SAN CARLOS APACHE TRIBE V. XAVIER BECERRA ( 2022 )

FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS NOV 21 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SAN CARLOS APACHE TRIBE, No. 21-15641
Plaintiff-Appellant, D.C. No. 2:19-cv-05624-NVW
v.
OPINION
XAVIER BECERRA, Secretary, U.S.
Department of Health and Human Services;
BENJAMIN SMITH,* Principal Deputy
Director, Indian Health Service; UNITED
STATES OF AMERICA,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Arizona
Neil V. Wake, District Judge, Presiding
Argued and Submitted March 7, 2022
Phoenix, Arizona
Before: Michael Daly Hawkins, Richard A. Paez, and Paul J. Watford, Circuit
Judges.
Opinion by Judge Paez
*
Substituted according to Federal Rule of Civil Procedure 25(d).
SUMMARY **
Tribal Issues
The panel reversed the district court’s dismissal of the San Carlos Apache Tribe’s
(“the Tribe”) claim alleging that federal defendants must cover the “contract support
costs” (“CSC”) for the third-party-revenue-funded portions of the Tribe’s healthcare
program.
The Indian Self-Determination and Education Assistance Act (“ISDA”) allowed
tribes to run their own healthcare programs, funded by Indian Health Services
(“IHS”) in the amount IHS would have spent on a tribe’s health care. Because it
was too expensive for the tribes to run the programs, Congress enacted a fix by
requiring IHS to provide tribes with CSC—the amount of money a tribe would need
to administer its healthcare programs. In addition, Congress allowed the tribes to
bill outside insurers directly, and allowed tribes to keep the third-party revenue
without diminishing their IHS grants, so long as tribes spent that revenue on health
care.
At issue is who pays the CSC for the additional money the Tribe recovers from
outside insurers. The Tribe contends that the IHS must cover those additional
CSC. The Tribe filed suit to recover the CSC for program years 2011-2013. The
parties settled all claims but Claim 2, which alleges that defendants must cover CSC
for the third-party-revenue-funded portions of the Tribe’s healthcare program. The
panel held that the text of the governing statute, 25 U.S.C. § 5325(a), compelled
reversal and remand for additional proceedings.
The federal defendants contended that the language of the contract under which
the Tribe operated its healthcare programs foreclosed the Tribe’s claim because the
Tribe received the amount of CSC specified by the contract, a properly calculated
amount that 25 U.S.C. § 5325(a) did not override. The panel held that this argument
ignored the flexibility written into the contract, which allowed those amounts to be
adjusted in the event of certain changes. A determination that the Tribe is owed CSC
by statute for third-party-revenue-funded portions of its health-care program would
**
This summary constitutes no part of the opinion of the court. It has been prepared
by court staff for the convenience of the reader.
fall under this umbrella. Additionally, because the contract incorporated the
provisions of the ISDA, if that statute requires payment of the disputed funds, it
controlled. The panel concluded that the contract was not dispositive and proceeded
to determine whether the Tribe was owed those additional CSC by statute.
The panel started with the CSC provisions of the relevant statute, 25 U.S.C. §
5325(a), and held that Sections (a)(2) and (a)(3)(A)(ii), together, pointed toward
requiring the defendants to cover CSC for activities funded by third-party
revenues. The panel noted that this conclusion departed from the only other circuit
to have considered the issue in Swinomish Indian Tribal Cmty. v. Becerra, 993 F.3d
917, 920 (D.C. Cir. 2021). The panel held that it could not conclude that § 5325(a)
unambiguously excluded those third-party-revenue-funded portions of the Tribe’s
healthcare program from CSC reimbursement. The plain language of this section
appears to include those costs. None of the additional statutory language to which
defendants pointed erased this ambiguity.
The Tribe merely needed to demonstrate that the statutory language was
ambiguous, and the Tribe met this burden. Because the statutory language was
ambiguous, the Indian canon applied, and the language must be construed in favor
of the Tribe. The panel held that the ISDA required payment of CSC for third-party-
funded portions of the Federal healthcare program operated by the Tribe. The panel
found that the Tribe met its burden under Fed. R. Civ. P. 12(b)(6), reversed the
dismissal of the claim, and remanded for further proceedings.
