents,
visited the Creek Nation Bingo Hall to observe MegaMania. Representatives of
the Creek Nation ordered them to leave on both dates.
49. On October 7, 1996, AUSU Hart spoke at a public meeting of the
Creek Nation Gaming Operations Board ("the Creek"), and improperly informed all
those present that Multimedia was under
Page 28 of 49 pages
<PAGE> 22
criminal investigation for violations of the Johnson Act; that this
investigation had been ongoing for some time; and that because of grand jury
secrecy requirements she could not say more.
50. In part due to AUSU Hart's remarks, the Creek Nation
immediately voted to terminate all of its contracts with Multimedia. The
Chairman of the Gaming Operations Board of the Creek Nation wrote Multimedia on
October 8, 1996, informing it of AUSU Hart's comments, calling them a "stunning
disclosure," noting that such investigation "greatly jeopardizes the reputation
and credibility of our gaming operations," and advising Multimedia of the
termination of all contracts. This letter was the first time anyone had
informed Multimedia that a criminal investigation was underway.
51. After Multimedia received confirmation from Mr. Lewis that
there was a criminal investigation, Larry Montgomery, the president of
Multimedia, immediately wrote to the Chairman of the NIGC, on October 21, 1996,
to inform the NIGC of the investigation.
MULTIMEDIA CONTINUES TO COOPERATE WITH THE
NIGC AND TRIES TO LEARN THE OBJECTIONS OF THE DOJ
52. On or about January 11, 1997, a meeting occurred at the
Multimedia offices in Tulsa. In attendance were NIGC Commissioner Phil Hogan,
U.S. Attorney Steve Lewis, AUSA Catherine Depew Hart, AUSA Ann Dooley, FBI
agents D.J. Dunlap and Jerry Simpson, Gordon Graves, Larry Montgomery, other
Multimedia employees, former FBI agent Martin Weber, and attorneys Dean Luthey
and Arch McColl. At that meeting, FBI agent Jerry Simpson had additional
questions.
Page 29 of 49 pages
<PAGE> 23
Steve Lewis also stated at this meeting that he was concerned with some aspects
of the MegaMania game, including interim prizes.
53. Arch McColl, an attorney with offices in Texas and a long time
business associate of Gordon Graves, gave a lengthy statement on behalf of
Multimedia, reiterating Multimedia's intention to not violate any law. McColl
further explained the commitment of the officials of Multimedia to cooperate
and resolve any questions or problems from the DOJ perspective.
54. Plaintiffs are informed and believe that on January 30, 1997,
DOJ officials met with NIGC officials and complained about the NIGC's
classification of the original MegaMania as Class II.
55. On January 30, 1997, NIGC Commissioner Phil Hogan, NIGC Acting
General Counsel Penny Coleman, NIGC Field Investigator Tim Harper, and NIGC
Director of Enforcement Alan Fedman participated in a teleconference with
Multimedia officials regarding the January 30 meeting with the DOJ that was
requested by Commissioner Hogan. During that teleconference, representatives
of the NIGC made suggestions on what modifications could be made to the
original MegaMania to satisfy the concerns of the DOJ. Multimedia officials
were informed by the NIGC representatives that the DOJ insisted upon the
following changes to the MegaMania game:
a. The elimination of the electronic random number generator,
despite the clear language of 25 U.S.C. Section 2703(7)(A)(i)(II) permitting
"electronically determined" numbers;
b. The elimination of shotgun Bingo, despite the fact that
this is a traditional form of Bingo predating the IGRA;
Page 30 of 49 pages
<PAGE> 24
c. Additional human participation in the form of marking or
daubing one's own card(s) and calling Bingo.
56. As a result of the January 30, 1997, teleconference with NIGC
representatives, Multimedia undertook extensive and expensive revisions to the
original MegaMania. On February 11, 1997, Multimedia wrote to the NIGC and Mr.
Lewis with a list of proposed changes. That same week, Multimedia informed the
dozens of Indian tribes using the original MegaMania of Multimedia's intent to
modify MegaMania to address DOJ concerns. On April 1, 1997, Multimedia
reiterated to the NIGC the changes which it would make to the original version
of the MegaMania game.
