Court Opinion

ID: 931131
Source: CourtListenerOpinion
Date Created: 2013-06-25 00:01:23.398365+00
Date Added: 2024-06-11T15:15:16.531289
License: Public Domain

In The United States Court of Federal Claims
                                          No. 02-25L

                                (Filed Under Seal: June 4, 2013)

                                    Reissued: June 24, 20131
                                          __________

 JICARILLA APACHE NATION,                     * Tribal trust case; Trial; Standard of review;
 formerly JICARILLA APACHE TRIBE,             * Cheyenne-Arapaho Tribes – statutes give
                                              * rise to fiduciary obligation to maximize trust
                       Plaintiff,             * income by prudent investment; Breach of
                                              * trust – investment decisions;
           v.                                 * Underinvestment – investing in short-term
                                              * investments/lack of diversification;
 THE UNITED STATES,                           * Liquidity; Pooling; Unauthorized
                                              * disbursements; Deposit lag; Negative
                       Defendant.             * interest; Damages; Standard for damages for
                                              * breach of trust; Use of investment modeling
                                              * techniques; Evaluation of hypothetical
                                              * portfolios; Damages determined for period
                                              * of suit; No damages awarded for period from
                                              * 1992 to present; Damages for breach of
                                              * trust; Damages for deposit lag.
                                          ___________

                                          OPINION
                                         ___________

       Steven D. Gordon, Holland & Knight, LLP, Washington, D.C., for plaintiff.

      Stephen R. Terrell, Environmental and Natural Resources Division, United States
Department of Justice, Washington, D.C., with whom was Assistant Attorney General Ignacia S.
Moreno, for defendant.

ALLEGRA, Judge:

       1
         An unredacted version of this opinion was filed under seal on June 4, 2013. The parties
were given an opportunity to propose redactions, but no such proposals were made.
Nonetheless, the court has incorporated some minor changes into this opinion.
         This Indian trust case is before the court following an extensive trial in Washington, D.C.
In this case, the Jicarilla Apache Nation (the Nation) seeks an accounting and to recover for
monetary losses and damages relating to the government’s alleged breach of fiduciary duties in
mismanaging the Nation’s trust assets and other funds. Specifically, the Nation alleges that the
United States: (i) failed to invest Jicarilla’s trust monies prudently so as to obtain an appropriate
return; (ii) made certain unauthorized disbursements of Jicarilla’s trust monies; (iii) took too long
to deposit funds received for Jicarilla into interest-bearing trust accounts; and (iv) charged
Jicarilla interest for covering overdrafts on Jicarilla’s trust accounts that were caused by the
United States.

         For case management purposes, the court has broken this case into several tranches, the
first of which covers the Nation’s claims relating to the government’s actions with respect to
certain trust fund accounts from February 22, 1974, through September 30, 1992 (sometimes
referred to as “the Andersen Period,” for reasons described below), for which plaintiff seeks
damages in excess of $100 million. For the reasons that follow, the court concludes that
defendant, in fact, grossly mismanaged the Nation’s funds during the period in question, thereby
breaching its fiduciary obligations to the Nation, and entitling plaintiff to damages in the amount
of $21,017,491.99.

I.     FINDINGS OF FACT

       Based upon the record, including the stipulation of facts, the court finds as follows:

       A.      Background Facts

        The Nation is a federally-recognized Indian Tribe, organized under the Indian
Reorganization Act of 1934, 48 Stat. 984 (1934) (codified at 25 U.S.C. §§ 461, et seq.). The
Nation’s first Constitution, approved by the Secretary of the Interior on August 4, 1937,
preserved for it all powers conferred by section 16 of the Indian Reorganization Act of 1934, 48
Stat. 984. In 1968, the Nation revised its Constitution to specify that the “[t]he inherent powers
of the Jicarilla Apache Tribe . . . shall vest in the tribal council,” adding that the council “may
enact ordinances to govern the development of tribal lands and other resources.” Revised
Constitution of the Jicarilla Apache Tribe, Art. XI, § 1. Among the other relevant provisions in
that Constitution is one requiring the establishment of a Capital Reserve Fund, “into which there
shall be deposited each year no less than fifteen percent (15%) of the total annual income for the
preceding fiscal year.” The Constitution gives the Tribal Council the responsibility for investing
these funds.

        The Nation occupies an approximately 900,000-acre reservation in New Mexico that was
set aside by an 1887 Executive Order. This land contains timber and gravel, as well as oil and
gas reserves, the development of which is governed by statutes administered by the Department
of the Interior (Interior). See Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 135 (1982) (citing
Indian Mineral Leasing Act of 1938, 25 U.S.C. § 396a, et seq.). Over 3,000 individuals live on
the reservation, with the majority residing in the town of Dulce, New Mexico, near the Colorado
border.

                                                -2-
        From February 22, 1974, through September 30, 1992, the Bureau of Indian Affairs
(BIA) held funds in trust for Jicarilla in “proceeds of labor” (PL) and “judgment award” (JA)
accounts.2 The BIA is responsible primarily for managing the aforementioned trusts. BIA
maintains an office in Dulce (the BIA Jicarilla Agency), which, during the years in question, was
the locus for these management activities. The BIA Jicarilla Agency is part of the BIA’s
Southwestern Region, formerly known as the Albuquerque Area Office.

       B.      The United States’ Fiduciary Obligations to Manage
               the Nation’s Trust Funds

         “The United States’ trust relationship with American Indian tribes includes a spectrum of
obligations and responsibilities.” Jicarilla Apache Nation v. United States, 100 Fed. Cl. 726, 731
(2011) (Jicarilla Apache II). In the first instance, these obligations and responsibilities originate
in statute. But, once established, they may be reinforced by principles that flow from the general
trust relationship that has existed between the United States and the Tribes for centuries. See
United States v. White Mountain Apache Tribe, 537 U.S. 465, 475-77 (2003); United States v.
Mitchell, 463 U.S. 206, 210, 228 (1983); Cheyenne-Arapaho Tribes of Indians of Okla. v. United
States, 512 F.2d 1390, 1392-93 (Ct. Cl. 1975); Jicarilla Apache II, 100 Fed. Cl. at 732-38.

        As part of this framework, Congress enacted various federal statutes that “define the
contours of the United States’ fiduciary responsibilities” with respect to its management of
Indian trust assets and other tribal property. Mitchell, 463 U.S. at 224. The United States first
adopted a policy of holding tribal funds in trust in 1820. That system of trusteeship and federal
management of Indian funds evolved with the passage of various laws in the first half of the
nineteenth century, directing the government to hold and manage Indian tribal funds in trust.
See, e.g., Act of 1837, 5 Stat. 135 (1837); see also Misplaced Trust: The Bureau of Indian
Affairs’ Mismanagement of the Indian Trust Fund, H.R. Rep. No. 102-499, at 6 (1992)
(hereinafter, “Misplaced Trust”). As is true with other Tribes, the trust fund accounts at issue
here are comprised mainly of money received through the sale or lease of reservation lands, and
include proceeds from the sale of timber, gravel, oil, and gas. See also H.R. Rep. No. 103-778,
at 9 (1994). They also include the proceeds of various judgments that have been awarded to the
Tribes.3 The United States has held these funds in trust for the Nation since the late 1800s.

       The BIA started its centralized investment program for tribal funds in mid-1966. On
June 16, 1966, the Commissioner of Indian Affairs (the Commissioner) sent a memorandum to
BIA officials, in which he noted that the 4-percent simple interest statutorily available to Tribes
was “below rates that can be obtained on investments in securities in the current money market,”
adding that “[t]he difference between a five percent rate with interest payable semiannually, for

       2
         The PL accounts included funds received from the Nation’s severance, timber, mineral,
ranching, and farming activities. The JA accounts included primarily funds received from
awards made by the Indian Claims Commission.
       3
         The specific accounts in question were Jicarilla PL and JA accounts 7114, 7161, 7379,
7411, 7455, 7614, 7661, 7879, 7911, 7955, 9053, 9066, 9553, and 9566.

                                                -3-
example, and the Treasury rate is $10.63 per thousand annually.” The Commissioner
recommended that BIA Area Offices solicit the views of the Tribes as to the investment of
surplus trust fund cash being held by the United States Treasury (Treasury). He noted that “any
investment program must be designed with built-in features to assure a high status of liquidity,
thus providing ready cash when required either for emergency needs or to take advantage of
possible extraordinary reinvestment opportunities.” But, he anticipated that, with planning, these
needs could be met by staggering the Tribes’ investments. The Commissioner provided similar
advice in memoranda he issued on January 2, 1968, and May 22, 1969, respectively. In 1971,
the same advice – urging local BIA officials to solicit Tribes as to their views on investment, but
noting the need to maintain liquidity – was incorporated into a formal BIA investment policy that
remained in effect through June 6, 2002.4

        During the period in question, the BIA invested virtually all of Jicarilla’s tribal trust
funds in securities with maturities of one year or less. The weighted average days to maturity of
these investments fluctuated between a low of 11 days to a high of 333 days, and typically
ranged from approximately 30 to 180 days. Approximately 86 percent of Jicarilla’s funds were
invested in certificates of deposit (CDs) over this period, with the vast majority of non-CD
investments (i.e., government securities) limited to a five-year window from 1980 to 1984. From
1974 through 1978, in 1985, and again from 1989 through 1991, all of Jicarilla’s funds were
invested in CDs (as of the relevant reporting dates).

         The BIA did not waiver from this investment approach despite significant fluctuations in
Jicarilla’s trust fund balance and market interest rates. From February 21, 1974, to September
30, 1983, the amount of Jicarilla trust funds under BIA management jumped from $2.3 million to
$62.6 million. Then, from 1983 to September 1992, that balance gradually diminished, as the
Nation shifted its assets to privately-managed reserve accounts (primarily to take advantage of
longer-term investments) – it dropped so much, that by September 1992, BIA was managing
only $5.4 million in Jicarilla tribal trust funds. Interest rates also fluctuated widely during this
period, rising from a floor of 7 percent in 1974 to a peak of 16 percent in 1981, before settling at
between 4 to 6 percent at the end of the period in question. Moreover, there were times during
this period (from mid-1973 to mid-1974, and again from early 1979 to mid-1981) in which the
yield curve on interest-bearing obligations inverted, that is to say, the rates reflected on long-
term obligations became lower than those being paid on short-term obligations.5
       4
           On January 22, 1973, Interior’s Phoenix Field Solicitor issued an opinion interpreting
25 U.S.C. § 162a. In that opinion, he concluded that section 162a “does not levy upon the
Secretary the fiduciary responsibility to invest tribal trust funds at the highest return obtainable.”
Instead, the Field Solicitor concluded that the Secretary was required to consider many factors in
making investment decisions, including “the location of the depository, the financial condition
thereof, and the security offered.” In addition, the Field Solicitor interpreted the investment
statutes to require investments that are “in effect, absolutely guaranteed, both as to principal and
interest, by the credit of the United States,” adding that this requirement places a greater
premium “on security than on return on the investment.”
       5
         A 2007 study cited by one of plaintiff’s experts indicated that over an 80-year period,
long-term rates exceeded short-term rates approximately 90 percent of the time, with long-term

                                                 -4-
         As these rates fluctuated, so did the value of fixed-income securities generally, and more
specifically, those in Jicarilla’s portfolio. For some investors, the fluctuations in interest rates
offered the possibility of realizing significant income from selling particular securities. But, the
short-term nature of the CDs in Jicarilla’s portfolio, though favorable in terms of the interest
rates that were available when the yield curve inverted,6 essentially eliminated the potential for
Jicarilla to realize much capital appreciation by selling securities that bore favorable interest
rates. BIA made no attempt to alter its investment practices to take advantage of this capital
appreciation opportunity, but instead adhered to its “buy and hold” investment strategy in which
financial instruments were generally held to term.7

         Defendant claims that the BIA was compelled to utilize only short-term investments for
Jicarilla’s funds for several reasons. First, it asserts that such investments were necessary
because Jicarilla’s cash flow needs fluctuated widely, requiring the BIA to keep Jicarilla’s funds
in highly liquid assets. The record, however, suggests that the vacillations in Jicarilla’s account
had little to do with fluctuations in its annual cash flow needs and mostly were the result of the
Nation’s decision to shift its funds to other forms of investments. Beginning in 1975, Treasury
made available to the BIA “Treasury Specials” – these were specially-issued, non-marketable
securities that were identical to marketable Treasury securities in terms of interest rate and other
terms, except that they could be sold at any time through the Treasury without any transaction
costs, essentially by shifting a book entry.8 Yet, BIA failed to invest much of Jicarilla’s funds in

bonds tending to yield approximately 1.5 percent more than their shorter-term cousins. This
spread was confirmed by a chart contained in a report authored by Dr. Gordon Alexander, one of
defendant’s experts, that provided average returns for Treasury bills, notes, and bonds for the
period in question. These statistics showed, for example, that the average return on six-month
Treasury bills during this time was 9.0 percent, while the average return on a seven-year
Treasury note was 10.4 percent. The spread becomes even more pronounced when even shorter-
term instruments were compared to the Treasury notes – for example, during the period in
question, three-month Treasury bills produced an average return of 8.6 percent.
       6
          A 1983 report by Price Waterhouse documented the advantages that the BIA’s short-
term investment approach produced when the yield curve was inverted and other anomalies
existed in the interest market.
       7
           The record suggests that BIA changed its investment patterns for other Tribes. In
October 1992, Fred Kellerup, the Chief of the BIA Branch of Investments, indicated in a
newsletter that: “Four years ago we had 75 percent of our money in CD’s and 25 percent in
government securities. . . . Now we have 75 percent in government securities and 25 percent in
CD’s.” Mr. Kellerup boasted that BIA had gotten a Tribe “totally out of CD’s” because of better
yields in government securities. However, as of September 30, 1992, over 94 percent of
Jicarilla’s funds were invested in CDs – the remaining funds were invested in two categories of
government securities.
       8
         On February 24, 1975, the Fiscal Assistant Secretary sent a letter to the Chief of the
BIA’s Investment Branch in which he noted that the use of the new securities “will eliminate
(1) a Fund’s dependence on the availability in the market of desired securities, (2) the adverse

