Franklin Lee was recently quoted in this article, which first appeared in the Baltimore Business Journal on May 27, 2011:
A policy giving minority-owned businesses up to 35 percent of work to build and operate Maryland’s slots parlors could fail a legal challenge, according to Attorney General Doug Gansler.
A law Gov. Martin O’Malley signed May 19 extends requirements of the state’s Minority Business Enterprise program to slots contracting through 2018. But a letter from Gansler’s office suggests the requirements are vulnerable to challenge. Gansler recommended O’Malley not sign the bill unless the state conducts a study proving that minority- and women-owned businesses aren’t getting a fair share of business in the gaming industry here.
That means the policy could be open to lawsuits from majority-owned firms that might say the policy is unjust. Slots parlors are slated to be a more than billion-dollar business in Maryland once the five permitted by state law are built, providing millions of dollars in opportunity for minority businesses. Minority inclusion has been a key concern of state gambling regulators and of the companies operating or building parlors, or vying to do so.
Two slots parlors have opened in the state, and both were required to hire minority firms for 25 percent of business. One under construction at Arundel Mills Arundel mall and another in Baltimore that has been stalled by lawsuits are both slated to hire minority firms for 35 percent of business. A fifth planned for Rocky Gap Resort is also slated for 25 percent minority inclusion but has faced tepid interest from developers who say the project isn’t profitable.
When slots gambling was legalized in 2008, the part of the law setting minority business participation requirements was set to end in 2011. The bill O’Malley signed extends that through fiscal year 2018.
Even the first time around, Gansler’s office expressed concern about whether placing minority participation goals on slots contracting was legal. He wrote the same recommendation — that a study be conducted to back up the need for the law — in 2007, when the General Assembly passed a law sending the decision on whether to legalize slots to a 2008 referendum.
When asked why no study was conducted at that time, O’Malley spokesman Shaun Adamec said he couldn’t speak to what happened in 2007.
Gansler’s office weighs in on all bills that pass the General Assembly; the vast majority get a form-letter OK, but a few have murkier legal issues to weigh in on. The letter regarding the slots minority participation bill explains reasons for some concern, should the law be challenged in court. But it doesn’t go so far as to recommend a veto of the bill, emphasized Steve Ruckman, a spokesman for Gansler’s office.
"It’s our interpretation of the law as we see it in this circuit," he said.
There are no immediate plans to conduct a study. Adamec said the governor’s office "will be working with the Attorney General’s office to determine what steps are legally required." The Governor’s Office of Minority Affairs is not involved with any sort of study or review of the policy, spokesman Sheila Lewis said.
Studies proving that a disparity exists between the amount of business majority and minority firms get are the basis for minority business inclusion laws. Previous court precedents around the country have determined that any government program establishing goals for minority inclusion must be "narrowly tailored" to focus on correcting proven discrimination.
In one sense, conducting a study specifically on minority inclusion in the gaming industry would make the law easier to defend, said Franklin Lee, an attorney with Tydings in Baltimore who specializes in the law of minority business programs across the country.
But on the other hand, there are many types of businesses that are included in studies the state conducts — those in hospitality, construction or maintenance, for example — that could be hired to work on a casino project, he said. It’s hard to say what would happen if the law were challenged in court, he said.
"Reasonable minds can disagree about that," Lee said. "The law is not terribly well settled in that area, so everyone’s kind of guessing."
Regardless, companies working on slots parlors in the state say they are making minority inclusion a priority regardless of the law or any challenges to it.
"Our standard practice is to develop a very aggressive outreach program," said Eric Schippers, spokesman for Penn National Gaming Penn National, which owns Hollywood Casino Perryville. "We’d be doing this aggressive level of outreach anyway."
Penn National has achieved 24 percent minority inclusion on the Perryville project, Schippers said. But he emphasized that only counts what state lottery officials accept as qualified MBEs. Companies must register with the Maryland Department of Transportation to be certified MBEs and counted toward MBE goals.
The Cordish Cos., the Baltimore developer building Maryland Live, a casino at Arundel Mills, has achieved its 35 percent participation goal, said Joe Weinberg, president of the company’s gaming and resorts division. The project’s general contractor, Baltimore-based Commercial Interiors, is the general contractor on the project and is minority-owned.
The slots industry may not be the only one that could present a challenge to the state’s minority business program. A Baltimore Business Journal investigation published in April found that nonprofits with social missions of "community rehabilitation" are among the largest recipients of money through the state minority business program.
But those nonprofits are also not subject to a study proving racial discrimination, causing some experts to question whether they should be eligible for minority status and contracts.