57. On April 9, 1997, Ada Deer, the Acting Chair of the NIGC and
the Assistant Secretary of the Interior, wrote to Multimedia on behalf of the
NIGC a four-page, single-spaced letter, analyzing the description of MegaMania
in Multimedia's letter of April 1, 1997. The NIGC, aware of the DOJ's
then-stated objections, stated: "Thus, we conclude that MegaMania, as described
above, conforms with the IGRA definition of bingo and thus is a Class II game."
[Emphasis added.]
58. In the April 9, 1997 letter, the NIGC explained its reasoning
by stating:
The EPS used to link players and bingo halls is a technologic
aid as defined in 25 C.F.R. Section 502.7. Use of a
computer/EPS system to link participant players located at
various Indian Bingo halls into one live Bingo game does not
alter the fundamental characteristics of the Bingo game. The
MegaMania computer/EPS system utilizes computers, telephone
lines, and a Bingo blower to allow remote players located at
other
Page 31 of 49 pages
<PAGE> 25
Indian Bingo halls to play the game. Further, MegaMania is
not a stand-alone game and may not be played one-on-one
against a machine. As described above, a minimum of twelve
players, each holding four cards, is required to start a
MegaMania game. Such use of technology was anticipated as
discussed in the legislative history of IGRA noted above. The
use of such technology is readily distinguishable from the
playing of a game of chance on an electronic or
electromechanical facsimile.
[Emphasis added.]
59. These determinations and conclusions were correct, and also
were a reasonable interpretation of IGRA. They are therefore entitled to
substantial deference.
60. The DOJ expressed no objection or disagreement with respect to
Multimedia's letters of February 11 and April 1, 1997, or with respect to the
NIGC determination of April 9, 1997.
61. In reliance upon the April 9, 1997 determination of the NIGC
and the explicit and implicit representations of the NIGC and the DOJ that the
revised MegaMania would be acceptable, Multimedia entered into business
relationships continued previously existing relationships, and spent several
million dollars in making the proposed changes and procuring additional
equipment and customers.
62. On July 15, 1997, Multimedia completed the revisions to
MegaMania that the NIGC had approved on April 9, 1997. The current version of
MegaMania fully reflects the changes requested in the April 9, 1997 letter from
the NIGC as well as the changes requested by Acting NIGC General Counsel Penny
Coleman in a July 23, 1997 letter.
Page 32 of 49 pages
<PAGE> 26
63. On July 23, 1997, the NIGC wrote an advisory opinion to
Multimedia, confirming that Multimedia "may play [MegaMania] as a Class II
game." The Commission further observed that "we believe that the manufacturer
has made every effort to develop this game with the aid of technology rather
than by using gambling devices. Therefore, we have determined that the tribes
may play MegaMania without risk of an enforcement action by the NIGC."
[Emphasis added.]
64. Without any attempt to rebut its own reasoning in its letters
of July 10, 1996, and April 9, 1997 that the MegaMania EPS was not a gaming
device, however, the NIGC on July 23, 1997 declined to make a definitive
statement whether Megamania uses gaming devices (despite the fact that previous
NIGC letter of July 10, 1996 specifically stated that MegaMania was not a
gaming device). To the extent the DOJ relies on this disclaimer, the NIGC's
abdication contradicts, in an arbitrary and capricious fashion, earlier NIGC
decisions that Multimedia justifiably relied upon, and is not entitled to any
deference.
Page 33 of 49 pages
<PAGE> 27
THE DOJ CONTINUES TO INTERFERE
WITH PLAINTIFFS' BUSINESS RELATIONS
65. In the spring of 1997, Multimedia attempted to re-establish
its relationship with the Creek Nation. However, in late April 1997, Mr. Lewis
and AUSU Hart met with representatives of the Creek Nation along with Worldlink
Gaming Corporation (hereinafter "Worldlink"), a Multimedia competitor, and told
them, in the presence of the Multimedia competitor, that even with the
revisions Multimedia would be subject to felony prosecution and forfeiture.
66. As a result of this meeting, Multimedia's negotiations with
the Creek Nation reached an impasse.
