Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-08-05500/USCOURTS-caDC-08-05500-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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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/crossappellees. 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

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“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

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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 costunlimited 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 subjectmatter 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 historicalaccounting 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 socalled 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

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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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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.

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.

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