COUNSEL
Lloyd B. Miller (argued), Rebecca A. Patterson, and Whitney A. Leonard, Sonosky
Chambers Sachse Miller & Monkman LLP, Anchorage, Alaska; Alexander B.
Ritchie, San Carlos Apache Tribe, San Carlos, Arizona; for Plaintiff-Appellant.
John S. Koppel (argued) and Daniel Tenny, Appellate Staff Attorneys; Glenn
McCormick, Acting United States Attorney; Brian M. Boynton, Acting Assistant
Attorney General; for Defendants-Appellees.
Caroline P. Mayhew, Hobbs Straus Dean & Walker LLP, Washington, D.C.;
Geoffrey D. Strommer and Stephen D. Osborne, Hobbes Straus Dean & Walker
LLP, Portland, Oregon; for Amici Curiae Native American Tribes, Tribal
Organizations, Indian Health Boards, and the National Congress of American
Indians.
PAEZ, Circuit Judge:
This case presents a question of Native sovereignty in the context of a
healthcare dispute.
Indian Health Service (“IHS”) administers health care programs for Native
tribes. Those programs bill insurance like any other doctor’s office: if a patient is
covered by Medicare, Medicaid, or private insurance, IHS bills that insurance for
the cost of the procedure and retains that third-party revenue.
In an attempt to further tribal sovereignty, Congress in the Indian Self-
Determination and Education Assistance Act (“ISDA”) allowed tribes to run their
own healthcare programs, funded by IHS in the amount IHS would have spent on a
tribe’s health care.1 25 U.S.C. § 5325(a)(1). This furthered the goal of “assuring
maximum Indian participation in the direction of . . . Federal services to Indian
communities so as to render such services more responsive to the needs and desires
of those communities.” 25 U.S.C. § 5302(a). But tribes quickly ran into a
roadblock: absent the bureaucracy and legal protections the Federal government
enjoys, it was too expensive for tribes to run those programs. Congress enacted a
fix by requiring IHS to provide tribes with “contract support costs” (“CSC”), or the
1
Navajo Health Found.-Sage Mem’l Hosp., Inc. v. Burwell, 263 F. Supp. 3d 1083,
1119–46 (D.N.M. 2016), eloquently explains the legislative history of the ISDA.
While this history accords with our holding here, we need not rely upon it to reach
our conclusion.
2
amount of money a tribe would need to administer its healthcare programs, so that
the tribe could provide “at least the same amount of services” as IHS otherwise
would. 25 U.S.C. § 5325(a)(2)–(3); S. Rep. No. 100-274, at 16 (1987).
This helped. But amici tribes explain that they still did not enjoy parity with
IHS, because IHS billed outside insurers slowly, and only imperfectly remitted that
money to tribes. Tribes were thus losing some of their third-party revenue. So
Congress stepped in again and allowed tribes to bill outside insurers directly. 25
U.S.C. § 1641(d)(1). Congress additionally allowed the tribes to keep the third-
party revenue without diminishing their IHS grants, so long as tribes spent that
revenue on health care. 25 U.S.C. §§ 1641(d)(2)(A), 5325(m).
A simplified example clarifies this scheme. Assume that a tribe administers
a $3 million healthcare program for its members. It costs the tribe $500,000 in
administrative costs to do so. IHS therefore will pay the tribe $3.5 million.
Additionally, the tribe recovers $1 million for those procedures from outside
insurers. It is statutorily required to spend that $1 million on health care as well.
But there is a hole in this statutory scheme. Who pays the CSC for that
additional $1 million in health care that the tribe must provide with its third-party
revenue? At the heart of this lawsuit is Plaintiff-Appellant San Carlos Apache
Tribe’s (“the Tribe”) contention that IHS must cover those additional CSC.
