Cobell v. Salazar

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 11, 2009 Decided July 24, 2009

No. 08-5500

ELOUISE PEPION COBELL, ET AL.,
APPELLANTS/CROSS-APPELLEES

v.

KENNETH LEE SALAZAR, SECRETARY OF THE INTERIOR, ET
AL.,
APPELLEES/CROSS-APPELLANTS

Consolidated with 08-5506

Appeals from the United States District Court
for the District of Columbia
(No. 1:96-cv-01285-JR)

Dennis M. Gingold argued the cause for appellants/cross-
appellees. With him on the briefs were Elliott H. Levitas and
David C. Smith. Keith M. Harper entered an appearance.

Alisa B. Klein, Attorney, U.S. Department of Justice, argued
the cause for appellees/cross-appellants. With her on the briefs
were Michael F. Hertz, Acting Assistant Attorney General,
Jeffrey A. Taylor, U.S. Attorney, and Robert E. Kopp, Mark B.
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Stern, Thomas M. Bondy, Alisa B. Klein, Mark R. Freeman, and
Samantha L. Chaifetz, Attorneys. Tracy L. Hilmer and James C.
Kohn, Attorneys, U.S. Department of Justice, and R. Craig
Lawrence, Assistant U.S. Attorney, entered appearances.

Merrill C. Godfrey argued the cause for movant-intervenor
Osage Nation. With him on the brief was James P. Tuite.

Before: SENTELLE, Chief Judge, GINSBURG, Circuit Judge,
and RANDOLPH, Senior Circuit Judge.

Opinion for the Court filed by Chief Judge SENTELLE.

SENTELLE, Chief Judge: In this interlocutory appeal, both
plaintiffs and defendants in protracted litigation over trust
accounts held by federal officials on behalf of American Indians
seek review of orders of the district court. The district court
held the Department of the Interior to be in continuing breach of
its duty to account for trust funds and that accounting for the
funds was impossible; it ordered monetary relief to the members
of the plaintiff class. On review, we hold that while the district
court’s analysis of duty and breach are generally correct, the
court erred in freeing the Department of the Interior from its
burden to make an accounting. We therefore vacate the district
court’s orders and remand for further proceedings.

I. Background

In 1996, beneficiaries of Individual Indian Money (IIM)
trust accounts brought this class action against the Secretary of
the Interior, the Secretary of the Treasury, and the Assistant
Secretary of the Interior for Indian Affairs, alleging that those
officials had violated their fiduciary duties as trustees acting on
behalf of the United States. See Cobell v. Babbitt, 30 F. Supp.
2d 24, 29 (D.D.C. 1998) (Cobell I). The bulk of the trust assets
 3

“are the proceeds of various transactions in land allotted to
individual Indians under the General Allotment Act of 1887,
known as the ‘Dawes Act.’” Cobell v. Norton, 392 F.3d 461,
463 (D.C. Cir. 2004) (Cobell XIII) (citing 24 Stat. 388 (codified
as amended at 25 U.S.C. § 331 et seq. (§§ 331-333 repealed
2000))). In bringing this action, appellants rely upon the
American Indian Trust Fund Management Reform Act of 1994,
Pub. L. No. 103-412, 108 Stat. 4239 (codified as amended at 25
U.S.C. § 162a et seq.; id. at §§ 4001-4061) (1994 Act). That
statute requires the Secretary of the Interior to “account for the
daily and annual balance of all funds held in trust by the United
States for the benefit of . . . an individual Indian which are
deposited or invested pursuant to the Act of June 24, 1938 (25
U.S.C. 162a).” 25 U.S.C. § 4011(a). The plaintiffs initially
sought an accounting of the trust funds but did not seek payment
of any money beyond “court costs, experts’ costs, and attorneys’
fees.” Cobell I, 30 F. Supp. 2d at 29.

Plaintiffs and defendants cross appeal from two orders of
the district court. The first, Cobell v. Kempthorne, 532 F. Supp.
2d 37, 39 (D.D.C. 2008) (Cobell XX), held that the Department
of the Interior continued to breach its duty to account for trust
funds as identified in Cobell v. Babbitt, 91 F. Supp. 2d 1, 58
(D.D.C. 1999) (Cobell V), and affirmed by this court in Cobell
v. Norton, 240 F.3d 1081 (D.C. Cir. 2001) (Cobell VI). Cobell
XX further held that accounting for the funds was impossible “as
a conclusion of law” because the government could not “achieve
an accounting that passes muster as a trust accounting” given
inadequate present and (likely) future funding from Congress.
532 F. Supp 2d at 104 n.19. The second order of the district
court, Cobell v. Kempthorne, 569 F. Supp. 2d 223, 238, 251-52
(D.D.C. 2008) (Cobell XXI), granted equitable restitution to the
plaintiff class based on the unproven shortfall of the trust’s
actual value as compared with its statistically likely value. The
district court stressed that breaching the duty to account did not
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generate the government’s financial liability. Id. at 243. Rather,
the government’s “failure properly to allocate and pay trust
funds to beneficiaries” gave rise to “restitution or disgorgement
of the very money that ha[d] been withheld.” Id. Accordingly,
the court awarded $455,600,000 to the plaintiff class in what it
called a restitutionary award. Id. at 226.

