Goodeagle v. United States , 2015 U.S. Claims LEXIS 940 ( 2015 )

In the United States Court of Federal Claims
No. 12-431L
(Filed: July 28, 2015)
*************************************
*
GRACE M. GOODEAGLE, et al., *
*
Plaintiffs, * Indian Claims; Breach of Fiduciary
* Duty; Individual Indian Money
v. * Accounts; Lost Profits; Statutory
* Interpretation; Partial Summary
THE UNITED STATES, * Judgment.
*
Defendant. *
*
*************************************
Nancie G. Marzulla, with whom was Roger J. Marzulla, Marzulla Law LLC, Washington,
D.C., Stephen R. Ward and John L. Williams, Conner & Winters, LLP, Tulsa, Oklahoma,
Of Counsel, for Plaintiffs.
Stephen R. Terrell, with whom were John C. Cruden, Assistant Attorney General, and
Peter K. Dykema, Environmental and Natural Resources Division, U.S. Department of
Justice, Washington, D.C., Kenneth Dalton, Shani N. Walker, and Karen F. Boyd, U.S.
Department of Interior, Thomas Kearns and Rebecca Saltiel, U.S. Department of Treasury,
Of Counsel, for Defendant.
OPINION AND ORDER ON CROSS-
MOTIONS FOR PARTIAL SUMMARY JUDGMENT
WHEELER, Judge.
This case arises from an alleged breach of fiduciary duty by the Government in
failing to prudently invest funds held in trust on behalf of individual members of the
Quapaw Indian Tribe of Oklahoma. Plaintiffs, Grace M. Goodeagle et al., are holders of
Individual Indian Money (“IIM”) accounts managed by the Bureau of Indian Affairs
(“BIA”). They are claiming damages for account investment mismanagement of their IIM
funds. Included in Plaintiffs’ claims are amounts for lost profits for the period pre-dating
the American Indian Trust Management Reform Act of 1994 (“the 1994 Reform Act”),
Pub. L. No. 103-412, 108 Stat. 4239 (1994), during which Plaintiffs contend the
Government failed to fulfill its statutory obligation to prudently invest IIM funds outside
the Treasury to maximize income on those funds.
On April 13, 2015, Defendant filed a motion for partial summary judgment
regarding the pre-1994 IIM account mismanagement claims, arguing that the Government
was not required by statute or regulation to invest IIM funds outside the Treasury, or pay
interest on IIM accounts, prior to the enactment of the 1994 Reform Act. Defendant asserts
that the Government should not be liable to Plaintiffs for investment mismanagement
claims predating the Act because controlling law did not provide for the payment of interest
on IIM accounts, an argument the Government says was affirmed by the U.S. Court of
Claims in United States v. Gila River Prima-Maricopa Indian Cmty., 586 F.2d 209, 218 Ct.
Cl. 74 (1978).
On May 14, 2015, Plaintiffs filed an opposition to the Government’s motion and
cross-moved for summary judgment. Plaintiffs contend that the 1994 Reform Act merely
reaffirmed the BIA’s existing fiduciary duty, and that the United States has had a statutory
obligation to maximize trust income on IIM accounts by prudent investment since 1918
under what became 25 U.S.C. §162a. Further, Plaintiffs argue that the 1918 Act effectively
acts as a waiver of sovereign immunity because it creates a substantive right enforceable
against the Government for money damages. Plaintiffs therefore assert that, consistent
with the statutory mandate, the United States was responsible for investing Indian trust
funds in the highest yielding investment vehicles available, and failure to do so constituted
a breach of fiduciary duty before and after October 25, 1994, the effective date of the 1994
Reform Act. The cross-motions are fully briefed, and ready for decision. Oral argument
is unnecessary.