                                                -5-
these Treasury Specials, instead adhering to its approach of investing in short-term CDs.9 This
approach was called into question by Mr. Kellerup in 1992, who advised the Tribes: “Even if
you have cash flow needs, go for the three-to-seven year government securities. Avoid the one-
year CDs.”10 Accordingly, it appears that even if Jicarilla’s cash flow needs fluctuated widely,
investment vehicles were available that would have allowed BIA to keep those funds in

effects upon a Fund of its own operations in the market, and (3) the costly delays in investment
which can occur under even the best of circumstances because of delivery and other
requirements of the market.”
       9
            The following chart shows the BIA’s investment patterns during the years in question:

                  MIX OF JICARILLA TRIBAL TRUST FUND INVESTMENTS
                          FROM ARTHUR ANDERSEN RECORDS
                                   FY 1974 – FY 1992
            Government Securities            Certificate of Deposit           Total
                       $             %            $            %          $             %
        FY 1974             $0       0.0%      $8,436,235 100.0%        $8,436,235    100.0%
        FY 1975             $0       0.0%      $7,653,588 100.0%        $7,653,588    100.0%
        FY 1976             $0       0.0%      $7,770,976 100.0%        $7,770,976    100.0%
       FY 1976Q             $0       0.0%      $7,875,887 100.0%        $7,875,887    100.0%
        FY 1977             $0       0.0%      $3,683,899 100.0%        $3,683,899    100.0%
        FY 1978             $0       0.0%      $2,924,127 100.0%        $2,924,127    100.0%
        FY1979        $507,837       6.8%      $6,947,805     93.2%     $7,455,642    100.0%
        FY1980      $4,954,808      23.5%     $16,120,552     76.5%    $21,075,361    100.0%
        FY 1981     $9,023,268      26.5%     $25,034,897     73.5%    $34,058,165    100.0%
        FY 1982    $10,544,912      20.9%     $39,841,875     79.1%    $50,386,787    100.0%
        FY 1983    $14,814,903      23.6%     $47,978,364     76.4%    $62,793,268    100.0%
        FY 1984    $12,306,038      19.7%     $50,047,556     80.3%    $62,353,594    100.0%
        FY 1985             $0       0.0%     $32,257,949 100.0%       $32,257,949    100.0%
        FY 1986       $312,676       1.3%     $23,467,066     98.7%    $23,779,742    100.0%
        FY 1987       $311,234       3.4%      $8,873,615     96.6%     $9,184,848    100.0%
        FY 1988       $311,234       3.2%      $9,439,240     96.8%     $9,750,473    100.0%
        FY 1989             $0       0.0%      $5,122,947 100.0%        $5,122,947    100.0%
        FY 1990             $0       0.0%      $2,949,861 100.0%        $2,949,861    100.0%
        FY 1991             $0       0.0%      $5,531,823 100.0%        $5,531,823    100.0%
        FY 1992       $296,573       5.5%      $5,125,525     94.5%     $5,422,098    100.0%
         Total     $53,383,483      14.4%    $317,083,785     85.6%   $370,467,268    100.0%

The “FY 1976Q” entry represents the year in which the government shifted its fiscal year.
       10
           Indeed, years earlier, on July 11, 1978, BIA’s Chief of Investments advised Area
Directors that interest rates appeared to be peaking and that benefits could be derived from
investing in longer-term U.S. Treasury bonds and notes. The memorandum specifically cited the
yields on such debt instruments with one-to-five year maturities, and noted that “U.S. Treasury
Bonds or Notes can be sold at any time based on the market price at the time of sale.”

                                                -6-
instruments that were higher-yielding than the CDs, but still liquid enough to meet Jicarilla’s
needs.

        In fiscal year 1980, an automated investment system partially was implemented by the
BIA. That system, called Money-Max, provided basic investment information, e.g., the amount
invested, rate of return, etc. In 1985, the BIA created a new position, the Cash Management
Officer, who was responsible for reviewing the revenues that were being produced from tribal
lands and coordinating investment. In 1989, the BIA Albuquerque Area Office recommended
that Tribes designate an investment coordinator or the equivalent, to work with BIA personnel.
On October 26, 1989, the Secretary of the Interior issued an order creating a new Office of Trust
Funds Management (OTFM), to consolidate all activities relating to the collection, holding, and
disbursement of all tribal trust income. One of plaintiff’s experts, Jim R. Parris, served as the
Director of this office between 1991 and 1995.

       C.      Pooling

         In a June 3, 1976, memorandum, employees of the Portland Area Office of the BIA
Branch of Financial Management suggested that tribal trust funds be invested on a pooled basis,
similar to the way funds in Individual Indian Money (IIM) accounts, or Indian Service Special
Disbursing Agent Accounts, were invested.11 The memorandum suggested that the terms of
most investments could be for one year, with staggered maturities each month. It indicated that a
computer program could be established for scheduled cash needs and to compute the interest due
each tribal fund on a daily basis. The memorandum described the benefits of this approach,
thusly:

       The Investment Branch would be free to invest cash balances to the fullest extent
       possible. Currently many tribes are reluctant to invest funds beyond a 30, 60 or
       90 day period. Under this [pooling] procedure higher rates of interest would be
       obtained since investments could be staggered over long periods of time and still
       meet the cash needs of any tribe. . . . Being able to invest for longer period of
       times [sic] additional interest could be earned. As of June 30, 1975, Bureau-wide
       there was $542,300,000.00 invested. If longer term investments increased the
       interest earned by 1/2% the additional earnings would be $2,711,500.00. A 1%
       increased earnings would result in an additional $5,423,000.00.

On April 5, 1977, the Acting Director, Office of Trust Responsibilities, recommended to the
Commissioner that this pooling concept be adopted immediately, arguing that “[t]here is an
urgent need to combine all trust funds and invest the funds on a pool basis.” The memorandum
indicated that over the past year, there had been a “noticeable reduction in efforts by some Area
Offices in attempting to maximize returns,” and suggested additional earnings of about $2.5
million could be realized through the pooling approach. The Acting Director’s recommendation
       11
           “The IIM accounts hold money that originates from various sources, but a majority of
the funds are derived from income earned off of individual land allotments.” Cobell v. Babbitt,
30 F. Supp. 2d 24, 28 (D.D.C. 1998).

                                               -7-
concluded by asserting that pooling would: (i) increase the probability of a greater return;
(ii) produce greater equitability by minimizing the variance in rates; (iii) increase investment
analysis opportunity; and (iv) enhance the agency’s trust responsibility. On September 7, 1977,
the Chief of the Branch Investments for the BIA similarly recommended approval of the pooling
suggestion, finding that it offered benefits similar to those that had been described by the Acting
Director.

        In its fiscal year 1977 Annual Report on Indian Trust Fund Investments, the BIA reported
that approval of the pooling process was being solicited from the current BIA administration,
noting that the pooling arrangement could “result[] in increased earnings for the tribe.” In
December 1977, John Vale, Chief of the Branch of Investments for the BIA, made a presentation
to BIA management. In his presentation, Vail listed the pros and cons of pooling tribal trust
funds. He ultimately concluded that “the idea [of pooling] is not only feasible but highly
desirable from the standpoint of the Secretary’s carrying out his trust responsibilities for tribal
trust funds.” He urged BIA’s management to proceed with pooling. Notwithstanding his
recommendation, it appears that the pooling proposal remained under active consideration
throughout 1978, and well into 1979. On November 26, 1979, the BIA distributed a
memorandum to Area Directors in which it indicated that “[a] determination has been made that
increased earnings can be realized by combining the tribal trust funds and investing them in a
pool rather than by individual tribes.” This memorandum was forwarded to the Albuquerque
Area Superintendents on December 11, 1979. The memorandum advised that pooling was
optional, but indicated that any Tribe electing not to participate in pooling would need to submit
an official tribal resolution to that effect. According the memorandum, any Tribe that did not
submit such a resolution by February 15, 1980, would be included in the pool starting about
March 1, 1980.12

       The Tribal Council of the Nation did not pass any resolution during the calendar years
1979 or 1980 that addressed the BIA proposal to pool tribal trust funds for investment purposes.
Furthermore, none of the minutes from Tribal Council meetings during this period even discuss
or address the issue of pooling tribal trust funds for investment purposes.

       On April 15, 1980, the Director, Office of Trust Responsibilities, reported that thirty-five
Tribes had expressed their desire not to participate in pooling. The Director also reported that a
subsequent discussion with the Federal Deposit Insurance Corporation (FDIC) had raised issues
regarding how the pooled accounts would be treated for FDIC insurance purposes. He also noted
       12
            A presentation attached to the memorandum outlined the benefits and disadvantages of
pooling. The potential advantages of pooling identified were: (i) increased earnings;
(ii) reduced workload for the BIA; (iii) more time for BIA investment staff to evaluate
investment opportunities; (iv) reduced collateral requirements; (v) greater equitableness in the
distribution of investments; and (vi) increased liquidity. The disadvantages to pooling were
identified as: (i) individual investment decisions by the Tribes would be eliminated; (ii) Tribes
would no longer be able to make determinations as to the term of individual investments; and
(iii) Tribes would no longer be able to specify banks where their tribal trust funds would be
invested.

                                               -8-
that various Tribes had raised other questions regarding pooling. Because of these
developments, he indicated that pooling would be postponed until October 1, 1980. The
Director’s anticipated starting date proved to be wildly optimistic. From 1980 through 1985, the
Annual Reports on Indian Trust Fund Investments repeatedly discussed the pooling option, each
year indicating that “[a] problem has developed with the Federal Deposit Insurance Corporation
(FDIC) coverage in converting from the present method to pooling.” The 1983, 1984, and 1985
reports noted that Price Waterhouse was studying the management of Indian tribal funds. The
report for 198713 dropped any reference to the status of the pooling proposal, and instead stated
that tribal trust funds were “segregated for both investment and accounting purposes,” adding
that the default investment option was a Treasury one-day certificate. The report suggested that
the situation might be changed through the pooling of investments.

       On April 30, 1985, BIA published a request for proposals for contracting out some or all
of BIA’s trust management functions. On October 6, 1986, the BIA and the Treasury’s Financial
Management Service (FMS) announced a tri-party contract with Mellon Bank of Pittsburgh
(Mellon Bank) to provide financial Indian trust services. The Mellon Bank contract
contemplated the creation of two pooled funds within which Indian tribal trust funds could be
invested: an “intermediate portfolio” with a short-term reserve, and a “composite portfolio.”
The announcement of this contract was met with skepticism by certain Tribes and, ultimately, by
the committees in Congress that had oversight over the BIA. Although it continued to tout the
advantages of pooling, as well as the advantages of contracting out these services, the BIA never
convinced critical members of Congress that it should be allowed to proceed with the contract.
Accordingly, on March 23, 1987, an Assistant Secretary of the Interior announced, in a letter to a
Senator, that “the BIA has voided its intent to contract with Mellon Bank in concert with the U.S.
Treasury.”

         Despite all this, on July 24, 1987, at a special meeting, Sherryl Vigil, the Superintendent
of BIA’s Jicarilla Agency, advised the Jicarilla Tribal Council that the BIA planned to begin
pooling all tribal trust funds for investment starting on September 1, 1987. On September 15,
1988, the BIA entered into a contract with Security Pacific National Bank for financial trust
services. Although it appears that this contract too was terminated, the fact remains that
Jicarilla’s tribal trust funds were never pooled through the end of the Andersen Period
(September 30, 1992).14

       13
            The report for fiscal year 1986 is not in the record.
       14
           The Andersen Period takes its name from the study that Arthur Andersen did of tribal
investments made by the BIA from 1972 to 1992. In this study, Arthur Andersen examined
information from internal Interior records and conducted basic reconciliation of account
transactions.

                                                 -9-
       D.      Other Issues

        Beyond the underinvestment claims just discussed, the Nation makes several other claims
in which it asserts that the BIA breached its fiduciary duties. The following are the facts relevant
to these claims.