The Tribe, a federally recognized Indian Tribe in Arizona, exercises its
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sovereignty by running its own healthcare programs and billing outside insurers
directly. As required by contract and statute, it spends third-party revenue on
additional health care for its members. But doing so is expensive, and the Tribe
does not receive CSC from IHS to cover additional services. It filed suit to recover
the CSC for program years 2011–2013. Defendant-Appellees Xavier Becerra,
Secretary of the U.S. Department of Health & Human Services; Benjamin Smith,
Principal Deputy Director of IHS; and the United States of America (collectively,
“Defendants”) contend that the Tribe must cover the additional CSC.
The parties settled all claims but Claim 2, which alleges that Defendants
must cover CSC for the third-party-revenue-funded portions of the Tribe’s
healthcare program. The district court granted Defendants’ motion to dismiss this
claim. The Tribe timely appealed that dismissal.2 We hold that the text of the
governing statute, 25 U.S.C. § 5325(a), compels reversal and remand for additional
proceedings.
I.
Defendants contend that the language of the contract under which the Tribe
operated its healthcare programs (“the Contract”) forecloses the Tribe’s claim.
2
We have jurisdiction under 28 U.S.C. § 1291. When reviewing the dismissal of a
complaint for failure to state a claim under Federal Rule of Civil Procedure
12(b)(6), we take all factual allegations set forth in the complaint as true, construed
in the light most favorable the plaintiff, and we review de novo. Lee v. City of Los
Angeles, 250 F.3d 668, 679 (9th Cir. 2001) (internal citations omitted).
4
The section of the Contract concerning CSC reads:
CONTRACT SUPPORT COSTS
The parties agree that the CSC funding under this Funding Agreement
(FA) will be calculated and paid in accordance with Section 106(a) of
the [ISDA]; IHS CSC Policy (Indian Health Manual – Part 6, Chapter
3) or its successor; and any statutory restrictions imposed by
Congress. In accordance with these authorities and available
appropriations for CSC, the parties agree that under this FA the San
Carlos Apache Tribe will receive direct CSC in the amount of
$135,203, and indirect CSC in the amount of $423,731. These
amounts were determined using the FY 2010 IHS CSC appropriation,
and the San Carlos Apache direct cost base and indirect rate as of
December 7, 2010, and may be adjusted as set forth in the IHS CSC
Policy (IHM 6-3) as a result of changes in program bases, Tribal CSC
need, and available CSC appropriations. Any adjustments to these
amounts will be reflected in future modifications to this FA.
Here, the Contract sets out an agreed-upon CSC amount and provides for adjusting
this amount, as set forth in the Indian Health Manual (“IHM”).3
Defendants contend that the Tribe’s claims are meritless because the Tribe
received the amount of CSC specified by the Contract, a properly calculated
amount that 25 U.S.C. § 5325(a) does not override. This argument ignores the
flexibility written into the Contract, which allows those amounts to be adjusted in
the event of changes to “program bases, Tribal CSC need, [or] available CSC
appropriations.” A determination that the Tribe is owed CSC by statute for third-
3
The IHM calculates CSC by applying a negotiated rate to a direct cost base. The
parties dispute the amount of the direct cost base, not the negotiated rate. It can be
accessed at https://www.ihs.gov/ihm/pc/part-6/p6c3/#6-3.2E.
5
party-revenue-funded portions of its health-care program would fall under this
umbrella. Additionally, because the Contract incorporates the provisions of the
ISDA, if that statute requires payment of the disputed funds, it controls. Thus, as
the district court apparently concluded, we also conclude that the Contract is not
dispositive and proceed to determine whether the Tribe is owed those additional
CSC by statute.
II.
The principles of statutory interpretation are familiar. “The starting point for
our interpretation of a statute is always its language.” Cmty. for Creative Non-
Violence v. Reid, 490 U.S. 730, 739 (1989) (citing Consumer Prod. Safety Comm’n
v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)). “If the statutory language is
plain, we must enforce it according to its terms.” King v. Burwell, 576 U.S. 473,
486 (2015) (citing Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010)).
But when deciding whether language is plain, “we must read the words ‘in their
context and with a view to their place in the overall statutory scheme.’” King, 576
U.S. at 486 (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,
133 (2000)).
