United States v. Navajo Nation (07-1410)

Oral argument: Monday, February 23, 2009

Appealed from: United States Court of Appeals for the Federal Circuit (September 13, 2007)

INDIAN AFFAIRS, INDIAN MINERAL LEASING ACT, INDIAN TUCKER ACT, FIDUCIARY DUTY

In 1964, pursuant to the Indian Mineral Leasing Act of 1938, the Navajo Nation entered into an agreement with a third party to lease a substantial portion of Navajo land for coal mining activities. In 1984, pursuant to the terms of the lease, the Nation sought the assistance of the Secretary of the Interior to renegotiate the royalty rate allotted in the lease to comport with changed market conditions. After a series of negotiations, in 1987 the Nation agreed to-and the Secretary of the Interior approved-a series of amendments to the original lease. In 1993, the Nation initiated proceedings in the Court of Federal Claims alleging that the Secretary had been improperly influenced by the coal company, and as a result, had breached his fiduciary duty to the Nation when he approved the 1987 lease amendments. After a series of appeals, in 2003, the Supreme Court held the Indian Mineral Leasing Act of 1938 did not create an actionable claim for breach of fiduciary duty against the United States. On remand, the Federal Circuit read the Supreme Court's decision narrowly, and held that the Nation's claim was nonetheless actionable based on a common law fiduciary duty arising from the network of statutes and regulations defining the relationship between the Navajo Nation and the United States.

Question(s) presented

The Indian Mineral Leasing Act of 1938 (IMLA), 25 U.S.C. 396a et seq., and its implementing regulations authorize Indian Tribes, with the approval of the Secretary of the Interior, to lease tribal lands for mining purposes. In a previous decision in this case, United States v. Navajo Nation, 537 U.S. 488 (2003) (Navajo), this Court held that the Secretary's actions in connection with Indian mineral lease amendments containing increased royalty rates negotiated by the Navajo Nation did not breach a fiduciary duty found in IMLA or other relevant statutes or regulations. The court of appeals held on remand that the Secretary's conduct breached duties linked to sources of law that had been briefed to this Court but not expressly discussed in Navajo. The questions presented are:

1. Whether the court of appeals' holding that the United States breached fiduciary duties in connection with the Navajo coal lease amendments is foreclosed by Navajo.

2. If Navajo did not foreclose the question, whether the court of appeals properly held that the United States is liable as a matter of law to the Navajo Nation for up to $600 million for the Secretary's actions in connection with his approval of amendments to an Indian mineral lease based on several statutes that do not address royalty rates in tribal leases and common-law principles not embodied in a governing statute or regulation.

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Issue(s)

Does the Supreme Court's 2003 ruling in this case necessarily preclude the parties from raising the arguments advanced in this appeal?

If not, did the Secretary of the Interior's approval of the Navajo Nation's 1987 mineral lease amendment violate a common-law fiduciary duty that gives rise to an actionable claim for damages?

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Facts

Factual History

The Navajo reservation is the largest Indian reservation in the United States. See Navajo Nation v. United States ("Navajo VI"), 501 F.3d 1327, 1330 (Fed. Cir. 2007). The Navajo Nation's ("the Nation's") reservation lands contain a vast amount of coal, which is held in trust for the Nation by the federal government. See id.

In 1964, the Nation and the predecessor in interest to Peabody Western Coal Company ("Peabody") entered in to a lease for access to the Nation's mineral rights. See id.  The lease, which was governed by the Indian Mineral Leasing Act of 1938 ("IMLA") gave Peabody rights to the Nation's coal resources in exchange for a royalty of 37.5 cents per ton. See id. The lease, which was approved by the Secretary of the Interior, provided that its provisions were "subject to reasonable adjustment by the Secretary" at the end of a twenty-year term. See id.

