Navajo Nation v. United States

Opinion for the court filed by Circuit Judge PAULINE NEWMAN. Concurring in part and dissenting in part opinion filed by Circuit Judge SCHALL.

PAULINE NEWMAN, Circuit Judge.

The Navajo Nation appeals the decision of the United States Court of Federal Claims, dismissing its complaint against the United States for breach of trust and breach of contract.1 The court ruled that although the United States had breached its fiduciary obligations to the Navajo Nation, this breach was not actionable because the United States did not have a trust relationship with the Navajo Nation and monetary relief was not available. However, a trust relationship indeed existed and exists with the Navajo Nation, and monetary damages are an available remedy for breach of this trust.

BACKGROUND

The United States, through the Secretary of the Interior and the Interior Department’s Bureau of Indian Affairs (BIA), supervises and regulates the development and sale of mineral resources on Indian reservation lands, pursuant to the Indian Mineral Leasing Act of 1938, 25 U.S.C. § 396 et seq., the Indian Mineral Development Act of 1982, 25 U.S.C. §§ 2101-2108, and implementing regulations.

In 1964 the Navajo Nation entered into a lease agreement with the Sentry Royalty Company (predecessor in interest to the Peabody Coal Company) for the mining of coal deposits on Navajo lands. The agreement provided for payment of a royalty not to exceed 37.5 cents per ton, and authorized the Secretary of the Interior or his delegate to readjust the royalty rate to a “reasonable” level on the twentieth anniversary of the lease. As that anniversary approached, due to increases in the market price of coal the rate of 37.5 cents per ton was equivalent to about 2% of gross proceeds. It is not disputed that this was well below then-prevailing royalty rates.

Negotiations proceeded between the Navajo and Peabody. No agreement was *1328reached, and the Navajo asked the Department of the Interior to resolve the issue, in accordance with statute, and to set the royalty at a fair market rate. The BIA Area Real Property Management Officer issued an Initial Decision to increase the royalty rate to 20%, based on an analysis by the Bureau of Mines. The BIA’s Navajo Area Director adopted this decision, and so notified Peabody. Peabody appealed to the Deputy Assistant Secretary for Indian Affairs John Fritz, acting as both Commissioner of Indian Affairs and the Assistant Secretary of Indian Affairs, an appellate path provided by the regulations. See 25 C.F.R. §§ 211.2, 211.3. The Deputy Assistant Secretary for Indian Affairs considered the matter and reached a decision affirming the 20% rate. However, this decision was withdrawn at the instruction of the Secretary of the Interior. The Appendix to the decision of the Court of Federal Claims contains a memorandum from Secretary Hodel to John Fritz, Deputy Assistant Secretary for Indian Affairs, stating “I suggest that you inform the involved parties that a decision on this appeal is not imminent and urge them to continue with efforts to resolve this matter in a mutually agreeable fashion.” 46 Fed. Cl. at 237. Mr. Fritz complied with this instruction.

The record before the Court of Federal Claims reports numerous contacts during this period, on behalf of Peabody, with Interior officials including the Secretary. The Navajo were not told that a decision on Peabody’s appeal had been made in their favor. Facing severe economic pressures, the Navajo eventually agreed to a royalty rate of 12.5%.

It can not be reasonably disputed that the Secretary’s actions were in Peabody’s interest and contrary to the Navajo’s interest. The Court of Federal Claims found that the government’s actions “violated the most fundamental fiduciary duties of care, loyalty and candor.” 46 Fed. Cl. at 227. However, the court also held that there was no trust relationship between the agency and the Navajo with respect to these events, and thus that no monetary relief was available.

DISCUSSION

The Fiduciary Relationship

The legal relationship between the United States and the Indian tribes takes a variety of forms, and in part is that of a fiduciary and its charge. See, e.g., United States v. Mason, 412 U.S. 391, 398, 93 S.Ct. 2202, 37 L.Ed.2d 22 (1973) (“There is no doubt that the United States serves in a fiduciary capacity with respect to these Indians and that, as such, it is duty bound to exercise great care in administering its trust.”); Seminole Nation v. United States, 316 U.S. 286, 296, 62 S.Ct. 1049, 86 L.Ed. 1480 (1942) (“this Court has recognized the distinctive obligation of trust incumbent upon the Government in its dealings with these dependent and sometimes exploited people”); United States v. Shoshone Tribe, 304 U.S. 111, 117-118, 58 S.Ct. 794, 82 L.Ed. 1213 (1938) (“As transactions between a guardian and his wards are to be construed favorably to the latter, doubts, if there were any, as to ownership of lands, minerals, or timber would be resolved in favor of the tribe.”)