Soon after issuing Cobell XXI, the district court certified an
immediate interlocutory appeal from both decisions under 28
U.S.C. § 1292(b). Order (Sept. 4, 2008). All plaintiffs and all
defendants petitioned for permission to appeal, and this court
granted the petitions. Orders (Nov. 21, 2008).

We now hold that the district court correctly held that the
1994 Act and Cobell VI required a full accounting, but erred in
holding that an accounting cannot be conducted because, in the
district court’s view, Congress will never appropriate the funds
necessary to conduct such an accounting. The statute gives the
plaintiff class a right to an accounting. Sitting in equity, the
district court has the authority to approve a plan that efficiently
uses limited government resources to achieve that goal. It is
within the power of the district court to order an accounting
without requiring Interior to perform analyses the costs of which
exceed the benefits payable to individual American Indians. It
would indeed be “nuts” to spend billions to recover millions.
Cobell XX, 532 F. Supp. 2d at 86. A court sitting in equity may
avoid reaching that absurdity.

* * *

As this case enters its thirteenth year, it becomes
increasingly difficult to summarize its factual and procedural
background. See Cobell XX, 532 F. Supp. 2d at 103 & n.20
(collecting quotations from Charles Dickens’s Bleak House); id.
at 39-43 (attempting such a summary). Cobell VI contains a
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general description of how funds came to be deposited in the
IIM accounts. 240 F.3d at 1086-88. For a summary of their
early mismanagement and the government’s early attempts at
reform, see id. at 1089-90.

Since passage of the 1994 Act—and the filing of this
lawsuit—the Department of the Interior has had mixed success
in its efforts to account for the trust funds. Cobell XX, 532 F.
Supp. 2d at 43-56, provides a good summary of the evolution of
the current historical accounting project. Apart from Interior’s
independent efforts, the district court has frequently issued
injunctions specifying the terms of an accounting that it held
were required by the 1994 Act. In 1999, the district court issued
an eight-point injunction declaring the government in violation
of the 1994 Act and in breach of trust. Cobell V, 91 F. Supp. 2d
at 58. The injunction ordered the defendants “to provide
plaintiffs an accurate accounting of all money in the IIM trust
held in trust for the benefit of plaintiffs, without regard to when
the funds were deposited,” and laid out a general plan for
compliance. Id. We affirmed the district court’s order in 2001.
Cobell VI, 240 F.3d at 1110.

In 2003, the district court issued a nine-page injunction.
See Cobell v. Norton, 283 F. Supp. 2d 66, 287-95 (D.D.C. 2003)
(Cobell X). That injunction called for a detailed accounting of
“all funds deposited or invested in,” id. at 288, or “assets held
by[,] the Trust since the passage of the General Allotment Act
of 1887,” id. at 289, as well as money held by Indian tribes,
accounts of deceased beneficiaries, and all property escheated
from the trust. Id. at 288-89. When performing this accounting,
Interior was prohibited from “mak[ing] use of any statistical
sampling.” Id. at 289. In Cobell XIII, 392 F.3d at 464-68, we
vacated the “historical accounting” portions of Cobell X’s
injunction, relying on the appropriations language of the
Department of the Interior and Related Agencies Appropriations
 6

Act of 2004, Pub L. No. 108-108, 17 Stat. 1241. That act,
passed by Congress in November 2003, conditioned the
appropriation of Indian trust money on the requirement that
nothing in the 1994 Act, “or in any other statute, and no
principle of common law, sh[ould] be construed or applied to
require the Department of the Interior to commence or continue
historical accounting activities with respect to the Individual
Indian Money Trust until” (a) Congress amended the 1994 Act
to “delineate [Interior’s] specific historical accounting
obligations” or (b) “December 31, 2004.” 117 Stat. at 1263.