               (1) Improper Disbursements

        During the period in question, the BIA made various disbursements from the Nation’s
trust funds without authorization. The record demonstrates that between February 22, 1974, and
June 1, 1976, there were eighty disbursements from Jicarilla’s trust accounts for government
payroll or expenses, totaling $131,218.44. The record does not reveal any indication that the
Nation authorized these expenditures or any others, with one exception: it appears that on
January 1, 1954, the Jicarilla Tribal Council authorized $6,810 of “tribal funds” to be
appropriated annually through 1974 for BIA salaries and expenses associated with forest
management.

               (2) Disbursement Lag

         During the period in question, BIA’s policy, as reflected in the Bureau of Indians Affairs
Manual (BIAM), was to deposit tribal funds in an authorized depositary within twenty-four hours
of receipt or by the next workday. See 42 BIAM Supp. 3 § 3.9.I(1) (“All funds shall be
deposited in an authorized Federal depositary with[in] 24 hours of receipt or by the next work
day after receipt if the funds were received too late in the day to meet the depository’s and/or
cognizant Collection Officer’s cutoff requirements.”). In practice, however, it often took
considerably longer for the BIA to deposit funds it received on behalf of Jicarilla. There were
several reasons for this delay. One was the time associated with identifying the lease owners on
whose behalf particular royalty payments were received. This process, performed by the BIA
Jicarilla Agency’s Realty Office, often took two to three days. Another was the time lost in
assembling a deposit package and then transmitting it from the BIA Jicarilla Agency in Dulce, to
the Albuquerque Area Office located over 170 miles away, for deposit into a Treasury-approved
local depository bank. This process would often require three to five days to complete.

       Payments made to Jicarilla by electronic funds transfer (EFT) were not subject to these
delays. Beginning in May 1979, the BIA required all deposits of $25,000 or more to be made via
EFT. In 1986, this requirement was expanded to require the use of EFT for payments of $10,000
or more.

               (3) Negative Interest

         A 1988 audit, conducted by Interior’s Office of the Inspector General, found that,
between April 1971 and September 1988, “accounting errors occurred which allowed more funds
to be withdrawn from some [Jicarilla] accounts than was available.” Mr. Parris, as Chief of
BIA’s Branch of Trust Fund Accounting, caused negative interest to be posted to overdrawn
Jicarilla accounts. As explained by Mr. Parris in a September 14, 1990, memorandum:

                                               - 10 -
       The negative interest is the result of an overpayment from the Jicarilla accounts
       that must be resolved before any adjustment can be posted to offset the negative
       balances that cause the negative interest to be computed. The interest cannot be
       stopped since actual dollars were disbursed over the amount available for
       payment, which impacts all other Tribal funds participating in the overnighter
       investments during the period the overdrawn status is allowed to continue. Funds
       must be located to offset the negative balance in order to halt the negative interest
       computation.

During the period at issue, $799,868.46 in negative interest was posted to Jicarilla’s accounts.
On December 10, 2008, in response to a request by the Nation to withdraw trust funds from one
of its accounts, the Office of the Special Trustee for American Indians agreed to “waive[] any
claim to ‘negative interest’ on the overdrawn principal.”

       E.      The Price Waterhouse Review

        On May 24, 1983, the BIA engaged Price Waterhouse to conduct an in-depth review of
the BIA’s management of Indian trust funds. On December 24, 1983, Price Waterhouse issued a
report addressing the BIA’s investment portfolio management, totaling, as of August 31, 1983,
over $1.5 billion. The report made five recommendations, to wit, that the BIA: (i) develop and
implement an ongoing process to assist Tribes and individuals in formulating investment
objectives; (ii) offer Tribes and individuals the option of splitting their trusts among portfolios
that have a variety of risk-return objectives; (iii) establish a formal oversight committee to
provide independent evaluation of trust fund performance; (iv) engage an investment advisory
service with experienced portfolio managers; and (v) enhance timely and current trust fund
reporting and monitoring.

        The report’s recommendation regarding investment options is the one most germane here.
The report found that “the BIA Branch of Investments has achieved excellent investment results
relative to other managed portfolios operating under similar investment authorizations.” It
admitted, however, that this finding was based only on estimates of returns, as “[m]easurement
of actual portfolio performance was confounded by an absence of data.” It noted that “[t]hese
recent successes are primarily attributable to a strategy of investing in short-term assets in the
face of volatile interest rates and to the discovery of federal subsidies implicit in the pricing of
FDIC and FSLIC insured CDs.”15 But, both circumstances (the interest rate inversion and
       15
          At a later point in the report, Price Waterhouse discussed the impact of the BIA’s
short-term investment approach, thusly:
       It should be noted that the Indian trust funds have tended to be invested heavily in
       nonmarketable assets, such as certificates of deposit. The rewards from such
       investments have more than compensated for the risk involved insofar as the
       amounts invested have been fully insured by the FDIC and FSLIC, yet many of
       the depository institutions offered rates which reflected the risk of default. The
       only negative aspect of this investment policy has been the bookkeeping and

                                               - 11 -
mispricing of CDs), the report noted, were, to a degree, happenstance and not likely to be
repeated – that “unusual market conditions” had resulted in a “perversity” of interests rates, with
short-term obligations yielding more than long-term ones, and that subsidies associated with the
FDIC and FSLIC securities could be eliminated. Price Waterhouse recommended that Tribes be
given the opportunity to assign portions of their trust funds to portfolios with different
investment objectives, including, at a minimum a short-term fund and a medium-term diversified
portfolio.

       F.      Procedural History and Trial

        On January 8, 2002, plaintiff filed its complaint in this matter, which it amended on
August 26, 2002. On December 13, 2002, the court stayed this case and referred it to alternative
dispute resolution. On July 1, 2008, after a settlement had not occurred, the court restored this
matter to the active docket. Following consultations with the parties, on October 7, 2008, the
court issued an order confirming that trial on the first phase of the case would be limited to fiscal
claims relating to defendant’s management of certain Jicarilla trust accounts from 1972 to 1992
(during the Andersen Period). During discovery on that phase, a dispute arose over whether
certain government documents were privileged. Discovery in the case continued, while that
matter was resolved. See Jicarilla Apache Nation v. United States, 88 Fed. Cl. 1 (2009)
(Jicarilla Apache I), petition for mandamus denied, sub nom., In re United States, 590 F.3d 1305
(Fed. Cir. 2009), reversed and remanded, 131 S. Ct. 2313 (2011), petition for mandamus denied,
sub nom., In re United States, 460 Fed. Appx. 914 (Fed. Cir. 2011). Following the conclusion of
discovery, on August 18, 2011, the court denied, in part, and granted, in part, defendant’s motion
for partial summary judgment, and denied plaintiff’s cross-motion for summary judgment.
Jicarilla Apache II, 100 Fed. Cl. 726 (2011).

         Following the filing of several pre-trial motions, trial on plaintiff’s claims for the
Andersen Period commenced on November 8, 2011. That trial covered the following issues:
(i) whether the BIA prudently invested the Nation’s trust funds so as to maximize trust income
(the “underinvestment claim”); (ii) whether defendant is liable for allegedly disbursing Nation
trust funds to pay for BIA payroll or expenses (the “unauthorized disbursement claim”); (iii)
whether defendant is liable for allegedly taking excessive time to deposit the Nation’s trust
revenue into interest-bearing trust accounts (the “deposit lag claim”); and (iv) whether defendant
is liable for allegedly allowing the Nation’s trust fund accounts to be overdrawn, causing the
Nation to be charged interest on the overdrawn amounts (the “negative interest claim”). The
trial also extensively dealt with the appropriate amount of damages, if any, stemming from
defendant’s alleged breaches.

       transaction burden imposed by having to deal with hundreds of different
       institutions and in comparatively small amounts for each transaction.

                                               - 12 -
       Aside from its various fact witnesses, plaintiff offered at trial expert reports16 from the
following individuals:

       ○       Peter A. Ferriero and Kevin W. Nunes, principals of Rocky Hill
               Advisors, Inc. (Rocky Hill), addressed whether defendant
               breached its duty to invest the Nation’s funds so as to obtain a maximum
               return. More specifically, they addressed: (i) whether the government
               breached its fiduciary obligations to Jicarilla with respect to the
               management and investment of trust funds; and (ii) the amounts that
               would have been earned had the trust accounts been properly managed,
               for the purpose of computing damages suffered by the Nation. In
               addition, these experts computed damages attributable to Jicarilla’s
               unauthorized disbursement, deposit lag, and negative interest claims,
               but did not opine on whether these actions constituted breaches of trust.

       ○       Michael A. Goldstein, Ph.D., a professor of finance at Babson College,
               addressed issues relating to the BIA’s management of the Nation’s trust
               accounts, including investment strategy, maturity and liquidity, fiduciary
               obligations, and pooling. Dr. Goldstein also responded in detail to one of
               defendant’s reports and proposed an alternative model investment
               portfolio.

       ○       Jim R. Parris, CPA, a former long-time BIA employee, addressed the
               accounting and identification of transactions posted to the Nation’s trust
               fund accounts. He specifically focused on various disbursement
               transactions to determine whether they properly were authorized by the
               Nation and BIA. In addition, Mr. Parris addressed Jicarilla’s deposit lag
               claims.

Defendant, of course, had its own fact witnesses. It also offered expert reports from the
following individuals:

       ○       Gordon H. Alexander, Ph.D., a professor of finance at the University
               of Minnesota, responded to plaintiff’s damages submission, addressing,
               in particular, the substitute portfolio utilized in that submission.

       16
            Using a practice employed by the United States Tax Court, see Tax Ct. R. 143(g), the
court received the experts’ reports in lieu of live expert direct testimony. This practice was
adopted by the court at the Rule 16 conference, at the outset of discovery, in order to give the
parties fair warning of its use prior to the time their experts generated their reports. Live
examination of the expert witnesses began with cross-examination. The use of this practice
saved considerable trial time. See Samuel R. Gross, “Expert Evidence,” 1991 Wis. L. Rev. 1113,
1215-16 (1991) (advocating this approach).

                                                - 13 -
       ○       Laura T. Starks, Ph.D., a professor of finance at the University of Texas
               at Austin, evaluated BIA’s trust fund management practices and opined on
               whether the BIA had breached its fiduciary duties in connection with its
               management of the Nation’s trust funds. In particular, Dr. Starks addressed
               whether the BIA conformed to the terms of its Congressionally-mandated
               investment guidelines, its internal regulations and policies, and the general
               concept of prudence. In addition, she responded to plaintiff’s damages
               calculation, specifically addressing plaintiff’s claims regarding maximizing
               investment returns and negative interest.

       ○       William G. Hamm, Ph.D., a professional economist and director of the
               Berkeley Research Group, LLC, evaluated how damages, if any, should be
               brought forward to the time of judgment, and responded to plaintiff’s model
               for bringing damages forward to the time of judgment.

Following the completion of trial and post-trial briefing, on May 31, 2012, the court heard
closing arguments. Per the court’s request, the parties have made a supplemental filing since
that date, which included electronic copies of the spreadsheets used by the experts in calculating
damages.

II.    DISCUSSION

        This phase of the litigation between the United States and Jicarilla involves the United
States’ accounting, management, and investment of Jicarilla’s funds from 1974 to 1992. In this
case, the Nation alleges that the BIA breached its fiduciary duties to the Tribe in imprudently
investing the Nation’s funds; inappropriately disbursing the Nation’s funds to pay government
expenses; unduly delaying the deposit of funds into the Nation’s accounts; and charging the
Nation with interest for overdrafts attributable to BIA’s mis-accounting. Before turning to these
claims, it makes sense to define the standard of review here.

       A.      Standard of Review

        Although defendant continues to argue otherwise, in a portion of its discovery ruling
unaffected by the Supreme Court’s subsequent opinion, this court noted that “many cases
involving the alleged misappropriation or mismanagement of tribal trusts” have held that “the
duty of care owned by the United States ‘is not mere reasonableness, but the highest fiduciary
standards.’” Jicarilla Apache I, 88 Fed. Cl. at 20 (quoting Am. Indians Residing on the
Maricopa-Ak Chin Reservation v. United States, 667 F.2d 980, 990 (Ct. Cl. 1981), cert. denied,
456 U.S. 989 (1982)). As was held by the Federal Circuit, “[b]ecause of its treaty and statutory
obligations to tribal nations, the United States must be held to the ‘most exacting fiduciary
standards’ in its relationship with the Indian beneficiaries.” Shoshone Indian Tribe of Wind
River Reservation v. United States, 364 F.3d 1339, 1348 (Fed. Cir. 2004), cert. denied, 544 U.S.

                                              - 14 -
973 (2005).17 More recently, in ruling on the parties’ cross-motions for summary judgment, the
court noted that, in Yankton Sioux Tribe, “the Court of Claims specifically rejected the
application of the arbitrary and capricious standard in the tribal trust context,” stating ‘“[a]
breach of that obligation by the Government may obviously involve conduct less than arbitrary,
capricious, or fraudulent by an official charged with the position of trust.”’ Jicarilla Apache II,
100 Fed. Cl. at 739 n.18 (quoting Yankton Sioux Tribe, 623 F.2d at 163).18 In the court’s view,
the reasoning of its earlier opinion remains sound.