67. On or about mid-1997, the Absentee Shawnee Tribe ceased all
use of MegaMania because of fear of prosecution. The Absentee Shawnee Tribe,
before ceasing use of MegaMania, accounted for approximately $1,200 of revenue
to Multimedia a day.
68. In July 1997, Mr. Lewis, wrote to numerous tribes in Oklahoma
and incorrectly asserted that MegaMania was illegal Class III gaming.
69. Multimedia's competitors have used the remarks and writings of
Mr. Lewis and AUSU Hart to affect Multimedia adversely in the market.
Multimedia is unable to calculate these damages with certainty, but they are
sizeable.
70. This conduct unfairly pressured Multimedia and its customers
and was designed to discourage Multimedia and its customers from engaging in
lawful activity. By incorrectly asserting that
Page 34 of 49 pages
<PAGE> 28
MegaMania was illegal, defendants have unjustly penalized Multimedia in the
marketplace and have harmed the Seneca-Cayuga.
71. Mr. Lewis' approval of "Rocket Bingo - the Classic Game" as
Class II gaming, is inconsistent with his disapproval of MegaMania as Class III
gaming. Both games employ a virtually identical electronic aid. Multimedia is
informed and believes that Gary Watkins, the President of Rocket Bingo's
Worldlink (and a former employee of Multimedia), and his business associates
have cooperated with Mr. Lewis against Multimedia. Gary Watkins was a Vice
President of Multimedia Games until resigning on September 17, 1996. While an
employee, he formed Worldlink, a company that was to provide electronic Bingo
games similar to MegaMania, thus competing directly with MegaMania in a limited
marketplace. Multimedia has filed a complaint against Watkins and Worldlink
alleging that Watkins stole trade secrets and software related to MegaMania and
used them at Worldlink. The public meeting held on October 7, 1996 before the
Creek Nation Gaming Operations Board [at which AUSU Hart publicly disclosed for
the first time that MegaMania was under criminal investigation by Mr. Lewis]
was held at the invitation of Mr. Watkins' business associate in Rocket Bingo.
After AUSU Hart's disclosure, the Creek Nation discontinued play of MegaMania
at its Bingo halls and introduced Rocket Bingo. Sales representatives of
Rocket Bingo have communicated on numerous occasions with Multimedia's
customers about the existence of a close working relationship with Mr. Lewis
and knowledge of pending actions by Mr. Lewis against MegaMania.
Page 35 of 49 pages
<PAGE> 29
72. By way of example only, on the morning of December 31, 1997,
hours before any agents arrived at Multimedia to seize records and equipment,
and hours before the sealed complaint by Mr. Lewis was made public through
statements to the press by Mr. Lewis, an employee of Multimedia received a
telephone call from as associate of Mr. Watkins, who told the Multimedia
employee "Enjoy your day, girl, they are going to shut you down today!"
Similarly, on or about December 19, 1997, at a reception for the NIGC Chairman
at the Creek Nation gaming hall in Tulsa, Multimedia is informed and believes
that Mr. Watkins' associates falsely informed Mr. Lewis (who both attended the
Creek reception and spoke at the reception), as well as the NIGC Chairman, that
the version of MegaMania which was being implemented was not in accordance with
the changes requested in the NIGC's Acting General Counsel's letter of July 23,
1997, when in truth and fact such changes were implemented. On December 19,
1997, at this same reception, both Mr. Lewis and the NIGC Chairman were invited
to attend Worldlink's demonstration of both Rocket Bingo and Rocket Bingo - the
Classic Game at the Creek hall.
THE UNLAWFUL INTERFERENCE INTENSIFIES
73. On December 3, 1997, Multimedia completed the revisions to
MegaMania that the NIGC had requested on July 23, 1997.
74. That day, Multimedia's Mr. Montgomery wrote the NIGC, Mr.
Lewis, and Mr. Raley's office notifying them of the completion of the revisions
and inviting them to inspect MegaMania.