The fiduciary relationship between the United States and the Indian tribes is manifested in various ways. For example, with respect to Indian reservation lands, precedent recognizes a distinction between the laws whereby the United States has only a limited trust relationship with the *1329Indian tribes who occupy the land, and the laws giving rise to a full fiduciary duty toward the Indians. The difference lies in the level of control the United States exercises in its management of the land and its resources for the benefit of the Indians. When the United States controls the Indian resources, the duty is that of a fiduciary; when the Indians control their own resources, the duty of the United States is lessened appropriately.

These relationships and duties were discussed in United States v. Mitchell, 445 U.S. 535, 100 S.Ct. 1349, 63 L.Ed.2d 607 (1980) (.Mitchell I) and 463 U.S. 206, 103 S.Ct. 2961, 77 L.Ed.2d 580 (1983) (.Mitchell II). The Court explained that when the United States is assigned control of the management of Indian resources and the duty to manage those resources, there is created a full fiduciary relationship with respect to that management, including all appurtenant trustee duties, obligations, and liabilities. In Mitchell I the Court explained that the United States’ role of trustee holding title to reservation land under the General Allotment Act is simply an expedient to avoid state and local burdens, whereas the role of the United States in management of the resources of the land is as a full fiduciary, see Mitchell II, implementing the government’s statutory obligation to manage these resources entirely for the benefit of the Indians. Thus the Court distinguished the government’s holding of “bare trust” title to an Indian land allotment without responsibility to manage the resources thereof, from the government’s control and management responsibility of these resources as a fiduciary:

In contrast to the bare trust created by the General Allotment Act, the statutes and regulations now before us clearly give the Federal Government full responsibility to manage Indian resources and land for the benefit of the Indians. They thereby establish a fiduciary relationship and define the contours of the United States’ fiduciary responsibilities.

Mitchell II, 463 U.S. at 224, 103 S.Ct. 2961.

This guidance has frequently been applied. In Brown v. United States, 86 F.3d 1554 (Fed.Cir.1996) the issue concerned the commercial leasing of land that had been allotted to Indians. The court explained that the test of the government’s fiduciary responsibility is whether “the Secretary, rather than the allottees, has control or supervision over the leasing program.” Id. ■ at 1561. The court observed that a full fiduciary duty exists even when the government has less than total control of management of the resources, and that participation by the Indians in resource management does not absolve the United States of its responsibility to act in the sole and best interests of the Indians.

In White Mountain Apache Tribe v. United States, 249 F.3d 1364 (Fed.Cir. 2001), the statute establishing “an enforceable fiduciary relationship between the United States and the Tribe,” id. at 1383, provided that Fort Apache, which had been a military facility within what later became the Tribe’s reservation in Arizona, be “held by the United States in trust for the White Mountain Apache Tribe, subject to the right of the Secretary of the Interi- or to use any part of the land and improvements for administrative or school purposes for as long as they are needed for that purpose.” This court held that the statute established a full fiduciary relationship. Although the statute was silent on how the United States was to administer the property, the court applied the com*1330mon law of trusts to hold that the United States had a trustee’s duty to preserve the trust corpus, despite the absence of a specific statute and regulations. This court stated:

Although neither the 1960 Act nor any pertinent regulation sets forth clear guidelines as to how the government must manage the trust property, we think it is reasonable to infer that the government’s use of any part of the property requires the government to act in accordance with the duties of a common law trustee.

White Mountain, 249 F.3d at 1377.

In Confederated Tribes of the Warm Springs Reservation v. United States, 248 F.3d 1365, 1371 (Fed.Cir.2001), the fiduciary breach arose from the government’s mismanagement of Indian timber resources. Since the United States exercised “comprehensive control over the management and harvesting of timber on Indian reservations,” the statutes and regulations established a fiduciary duty in the government to manage the resources in the interest of the Tribes. The court looked to the common law of trusts to determine the measure of damages for the government’s breach of this duty, stating:

Under trust law generally, a beneficiary is entitled to recover damages for the improper management of the trust’s investment assets. In determining the amount of damages for a breach of the trustee’s fiduciary duty with regard to investments of the trust property, courts attempt to place the beneficiary in the position in which it would have been absent a breach.