        A claim for breach of a fiduciary duty relating to the investment of trust funds requires
proof that a fiduciary duty with respect to such investments existed and that the United States
“failed faithfully to perform those duties.” United States v. Navajo Nation, 537 U.S. 488, 506
(2003); Mitchell, 463 U.S. at 216-17, 219. A breach of trust may be established by showing that
Interior failed to comply either with mandatory trust obligations specified in a statute or in its
own regulations, or with the fiduciary duties that spring from those obligations. See Cheyenne-
Arapaho Tribes, 512 F.2d at 1392-93; Shoshone Indian Tribe of the Wind River Res., Wyo. v.
United States, 56 Fed. Cl. 639, 649 (2003); see also Jicarilla Apache II, 100 Fed. Cl. at 734-35.

       B.      Breach of Trust – Investment Decisions

        Numerous statutes outline defendant’s specific obligations as trustee in managing the
Nation’s trust funds. The investment claims at issue principally arise under 25 U.S.C. §§ 161
(“Deposit in Treasury of trust funds”); 161a (“Tribal funds in trust in Treasury Department;
investment by Secretary of the Treasury”); 162a (“Deposit of tribal funds in banks; . . .
investments”), and, to a lesser extent, the American Indian Trust Fund Management Reform Act
of 1994, 25 U.S.C. § 4001, et seq., which recognizes and codifies the existing trust relationship.
These statutes expressly refer to the United States as “trustee of various Indian tribes,” id. at §
161, and to the accounts at issue as “tribal trust funds,” see, e.g., id. at § 162a. They confer
control and discretion upon the United States with respect to the management and investment of
the funds. See, e.g., id. at § 162a(a) (“The Secretary of the Interior is hereby authorized in his
discretion . . . .”). Thus, section 161 requires the United States to deposit in the Treasury and pay

       17
           See also United States v. Mason, 412 U.S. 391, 398 (1973); Seminole Nation v. United
States, 316 U.S. 286, 296-97 (1942); Yankton Sioux Tribe v. United States, 623 F.2d 159, 163
(Ct. Cl. 1980); Red Lake Band v. United States, 17 Cl. Ct. 362, 373 (1989).
       18
           See also Sac & Fox Tribe of Indians of Okla. v. United States, 340 F.2d 368, 375 (Ct.
Cl. 1964); Osage Tribe of Indians of Okla. v. United States, 72 Fed. Cl. 629, 643 (2006);
Cheyenne-Arapaho Tribes of Okla. v. United States, 33 Fed. Cl. 464, 469 (1995) (quoting
Jicarilla Apache Tribe v. Supron Energy Corp., 728 F.2d 1555, 1563 (10th Cir. 1984) (Seymour,
J., concurring in part and dissenting in part), adopted as majority opinion, 782 F.2d 855, 857
(10th Cir.1986) (en banc), cert. denied, sub nom., Southland Royalty Co. v. Jicarilla Apache
Tribe, 479 U.S. 970 (1986) (in this context, defendant’s “‘actions must not merely meet the
minimal requirements of administrative law, but must also pass scrutiny under the more stringent
standards demanded of a fiduciary.’”)); Minn. Chippewa Tribe v. United States, 14 Cl. Ct. 116,
130 (1987).

                                               - 15 -
interest on such funds when “the best interests of the Indians will be promoted by such deposits,
in lieu of investments.” Id. at § 161. Section 162a acknowledges the “[t]rust responsibilities of
[the] Secretary of the Interior,” stating that they “shall include (but are not limited to)” providing
“adequate systems for accounting for and reporting trust fund balances.” Id. at § 162a(d); see
also Misplaced Trust, supra, at 6-7 (discussing these statutes). As this court has noted
previously, these statutes “vest the United States with management control over the trust funds,
discretion with respect to their investment, and detailed responsibilities to account to the tribal
beneficiaries.” Jicarilla Apache II, 100 Fed. Cl. at 731-32.19

        As this court has observed, Jicarilla Apache II, 100 Fed. Cl. at 732, the Court of Claims
carefully examined this network of statutes in Cheyenne-Arapaho Tribes of Indians of Oklahoma
v. United States, 512 F.2d 1390 (Ct. Cl. 1975). In that consolidated case, several Tribes alleged
that “defendant breached its fiduciary duties in the care of plaintiffs’ funds by not making the
funds productive (by not investing moneys ready for investment and also by delay in making
funds available for investment), by not maximizing the productivity of funds, and by using the
funds to its own benefit and to the detriment of the tribes.” Id. at 1392. Laying the foundation
for considering these claims, the court observed that “[w]hen Congress, in the exercise of its
power over the Indians, determined by statute and by treaty to hold funds due the tribes in trust
rather than immediately distributing them to the Indians, it also developed a series of investment
policies for those funds.” Id. at 1393. The court noted that its focus was on the statutes adopting
those policies, based upon the plaintiffs’ claim that “the Bureau of Indian Affairs has not
properly used the tools Congress provided in order to meet the Government’s fiduciary
obligation.” Id. The court proceeded to review the statutory investment scheme, tracing the
history and language of statutes like 25 U.S.C. §§ 161a, 161b, and 162a back into the 1880s. 512
F.2d at 1393. Based on this careful review, the court concluded that “[t]he fiduciary duty which
the United States undertook with respect to these funds includes the ‘obligation to maximize the
trust income by prudent investment,’” adding that “[t]his is the general law governing the
Government’s duty and responsibility toward the Indian funds involved in this case.” Id. at 1394
(quoting Blankenship v. Boyle, 329 F. Supp. 1089, 1096 (D.D.C. 1971)).20 In light of this
standard, the court found that “the trustee has the burden of proof to justify less than a maximum

       19
          See also White Mountain Apache, 537 U.S. at 480 (Ginsburg, J., concurring); Mitchell,
463 U.S. at 222 n.24.
       20
           See also Osage Tribe, 72 Fed. Cl. at 668 (“The Court of Claims has addressed the
statutory obligations under 25 U.S.C. §§ 161a, 161b, and 162a on a number of occasions and has
uniformly held the United States responsible for investing Indian trust funds in the highest
yielding investment vehicles available to the funds in question.”); id. (“The requirement to invest
Indian trust funds in the highest yielding investments available is a legal requirement mandated
by the applicable statutes – here, 25 U.S.C. §§ 161a and 162a – and not solely a prudential
one.”). If more were needed to support this conclusion, one might look to the BIAM, as in effect
for the years in question. That manual listed, in detail, the types of investments that could be
made of “[f]unds held in trust for the benefit of the tribes,” and described the policy guiding
those investments as “selecting securities that will yield the best possible return.” 3 BIAM Supp.
3 § 3.11.A-D.

                                                - 16 -
return.” Id. at 1394; Osage Tribe of Indians of Okla. v. United States, 72 Fed. Cl. 629, 666
(2006); White Mountain Apache Tribe of Ariz. v. United States, 20 Cl. Ct. 371, 380 (1990).

        At the summary judgment stage of this case, this court rejected defendant’s claim that
Cheyenne-Arapaho Tribes was wrongly decided and had been overruled by more recent Supreme
Court cases, including United States v. Jicarilla Apache Nation, 131 S. Ct. 2313 (2011). It found
instead that Cheyenne-Arapaho Tribes remains binding precedent within this circuit. Jicarilla
Apache II, 100 Fed. Cl. at 734. In this regard, the court noted that in Cheyenne-Arapaho Tribes,
the Court of Claims did not use common law principles to establish the fiduciary obligations of
the United States, but rather employed them only ‘“to inform [its] interpretation of statutes and to
determine the scope of liability that Congress has imposed.’” Jicarilla Apache II, 100 Fed. Cl. at
735 (quoting Jicarilla Apache, 131 S. Ct. at 2325); see also White Mountain Apache, 537 U.S. at
475-76. It was on that permitted basis, this court concluded, that the Court of Claims, in
Cheyenne-Arapaho Tribes, “outlined a series of government obligations that stemmed from [the
statutory] duty.” Jicarilla Apache II, 100 Fed. Cl. at 734. In this regard, the court noted the
“striking similarities” between Cheyenne-Arapaho Tribes and the Supreme Court’s subsequent
decisions in Mitchell, 463 U.S. 206 (1983) and White Mountain Apache, 537 U.S. 465 (2003),
which “thoroughly repudiated defendant’s cramped view of its fiduciary obligations.” Jicarilla
Apache II, 100 Fed. Cl. at 735-36. Indeed, the court ultimately found that “[a] phalanx of
contrary precedent requires this court [] to honor the Court of Claims’ holding that the trust
investment statutes in question establish defendant’s obligation to maximize the trust income by
prudent investment.’” Id. at 738 (quoting Cheyenne-Arapaho Tribes, 512 F.2d at 1394). It
remains then to apply this standard to the investment decisions in question.

               (1)     Underinvestment

        Plaintiff argues that the BIA deprived it of millions of dollars in lost investment earnings
by keeping unreasonably large balances invested in relatively low-yielding, short-term
investments, and failing to diversify the Nation’s trust fund portfolio. For most of the period in
question, BIA’s investment practice was to invest virtually all of Jicarilla’s tribal trust funds in
securities with maturities of one year or less – the weighted average days to maturity of these
investments typically ranged from approximately 30 to 180 days. During this period, the BIA
adopted a practice of keeping tribal trust funds in cash equivalents (as short as one-day
instruments), unless a Tribe specifically asked it to invest those funds in longer term investments.
About 86 percent of Jicarilla’s funds were invested in CDs over this period, with the vast
majority of non-CD investments (i.e., government securities) limited to a five-year window from
1980 to 1984.

        Defendant does not seriously contest that this investment approach failed to maximize
the investment return on Jicarilla’s trust funds. Yet, it still claims that the BIA’s approach was
“prudent.” Like other trustees, the BIA must administer the trust as a prudent person would, in
light of the purposes, terms, and other circumstances of the trust. See Osage Tribe, 72 Fed. Cl. at
662; see also Navajo Tribe of Indians v. United States, 9 Cl. Ct. 336, 400 (1986); Restatement

                                               - 17 -
(Second) of Trusts § 227 (1959).21 This duty of prudence has three prongs: the BIA must apply
care in investigating the investments available for the funds; it must employ a reasonable degree
of skill in selecting among those investments; and it must be cautious in preserving the trust
estate while seeking a reasonable return on investment. See Osage Tribe, 72 Fed. Cl. at 667.22
“Because . . . the permissible investments in which [a Tribe’s] . . . trust funds must be placed
have been spelled out by Congress, . . . defendant’s prudent discharge of the requirements of care
and caution is limited to selecting the highest yielding investment instruments of suitable
maturity available for trust funds.” Id. (internal quotations omitted). The requirement of skill
obliges the BIA to obtain the highest rate of return available consistent with the prudent
management of the statutorily-mandated investments. Id. at 668.

        Plaintiff’s experts convincingly testified that no prudent trustee would have invested the
Nation’s trust funds in the way that the BIA did. The BIA’s heavy reliance on short-term
investments reduced the yield on Jicarilla’s portfolios by failing to take appropriate advantage of
the higher yields available on longer-term instruments. While there were isolated instances
during the period in question when the yield curve was inverted (i.e., short-term interest rates
were higher than long-term interest rates), when push came to shove, none of the experts in this
case – even defendant’s – suggested that a prudent fiduciary would ever have counted on that
being the case.23 As pointed out by plaintiff’s experts, several studies suggest that the spread
between investments of less-than-one-year and longer-term U.S. Treasury bonds (e.g., between 5

       21
           In this opinion, the court purposely refers to the older Restatement (Second) of Trusts
even though those provisions were supplanted by amendments made to the prudent investor rule
in the 1992 Restatement (Third) of Trusts. See, e.g., Restatement (Third) of Trusts § 227 (1992).
In the court’s view, the latter rules demand more from trustees in terms of making prudent
investments. The court uses the earlier Restatement to negate any claim by defendant that its
conduct is being judged by fiduciary standards that were not applicable during the period in
question.
       22
           See also Moench v. Robertson, 62 F.3d 553, 571 (3d Cir. 1995), cert. denied, 516 U.S.
1115 (1996); George Gleason Bogert, George Taylor Bogert & Amy Morris Hess, Bogert’s
Trusts and Trustees § 671 (2012) (hereinafter, “Bogert’s Trusts”); 4 Austin Wakeman Scott,
William Franklin Fratcher & Mark L. Ascher, Scott & Ascher on Trusts §§ 19.1, 19.1.3-5 (5th ed.
2007) (hereinafter “Scott on Trusts”) (a trustee must exercise care, skill, and caution in carrying
out its duty to invest as a prudent investor would taking into account the risk and reward
principles appropriate for the trust in question); Restatement (Second) of Trusts § 227 & cmts. b,
c, e (1959).
       23
           These inversions occurred from mid-1973 to mid-1974, and again from early 1979 to
mid-1981, times when inflation rates were very high. A 2007 study of the past 80 years found
that over 90 percent of the time, long-term rates exceeded short-term rates. Defendant’s experts
do constantly cited to these inversions as indications that BIA’s investment approach was
reasonable – but, that effort plainly takes an ex post facto view, despite repeated statements by
the same experts indicating that the review here should be ex ante.