Page 36 of 49 pages
<PAGE> 30
75. Within hours of Mr. Montgomery's fax to Mr. Lewis, Mr. Lewis
faxed a reply to Multimedia's attorneys, also dated December 3, 1997, in which
he:
a. refused to attend any demonstration of MegaMania;
b. claimed that the MegaMania terminals were still Class
III;
c. stated, for the first time, two new objections to
MegaMania that have no basis in the statutes or
regulations;
d. suggested that there were even more objections to
MegaMania, but did not state what they might be;
e. incorrectly claimed that Multimedia "steadfastly
refus[ed]" to make changes when, in fact, Multimedia
had made every change the DOJ or NIGC had requested
to that date; and
f. threatened, for the first time, criminal sanctions.
Multimedia was stunned that Mr. Lewis would claim that Multimedia had
"steadfastly refused" to make the two changes which were the subject of his
December 3, 1997 letter in light of the fact that his December 3 letter
represented the first time Mr. Lewis had ever written to Multimedia with any
specific objections.
76. In his December 3, 1997, letter, Mr. Lewis pointed to the "ante
up functions [i.e., the system of paying for three balls at a time] and the
interim wins [i.e., prizes for covering two, three, or four corners of a card]
on the way to bingo" as "two of the features which fundamentally change the
play of the game of bingo and create
Page 37 of 49 pages
<PAGE> 31
a game of chance which is essentially like a slot machine ...." Both of these
objections have nothing to do with the electronic nature of MegaMania. Neither
the ante up functions nor the interim wins system has anything to do with a
slot machine. And both the ante up system and the interim win system are forms
of Bingo that have traditionally been played long before the enactment of IGRA.
77. On December 22, 1997, Multimedia submitted a letter to the
NIGC in which it notified the NIGC that the final changes to MegaMania as
requested in the NIGC's Acting General Counsel's letter of July 23, 1997 would
be implemented as of 9:00 a.m. on December 24, 1997. Multimedia further
offered to permit verification of those changes to be made at anytime after
9:00 a.m. on December 24, 1997. Multimedia's December 22, 1997 letter also
enclosed a checklist setting forth each of the categories discussed in the July
23, 1997 NIGC letter as well as the compliance undertaken by Multimedia with
each of the categories in question. As of the filing of this complaint, there
has been no response by the NIGC to the December 22, 1997 letter from
Multimedia.
78. On December 24, 1997, the above-referenced changes were in
fact deployed. Unfortunately, due to software problems, the system operated
for only approximately one hour. Multimedia then pulled down the system,
worked through the Christmas holiday, and deployed a software-corrected version
on December 26, 1997. Unfortunately, this version also suffered from software
problems and was shut down after approximately 90 minutes. Multimedia then
worked through the evening of December 26, 1997 and deployed a
software-corrected
Page 38 of 49 pages
<PAGE> 32
version of MegaMania which has operated since that date, except to the extent
such operation has been interfered with by defendants.
79. On December 30, 1997, Layn R. Phillips, counsel for Multimedia,
wrote to Mr. Lewis to request a meeting in January, 1998, to attempt to resolve
differences. This letter was sent by facsimile. Mr. Lewis never responded to
this letter.
80. Mr. Phillips's request was in accordance with an earlier
understanding between Multimedia's counsel, Graydon Dean Luthey, Jr., and Mr.
Lewis that upon Mr. Lewis's completion of his analysis of MegaMania, Mr. Lewis
would give counsel for Multimedia his conclusions and would provide an
opportunity for an in-person discussion of the respective positions before
taking any action. Mr. Lewis confirmed this agreement with Mr. Luthey in
February, 1997. Multimedia is further informed and believes that Lewis made
representations to various tribal representatives that no law enforcement
action would be taken against their MegaMania operations absent meeting with
them first. These agreements and understandings, like the Luthey agreement,
were also not honored by Lewis.
81. Notwithstanding Mr. Phillips' letter of December 30, 1997, the
agreement with Mr. Luthey, and the above-referenced tribal agreements, on
December 31, 1997, federal agents, with a warrant for search and seizure,
raided Multimedia's headquarters in Tulsa, Oklahoma; the Seneca-Cayuga
facilities in Grove, Oklahoma; the Cherokee Nation facilities in Tulsa and
Siloam Springs, Oklahoma; and the Choctaw Nation facilities near Arrowhead
Lake, Oklahoma. The agents confiscated or sealed legal equipment, including
MegaMania
Page 39 of 49 pages
<PAGE> 33
terminals, the Bingo ball blower, computers, network servers, modems, software
databases and computer programs used to support the play of MegaMania in the
United States. This confiscation occurred notwithstanding the fact that no
United States attorney outside of Oklahoma has asserted that MegaMania was not
Class II gaming. By letter of January 2, 1998, Mr. Lewis noted that the
expected result of the December 31, 1997 confiscation would be to possibly
"shut down the play of the MegaMania devices throughout the United States."