Statutory interpretation in this case has an additional wrinkle: the “Indian
canon.” Because “the canons of construction applicable in Indian law are rooted in
the unique trust relationship between the United States and the Indians, . . . statutes
6
are to be construed liberally in favor of the Indians, with ambiguous provisions
interpreted to their benefit.” Montana v. Blackfeet Tribe of Indians, 471 U.S. 759,
766 (1985) (internal citations and alterations omitted). And while the canon in
some cases is a “guide[] that need not be conclusive,” Chickasaw Nation v. United
States, 534 U.S. 84, 85 (2001), it is here incorporated into the Contract with
binding language that reads: “[e]ach provision of the [ISDA] and each provision of
this Contract shall be liberally construed for the benefit of the contractor . . . .”
Thus, we need not conclude that the statutory meaning is plain; rather, to find that
the Tribe has plausibly alleged a claim for relief, we merely must conclude that the
language is ambiguous to read it as the Tribe does.
A.
We start with the CSC provisions of the relevant statute, 25 U.S.C. §
5325(a), upon which the district court’s order and the parties’ arguments rely.
Section 5325(a) reads:
(a) Amount of funds provided . . .
(2) There shall be added to the amount required by paragraph (1)
contract support costs which shall consist of an amount for the
reasonable costs for activities which must be carried on by a tribal
organization as a contractor to ensure compliance with the terms of
the contract and prudent management, but which—
(A) normally are not carried on by the respective Secretary in
his direct operation of the program; or
7
(B) are provided by the Secretary in support of the contracted
program from resources other than those under contract.
(3)(A) The contract support costs that are eligible costs for the
purposes of receiving funding under this chapter shall include the
costs of reimbursing each tribal contractor for reasonable and
allowable costs of—
(i) direct program expenses for the operation of the Federal
program that is the subject of the contract; and
(ii) any additional administrative or other expense incurred
by the governing body of the Indian Tribe or Tribal
organization and any overhead expense incurred by the
tribal contractor in connection with the operation of the
Federal program, function, service, or activity pursuant to
the contract,
except that such funding shall not duplicate any funding provided
under subsection (a)(1) of this section.
25 U.S.C. § 5325(a).
Section (a)(2) requires that CSC be paid “for the reasonable costs for
activities which must be carried on by a tribal organization as a contractor to
ensure compliance with the terms of the contract.” This language appears
straightforward: any activities that the Contract requires the Tribe to perform to
comply with the Contract are eligible for CSC.
Does the Contract require the Tribe to carry on those portions of its
healthcare program funded by third-party revenues? It does. The Contract
8
incorporates the ISDA.4 And the ISDA requires the Tribe to spend those monies
on health care. 25 U.S.C. § 1641(d)(2)(A). The third-party-revenue-funded
portions of the healthcare program are therefore “activities which must be carried
on by a tribal organization as a contractor to ensure compliance with the terms of
the contract.” Put differently: if the Tribe did not spend third-party revenue on its
healthcare program, as defined in 25 U.S.C. § 1641(d)(2)(A), it would fall out of
compliance with the Contract. Section (a)(2) therefore appears to apply to the
scenario at hand.
Section (a)(3)(A) narrows this reading by explicitly defining CSC. It
identifies “direct” CSC, § (a)(3)(A)(i), as those expenses “for the operation of the
Federal program that is the subject of the contract”; and “indirect” CSC, §
(a)(3)(A)(ii), as those expenses “incurred by the tribal contractor in connection
with the operation of the Federal program.” The Tribe argues that the third-party-
revenue-funded healthcare activities are part of the “Federal program.” But we
need not go that far; rather, to qualify for CSC, those healthcare activities need
only be performed “in connection with” the operation of the Federal program. A
connection is a “causal or logical relation or sequence.” Connection, Merriam-
Webster Dictionary, https://www.merriam-webster.com/dictionary/connection.
4
The Contract states that “The provisions of title 1 of the Indian Self-
Determination and Education Assistance Act (25 U.S.C. 450 et seq.) are
incorporated into this agreement.”
9
And here, there is a “causal” relationship between the Contract defining the
Federal program and the third-party-revenue-funded activities: the Contract
requires the Tribe to provide third-party-funded health care; it therefore causes the
Tribe to carry out those activities. Sections (a)(2) and (a)(3)(A)(ii), together, point
toward requiring Defendants to cover CSC for activities funded by third-party
revenues.
