[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
STATUS OF THE INDIAN TRUST FUND LAWSUIT, COBELL V. NORTON
=======================================================================
OVERSIGHT HEARING
before the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
Wednesday, February 16, 2005
__________
Serial No. 109-2
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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______
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COMMITTEE ON RESOURCES
RICHARD W. POMBO, California, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska Dale E. Kildee, Michigan
Jim Saxton, New Jersey Eni F.H. Faleomavaega, American
Elton Gallegly, California Samoa
John J. Duncan, Jr., Tennessee Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland Solomon P. Ortiz, Texas
Ken Calvert, California Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming Donna M. Christensen, Virgin
Vice Chair Islands
George P. Radanovich, California Ron Kind, Wisconsin
Walter B. Jones, Jr., North Grace F. Napolitano, California
Carolina Tom Udall, New Mexico
Chris Cannon, Utah Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada Jim Costa, California
Greg Walden, Oregon Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado Dan Boren, Oklahoma
J.D. Hayworth, Arizona George Miller, California
Jeff Flake, Arizona Edward J. Markey, Massachusetts
Rick Renzi, Arizona Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico Jay Inslee, Washington
Devin Nunes, California Mark Udall, Colorado
Henry Brown, Jr., South Carolina Dennis Cardoza, California
Thelma Drake, Virginia Stephanie Herseth, South Dakota
Luis G. Fortuno, Puerto Rico
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Vacancy
Steven J. Ding, Chief of Staff
Lisa Pittman, Chief Counsel
James H. Zoia, Democrat Staff Director
Jeffrey P. Petrich, Democrat Chief Counsel
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C O N T E N T S
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Page
Hearing held on Wednesday, February 16, 2005..................... 1
Statement of Members:
Cubin, Hon. Barbara, a Representative in Congress from the
State of Wyoming, Prepared statement of.................... 48
Kildee, Hon. Dale, a Representative in Congress from the
State of Michigan, Prepared statement of................... 3
Napolitano, Hon. Grace F., a Representative in Congress from
the State of California.................................... 3
Pombo, Hon. Richard W., a Representative in Congress from the
State of California........................................ 1
Prepared statement of.................................... 2
Statement of Witnesses:
Cason, James, Associate Deputy Secretary, U.S. Department of
the Interior............................................... 4
Prepared statement of.................................... 5
Harper, Keith M., Attorney for the Plaintiffs, Native
American Rights Fund....................................... 30
Prepared statement of.................................... 32
OVERSIGHT HEARING ON THE STATUS OF THE INDIAN TRUST FUND LAWSUIT,
COBELL V. NORTON
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Wednesday, February 16, 2005
U.S. House of Representatives
Committee on Resources
Washington, D.C.
----------
The Committee met, pursuant to notice, at 11:01 a.m., in
Room 1324, Longworth House Office Building, Hon. Richard W.
Pombo [Chairman of the Committee] presiding.
Present: Representatives Pombo, Hayworth, Cubin,
Radanovich, Gibbons, Walden, Flake, Pearce, Nunes, Gohmert,
Faleomavaega, Pallone, Christensen, Napolitano, Tom Udall of
New Mexico, DeFazio, Inslee, and Herseth.
STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
The Chairman. The Committee on Resources will come to
order. The Committee is meeting today to hear testimony on the
status of the Indian Trust Fund lawsuit, Cobell v. Norton.
The Chairman. Under Rule 4(g) of the Committee Rules, any
oral opening statements at the hearing are limited to the
Chairman and Ranking Minority Member. This will allow us to
hear from our witnesses sooner and help Members keep to their
schedules. We have a 2 p.m. hearing today in this room, so we
cannot make this a long hearing. Therefore, if others have
statements, they can be included in the hearing record under
unanimous consent.
The purpose of today's hearing is to do a status check on
the Indian Trust Fund lawsuit entitled Cobell v. Norton, filed
nine years ago by Elouise Cobell, a member of the Blackfeet
Indian Nation. The lawsuit was filed in order to force the
government to perform an historical accounting of certain
monies it manages on behalf of around 300,000 Indians. Although
the defendant in this suit is currently Secretary Norton, it
was originally filed against her predecessor, Bruce Babbitt,
and the origins of the case stretch back to the 19th century.
I won't use the Committee's time giving a detailed history
of how the Department got into this mess. The story is narrated
quite well in the written testimony of today's witnesses.
Suffice it to say that from the late 1800s until recent years,
the government failed to do the basic housekeeping necessary to
maintain orderly records of individual Indian money accounts.
Prestigious accounting firms have been hired at great cost to
figure out the old accounting system and they can't.
Elouise Cobell is a banker who understands the basic duty
to provide an accounting of money. She wasn't able to get the
government to deliver on its duty in 1996, so out of a just
sense of frustration, she filed the lawsuit as a last resort.
But after nine years in court, the individual Indians still
don't have their accounting. Elders are passing away without
knowing if their monies were properly handled. It is
embarrassing that the first Americans are the last in line when
it comes to speedy justice, which is not being provided in the
court.
Unfortunately, after nine long years, the lawsuit has taken
on the character of a blood feud. It consumes massive time and
resources in the Department, time and resources better spent on
helping Indians and their tribes as well as non-Indian members
of the public who rely on other Interior services.
Under the supervision of myself, Ranking Member Rahall, and
the leadership of the Senate Indian Affairs Committee, two
mediators were appointed last year to seek a resolution. As of
today, we are still without a resolution. So we have to ask
ourselves, is it time for Congress to step in and legislate a
resolution?
I, for one, do not think there is a clear end in sight to
the litigation and both sides must realize there is a huge
value and time savings alone if we clear this case up this
year.
Before we hear from the witnesses, I want to lay a few
ground rules. We are looking for basic information about how to
provide a settlement this year. Neither witness is obliged to
divulge information that is of a confidential nature or that
might affect his position in the lawsuit. We are not looking
for a courtroom battle, and so anything resembling such is
strongly discouraged. This is a chance to find a constructive
end that finally brings closure to the Department and a fair
settlement for the class of plaintiffs. Thank you.
I now recognize the Ranking Member, Mrs. Napolitano.
[The prepared statement of Mr. Pombo follows:]
Statement of The Honorable Richard W. Pombo, Chairman,
Committee on Resources
The purpose of today's hearing is to do a status check on the
Indian Trust Fund lawsuit, titled ``Cobell versus Norton.''
Filed 9 years ago by Elouise Cobell, a member of the Blackfeet
Indian Nation, the lawsuit was filed in order to force the government
to perform a historical accounting of certain monies it manages on
behalf of around three-hundred thousand Indians.
Although the defendant in this suit is currently Secretary Norton,
it was originally filed against her predecessor, Bruce Babbitt. And the
origins of the case stretch back to the 19th century.
I won't use the Committee's time giving a detailed history of how
the Department got into its mess. The story is narrated quite well in
the written testimony of today's witnesses. Suffice it to say that from
the late 1800's until recent years, the government failed to do the
basic housekeeping necessary to maintain orderly records of individual
Indian money accounts. Prestigious accounting firms have been hired at
great cost to figure out the old accounting systems...and they can't.
Elouise Cobell is a banker who understands the basic duty to
provide an accounting of money. She wasn't able to get the government
to deliver on its duty in 1996. So out of a just sense of frustration,
she filed the lawsuit as a last resort.
But after 9 years in court, the individual Indians still don't have
their accounting. Elders are passing away without knowing if their
monies were properly handled.
It's embarrassing that the First Americans are the last in line
when it comes to speedy justice, which is not being provided by the
courts.
Unfortunately, after 9 long years, the lawsuit has taken on the
character of a blood feud. It consumes massive time and resources in
the Department, time and resources better spent on helping Indians and
their tribes as well as non-Indian members of the public who rely on
other Interior services.
Under the supervision of myself, Ranking Member Rahall, and the
leadership of the Senate Indian Affairs Committee, two mediators were
appointed last year to seek a resolution.
As of today, we are still without a resolution. So we have to ask
ourselves: is it time for Congress to step in and legislate a
resolution? I for one do not think there is a clear end in sight to the
litigation, and both sides must realize there is a huge value in time
savings alone if we clear this case up this year.
Before we hear from the witnesses, I want to lay a few ground
rules. We are looking for basic information about how to provide a
settlement this year. Neither witness is obliged to divulge information
that is of a confidential nature or that might affect his position in
the lawsuit. We are not looking for a court room battle, and so
anything resembling such is strongly discouraged. This is a chance to
find a constructive end that finally brings closure to the Department,
and a fair settlement for the class of plaintiffs.
______
STATEMENT OF HON. GRACE F. NAPOLITANO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mrs. Napolitano. Thank you, Mr. Chair. I have a statement
from the Ranking Member, Dale Kildee, and I would like to read
it into the record. I certainly thank you for the opportunity.
He will not be able to make it. He has apparently a markup.
I want to thank you for scheduling this hearing today.
Because of the complexity of the issues involved in the trust
reform, the issues in the Cobell litigation relating to
mismanagement and accounting of the Indian trust, and the time
it has taken us to address the trust fund management, under
both Democratic and Republican leadership, the appropriators
have become very impatient with us on this issue. So I, along
with my colleagues from both sides of the aisle, have fought
appropriations writers. We have run out of excuses and we must
work together to resolve the outstanding issues arising from
the Cobell litigation.
I want to commend Chairman Pombo and Ranking Member Rahall
for working with the Senate Committee on Indian Affairs to seek
a settlement agreement between the parties through a mediation
process. I, like the rest of my colleagues, was disappointed in
the stalemate that occurred between the parties after six
months of negotiation and hope that today's hearing will shed
light on the outstanding issues and that we can work together
to resolve those issues so that we can finally offer a
legislative solution to the trust reform management and
settlement of the Cobell litigation and look forward to hearing
from the witnesses.
Mr. Chairman, I would like to enter this into the record.
[The prepared statement of Mr. Kildee follows:]
Statement of The Honorable Dale E. Kildee, a Representative in Congress
from the State of Michigan
Good morning. Mr. Chairman, I want to thank you for scheduling this
hearing today.
Because of the complexity of the issues involved in trust reform,
the issues in the Cobell litigation relating to mismanagement and
accounting of the Indian trust, and the time it has taken us to address
trust fund management under both Democratic and Republican leadership,
the appropriators have become very impatient with us on this issue.
While I, along with my colleagues from both sides of the aisle,
have fought appropriations riders, we are running out of excuses and we
must work together to resolve the outstanding issues arising from the
Cobell litigation.
I want to commend Chairman Pombo and Ranking Member Rahall for
working with the Senate Committee on Indian Affairs to seek a
settlement agreement between the parties through a mediation process.
I, like the rest of my colleagues, was disappointed at the
stalemate that occurred between the parties after six months of
negotiations.
I hope that today's hearing will shed light on the outstanding
issues and that we can work together to resolve those issues so that we
can finally offer a legislative solution to trust reform management and
settlement of the Cobell litigation.
I look forward to hearing from the witnesses today. Thank you.
______
Mrs. Napolitano. I would add to that that I hope that this
is a lesson for the agencies, the Federal agencies, to keep
records that are required and that will help us avoid this
turmoil and this distress. In going to court, the lawyers win,
the people lose.
Thank you, Mr. Chair.
The Chairman. Thank you.
Now I would like to introduce our first witness, Jim Cason,
the Acting Assistant Secretary for Indian Affairs. Before he
takes a seat, I would like to thank Mr. Cason for agreeing to
appear this morning. He just finished testifying before the
Senate Indian Affairs Committee. The Committee really
appreciates how you are meeting the demands on your time.
I will take this time to remind all of today's witnesses
that under Committee Rules, oral statements are limited to five
minutes. Your entire statement will appear in the record.
Welcome to the Committee. Thanks for being here. I am just
going to turn it over to you and let you give your opening
statement.
STATEMENT OF JAMES CASON, ASSOCIATE DEPUTY SECRETARY, U.S.
DEPARTMENT OF THE INTERIOR
Mr. Cason. I am going to be very brief. I think both your
comments and those of the minority are right on point. This
lawsuit has been around since 1996, or nine years now, and it
is questionable about how much progress, real progress, we are
making in resolving the issues.
We have been in court for nine years. We have made numerous
trips between the District Court and the Court of Appeals. We
have had decisions from the Court of Appeals recently that put
us right back down in the District Court. The prognosis at this
point, if we continue down this path, is more years and years
of continued litigation without real resolution to the issues.
I am greatly encouraged that this committee has taken the
leadership role of looking into this issue. You started last
year with discussions about hiring a mediator, and I am greatly
encouraged that Senate Indian Affairs is also continuing its
role in trying to pursue another course of action.
Ultimately, what we have to deal with is a matter of
choice. We can choose collectively to go down the pathway of
continued litigation for years and years, with a dim prospect
for ultimate resolution of the issue to the satisfaction of the
parties, or we can choose to evaluate whether there is any
other options that we can pursue in Congress to try and find a
fair and full and equitable solution to this issue, knowing
full well that we won't satisfy all parties, but can we come up
with an approach that is fair for all parties.
The Department of Interior stands ready to do that. We
would like to work with this committee and the Senate Indian
Affairs Committee to see if we can explore the options that are
available, and there are several, to try and approach a
solution to this issue that is fair to all concerned. Thank
you.
The Chairman. Thank you.
[The prepared statement of Mr. Cason follows:]
Statement of James Cason, Associate Deputy Secretary,
U.S. Department of the Interior
Mr. Chairman and members of the Committee, my name is James Cason
and I am the Associate Deputy Secretary of the Department of the
Interior. Thank you for the opportunity to testify today on the status
of the Indian Trust Fund lawsuit, Cobell v. Norton. As you are well
aware, this is a longstanding case that originated in 1996 as Cobell v.
Babbitt. The Department appreciates the Committee's interest in this
case and your desire to help the parties reach a solution.
Congress designated the Department of the Interior as the trustee
for one of the most complex and diverse governmental land trust ever
established. The Department manages approximately 56 million acres of
land held in trust. Over ten million acres belong to individual Indians
and nearly 46 million acres are held in trust for Indian Tribes. On
these lands, Interior manages over 100,000 leases for individual
Indians and Tribes. Leasing, use permits, land sale revenues, and
interest all of which total approximately $205 million per year are
collected for 245,000 open individual Indian money (IIM) accounts.
About $414 million per year is collected in 1,400 tribal accounts for
300 Tribes. In addition, the Indian trust fund manages approximately
$3.0 billion in tribal funds and $400 million in individual Indian
funds. Because the Cobell case only involves IIM accounts, most of my
testimony will focus on the issues related to the management of those
accounts.
Although much of what I have prepared to say today has been
previously heard by your Committee, I believe it is vital for you to
understand the background and facts in order to craft a pathway that
will actually make progress for Indian Country. Mr. Chairman, you and
your Committee stand at a crossroads in history. We need to work
together to resolve this issue promptly and in a meaningful way, so
that among other things we can avoid time-consuming and expensive
litigation that ultimately is not in the best interest of the parties.
Background
In 1887, Congress passed the General Allotment Act, which resulted
in the allotment of some tribal lands to individual members of tribes,
mostly in 80 and 160-acre parcels. The expectation was that these
allotments would be held in trust for their Indian owners for no more
than 25 years, after which the Indian owner would own the land in fee.
However, Congress in 1934, through the Indian Reorganization Act,
reaffirmed its commitment to tribal governments, halted the further
allotment of tribal property, and required that the allotted lands be
held in trust indefinitely by the United States for the benefit of the
individual owners.
Interests in these allotted lands started to ``fractionate'' as
interests divided among the heirs of the original allottees, expanding
exponentially with each new generation. One of the most challenging
aspects of trust management is the management of the very small
ownership interests, which result in many very small IIM accounts and
land ownership interests. There are now over 1.65 million fractional
interests of 2% or less involving more than 32,522 tracts of
individually owned trust and restricted lands. The Department provides
a range of trust services--title records, lease management, accounting,
probate--to the growing number of land owners. We have single pieces of
property with ownership interests that are less than .000002 of the
whole interest. The Department is required to account for each owner's
interest, regardless of size. Even though these interests today might
generate less than one cent in revenue each year, each is managed,
without the assessment of any management fees, and the revenues
generated are treated with the same diligence that applies to all IIM
accounts. In contrast, in a commercial setting, these small interests
and accounts would have been eliminated because of the assessment of
routine management fees against the account. Management costs of the
IIM accounts, as well as tribal trust accounts, are covered through the
general appropriations process and borne by the taxpayers as a whole,
rather than by the accountholders.
Formation of the American Indian Trust Fund Management Reform Act of
1994
In 1992, the House Committee on Government Operations filed a
report entitled ``Misplaced Trust: the Bureau of Indian Affairs'
Management of the Indian Trust Fund.'' That report listed the many
weaknesses in the Bureau of Indian Affairs (BIA) management of Indian
trust funds. It pointed out that the General Accounting Office's audits
of 1928, 1952, and 1955, as well as 30 Inspector General reports since
1982 found fault with management of the system. The report notes Arthur
Andersen 1988 and 1989 financial audits stated that ``some of these
weaknesses are as pervasive and fundamental as to render the accounting
systems unreliable.''
Arthur Andersen stated it might cost as much as $281 million to
$390 million in 1992 dollars to audit the IIM accounts at the then 93
BIA agency offices. The 1992 Government Operations Committee report
describes the Committee's reaction:
``Obviously, it makes little sense to spend so much when there
was only $440 million deposited in the IIM trust fund for
account holders as of September 30, 1991. Given that cost and
time have become formidable obstacles to completing a full and
accurate accounting of the Indian trust fund, it may be
necessary to review a range of sampling techniques and other
alternatives before proceeding with a full accounting of all
300,000 accounts in the Indian trust fund. However, it remains
imperative that as complete an audit and reconciliation as
practicable must be undertaken.''
The Committee report then moves on to the issue of fractionated
heirships. The report notes that in 1955 a GAO audit recommended a
number of solutions including eliminating BIA involvement in income
distribution by requiring lessees to make payments directly to Indian
lessors, allowing BIA to transfer maintenance of IIM accounts to
commercial banks, or imposing a fee for BIA services to IIM
accountholders. The report states the Committee's concern that BIA is
spending a great deal of taxpayers' money administering and maintaining
tens of thousands of minuscule ownership interests and maintaining
thousands of IIM trust fund accounts with little or no activity, and
with balances of less than $50.