                                              - 18 -
and 10 years), was on the order of 1.5 percent.24 That spread, of course, represents an
opportunity lost for the Nation. Moreover, the record suggests that the risks associated with
long-term investments – principally, the risk of loss/price volatility associated with the sale of a
Treasury security prior to maturity – were outweighed by the benefits that would have been
produced had BIA employed a prudent investment strategy that employed a mix of short- and
long-term investments.

        The record suggests that the BIA’s heavy reliance on short-term investments also was not
prudent because it violated aspects of what several expert witnesses, as well as the Price
Waterhouse report, described as the “modern portfolio theory.” Under that theory, which was
developed by Nobel prize-winning economist Harry Markowitz in the 1950s,25 trust assets must
not be evaluated in isolation, but rather in the context of a portfolio as a whole, a practice that
allows the trustee to better correlate return and risk.26 A major focus of the modern portfolio
theory is the benefit of diversification across and within asset classes, described by Price
Waterhouse in a report in the record, thusly:

       24
           Defendant and its experts make much of the fact that the 1983 Price Waterhouse report
stated that “[i]n assessing the overall performance of the funds in recent years, we have found
that the BIA Branch of Investments has achieved excellent investment results relative to other
managed portfolios operating under similar investment authorizations.” On this count, the report
continued, “[t]hese recent successes are primarily attributable to a strategy of investing in short-
term assets in the face of volatile interest rates and to the discovery of federal subsidies implicit
in the pricing of FDIC and FSLIC insured CDs.” But, this report, which was commissioned by
the BIA, did not examine whether the BIA’s short-term investment practice was prudent during
the entire period at issue, let alone prudent as to the BIA’s actual investment of Jicarilla’s funds.
Rather, the cited finding primarily reflects the happenstance that the BIA’s short-term approach
did well during the time, relatively close to the study period, in which the yield curve was
abnormally inverted. Compare Harvey E. Bines, “Modern Portfolio Theory and Investment
Management Law: Refinement of Legal Doctrine,” 76 Colum. L. Rev. 721, 764 (1976) (noting
that the “prudent investor” standard in “Hanover College was in part a reflection of the
reluctance of courts to adopt a rule which would exonerate any incompetent manager whose
accounts were lucky enough to realize positive returns”). Indeed, at another point in its report,
Price Waterhouse indicated that, under normal circumstances, dominant portfolios contain “a
substantially larger proportion of longer-term securities than we have observed in the BIA
portfolios.”
       25
          See Houman B. Shadab, “The Law and Economics of Hedge Funds: Financial
Innovation and Investor Protection,” 6 Berkeley Bus. L.J. 240, 265 n.148 (2009); Robert J.
Aalberts & Percy S. Poon, “The New Prudent Investor Rule and the Modern Portfolio Theory: A
New Direction for Fiduciaries,” 34 Am. Bus. L.J. 39, 54-60 (1996) (tracing the history of this
theory).
       26
          See Harry M. Markowitz, Portfolio Selection: Efficient Diversification of Investments
3 (1959); Harry Markowitz, “Portfolio Selection,” 7 J. Fin. 77, 78, 81 (1952); see also Bevis
Longstreth, Modern Investment Management and the Prudent Man Rule 16 (1986).

                                                - 19 -
       The reason why a portfolio can perform better than a single instrument is that the
       portfolio can reduce risks. By holding a blend of short and long-term securities, a
       portfolio has a component which offsets the negative effects of events affecting
       the other component. With a judicious blend of short and long maturities, the
       combined effects of reinvestment risk and basis risk can be neutralized; and with
       a prudent blend of marketable and non-marketable securities, a portfolio manager
       can capture the reward for bearing liquidity risk without running a serious chance
       of not being able to meet cash requirements when they fall due.

This aspect of the “modern portfolio theory” – that of the benefits of diversification – “has been
adopted in the investment community.” DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 423 (4th
Cir. 2007). Over time, that emphasis on diversity caused the prudent investor standard to
become less focused on individual investments and more on the features of composite portfolios
to accomplish specific investment goals.27 One can see the impact of this shift not only in cases
arising under the Employee Retirement Income Security Act (ERISA),28 but also in other settings
in which it has become necessary to evaluate whether a trustee has breached its investment
duties. See, e.g., Cent. Nat’l Bank of Mattoon v. United States Dep’t of Treasury, 912 F.2d 897,
901-02 (7th Cir. 1990) (Posner, J.); Gulf Grp. Holdings, Inc. v. Coast Asset Mgmt. Corp., 516 F.
Supp. 2d 1253, 1260-61 (S.D. Fla. 2007).

        The record supports a finding that during the Andersen Period, a prudent investor would
have, in choosing among the investments authorized by statute, employed a diversification
strategy consistent with the modern portfolio theory in investing the Nation’s funds. The BIA
did not do this – indeed, it did not even attempt to do this. Had it done so, there is little doubt
that diversification would have produced significantly greater financial returns for the Nation
without exposing the trust corpus to inappropriate risks.29 The BIA instead hewed to an ultra-

       27
          This is all the more true with respect to the Restatement (Third) of Trusts, which was
adopted in 1992. See, e.g., Restatement (Third) of Trusts § 227 (1992) (trustee’s duty applies to
“investments not in isolation but in the context of the trust portfolio”).
       28
           See DiFelice, 497 F.3d at 423; Summers v. State St. Bank & Trust Co., 453 F.3d 404,
      th
406 (7 Cir. 2006), cert. denied, 549 U.S. 1245 (2007); Laborers Nat’l Pension Fund v. N. Trust
Quantitative Advisors, Inc., 173 F.3d 313, 317 (5th Cir.), cert. denied, 528 U.S. 967 (1999); Bd.
of Trustees of Birmingham Employee’s Ret. Sys. v. Comerica Bank, 767 F. Supp. 2d 793, 799
(E.D. Mich. 2011); In re Regions Morgan Keegan ERISA Litig., 692 F. Supp. 2d 944, 962 (W.D.
Tenn. 2010); see also 29 C.F.R. § 2550.404a-1(b)(1)(i) (adopting this as part of the prudent
investor standard under ERISA); see generally, Bruce Stone, “The Prudent Investor Rule:
Conflux of the Prudent Man Rule with Modern Portfolio Theory,” 229 PLI/EST 9, 22 (1993).
The Supreme Court has observed that ERISA “essentially codified” the equitable law of trusts
and fiduciary conduct. NLRB v. Amax Coal Co., 453 U.S. 322, 332 (1981).
       29
          One of defendant’s experts, Dr. Starks, developed a set of “reward-to-variability
ratios” (more commonly referred to as “Sharpe ratios”) that she claimed showed that BIA’s
investment approach “maximized the expected return relative to the risk that was borne by the
Tribe.” Sharpe ratios are designed to quantify the risk-return tradeoff for a given set of assets,

                                               - 20 -
conservative approach for nearly two decades. What is all the more remarkable is that the BIA
failed to diversify the Nation’s investments even after it began to diversify the investments of
other Tribes. For example, in an October 1992, newsletter issued by the OTFM, the BIA’s then
Chief of Investments, Fred Kellerup, advised “[e]ven if you have cash flow needs, go for the
three-to-seven year government securities. Avoid the one-year CDs.” In the same newsletter,
Mr. Kellerup touted that “[f]our years ago we had 75 percent of our money in CD’s and 25
percent in government securities. . . . Now we have 75 percent in government securities and 25
percent in CDs.” By way of example, the newsletter highlighted, in particular, the OTFM’s
movement into “low risk, long-term, collateralized mortgage obligation (CMO) bonds.” Yet,
there was no corresponding shift for Jicarilla, whose trust funds, at the end of September 1992,
were still invested overwhelmingly (approximately 95 percent) in short-term CDs and Treasury

thereby providing an apples-to-apples basis for comparing risk-adjusted returns. The formula for
these ratios is:

where “Ra” is the asset return, “Rb” is the return on a benchmark asset (or the risk-free rate),
“E[Ra - Rb]” is the expected value of the excess of the asset return over the benchmark return,
and “σ” is the standard deviation of this excess return.

         As pointed out by one of plaintiff’s experts, Dr. Goldstein, Dr. Starks’ “Sharpe ratios”
incorporated two significant computational errors. First, she failed to subtract a benchmark
return (e.g., typically proxied by the return on a monthly or 90-day Treasury bill), when
computing her ratios. As the formula above suggests, this practice is standard in the industry in
computing Sharpe ratios – a point emphasized in a paper written by Dr. Sharpe in 1994. See
William F. Sharpe, “The Sharpe Ratio,” 21(1) J. of Portfolio Mgmt. (1994), available at
http://www.Stanford.edu/~wfsharpe/art/sr/sr.htm (last visited June 3, 2013) (“Whether measured
ex ante or ex post, it is essential that the Sharpe Ratio be computed using the mean and standard
deviation of a differential return (or, more broadly, the return on what will be termed a zero
investment strategy). Otherwise it loses its raison d’etre.” (emphasis in original)); see also
Shadab, supra, at 264 n.152; Scott J. Lederman, Hedge Fund Regulation § 1:3, 1-18 (2007). By
failing to make this adjustment, Dr. Starks overstated the benefits associated with short-term
investments. Compounding this error, Dr. Sharpe mistakenly based her Sharpe ratios on yields
instead of returns, essentially producing ratios that were meaningless. Beyond these
computational errors, in comparing short- and long-term yields (e.g., five years), Dr. Starks
calculated the latter by assuming one-month investments that were rolled-over repeatedly, an
assumption that makes little sense, unless her goal was purposely to understate the benefits of
long-term investments.

                                               - 21 -
overnight certificates.30 Had the BIA done for Jicarilla what it apparently did for these other
Tribes this would be a different case, indeed.

        Despite every indication to the contrary, defendant steadfastly maintains that the BIA’s
short-term investment strategy was mandated for two reasons. First, it asseverates that the BIA
was obliged “to preserve the trust corpus above all else,” First Alabama Bank of Montgomery,
N.A. v. Martin, 425 So.2d 415, 427 (Ala. 1982), cert. denied, 461 U.S. 938 (1983) – or, as put in
defendant’s post-trial brief, that “BIA simply could not lose principal on investments.” To be
sure, this was the law governing fiduciary investments – in the early nineteenth century, before
Justice Putnam enunciated the “prudent man” rule in his 1830 decision in Harvard College v.
Amory, 26 Mass. (9 Pick.) 446, 469 (1830).31 The latter case broke away from the conservatism
in English case law prohibiting investment in anything but those instruments considered
extremely safe, in favor of an approach based on “how men of prudence, discretion and
intelligence manage their own affairs, not in regard to speculation, but in the regard to the
permanent disposition of their funds, considering the probable income, as well as the probable
safety of the capital to be invested.” Id. While it took some time for Putnam’s farsightedness to
become the prevailing view, the notion that a trustee was obliged “to preserve the trust corpus
above all else” most certainly was no longer the paradigm for prudence long before the period in
question. Need evidence of this? Look no farther than the 1959 version of the Restatement
(Second) of Trusts § 227 cmt. e (1959), which advised that “[i]n making investments, . . . a loss
is always possible, since in any investment there is always some risk. . . . It is not ordinarily the
duty of a trustee to invest only in the very safest and most conservative securities available.”32
Aside from a few out-of-context quotes, defendant has no response to the body of law reflected
in the Restatement – and to the extent that its experts parroted back its view on this count, they
only served to undercut their own credibility.

       30
            Indeed, despite the advice given by Mr. Kellerup many years ago, defendant’s experts
persist in the view that, in determining whether there was a breach here, the performance of the
Nation’s portfolio should be compared to relatively short-term Treasury bills, with maturities of
twelve months or less. The experts cling to this view despite ample evidence that such an
approach would not be consistent with modern portfolio theory. The views of defendant’s
experts are also undercut by their unwavering fealty to the notion that the Nation’s funds had to
be invested at essentially no risk.
       31
           The collapse of the South Sea Company, which ruined a generation of investors, led
the British to enact the Bubble Act, 6 Geog. I c. 18 (1719), which, in highly limiting acceptable
investments, exemplified the zenith in the ultraconservatism of the British legal system in
safeguarding trust res to the detriment of investment returns. The Harvard College case
represented a break from this tradition, in the form of the prudent investor standard. See J. Alan
Nelson, “The Prudent Person Rule: A Shield for the Professional Trustee,” 45 Baylor L. Rev.
933, 938-39 (1993); see also Bogert’s Trusts, supra, at § 671 (“In the nineteenth century, the
primary focus of trust law was the preservation of the trust corpus.”); Note, “The Regulation of
Risky Investments,” 83 Harv. L. Rev. 603, 612-13 (1970).
       32
          See also Gary M. Ford, “Recent Controversies Involving the Purchase of Irrevocable
Annuities and Insurance Company Insolvencies,” C887 A.L.I.-A.B.A. 153, 162-63 (1994).

                                                - 22 -
         Alternatively, defendant argues that the BIA’s investment approach was dictated by a
statute, 25 U.S.C. § 162a. Subsection (a) of that section provides:

       [T]he Secretary of the Interior, if he deems it advisable and for the best interest of
       the Indians, may invest the trust funds of any tribe or individual Indian in any
       public-debt obligations of the United States and in any bonds, notes, or other
       obligations which are unconditionally guaranteed as to both interest and principal
       by the United States.