This conclusion departs from the only other circuit court to have considered
this issue. In Swinomish Indian Tribal Cmty. v. Becerra, the D.C. Circuit
concluded that § 5325(a) does not comport with the reading that the Tribe
advocates because “reimbursements for contract support costs cover activities that
‘ensure compliance with the terms of the contract’ conducted by the tribe ‘as a
contractor.’” 993 F.3d 917, 920 (D.C. Cir. 2021) (citing 25 U.S.C. § 5325(a)(2))
(emphasis in original). And because the contract is between a tribe and IHS only,
CSC are limited to “a tribe’s cost of complying with the terms of that contract.”
Swinomish, 993 F.3d at 920 (emphasis in original).
This ignores the plain language of the statute. As explained above, the
contract and the statute both require tribes to spend their third-party revenue on
healthcare services. Thus, the “cost of complying” with a contract between IHS
and a tribe includes the cost of conducting those additional activities, because but
for conducting those activities, the Tribe would not be in compliance with the
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Contract. Put differently, § (a)(2) does not limit CSC to activities “described in the
contract” or “funded by the signatories to the contract,” each of which would favor
Swinomish’s reading. Rather, it authorizes payment of CSC for all activities—
regardless of funding source—that are required for compliance with the Contract.
This includes the third-party-revenue-funded portions of the program.
Swinomish additionally rejected the reading of § (a)(3)(A) that the Tribe here
advocates. It found that “the Federal program” did not cover the third-party-
funded activities, and therefore that § (a)(3)(A) does not authorize CSC. 993 F.3d
at 921. That, too, misreads the statute.
First, it is entirely possible to read “the Federal program” as encompassing
those portions of the Tribe’s healthcare program funded by third-party revenue.
This is the program that the Tribe operates under Federal directive, via Federal
contract, in the Federal government’s stead; it is therefore possible that all
activities required by the Contract, regardless of funding source, comprise one
“Federal program.” At oral argument, Defendants’ attorney explained that when
tribes bill insurance companies, they “plow that money back into the program” and
“pay for general costs that are associated with the program.” Counsel also
explained that third-party revenue “is an additional benefit that allows [the Tribe]
to expand services under the program and basically to expand the program.”
Finally, counsel for Defendants explained that both IHS and the Tribe, when
11
administering health care, have “obligations to continue to use those funds for
purposes of the contract, so there’s no disparity there: the program works the same
way for the government and the Tribe with respect to third-party income.” At least
informally, then, IHS itself refers to the expanded suite of services funded by third-
party revenue as being part of “the program.” It is difficult, therefore, to credit
Defendants’ argument—and Swinomish’s conclusion—that the meaning of the
statutory phrase “the Federal program” is not at least ambiguous.
But even if “the Federal program” does not refer to those third-party-
revenue-funded healthcare activities, Swinomish still misreads § (a)(3)(A). That
statutory language does not limit CSC to “the Federal program”; it limits CSC to
costs “incurred by the tribal contractor in connection with the operation of the
Federal program.” That language contemplates that there are at least some costs
outside of the Federal program itself that require CSC. Even if the third-party-
funded activities are not part of the “Federal program,” their administrative costs
were “incurred . . . in connection with the operation of the Federal program” and
are therefore recoverable by the Tribe from IHS.
In short, we cannot conclude that § 5325(a) unambiguously excludes those
third-party-revenue-funded portions of the Tribe’s healthcare program from CSC
reimbursement. Indeed, the plain language of this section appears to include those
costs. This would lead us to conclude that the district court erred. Before reaching
12
that conclusion, however, we turn to the additional sections of the statute upon
which the parties rely.
B.
None of the additional statutory language to which Defendants point erases
this ambiguity. First, Defendants refer to 25 U.S.C. § 5325(m), which provides
that:
The program income earned by a tribal organization in the course of
carrying out a self-determination contract—
(1) shall be used by the tribal organization to further the general
purposes of the contract; and
(2) shall not be a basis for reducing the amount of funds otherwise
obligated to the contract.