After 2005 arrived without congressional action, the district
court reissued the injunction that had been vacated by Cobell
XIII. Reasoning that “December 31, 2004 ha[d] come and gone”
with “no legislative solution,” the district court held itself
“bound, by its findings of fact and conclusions of law” in Cobell
X, “to reissue without modification the ‘historical accounting’
provisions of its structural injunction.” Cobell v. Norton, 357 F.
Supp. 2d 298, 300 (D.D.C. 2005) (Cobell XIV). We again
vacated the district court’s injunction. See Cobell v. Norton, 428
F.3d 1070, 1074-77 (D.C. Cir. 2005) (Cobell XVII). We
explained that the 1994 “Act’s general language doesn’t support
the inherently implausible inference that it intended to order the
best imaginable accounting without regard to cost.” Id. at 1075.
Because of the unique nature of this trust, we held that “the
common law of trusts doesn’t offer a clear path for resolving”
the “ambiguities” involved in setting the parameters of an
accounting. Id. at 1074. And because “Congress was, after all,
mandating an activity to be funded entirely at the taxpayers’
expense,” we held that the 1994 Act did not “grant courts the
same discretion that an equity court would enjoy in dealing with
a negligent trustee” to order “the best imaginable accounting
without regard to cost.” Id. at 1075. Congress’s limited
appropriation undercut any “mandate to indulge in cost-
unlimited accounting—in fact, [it] suggest[ed] quite the
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opposite.” Id.

When we vacated the district court’s injunction for abuse of
discretion, we noted in particular that the injunction “caused the
cost . . . to rise by more than an order of magnitude, from $335
million over five years to more than $10 billion.” Id. at 1077.
We then specifically approved the use of statistical sampling on
the rationale that for some transactions, “the average cost of
accounting, per transaction, would exceed the average value of
the transactions.” Id. at 1078. We now take that reasoning a
step further, and instruct the district court to use its equitable
power to enforce the best accounting that Interior can provide,
with the resources it receives, or expects to receive, from
Congress. Therefore we vacate the district court’s orders and
remand for proceedings consistent with this opinion.

II. Analysis

Before beginning our analysis, we want to commend the
district court for its efforts to cut through this Gordian knot in
Cobell XX and Cobell XXI. While we vacate the district court’s
orders, including its holding of impossibility, we do so with
substantial sympathy, recognizing that our precedents do not
clearly point to any exit from this complicated legal morass.

A. The District Court’s Analysis

Bowing to our directive in Cobell v. Kempthorne, 455 F.3d
301 (D.C. Cir. 2006) (Cobell XVIII)—that because “both the
APA and the common law of trusts apply in this case[,] the
specific question to be addressed determines which body of law
becomes most prominent,” id. at 303-04—the district court
sought to determine “which body of law [wa]s more prominent
with respect to specific aspects of Interior’s 2007 accounting
plan,” Cobell XX, 532 F. Supp. 2d at 89. Most importantly, the
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district court divided the issues into those relating to the
methodology and to the scope of the accounting. Id. The district
court correctly held that Interior’s methodology was “owed the
greatest deference,” id. at 89, because it “ar[ose] out of an
administrative balancing of cost, time, and accuracy,” id. at 91.
See also Cobell XVII, 428 F.3d at 1076 (administrative
deference owed when “choices at issue required both subject-
matter expertise and judgment about the allocation of scarce
resources”). In contrast, the court observed that the scope “is
the result . . . of a legal interpretation of the 1994 Act and other
statutes governing the IIM trust.” Cobell XX, 532 F. Supp. 2d
at 89. It further noted that scope is not “only a temporal matter.
It also relates to the elements that are present within and missing
from the statements of account Interior proposes to issue . . . .”
Id. at 90. That said, the court went on to conclude that Interior’s
choices on scope, particularly as to the latter aspects, “were not
dictated by administrative cost-benefit analyses to which judicial
deference is owed . . . .” Id. In that conclusion, the district court
went too far.

We recognize, as did the district court, that the courts face
two mandates of deference in construing the relevant statutes at
issue in this case. First, there is the familiar Chevron deference
upon which the district court relied in reviewing Interior’s
methodology. However, as the court observed, Chevron
deference can be “‘trumped by the requirement that statutes are
to be construed liberally in favor of the Indians, with ambiguous
provisions interpreted to their benefit.’” Id. at 89 (quoting
Cobell XVIII, 455 F.3d at 304, and collecting other citations).
Nonetheless, Chevron deference does not disappear from the
process of reviewing an agency’s interpretation of those statutes
it is trusted to administer for the benefit of the Indians, although
that deference applies with muted effect. Granted, the Indians’
benefit remains paramount. But where Congress has entrusted
to the agency the duty of applying, and therefore interpreting, a
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statutory duty owed to the Indians, we cannot ignore the
responsibility of the agency for careful stewardship of limited
government resources. Applying even a muted Chevron
deference leads us to a different conclusion than that reached by
the district court.