82. This action was taken notwithstanding the express and repeated
offers of cooperation by Multimedia, as well as Multimedia's repeated offers to
provide the Department of Justice whatever information it requested. Indeed,
all meetings and correspondence to address the vague DOJ concerns have been
initiated by Multimedia. Prior to the precipitous search and seizure action on
December 31, 1997, no Multimedia employees have been contacted by the DOJ
except when Multimedia initiated meetings to provide information it thought the
DOJ would want. Since it was first informed of the DOJ's interest, Multimedia
officials and its attorneys have consistently informed the DOJ that they did
not want to have an adversarial relationship with the DOJ for several reasons,
including but not limited to the fact that it was Multimedia's intention to not
violate any statutes, and the fact that Multimedia is in a highly competitive
market in which enforcement actions, which would not be necessary with the
pledged cooperation of Multimedia, would result in economic advantage to its
competitors and economic harry to the sovereign Indian tribes.
Page 40 of 49 pages
<PAGE> 34
83. Plaintiffs are informed and believe, as reported in the Tulsa
World on January 2, 1998, that on or about December 31, 1997, Mr. Lewis advised
officials of the Cherokee Nation that the "seized" property would not be
removed from premises "by federal authorities because they would have to be
returned if the court doesn't find them illegal." The "seized" property now
remains on the property of the Seneca-Cayuga hall, in full view of its
customers, bearing crime scene related seizure stickers and warnings, thus
further interfering with plaintiffs' business.
DOJ CONCESSIONS REGARDING MEGAMANIA
MADE IN OTHER INDIAN GAMING LITIGATION
84. The defendants' position is particularly incomprehensible because
they have repeatedly made concessions regarding the Class II nature of
MegaMania.
85. On March 5, 1997, Diamond Game Enterprises and the Kickapoo
Traditional Tribe of Texas filed a complaint for declaratory relief in the
United District Court for the District of Columbia, seeking, among other
things, a declaration that a particular device known as the Lucky Tab II
Dispenser was a lawful Class II electronic aid within the meaning of IGRA and
may be lawfully operated at Indian gaming facilities (hereinafter "Lucky Tab II
litigation"). The defendants in the Lucky Tab II litigation included the DOJ,
Janet Reno and the NIGC.
86. A principal argument advanced by the plaintiffs in the Lucky Tab
II litigation was that the NIGC had appropriately and correctly categorized
MegaMania as a Class II electronic aid, and
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that the game which was the subject of the Lucky Tab II litigation should be
similarly categorized. In the course of the Lucky Tab II litigation, the DOJ
made numerous concessions regarding the Class II nature of MegaMania.
87. The DOJ, on September 26, 1997, in its Responses to Plaintiffs'
Revised First Set of Interrogatories, stated under oath that:
While the July 10, 1996, [NIGC] letter stated that the MegaMania
game was a class II game, that position was reconsidered. See
letter of March 28, 1997, from Acting Chair Ada Deer; letter of
April 9, 1997, from Acting Chair Ada Deer; letter of May 12,
1997, from Acting Chair Ada Deer and letter of July 23, 1997,
from Acting General Counsel Penny Coleman. The thrust of these
letters was that unless the MegaMania game as described in the
July 10, 1996, letter was changed, MegaMania would constitute a
Class III game. In response to these letters, the MegaMania game
was changed. Subsequently, it was determined that with the
changes in place, MegaMania could be played as a Class II game.
See July 23, 1997, letter from Acting General Counsel Penny
Coleman.
[Emphasis added.]
88. Moreover, the DOJ admitted the following in response to
Interrogatory No. 10 from the Lucky Tab II plaintiff: "The NIGC has not issued
any advisory opinions to the effect that electronic aids may not be used with a
Class II game." [Emphasis added.]