On April 22, 1993, the late Congressman Synar introduced H.R. 1846.
On May 7, 1993, Senator Inouye introduced an identical version, S. 925.
It was in these bills that Congress first included a statutory
responsibility to account for Indian trust funds. Section 501 was
entitled ``Responsibility of Secretary to Account for the Daily and
Annual Balances of Indian Trust Funds.'' Senator Inouye's bill included
an effective date provision that stated:
``This section shall take effect October 1, 1993, but shall
only apply with respect to earnings and losses occurring on or
after October 1, 1993, on funds held in trust by the United
States for the benefit of an Indian tribe or an individual
Indian.''
The Senate Committee on Indian Affairs held a hearing on S. 925 on
June 22, 1993. Eloise Cobell in her capacity as Chairman of the
Intertribal Monitoring Association, testified in strong support of the
bill. The only amendment Ms. Cobell recommended in her oral statement,
as well as her written statement, was to allow Tribes to transfer money
back into a BIA-managed trust fund at any time if they so wanted. Ms.
Cobell mentioned ``[W]e have amendments, and we are willing to work
with the committee on these particular amendments. I am not going to
devote any more of my time in my oral presentation to the provisions of
the bill because we feel it is an excellent bill.''
The Navajo Nation and the Red Lake Band of Chippewa Indians were
the only tribes to submit testimony. They supported the bill, and did
not object to the prospective application of the accounting section in
their testimony.
The Director of Planning and Reporting of the General Accounting
Office also testified. He was asked if he agreed with the Arthur
Andersen estimates I mentioned above. He stated the following:
``In my statement I talked about how there are a lot of these
accounts that maybe you don't want to audit, that maybe what
you want to do is come to some agreement with the individual
account holder as to what the amount would be, and make a
settlement on it. We had a report issued last year that
suggested that, primarily because there are an awful lot of
these accounts that have very small amounts in terms of the
transactions that flow in and out of them. Just to give you
some gross figures, 95 percent of the transactions are under
$500. One of our reports said there that about 80 percent of
the transactions are under $50. So in cases where you have the
small ones, maybe there's a way in which we can reach agreement
with the account holders and the Department of the Interior on
how much we will settle for on these accounts rather than
trying to go back through many many years, reconstructing land
records and trying to find all of the supporting material. It
may not be worth it.'' [page 29 of S. Hrg 103-225]
On July 26, 1994, Congressman Richardson introduced H.R. 4833 which
ultimately became the American Indian Trust Fund Management Reform Act
of 1994. The House report on H.R. 4833 notes that H.R. 1846 was the
predecessor bill to H.R. 4833. There was one legislative hearing held
on H.R. 4833 by this Committee on August 11, 1994. There is no printed
record of that hearing. There was no Senate hearing.
H.R. 1846 and H.R. 4833 were similar in many places. H.R. 4833 did
not however include the effective date provision explicitly making the
accounting requirement prospective only. While the report notes in a
number of places why changes were made to the H.R. 1846 provisions, it
is silent with respect to this omission.
It may surprise Members of this Committee to note that there is no
mention of the costs associated with either complying with the Act, or
completing the accounting in the Committee's report. Moreover, no
analysis from the Congressional Budget Office was included in the
Committee's report. The Department sent a letter on H.R. 1846 and an
amended S. 925 that was placed in the Committee report on H.R. 4833.
Its only mention of cost is the following sentence: ``We wish to note
that, given current fiscal restraints, the funding for implementation
of this legislation may necessarily have to be derived from
reallocation of funds from other BIA or Department programs.'' Given
the lack of cost analysis contained in the legislative history, one
could assume that Congress in enacting the 1994 Reform Act had no idea
it may have required a multi-million or multi-billion dollar
accounting.
Cobell Litigation
In 1996, five IIM beneficiaries filed the Cobell v. Norton class
action lawsuit alleging that the government had breached its fiduciary
duty in managing the IIM accounts. In 1999, a Federal district court
held, in a decision affirmed on appeal in 2001, that the government had
breached its fiduciary obligations to plaintiffs. In the litigation,
the plaintiffs have sought an accounting, rather than monetary damages,
but their argument is that they are owed any money that the government
collected but cannot prove was properly distributed to individual
Indians since 1887, some of which the government cannot do because of
the unavailability of trust records. Under the plaintiff's theory, they
are owed as much as the total amount collected since 1887 (which is
estimated to be $13 billion), plus interest. They calculate the amount
to be over $176 billion.
In September 2003, the district court ordered Interior to conduct a
transaction-by-transaction accounting, back to 1887, of all of the IIM
accounts that it manages or has ever managed and required that Interior
substantially complete this accounting by the end of FY 2006. Interior
estimates that complying with the court's order would cost between $9
billion and $12 billion, and even then it would not be able to meet the
court's requirements or its aggressive timeline. The government
appealed this order.
P.L. 108-108, enacted on November 10, 2003, provided that nothing
in any statute or principle of common law should be construed or
applied to require Interior to commence or continue historical
accounting activities with respect to the IIM trust until Congress
amended the American Indian Trust Management Reform Act of 1994 to
delineate the specific historical accounting obligations of Interior
with respect to the Individual Indian Money Trust; or December 31,
2004, whichever came first.
Court of Appeals Ruling
On December 10, 2004, the Court of Appeals addressed the district
court's September 25, 2003 order. The ruling addressed the two main
categories of the district court's decree: ``Historical Accounting''
and ``Fixing the System.'' The Court found that Historical Accounting
was governed by P.L. 108-108 and thus vacated the district court's
order with respect to that portion of the case. In so finding:
The Court pointed out that Congress passed PL 108-108
``to clarify Congress's determination that Interior should not be
obliged to perform the kind of historical accounting the district court
required.''
The Court stated ``The committee ``reject[ed] the notion
that in passing the American Indian Trust Management Act of 1994
Congress had any intention of ordering an accounting on the scale of
that which has been ordered by the Court. Such an expansive and
expensive undertaking would certainly have been judged to be a poor use
of Federal and trust resources.''
The Court rejected the plaintiffs' argument that PL 108-108
amounted to a legislative stay of a final judicial judgment and thus
violated the separation of powers doctrine. The Court found a critical
distinction between statutes that reverse final judgments for money
damages and statutes that alter substantive obligations of parties
subject to ongoing duties under an injunction.
Plaintiffs also argued PL 108-108 violated the due process and
takings clauses of the Fifth Amendment. The Court rejected this
argument, noting that plaintiffs did not explicitly identify the
property right being taken other than to reference the right to
interest earned on trust accounts. The Court also pointed out that
``Congress may provide a simpler scheme than the district court's,
while nonetheless assuring that each individual receives his due or
more.''
While the second part of the Court's decision focuses on ``Fixing
the System,'' elements of it are important to decisions relating to
historical accounting. The Court confirmed an earlier district court
observation that the establishment of a trust relationship does not
mean that plaintiffs can automatically ``invoke all the rights that a
common law trust entails.'' The Court reasserted that the government's
duties must be ``rooted in and outlined by the relevant statutes and
treaties...''
The Court also focused on the government's argument that normally
private trust expenses are met out of the trust itself, pointing out
``[T]hus plaintiffs here are free of private beneficiaries' incentive
not to urge judicial compulsion of wasteful expenditures.''
In short, the Court's decision invites a discussion within both the
Executive Branch and the Congress as to what is an appropriate
historical accounting.
Status
The litigation in this case continues. It has had a profound effect
on every part of the Department. To date, many career employees have
had the specter of contempt hanging over them. Within the last few
weeks we have been informed that the plaintiffs' lawyers want to depose
representatives of the Bureau of Land Management, the Fish and Wildlife
Service, the National Park Service, the Bureau of Reclamation, and even
the Department's Inspector General. To give you a sense of the case, as
of February 10, 2005, the plaintiffs are seeking to depose the
following departmental employees or former employees:
Ethel Abeita, Director, Office of the Special Trustee for
American Indians
Anson Baker, Director, North West Regional Appraisal
Office, Department of the Interior
Brian Burns, CIO, Bureau of Indian Affairs
Norma Campbell, Retired Director, Office of Planning and
Performance Management, Department of the Interior
James Cason, Associate Deputy Secretary, Department of
the Interior
Francis Cherry, Deputy Director, Bureau of Land
Management
Katheryn Clement, past Deputy Director, United States
Geological Survey
Robert Doyle, Deputy Director, United States Geological
Survey
Galvan Wendall, Records Management Specialist, Department
of the Interior
Jeffrey Jarrett, Director, Office of Surface Mining
Mary Kendall-Adler, Deputy Inspector General, Department
of the Interior
Thomas Kerstetter, Service Center Specialist, Office of
the Special Trustee for American Indians
Regina Lawrence, Office of Chief Information Officer,
Department of the Interior
Thao Le, Chief Technical Officer, Bureau of Indian
Affairs
Mark Limbaugh, Deputy Commissioner, Bureau of Reclamation
Donnie McClure, Records Management Officer, Office of
Historical Trust Accounting
John Messano, Director of the Office of Information
Operations, Bureau of Indian Affairs
Pat Moloney, Chief of the Systems Division, Bureau of
Indian Affairs
Donald Murphy, Deputy Director, National Park Service
William Ragsdale, Director of the Office of Trust Review,
Department of the Interior
Hord Tipton, CIO, Department of the Interior
Timothy Vigotsky, Retired Director of the National
Business Center, Department of the Interior
Steven Williams, Director, Fish and Wildlife Service
Historical Accounting
Interior conducted a reconciliation for the five named Cobell
plaintiffs and their predecessors, reviewing documents which dated back
to 1914, and found that 86 percent of the transactions and 93 percent
of funds moving through the accounts were properly documented. The
review, which cost $20 million to conduct, did not reveal any collected
transactions not included in the selected accounts (with the exception
of one transaction posted to the wrong Indian account holder).
Moreover, Interior conducted a reconciliation of tribal trust funds
based on a statistical sample with certain agreed upon accounting
principles and found that 89 percent of total receipts and
disbursements for 1972 to 1992 were reconciled with far less that a one
percent error rate. At that time, Interior did not have sufficient
documentation to reconcile the remaining 11 percent.
As of December 31, 2004, the Office of Historical Trust Accounting
(OHTA) had reconciled more than 36,700 judgment accounts with balances
totaling more than $53 million and reconciled 7,360 per capita accounts
with balances of over $21.7 million. As of today, the OHTA has mailed
over 11,000 historical statements of judgment accounts to individual
Indian account holders and former account holders. By the end of 2005,
OHTA will reconcile a total of 34,000 judgment accounts and 9,200 per
capita accounts.
Through December 31, 2004, OHTA also resolved residual balances in
nearly 8,200 special deposit accounts, identifying the proper ownership
of more than $38 million belonging to individual Indians, Tribes, and
private entities. By the end of 2005, OHTA expects to resolve the
proper ownership of approximately $51 million (cumulative) in residual
special deposit account balances.
The OHTA also has begun using a contractor-developed accounting
reconciliation tool to reconcile land-based IIM transactions. In 2004
OHTA reconciled more than 4,700 land based IIM transactions and by the
end of 2005, OHTA will reconcile an additional 7,000. In preparation
for completion of historical statements of account for land-based IIM
accounts, OHTA will verify and fill any gaps in historical transaction
data for approximately half of the BIA regions.
The Administration proposed funding the historic accounting at $130
million and $109 million in FY 04 and FY 05 respectively. Despite our
request of $109 million for FY 2005, only $58 million was appropriated
and this includes funding for tribal trust fund accounting as well. The
FY 06 budget request for historical accounting is $135 million, an
increase of $77.8 million over the 2005 enacted level. This amount will
provide $95 million for IIM accounting, an increase of $50 million
above what the Department anticipates it will spend in 2005, and $40
million for tribal accounting, an increase of $27.8 million above what
the Department anticipates it will spend in 2005.
It is also not clear what will occur in the district court now that
the provisions of P.L. 108-108 have expired. The Department has been
involved in mediation, but no agreed-upon resolution has yet emerged.
Conclusion
I want to thank the Committee for holding this hearing. We have a
historic opportunity to resolve these issues which are fundamental to
our responsibilities to our beneficiaries and to the American taxpayer.
This concludes my statement. I would be happy to answer any questions
the Committee may have.
______
The Chairman. I would like, if you could, to give me an
idea in terms of resources, time, money, and personnel that the
Department is currently spending on the lawsuit and talk about
all the different levels of the Department and how it affects
your ability to meet the other obligations of the Department.
Mr. Cason. Mr. Chairman, unfortunately, the Cobell
litigation is pervasive in the Department of Interior. It has,
at one point or another, affected the entire Department,
whether the pieces of the Department were involved in this
litigation or not. For example, the District Court's order to
disconnect from the Internet resulted in shutting off most of
the Department from the Internet for a period of time,
including the National Park Service, Fish and Wildlife Service,
Bureau of Reclamation, Bureau of Land Management, and others,
as well as Indian Affairs and OST and our office. Under that
particular order, we still have parts of the Department that
after three and a half years, or a little more than three
years, are still disconnected from the Internet, and that
includes the Bureau of Indian Affairs, the Office of Special
Trustee, the Solicitor's Office, and our Office of Hearings and
Appeals. These are the folks that actually have to provide
services to Indian beneficiaries. So it has had that kind of an
impact, where we can't use the capabilities of today's
technology to supply services to our beneficiaries.
It has also had an impact on budget. As you just mentioned,
I was over with Senate Indian Affairs. The statements from both
the Chair and the Vice Chair were very clear that this is a
major issue in the budget structure for the Department of
Interior. For example, our budget includes a request for $135
million to conduct historical accounting activities. That $135
million reflects the priority associated directly with the
Cobell lawsuit and what we are required to do to fulfill our
accounting obligations pursuant to our January 6 plan offered
two years ago. There are other places that that money could be
used if we were able to resolve this litigation and move on to
other places.
We have a number of our employees that are subject to
potential contempt charges. It is dozens of employees, both
current and former, who have that cloud hanging over them. And
there has been a disincentive introduced into the process where
employees don't want to be associated with anything that is
related to Cobell for fear that it will adversely affect their
careers.
So there are a lot of pervasive impacts associated with the
litigation. That is not to say that there isn't some issues
that the Department could have done better on in the past.
Those are clearly being made, during the course of the
litigation, made clear. We recognize and are working very
diligently on finding ways to improve the trust, and that is a
benefit from the Cobell lawsuit.
But we would like to find a way to resolve it so that we
can establish again a positive relationship with our Indian
beneficiaries and begin to do more positive things with our
time and energy in the Department.
The Chairman. What is the impact of being disconnected from
the Internet? How does that affect the ability of people at the
Department to do their job?
Mr. Cason. It has a pervasive effect for the ones that are
still disconnected. We have about 95 percent of the Department
up and those are the parts of the Department that generally are
not involved in Indian affairs.
But if you can imagine in the Department, the Internet
provides a great tool for communication. The e-mail systems or
the capability to e-mail people within the Department, we don't
have. So all of our beneficiaries that are involved in the
trust cannot e-mail people inside the Department because we
don't have that capability. But if we try to set up payments
systems that would involve the Internet, we can't do that. If
we try to seek information from Internet sources, we can't do
that. Our Solicitor's Office is cutoff from the ability to use
the Internet to do their legal research. People in the Office
of Hearings and Appeals can't use the Internet to communicate
the results of probate decisions.
So there's a lot of places where the Internet would be a
useful tool for the Department, but we are not currently able
to use it.
The Chairman. So in terms of communication, it is back to
memos being sent?
Mr. Cason. A lot of paperwork and what we call work
arounds. We still use our computers, but we have to use them in
isolated mode. And if we want anything from the outside world,
we have to find other ways to get the information and bring it
in, and we call that work around processes. So you may have to
go home and use your personal computer to get information. Then
you bring it into the office, or you pass disks back and forth
across the boundaries of computer systems. So there are ways to
try and work around it, but it is not nearly as efficient as
having the tools available to us.
The Chairman. Thank you.
Mrs. Napolitano?
Mrs. Napolitano. Thank you, Mr. Chair.
I hate to ask. We took it for granted. We use the Internet.
Our staffs use the Internet. And yet an agency that is not
fully capable of being able to do its job because you are not
functioning through the Internet or utilizing the Internet.
Mr. Cason, I am gathering from your comments that the
Department will welcome the Congress stepping in, am I correct?
Mr. Cason. Absolutely. I think this is the place where the
problem will be solved.
Mrs. Napolitano. Then what elements do you believe need to
be a part of the solution of this legislation that might
emanate from this body?
Mr. Cason. The Department has considered a number of
pathways to possible settlement of the issue. There are
process-oriented options and there are cash settlement-oriented
options and each of those have permutations that are possible
and we would be happy to work with the Committee to look at
those.
Ultimately, in my opinion, what we need to address is that
there is a matter of expectations and a matter of uncertainty
that any settlement will have to deal with, and the
expectations that we have now is that there is a substantial
error rate inside the accounting systems associated with the
Indian accounts and that expectation needs to be addressed
somehow because it is inconsistent with the findings that we
have actually had from the accounting process we do.
I am not planning today to argue the specifics of how we do
accounting and who is doing accounting and exactly what the
results are, but what we have found so far in the accounting
that we have done is that there are errors. They tend to be
small. They tend to be infrequent. They tend to net out close
to zero. We haven't found, in the accounting that we have done
so far, any signs of systematic or systemic problems or issues
of fraud.
Does that mean that if we continue down the pathway of
accounting and we keep going further and further back in time
and we look at a broader cross-section of accounts, we won't
find one? No, it doesn't mean that, it just means that is what
we know so far. There is certainly a huge job to do if we
continue down the accounting pathway and there are certainly
possibilities that we will find something. We just haven't so
far.