In Cobell VI, we observed that “[u]nder traditional equitable
principles, ‘[t]he trustee’s report must contain sufficient
information for the beneficiary readily to ascertain whether the
trust has been faithfully carried out.’” 240 F.3d at 1103 (quoting
White Mountain Apache Tribe of Arizona v. United States, 26
Cl. Ct. 446, 449 (Cl. Ct. 1992)). The district court’s order we
affirmed in Cobell VI “explicitly left open the choice of how the
accounting would be conducted, and whether certain accounting
methods, such as statistical sampling or something else, would
be appropriate.” 240 F.3d at 1104. In Cobell XVII, we opined
that “neither congressional language nor common law trust
principles (once translated to this context) establish a definite
balance between exactitude and cost.” 428 F.3d at 1076. While
we understand that it may not have been clear to the Cobell XX
court that this balance applied beyond the accounting
methodology, we now hold that the scope of the accounting
must also be balanced in equity.

Therefore, the district court was not completely correct
when it said that “the proper scope of the accounting obligation
. . . . is the result . . . of a legal interpretation of the 1994 Act and
other statutes governing the IIM trust.” Cobell XX, 532 F. Supp.
2d at 89 (second emphasis added). The district court was correct
to the extent that the scope of the accounting is derived from
statutory law. But when Congress affords courts equitable
jurisdiction—as it has done in this case—it draws on a tradition
of flexibility, not rigidity, in equity. The unique nature of this
trust has been emphasized by the district court. See Cobell XXI,
569 F. Supp. 2d at 225, 249; Cobell XX, 532 F. Supp. 2d at 90.
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Also, Cobell XVII explained that congressional appropriations
“unequivocally control what may be spent on historical-
accounting activities . . . .” 428 F.3d at 1075. “The essence of
equity jurisdiction has been the power of the Chancellor to do
equity and to mould each decree to the necessities of the
particular case.” Hecht Co. v. Bowles, 321 U.S. 321, 329
(1944). The unique nature of this trust requires the district court
to exercise equitable powers in resolving the paradox between
classical accounting and limited government resources. It must
“mould [its] decree to the necessities of the particular case.” Id.
Therefore, the district court was incorrect insofar as it assumed
that the scope of the accounting obligation could not be adjusted
in equity.

The plaintiffs are entitled to an accounting under the statute.
25 U.S.C. § 4011(a). The district court sitting in equity must do
everything it can to ensure that Interior provides them an
equitable accounting. The district court’s holding of
impossibility contradicts the requirement of an equitable
accounting—one that makes most efficient use of limited
government resources. Given the realities of congressional
appropriations, it would be inequitable for Interior to throw up
its hands and stop the accounting. This is what the district court
declared Interior should do in Cobell XX, leading to the money
judgment of Cobell XXI. That judgment was substantial, but
without an accounting, it is impossible to know who is owed
what. The best any trust beneficiary could hope for would be a
government check in an arbitrary amount. Even if this did
justice for the class, it would be inaccurate and unfair to an
unknown number of individual trust beneficiaries. There will be
uncertainty in any accounting for this trust. Interior’s job is to
minimize that uncertainty with a finite budget. Equity requires
the courts to assure that Interior provides the best accounting it
can.
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B. An Equitable Accounting

The proper scope of the accounting ultimately remains a
question for the district court, but we will provide as much
guidance as we can on appropriate methodology, and principles
to guide the analysis of unforeseen circumstances. The
overarching aim of the district court should be for Interior to
provide the trust beneficiaries the best accounting possible, in a
reasonable time, with the money that Congress is willing to
appropriate.

In Cobell XVII, we made clear that an equitable accounting
may include the use of statistical sampling when verifying
transactions. See 428 F.3d at 1077-78. A primary reason for
this decision was that, “for the subset of transactions valued at
less than $500, Interior estimated that the average cost of
accounting, per transaction, would exceed the average value of
the transactions.” Id. at 1078. Because of this, Interior
proposed to study only “about 0.3% of the roughly 25 million
transactions under $500.” Id. We now instruct the district court
to extend this reasoning to the rest of the accounting. Departing
from this approach—that is, by sticking to the ideal concept of
a complete historical accounting—would render the accounting
impossible (or, what is functionally the same, it “would not be
finished for about two hundred years, generations beyond the
lifetimes of all now living beneficiaries,” id. at 1076).