The issue before the Court is one of statutory interpretation, and is therefore
susceptible to resolution through summary judgment. For the reasons explained below, the
Court finds that the Government had an existing fiduciary duty to prudently invest IIM
funds held in trust before the 1994 Reform Act, which reaffirmed and codified existing
federal trust responsibilities, and that Plaintiffs have met their burden of proof establishing
the Government’s liability for failure to prudently invest IIM funds before October 25,
1994. Accordingly, Defendant’s motion for partial summary judgment is DENIED and
Plaintiffs’ cross-motion for partial summary judgment is GRANTED.
2
Factual Background1
IIM accounts are interest-bearing accounts for trust funds belonging to an individual
who has an interest in trust assets held by the Secretary of the Interior. 25 C.F.R. § 115.002.
Allotments of Indian lands have been held in trust by the United States for nearly a century,
and any revenues from the allotments have also been held in trust in IIM accounts, which
later became an established feature of Indian law with the Indian Reorganization Act of
1934, 25 U.S.C. §§ 461-479. In 1918, Congress stipulated that the Secretary was
authorized to invest these funds (both IIM and tribal funds) in interest-bearing bank
accounts and Treasury bonds. In 1938, Congress codified this practice in 25 U.S.C. § 162a,
which established additional types of accounts into which IIM and tribal funds could be
invested.
The 1938 statute, which governs the issue before the Court today, currently states
that “[t]he Secretary of the Interior is hereby authorized in his discretion . . . to withdraw
from the United States Treasury and to deposit in banks to be selected by him the common
or community funds of any Indian tribe,” and continues to provide that the Secretary is also
authorized to withdraw funds held in trust by the United States “for the benefit of individual
Indians.” 25 U.S.C. § 162a. The Government’s investment choices for both tribal and
individual funds determine the rate of return on the accounts, and thus the Government,
having chosen to make these investments, owes a fiduciary duty to individuals and tribes
alike to invest their funds prudently in order to maximize return on the accounts. See
Jicarilla Apache Nation v. United States, 112 Fed. Cl. 274, 289 (2013).
With the enactment of § 162a, the BIA initiated a policy where IIM funds would be
invested and managed by BIA agency officers, remaining consistent with the Secretary’s
existing responsibilities for tribal trust funds. H.R. Report No. 1030778, at 11-12 (1994).
In 1966, the Department of the Interior began to invest IIM funds centrally from the BIA’s
Division of Finance in New Mexico, and the funds were invested in group securities. The
BIA computed and distributed IIM interest semi-annually until 1989, at which point the
BIA converted to a monthly distribution of interest based on the average daily value of
each account. Then with the Reform Act of 1994, Congress codified and reaffirmed the
Government’s existing fiduciary duties concerning IIM trust funds.
Standard of Review
Summary judgment is appropriate when there is no genuine dispute as to any issue
of material fact, and the movant is entitled to judgment as a matter of law. RCFC 56(a);
Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 247-48 (1986). A “genuine” dispute is one
1
The facts are taken from the parties’ briefs and supporting exhibits, and are deemed not to be in dispute.
3
that “may reasonably be resolved in favor of either party,” Anderson, 477 U.S. at 250, and
a fact is “material” if it might significantly alter the outcome of the case under the
governing law. Id. at 248. In determining the propriety of summary judgment, a court will
not make credibility determinations, and will draw all inferences in the light most favorable
to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587-88 (1986).
Discussion
As noted, the issue before the Court is one of statutory interpretation, namely,
whether the enactment of 25 U.S.C. § 162a created a statutory mandate for the Government
to prudently invest IIM funds, and whether the 1994 Reform Act merely reaffirmed this
existing duty or whether it gave rise to a new duty to prudently invest IIM funds which had
not existed previously. Plaintiffs maintain that the Government’s fiduciary duty to
maximize return on IIM accounts dates back as far as 1918, whereas the Government
argues that the 1994 Act created a new statutory duty authorizing the Secretary to invest
IIM funds outside the Treasury for the first time.