But there is an expectation that with all the reports of
mismanagement and abuse of trust and violations in the past,
that there is bound to be something there. So we have an
expectation issue to try to manage, and part of it is
uncertainty. In order to get certain about where we are, we
would have to do all the work, to go back and do all the
accounting. And to do the work would require hundreds of
millions, if not billions, of dollars to try and find the
answer.
At this point, the Department offered a plan, our January 6
plan from two years ago, that basically involved $335 million
and five years of time to do and involves some statistical
reconciliation of accounts. The District Court, on the other
hand, offered a structural injunction that we estimated would
cost somewhere between $6 and $12 billion to do.
So there is a huge range of possible approaches to do this,
some which are relatively inexpensive, some which are very
expensive, and we are concerned at the Department that no
matter what course of action we take on accounting, we will
never really broach the issue of expectations and uncertainty
to the point that everyone will be satisfied. So it is our
thought, if there is a way that we can settle it in a fair and
open way through Congressional legislation, that would be
great.
Mrs. Napolitano. What would be the right thing to do?
Mr. Cason. Well, in terms of right, I think that is the
right thing.
Mrs. Napolitano. OK.
Mr. Cason. We need to find a way to solve this problem.
Mrs. Napolitano. Thank you. And there is no secret that the
level of animosity between the plaintiffs and the defendants in
this case is exceedingly high. Not blaming anybody, but
accepting that all persons are acting in a professional manner,
given the acrimony, how do you believe this case can be settled
through mediation?
Mr. Cason. We have engaged since last year when this
committee and the Senate Indian Affairs Committee prompted both
the Department and the plaintiffs to engage in mediation. We
have had discussions during that past year.
Mrs. Napolitano. How many?
Mr. Cason. You know, I don't know--
Mrs. Napolitano. One?
Mr. Cason. If you counted up the times that we were
together, plaintiffs and defendants, and the times that we met
separately with the mediators, I would guess we probably had
collectively dozens of times with the mediators, with the
various parties.
I think the issue, beyond the acrimony, and acrimony is
kind of a reflection of accumulated frustration over nine
years' worth of litigation, that if you get beyond the
acrimony, part of the issue is, again, managing this issue of
uncertainty and trying to find some solution that is fair. But
the perceptions of what is fair are so far apart that we had to
struggle to find common ground. So I think that is the real
root of it, is how do we find some common ground that everyone
can live with.
In terms of personal relationships, I think Keith and I get
along fine. We are able to have rational conversations between
the two of us. But our positions are pretty far apart on how we
think this ought to be treated.
Mrs. Napolitano. Thank you, Mr. Chair.
The Chairman. Mr. Hayworth?
Mr. Hayworth. Mr. Chairman, I thank you.
Secretary Cason, welcome. It should come as no surprise,
with all the implications involved in this case, it ripples
across the width and breadth of Indian country, right into the
Fifth Congressional District of Arizona for some of my
constituents. My concern deals with one aspect of the challenge
everyone confronts.
Jim, can you report of the progress on the Section 131
Trust Demonstration Projects that allow ten tribes, including
the Salt River Pima Maricopa Indian community in my district,
to manage their own trust resources?
Mr. Cason. Sure, Congressman. What used to be Section 139
in the appropriations language, now Section 131 in the 2005
appropriations language, is basically a demonstration project
to facilitate additional self-governance and supportive self-
governance. Former Assistant Secretary Dave Anderson, myself,
the Principal Deputy Assistant Secretary Ross Swimmer, we have
met often, often in terms of probably a half-dozen times since
Section 139 was passed, and we most recently met with the
representative group of the 131 tribes probably not more than
three or four weeks ago.
So we have had a continuing dialogue with the group about
what they would like to see happen. I think we have been
reasonably accommodating with them, because all of us in the
management chain are all very supportive of the concept of
self-governance and self-determination and we are looking for
ways to foster that. So I think it has been pretty successful
so far.
Mr. Hayworth. Jim, you spoke of the work arounds because of
the court decisions.
Mr. Cason. Yes.
Mr. Hayworth. Given that fact, and now through this
demonstration project, in light of some of the difficulties you
are encountering at the Department, in your estimation, do
these tribes do a more efficient job than the Department of
Interior in dealing with this challenge?
Mr. Cason. I think in some cases, there are things that we
can learn from each other, or probably in all cases, we can
learn from each other. Tribes who employ compacts or contracts
to do things on their own, using their own systems, often can
set up a way of doing business for their particular tribe that
is very effective, and we have done an evaluation of the 131
tribes through OST and take a look at how they are managing
their trust responsibilities and found that, in large part,
they were operating as effectively as any Bureau program, and
so we found that this was a direction that we could support
with them.
Mr. Hayworth. Do the demonstration projects relieve the
Department of the burden of some of the administrative costs?
Mr. Cason. I am not sure it really removes a burden. It is
a transfer, because ultimately, we end up in the position that
when we are supporting self-governance, BIA and OST are still
funding a lot of the activities, though I would say, in
fairness to Indian tribes that engage in self-governance, that
what I have been told by tribal leaders as we have met with
them is that often, tribes will place some of their own money
into the services that they are providing to supplement or
augment the Federal appropriations they get. So they end up
providing increased services.
Mr. Hayworth. Are there any plans to expand the program?
Mr. Cason. The 131 program?
Mr. Hayworth. Yes.
Mr. Cason. I am not knowledgeable that there is a plan to
expand the 131 program because that has an appropriations
route, but we are very supportive just as an internal policy of
self-governance, self-determination, and are happy to work with
any tribe that wants to take on more responsibility for their
own actions.
Mr. Hayworth. I thank you for your answers, and Mr.
Chairman and my colleagues, at the very least, I would like to
express a great interest in continuing this demonstration
project. My experience has been the demonstration project
allows the Salt River Pima Maricopa community greater self-
sufficiency. The tribe is more efficient. They are able to
distribute checks in a more timely manner than the way we have
seen through other vehicles. I just appreciate the time and the
testimony, and now Madam Chairman, I--
Mr. Cason. Just one comment. I will appreciate your
comments on that. I am actually going out to see the Salt River
Pima folks tomorrow.
Mr. Hayworth. Well, you timed it pretty well. It is always
beautiful in the Fifth Congressional District of Arizona. Next
month with spring training might be optimal, but we are glad
you are going.
[Laughter.]
Mr. Hayworth. We are glad you are going to make the
sacrifice, Jim, and go out tomorrow.
Mr. Cason. Thanks.
Mrs. Cubin. [Presiding.] Thank you, Mr. Hayworth.
Mrs. Christensen, you are the next one in line to speak.
Mrs. Christensen. I am the next one--
Mrs. Cubin. The Chair recognizes--
Mrs. Christensen. Thank you, but I don't have any
questions. I am here--this is an issue that has gone on for far
too long. I think my Ranking Member has asked most of the
pertinent questions and I am just going to listen this morning.
Thanks.
Mrs. Cubin. Mr. Faleomavaega, you are recognized for five
minutes.
Mr. Faleomavaega. Thank you, Madam Chairman. I do want to
thank Mr. Cason for his testimony.
Madam Chairman, this issue has been here as long as I have
been a member of this committee. I know that Mr. Cason's heart
is in the right place and we are all trying to make attempts to
resolve this thorny issue. I don't want to risk being somewhat
repetitive of all that has been said, but only in the sense of
perspective for all the years that I have been listening and
attending hearings and doing all of this, it is frustrating as
heck.
Mr. Cason. It is.
Mr. Faleomavaega. Given the fact that these funds are not
the American taxpayers' money, these funds belong to the
American Indians and the tribes--it is their money, not ours,
and now we are about to expend about a quarter-of-a-billion
dollars here for the simple administration of the funds that
belong to them in the very first place.
I think that as a matter of historical perspective, there
have been attempts through proposed legislation to resolve the
matter. There was one bill that seems to have had a lot of
support from Indian tribes. Certainly now having our
arbitrators, hopefully, this may be another possible option. I
remember the time in the Clinton administration, all their
stories aside, we had a new organization as an excuse for not
really addressing the issue. I remember that we appropriated
initially $20 million for an attempt to conduct an audit, a
total waste of money because when the audit was conducted, they
said we can't even start in base one even to begin auditing. It
was a total impossibility. But we have spent $20 million, and
then we spent probably even more monies now than ever.
But I want to ask Mr. Cason, I have been simplistic in my
simple resolution, or solution. Why don't we just give them $4
billion for starters and negotiate the rest that is where we
have had the problems? I know there have been estimates, the
trust fund is probably up to $8 to $10 billion. Probably when
figures come back, they said, no, no more than $2 billion. Why
don't we find a happy medium that says, well, let us start with
$4 or $5 billion. My gosh, if we can afford giving $182 billion
to fight the war in Iraq, I simply cannot understand why we
can't give $4 billion of their money.
This money does not belong to the American taxpayer. It
belongs to the Indians. Why can't we just fund it from the
Treasury. Give them $4 billion to start. Let them start
benefiting from the money that belongs to them and negotiate
the remaining that is in question, which seems to be the
problem that we are having.
I know I am being simplistic, throwing the figures around
like that, Mr. Cason, but when you say we have to start from
square one, my gosh, it is going to take another 100 years
before we can find a plausible audit. It is totally impossible
even to conduct an audit.
So I am somewhat very puzzled on how this is going to
continue, but we are spending $230 million-plus on a yearly
basis to set up this whole new organization within the
administration to operate or to do a better job and see that
the monies are properly accounted for. So I am a little puzzled
by all this, Mr. Cason, and maybe you could help me out. What
exactly is the status of our 2M accounts? Where are we with
that?
Mr. Cason. Congressman, you offer a perfect illustration of
the problem. Part of trying to get to a resolution of this
issue is trying to figure out where there is a real error. The
Department's policy, the administration's policy, I think
everybody in government, is if we know there is a real problem
with an individual's account or even a tribal trust account, we
ought to be willing to step up to the plate to address that
specific problem. But the issue goes back to what I talked
about before, which is expectations and uncertainty. What
exactly is it we are trying to do?
And to illustrate on the numbers, if we took the results of
the accounting that we have done so far, and we have four of
the five largest accounting firms in the country hired to work
on this using accounting standards that they have all adopted
commonly, and they have been looking at the account, so it is
not Interior employees looking at it, it is accounting firms
looking at the accounts, if you take the results of that, the
errors that we have found are few and infrequent, tend to be
small, and tend to balance out close to zero. We have made
overpayments to Indians. We have made underpayments to Indians.
And there are a few errors, there is no question about that.
But if we were projecting based on what we know so far how much
we would be on the hook for, it would be in the relatively low
millions.
The plaintiffs, on the other hand, have made a bunch of
public statements that says there is $176 billion that is owed,
and you used the figure of $4 billion. We have heard $40
billion, $60 billion, $2 billion, $500 million. We have used
from time to time, well the cost of our accounting is $335
million. Why don't we just give it to the Indians instead of
paying lawyers and accountants to do this.
So part of our problem is what is the magnitude of the
error, because there is no evidence on the table that I know of
that actually quantifies the error that is owed to the Indians,
their money.
Mr. Faleomavaega. Mr. Cason, if my memory serves me right,
in briefly discussing the matter of Ms. Cobell and those who
brought the litigation before the courts, they were not talking
about $160 billion owed to the tribes. I think the range, as I
recall, was somewhere between $6, $7, $8, $10 billion at the
most. But $160 billion, now, I may be wrong, but I am saying to
you, my recollection was that they wanted to negotiate in that
range at least for starters. So give them at least a base to
start benefiting from their own money.
But now that I hear that the range has gone up to $160
billion, this is the first time that I have ever heard that
statement.
Mr. Cason. These are numbers that we have seen in the
press. Whether that is a clear reflection of actual intent or
not, I don't know. Keith is here. You can ask him. We have just
seen these figures--
The Chairman. [Presiding.] If the gentleman would yield for
just a minute, I know that--
Mr. Faleomavaega. I apologize for the added time.
The Chairman. I really don't want to negotiate this in the
middle of this hearing.
Mr. Cason. That is great.
The Chairman. I understand Mr. Faleomavaega's frustration.
I think we all share it. I have had the same conversations. But
if at all possible, I really don't want to negotiate this in
the middle of this hearing.
Mr. Faleomavaega. Mr. Chairman, if you would yield, I was
not trying to conduct a negotiation, but I do want to say, Mr.
Chairman, that I really want to thank you for calling this
hearing. It is not only appropriate, but I sincerely hope that
in this Congress, that we will make every sense of commitment
on our part to finally find some sense of resolution to this
problem and I thank the Chairman for giving me more than the
time that I requested. Thank you, Mr. Cason.
Mr. Cason. Thank you.
The Chairman. Mrs. Cubin, did you have questions?
Mrs. Cubin. Mr. Chairman, I don't really have a question. I
just want to express my frustration along with the rest of the
Committee. This is just preposterous that this issue has gone
on for so long and we are no closer to a solution than we are.
I urge you to work--and Mr. Chairman, anything that could be
done from this end, I urge us to move in that direction. Thank
you.
The Chairman. Ms. Herseth, questions?
Ms. Herseth. Thank you, Mr. Chairman. I apologize for
missing the first part of your testimony, but a couple of
questions as it relates to the need for historical accounting.
But let me go first to elements of the Court of Appeals
decision.
Although the D.C. Circuit Court of Appeals found problems
with some of the remedies that Judge Lamberth imposed on the
Interior Department, many of his findings still stand. In one
of the decisions, it stated that, quote, ``It would be
difficult to find a more historically mismanaged Federal
program than the individual Indian money trust. It is fiscal
and governmental irresponsibility in its truest form.''
Was creating the Office of Special Trustee a failed
approach, in your opinion?
Mr. Cason. No.
Ms. Herseth. What do you need from Congress in order to
finally implement a real solution to the problem?
Mr. Cason. To the historical accounting problem?
Ms. Herseth. To be able to, as everyone that I have heard
from thus far has indicated, the frustration that we have had
over the number of years on a number of different elements of
the accounting. Do you agree that an historical accounting has
to take place and that it is critical to determining what is
owed?
Mr. Cason. I think it is very beneficial to gain
information from which we can all become informed, and then
with the information, we have a better understanding about what
the real problems are. I think that is helpful.
But as I mentioned earlier, I am concerned that even if we
do a lot of accounting work and spend hundreds of millions of
dollars on accounting work, that in the end, whatever the
results are, they won't satisfy the expectations or concerns of
all the parties that are involved.
So I think it would be preferential if we can find a way to
solve the problem in some sort of Congressional settlement to
lay out, here is how we are going to deal with the issue. This
will be the end of the issue. Congress is the set lord of the
trust and Congress can lay out, here are the terms that we are
going to manage the trust under, and I think in the end, that
will be a preferential solution.
If not, we can continue down the historical accounting path
and gain more information over time that all of us will be
better informed with.
Ms. Herseth. Do you feel it is critical in the process?
Mr. Cason. I think a certain amount of accounting was
critical of the process, but I don't think it is ultimately
going to be a solution.
Ms. Herseth. But how do we go forward without some sort of
accounting?
Mr. Cason. We are actively engaged in the accounting now.
Congress has been funding historical accounting activities for
the last several years. We made great progress on doing
historical accounting. We have basically gone through tens of
thousands of accounts in the judgment per capita area. We are
working on land-based accounts now.
So the issue is, how exactly do you define an accounting?
If we are doing process, how do you define exactly what an
accounting is, because we and the plaintiffs have very
different views, or we and the District Court have very
different views about the level of work and effort and
financial commitment it takes to do an accounting. So that
needs to be resolved if we pursue a historical accounting
process approach.
So it is a matter for this Congress to help us decide how
we do that, and either we are going to get that instruction in
the form of authorizing language or we are getting the
instruction now and through appropriations as to the level of
effort that we can put into historical accounting.
Ms. Herseth. In my remaining time, I would just like to
commend, as others have done, Chairman Pombo for calling this
hearing, but just for the benefit of everyone here, a last
comment I would like to make. It is important to remember that
the Cobell litigation deals only with the individual Indian
account holders. It doesn't address the billions that the
sovereign tribes are owed for the management of their assets
and I think it is important going forward, as you have
mentioned, with the authorizing language of the appropriations
that we keep this in mind and recognize the billions of dollars
that are owed to tribes for mismanagement and abrogation of
responsibilities by the Federal Government under the various
treaties with treaty tribes in South Dakota and other tribes
throughout the country.
Thank you, Mr. Chairman.
The Chairman. Mr. Gibbons?
Mr. Gibbons. Thank you very much, Mr. Chairman. I apologize
myself for being late due to other commitments.
I wanted to ask just one--start off with one question and
see where it leads. I would like, Mr. Cason, for you to tell me
why it is going to cost so much to audit all of these accounts.
Mr. Cason. In large part, Congressman, it is due to the
level of work that it takes to audit the accounts. If I can use
it as an illustration of the level of work, in just the
electronic era, 1985 to now, and that is electronic era for the
Department of Interior, where we have managed the accounts with
computers, that we have somewhere on the order of 55 million
transactions that have occurred during that period of time.
Depending on how much work you do to reconcile the accounts, if
you go on a transaction-by-transaction basis, you have 55
million transactions for which you have to go to the underlying
documentation, pull all that documentation up, and ensure that
it is all consistent with what was entered on the ledger. That
is a very, very expensive process to do.
If you go even further back in time, as was directed by the
District Court decision in the structural injunction, the
District Court basically said, reconstruct all the transactions
back to 1887, and the further back in time you go, the more
progressively expensive it gets and more difficult it is to
pull records for that period of time.
We have a substantial records data base. It is on the order
of 600 million pages. We have over a terrabyte of electronic
information that we can bring to bear on the problem. We have
found that as we have done the accounting, in large part, we
have a substantial records data base to do the accounting, but
it is not perfect. To organize the materials and to actually do
the accounting is a very expensive process just because of age
and volume of the work that needs to be done.
Mr. Gibbons. How long do you expect this process to take?
Mr. Cason. It depends, Congressman, on the definition of
what we have to do. If we followed the plan proffered by the
Department of Interior, it is about $335 million and about five
years. If we followed the District Court's structural
injunction approach, it could well take a long time, maybe even
decades because it is a huge volume of work to do, the way it
was structured by the District Court.