The equitable approach we envision is illustrated by so-
called Youpee escheatments. The Dawes Act, and subsequent
legislation, allotted land to individual Indians that could not be
sold or leased without permission of the government. See
Cobell XX, 532 F. Supp. 2d at 40-41. When these allotments
were “divided and divided again by inheritance through
succeeding generations,” many individuals owned fractional,
undivided interests in the land that “caus[ed] enormous
 12

administrative difficulties” for the government. Id. at 41. The
Indian Land Consolidation Act, Pub. L. No. 97-459, tit. II, 96
Stat. 2517 (1983), tried to consolidate these holdings by causing
them to escheat to the Indian tribes, but the escheatments were
held to be unconstitutional takings in Hodel v. Irving, 481 U.S.
704, 718 (1987). An amended statute was similarly rejected in
Babbitt v. Youpee, 519 U.S. 234 (1997). See Cobell XX, 532 F.
Supp. 2d at 79-80. Small payments are now owed for 775,000
fractional land interests, according to estimates by the
Department of the Interior. Id. at 80. Interior considers
calculating these payments to be “an accounting for land” and
so argues they should be excluded from the historical accounting
project, which accounts only for funds. Id.

The government may be correct, but for the wrong reason.
To determine whether the accounting should cover the
escheatments, the district court should ask the practical question
of whether the cost to account will exceed the amount recovered
by class beneficiaries. As the district court observed, escheated
“interests are tiny, generally of very low value, and the cost of
reversing the escheatments is high.” Id. The district court
should exercise its equitable power to ensure that Interior
allocates its limited resources in rough proportion to the
estimated dollar value of payments due to class members. It
should also consider low-cost statistical methods of estimating
benefits across class sub-groups.

Another illustration of the need for a flexible approach
involves administrative fees. Interior often charged trust
beneficiaries administrative fees “in connection with the probate
process,” when the government sold timber on trust land, or
when the government leased or sold trust land. Id. at 79. These
fees were subtracted before money was deposited into
beneficiary accounts, and, so the government argues, they
should be excluded from any accounting. Again the government
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is probably right for the wrong reason. Common sense should
guide the district court’s analysis in equity. Like escheatments,
“[a]dministrative fees . . . likely amount to a tiny fraction of the
monies that pass through the IIM trust.” Id. at 96. If accounting
for them causes an enormous increase in cost—because, for
instance, Interior has to integrate several new systems of records
with the IIM trust—and only a small effect on the ultimate
balances, then the district court is free to approve of Interior’s
low-cost ways to avoid this. The district court would be within
bounds to accept a reasonable simplification of accounting for
administrative fees, possibly extending to sampling and even
exclusions. As in the case of escheatments, these modifications
and exclusions should be made considering whether the cost to
account exceeds a potential recovery for the class.

Just as equity affects the substance of the accounting, so it
affects which accounts are subject to the accounting. First, we
consider the legal case: The 1994 Act only requires accounting
of “funds held in trust by the United States for the benefit of . . .
an individual Indian which are deposited or invested pursuant to
the Act of June 24, 1938 (25 U.S.C. 162a).” 25 U.S.C.
§ 4011(a). The district court ordered accounting even for
accounts closed before the 1994 Act was passed. See Cobell XX,
532 F. Supp. 2d at 98. Its “rationale for including predecessor
accounts in the historical accounting process” was “that
beneficiaries are entitled to know where their money came
from.” Id. This is true, the district court held, because “the
probate process does not produce an accounting.” Id. The
district court recognized that Interior’s duty did not extend to
“every beneficiary who ever walked the earth.” Id. But it erred
by including within the plaintiff class heirs to money from
closed accounts. The statute calls for an accounting of “the
daily and annual balance of all funds held in trust” that “are
deposited or invested” by the United States for the Indians. 25
U.S.C. § 4011(a) (emphasis added). Closed accounts no longer
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have daily or annual balances, nor are they deposited or
invested. And, as the government rightly points out, “the very
point of probate is to produce a final determination of the assets
of the estate, so that the assets may be distributed among heirs
and creditors.”

This is another instance in which the limited resources of
the historical accounting project may be better spent elsewhere.
Accounting for closed accounts, dealing with probate and
probate regulations, and considering the impact of the IIM trust
on a host of heirs and creditors could needlessly further
complicate an already complicated process. The purpose of an
equitable accounting, as we have tried to articulate, is for
Interior to concentrate on picking the low-hanging fruit. We
must not allow the theoretically perfect to render impossible the
achievable good.

III. Conclusion

We vacate the orders of the district court and remand for
further proceedings consistent with this opinion.1

It is so ordered.

1
We are hearing this case on interlocutory appeal. It does not
appear that the issues raised by intervenor Osage Nation are yet ripe
for review.