Cobell v. Norton: Redressing a Century of Malfeasance

Vol. 33 No. 2

By

Keith Harper of the Cherokee Nation of Oklahoma is a partner at Kilpatrick Stockton LLP in Washington, D.C., and plaintiffs’ class counsel in Cobell v. Norton.

Prompted by the continuing failure of the United States to fulfill its most basic fiduciary responsibilities, in June 1996 Elouise Cobell and a handful of individual Indians brought a class action lawsuit for breach of trust. The case has three goals: (1) an adequate accounting of the individual Indian trust, (2) a restatement of trust balances in conformity with the accounting, and (3) reform of what government officials have long conceded is a decrepit trust management system.

The Trust

In 1887, Congress enacted the General Allotment Act and inaugurated the policy of allotment, one in a seemingly endless line of failed federal initiatives to assimilate Indian people by “destroying tribes” and “eradicating Native culture,” as the Federal District Court for the District of Columbia put it. The plan was simple. Divide the remaining tribal landholdings by allotting small parcels to each tribal member. Any “surplus” land would be opened up for non-Indian settlement. Indian consent, rarely sought, was never a requisite.

The consequence was both predictable and devastating to native peoples. Of the 138 million acres in tribal hands as of 1887, 48 million remained when allotment ended in 1934. Ten million acres were owned in small parcels by individual Indians. For these lands, the United States appointed itself trustee, with all the powers to sell and lease
Indian assets—oil, gas, timber, rights-of-way, etc.—without obtaining the landowners’ permission.

The Malfeasance

Since inception, as the D.C. Circuit Court of Appeals found, the management of the trust has been “hopelessly inept.” Indeed, one 1915 congressional report described the Department of the Interior’s degenerate management as “fraud, corruption and institutional incompetence almost beyond the possibility of comprehension.” Report of the Joint Commission of the Congress of the United States Relative to Business Accounting Methods Employed in the Administration of the Office of Indian Affairs, 63rd Cong., at 2 (1915).A perpetual stream of reports in every decade since—from the Government Accounting Office, Comptroller General, Interior’s Inspector General, the House and Senate, Arthur Andersen, and many others—have laid bare the criminal management of Indian assets. Tragically, echoing the indictment of 1915, one such Senate report nearly eight decades later found persistent “fraud, corruption and mismanagement pervading the [trust management] institutions.” Senate Rep. No. 101-216, at 4–5 (1989).

Some examples will help illustrate the nature and scope of the still-present deficiencies:

• The trustee has not provided an accounting to beneficiaries ever—not once—in a century.

• The trustee routinely enters into leases on behalf of Indians for 5
to 10 percent of what non-Indians receive for the exact same type of transaction. In other words, a Navajo Indian receives $9 to $25 per rod for a pipeline right-of-way lease. A non-Indian receives no less than $140 and often $575 per rod for the same lease.

• The trustee does not have an accounts receivable system—still today. So the trustee is unaware when a beneficiary is owed a payment. If no payment is made, that is usually the end of it.

• Oil and gas payments are also on the honor system. By design, companies self-report the amount and grade of the extracted resource. Although Minerals Management Service (MMS) purports to “audit” one in every few thousand transactions, no penalty is assessed even where there is a fraudulent underreport. Worse still, the MMS Audit Office was cited in 2003 by Interior’s own Inspector General for fraudulently “recreating” and “backdating” work papers.

• ‑Irreplaceable trust records are routinely stored in facilities such as barns and condemned warehouses. Rat infestations were so extraordinary that Interior sought relief from document production for nine months so that it could decontaminate facilities from the deadly hantavirus.

This is merely the tip of the iceberg. The severe mismanagement prompted the district court to describe Interior’s tenure as “odious” and a “near wholesale abdication of its trust duties.” Cobell v. Norton, 229 F.R.D. 5, 7, 16 (D.D.C. 2005).

The Lawsuit

A century of unabated abuse and continuing divesture of the financial lifeblood of tribal communities was quite enough. Administration after administration has readily acknowledged the ongoing malfeasance, promised reform, and then done nothing but perpetuate the maltreatment. Cobell v. Norton, 240 F.3d 1081 (D.C. Cir. 2001) ( Cobell VI), is about putting an end to this national disgrace. (For further information on the case, visit www.indiantrust.com or www.indianz.com.)