Mr. Gibbons. If you followed the court's direction and go
back to 1887 or whatever timeframe they dictated to you, what
changes in the cost or what changes in the outcome would you
expect?
Mr. Cason. I think the fair answer is until we actually do
the work, we don't know, and I think that would be fair. What
we have so far is we have spent about $100 million on
individual accounting, and in large part, we are starting with
current and working our way backwards. So there is the
possibility that we find some errors that are older than where
we have been so far. So it may end up resulting in significant
findings of errors, but we haven't found that so far.
The accumulation of the accounting that we have done so far
would suggest that the systems are reasonably accurate, but it
hasn't tested the whole range of possible options. So at this
point, in fairness, we don't know until we do it.
Mr. Gibbons. The answer you have given suggests that there
has been a very poor process of accounting for all the funds,
the trust funds, et cetera, in the timeframe going all the way
back to what the court dictated was the time you should be
starting your accounting from. Is that your initial
determination so far, that there has been serious flawed
accounting in handling of these trust funds?
Mr. Cason. No. Actually, I think what we have found is
that, over time, these accounts were, in large part, kept by
fellow Indians as members of the Bureau of Indian Affairs. As
close as I can tell so far, they were diligent in doing their
work to try to accurately record the transactions involving
their brothers and sisters and fathers and mothers, et cetera.
Does it mean that there are not any errors? No. We have
already found some errors in the process that we are doing, but
they tend to be small and they tend to be infrequent. Is it
possible that we will find at some point in the future some
issue of systemic fraud in the accounting system? It is
possible. We haven't found that yet. But we haven't arrived at
a conclusion that despite all the public rhetoric about how bad
the Department was or how bad Indian Affairs were, we haven't
found that it has had a major impact to result in major issues
of lost or stolen revenues. So we are still looking at the
issue, but we haven't found that sort of thing.
Mr. Gibbons. Thank you, Mr. Chairman.
The Chairman. Mr. Udall?
Mr. Tom Udall of New Mexico. Thank you, Chairman Pombo. I
first just want to compliment the Chairman on holding this
hearing because I think it is very important that we are
dealing with this issue at the level of the Resources Committee
rather than having the Appropriations Committee through its
process try to legislate. I know that the Chairman has worked
very diligently to see that the legislation on this issue is
done in this committee rather than Appropriations, and I very
much appreciate that.
Mr. Cason, thank you for being here. Let me first ask you,
is there a solution that you can give this committee? I
apologize for not being here earlier, but it seems to me that
the administration, when they are in a lawsuit like this,
should be in the position to be able to come forward and tell
us if they think we should be doing anything legislatively in
this committee rather than going around this committee and
going over to the Appropriations Committee and asking for
riders in the Appropriations Committee to do things that you
want to do. If you have a legitimate solution, you ought to be
willing to lay it out on the table for us, and it seems to me
in the course of mediation, or negotiation or all the process
that you have gone through, you have to be willing to lay it on
the table with the plaintiffs and try to come up with a
solution. Do you have a solution you can recommend to us?
Mr. Cason. At this point, Congressman, we haven't
determined a specific solution to this. We have evaluated a
number of possible options to address this. Some of them are
process options. Some of them are settlement options. Some of
them are partial options and some of them are ones we call
total peace, where we try to deal with not only this particular
issue, but the underlying causes of the issue.
So we have looked at a number of different ways of
approaching this problem, but at this point, and we view this
as a constructive dialogue opportunity with the committees of
Congress to evaluate what the possibilities are and evaluate an
acceptable course of action, which can either be a process
solution or can be a settlement-type solution.
So we stand ready, the Department of Interior, to work with
this committee and the committee in the Senate, Indian Affairs,
to try and discuss those possible options and see if there is
any course of action that appears to be appropriate and
mutually acceptable.
There are ways to solve this problem, but it is going to
take some decisionmaking, and what we have found so far,
Congressman, is we in the Department of Interior, we are not in
the decision role. It is ultimately going to be here in
Congress, both in the form of authorizing language and in the
form of appropriations language, that ultimately will be called
for to solve this problem, in my view.
Mr. Tom Udall of New Mexico. I beg to disagree with you.
You all are litigating this case. You have the expertise. The
Department knows where this should be headed and you should be
up here asking us specifically, this committee, not the
Appropriations Committee, this committee what it is you want to
do and how you are going to work toward a solution.
I think it is unacceptable at this point to come in and be
saying, ``Oh, well, we are considering all of these things.''
This is a piece of litigation that has gone on for years and
years and years, and as my good friend here to my right from
American Samoa has said, the Native Americans are the ones that
are suffering as a result of us not coming to grips with this.
So will you promise me, rather than these patchwork, band-
aid solutions where you go to the Appropriations Committee
rather than coming to us, will you promise me you will come to
us, this committee, rather than doing that kind of process?
Mr. Cason. Well, Congressman, I am here right now.
Mr. Tom Udall of New Mexico. You are here, but I asked for
a solution and you don't have one.
Let me ask you about this whole issue. I know there are
lost records, completely lost records. What is the approach of
the administration on the lost records? If an individual comes
forward and says, I have an account. I understand that I am
entitled to this much money. Are you taking the approach where
there is a lost record that the burden of proof is then on the
government to refute; or are you actually disputing and just
saying, ``Oh, we lost the record so we don't know anything
about your account?'' What is your approach on that?
Mr. Cason. I am not aware of a specific circumstance where
an individual has come in and made a specific allegation of
what they are owed with no records and then we have had to deal
with it. We do have instances in which, during the normal
accounting process that we are going through in response to the
Cobell litigation that we do not find records, and we go
through a process of attempting to find the records, and if
they are not found, we simply record that as we haven't found
the records and we don't give an implication to it one way or
the other. We just say, the supporting documentation for this
particular transaction, we haven't found. And so we make a
notation of what we do find and what we don't find and we don't
give any implication to it on one side or the other, that it is
right or it is wrong.
Mr. Tom Udall of New Mexico. I know my time is out, Mr.
Chairman. Most of the time when the government loses the
records, I think the burden should be on the government rather
than the individual that comes forward, especially when you are
dealing with fiduciary and trust responsibilities to Native
Americans.
Thank you for your courtesies, Mr. Chairman. My time is up.
The Chairman. Before I recognize Mr. Walden, I would like
to remind the Committee again that the purpose of this hearing
is informational. I do not expect, and I promised the witnesses
that we would not try and negotiate this settlement during this
hearing. I know there is a great deal of frustration on the
Committee, but it is unfair to the witnesses to expect them to
negotiate a settlement in an open hearing at this time.
Mr. Walden?
Mr. Walden. Thank you very much, Mr. Chairman, and again,
thank you for holding this oversight hearing on this very
difficult and costly issue.
Mr. Cason, thank you for your testimony and for your work
on this, along with those inside the agency and out who
collectively are trying to come to a fair and equitable
solution to this problem.
It seems to me, and I am no accounting major, but this kind
of the equivalent of the Boston Big Dig. It just goes on
forever, costs a fortune, and it seems like you never get to
the bottom of the accounting problem. This accounting problem
goes back more than 100 years, right?
Mr. Cason. Yes.
Mr. Walden. It just seems to me at some point, we are going
to spend more trying to dig up all these records or recreate
them than perhaps the settlement cost would be. Is that
reasonable, or--
Mr. Cason. Congressman, that will depend on what level of
effort Congress ultimately authorizes through appropriations.
So far on doing the accounting for tribes, we have spent about
$20 to $30 million. So far on accounting for individuals, it is
around $100 million. So we have had that level of effort so
far.
Our request in 2006 appropriations is for $135 million to
continue our work in historical accounting. If we embraced what
the District Court told us to do, the price tag is somewhere,
our estimate, $6 to $12 billion to do that.
Mr. Walden. Just to do the accounting?
Mr. Cason. Just to do the accounting. And the estimate of
throughput, and throughput is a concept of if you have your
checking account for ten years, all the credits and debits you
have had in your account, that is throughput, the estimate of
throughput is about $13 billion in the last 100 years. The
current balance of the account is just over $400 million. So it
won't be very long following the current course that we have
now that the accounting cost will exceed the balance of the
fund, and then it will be a matter of just how much level of
effort we put into it before it is termed to be adequate.
Mr. Walden. Have you run a number, and maybe you said this
earlier and I missed it, but the cost of the average claim,
what they are owed, perhaps, versus what it costs you to get
there? If you are an individual tribal member with a claim,
what is that claim valued at, on average?
Mr. Cason. Congressman, we don't have an assessment of
value of claims because what we are going through right now is
the administrative process of conducting an historical
accounting, and that is a process in which we assess the
account, the activities in the account, and draw a conclusion
about whether the account is accurately stated. And then after
that, if there are errors in the account, at that point, you
could make a determination of whether a claim was appropriate
or not.
So the litigation principally is focused on the
administrative process, the arriving at an accounting of our
stewardship of Indian assets, and then after that is done, we
can determine whether a claim is appropriate and how to address
it.
Mr. Walden. Maybe you can't answer this question, but I
have tracked this e-mail issue and the judge's decision clear
into little old Lake View, Oregon, among other places, where
BLM and the Forest Service cohabitate in the same building and
yet they can't communicate, or couldn't for a while. Even
though they were next door to each other, they had to get up
and walk around and talk instead of e-mail.
Can you tell me what the logic of that was from the judge?
Mr. Cason. I can tell you what the court has suggested.
Basically, what is at issue is a concern voiced by the
plaintiffs to the court that our IT systems that contain
individual Indian trust data are not secure. That is the issue.
And the judge has agreed, and the remedy the judge imposed was
to order the Department to disconnect any system in the
Department of Interior that contained IITD, or Individual
Indian Trust Data, from the Internet as the means of reducing
the risk to that data that might be used for historical
calculations.
Mr. Walden. How did that lead, then, to a complete shutdown
of e-mail? Couldn't that be walled off pretty easily?
Mr. Cason. The problem that we had is imperfect information
at the beginning, that when we initially got the order on
December 5 of 2001, we didn't know exactly where all Indian
data was in the Department.
Mr. Walden. I see.
Mr. Cason. And so we had to go through a process--we had to
shut everything down to comply with the order, go figure out
where all the information was, and then progressively petition
the court to let certain systems up that didn't represent a
risk.
Mr. Walden. Thank you. Thank you, Mr. Chairman.
The Chairman. Mr. Pallone?
Mr. Pallone. Thank you, Mr. Chairman.
I just wanted to ask Mr. Cason--well, first, let me say
that it continues to bother me, and I have to, before I ask my
question, say that the idea that the Department continues to
move forward with this BIA trust reform without really having
any consent or consultation with Indian country, in my opinion,
or any real input, in my opinion, from this committee is not--I
don't appreciate that and I think it is an ongoing problem.
But more important is the fact that it just seems to me,
when we look at the Federal budget, that in order to fund the
Office of the Special Trustee, we are constantly offsetting
that funding with cuts in other Indian accounts. I am not even
going to ask you, because you will tell me that that is not the
case, but it is clear to me from last year's budget as well as
this year's budget that, for example, the BIA School
Construction Fund is being cut in order to offset, in my
opinion, the OST funding.
But what I wanted to ask, is the administration doing this,
and are they increasing taking money away from these other
existing Indian programs in order to force our hand or impose
some kind of a settlement? I think that what is happening now
is that the tribes are feeling very strongly that as long as
you continue with your efforts in this reorganization, that
less and less money is going to be available for other Indian
accounts. I mean, is that some sort of concerted effort to tell
us, impose a settlement, otherwise these funds are going to
continue to be diverted? Just answer that, if you would.
Mr. Cason. Not at all.
Mr. Pallone. If that is not the case, I know you have given
us some figures here, and I wasn't here before when you spoke,
but have you indicated when this reorganization is likely to be
completed or what the overall cost is going to be in the long
run?
Mr. Cason. Congressman, it is substantially complete now.
We are still in the process of hiring a few people to fully
staff it. This is an issue where we actually agree with the
plaintiffs in the Cobell lawsuit that the Department had not
done a good enough job in managing the trust with people who
were qualified to be trustees.
Mr. Pallone. About how much more do you think it is going
to cost us, and when do you expect it to be done? Can you give
us a date?
Mr. Cason. The reorganization stuff, as I said, is
substantially done. To the extent of my knowledge, if anything,
there are just small items that have to be done. We are hiring,
in some cases, deputy agency superintendents for trust, in some
cases--
Mr. Pallone. Another six months?
Mr. Cason. I don't know. The personnel process is one that
it is hard to gauge when everything will be done because you
gain people, you lose people through normal attrition--
Mr. Pallone. Well, give us a date. A year?
Mr. Cason. I don't know, Congressman.
Mr. Pallone. All right. What about--
Mr. Cason. It is an ongoing process.
Mr. Pallone. How much more is it going to cost us?
Mr. Cason. I think it is built into the Congressional
budget, the 2006 budget right now. The staffing that is
associated with it is relatively nominal. Out of an
organization of 10,000 people, we are talking about a relative
handful of people that would be placed in these new positions
that haven't been there before. And all of it, the intent is
for us to have people who are directly focused on how we manage
the trust, to act as a trustee.
Mr. Pallone. I don't doubt that your intentions are proper,
but my fear is that you run the risk of implementing this plan
that could ultimately be rejected by the court and then you
have wasted millions of taxpayer dollars. What is the answer to
that? What happens?
Mr. Cason. Well, at this point, we have an ongoing dialogue
with the court about how we resolve this issue, and we have
been there in that dialogue for nine years. In the course of
this, it has been in the District Court and the Court of
Appeals several times--
Mr. Pallone. So you don't think there is a risk that
ultimately you do all this and they just say, well, that is not
acceptable, and then you wasted all this money?
Mr. Cason. I suppose that is possible, but I guess I don't
envision the court really stepping in to say, you know, you
shouldn't have any trust officers involved in this business.
Having people who actually focus on managing this like a trust
is important. So I guess I don't really envision that being an
issue.
Mr. Pallone. Let me just ask one more question. I know cost
is the fact you keep raising with this historical accounting,
but if it wasn't for the cost, and I guess you can't really
rule that out, but if it wasn't for the cost factor, would the
Department be able to do an accurate historical accounting? I
mean, are the documents destroyed? Are they there? If we just
left out the cost for the time being, would you actually be
able to do it, or the documents aren't there and are destroyed
and you just couldn't do it?
Mr. Cason. Congressman, I think that depends on your
expectations to answer, and what I mean by that is if your
expectation is that we have every single document ever created
to describe what we did in the trust since 1887, no, you
couldn't. But if your purpose is to become much more informed
about what the Department did as a trustee over this last 100
years, yes, we can.
What we have found so far in the accounting, and we have
done accounts from 1914 forward, not a lot in the older ones, a
lot of accounts in newer accounts, we found that generally we
have somewhere between 85 and 95 percent of the documents for
credits and debits. There are missing documents, there is no
question about that. There is missing information. We wish we
had everything. We don't. But we think that we can become
substantially informed about the activities in these accounts
and the status of the balances in these accounts with the
records we do have. But it is very expensive and it is very
time consuming to do.
We have been at this for nine years, and at the end of nine
years, Indian beneficiaries don't have anything different than
they had nine years ago other than we are producing pieces of
paper that says, here is what happened in your account. And
what we would like to see if we could do with the help of this
committee and Senate Indian Affairs is see if there is another
pathway we can pursue to find a settlement to this that is fair
and equitable to everyone where Indian beneficiaries actually
end up benefiting from the process instead of lawyers and
accountants.
Mr. Pallone. Thank you. Thank you, Mr. Chairman.
The Chairman. Mr. Pearce?
Mr. Pearce. Thank you, Mr. Chairman.
I think the testimony of the gentleman, Mr. Harper, to
follow declares that there are ongoing and profound
mismanagement of the trust assets. I think your words were that
your errors were small, infrequent, and have no systematic
faults in them. Have you been given information that would lead
you to believe that the attorneys on the other side have found
this ongoing, profound mismanagement?
Mr. Cason. Well, clearly, Congressman, as has been asserted
often, we are in the process that, at this point, we don't know
that it has ever been a huge mismanagement issue. It has
clearly been asserted. It is a popular lore. But we are going
through the accounting process and what we have discovered so
far in accounting, we haven't found that. But the accounting
has a long ways to go if we keep going down that path.
Mr. Pearce. Also on that same page of the other testimony,
it says that it is often a matter of life and death. I mean,
this is a pretty serious allegation. Have you been given the
information that showed you it is a matter of life and death?
This is a very, very serious allegation.
Mr. Cason. It is a serious allegation, Congressman, and
what we have right now, today, is an accounting system that we
balance to the penny. We know every day how much money is in
each individual account. We have processes for paying out the
money that is in the account if it is an appropriate thing to
do. We have some restricted accounts where it is not
appropriate to pay it out. But we get the money in and out the
door and we send it out to beneficiaries. So to the extent that
people are depending on the money today, we do that.
The issue here on historical accounting is did the
Department of Interior mismanage funds in the past sometime
that could have potential implications to somebody today, and
that is the issue we are exploring under that historical
accounting program to see if we can actually find that.
Mr. Pearce. Is there anything in your findings so far--to
try to relate this to me personally, I don't work so well with
numbers, but let us say that I had a $50,000 house, and if I
wanted to equate the value of that house--I understand the
level of trust, the IIMs that you are managing is $400 million.
Mr. Cason. That is the relative balance, yes.
Mr. Pearce. And the low level, the low threshold of
solution is $13 billion to get me from $400 million, if we
assume that 100 percent damage has been done on $400 million,
to go from $400 million to the low level, $12 billion, requires
a multiple of 30.
So relating that back to my deal, if I have a house worth
$50,000, the low-level claim is that I am going to be
recompensed, I will be given value of $1.5 million for my
$50,000 house. And if we move to the upper end of the
settlement, then you would have to add a couple more zeros to
where my $50,000 house is now worth $15 million. That tells me
that they are accusing you of pretty dastardly things and life
and death issues. But you say they haven't produced those for
you.
Mr. Cason. Well, I think the allegations are clear and they
are pervasive. What we are attempting to do is gather the
information, allows us to determine whether the allegations are
substantive.