25 U.S.C. §162a(a). This subsection further iterates that “no tribal or individual Indian money
shall be deposited in any bank until the bank shall have furnished an acceptable bond or pledged
collateral security therefor in the form of any public-debt obligations of the United States and
any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest
and principal.” Id. Defendant argues that these provisions severely constrained the BIA’s
discretion in investing the Nation’s trust fund accounts, preventing it from entering into any
investment in which principal could be lost. But, as even a cursory review of the relevant
statutes reveals, they say nothing of the sort – indeed, any claim that Congress dictated the risk-
averse investment strategy employed by the BIA in this case borders on the risible.

         To recognize this instantly, one need only distinguish between two elemental forms of
risk: idiosyncratic/investment risk and market risk. Idiosyncratic/investment risk arises from the
particular circumstances of the debt/equity issuer and the potential for that issuer to default in
paying either principal or interest. Market risk, by contrast, is the risk that the value of an
investment will increase or decrease in tandem with fluctuations in the overall market. While
defendant conflates these risks, the statute does not; it, quite obviously, deals only with
idiosyncratic/investment risk, not market risk. This is an important distinction for it is one thing
to recognize that investments must take the form of obligations that are guaranteed as to both
interest and principal, and quite another to suggest that the BIA could never risk the possibility
that a sale of a given instrument prior to its maturity (necessitated, say, for liquidity purposes)
would generate a loss of capital. Section 162a dictates the former; it does not prohibit the latter –
it limited the types of investments into which the BIA could enter, but did not compel that
agency to invest only in short-term instruments that posed little or no market risk. In fact, that
section of Title 25 afforded the BIA a range of investment options, including not only Treasury
bills and bonds that were for much longer terms, but nearly twenty other types of diverse, long-
term investments offered by other Federal agencies, which were likewise unconditionally
guaranteed as to both principal and interest by the United States.33 Even if we did not know this,

       33
            As noted in one of the trial exhibits, among the investment eligible under 25 U.S.C.
§ 162a were bonds or other obligations which were unconditionally guaranteed as to both
principal and interest: (i) bonds and other obligations issued by the Tennessee Valley Authority;
(ii) obligations issued by the Federal Home Loan Banks; (iii) obligations issued by the
Government National Mortgage Association; (iv) Export-Import Bank participation certificates;
(v) Federal National Mortgage Association participation certificates and other obligations; (vi)
debentures of the Federal Housing Administration; (vii) farm loan bonds issued by Federal Land

                                               - 23 -
we could deduce this fact. For if the law were otherwise, the BIA would have broken it when it
eventually shifted (at least for some Tribes) away from short-term investments into better
yielding, yet still fully-guaranteed, longer-term instruments. Those investments were perfectly
legal when made for those other Tribes – and would have been so had they also been made for
the Nation.

       Adopting defendant’s restrictive gloss on these statutes would turn back the clock. It
would transform the tribal trust landscape at the expense of undercutting many other provisions
Congress has passed to force the BIA to increase the productivity of tribal trust funds, among
them the requirements in 25 U.S.C. § 161a.34 As noted elsewhere, “the placement of funds in

Banks; (viii) debentures of the Federal Intermediate Credit Bank; (ix) notes guaranteed as to
principal and interest by the Small Business Administration; (x) bonds issued by local housing
authorities secured by annual contribution contracts with the United States government
(administered by the Department of Housing and Urban Development); (xi) bonds or notes of
local housing authorities or urban renewal authorities secured by a contract or requisition
agreement with the United States (administered by the Department of Housing and Urban
Development); (xii) obligations of the Farm Credit Banks; (xiii) obligations issued by the
Federal Home Loan Mortgage Corporation; (xiv) obligations of the Federal Financing Bank; (xv)
obligations of the Department of Energy; (xvi) obligations of the United States Postal Service;
(xvii) obligations of the Farm Credit System Financial Assistance Corporation; (xviii)
obligations of the Farmers Home Administration; and (xix) obligations of the General Services
Administration.
       34
           Prior to October 4, 1984, section 161a dictated that principal accounts in excess of
$500 were to earn 4 percent simple interest. 25 U.S.C. § 161a (1982). Effective October 4,
1984, section 161a was modified to require that Indian trusts funds be invested in “public debt
securities with maturities suitable to the needs of the fund involved, as determined by the
Secretary of the Interior, and bearing interest at rates determined by the Secretary of the
Treasury, taking into consideration current market yields on outstanding marketable obligations
of the United States of comparable maturities.” Act of Oct. 4, 1984, Pub. L. 98-451, 98 Stat.
1729 (1984). The combined impact of these statutes was well-described by this court in
Chippewa Cree Tribe of the Rocky Boy’s Reservation v. United States:
       The history of investment-related legislation indicates a congressional
       commitment to increasing the productivity of Indian funds held in trust by the
       government. For trust funds held in Treasury accounts, Congress began by
       authorizing the deposit of trust funds in interest-bearing Treasury accounts (the
       1880 enactment of 25 U.S.C. § 161 allowing interest to be paid on Treasury
       deposits), then mandated that all Indian trust funds held in Treasury accounts
       receive a floor interest rate of 4% unless otherwise provided by treaty or statute
       (the 1929 passage of § 161a making the payment of interest mandatory), and
       finally provided for variable interest rates that reflected current market yields for
       Indian trust funds held in Treasury accounts (the 1984 revision of § 161a(a)
       providing for the payment of variable interest rates on trust funds). Prior to 1880,

                                               - 24 -
accounts bearing interest rates well below those available from other properly secured
investments[] would be difficult to reconcile with the intent of Congress expressed” in section
162a. Chippewa Cree Tribe, 69 Fed. Cl. at 660. It has likewise been held that, consistent with
these statutory mandates, “the United States [is] responsible for investing Indian trust funds in
the highest yielding investment vehicles available to the funds in question.” Osage Tribe, 72
Fed. Cl. at 668; see also Manchester Band of Pomo Indians, Inc. v. United States, 363 F. Supp.
1238, 1247 (N.D. Cal. 1973) (“The Secretary of the Interior is under a duty to act pursuant to the
Government’s fiduciary obligations, and he is not prevented from doing so by the statutes which
authorize various investments for Indian trust funds.”). The BIA did not do that here.

         Sensing (correctly, as it turns out) that it needs more, defendant next claims that the
BIA’s short-term investments were dictated by the Nation’s liquidity needs. In this regard, it
contends that, during the period in question, Jicarilla “had sizeable and irregular withdrawals
from its tribal trust funds” that dictated the need to invest in short-term investments. But, in
making this claim, defendant grossly oversimplifies the liquidity analysis, rendering it into little
more than a tally of deposits and withdrawals, with little consideration of what underlay those
transactions. Its approach – which looks at book entries largely in a vacuum – sheds no light on
whether the BIA’s investments were prudent, as it distinguishes neither between withdrawals
dictated by outside economic forces and those that were discretionary, nor between those that
were consumptive and those that were reinvested. Sans these distinctions, defendant’s analysis
bears little resemblance to the liquidity analysis described in Cheyenne-Arapaho Tribes. In that
case, the Court of Claims held that “[i]n the absence of a showing by defendant of specific
immediate budgetary commitments by the tribe[], claimed liquidity needs should be considered
in the light of the actual history of the tribe[’s] funds.” Cheyenne-Arapaho Tribes, 512 F.2d at
1395 n.9; see also Osage Tribe, 72 Fed. Cl. at 666. Applying this standard, several courts have
found that “[t]he fiduciary requirement to make prudent investments requires that any amount
maintained as a cash balance that is in excess of the immediate disbursement needs for the period
should be invested in a vehicle offering a higher return.” Id. at 666-67; see also Blankenship,
329 F. Supp. at 1095-96 (finding that the maintenance of a large accumulation of excess cash
where “income and outgo were constant” and government securities could be redeemed at short

       Congress had also provided for the placement of trust funds in investments other
       than interest-bearing Treasury accounts that allowed the funds to attract more
       favorable market rates, but the risks involved led to the enactment of 25 U.S.C. §
       161. Yet the importance of seeking higher market-based yields prompted further
       legislation (the 1918 enactment of 25 U.S.C. § 162) that allowed for the
       investment of Indian trust funds outside of the Treasury in banks that offered
       adequate security, and even further legislation (the 1938 repeal of § 162 and
       replacement with § 162(a)) that permitted the use of “unconditionally guaranteed”
       investment vehicles including notes, bonds and other obligations.

69 Fed. Cl. 639, 659 (2006).

                                               - 25 -
notice violated the “fiduciary obligation to maximize the trust income by prudent investment”).35
As these cases indicate, the focus of a proper liquidity analysis must be not only on whether
withdrawals were made, but on why they were made (and whether better investment choices by
the trustee would have altered the pattern).

        The record demonstrates that defendant’s short-term investment strategy was not dictated
by Jicarilla’s liquidity needs. Both parties endeavored to study the Nation’s withdrawals from its
trust accounts during the years in question, to see whether the pattern of those transactions
dictated that the BIA keep the Nation’s funds invested in shorter-term certificates. Many of the
withdrawals made by the Nation were for discretionary expenditures – a function of recent
deposits and based simply on the availability of funds.36 Put another way, there is little
indication that many of these withdrawals were needed to cover mandatory expenses for which
the Nation had no other source of funds, i.e., that the withdrawals were unavoidably dictated by
the Nation’s financial needs. The record, indeed, confirms that, to a significant degree, the
withdrawals reflected little more than a shifting of investments. Consider, for example, the $3.81
million withdrawal made on December 1, 1976. One of defendant’s experts characterized this as
a sudden and unexpected need to liquidate “48.2 percent of its fund balance.” But, it appears
instead that this withdrawal, which the Nation requested occur only upon certain investments
maturing (it took three months for this to happen), was made to fund a private investment
program for the Nation that utilized longer-term investments. Of course, it should go without

       35
            Defendant has criticized plaintiff’s experts for failing to consider Jicarilla’s non-trust
investments in considering whether the BIA’s approach to investing the trust funds was prudent.
However, plaintiff’s experts were able to conclude that the BIA’s approach was indefensible
based on, inter alia, liquidity needs, even without considering the additional funds available to
Jicarilla through its outside investments. Nor, it might be added, is there any indication that,
during the period in question, the BIA officials who were actually deciding how to invest
Jicarilla’s trust funds gave any consideration to Jicarilla’s outside investments – indeed, as
discussed below, there is no indication that they gave any consideration to Jicarilla’s real
liquidity needs at all. Accordingly, the court does not consider the failure to consider Jicarilla’s
outside investments a deficiency in plaintiff’s proof.
       36
          On this point, one of plaintiff’s experts, Dr. Goldstein, criticized the report submitted
by Dr. Starks, stating:
       The importance of the withdrawals being a function of recent deposits cannot be
       overstated, as it negates the contention that [the Nation] had such substantial and
       unpredictable liquidity needs that it might require liquidation of all or most of its
       trust funds at any time. Once it is recognized that liquidation of all of [the
       Nation’s] Trust investments would not have been necessary to satisfy [the
       Nation’s] liquidity needs, many of the findings in the Starks report no longer
       follow.

On this point, Dr. Goldstein further concluded that “[a]n infrequent need to tap [the Nation’s]
existing savings means that a substantial portion of the trust monies could have been invested in
longer-term maturities, with little-to-no-risk of pre-mature liquidation.”

                                                - 26 -
saying that withdrawals like this would have been unnecessary had the BIA simply adopted a
more balanced investment approach. Other withdrawals during the Andersen Period were non-
consumptive transfers from one Jicarilla trust account to another, or from investment accounts
into capital reserves, and thus also did not reflect on the Nation’s liquidity needs, at least insofar
as the investment of the trust funds is concerned.

         Seen in this light, none of Jicarilla’s withdrawals appear significant enough – either in
number or magnitude, individually or as a pattern – to warrant the BIA’s extraordinarily
conservative investment approach. In many instances, the withdrawals were less than the
amount of funds that recently had been deposited in the accounts, and thus did not diminish the
balance previously available for long-term investment. Indeed, as the accompanying chart
illustrates, for almost 90 percent of the period in question, the Nation’s account balance never
went below $4 million, and for a nearly eight-year period, it never went below $10 million.

This graph reveals a gradual, yet significant, increase of corpus from 1979 to 1984 – during
which year the fund balance peaked at more than $70 million – and then a gradual decrease of
corpus from 1984 to 1989, largely as the Nation shifted its investments elsewhere. Yet, at no
point during this decade of higher balances did the BIA deviate from the short-term investment
practice first employed in 1974, when the fund had only $2.3 million. Overall, from 1974 to
1992, the Nation withdrew only 12.5 percent of the available funds for consumptive expenditures
– hardly a figure that would warrant 90 percent of the trust’s assets continuously being invested
in ultra short-term certificates, particularly since many of the permissible longer-term
investments for the Nation’s trust funds were themselves extraordinarily liquid, and could have
been sold, prior to maturity, without any transaction costs.37

       37
           Beginning in 1975, Treasury made available “Treasury Specials,” which were
specially-issued, non-marketable Treasury securities that were direct obligations of the United

                                                - 27 -
       Defendant attempts to avoid this point by yet again alluding to the notion that the BIA
was precluded from entering into any investment that risked losing principal. But, this claim
does not get stronger based on repetition. Indeed, the claim that defendant makes today – that
the need to avoid losing principal cabined the BIA from making longer-term investments – is the
same one it made forty years ago, in Cheyenne-Arapaho Tribes, in unsuccessfully attempting to
defend against a similar underinvestment claim. What the Court of Claims said then still
resonates now:

       Because the investments are required by statute to be either heavily collateralized
       (in the case of bank deposits) or guaranteed by the Government, safety is not an
       issue. Moreover, because of the existence of a secondary market in many of the
       permitted investments (e.g. Treasury bills, Federal Home Loan Bank Board notes,
       Federal Intermediate Credit Bank notes, etc.), sudden requirements for cash do
       not present major obstacles to these types of investments.