A. The Reform Act of 1994
Plaintiffs contend that the enactment of the 1994 Reform Act reaffirmed the
Government’s existing fiduciary duties to IIM trust beneficiaries, rather than creating a
new fiduciary duty to prudently invest IIM funds. In support of this contention, Plaintiffs
point to Cobell v. Norton, in which the U.S. District Court for the District of Columbia
stated that “[t]he trust nature of the federal government’s IIM responsibilities was
recognized long before passage of the 1994 Act,” and that the Reform Act was intended to
codify the Secretary’s prior practice of exercising complete control over the IIM funds.
Cobell v. Norton, 283 F. Supp. 2d 66, 145 (D.D.C. 2003), vacated in part on other grounds,
392 F.3d 461 (D.C. Cir. 2004). Plaintiffs further point out that these trust duties are money-
mandating and create a Tucker Act claim. Id. 392 F.3d at 470-71; see also White Mountain
Apache Tribe of Ariz. v. United States, 20 Cl. Ct. 371 (1990).
Plaintiffs also support this contention by citing the House Report for H.R. 4833,
later to become the 1994 Reform Act, which confirms congressional intent to reaffirm the
Government’s existing fiduciary duty. The Committee believed that this report would
“further clarify the Secretary’s trust responsibilities to require the Secretary to invest
individual Indian trust funds,” and would “broaden the types of investments in which the
Secretary could invest individual Indian trust funds.” H.R. Report No. 103-778, at 11-12
(1994).
The Government argues that the United States owed no trust duty to pay interest on
IIM accounts prior to the 1994 Reform Act because, before the Act, there was no specific
4
statute or regulation mandating that the Government must prudently invest IIM funds. The
Government contends that the relationship with the individual Indian account holders may
have been styled as trusts, but that the Government did not assume “all the fiduciary duties
of a private trustee,” and thus created a far more limited relationship than those trust
relationships between private parties at common law, citing United States v. Jicarilla
Apache Nation, 131 S. Ct. 2313, 2323 (2011).
The legislative history of the 1994 Reform Act indicates that Congress intended the
Act to merely reaffirm and codify the existing fiduciary duties of the Government to invest
IIM funds outside the Treasury in order to maximize the return on those funds. Failure to
prudently invest both tribal and individual Indian funds results in a breach of fiduciary
duty, and creates a cause of action in this Court. Plaintiffs are correct in their assertion that
this fiduciary duty existed long before the enactment of the 1994 Reform Act, and
accordingly Plaintiffs may seek lost profits for pre-1994 investment mismanagement
claims.
B. The Government’s Liability for Imprudent Investment
The parties agree generally that Plaintiffs are not entitled to recover pre-1994
interest on IIM accounts. However, Plaintiffs stress that they are nevertheless entitled to
recover lost profits due to the Government’s failure to prudently invest all Indian funds,
which are the damages Plaintiffs seek in this case. Therefore, the Government’s reliance
on cases such as United States v. Gila River Pima-Maricopa Indian Community, White
Mountain Apache Tribe of Arizona and American Indians Residing on Maricopa-Ak Chin
Reservation v. United States, which dealt exclusively with the issue of unpaid interest on
IIM accounts, is misplaced. See United States v. Gila River Pima-Maricopa Indian Cmty.,
586 F.2d 209, 218 Ct. Cl. 74 (1978); White Mountain Apache Tribe, 20 Cl. Ct. at 384; Am.
Indians Residing On Maricopa-Ak Chin Reservation v. United States, 667 F.2d 980, 1002-
03, 229 Ct. Cl. 167, 203 (1981).
Plaintiffs argue that the 1918 statute, later codified as 25 U.S.C. §162a, establishes
the Government’s liability for failure to prudently invest IIM funds. This Court has held
that the statute waives sovereign immunity and subjects the Government to damages for
imprudent investment. See White Mountain Apache Tribe, 20 Cl. Ct. 371; Jicarilla Apache
Nation, 112 Fed. Cl. 274; Osage Tribe of Indians of Oklahoma v. United States, 72 Fed.