Certainly, the thought process that BIA has mismanaged
accounts in the past, there are allegations against Indian
superintendents from way back when that they committed fraud.
There is lots of stuff that you can go take a look at that
would lead to a perception like this. And all we can do right
now is try to get the facts and then talk about how we can
resolve the issue in a different way.
Mr. Pearce. Thank you, Mr. Chairman.
The Chairman. Mr. Inslee?
Mr. Inslee. I thank you. First, I want to thank the Chair
for holding this hearing.
I have two kinds of areas of inquiry. First, this issue of
how the Department intends to pursue working with Congress on
this issue. Last year, my perception was there was just an end
run around the committee of jurisdiction and a last-second
attempt to stick something in the appropriations bill as a
rider, which I didn't think ultimately was going to be a
successful way of doing it even if it was perfect, given the
nature of the effort. Was the Department involved in that? What
is your intention in the future in terms of this?
Mr. Cason. Well, on the issue of the appropriations rider,
I do not know--well, let me start with me. I was not involved
in writing the rider. I do not know the Departmental employee
that was involved in writing the rider. It is my understanding
that was an initiative on the part of the Appropriations staff
because we had a District Court decision that suggested that we
needed to get a historical accounting done in three years. Our
budget estimate is we were going to need $2 to $3 billion in
year one in order to try to meet the court's decision and that
the Appropriations Committee wasn't entirely convinced they had
that amount of money laying around. So they tried to put a
hiatus on it to see how things could work out. That is my
understanding.
In terms of trying to resolve the issue, it does need to be
resolved. We have been at this for nine years and we are not
really making real material progress. We are doing lots of to-
ing and fro-ing, but we are not making real material progress,
and there are damages associated with taking so long to do
this.
So we would very much like to get it done and the real
issue again is the level of uncertainty that is associated with
this and the lack of information and managing expectations. So
when the expectations are this wide, and for the record, my
hands are way far apart, when the expectations are wide and you
don't have what appears to be common ground, that is where we
really need some help from Congress to lay out what would be
fair under the circumstances, because certainly the allegations
are there. The expectations are there. The uncertainty is
there. And the only way we really resolve materially the
uncertainty is plow a bunch of money into historical accounting
and it will take a long time, which may in the end yield no
material results.
On the other hand, we can speed the process up with some
kind of a settlement if we can figure out what is fair to deal
with this issue and then try to resolve it so Indian
beneficiaries actually benefit from the process rather than
lawyers and accountants. That is where we are.
Mr. Inslee. Not without this committee, you can't do it. At
least, that is our view from this side of the table.
Mr. Cason. That is exactly right. That is why we are here.
Mr. Inslee. Second question, it was pointed out in
something I was reading about the difficulty of settlement in
taking into consideration the non-individual claims, the tribal
claims themselves. It was pointed out that the plaintiffs in
the lawsuit don't have authority to dismiss or release any
claims by tribal entities themselves.
Mr. Cason. They don't.
Mr. Inslee. Have the tribes been involved in those
discussions? Is there a role to bring them into the
discussions? What is the status of that?
Mr. Cason. If I recall correctly, Congressman, we have on
the order of 22 or 23 lawsuits from tribes that have similar
characteristics to the Cobell lawsuit. They are seeking a
historical accounting or alleging historical mismanagement.
There is a separate division of the Department of Justice that
works on those. It is the Energy and Natural Resources
Division. They are actively engaged in conversations with the
tribes on their individual lawsuits. I know that the historical
accounting budget, some of the money is designed to do
additional accounting work for tribal accounts, just as we have
money for the individual accounts.
Mr. Inslee. Thank you, Mr. Chairman.
The Chairman. Mr. Gohmert?
Mr. Gohmert. Thank you, Mr. Chairman. I appreciate your
giving us the opportunity to question you and be educated by
asking questions. But I do want to echo the sentiments of Mr.
Hayworth. To allow and encourage self-governance of the money
by the Native American tribes themselves is a desirable
outcome.
But I have a number of questions, and part of it comes from
my judicial background, as a former trial judge. First of all,
have the claimants been allowed to do discovery of the accounts
so they could do their own account?
Mr. Cason. I don't know that that is the case. The
plaintiffs have filed a class action lawsuit and there were
five members of the representative class. As I understand it,
one dropped out. We have four of the original members left, and
the plaintiffs are representing the class of current and former
account holders. So I don't know that they have tried to do any
individual accounting on their own. I know they have done some
modeling, and I am sure Keith, the next witness, can tell you
about that.
Mr. Gohmert. With regard to the funds themselves, did I
understand you to say there are $400 million in current funds?
Mr. Cason. The balance varies from day to day, but
approximately, there is a balance of $400 million in the
individual accounts.
Mr. Gohmert. And as far as in the discussion about numbers,
as I understood, we were talking in terms of $2 billion, $4
billion with a ``B'', $10 billion, and possibly even up to $160
billion, and yet you say you found nothing but small errors.
Mr. Cason. That is what we--
Mr. Gohmert. Where is the difference in the $400 million
and getting up to the billions?
Mr. Cason. Congressman, that is in the area of the
uncertainty that we have. If you take a look at the job overall
for historical accounting, we have an issue where the
Department did not provide, periodically or systematically,
accounting statements over the last 100 years. So over that
last 100 years, you have an area of uncertainty because the
statements weren't provided or developed, and what we are being
tasked with now as a result of the lawsuit is to basically go
back and recreate 100 years' worth of history, and that is very
expensive to do. There are millions and millions of
transactions that have occurred over that time--
Mr. Gohmert. No, I understand all that. You covered that
very well and I am clear with that. But as far as the
difference between $400 million and even talking in terms of
billion with a ``B''--
Mr. Cason. I think that is all a reflection of uncertainty.
Mr. Gohmert. OK. You talked in terms of litigation having
gone on for nine years. When is trial set?
Mr. Cason. We have been through several trials so far in
the course of this. There has been an initial trial on
historical accounting. We have had trials on contempt of the
Secretary. That has gone to the Court of Appeals. We have what
is called a 1.5 trial on how historical accounting ought to
proceed. That went to the Court of Appeals. We had a trial on
IT security. That went to the Court of Appeals. So we have been
through a lot so far.
Mr. Gohmert. But as far as a trial that will ultimately
resolve the whole question of if there is liability and how
much--as I understand it, that is what this is all about,
right?
Mr. Cason. Well, I think that is a question that Keith
would be able to answer better as an attorney. It is my
understanding that the issue in the District Court is basically
an APA proceeding or a proceeding designed to get an
accounting. The District Court is not in a position to actually
assign damages, that that would have to go to the Court of
Federal Claims, but Keith would be able to say that.
And let me just correct one thing. When I say there was a
trial on IT security, that is not accurate. We have had lots of
to-ing and fro-ing in the court about IT security, but there
has not been a specific trial on that, though the issue did go
up to the Court of Appeals.
Mr. Gohmert. Just in closing, let me just commend to you
when government doesn't understand what fiduciary means, and I
hope that people are being adequately educated, when it is a
fiduciary, there is a higher duty than just the normal
government, let us manage and get by. It is a very high duty
that is required of them.
You had said earlier that also there is hesitance or
disincentive for employees to become involved with anything to
do with this lawsuit, and I would encourage you to create an
atmosphere and educate to the point that where there is great
risk, there is great opportunity, and anybody who wants to move
up in their respective positions, this is a great opportunity,
and I hope that would be the tenor of things so that we can
move toward a resolution and get this resolved, people can move
up and do well to help get it resolved.
Thank you very much for your time.
Mr. Cason. Thank you, Congressman. I use the word
``opportunity'' frequently, too.
The Chairman. Mr. DeFazio?
Mr. DeFazio. Thank you, Mr. Chairman.
Just one question. We struggle here, I think, given the
fact that ultimately, the government is responsible to
understand what the potential magnitude of liability or damages
is. There is this one number that jumps out at me in the
testimony of Mr. Harper and I just want you to reflect on that.
He says, this is--the pages aren't numbered, but it is in
his testimony--``we note on this point that defendants'
contractors have estimated their liability up to $40 billion.''
His footnote says SRA International, Inc., risk assessment at
5-1, 2002. Could you give us some idea what that figure means
to you and how you think the government, apparently an entity
contracted by the government, got to that number?
Mr. Cason. Yes, I can tell you what I think about it. The
SRA was a contractor we had on board to work on our IT security
issues and assessing BIA's computer systems. My guess is that
they did absolutely no independent evaluation and that this was
part of the public rhetoric that they adopted and stuck in
their document.
Mr. DeFazio. So the government would pay for that kind of
shoddy contracting work, that we would just have someone who
reads the newspaper and sticks something in a report and we pay
them for it?
Mr. Cason. They were a contractor at the time.
Mr. DeFazio. And they were dismissed? Their contract
lapsed? What--
Mr. Cason. The services that were needed under that
contract were completed.
Mr. DeFazio. And were they paid in full for their services?
Mr. Cason. I don't know that for sure.
Mr. DeFazio. That statement is--I mean, it is carefully
worded, I mean your response, but, I mean, that causes me
another level of concern, that who we are contracting with to
help get at some of these problems, if they are providing such
shoddy services. That wasn't very helpful, but thank you, Mr.
Chairman.
The Chairman. Thank you, Mr. Cason. We are going to dismiss
you. We have one vote on the floor right now. We are going to
temporarily recess the hearing and come back and hear from our
second witness.
Mr. Cason. Thank you, Mr. Chairman. Thank you, Committee.
[Recess.]
The Chairman. The hearing is called back to order. Panel
two is up next with one witness, Keith Harper of the Native
American Rights Fund. He is on the attorney team representing
the class of plaintiffs in the Cobell lawsuit.
Mr. Harper, welcome to the Committee. It is good to see you
back.
STATEMENT OF KEITH HARPER, ATTORNEY FOR THE PLAINTIFFS, NATIVE
AMERICAN RIGHTS FUND
Mr. Harper. Good morning, Chairman Pombo. Initially, I want
to just thank you for having this hearing and to accept our
oral testimony on what we believe is one of the most critical
issues facing Indian country and especially our clients,
500,000 individual Indians, individual Indian Trust
beneficiaries. On behalf of those individuals and Elouise
Cobell, I want to express my deepest gratitude for your sincere
interest in efforts to explore a prompt and fair resolution of
the Cobell litigation.
I am a member of the Cherokee Nation of Oklahoma and a
senior staff attorney at the Native American Rights Fund and I
represent the plaintiff class in this lawsuit. The case is
presently before The Honorable Royce C. Lamberth, appointed to
the bench by President Ronald Reagan in the District Court of
Washington, Washington, D.C.
First, Mr. Chairman, I want to be absolutely clear on one
point. There is nothing that Elouise Cobell, the other named
plaintiffs, and plaintiffs' counsel would like more than an
immediate and fair resolution of the Cobell case. A resolution
to this century-old problem is long overdue. We are committed
to finding a prompt resolution, one that is fair given the
extraordinary mismanagement of Indian trust assets.
Again, Mr. Chairman, since inception, we have used every
possible method to obtain relief for the class in the most
expeditious fashion. We have pursued vigorously the case in
every forum, including the courts and before the Congress of
the United States. The record is clear that we have not been
the source of delay. Simply put, plaintiffs have no interest in
prolonging this litigation.
Mr. Chairman, I have far more extensive remarks in my
written testimony and I am just going to take a couple of those
and highlight a couple of those for the Committee, in
particular, start with the litigation and where we are.
The plaintiffs are in the process presently of implementing
the two recent Court of Appeals decisions in this case, decided
on December 3 and December 10, 2004. These decisions have
provided important guidance as to the appropriate manner in
which we are to pursue from here on out. I want to discuss a
couple of critical points in that regard.
Importantly, the Court of Appeals held on the broad
question of whether the District Court has authority to order
appropriate relief to myriad specific identified breaches of
trust, the decision held emphatically yes. The Court of Appeals
categorically rejected the government's attempt to have the
case dismissed on the flimsy ground that the case had, quote-
unquote, lost its moorings. At the same time, the December 3
decision did vacate the trial court's injunction addressing the
massive IT security problems, but on narrow procedural grounds,
that the court did not have an evidentiary hearing prior to
entering the injunction.
I want to say a couple of things about IT security because
there have been many questions from members of the Committee.
It is important to bear in mind that this problem has been
admitted to by the Department repeatedly. In an order that they
asked the court to sign that I have here, December 17, 2001,
and which the court did enter, they provide--this is Interior
defendants' statement--``Whereas Interior defendants recognize
significant deficiencies in the security of information
technology systems protecting individual Indian trust data,
correcting these deficiencies merit Interior Department's
immediate attention.''
It is not a matter of whether or not there are IT security
problems. They have admitted that in the record of the case.
They created a Hobson's choice for the court. There is no audit
trails. Anybody from anywhere around the country could go into
the Internet and get onto these computer systems, change
information, create their own accounts. That is what the report
of the Special Master demonstrated.
At that point in time, the court had to ask itself, do I
take measures to protect this data that is absolutely critical
to ensuring integrity of the system, or do I leave it open?
That Hobson's choice was created by the malfeasance of the
defendants. So you have to put in context why the court acted
as it did, and these admissions, I think, demonstrate the
concern that we had in that regard.
I want to just touch on a couple of additional points. Mr.
Cason talked about the fact that there were small errors in
their assessment. The plaintiffs originally filed the motion to
go to trial on the only basis for those, quote-unquote, ``small
errors,'' which is the Ernst and Young report. We don't believe
it is in accounting. We believe it is riddled with errors. The
appropriate way to address that is through a trial.
I just close by saying this. I end my written testimony
with the 1915 report, and that report documents and talks about
fraud, corruption, and institutional incompetence almost beyond
the possibility of comprehension. In 1915, a report before
Congress on this issue. There is a long record of mismanagement
and malfeasance. We have the opportunity now to resolve it. We
would like to work with this committee to do so. Thank you.
The Chairman. Thank you.
[The prepared statement of Mr. Harper follows:]
Statement of Keith M. Harper, Native American Rights Fund,
Counsel for the Plaintiff Class In Cobell v. Norton
I. INTRODUCTION
Good morning, Chairman Pombo, Ranking Member Rahall and Members of
the Committee. My name is Keith Harper, I am a member of the Cherokee
Nation of Oklahoma, a senior staff attorney for the Native American
Rights Fund, a non-profit law firm, and counsel for the plaintiff class
in Cobell v. Norton, Civ. No. 96-1285 (RCL).
First and foremost, on behalf of Elouise Cobell and all our
clients--500,000 individual current Indian trust beneficiaries of the
Individual Indian Trust (``Trust'') (and all past beneficiaries), who
are the owners of all the assets managed, administered and controlled
by the government, we want to thank you for your sincere interests and
efforts to explore a prompt and fair resolution of the Cobell
litigation. Further, we are gratified that you have asked us to provide
oral testimony on this critical issue facing Indian Country and it is
our deepest hope that we can continue to work with you and your
dedicated staff to ensure a just and fair resolution of this matter.
Before we discuss the subject of the oversight hearing--namely an
update on the Cobell case--I wanted to make the Cobell plaintiffs'
position on one critical issue unmistakably clear: There is nothing
Elouise Cobell, the other named plaintiffs and plaintiffs' counsel want
more than an immediate and fair resolution of the Cobell case. It is a
matter of record that the government has mismanaged this trust for over
a century. Cobell v. Norton has shed light on the gross mismanagement
of this Trust and has raised this serious problem from the deepest and
most secluded shadows of government bureaucracies to the light of day,
where everyone can see the extraordinary injustice and abuse. A century
of mismanagement is far, far too long. 1 A century with no
accounting of trust assets is unconscionable and unprecedented. A
century of harm to hundreds of thousands of this nation's poorest
citizens is inexcusable. And the harm done to the plaintiff class every
day is unquantifiable and our clients suffer without abatement. This is
often a matter of life and death. A resolution is long past due. We
will work with whomever is capable of achieving a fair resolution.
Moreover, we want to emphasize that this is not a new position. From
inception, plaintiffs have sought expeditious resolution of this case.
We continue to do so. We have been and presently continue to be willing
to participate in any process that is reasonably calculated to lead to
resolution of this case in an expeditious and fair manner--whether that
be working with Congress for acceptable legislation, mediation,
arbitration or continuing litigation. Simply put, plaintiffs have no
interest in prolonging these proceedings.
---------------------------------------------------------------------------
\1\ See, e.g., Cobell v. Norton, 240 F.3d 1081, 1086 (D.C. Cir.
2001) (``The trusts at issue here were created over one hundred years
ago through an act of Congress, and have been mismanaged nearly as
long.'').
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While we are steadfast in our commitment to a prompt resolution of
this case, we have an unconditional ethical obligation to ensure that
any settlement is fair. We will, of course, vigorously resist
``settlement'' that allows pennies on the dollar to the beneficiary
class and that fail to address meaningful on-going and profound
mismanagement of their trust assets. It is our obligation as counsel to
the class to work towards immediate settlement, while at the same time
forcefully resisting any resolution that would further harm the
beneficiary-class.
This hearing, as I understand it, is to update this Committee on
developments in the Cobell case and to resume discussions on how best
to achieve resolution and finality. Accordingly, I will provide this
Committee an overview of developments in two separate components of
this matter: litigation and mediation. In addition, I will discuss our
views as to how to determine the most appropriate ways to find an
acceptable settlement of the Cobell case.
II. LITIGATION UPDATE
The Cobell case was filed on June 30, 1996. It is brought on behalf
of all past and present individual Indian trust beneficiaries.
2 The Courts have rendered over eighty published decisions
since the inception of this case. Because of the sheer volume of the
record, plaintiffs present update necessarily will be truncated and
discuss only the most critical decisions on the merits of the case
essential to give a satisfactory overview of the litigation.
---------------------------------------------------------------------------
\2\ The class was certified on February 4, 1997.
---------------------------------------------------------------------------
Plaintiffs seek a full accounting of our trust assets for the
entire period that such assets have been held in trust--since 1887.