89. In a Joint Status Report filed with the United States District
Court for the District of Columbia dated October 28, 1997, counsel for the
United States Department advised the Court of various developments relating to
potential settlement of the Lucky Tab II litigation. Among other things, the
United States informed the Court that Congress had not yet formally approved
the Interior
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Appropriations bill, and that a Conference Committee Report has only recently
become available which stated in pertinent part:
The managers note that this provision will have no effect on
the classification of bingo games, including bingo involving
electronic blowers. Such games currently are considered class II
and will remain class II under this provision.
H.R. Conf. Rep. No. 105-337, at 78 (1997) (emphasis in original court filing).
90. The DOJ, on October 29, 1997, in its Cross Motion for Summary
Judgment in the Lucky Tab II litigation, Washington D.C., conceded the
existence of federal government "advisory opinions concluding that integrated
bingo games could be played as Class II games." The DOJ argued, however, that
"there are significant factual and legal distinctions between fully integrated
bingo games and the Lucky Tab II machine." [Emphasis added.] The DOJ went on
to note that MegaMania utilizes communications technology to broaden the
participation in a simultaneous game, which is precisely what Congress intended
under IGRA. The DOJ thus stated:
THERE ARE SIGNIFICANT FACTUAL AND LEGAL DISTINCTIONS BETWEEN
LUCKY TAB II AND INTEGRATED BINGO GAMES SUCH AS MEGAMANIA AND
ROCKET BINGO. [Emphasis in original.]
The advisory opinions of the [NIGC's] Acting General
Counsel addressed MegaMania and Rocket Bingo in a context limited to
games described as fully integrated bingo games. The games
electronically link players in one or more Indian bingo halls to
simultaneously play the same bingo game. See Sycuan Band, 54 F.3d at
543. A minimum number of players are required to conduct a game and
the players are playing until someone can claim the bingo prizes. The
games as described by the manufacturers to NIGC, involve a number of
human elements and human decisions . . .
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In contrast, the Lucky Tab II machine is not a bingo game and
does not facilitate the playing of a simultaneous game through
communications technology. The Lucky Tab II game does not utilize
communications technology to broaden the participation in a
simultaneous game, as Congress intended, instead it is a game in and
of itself.
91. The DOJ, in its Cross Motion for Summary Judgment in the Lucky
Tab II litigation, the DOJ represented to be undisputed the fact that:
MegaMania is a fully integrated bingo game. It electronically
links players in one or more Indian bingo halls to simultaneously
play that same bingo game. A minimum number of players are
required to conduct a game and the game continues until someone
claims the bingo prize. The game, as described by the
manufacturers to the NIGC, involve a number of human elements and
human decisions -- none of which are present in the Lucky Tab II
machines --
[Emphasis added.]
The DOJ reiterated these identical distinctions in a companion filing entitled
Defendant's Statement of Material Facts, also filed in the Lucky Tab II
litigation on October 29, 1997.
92. The DOJ, on December 3, 1997, in its Reply in Support of Motion
for Summary Judgment in the Lucky Tab II litigation, again emphasized the
differences between MegaMania and Lucky Tab II:
The [Lucky Tab] machine either performs all the elements of the
pull tab game itself (and in that way is plainly distinguishable
from MegaMania and Rocket Bingo) or, because it has additional
elements of chance to the traditional pull tab game, is in fact a
new game.
[Emphasis added.]
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In that same filing, the DOJ stated that:
[U]nlike MegaMania and Rocket Bingo, Lucky Tab II does not link
participants at various reservations in the simultaneous playing
of a single Class II game (like bingo) and does not involve
computers and telecommunications to broaden participation levels.
[Emphasis added.]
The DOJ further stated that:
Stated otherwise, gamblers playing Lucky Tab II independently
play a "game" with or against a machine -- rather than with or
against other players. By contrast, with both MegaMania and
Rocket Bingo, players use those machines to simultaneously play a
Class II game of bingo and the machines use telecommunications
technology to broaden participation levels in that game.
[Emphasis added in part.]