The district court reasoned that because § 5325(m) concerns “program income
earned,” while § 5325(a) concerns funds “provided” by the Secretary, the two refer
to separate funds. Swinomish similarly reasoned that because this section refers to
insurance monies without CSC, Congress could not have intended to provide CSC
for third-party-revenue-funded portions of the healthcare program. 993 F.3d at
921.
This reading is erroneous as well. This section says nothing about the
administrative costs of the third-party-revenue-funded programs; it therefore
cannot clearly be read as taking a position on how those costs should be funded.
Congress’s intentions are not clear; Congress may have intended the reading
13
Swinomish favored, but it may also have assumed that § 5325(a) covered CSC and
refrained from mentioning them again so as not to be redundant. We conclude,
therefore, that this passage is ambiguous as to CSC.
Second, Defendants point to 25 U.S.C. § 5326, which reads:
Before, on, and after October 21, 1998, and notwithstanding any other
provision of law, funds available to the Indian Health Service in this
Act or any other Act for Indian self-determination or self-governance
contract or grant support costs may be expended only for costs
directly attributable to contracts, grants and compacts pursuant to the
Indian Self-Determination Act and no funds appropriated by this or
any other Act shall be available for any contract support costs or
indirect costs associated with any contract, grant, cooperative
agreement, self-governance compact, or funding agreement entered
into between an Indian tribe or tribal organization and any entity other
than the Indian Health Service.
This section of the ISDA prevents IHS from paying CSC for contracts between a
tribe and an entity other than IHS. It is not clear that this section is relevant.
Congress enacted § 5326 in response to a Tenth Circuit case that required the BIA
to pay administrative costs for a New Mexico state program. See Ramah Navajo
Chapter v. Lujan, 112 F.3d 1455 (10th Cir. 1997); H.R. Rep. No. 105-609, at 110
(1998). It thus seems directed at preventing IHS from being on the hook for
programs unrelated to its healthcare contract with the Tribe. Perhaps for this
reason, Swinomish did not consider § 5326. Nonetheless, because Defendants
contend that it is dispositive, we consider it.
14
Are CSC for the third-party-revenue-funded extensions of the Tribe’s
healthcare program “directly attributable” to the Contract? Or are they “associated
with [a] contract” between the Tribe and another “entity”? The Tribe argues that
the CSC associated with third-parties revenue are “directly attributable” to the
Contract because but for that Contract, the Tribe would not be required to bill
Medicare and Medicaid—nor would it have the right to. Defendants urge us to
agree with the district court, which reasoned that, although the third-party revenue
at issue here was “undoubtedly ‘attributable’ to [the Tribe’s] contract with IHS,” it
was not “directly attributable” to that contract. The district court reasoned that this
language precluded the Tribe from collecting additional CSC.
We are sensitive to the district court’s careful analysis, but we disagree. We
cannot conclude that the statute unambiguously follows Defendants’ interpretation.
Consider how insurance billing works in practice: a healthcare provider performs a
procedure. The office then bills the patient’s insurance. The Contract requires the
Tribe to do so. If insurance turns out to cover the procedure, the Tribe can keep
the money. Otherwise, it’s on the hook. Either way, the procedure has already
been performed as required by the Contract. If the Tribe keeps the money, it may
spend it on further program services. This spending occurs only because the
Contract allows the Tribe to recover the insurance money and requires the Tribe to
15
spend it. It is therefore not clear that this section unambiguously means that this
spending is not “directly attributable” to the Contract.
III.
The Tribe administers its own healthcare program and bills outside insurers,
despite the cost, because IHS has allegedly demonstrated that it cannot do so
effectively. The Tribe now seeks to be put on equal footing with IHS. The Tribe
merely needs to demonstrate that the statutory language is ambiguous. It has met
that burden. Because the statutory language is ambiguous, the Indian canon
applies, and the language must be construed in favor of the Tribe. We hold that the
ISDA requires payment of CSC for third-party-funded portions of the Federal
healthcare program operated by the Tribe. We therefore find that the Tribe has met
its burden under Rule 12(b)(6), reverse the dismissal of this claim, and remand for
further proceedings.
REVERSED AND REMANDED.
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