After all, trustees, without exception, have a duty to provide accurate
and complete statement of accounts to each beneficiary at regular
intervals and a complete and accurate accounting upon demand. Yet, the
United States has never provided an accounting to individual Indian
trust beneficiaries. It has never provided beneficiaries accurate and
complete statement of accounts. In addition, plaintiffs seek that the
account balances of the Trust be corrected, restated and distributed to
the correct beneficiary in the correct amount. Finally, plaintiffs seek
reform of the trust management and accounting system, such reform will
ensure that trust duties are discharged prudently and the government's
liability does not continue to increase exponentially.
Plaintiffs have prevailed on the merits throughout this litigation.
For the first five years, the government argued, among other things,
that it did not have a duty to provide a full accounting of trust
assets in conformity with generally applicable trust law. The
government's position was repudiated by the district court on December
21, 1999. 3 The Court held that the government is in breach
of the trust duties it owes the plaintiff class and must render a
complete and accurate accounting of ``all funds.'' 4
Defendants' attempt to limit the accounting to some ``subset'' of
assets was expressly rejected by the district court. 5
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\3\ Cobell v. Babbitt, 91 F. Supp.2d 1 (D.D.C.1999).
\4\ Id. at 41. (``Congress directed that the Secretary of the
Interior account for all funds. The court cannot put a finer point on
it than that.'').
\5\ Id.
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The government appealed this decision arguing that they could
decide the nature and scope of the duty to account owed to individual
Indian beneficiaries and that, in any event, the duty only required an
accounting of funds in the trust as of 1994, when Congress enacted the
American Indian Trust Fund Reform Act of 1994, 25 U.S.C.
Sec. Sec. 162(a) & 4001 et seq. On February 23, 2001, the Court of
Appeals rejected these arguments and affirmed in all material respects
the district court's order. 6 The Court of Appeals explained
that the normal deference shown to administrative agencies did not
apply because this case involved a trust. 7 The Court
further held that the duty of the United States to account was not
created in 1994. Rather the duty ``inheres in the trust relationship
itself'' and therefore ``preexisted'' and was not dependent on the
enactment of the 1994 Trust Fund Reform Act. 8 Thus, the
accounting must be of all funds ``irrespective of when they were
deposited.'' 9 Finally, the Court held that because of the
``magnitude of government malfeasance and potential prejudice to the
plaintiffs' class,'' the district court had commensurately greater
latitude to order appropriate relief for the identified breaches of
trust and to ensure that the government was brought into compliance
with its fiduciary duties. 10 The United States did not
appeal further this decision. Accordingly, the February 21, 2001
decision is a final decision.
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\6\ Cobell v. Norton, 240 F.3d 1081 (D.C. Cir. 2001).
\7\ Id. at 1101 (``While ordinarily we defer to an agency's
interpretations of ambiguous statutes entrusted to it for
administration, Chevron deference is not applicable in this case.'').
\8\ See, e.g., id. at 1103 (``Not only does the 1994 Act plainly
reaffirm the government's preexisting duty to provide an accounting to
IIM trust beneficiaries, but it is plain that such an obligation
inheres in the trust relationship itself.''); id. at 1102 (``The 1994
Act reaffirms the government's preexisting fiduciary duty to perform a
complete historical accounting of trust fund assets.'' (Emphasis
added)).
\9\ Id. at 1102.
\10\ Id. at 1109.
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Despite the clarity of the district court and appellate court's
rulings, defendants have continued to resist providing plaintiffs the
complete and adequate accounting to which the each beneficiary is
entitled. Defendants have refused to take affirmative steps to bring
themselves into compliance with their trust duties. Indeed, at every
turn defendants have obstructed the proceedings and attempted to escape
their plain legal obligations. It is because of this resistance and
refusal to discharge their legal obligations that this case now
approaches the end of its ninth year in the Courts.
Two recent Court of Appeals decisions further define the nature and
scope of this case, and clarify the critical role of the Court in
ordering appropriate remedies for the plaintiff class. In both
instances, the government appealed injunctions entered by the district
court. The first appeal, decided December 3, 2004, addressed the
astonishing internet security deficiencies of the Interior Department
computer systems that house and give access to critical information of
the Trust. 11 The second was decided on December 10, 2004
and addressed a ``structural injunction'' that the district court had
entered intended to compel the defendants to provide a historical
accounting and commence true trust reform. 12 In the
appeals, the government had sought outright dismissal of the Cobell
case. Defendants argued, among other things, that trust reform was not
part of this case at all, and that the case had ``lost its moorings.''
---------------------------------------------------------------------------
\11\ Cobell v. Norton, 391 F.3d 251 (D.C. Cir. Dec 03, 2004)
\12\ Cobell v. Norton, 392 F.3d 461 (D.C. Cir. Dec 10, 2004)
---------------------------------------------------------------------------
While in both cases the appellate court vacated the trial court's
injunctions, it did so on narrow, largely procedural, grounds. More
importantly, the appellate court categorically rejected the
government's argument that the Court improperly exercised jurisdiction
over all aspects of the case. In addition, the Court rejected the
government's contentions that the highly deferential review standards
of administrative law controls this case and that the district court
could not grant appropriate relief for identified mismanagement and
malfeasance.
Plaintiffs believe that these two decisions, taken together,
provide a solid legal foundation to attain the relief we seek in this
case and provide important guidance for the Congress as well. Certain
principles emerge from these decisions that are important
considerations in analyzing the current posture of this litigation and
the potential ways to resolve the case. They will be discussed
individually below.
1. This Is a Trust Case and is Not Controlled by Administrative Law
One of the government's central arguments in these appeals was that
the district court erred by applying trust law standards in a case that
the government believed was controlled by the highly deferential review
standards of the Administrative Procedures Act. In its December 3rd
decision, the Court vacated the injunction on the narrow procedural
ground that the Court should have instituted another evidentiary
hearing prior to issuing the injunction. 13 But on the wider
question of whether the decisional law for the Cobell case was trust
law or administrative law, the appeals court, quoting its 2001
decision, held: ``Contrary to the Secretary's view, ``[w]hile the
government's obligations are rooted in and outlined by the relevant
statutes and treaties, they are largely defined in traditional
equitable terms, and the narrower judicial powers appropriate under the
APA do not apply.'' 14 The Court further explained:
---------------------------------------------------------------------------
\13\ Cobell v. Norton, 391 F.3d 251, 256 (D.C. Cir. 2004). This
injunction addressed the longstanding failure of the government to
fix--in the Court of Appeals' words--``gross computer security
failures.'' And contrary to some of Interior officials public comments,
they have conceded the extraordinary deficiencies in of their easily
accessible IT systems. During the same timeframe when the Court ordered
disconnection of certain IT systems from the internet, Interior
conceded that there were ``significant deficiencies in the security of
information technology systems protecting individual Indian trust data.
Correcting these deficiencies merits Interior Defendants' immediate
attention.'' Defendants' Proposed ``Consent Order regarding Information
Technology Security'' at 4. A couple of months later, Secretary Norton
testified before this Committee and confessed in unequivocal terms that
the ``Departmental information technology security measures associated
with Indian trust data lack integrity and are not adequate to protect
trust data....'' Testimony of Gale A. Norton, Secretary of the
Interior, before the Committee on Resources, U.S. House of
representatives, February 6, 2002, on Native American Trust Issues and
the Ongoing Challenges, at 5 (emphasis added).
\14\ Id. at 257 (emphasis added).
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The district court, then, retains substantial latitude, much
more so than in the typical agency case, to fashion an
equitable remedy because the underlying lawsuit is both an
Indian case and a trust case in which the trustees have
egregiously breached their fiduciary duties. Id. at 1099, 1109.
The Secretary's suggestion that the appropriate role for the
district court was confined to retaining jurisdiction and
ordering periodic progress reports, as in In re United Mine
Workers of America International Union, 190 F.3d 545, 556 (D.C.
Cir.1999), ignores these salient considerations. 15
---------------------------------------------------------------------------
\15\ Id. at 257-58 (emphasis added).
---------------------------------------------------------------------------
In short, the appellate court resolved in plaintiffs' favor that
because this was an Indian case and a trust case, the court had far
broader authority than in ordinary cases to remedy identified
mismanagement and government breaches of trust. The December 10th
decision of the Court of Appeals also noted ``the availability of the
common law of trusts'' but stated that trust law could not ``fully
neutralize the limits placed by the APA.'' 16 As a result,
the Court refused to vacate the injunction in its entirety, but only
those aspects that, in the Court of Appeals' words, constituted an
order ``to obey the law in managing the trusts.'' 17
---------------------------------------------------------------------------
\16\ Cobell v. Norton, 392 F.3d 461, 473 (D.C. Cir. Dec 10, 2004)
\17\ Id. at 475.
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In sum, the Court of Appeals had narrow disagreements with the
district court's decisions regarding process, rather than broad
disagreements over the district court's authority. The appellate
decisions recognized that the APA's ``narrow judicial powers'' were not
applicable and indeed, the trial court possessed ``substantial
latitude'' to order appropriate relief to remedy identified breaches.
Further, the Court of Appeals upheld Judge Lamberth's broad authority
to grant relief for the beneficiary class when specific breaches and
management deficiencies are found and ``ordering specific relief for
those breaches.'' 18 Moreover, the district court was
empowered to rachet-up its remedial effort if there was further delay:
``Interior's malfeasance is demonstrated to be prolonged and ongoing,
more intrusive relief may be appropriate.'' 19
---------------------------------------------------------------------------
\18\ Id. at 477.
\19\ Id. at 478.
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2. There Exist Important Limits on Congressional Power to Interfere in
This Litigation
Mr. Chairman, as you are well aware, in the late fall of 2003, the
Congress enacted the Interior Appropriations Act, P.L. 108-108. That
law included a provision, commonly called the ``Midnight Rider'' that
you and many members of this Committee opposed. The Midnight Rider was
so dubbed because it was not a provision vetted through the authorizing
committee of jurisdiction, this Committee, rather it was hastily snuck
in to a conference committee report directly prior to enactment by the
Appropriations Committee. The Midnight Rider is a prime example of why
legislating on an appropriations bill is folly. While one of the stated
purposes of the Rider by its sponsors was to provide a ``time out'' so
the appellate court could review the trial court's decision requiring a
historical accounting be performed, the actual effect was to negate the
appellate court's ability to review the historical accounting part of
the structural injunction decision altogether. Specifically, the
December 10th appellate decision held that the Midnight Rider
temporarily ``removes the legal basis for the historical accounting
elements of the injunction.'' 20 By Congress doing so, the
appellate court could not review the trial court's historical
accounting duty until after the Rider expired on December 31, 2004.
---------------------------------------------------------------------------
\20\ Id. at 465.
---------------------------------------------------------------------------
Rather than expedite resolution of this case, the Midnight Rider
caused serious and irreparable delays. It is not an overstatement to
suggest that the Midnight Rider delayed this case and relief for the
plaintiff class for no less than three years.
There are a couple of important lessons that can be gleaned from
this experience with the Midnight Rider. First, when Congress acts it
must do so carefully. Hastily drawn riders without proper review
through appropriate committees and hearings can have unintended
consequences that dramatically impact the lives of people--here,
500,000 individual Indians. Second, while the Court of Appeals
clarified that the Midnight Rider was constitutional, that was so only
because of the temporary nature of the rider. Had the Rider completely
eliminated the duty to account, it would have violated the Fifth
Amendment Takings clause. 21 Third, and perhaps most
importantly, the appellate court acknowledged that Congress had some
authority to address the accounting issue through legislation, but that
it was obligated to ``assur[e] that each individual [beneficiary]
receives his due or more.'' 22 Put another way, any
legislative alteration of the accounting duty that does not provide
each beneficiary ``his due or more'' would necessarily be a taking of
that individuals' property and, hence, constitutionally infirm.
---------------------------------------------------------------------------
\21\ Id. at 468.
\22\ Id.
---------------------------------------------------------------------------
3. The Government Owes Beneficiaries Interest and Imputed Yields
In upholding the Midnight Rider, the Court of Appeals held that the
provision did not constitute an impermissible taking because any delay
would necessarily be compensable by the payment of interests or imputed
yields. Specifically, the court held: ``As trust income beneficiaries
are typically entitled to income from trust assets for the entire
period of their entitlement to income, and for imputed yields for any
period of delay in paying over income or principal, see G.G. Bogert &
G.T. Bogert, Law of Trusts and Trustees Sec. 814, pp. 321--25 (rev.2d
ed. 1981)....'' 23
---------------------------------------------------------------------------
\23\ Id.
---------------------------------------------------------------------------
The December 10th holding settles a longstanding dispute between
then parties. Any money demonstrated not to have been properly credited
to a beneficiary would require a correction of accounts for both
``interest'' and ``imputed yields.'' As a result a resolution of this
litigation must be developed with consideration that this critical
issue has now been resolved with finality. 24
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\24\ Parenthetically, we note that the district court has already
held that plaintiffs' accounting is not limited by the statute of
limitations, since it is well-settled that limitations do not begin to
run until the trustee provides an accounting or repudiates the trust.
See Cobell v. Norton, 260 F. Supp.2d 98, 107 (D.D.C. 2003) (applying
general principle that ``the statute of limitations does not commence
running for a beneficiary's equitable claim to enforce the obligations
of the trustee until the trustee has repudiated the beneficiary's right
to the benefits of the trust'').
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4. Where Do We Go From Here?
Mr. Chairman, it is important to bear in mind that this litigation
has gone on now for nearly nine years and a resolution is something we
should all strive to achieve. But these nine years have not passed
without substantial progress. Many of the most critical issues in this
case have been resolved and in plaintiffs' favor. There is a duty to
account for all funds irrespective of when deposited back to 1887.
Statute of limitations does not limit our claim. The government, as
trustee, has been found to have breached its fiduciary duties. The
Court can order remedies for specific breaches of trust identified
through evidentiary proceedings. This is a trust case and therefore the
``judicial powers appropriate under the APA do not apply.'' We note too
that more still would have been decided but for the unfortunate
intervention of Congress in the form of the Midnight Rider.
This progress sets a critical foundation for plaintiffs' continuing
attempt to achieve equitable relief through the judicial process. Based
on the decisional law in this case, we are presently pursuing two
litigation avenues of which this Committee should be cognizant.
Mr. Chairman, as you are well aware, a central dispute between the
parties is what is a fair amount for the aggregate restatement of
accounts. We note on this point, that defendants contractors have
estimated their liability at up to $40 billion. 25
Plaintiffs believe that the number is well north of that figure. The
government's public position, however, is that they owe very little.
They base this claim almost exclusively on the so-called ``Ernst &
Young Report.''
---------------------------------------------------------------------------
\25\ SRA International Inc. ``Risk Assessment'' at 5-1 (2002).
---------------------------------------------------------------------------
The government has long asserted that the Ernst & Young Report is a
full accounting of the trust funds belonging to four of the five named
plaintiffs and their predecessors in interest. Further, they allege,
that because few errors were found by their so-called ``accounting,''
there should be a presumption that--despite the well-documented record
of mismanagement and malfeasance--most funds reached the correct
beneficiary. For years now, despite overwhelming evidence in the record
showing the spectacular deficiencies of the Ernst & Young Report, the
government has insisted it is an accounting.
For example, Associate Deputy Secretary James Cason testified,
under oath, that the ``E & Y Report'' is an accounting:
As part of the Cobell litigation, Interior collected over
165,000 documents for the historical accounting of IIM trust
fund activity through December 31, 2000 for four of the named
plaintiffs and 24 of their agreed-upon predecessors. Of these
documents, about 21,000 documents were used to support the
transactional histories, which dated back as far as 1914, and
which included a total of about 13,000 transactions. The
accounting contractor, Ernst and Young, found 86 percent of the
transactions and 93 percent of the funds moving through the
accounts were supported by the documentation located. The cost
of this accounting was over $20 million. 26
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\26\ Transcript of Oversight Hearing on ``Can a Process be
Developed to Settle Matters Relating to the Indian Trust Fund
Lawsuit?'', July 9, 2003 at 12 (Prepared Statement of James Cason).
---------------------------------------------------------------------------
Furthermore, under questioning from former Representative Brad Carson,
Mr. Cason unequivocally confirmed the government's view that the
``Ernst & Young Report'' is an accounting:
Mr. Carson: ... You said you did accountings for the five named
plaintiffs in the Cobell litigation?
Mr. Cason: Yes. 27
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\27\ Id. at 29.
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The Secretary herself has similarly claimed the ``Ernst & Young
Report'' is an accounting in trial before the district court:
Q. Ms. Norton, I've asked you this question twice and I would
like to see if I can get a clear answer to the question. Is it your
understanding that the Ernst & Young report discharges the duty to
provide an accounting to the five named plaintiffs and their
predecessors in interest?
A. My understanding is that is a huge amount of documentation of
their accounts and I'm not aware of any way in which it is less than
what would be considered meeting the appropriate standards. So I would
have to answer that in saying yes, that would satisfy the level of
scrutiny, and, you know, there may still be a reporting back to them
has not formally been done. 28
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\28\ See Plaintiffs' Exhibit 1 (emphasis added) (February 13, 2002,
Norton Contempt Trial Transcript at Tr.4330:12-24).
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Since the government has claimed that the ``Ernst & Young Report''
is an accounting, plaintiffs filed a motion on December 30, 2004
seeking a trial that would determine whether that accounting is
adequate. Plaintiffs would like to test the validity of the
government's claim that this is an ``accounting,'' or as we have
alleged, comes nowhere close to discharging their fiduciary duty to
account. Trials are the ordinary manner to address such factual
disputes.
But tellingly, defendants have opposed our motion. They now argue
in their opposition to our motion that the ``Ernst & Young Report'' is
not an accounting at all, but merely an ``expert report.'' Interior
officials do not want the Court or anyone to make specific findings as
to whether the ``Ernst & Young Report'' is an adequate accounting. The
reason is self-evident. If there are judicial findings after the
weighing of specific evidence that the ``Ernst & Young Report'' is not
an accounting, the government would lose its main basis for claiming
they owe little. The motion is fully briefed 29 and
plaintiffs await a decision by the district court.
---------------------------------------------------------------------------
\29\ Plaintiffs' briefs are attached to this testimony.