93. Notwithstanding the fact that the DOJ has repeatedly equated
MegaMania and Rocket Bingo, and notwithstanding the fact that Mr. Lewis has
specifically approved "Rocket Bingo -- the Classic Game" and the EPS which aids
the playing of the game as Class II gaming, defendants in the present action
continue to assert that MegaMania is Class III gaming.
94. Moreover, on August 1, 1997, the NIGC wrote Worldlink a
letter, similar to the NIGC's July 23, 1997, letter to Multimedia, approving
Worldlink's Rocket Bingo as Class II gaming. The NIGC's description of Rocket
Bingo is identical to that of MegaMania in all material respects. Rocket
Bingo, like MegaMania, features a video display of Bingo cards, an ante-up
feature, video and audio stimuli, a terminal with touch-screen data entry for
"daubing" cards, and the possibility of "sleeping" a Bingo. (Indeed, the
developer of Rocket
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Bingo, Gary Watkins, is a former employee of Multimedia; Multimedia is
currently in litigation against Mr. Watkins for theft of trade secrets and
other misappropriation.)
95. According to the NIGC letter of August 1, 1997, the only
differences between MegaMania and Rocket Bingo are that (1) Rocket Bingo can be
played with only two players, while MegaMania requires twelve, (2) a player can
play thirty-six cards at once on Rocket Bingo, while a MegaMania player can
only play a maximum of four, and (3) Rocket Bingo features an automated scanner
reading bar codes off of a Bingo blower. Furthermore, according to its
Worldlink web page (http://www.wlgc.com/rocketbin.htm), a Rocket Bingo player
can bet a dollar, four times as much as a MegaMania player, on a set of three
balls per card, thus betting over a hundred dollars a minute if all cards are
played.
THE NEED FOR DECLARATORY JUDGMENT
96. Plaintiffs contend that MegaMania is an electronic aid to a
legal Class II Bingo game, and is lawful as Class II gaming. Defendants assert
that Megamania is a Class III game and is unlawful under the Johnson Act unless
operated pursuant to a valid Tribal-State compact. As a result of this
controversy, declaration of the parties' rights in this matter is required.
97. The DOJ's threat of prosecution of Multimedia and its
customers for its activities regarding MegaMania, and seizure of its equipment
and the terminals necessary for MegaMania play, creates an actual case or
controversy regarding a federal question that directly affects the rights and
legal relationships of the plaintiffs.
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98. Plaintiffs are entitled to a judicial declaration that
MegaMania is Class II gaming.
99. Plaintiffs are further entitled to a judicial declaration that
a Class II MegaMania aid with electronically determined Bingo draws, as in the
original version of MegaMania, would remain Class II.
100. The position of the defendants is not substantially justified.
Multimedia and the Seneca-Cayuga is therefore entitled to their attorneys' fees
in preparing for and bringing this action under the Equal Access to Justice
Act, 28 U.S.C. Section 2412(d).
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PRAYER FOR RELIEF
Wherefore plaintiffs pray that this Court:
A. enter its judgment declaring that both the original and
present version of MegaMania are permissible Class II gaming;
B. award Plaintiffs its costs, attorneys' fees, and all other
legal and equitable relief to which the facts entitle the plaintiff; and
C. enter all remedies as to which justice requires. Dated:
January 4, 1998
HALL, ESTILL, HARDWICK,
GABLE, GOLDEN & NELSON
Larry W. Sandel, OBA #7889
Graydon Dean Luthey, Jr., OBA #5568
320 South Boston Avenue, Suite 400
Tulsa, Oklahoma 74103-3708
Telephone: (918) 594-0400
IRELL & MANELLA LLP
Layn R. Phillips, OBA #7124
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067-4276
Telephone: (310) 277-1010
Attorneys for Plaintiff
MULTIMEDIA GAMES, INC.
Layn R. Phillips
Attorney for Plaintiff MULTIMEDIA
GAMES, INC.
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JESS GREEN, OBA #3564
301 E. Main
Ada, Oklahoma 74820
Telephone: (580) 436-1946
Attorney for Plaintiff
SENECA-CAYUGA TRIBE OF OKLAHOMA
Jess Green
Attorney for Plaintiff SENECA-CAYUGA
TRIBE OF OKLAHOMA
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