Liability is no longer in dispute. Six years ago, the district court, at the conclusion of phase one of this bifurcated case, held that the government had breached its accounting duty. A unanimous panel of the D.C. Circuit affirmed this liability determination in February 2001, along with Interior’s declared obligation to account for “all funds, irrespective of when they were deposited.” Id. at 1102.

Rather than do as the courts have directed, Interior instead has spent much of the past five years attempting to relitigate issues already decided, in a transparent effort to delay the case and evade accountability. They continue to argue, for example, that they do not owe ordinary trust duties unless Congress expressly provides. But the D.C. Circuit held just the opposite: Interior owes “traditional fiduciary duties unless Congress has unequivocally expressed an intent to the contrary.” Id. at 1099.

Another example of this tactic is the government’s contention that the source of the accounting obligation owed the trust beneficiaries is the American Indian Trust Fund Management Reform Act of 1994, 25 U.S.C. § 4001 et seq. It is on this basis that they have refused to provide an accounting to the hundreds of thousands of beneficiaries whose accounts were closed, no matter how arbitrarily, before that act’s passage in October 1994. Yet the D.C. Circuit squarely addressed and rejected that argument in 2001, holding that the 1994 act “reaffirmed pre-existing duties”; “it did not create” nor “limit” them. Cobell VI, at 1099–1100.

Equally disingenuous have been the Interior’s repeated attempts to characterize this litigation as involving only a historical accounting and to attack the district court’s orders addressing other trust management problems as outside the scope of this litigation. As the D.C. Circuit made clear in 2004, however, “fixing” the broken trust management system is undoubtedly part of this case, calling Interior’s contention to the contrary “puzzl[ing].” Reform is, in fact, a critical component of Cobell and always has been.

Interior purposefully misleads in other ways. The government claims, for example, that they have begun their accounting process and that there are only a few errors. Their principal evidence for this contention is the so-called Ernst & Young Report—a misnomer because that accounting firm re­fused to sign the illegitimate work. Interior claims the report identified only one error of about $60 after reviewing thousands of transactions.

The report is a ruse. Although the very purpose of accounting is to test accuracy, this “accounting” expressly provides that all information is “accepted as accurate.” The report nevertheless admits that 14 percent of the transactions reviewed had no supporting documentation. This is all the more astonishing when one considers what little they required to consider a transaction supported. For example, less than .01 percent of disbursement transactions are supported by cancelled checks, the ordinary proof required. Instead, a disbursement is considered sufficiently documented by, for example, a lease. Under no other circumstances would a lease be considered proof that a beneficiary received payment.

The ultimate demonstration of the report’s lack of credibility is the government’s own conduct. In December 2004, the plaintiffs asked for a trial to determine if this report constituted an adequate accounting, as government officials had repeatedly claimed. Interior vigorously objected to a trial, know­ing that the report could not withstand even cursory scrutiny.

The plaintiffs will soon renew this motion for a trial date. The fact is that the “accounting” the government is performing is no accounting at all, and the plaintiffs expect to prove in phase two of this protracted trust case that the government cannot possibly accomplish its declared accounting obligation—too many records have been lost and/or destroyed and the records that do exist lack integrity. In the event the district court makes such a finding, alternative equitable remedies will then be pursued (including equitable restitution and disgorgement) to accomplish the adjustment of account balances in conformity with the available evidence and long-standing trust law principles.

In the end, the goal is the same as it has always been: redress of past wrongs and reform of the system so the mal­feasance will end.

A Fair Resolution

Congress presently is considering a bill to resolve the Cobell case. The plaintiffs support a fair resolution. What is fair? Interior’s internal report from 2002 placed liability at between $10 and $40 billion. Obviously, anything less than conceded liability cannot possibly be equitable.

Another way to calculate a fair settlement figure is by using an error rate calculation. The government admits that $13 billion in proceeds, not including interest, was deposited into the trust from 1909 to 2000. Using the actual interest rates in which these funds were invested, if one presumes a 20-percent error rate, $29.6 billion is owed. In light of the documented record of malfeasance, spoliation of records, fraud, corruption, use of Indian monies as “slush funds,” etc., a 20-percent error rate—presuming 80 percent of the funds were properly collect­ed, invested, and disbursed to the correct beneficiaries—is obviously a presumption highly favorable to the government.

In the end, this case is simple. Since the trust’s inception, the government has assumed the powers of a trustee without abiding by the concomitant responsibilities. The result has been a legacy of incompetence and abuse that is plainly intolerable and must cease. This case will right that wrong.

As published in Human Rights, Spring 2006, Vol. 33, No. 2, pp.5-6, 23.

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