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The Ernst & Young trial would be helpful for another reason. The
Report cost $23 million dollars for four beneficiaries. Thus, to do an
Ernst & Young type ``accounting'' for the entire class would, by per
capita calculation, cost hundreds of billions of dollars--an amount
that is plainly ridiculous and excessive. Once plaintiffs establish
that the Ernst & Young Report is not an adequate accounting--despite
the excessive costs--the conclusion will be clear: An accounting is
impossible. Therefore, as we have long stated, alternative methods
consistent with trust law should be utilized to correct and restate
account balances.
In addition, Mr. Chairman, plaintiffs have recently filed a request
for a status conference to discuss with the Court how to proceed to an
evidentiary hearing regarding IT security. Independent evaluations of
the present IT systems of the Department of Interior continue to show
that they are woefully inadequate to protect individual Indian trust
data. Plaintiffs believe that addressing these issues requires
immediate attention. The Court of Appeals has made clear that Judge
Lamberth cannot act to protect this data through an appropriate
injunction without an evidentiary hearing. Plaintiffs have asked the
Court to expedite that process to ensure this critical data is
protected. This request too has been fully briefed and awaits a
decision by the district court.
A final word on litigation. As plaintiffs' counsel we fully
comprehend that litigation can be a slow and tedious process. But it
also has great value in settling rights with certainty. In this case it
is a sluggish march towards righting longstanding wrongs. This
government has long been aware of the habitual and extraordinary nature
of the mismanagement of Indian trust assets, as well as the devastating
impact such malfeasance has on Indian people throughout this Nation.
Yet, they did nothing about it except pay lip service. Elouise Cobell
and many others pled with them to reform. But they only made promises
that they then routinely broke. This was the painful reality for trust
beneficiaries, until now--until the Cobell case. This case is primarily
responsible for this festering problem to be addressed after a 117
years of abusive treatment by our trustee. Although frustratingly slow
at times, let us not forget the great value of this case and let us not
seek to stop it until the underlying mismanagement--so long standing
and so long neglected--has been cured.
III. UPDATE ON MEDIATION
Mr Chairman, as you know, over the last year or so, with the urging
of you, Mr. Rahall and the leadership of the Senate Indian Affairs
Committee, the parties in the Cobell suit have participated in a
mediation process. From the beginning, plaintiffs were thoroughly
dedicated to seeking alternative resolution, but expressed concern as
to whether such another such process would be successful. Lead
plaintiff Elouise Cobell testified at a hearing before this Committee
entitled ``Can a process be developed to settle matters relating to the
Indian Trust Fund Lawsuit?'' stated without reservation: ``The Cobell
plaintiffs believe that the answer to this question is self-evident: Of
course, such a process can be developed.'' However, she further stated:
It is important to note that this case has been in litigation
over seven years. It is a matter of record that time and time
again the case has been unconscionably delayed as a result of
government litigation misconduct. *** We, the IIM
beneficiaries, on the other hand have pursued expedited
resolution of this case. We have vigorously contested each and
every government-sponsored delay tactic. That is the record of
this case. We want resolution (more than anyone) because each
and every day trust beneficiaries are dying without receiving
justice.
After over a year in this mediation process, I can affirm that
plaintiffs feel very much the same as we did when Ms. Cobell made that
statement. We appreciate the great effort made by the leadership of
this Committee and that of your dedicated staff over the last year. We
are poised to mediate a resolution. But the fact is we cannot settle
with ourselves. The government when they come to the table must do so
with reasonable proposals or at a minimum address the settlement
proposals we have sent them. That has not happened. Nor did it happen
in the seven previous occasions when plaintiffs have participated in a
settlement process.
To further elucidate this point, I would like to discuss briefly
some of our experiences over the last year. We cannot discuss all
aspects of mediation in this public forum, because we are constrained
by certain confidentiality requirements. But we can say the following.
Initially, we note that plaintiffs have made substantive proposals
in a good faith effort to resolve each of the three principal issues
presented in this litigation: 1) IT security; 2) historical accounting,
and 3) institutional trust reform--the Government has not responded or
initiated any meaningful discussion of these issues. Plaintiffs'
proposals, and the Government's continuing failure to address these
issues, are addressed in Sections 1-3 below.
1. IT Security
Remedying the serious deficiencies in the security of Interior's
computer systems housing or accessing Individual Indian Trust Data is a
matter of critical importance to Trust management, as the Court of
Appeals has recently recognized. 30 Defendants acknowledged
the magnitude of this problem three years ago, when they urged the
District Court to enter an order providing that Interior
``immediately'' take steps to achieve compliance with the governing
federal standard for computer security (OMB Circular A-130, Appendix
III).
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\30\ Cobell v. Norton, 391 F.3d 251 (D.C. Cir. 2004) (``It is
indisputable that the Secretary has current and prospective trust
management duties that necessitate maintaining secure IT systems in
order to render accurate accountings now and in the future.'').
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Defendants have fallen far short of achieving this objective. In
February 2004, Interior informed the District Court that only 4 of the
62 computer systems housing Trust Data--less than seven percent--had
been certified and accredited as meeting the OMB standard.
In the pre-mediation protocol which the parties negotiated on
February 20, 2004--with critical assistance from staff of this
Committee--it was agreed that the ongoing IT security problem would be
the first issue mediated. After the mediation got underway in April of
last year, however, defendants refused for more than three months to
authorize the funds needed for the mediators to retain technical
consultants to help them evaluate this issue. 31 As a
result, an agreement allowing for the mediators' retention of an IT
consulting firm (Red Cliff) to assist them was not reached until July
20, 2004.
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\31\ For example, in a joint mediation session on June 10, 2004
defendants agreed ``in principle'' to allow the mediators to retain an
IT security expert subject to a monetary ``cap'' of $25,000. Plaintiffs
objected to the transparent attempt to preclude meaningful evaluation
of Interior's IT insecure systems; and another six weeks passed before
the funding issue was finally resolved.
---------------------------------------------------------------------------
In September 2004, Red Cliff submitted a ``seven phase'' proposal
for the assessment of Interior's computer systems. At a meeting called
by the mediators on September 22, 2004, we were informed that while
defendants had agreed to allow Red Cliff to proceed with Phases 1 and 2
(involving the consultants' review of OMB Circular A-130 and other
relevant security requirements), Interior was unwilling at that time to
commit to any of the remaining phases of the Red Cliff proposal
(including the actual testing and other assessment of Interior's
systems). We were further informed that Interior's decision whether to
go forward with Phases 3-7 of the Red Cliff proposal would hereafter be
made on a piecemeal, ``one phase at a time,'' basis.
Of even greater concern, we understand that six months into this
process, defendants have made no commitment to address whatever
deficiencies Red Cliffs' review of their insecure systems may reveal.
Nor has any proposal been made to us regarding how Interior intends to
protect irreplaceable Trust Data from further corruption or loss until
such time as its computer systems are finally secure.
In our view, it is in the shared interest of the parties to resolve
this ``first-up'' mediation issue amicably. If mediation of this issue
is ultimately unsuccessful plaintiffs will have a duty to report that
development to the District Court. 32 Until that time,
plaintiffs will continue to look to this process for resolution of the
IT security issue.
---------------------------------------------------------------------------
\32\ By order dated March 15, 2004, the Court allowed the voluntary
withdrawal of Plaintiffs' then pending ``show cause'' motion based on
the plaintiffs' representation that they were doing so at defendants'
insistence and as a pre-condition to the parties mediating this and
other Cobell case issues.
---------------------------------------------------------------------------
2. Historical Accounting
As indicated in the mediators' report, the Government has not
responded to the proposal plaintiffs made seven months ago to resolve
this issue. Nor have they presented us with any form of counter-offer.
At the mediators' request, we presented plaintiffs' specific
proposal to resolve the historical accounting issue in this litigation
during a joint mediation session on July 20, 2004. Representatives of
Interior, Treasury and the Justice Department attended that meeting,
and we provided them with a detailed explanation of the factors
considered in formulating plaintiffs' proposal, addressed their
questions and invited defendants' response.
When several weeks then passed without further communication from
the other side, we authorized the mediators to share a July 16, 2004
letter we had given them outlining plaintiffs' proposal and the reasons
supporting the proposed settlement amount.
During our September 23, 2004 meeting with the mediators, we were
told that while they had no firm proposal from the Government to
convey, they believed upwards of $10-15 billion could be made available
to settle the historical accounting issue presented by our case along
with two other issues of purported concern to the Government--land
consolidation and the prospective release of all claims of Trust
management. We responded by saying (as we had on a number of prior
occasions) that while we were willing to listen to the Government's
proposals regarding such unrelated issues, we represented the class of
500,000 Trust beneficiaries with respect to the historical accounting
and IIM trust reform issues only. We explained that we were therefore
not in a position to bind our clients with respect to issues that we
had not been certified to resolve on their behalf, and that we would be
violating our ethical duties if we urged plaintiffs to accept less than
the fair and just monetary resolution of the historical accounting
issue in exchange for defendants' promise to pay a ``premium'' to
resolve other issues outside the scope of the Cobell litigation.
That remains our position. Eighteen months ago, Congress directed
the parties to make a good faith effort to resolve the issues presented
in this case, and we believe that is enough of a challenge without
burdening this process with such unrelated matters. Certainly we can
accept no solution which would unfairly impinge upon our clients'
rights to the prompt restatement of IIM trust balances that we believe
to be warranted due to Trustee-Delegates' continuing breaches of
fiduciary duty.
3. Institutional Trust Reform
No progress has been made on this front, despite the fact that ``
A decade ago, Congress enacted reform legislation
requiring fundamental changes in Trust management--changes the
defendants have yet to accomplish.
Five years ago, the District Court ruled following the
Phase One trial that defendants were in breach of their trust duties
and remanded the case to the Trustee-Delegates to allow them to rectify
such problems--a decision the Court of Appeals unanimously affirmed on
February 23, 2001.
This past week the district court reaffirmed that the
accounting claim is a ``live'' claim in this case and with it comes a
requirement that defendants reform the ``the processes by which records
and other documentation of transactions involving trust assets and the
actions of the trustee-delegate are created, stored, preserved and so
forth.'' 33
---------------------------------------------------------------------------
\33\ Cobell v. Norton, slip op. at 15 (D.D.C. February 8, 2005). In
the same opinion the Court invited plaintiffs to amend the Complaint to
include asset management and other types of trust reform. Id. at 23-24.
Also, the Court made clear that the processes associated with the APA,
such as limited discovery, do not control this case. Id. at 47-50.
---------------------------------------------------------------------------
Two weeks into the mediation process, we were informed that
Interior would never agree to the appointment of a receiver to assume
responsibility for rehabilitating the Individual Indian Trust until
long-standing breaches of Trust duty had been rectified.
We therefore conveyed a proposal (via the mediators) on July 20,
2004 that Interior's co-Trustee Delegate, Treasury, assume
responsibility for certain additional functions related to the
financial management of the Trust. In making this proposal we believed
the transfer of such functions to Treasury would go a long way towards
responsibly resolving the serious problem with IT security (by
transferring Trust Data to Treasury's more secure IT systems) and also
other key areas of Trust management.
We since have been informed by the mediators that plaintiffs'
proposal in this regard is ``unacceptable.'' No explanation has been
provided to us for defendants' rejection. Moreover, as with the
historical accounting issue, no counter-proposal has been made.
Furthermore, when the mediators met with us on September 23, 2004
to discuss settlement ``concepts,'' the only solution to the critical
reform issue they presented for our consideration after months of
deliberation was the creation of a ``blue ribbon'' commission to
further study the trust reform issue and report to Congress on what
needed to be done.
Of course, the creation of yet another panel, without more, to
again re-confirm the existence of unresolved Trust management issues is
wholly inadequate when plaintiffs are being asked in exchange to
dismiss their trust reform claims and forego remedies achieved in the
course of this protracted litigation. Fundamental changes in trust
management clearly must be made to discharge the Trustee's declared
fiduciary duties. Alternatively, in the event meaningful reform remains
nothing more than a hollow promise, a fixed amount, equivalent to
``liquidated damages'' should be paid annually to our clients until
such time as Interior's IT systems are finally secure and the
Individual Indian Trust is finally being administered prudently.
In short, the history of this mediation raises certain salient
considerations that should be noted. Plaintiffs have been more than
willing to show our cards. We have identified time and again specific
ways to address all the elements of this case. We stand at the ready to
explore alternative avenues for resolution, but we cannot do this
alone. The government must respond to proposals and explain why they
are not satisfactory. That type of dialogue may lead to exploring new
possibilities. It is not reasonable to simply dismiss proposals without
giving any reason why they are objectionable.
We believe if both parties are compelled to come to the table and
act reasonably than this case can be mediated to resolution. The
leadership of this committee and your staff have considerable ability
to play a vital role in this respect and we urge you to do so. You are
peculiarly positioned to bring your authority to bear on the parties
and compel reasonableness. We understand that this is a resource drain
on already taxed resources of this committee. But plaintiffs believe we
have an extraordinary opportunity to resolve this case with your
continuing aid.
IV. ELEMENTS OF A SOUND RESOLUTION
We understand that this Committee is prepared to look at ways to
settle the Cobell case. Plaintiffs are not prepared at this juncture to
present specific proposals. But we did want to share with you a few
items that we believe are important elements of a sound resolution of
this matter.
1. The Proposal Must Be Fair
Any proposal must ensure that the rights of beneficiaries are not
sacrificed on the altar of expediency. Section 137 of the House
Interior Appropriations bill for FY 2004 failed because it gave
authority to one party--the defendants--to decide the case unilaterally
with only minimal judicial review. Such gerrymandering of the judicial
system is plainly unacceptable, as well as unconstitutional.
Another consideration of fairness is the obligations of the United
States as already determined by the Courts. Here, as defendants readily
admit they owe a legal obligation to the plaintiff class which will
cost multi-billions of dollars to fulfill. If a settlement proposal
relieves the defendants of this legal obligation to perform an
accounting, the saved resources should be considered in the settlement
amount.
There are other considerations of fairness. In a class action, the
beneficiaries are protected by due process, rules of procedure and
defined rules of ethics. There must be assurance that these protections
exist in any alternative process. Moreover, if the consent of
beneficiaries is necessary, any legitimate and constitutionally
permissible process must ensure that the consent was knowing and
voluntary.
Fairness and the protection of beneficiary rights must form the
basis of any sound proposal. After all, these are the victims of a
century of government mismanagement and should not be victimized again
through an unfair resolution process.
2. The Claims Judgment Fund Should be Used for Any Resolution
This case should not be settled by utilizing funds that would
otherwise be used to benefit American Indians and tribal communities.
That would add insult to injury. Victims of the government's
mismanagement should not be victimized again by stripping them of
desperately needed and limited resources to pay for a settlement of
this case. Accordingly, we believe it important to access the Claims
Judgment Fund, 31 U.S.C.1301 et seq. to pay all the costs of any
settlement of this matter.
3. The Proposal Must Expedite Rather than Delay Resolution
To have a prompt resolution of this case, the structure of the
resolution must ensure that the Cobell claims are resolved as a whole.
Piecemeal resolution will not be expeditious and will make it difficult
for beneficiaries to make fully informed and knowledgeable decisions
regarding their rights. It is important to note that if the government
believed that it could make fair offers to beneficiaries to buy out
their claims, they could approach the Court with a proposal without any
additional legislation. Such proposals would be analyzed to determine
that they do not make any false or misleading assertions. The need for
such due process protections are self-evident. The only thing
legislation could possibly do is diminish these protections, which we
believe is ill-advised.
Furthermore, Congress must recognize that its actions can lead to
delay rather than expedition of resolution. As mentioned earlier, the
Midnight Rider is a principle example of this. It did not advance this
case at all, but rather undermined the ability of the Courts to
determine issues central to this litigation.
4. The Proposal Should Not Be a Forum to Re-litigate Settled Issues
Any resolution should strive not to reconsider issues already
resolved through the litigation. Over the last eight and one-half
years, the District Court and Court of Appeals have decided numerous
issues and defined the nature and scope of the obligations owed to
beneficiaries. An appropriate approach is to use the Court's decisions
to govern which methodologies are appropriate and consistent with law
and the rights of beneficiaries as judicially established and
confirmed.
5. The Proposal Must Be Consistent with Trust Law
Any resolution should be grounded in the basic and elementary
principles of trust law including, without limitation, that all
inferences are against the trustee and for the beneficiary. For
example, if the trustee does not have documentation, then trust law
says that one presumes whatever is best for the beneficiary (e.g. if
the trustee has inadequate records to support a disbursement, then it
is presumed the disbursement was not received by the beneficiary and
should be credited to the account). We believe it appropriate that
settlement proposals must have this principle at their core or, by
definition, they will undermine the well-settled rights of beneficiary
class.
6. The Proposal Must Be Constitutional
It should go without saying that any proposal to resolve this case
must past constitutional muster. With on-going litigation, particularly
where the Court's have already made final unappealable decisions about
the rights of a party, as here, any resolution that does not achieve
full participation by the parties and informed consent to the
settlement process is fraught with material constitutional infirmities.
The interests that Individual Indian Trust beneficiaries have in their
trust assets is protected by the Fifth Amendment Due Process and
Takings Clauses. 34 Indeed, not only the actual ``interest''
in the asset but also any cognizable claim (i.e. the accounting) is a
5th Amendment protected property interest. 35 In short, any
legislatively imposed resolution which alters the claim in order to
limit the United States' liability for the breaches of trust would
necessarily violate the Constitution.
---------------------------------------------------------------------------
\34\ See Babbitt v. Youpee, 519 U.S. 234 (1997) (individual trust
interest protected by Fifth Amendment even if de minimis); Hodel v.
Irving, 481 U.S. 704 (1987).
\35\ See, e.g., Logan v. Zimmerman Brush Co., 455 U.S. 422, 428-29
(1982) (Noting that Supreme Court struck down in Mullane v. Central
Hanover Bank & Trust Co., 339 U.S. 306 (1950), a state law that
terminated the ``rights which beneficiaries would otherwise have
against the trust company...for improper management of the common trust
fund...[because it] worked to deprive the beneficiaries of property by,
among other things, cut[ting] off their rights to have the trustee
answer for negligent or illegal impairments of their interests.''