By 1984, the 37.5 cents per ton rate was "‘substantially lower' than the 12.5% minimum royalty set by Congress in 1977 for coal mined on federal lands." Id. As a result, the Nation asked the Secretary of the Interior to make a reasonable adjustment to the rate as provided in the lease. See id. at 1331. The Secretary, based on the recommendations of several Federal agencies, issued a final order through the Bureau of Indian Affairs adjusting the lease royalty rate to 20% of gross proceeds. See id. In July of 1984, Peabody filed an administrative appeal with the Bureau of Indian Affairs. See id.

While the appeal was pending, both Peabody and the Nation anticipated a ruling in favor of the Nation. See id. This prompted Peabody, in the fall of 1985, to write a letter to the new Secretary of the Interior requesting that the appeal either be postponed or resolved in Peabody's favor. See id. Peabody also hired a lobbyist and former Department of Interior employee who was a friend of the Secretary to meet with him without the knowledge of the Nation. See id. As a result of this meeting, the Secretary's office drafted a memorandum which indicated that a decision on the appeal would be delayed, and urging the parties to "‘resolve the matter in a mutually agreeable fashion.'" Id. The Nation never received a copy of this memo, but "‘learned that someone from Washington had urged a return to the bargaining table.'" Id. Facing economic pressure, the tribe resumed negotiations with Peabody in August of 1985. See id.

The Nation and Peabody agreed on the amended lease in November 1987, which the Secretary of the Interior approved the following month. See id. at 1332. The amended lease made a number of modifications: royalties were set at 12.5% (an increase from the original lease rate, but lower than the 20% rate initially set by the Secretary), another 90 million tons of coal were included in the agreement, and certain water rights were renegotiated. See id.

Procedural History

In 1993, the Nation sued the United States in the Court of Federal Claims seeking $600 million for an alleged breach of fiduciary duty based on the government's approval of the 1987 lease amendments. See Navajo Nation v. United States ("Navajo I"), 46 Fed. Cl. 217, 225 (2000). The Court of Federal Claims found that the United States breached its common-law fiduciary duties to the Nation. However, after finding that neither the IMLA nor its implementing regulations allowed for money damages, the court granted summary judgment in favor of the government. See id. at 232.  On appeal, the Court of Appeals for the Federal Circuit reversed, and held that damages were indeed possible. See Navajo Nation v. United State ("Navajo II"), 263 F.3d 1325 (Fed. Cir. 2001). The Supreme Court granted certiorari, overturned the Court of Appeals' decision, and remanded, holding that IMLA provided no statutory authorization for damages. See United States v. Navajo Nation ("Navajo III"), 537 U.S. 488 (2003).

On remand from the Supreme Court, the Federal Circuit remanded the case to the Court of Federal Claims with instructions to determine whether or not a "network of other statutes and regulations" created "judicially enforceable fiduciary duties upon the United States." See Navajo Nation v. United States ("Navajo IV"), 347 F.3d 1327, 1332-33 (Fed. Cir. 2003). The Court of Federal Claims found the network of statutes upon which the Nation's claim was based did not establish a duty to set royalty rates mandating damages. See Navajo Nation v. United States ("Navajo V"), 68 Fed. Cl. 805 (Fed. Cl. 2005). On appeal, the Federal Circuit reversed the Court of Federal Claims a second time and held that the "network of statutes and regulations asserted by the Nation" established "specific trust duties," the breach of which gives rise to a "cognizable money-mandating claim against the United States." See Navajo Nation v. United States ("Navajo VI"), 501 F.3d 1327, 1348-49 (Fed. Cir. 2007). It is from this decision that the United States has appealed, and the Supreme Court has granted certiorari. See Question Presented.

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Discussion

United States v. Navajo Nation presents the Supreme Court with the opportunity to determine whether the Secretary of the Interior-the highest-ranking government official charged by statute with overseeing Indian Affairs-owes any common-law fiduciary duty to Indian tribes, and, if so, whether breach of that duty gives rise to monetary damages. Because of the depth and breadth of the federal government's control over Indian affairs and the legacy of distrust that has plagued government-tribal relations, this decision has the potential to impact not only the parties, but also energy customers in California, schoolchildren in Utah, and tribal law specialists nationwide. Alternatively, the Court could dismiss the case if it finds at the outset that the issue presented here is foreclosed by its earlier ruling in Navajo III. This is the primary argument advanced by the United States. See 537 U.S. 288 (2003); Brief for Petitioner United States at 24.