512 F.2d at 1394; see also White Mountain Apache Tribe, 20 Cl. Ct. at 380. Of course,
defendant has repeatedly reminded this court that it does not consider Cheyenne-Arapaho Tribes
good law. But, this court has already rejected defendant’s blithe invitation to “underrule” this
important decision of the Court of Claims. See Jicarilla Apache II, 100 Fed. Cl. at 734; see
generally Consol. Edison Co. of N.Y., Inc. v. United States Dep’t of Energy, 247 F.3d 1378, 1386
(Fed. Cir. 2001) (Plager, J., concurring). And it sees even less reason now to deviate from that
precedent. See also United Keetoowah Band of Cherokee Indians in Okla. v. United States, 104
Fed. Cl. 180, 184 (2012); Kaw Nation of Okla. v. United States, 103 Fed. Cl. 613, 618-19 (2012).

        Defendant’s liquidity arguments have a decidedly hollow ring for one final reason – there
is no indication that, during the period in question, the BIA ever attempted to perform a serious
analysis of Jicarilla’s cash flow to aid its investment planning. The BIA officials making the
trust investment decisions did not perform such a study despite being instructed to do so.38 Nor
is there any indication that any of the BIA officials assigned to assist the Nation with its
investments performed such analyses – or were even capable of doing so. Accordingly,
defendant’s liquidity concerns must be taken for what they are – post facto reasoning at best.
These gratuitous concerns, of decidedly recent vintage, constitute little more than a palliative for

States offered exclusively in book-entry form to various government agencies, including the
BIA. These “Treasury Specials” bore the same terms as marketable Treasury securities, save for
the fact that an agency could effectuate a trade in such securities merely by notifying Treasury.
       38
            In various memoranda and letters issued during the period in question (see, e.g., a
memorandum dated May 6, 1974), the Acting Deputy Commissioner emphasized that
investments could be made for 25 years or longer. The Acting Deputy Commissioner instructed
BIA Area Directors to determine if “surplus funds” were available for investment purposes and
to notify the Branch of Investments in Albuquerque so that it could take the necessary action to
invest the funds.

                                               - 28 -
BIA conduct that must otherwise be viewed as a plain and extended violation of defendant’s
fiduciary duties. Compare Cheyenne-Arapaho Tribes, 512 F.2d at 1395 n.9 (“In the absence of a
showing by [the government] of specific immediate budgetary commitments by the tribes,
claimed liquidity needs should be considered in light of the actual history of the tribes’ funds.”).
Plain and simple, the BIA did not take into account the Nation’s budgetary needs at the time it
made its decisions, but engaged in its limited investment practices for other reasons – primarily,
it would seem, bureaucratic simplicity and inertia.39 See Restatement (Second) of Trusts § 227
cmt. e. (1959); Bogert’s Trusts, supra, at § 684 (“Inherent in [the prudent investor] standard is
the duty to reevaluate the trust’s investments periodically as conditions change.”). Defendant
should not be heard to insist otherwise now.

        For many of the reasons stated, the court finds wholly unpersuasive the testimony offered
by defendant’s primary expert witness on this point, Dr. Starks. Dr. Starks attempted to shoulder
a large portion of the blame for BIA’s short-term investment strategy on Jicarilla, repeatedly
suggesting that the BIA was merely following the Nation’s “instructions.” She noted that the
BIA’s investment program stressed the participation of the beneficiary Tribes and asserted that
“investment in shorter-term (and correspondingly less risky) securities appears to be what [the
Nation] desired, when such desires were communicated to the government.”40 In statements like
these, Dr. Starks tried to leave the impression – alas, a false one, as it turns out – that Jicarilla
dictated how the BIA would invest its funds and, therefore, is responsible for the substandard
investment results.

        The record reveals otherwise. Contrary to Dr. Starks’ claims, the Nation had no power to
dictate the BIA’s investment strategy – while the BIA urged agency officials to seek input on
investments from tribal councils, it remained for the agency, and the agency alone, to determine
how the trust funds would be invested.41 The Court of Claims emphasized this in rejecting a
similar claim made by defendant in Cheyenne-Arapaho Tribes, stating:

       39
           A review of the record, as a whole, suggests a tendency on the part of BIA officials to
adopt the simplest investment path, with the least amount of administrative burden. There is no
indication that the BIA conducted periodic reviews of their approach to investing the Nation’s
funds, or that the individuals who primarily were assigned to work on those investments knew
enough to be able to conduct such reviews. The record, moreover, contains various memoranda
suggesting that BIA officials frowned on the practice of selling investment instruments prior to
their maturity – not because of concerns about potential losses, but because of a desire to avoid
the additional work associated with the sale of such instruments and later reinvestment of
proceeds.
       40
           In this regard, Dr. Starks cites 119 written instructions received by the BIA from the
Nation from 1974 to 1992. It should be noted that these instructions appear to relate to less than
3 percent of the 4,520 investments made on behalf of the Nation by BIA during the relevant
period.
       41
          To be fair, Dr. Starks was not the only witness who sought to leave this impression.
Several current or former BIA employees also tried to convince the court that the BIA was
merely following the Nation’s “instructions.” This view, however, is contradicted, inter alia, by

                                               - 29 -
       [D]efendant says that any failure in productivity was due to its policy of
       consulting the Indians before investing and the plaintiffs’ failure to respond to its
       requests for advice. Our ruling is that while such consultation may have been a
       useful part of defendant’s overall policy to make the Indians ready for dissolution
       of trust status, the Government was duty bound to make the maximum productive
       investment unless and until specifically told not to do so by a tribe and until
       defendant also made an independent judgment that the tribe’s request was in its
       own best interest.

512 F.2d at 1396; see also Jicarilla Apache II, 100 Fed. Cl. at 734 n.10; Oglala Sioux Tribe of
Pine Ridge Indian Reservation v. United States, 21 Cl. Ct. 176, 193 (1990). Contrary to
defendant’s intimations, the BIA cannot escape the ramifications of its past failures by
conveniently claiming now that it was nothing more than a glorified “order-taker.” Per contra.
The BIA was obliged to use its “independent judgment that the tribe’s request was in its own
best interest.” Cheyenne-Arapaho Tribes, 512 F.2d at 1396; see also Bogert’s Trusts, supra, at §
706 (“A trustee who has an investment duty has an obligation to perform it with reasonable skill
and prudence, and not merely to follow blindly the direction of the settlor . . . .”).42 Under basic
principles of trust law, it could not shift that fundamental responsibility to the Nation, at least
absent a statutory direction to do so (of which none is apparent). See, e.g., Shriners Hosps. for
Crippled Children v. Gardiner, 733 P.2d 1110, 1111-13 (Ariz. 1987); Matter of Newhoff’s Will,
435 N.Y.S.2d 632, 637 (N.Y. Sur. Ct. Nassau Cnty. 1980), aff’d, 486 N.Y.S. 2d 956 (1985),

a June 16, 1966, memorandum from the Commissioner to a variety of Interior officials, which
emphasized that though “the wishes of the tribe to which the funds belong are desired before an
investment is made,” the “Secretary’s authority to invest tribal funds is discretionary with him.”
Likewise, a January 22, 1973, memorandum from Interior’s Office of the Solicitor stated that
“[o]f course, consideration of the tribe’s wishes should be given, but the Secretary must exercise
an independent judgment pursuant to Congressional mandate.”
       42
             In her examination by the court, Dr. Starks admitted as much:
       Q.:      So if a beneficiary said to the trustee, what I want you to do is go dig a
                hole in the backyard and take my money and bury it and I’ll tell you
                when to come back and get it, you’re not suggesting, are you, that the
                trustee should just salute and go off and dig a hole, are you?

       A.:      No, sir. . . . I would not think it would be prudent if the beneficiary said
                go bury my money in a hole for the trustee to say, yes, do that.

                *              *               *               *               *

       Q.:      So it’s not simply a matter of following instructions no matter what?

       A.:      That is correct.

                                                - 30 -
appeal denied, 66 N.Y. 2d 605 (1985); In re Estate of Talbot, 296 P.2d 848, 853-55 (Cal. Dist.
Ct. App. 1956).43 And, indeed, every indication is that Congress intended the BIA to bear this
responsibility.44

        Even if defendant could persuade this court that the BIA had to fulfill the Nation’s
investment wishes, it is far from clear that those wishes were as Dr. Starks portrays. While a
series of internal BIA documents in the record represent that the “President of the Jicarilla
Apache Tribe” desired that various amounts be invested in short-term certificates, the record
does not contain any formal tribal documents, including resolutions from the Tribal Council,
supporting this view – an omission that is significant given the presence of numerous BIA
memoranda specifying that the investment desires of Tribes should be expressed in formal
resolutions. Indeed, there are reasons to believe that the BIA investment personnel in
Albuquerque never actually spoke with the President of the Nation.45 The notion that the desire

       43
            See also Restatement (Second) of Trusts §§ 171 (“The trustee is under a duty to the
beneficiary not to delegate to others the doing of acts which the trustee can reasonably be
required personally to perform.”); 171 cmt. h (“A trustee cannot properly delegate to another
[the] power to select investments.”); 227 cmt. z (1959) (the trustee “cannot properly delegate to
another [the] power to select investments”); see generally, John H. Langbein, “The Uniform
Prudent Investor Act and the Future of Trust Investing,” 81 Iowa L. Rev. 641, 650-52 (1996)
(describing the traditional nondelegation rule). While this nondelegation rule was relaxed
somewhat under the Restatement (Third) of Trusts § 171 (1992), there is no indication that under
this rule, particularly given the contrary Federal statutes, the BIA could delegate to the Nation its
responsibilities regarding investment of the trust funds. See 25 U.S.C. § 162a(a).
       44
          In Jicarilla Apache II, this court quoted from a 1992 Congressional report, Misplaced
Trust, supra, that is part of the legislative history for the 1994 Trust Fund Act. Specifically, it
quoted a passage from the report that referenced Cheyenne-Arapaho Tribes:
       Apart from the duty to account, the Federal Government has a fiduciary duty to
       “maximize the trust income by prudent investment,” and the burden to justify less
       than a maximum return. This responsibility requires the Government to stay well-
       informed about the rates of return and investment opportunities and to
       intelligently choose from among authorized investment opportunities to obtain the
       highest rate of return to make the trust funds productive.

Jicarilla Apache II, 100 Fed. Cl. at 733 (quoting Misplaced Trust, supra, at 6 (quoting
Cheyenne-Arapaho Tribes, 512 F.2d at 1394)). Notably, in that same report, Congress
documented the BIA’s long-standing problems in investing trust funds, stating that the agency
failed to fulfill its fiduciary duties because, among other things, it “cannot consistently and
prudently invest trust funds.” Misplaced Trust, supra, at 56.
       45
          Various memoranda and phone records suggest that individuals in the Investment
Branch did not speak with any official of the Nation, but instead received reinvestment advice in
telephone conversations with Mr. Gabriel Abeyta, a BIA program officer assigned to work with

                                               - 31 -
to invest in short-term obligations was continuous is also contradicted, inter alia, by at least one
Tribal Council resolution, as well as several statements made by BIA and Nation officials.46
Moreover, in making her representations, Dr. Starks steadfastly ignores the fact that the Nation,
on various occasions, shifted money from its trust funds to outside investments in order to take
advantage of long-term investments.

         Nor can defendant shield itself by arguing that Jicarilla should have been more vigilant in
demanding that the BIA adopt a more balanced investment approach. To know the facts is to be
quickly disabused of this notion. For one thing, Jicarilla’s failure to make those demands must
be viewed through the prism of the BIA’s own failure to obtain needed advice from investment
professionals and to share that advice with the Nation. In this regard, it should not be overlooked
that the main personnel the BIA assigned to help the Tribe with its investments – Mr. Abeyta and
Ms. Vigil – both testified that they lacked any investment expertise and received no investment
training except regarding BIA policy. That the BIA would entrust untrained employees with no
investment experience with key responsibilities associated with investing tens of millions of
dollars serves to underscore the extent to which the agency’s investment practices deviated from
the prudent investor standard. Defendant should not point the finger at others for its own
malfeasance. As far as the law is concerned, the BIA has no one to blame but itself for its failure
to obtain professional investment advice and its resulting use of a static investment approach that
fell far short of its fiduciary obligation to maximize trust income through prudent investment.