(emphasis added; internal quotes and citations omitted)).
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V. CONCLUSION
Mr. Chairman, let me conclude by reiterating the plaintiffs
commitment to resolving this case. We have vigorously pursued
litigation because we want resolution. We do not care if achieving
fairness and stopping abuse of individual Indian beneficiaries comes
through litigation, mediation or a settlement act, or arbitration for
that matter. The means are unimportant. What is important is that we do
so quickly and fairly.
I will leave you with the following passage from a report
commissioned and prepared for Congress some years ago:
In the first place the machinery of government has not been
adapted to the purpose of administering a trust.
On the other side, behind the sham protection which operated
largely as a blind to publicity, have been at all times great
wealth in the form of Indian funds to be subverted; valuable
lands, mines, oil fields, and other natural resources to be
despoiled or appropriated to the use of the trader; and large
profits to be made by those dealing with trustees who were
animated by motives of gain. This has been the situation in
which the Indian Service has been for more than a century--the
Indian during all this time having his rights and properties to
greater or less extend neglected; the guardian, the Government,
in many instances, passive to conditions which have contributed
to his undoing.
And still, due to the increasing value of his remaining
estate, there is left an inducement to fraud, corruption, and
institutional incompetence almost beyond the possibility of
comprehension. 36
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\36\ ``Business & Accounting Methods, Indian Bureau,'' Report of
the Joint Commission of the Congress of the United States, 63rd Cong.
3d Sess., at 2 (1915).
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As you can see from the citation, this is a report from 1915. They
knew back then of the ``fraud, corruption, and institutional
incompetence almost beyond the possibility of comprehension.'' I can
show you similar findings in reports from the 1920s, 30s, 40s 50s, all
the way up to present. When and how will this nightmare administration
of our trust property end?
We have a chance right now to stop this ``fraud, corruption, and
institutional incompetence.'' With help from this Committee, we can
make sure that the abuse present in 1915 is not still present in 2015.
[NOTE: Attachments to Mr. Harper's statement have been retained in
the Committee's official files.]
______
The Chairman. A couple of questions that have come up. One
is that in your prepared testimony, you suggest what the
liability to the Department may be. I have read, along, I
believe, with everybody else, reports in the press as to how
much is owed on this.
I guess my question is that no one really knows what the
liability is at this point and I am not sure that it is wise to
be throwing numbers out there that no one can substantiate.
Could you comment on that?
Mr. Harper. Thank you, Mr. Chairman. Yes. I think it is
important to recognize what those numbers represent. The
parties agree on certain fundamental issues. One of the issues
is that approximately $13 to $14 billion, in that range, was
produced between about 1909 and the year 2000 from the
individual Indian trust monies. Now, those are broad
approximations and it is within a couple hundred million, but
it is still a pretty good agreement on such an important issue.
When you take that amount and you say that no money was
ever paid, right, that amount would include the numbers that we
are talking about, in the hundreds of billions. That is not to
say, and we fully recognize that there has been money that is
paid to beneficiaries, the point being is that it is the
trustees' obligation to demonstrate which monies were paid to
the beneficiaries.
Now, the only evidence we have so far that the trustees,
the trustee delegate in performing its accounting is the Ernst
and Young report. That is riddled with errors. It doesn't have
any support. We want to go to trial on that issue.
The bottom line is this, Mr. Chairman. We believe that
accounting is impossible and spending a dime on performing an
accounting is wasting a dime. That is clear as day, that the
resolution has to come from figuring out an alternative
methodology consistent with trust law principles--that is a
vital part of it--and those trust law principles include that
the evidence is presumed to be with the trustee for the
beneficiary.
We are at the table. We are willing to look at whatever
proposals there are. Part of the frustration on our end is that
we haven't seen any proposals from the government. We have put
forward ones and we haven't gotten counteroffers, and so we
await that process where we can see a proposal from the
government.
The Chairman. Based on that response, would it help to
speed a resolution of the lawsuit if Congress defined the
method of accounting that must be done?
Mr. Harper. It seems to me that the methodology for doing
an accounting is well settled. Trust law provides the answers
to all these questions. When accounting is impossible, then
there are certain ways for the court to look at the available
evidence and correct the account balances and restate those
account balances, you conform it to your trust law. We have
proposed one methodology to do that in our January 6, 2003,
plan. I could certainly submit that for the Committee if you
are interested.
The point being that we don't think it is--from the first
instance, that we should depart from those generally prescribed
notions well settled in law. One of the things that we strive
to do in this litigation is to establish a simple principle,
that just because the beneficiaries here are Indians and just
because the trustee is the United States does not mean we have
some lesser standard of care, does not mean that we have some
lesser duty to account, that the government owes us the same
duty to account, and that duty prescribed in law requires that
when the accounting is impossible, that alternative methods
consistent with trust law be used.
And so I guess to answer your question, we think that
Congress--the other last point I would make is this, that the
recent December 10 decision in the Court of Appeals made clear
that whatever Congress does, it must be sure that each
beneficiary gets, and this is a quote, ``his due or more.'' And
I think that that is very important. So whatever methodology it
is, it has to be consistent with that principle.
The Chairman. I understand what you are saying, but I think
some of the facts that you state or some of the opinions that
you give is what is the heart of the case, if that is what is
in dispute. That is part of the problem.
Let me ask you this. If we were to move forward with
looking at legislation on this, are you prepared to work with
us, with this committee and with the Senate committee, to try
to come up with a fair and equitable settlement on this?
Mr. Harper. Without any reservation. You are here to do
that. We want to work with you closely to find resolution. I
mean, part of this problem is this. There are so many lost
documents that nobody knows when you have that many lost
documents what happened to those transactions. The best way
sometimes to figure that out is a rough justice approach. That
may be what is required here through some type of an agreement,
and we would want to work with you in developing how that gets
done.
The Chairman. If we ultimately move forward with this,
which at this point I believe we will, who has the authority to
sign off on a settlement, to sign off on an agreement?
Mr. Harper. For matters that are within the confines, the
parameters of the Cobell litigation, ordinarily, Rule 23 of the
Federal Rules of Civil Procedure, which is the rule that
governs class actions, allows for the main plaintiffs to
initially sign off. That does not mean for due process concerns
that there may not be a--take a hearing where objections can be
heard. But as far as that initial sign-off, it is generally
allowed to be done through the main plaintiffs.
The Chairman. And that is who you represent?
Mr. Harper. Precisely, yes.
The Chairman. All right. Thank you.
Mr. Faleomavaega?
Mr. Faleomavaega. I want to thank Mr. Harper for appearing
this morning in the Committee. I have just a couple of
questions.
I was somewhat caught off guard in Mr. Cason's earlier
statement saying that the Department of Interior is not in a
decision role making agency in this whole thing, and then I
don't know if I totally agree with the gentleman in this
assessment of this situation. You know that last year, on a
bipartisan basis, the Chairman of the Senate Indian Committee
and Mr. Inouye and our own Chairman, Mr. Pombo, and our Ranking
Member, Mr. Rahall, initiated what was then known as a
mediation effort to see if the parties would come to the table
and come to agreement. Obviously, this didn't work.
Could you give us some concerns as to why the offered
mediation effort also collapsed? I know there was acrimony.
There was a lot of animosity, I suppose, between the plaintiffs
and the administration. But can you give us your perspective as
to why the many efforts at mediation just did not work?
Mr. Harper. Sure. Thank you. Yes. I think I would refer to
my written testimony which details a number of these things,
but a couple of salient points on that.
The mediation, I think, as I understand it, is continuing,
and we are continuing in that process and we are engaged on
that process. So I don't think it is at that point where we
would think it is at an end. In fact, in some ways, it never
really began. We had mediators, but as far as the types of
substantive discussions that would lead to a resolution, I
think it got off track on many procedural issues, the hiring of
experts and things of that nature.
On the substantive questions of settlement, we had put
forward proposals on all three of the main issues in this case:
Trust reform, IT security, and historical accounting. Those
were never answered and no counteroffer was never given. And so
we are sort of wrecked at the table. We have to ask the
question--obviously, we cannot settle with ourselves. We are
looking for any partner in this process, in whatever process it
might be. Is it through arbitration? Is it through settlement
legislation? Is it through mediation? Whatever the case may be,
we are there and we are prepared to work to resolve this
quickly, this issue for our beneficiary class.
Mr. Faleomavaega. So it was on the procedural aspects of
the mediation that things just didn't work out very well in
terms of your efforts.
There was also an earlier statement by Mr. Cason about the
concern about the personal liability of Department of the
Interior officials, should they be found--I really don't think
that these people purposely would steal the money, maybe
because they didn't know how to manage the funds. What is the
plaintiffs' position on this? Is this also what you are
pursuing, to find liability on these--personal liability on
these Department of Interior officials for not doing their job?
Mr. Harper. Let me put the question in some context,
because we are not seeking liability for individuals for
stealing or something of that nature. What we are seeking
accountability for is to tell the truth to courts, simple
propositions like that.
When a person comes and is a witness before a court and
files a document, they have an obligation to tell the truth,
and when they don't do that, it is our obligation as counsel
for the plaintiffs to point that out to the court and make sure
they are held accountable.
A number of years ago, a former Republican Senator said
that if this trust were managed by anybody else, people would
be in jail, and that is true. One of the major problems in this
trust is that there is absolutely no accountability, and one of
the ways that we have to ensure accountability is that taking
measures to hold people accountable when they file reports to
the court, when they file briefs with the court. Those things
are critical to ensuring that we have a--we can move forward on
trust reform.
Mr. Faleomavaega. Is there ever any question of the part of
the administration, because I notice in your statement that it
seems that there is some clear legal differences of opinion
about this whole aspect of the trust funds. I believe your
submission to the court or before the court was that this is a
trust responsibility that has been violated by the Federal
Government, as opposed to the defendants saying, no, this is
just an administrative problem that we had here. Therefore, we
have no trust responsibilities. What exactly is the court's
ruling now, even up in the appellate level, on this case? Is it
a violation of the trust responsibility of the Federal
Government, or are we still doing around with the fact that it
is an administrative procedure problem that has caused this?
Mr. Harper. I appreciate the question because it is
something that I wanted to clarify. The fact is that the Court
of Appeals said on December 3 that this is a trust case and
this is a Indian case, and those, quote-unquote, salient
considerations make it different from the normal administrative
law case. So the courts have spoken on this issue, and we
believe spoken quite clearly.
When you have a fiduciary responsibility, you are treated
as a fiduciary. You have to manage that property and you are
judged based on fiduciary standards. That is the way. And that
is what we have here. The courts have also concluded that there
is a strict duty to account, that that duty to account is
similar to every other trust beneficiary's--excuse me,
trustee's duty to account, and that responsibility also hasn't
been fulfilled and that there has been a breach of trust.
So all these are things that have been decided in the
courts, and I understand the frustration. Believe me, none of
us gives nine years, day to day, having this grind, going out
to Indian country, visiting people, for example, on the Navajo
reservation, Navajo Arapees that I see. We are building on one
of the largest natural gas reserves in the world and they are
living in huts. They should be living like Saudi Arabians, but
they are living in huts. Now, that is a breach of trust. That
is mismanagement. That has to stop.
So we are as frustrated as anybody to get this problem
fixed, but it has to be done in the right way and it has to be
done not for pennies on the dollar but for an amount consistent
with what these beneficiaries are owed.
Mr. Faleomavaega. On the basis of your lawsuit, just on
this issue alone of trustee responsibility, and I notice the
defendants filed a lawsuit to dismiss the whole case
altogether, that it had nothing to do with trust responsibility
between the Indian country and the Federal Government. That
really, in my own mind--and I am sorry, Mr. Chairman, I am
taking a little time, if it is all right with you--and I
sincerely hope that maybe the only other option now is to
provide some kind of a Congressional legislation, which I
sincerely hope that my Chairman will seriously consider this
possible option.
I would like to ask you, Mr. Harper, if the Congress should
decide that maybe this is the only possible settlement, is by
legislation, what would be your recommendations in terms of
some of the things that ought to address this proposed
legislation, if it should come to that level with the members
of the Committee and our good Chairman?
Mr. Harper. It is a great question and I think I can point
to a couple of things. One is that we believe it would be
problematic to take any monies used to settle the Cobell case
from appropriations that would ordinarily go to Indian country,
ordinarily go to the Interior Department. And so we hope that
this committee would look to the Claims Judgment Fund, for
example, as a source for funding any resolution. We believe
that that is a way to get the settlement but not have it such
that we also have the inequity of taking from Indian country to
pay for the resolution of this mismanaged trust.
I think that one of the ways that we would hope to explore
resolution is to start talking about reasonable dollar amounts.
We know how much went through the trust. We know the parameters
of how much could potentially be owed. And I think it is a
matter of figuring out what is a reasonable settlement amount
based on those parameters, and we look forward to working with
the Committee on figuring that out.
I would also just mention that we also have to do something
about figuring out how we reform the trust. Just because you
have a resolution of the historical accounting looking back,
you still have the issue of reforming the trust, and we look
forward to working with the Committee on that, as well.
Mr. Faleomavaega. You are agreeing with what the
administration is trying to do in reorganizing the structure of
the BIA to have this trust, or whatever it is, to make sure
that these funds should be better accounted for and making sure
that individuals as well as tribes are properly given the
compensation that they deserve for the leases and all of that?
Mr. Harper. No.
Mr. Faleomavaega. Here is my problem. We are about to pay,
what, $200 million a year just to administer, and then we
haven't even paid you one cent yet after nine--actually, it is
more than nine years, Mr. Harper. We started this since 1990. I
remember this distinctly with Congressman Richardson, trying to
work this whole thing. It started also with $20 million to
provide some kind of accounting, which turned out to be zero.
It didn't have any impact on this thing.
I am just concerned if by way of restructuring the
administration that this might be a help, and like you
suggested about reforming the BIA in such a way that there is
better accounting of the leases and whatever is owed to the
Indian people.
Mr. Harper. To answer your question, no we don't agree with
the reorganization. We believe that it is a waste of resources.
We believe it is money not well spent. It doesn't address the
fundamental problems in the system. It doesn't address, for
example, the fact that in many places, there is no accounts
receivable system. It doesn't address the negotiation of leases
for less than fair market value. There are so many problems
that it does not address.
But what you can say about it, you can analogize and
basically say it is rearranging the deck chairs on the Titanic,
and we think that that is an appropriate analogy for what the
reorganization is doing. We don't think it is going to move
ultimately to a reformed trust. We think fundamental changes
have to occur that are quite distinct from what is going on in
the Department right now.
Mr. Faleomavaega. I know we have to be very careful on
this, as my chairman had cautioned me about some kind of a
settlement. We are throwing all kinds of numbers and I just
wanted to--and I suspect you probably don't want to throw out
any numbers, as well. I think this tends to be the heart of the
problem for the members of the Committee, as well.
What are we looking at in terms of round-about figures?
Since now there is no accountability, I mean, the
accountability is impossible to--I get the sense from Mr. Cason
that every penny should be accounted first before giving the
funds. I am really puzzled here in terms of what are we really
looking at. I hate to suggest $160 billion, but what is
something that is more realistic in terms of all the nine years
that you have expended your time and effort in looking over the
records, talking to the Indian communities, and all of this?
As I said, the last time when I talked to Ms. Cobell, at
least as an initial thought, there was somewhere between zero
to $13 billion, and Mr. Chairman, I am not trying to resolve
the settlement issue right here, but I am just trying to figure
out what numbers are we looking at, basically.
Mr. Harper. Well, through the mediation process, we did
present the government with a specific number, but because of
the nature of that process, I am not sure it is appropriate to
divulge that in this public forum. We would, of course, be--we
want to work with the Committee to figure out what that number
is, and I think it would be inappropriate at this early
juncture, where we are exploring what are the best avenues, to
come out with a specific number or even a range of numbers.
Mr. Faleomavaega. I want to say, Mr. Chairman, I cannot
thank you enough again for your leadership and initiative in
calling this hearing, and I sense very well that we will
continue to pursue this issue that we have not been able to
find a resolution for 15 years now. I look forward to working
with you and see if we can find a resolution to this.
Thank you, Mr. Chairman, and thank you, Mr. Harper.
The Chairman. I want to thank Mr. Harper for his testimony.
If there are further questions, they will be submitted to you
in writing, if you can answer them in writing so that they can
be included as part of the hearing record.
Mr. Harper. Of course.
The Chairman. I realize that this is an ongoing case and it
makes it difficult sometimes to answer questions. I appreciate
you making the effort to be here and enlighten the Committee as
much as you did. Thank you for that.
Mr. Harper. Thank you, Mr. Chairman.
The Chairman. If there is no further business before the
Committee, I again thank the members of the Committee, thank
our two witnesses today, and the Committee stands adjourned.
[Whereupon, at 1:06 p.m., the Committee was adjourned.]
[A statement submitted for the record by Mrs. Cubin
follows:]
Statement of The Honorable Barbara Cubin, a Representative in Congress
from the State of Wyoming
Mr. Chairman:
My state serves as the home to two Indian tribes, the Eastern
Shoshone and the Northern Arapaho. Together, they share the Wind River
Reservation, which lies in west-central Wyoming. As is the case in most
of Wyoming, these large land based tribes have been blessed with a
substantial amount of natural resource interests--particularly oil and
gas production--which gives them substantial financial interests in the
outcome of the lawsuit we will revisit today.
For more than a century the federal government has been the trustee
of funds for Indian tribes as well as individual Indians. These trust
funds, generated from rights and leases, have become a significant
source of funding for many Indian tribes all across the nation.
Unfortunately, every year--every day--that this court case remains
unresolved, we run the dual risk of continued mismanagement of these
trust funds and an overburdening of staff and resources at the U.S.
Department of Interior.
While the appointment of co-mediators last year was an encouraging
step in the right direction, I am curious to hear today what, if any,
progress has come of that process. I am also hopeful that our two
witnesses will help bring clarity to this issue regarding what is the
next step forward and what role this body should take in finding a
solution soon.
Thank you, Mr. Chairman for your continued focus on this important
issue and I yield back the balance of my time.