The parties focus on technical arguments of statutory interpretation. The government's fundamental contention is that the Indian Tucker Act, the statute authorizing claims by American Indians against the United States that arise out of the Constitution, statutes or government regulations, does not provide a remedy for common-law breach of fiduciary duty. See Brief of Petitioner at 32; 28 U.S.C. § 1505. The Navajo Nation counters that a narrow reading of Navajo III is appropriate, and that the Indian Tucker Act applies through the operation of recent case law to any common-law trust violation. See Brief for Respondent at 27.

The energy industry wants cheap coal. The Peabody Western Coal Company ("Peabody") and Southern California Edison ("SCE"), a major coal customer, are both parties to other civil suits involving the same lease that gave rise to this action. See Brief of Amici Curiae Peabody and SCE ("energy companies") in Support of Petitioner at 1. The energy companies argue that there is a substantial benefit to millions of energy consumers throughout California in having the reasonably priced coal that comes as a result of the current lease arrangement. See id. at 2. Furthermore, the energy companies suggest, the Administrative Procedure Act provides sufficient recourse for parties wishing to challenge the determinations of the Secretary of the Interior making additional common law damages unnecessary. See id. at 16. Finally, Peabody suggests that the Secretary's actions were not fraudulent to begin with. See id. at 23. However, because neither party is disputing whether or not the Secretary's conduct was improper, the Supreme Court is unlikely to consider this question. See 503 F.3d at 1330.

Legal historians and Tribal law scholars suggest that a common law of trusts governing Indian Affairs has vibrant roots. See Brief of Amici Curiae Law Professors  in Support of Respondents at 2; Brief of Amici Curiae National Congress of American Indians et. al. ("Amici Tribes") in Support of Respondents at 2. The Amici Tribes and Law Professors provide an account of American law that has traditionally viewed Indians as wards of the federal government. See Brief of Law Professors at 7; Brief of Amici Tribes at 8. Against this, the Tribes and Professors argue, Indians law was rooted in the common law of trusts, and Congress enacted the Indian Tucker Act specifically to provide a remedy for a breach of duty. See Brief of Law Professors at 7; Brief of Amici Tribes at 8. The Amici Tribes go on to argue that the behavior of the Secretary of the Interior which underlies the present action is exactly the type of behavior that the Indian Tucker Act was designed to address. See Brief of Amici Tribes at 24-25.

State governments rely on tax revenue from mineral proceeds to provide vital programs for their citizens, including the Navajos and other Indian tribes. See Brief of Amici Curiae States of New Mexico, Arizona and Utah ("States") in Support of Respondent at 3. Amici States argue that granting mineral leases to coal companies for below market value deprives the States of potential revenue to fund important infrastructure programs on Indian lands. See id. at 7. This, in turn, the States argue, is contrary to the mandate of the Navajo-Hopi Rehabilitation Act of 1950, which calls for Indian mineral revenues to be reinvested in Indian communities.  See id. at 8; 25 U.S.C. § 631. This refrain is echoed by four former Secretaries of the Interior, who argue that the Rehabilitation Act was specifically designed to promote long-term economic development of the Navajo Nation, and as such requires the Secretary to act in the Nation's best interest. See Brief of Former Secretaries of the Interior in Support of Respondent at 5-6.

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Analysis

Ultimately, what is at issue here is the proper interpretation of the Supreme Court's decision in Navajo III and the appropriate scope of the holding by the Court of Appeals for the Federal Circuit. Depending on the Supreme Court's decision, the United States may be liable to the Navajo Nation ("the Nation") for up to $600 million in damages for a breach of trust.