248 F.3d at 1371. The court recognized its obligation, upon breach of trust, to resolve any uncertainty in the measurement of damages against the trustee. See id. (“It is a principle of long standing in trust law' that once the beneficiary has shown a breach of the trustee’s duty and a resulting loss, the risk of uncertainty as to the amount of the loss falls on the trustee.”)

In Pawnee v. United States, 830 F.2d 187, 190 (Fed.Cir.1987) this court held that statutes giving the Department of the Interior power and authority with respect to oil and gas leases on Native American lands imposed fiduciary obligations upon the government and provided a remedy of money damages in the Claims Court for their breach.

The Indian Mineral Leasing Act and its regulations are similar to those governing timber resources that were the subject of Mitchell II, insofar as federal authority is retained. The Mineral Leasing Act starts with the provision that no mining lease may be entered unless approved by the Secretary of the Interior:

25 U.S.C. § 396a. On and after May 11, 1938, unallotted lands within any Indian reservation or lands owned by any tribe, group, or band of Indians under Federal jurisdiction, except those specifically excepted from the provisions of sections 396a to 396g of this title, may, with the approval of the Secretary of the Interior, be leased for mining purposes, by authority of the tribal council or other authorized spokesmen for such Indians, for terms not to exceed ten years and as long thereafter as minerals are produced in paying quantities.

(Emphasis added.) The statute and its implementing regulations give the Secretary the final authority on all matters of any significance in the leasing of Indian lands for mineral development. The statute assigns to the Secretary the broad and *1331unqualified obligation to “protect[ ] the interests of the Indians,” and includes the power to “perform any and all acts and to make such rules and regulations not inconsistent with this section as may be necessary and proper for the protection of the interests of the Indians and for the purpose of carrying the provisions of this section into full force and effect.” 25 U.S.C. § 399. Thus the statute explicitly requires that the Secretary must act in the best interests of the Indian tribes.

Throughout the statute and its implementing regulations is seen the pervasive control by the United States of the manner in which mineral leases are sought, negotiated, conditioned, and paid, and the pervasive obligation to protect the interests of the Indian tribes. For example, the regulations require the written permission of the Commissioner of Indian Affairs before a Tribe can enter into negotiations for a lease rather than offer the lease in an advertised sale. 25 C.F.R. § 211.2. The regulations state the amount of bond to be secured, 25 C.F.R. § 211.6, and authorize a reduced bond if “the circumstances warrant and the interests of the Indian landowners are fully protected,” 25 C.F.R. § 211.6(a). The regulations set forth the corporate information to be furnished to the appropriate officer of the Bureau of Indian Affairs, and state the officer’s power to require other information. 25 C.F.R. § 211.7. The regulations control the size of coal leases by limiting them, with certain exceptions, to 2,560 acres, 25 C.F.R. § 211.9; and permit the Secretary to approve leases in excess of the acreage limitations if such approval “is in the interest of the lessor.” § 211.9(b)(1). The regulations state that the shape of the leased area must be reasonably compact and conform to the system of public land surveys. 25 C.F.R. § 211.8. The regulations prescribe the term of mineral leases and the conditions of their extension. 25 C.F.R. § 211.10.

The regulations provide that royalties earned under such leases must be deposited in the Treasury “to the credit of the Indians belonging and having tribal rights on the reservation where the leased land is located.” 25 U.S.C. § 399. Royalties are paid to the superintendent “for the benefit of the. lessors.” 25 C.F.R. § 211.12(a). The regulations set the minimum royalties for various minerals. 25 C.F.R. § 211.15. The regulations require that no mining operations shall begin until the lease is approved by the Secretary of the Interior, and must be conducted “in accordance with the operating regulations promulgated by the Secretary of the Interior.” 25 C.F.R. § 211.20. The Secretary may cancel a lease for any violation of the lease terms or regulations, and may do so without the consent of the Indian lessors. 25 C.F.R. § 211.27.