Cl. 629 (2006). Although these cases involved tribal trust funds, the same fiduciary duty
applies equally to individual Indian funds as they are both governed by 25 U.S.C. § 162a.
Further, Plaintiffs cite to the Supreme Court’s decision in United States v. Mitchell, which
held that the Government’s liability was established even absent an express mandating
statute or other fundamental document. 463 U.S. 206, 225 (1983).
5
The Government argues that its liability for imprudent investment of IIM funds was
not established until 1994 because the statutory language in § 162a makes the Secretary’s
power to invest IIM funds discretionary. See 25 U.S.C. § 162a (“The Secretary of the
Interior is hereby authorized in his discretion, and under such rules and regulations as he
may prescribe. . . .”) (emphasis added). As noted above, the Government’s reliance on
such an interpretation is misguided because the Supreme Court has found there to be an
existing statutory mandate to prudently invest Indian funds in the highest yielding
investment accounts to maximize return, even absent explicit statutory language. Mitchell,
463 U.S. at 225. This interpretation stems from a common law understanding that a
fiduciary duty exists with respect to such monies or properties unless Congress has
provided otherwise. White Mountain Apache Tribe of Ariz., 20 Ct. Cl. at 383 (citing
Mitchell, 463 U.S. at 225).
C. Duty to Invest Prudently Since 1966
The Government began investing Plaintiffs’ IIM funds in 1966. Along with the
choice to invest came the duty to invest prudently in order to maximize return on the
accounts. Plaintiffs draw an analogy between their claims in this case to those brought by
the Cheyenne-Arapaho Tribe, both of which were based on the Secretary’s authority to
invest nonproductive funds, and a duty to do so, in order to make the funds “as productive
as legally and practically possible.” Cheyenne-Arapaho Tribes of Indians of Okla v. United
States, 206 Ct. Cl. 340, 347-48 (1975). This Court’s predecessor has held that IIM funds
are trust funds, and “[w]here the Government takes on or has control or supervision over
tribal money or property, the normal relationship is fiduciary,” absent any congressional
statement to the contrary. Am. Indians Residing on Maricopa-Ak Chin Reservation, 667
F.2d at 1002, 229 Ct. Cl. at 203. Thus, because the United States holds Plaintiffs’ IIM
funds in trust, there is a fiduciary duty on the part of the Government to prudently invest
them in order to maximize the return.
While the Department of the Interior had the statutory authority to invest IIM funds
as early as 1908, the parties agree that the Secretary began investing these funds centrally
from the BIA’s Division of Finance in Albuquerque, New Mexico in 1966. Once the
Government took Plaintiffs’ IIM funds into trust and began investing them in group
securities, the Government had an obligation to Plaintiffs to make them as productive as
possible through prudent investment, maximizing return on the funds. Failure to do so
constitutes a breach of fiduciary duty and gives rise to Plaintiffs’ claim for lost profits for
the time period in which the Government did not prudently invest the IIM funds.
6
Conclusion
Upon consideration of the motions before the court, Defendant’s motion for partial
summary judgment is DENIED and Plaintiffs’ cross-motion for partial summary judgment
is GRANTED. As explained, the outcome of the pre-1994 IIM investment
mismanagement claims turns on the legal issue of whether the Government had a statutory
obligation to prudently invest IIM funds prior to the enactment of the 1994 Reform Act.
The Court finds that the Act reaffirmed and codified the Government’s existing fiduciary
duty to invest IIM funds in order to maximize the return on those funds. Accordingly,
Plaintiffs are entitled to recover lost profits resulting from the Government’s failure to
prudently invest IIM funds prior to October 25, 1994.
IT IS SO ORDERED.
s/Thomas C. Wheeler
THOMAS C. WHEELER
Judge
7