Threshold Question: Whether the Supreme Court's Decision in Navajo III Foreclosed Further Findings of Liability by the Federal Circuit

In general, the United States government is immune from suits brought against it, a concept called sovereign immunity. It can, however, consent to the jurisdiction of a court and thus waive its right to immunity when Congress passes statutes that prescribe specific methods with which states or individuals can sue the United States. The Indian Tucker Act provides one such waiver of sovereign immunity for damage claims against the United States brought by an Indian tribe. The statute authorizes an Indian tribe to sue the United States for a claim arising "under the Constitution, laws or treaties . . . or Executive Orders." 28 U.S.C. § 1505. See Brief for Respondent, Navajo Nation at 31. Applied to this case, the Nation can sue the U.S. government only if it violated a statute or regulation that creates a substantive right to money damages. See Brief for Petitioner, United States at 32.

The United States argues that the Supreme Court's 2003 Navajo decision foreclosed any claim the Nation may have had under the Indian Tucker Act. See Brief for Petitioners at 23. It points to the Court's language that there was "‘no warrant from any relevant statute or regulation to conclude that [the Secretary's] conduct implicated a duty' that might support the Nation's claim...." See id. at 24-25 (quoting United States v. Navajo Nation, 537 U.S. 488 (2003)) (emphasis added). The United States asserts that the decision's broad language excludes all statutes and regulations relating to coal-mining governance as possible bases for liability under the Indian Tucker Act. See id. at 25-27. This includes, the United States continues, all of the various coal-mining statutes the Tribe listed as possible bases in the 2003 case. See id. at 26. The Federal Circuit, the government argues, incorrectly relied on these same statutes to find the United States liable for a specific breach of fiduciary duty, and to then support a claim for money damages. See id. Acknowledging that the Supreme Court's 2003 decision did not address these cited statutes, the United States nevertheless argues that the statutes were ignored because they had nothing to do with the claim, and maintains that such irrelevance cannot form the basis of liability. See id. at 28. Ultimately, the United States concludes, the Federal Circuit's reliance on these omitted statutes, despite the broad language of the 2003 decision, is a complete departure from the Supreme Court's previous ruling, and as a result, should be reversed. See id. at 29.

The Nation counters that the 2003 decision was expressly limited to the Indian Mineral Leasing Act ("IMLA"). See Brief for Respondent at 22. It argues that the United States fails to address all the circumstances of the 2003 decision. See id. at 27. First, it points out that the question presented to the Supreme Court in 2003, which necessarily was based on the lower court's narrow decision, was limited to the IMLA. See id. Moreover, the Nation continues, the 2003 decision's language clearly limits the holding to the IMLA. See id. at 28. The Tribe cites language used by the Supreme Court in describing the case as one "concern[ing] the Indian Mineral Leasing Act of 1938" and in ruling against the Nation because its claim did not "derive from any liability-imposing provision of the IMLA." See Navajo, 537 U.S. at 493. See also Brief for Respondent at 28. After pointing to other parts of the 2003 decision referring to the IMLA, the Tribe concludes that this is proof that the case was limited to only this statute and its provisions. See Brief for Respondent at 29. Finally, the Nation points to the fact that instead of dismissing the case with prejudice, the Supreme Court remanded for further proceedings, showing that the Court intended to leave open further considerations on remand. See id. at 30.

The Nation also addresses the part of the 2003 decision cited by the U.S. ("no warrant from any relevant statute or regulation") and asserts that it was read out of context. See id. (quoting Navajo, 537 U.S. at 493). The Nation argues that this language really refers to the statute actually addressed in the opinion, the IMLA. See id. It concludes that this fact, coupled with the narrow scope of the 2003 decision, left room for the Federal Circuit to find the U.S. liable under other statutes beyond the IMLA. See id.

If Navajo III Doesn't Foreclose Further Claims, Did the Federal Circuit's Ruling Misapply the Principles Underlying the Indian Tucker Act?

Apart from disagreeing over whether the Federal Circuit should have construed the 2003 holding narrowly or broadly, the parties also argue over whether the Federal Circuit's rationale was consistent with the Supreme Court's precedents. Specifically, the parties diverge over the construction of the Indian Tucker Act, and in what situations there is a waiver of sovereign immunity.