It is quite clear that the statute and regulations assign to the Secretary of the Interior and other government officials the authorization, supervision, and control of Indian mineral leasing activities. The statute and regulations leave no significant authority in the hands of the Indian tribes whose reservation land contains the minerals, and all procedures, responsibilities, and even details are prescribed by Act of Congress and in the regulations promulgated by the Secretary of the Interior. The statutory purpose is to protect the natural resources of the Indians and manage them in a manner that maximizes their benefit to the Indians. The Court has consistently resolved ambiguity in favor of the Indian tribes. For example, in Montana v. Blackfeet Tribe, 471 U.S. 759, 767 n. 5, 105 S.Ct. 2399, 85 L.Ed.2d 753 (1985) *1332the Court noted that state taxation of royalty interests would frustrate the IMLA’s purpose of “ensur[ing] that Indians receive ‘the greatest return from their property,’ ” quoting the legislative history of the IMLA.

The Indian Mineral Leasing Act’s history elaborates upon the fiduciary relationship. When the Act was proposed, the Secretary of the Interior urged that the legislation be enacted because “it is not believed that the present law is adequate to give the Indians the greatest return from their property.” Senate Report No. 985 at 2 (1937); House Report No. 1872 at 2 (1938). Congress responded to the need to ensure that the Indians’ welfare is protected and their natural resources managed to the tribes’ maximum benefit by emphasizing the Secretary’s fiduciary obligations. For example, the legislative reports explained that now the Secretary would approve mineral leases only when they are “in the interest of the Indians.” Id. Statute, regulations, and precedent place on the federal official a clear and unqualified fiduciary responsibility to manage the mineral resources for the benefit of the Indians. The Court of Federal Claims erred in holding that there was no authorization for a trust relationship between the United States and the Navajo Nation as to the coal resources.

Breach of the Fiduciary Relationship

The action of the Secretary in suppressing and concealing the decision of the Deputy Assistant Secretary for Indian Affairs, thereby favoring Peabody interests to the detriment of Navajo interests, was characterized by the Court of Federal Claims as “violat[ing] the most basic common law fiduciary duties owned to the Navajo Nation.” 46 Fed. Cl. at 219. As that court explained:

Let there be no mistake. Notwithstanding the formal outcome of this decision, we find that the Secretary has indeed breached these basic fiduciary duties. There is no plausible defense for a fiduciary to meet secretly with parties having interests adverse to those of the trust beneficiary, adopt the third parties’ desired course of action in lieu of action favorable to the beneficiary, and then mislead the beneficiary concerning these events. Even under the most generous interpretation of the series of events leading up to the approval in December 1987 of the renegotiated lease package, the Secretary of Interior violated his common law fiduciary responsibilities.

46 Fed. Cl. at 226. In addition to violation of common law fiduciary duties, the Secretary also violated statutory fiduciary duties, in acting to benefit Peabody to the detriment of the Navajo. By suppressing the royalty decision of Interior’s Deputy Assistant Secretary for Indian Affairs, the Secretary acted in direct contravention of the Act’s charge to the Secretary to obtain for the Indians the maximum return for their minerals. In failing to act in the best interests of the Navajo, the government violated its fiduciary responsibilities. Although the government argued, at the hearing of this appeal, that the Secretary’s actions were justified in that they reflected a balance of national interests, it is horn-book law that a trustee’s competing interests do not excuse a breach of fiduciary duty.

Breach by the federal government of its fiduciary duty is subject to remedy by the assessment of “damages resulting from a breach of the trust,” as confirmed in Mitchell II:

This Court and several other federal courts have consistently recognized that *1333the existence of a trust relationship between the United States and an Indian or Indian tribe includes as a fundamental incident the right of an injured beneficiary to sue the trustee for damages resulting from a breach of the trust.

463 U.S. at 226, 103 S.Ct. 2961. The Court confirmed that “The Court of Claims therefore has jurisdiction over respondents’ claims for alleged breaches of trust.” Id. at 228, 103 S.Ct. 2961. The Court of Federal Claims erred in holding that it was without jurisdiction to grant monetary relief and improperly dismissed the complaint.

Conclusion

The United States breached its fiduciary obligations to the Navajo Nation in connection with these coal leases with Peabody. A claim for damages for that breach is within the jurisdiction of the Court of Federal Claims. The dismissal is reversed, and the case is remanded for further proceedings including determination of damages.

REVERSED AND REMANDED

. Navajo Nation v. United States, 46 Fed. Cl. 217 (2000).