The U.S. argues that the Federal Circuit incorrectly held that common law trust principles could form the basis for a claim under the Indian Tucker Act. See Brief for Petitioner at 30. Essentially, the U.S. argues, the lower court misapplied basic principles underlying the viability of claims brought under the Indian Tucker Act. See id. at 33. It points to two separate requirements a claimant must meet to sue the U.S. government under the Act. First, the claim must be based on a specific statute or regulation that creates specific fiduciary duties. See id. at 32. Once the claimant shows such a statute, he or she must further show that this specific provision requires the payment of money damages as a consequence of the government's breach of that particular duty. See id. In order to prove that the statute mandates monetary damages, the claimant may rely on general standards from the common law of trust. See id. at 33. The Federal Circuit's error, the U.S. concludes, occurred when it used these general principles to analyze the first requirement. See id. at 34. The U.S. quotes a portion of Justice Souter's dissent in Navajo III, in which he states that "while a ‘right to damages can be inferred from general trust principles' at the second stage of the pertinent analysis, that inquiry occurs ‘once a statutory or regulatory provision is found to create a specific fiduciary obligation' at step one." See id. at 37 (quoting Navajo, 537 U.S. at 514 (Souter, J., dissenting)).

Specifically, the government argues that the Federal Circuit misconstrued a prior Supreme Court case, United States v. White Mountain Apache Tribe ("Apache"). The lower court had stated that "elaborate" government control over a trust resource (here a network of comprehensive federal laws over Navajo coal) would trigger common-law trust duties, themselves based on general principles and not specific statutes. See id. at 34. A violation of such a duty can be the basis for a claim under the Indian Tucker Act. See id.; see also Apache, 537 U.S. 465, 474 (2003). However, when read in context with the entire opinion, the U.S. argues, one reaches a contrary result. See Brief for Petitioner at 35. This "control" must be "actual, managerial control" over trust resources, which is expressly mandated by specific statutory duties. See id. at 39. Ultimately, the government claims, Apache does not alter the governing framework established by precedents, and claims brought under the Indian Tucker Act must still be based on some specific statute or regulation, not a general principle of trust law. See id.

The Nation counters that the government's reading of Apache is unsound. See Brief for Respondent at 49. It argues that precedents establish that general trust law aids in articulating the nature and extent of the government's fiduciary duties if there is elaborate federal control over the trust resource. See id. at 50. The U.S. erred, it says, by reading Apache to require an express mandate of control in the relevant federal statute when really it is enough to imply such control from the policies and execution of the statute. See id. at 51.

Furthermore, the Nation asserts that the U.S. expressly waived immunity under the Indian Tucker Act for claims based on statutes or regulations that required the government to pay money damages in the event of a breach of its fiduciary duty to the Nation. See id. at 32. The Tribe then contends that both the Navajo-Hopi Rehabilitation Act and the Surface Mining Control and Reclamation Act provide inferences of such a requirement. See id. These two acts, the Nation argues, impose specific duties such as disclosure, communication, and participation on the U.S. government to foster tribal economic self-sufficiency and to protect its natural resources. See id. at 40, 42. The tribe points out specific provisions in both statutes that mandate money damages if the U.S. government breaches these duties. See id. at 36, 41. It claims that the Interior Department's refusal to follow the Nation's recommendation to adjust the royalty rate, along with its nondisclosure of dealings with private interests, culminated in a breach of the U.S.'s fiduciary duties under these statutes, and in an actionable claim under the Indian Tucker Act. See id. at 40.

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Conclusion

The Supreme Court is called upon to decide whether the United States government has waived sovereign immunity. Depending on its decision, the United States may be liable to the Navajo Nation for up to $600 million in damages for a breach of trust. Beyond the money damages, however, the two parties are arguing over the extent of the U.S. government's duty toward the Navajo Nation, and ultimately, all Indian tribes. Neither side disputes that the Secretary of the Interior was dishonest with the Navajo Tribe, but is that a breach of fiduciary duty under the IMLA giving rise to a damages claim for $600 million?

Authors

Prepared by: Sun Kim and Tom Kurland

Edited by: Carrie Evans

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Additional Sources

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