        To summarize: Based on its review of the record, the court concludes that by investing
the lion’s share of plaintiff’s trust funds in relatively low-yielding, short-term obligations,
defendant breached its fiduciary duty to the Nation. Defendant is, therefore, under a duty to pay
the Nation the investment income lost by its imprudent management, the amount of which will
be determined below. See Cheyenne-Arapaho Tribes, 512 F.2d at 1395; Menominee Tribe of
Indians v. United States, 101 Ct. Cl. 10, 21 (1944) (“We conclude, therefore, that to whatever
extent the Secretary of the Interior could have, in the course of prudent management of the
affairs of the Indians, and without impairing funds which he reasonably thought it was necessary
to keep supplied for the purpose of meeting authorized expenditures, used the non-interest-
bearing funds or those bearing the lower rate of interest, and instead used funds bearing interest,
or a higher rate of interest, the Government is under a duty to pay to the plaintiffs the interest
thereby lost by them.”); see also Shoshone Indian Tribe, 364 F.3d at 1353; Chippewa Cree
Tribe, 69 Fed. Cl. at 662.

the Nation, or Ms. Sherryl Vigil, who later became the BIA Superintendent of the Jicarilla
Agency Office.
       46
           A Tribal Council resolution dated September 7, 1976, called for $3,850,000 of the
Nation’s investments to be withdrawn from the trust funds and invested elsewhere. The
resolution indicates that “after due consideration the Tribal Council has determined that such
funds are capable of earning interest plus growth if invested under an investment program of
long term . . . .”

                                               - 32 -
               (2)     Pooling

        This court previously ruled that it had “jurisdiction to determine whether, in choosing
among the alternative investments authorized by 25 U.S.C. §§ 161, 161a, and 162a, and the
regulations thereunder, defendant was obligated to consider whether pooling the funds of more
than one Tribe would maximize the income derived from particular investments.” Jicarilla
Apache II, 100 Fed. Cl. at 739. As was also said at the time, “there is strong indication in the
common law of trusts that, at least in some instances, a fiduciary charged with maximizing trust
income by prudent investment would be expected to pool investments.” Id. (citing Restatement
(Third) of Trusts § 90 cmt. m (2007)). This court noted that, as early as 1973, the district court
in Manchester Band of Pomo Indians, 363 F. Supp. at 1248 n.3, observed that ‘“the Secretary
must consider whether funds from one Indian trust fund should be combined with funds from
another Indian trust to purchase a single instrument of indebtedness, and thereby extending to
small trusts the benefits of larger returns from larger and longer term investments.”’ Jicarilla
Apache II, 100 Fed. Cl. at 739.

         The record in this case indicates that the BIA and other government agencies extensively
considered pooling during the Andersen Period. As recounted in greater detail above, the debate
over whether to employ this technique went on for nearly twelve years. Ultimately, it appears
that the BIA was unable to make this option available during the years in question because of
concerns raised by Congress in terms of accounting for the pooled funds, and because the FDIC,
Treasury, and Interior were unable to agree on how to insure the pooled accounts. Overall, it
appears that the critical difficulties encountered by the agencies attempting to implement pooling
resulted from Congress’ refusal to adopt the necessary laws to facilitate that arrangement, or at
least from Congress’ disapproval of this practice. This is significant, as plaintiff has not
contended that the Congress effectuated, by its conduct, a breach of the United States’ fiduciary
obligations in failing to take legislative steps to promote pooling. Compare Cheyenne-Arapaho
Tribes, 512 F.2d at 1393 (“We are not faced here with a claim that Congress breached its trust
duties under the Constitution or treaties.”); Menominee Tribe, 101 Ct. Cl. at 21 (indicating that it
need not consider whether “former Congresses had been guilty of a breach of trust”); see
generally United States v. Winstar Corp., 518 U.S. 839 (1996).

        The question, then, is not whether the BIA might have increased Jicarilla’s income by
pooling its resources with those of other Tribes – various documents penned by BIA officials
over time all but admit this. Rather, the question is whether the BIA’s failure to implement
pooling was imprudent and, by virtue of that imprudence, violated defendant’s fiduciary duties to
the Nation. The most definitive view on this count was supplied by plaintiff’s expert, who,
under questioning by defendant’s counsel, answered as follows:

       Q.:     Are you of the opinion that BIA should have pooled tribal trust funds for
               investment purposes?

       A.:     For Jicarilla or on a global basis?

       Q.:     Well, if the BIA pooled tribal trust funds, it was for all tribes, right?

                                                - 33 -
       A.:     I think it’s my opinion that pooling would have been advantageous.

       Q.:     Are you of the opinion that it was imprudent for BIA to not pool tribal
               trust funds?

       A.:     No.

       Q.:     Do you agree that it was prudent for BIA to invest tribal trust funds
               individually during the phase 1 time period?

       A.:     Yes.

Try as it might, plaintiff is unable to overcome the admission of its expert. It has not mustered
much evidence in support of its pooling claim, beyond very general representations that the use
of pooling would have improved Jicarilla’s investment options by relaxing liquidity constraints,
thereby enhancing the ability to invest in higher-yielding instruments. That evidence is
insufficient to support a finding that defendant breached its fiduciary obligations by failing to
pool – particularly given that liquidity concerns did not warrant the BIA’s policy of keeping
large portions of the Nation’s trust funds in short-term obligations.

       C.      Unauthorized Disbursement of Jicarilla’s Trust Funds

       Plaintiff alleges that defendant is liable for the unauthorized disbursement of tribal trust
funds to pay for BIA payroll and expenses. Defendant counters – citing plaintiff’s own expert,
Mr. Parris – that the Tribe may request that its tribal trust funds be used for BIA payroll or
expenses. As it turns out, both claims are correct – to a point.

        The Restatement (Second) of Trusts recognizes that a trustee may incur certain
authorized expenses, make disbursements therefor, and be reimbursed by the trust as a result.
For example, section 188 of the Restatement indicates: “The trustee can properly incur expenses
which are necessary or appropriate to carry out the purposes of the trust and are not forbidden by
the terms of the trust, and such other expenses as are authorized by the terms of the trust.”
Restatement (Second) of Trusts § 188 (1959).47 The Secretary of the Interior is charged with the
power – as fiduciary – to approve duly authorized tribal trust fund disbursements. 25 U.S.C. §
4022(b); see also 25 C.F.R. § 1200.11. To be duly authorized, and thus a disbursement the
Secretary may approve, the disbursement must be “approved by the appropriate Indian tribe” and
“accompanied by a resolution from the tribal governing body.” 25 U.S.C. § 4022(b)(1).
Consistent with this statutory scheme, prior to the period at issue, in 1954, the Jicarilla Tribal
Council duly authorized $6,810 of “tribal funds” to be appropriated annually through 1974 for

       47
            See also Restatement (Second) of Trusts § 244 (1959) (“[t]he trustee is entitled to
indemnity out of the trust estate for expenses properly incurred by him in the administration of
the trust”); id. at § 245 (“the trustee is not entitled to indemnity out of the trust estate for
expenses not properly incurred by him in the administration of the trust”).

                                               - 34 -
BIA salaries and expenses associated with forest management. The Nation, however, alleges
that it did not approve the disbursements at issue – for BIA payroll and expenses. And the fact
that the Secretary could potentially incur and be reimbursed for duly-authorized expenses does
not answer who has the burden of proving whether certain disbursements were duly authorized.

        Fortunately, that answer is plain. Despite defendant’s claims to the contrary, the trustee
bears the burden of proof to show that charges or expenses for which it claims a credit were
proper disbursements. See, e.g., In re McMillan’s Estate, 33 P.2d 369, 374 (N.M. 1934) (“The
burden is upon a trustee to show that a credit claimed is a proper disbursement.”); Davis v. Jones,
254 F.2d 696, 699 (10th Cir. 1958), cert. denied, 358 U.S. 865 (1958) (“the burden rested upon
the trustee to show the nature of each challenged transaction”); Navajo Tribe, 9 Cl. Ct. at 385
n.42, 439 (discussing trustee’s burden and collecting cases). Placing the burden of proof on the
trust beneficiary would require Jicarilla to prove a negative – that it did not authorize
disbursements for BIA payroll and expenses – a nearly impossible task and a nonsensical one, at
that. See 9 John Wigmore, Evidence § 2486 (Chadbourn rev. 1981) (“It is often said that the
burden is upon the party having in form the affirmative allegation.”); see also Smith v. United
States, 133 S. Ct. 714, 720-21 (2013). Consistent with the common-sense notion that it is the
trustee’s burden to show that trust fund disbursements were authorized and otherwise proper, “if
a trustee fails to keep proper accounts, ‘all doubts will be resolved against him and not in his
favor.’” Confederated Tribes of Warm Springs Reservation of Or. v. United States, 248 F.3d
1365, 1373 (Fed. Cir. 2001) (citing William F. Fratcher, Scott on Trusts § 172 (4th ed. 1987));
see also White Mountain Apache Tribe of Ariz. v. United States, 26 Cl. Ct. 446, 449 (1992),
aff’d, 5 F.3d 1506 (Fed. Cir. 1993), cert. denied, 511 U.S 1030 (1994) (“The burden of
establishing the propriety of disbursements from tribal funds rests with the Government.”); Minn.
Chippewa Tribe, 14 Cl. Ct. at 125 (“The ultimate burden of proving the allowability of a
disbursement is on defendant.”).48 Defendant has failed to carry that burden with respect to the
disbursements that plaintiff claims were unauthorized. Accordingly, plaintiff prevails on its
unauthorized disbursement claim.49

       D.      Deposit Lag

         Under the law of trusts, “[w]hile the trustee has a reasonable time in which to make the
initial investment . . . , he becomes liable for a breach of trust if that reasonable time is

       48
           Defendant’s argument that plaintiff bears the burden of raising an exception to an
accounting before the burden shifts to the defendant-trustee is misguided because plaintiff’s
claim that the disbursements were unauthorized does, in fact, raise such an exception. As such,
the burden of proof is with defendant regardless of whether it was there to begin with or was
shifted there by virtue of plaintiff’s allegations. See White Mountain Apache Tribe, 26 Cl. Ct. at
448-49 (discussing burden shifting in Indian Claims Commission Act cases); Minn. Chippewa
Tribe, 14 Cl. Ct. at 121-22, 125 (same).
       49
          The parties have stipulated that various exhibits to the supplemental expert report
prepared by Mr. Parris accurately identify disbursements from Jicarilla’s tribal trust accounts
made for the purpose of paying BIA payroll and expenses.

                                               - 35 -
exceeded.” Cheyenne-Arapaho Tribes, 512 F.2d at 1394 (citing Restatement (Second) of Trusts
§§ 231 & cmt. b., 181 & cmt. c (1959)). In this case, what is “reasonable” is defined by law.
Thus, Tribal oil and gas royalties are to be deposited “at the earliest practicable date after such
funds are received by the Secretary. . . .” 30 U.S.C. § 1714. BIA’s policy, as set forth in the
BIAM Supplement, was that tribal trust funds “shall be deposited in an authorized Federal
depositary with[in] 24 hours of receipt or by the next work day after receipt if the funds were
received too late in the day to meet the depository’s and/or cognizant Collection Officer’s cutoff
requirements.” 42 BIAM Supp. 3 § 3.9I(1). This provision added that “[f]ield collections shall
be transmitted to the Depositing Collection Officer within 24 hours, or by the next work day,
after receipt.” Id. at § 3.9I(1)(a). The BIAM Supplement further indicated that “[t]o the greatest
extent practicable, the cognizant Collection Officer shall not hold collections over a weekend no
matter what value those collection might have,” id. at § 3.9I(1)(b), indicating instead that “[a]ll
collections shall be deposited and/or scheduled and transmitted to the appropriate deposit point at
the end of each work week.” Id. at § 3.9I(1)(b)(i).

        As documented in the Arthur Andersen report, the BIA did not always comply with these
deadlines, often taking five to eight days – and sometimes more than thirty days – within which
to make a deposit. Defendant has offered no evidence that would excuse the BIA’s non-
compliance with its own regulation, save to point out that during some of the years in question
there was no bank in the town where the BIA’s Jicarilla Agency Office was based. The BIA
policy, however, admits to no exception in this instance – and defendant has failed to
demonstrate that it complied with the BIAM Supplement as to any of the delayed transactions
identified in the Arthur Andersen report.50 The court finds that defendant’s failure to timely
process certain deposits amounted to a breach of trust that entitles the Nation to damages, as
determined below. See Osage Tribe, 72 Fed. Cl. at 662-65.

       E.      Negative Interest

       Plaintiff alleges that defendant allowed the Nation’s trust fund accounts to be overdrawn,
causing the tribe to be charged negative interest on the overdrawn amount. The parties agree that
it would be improper for the government to collect negative interest from Jicarilla, but they
disagree about whether BIA did so. That dispute, however, matters not, because plaintiff admits
       50
           While defendant asserts that some of the delay encountered with the deposits was
associated with their transmittal to the Depositing Collection Officer, it provides – save one
example – no specific documentation in this regard; indeed, it has failed to provide evidence as
to where the Depositing Collection Officer was located throughout the period in question. The
court will not excuse defendant’s delay based upon conjecture, that is, the possibility that, as
authorized by the BIAM Supplement, all of the delay is attributable to the transmittal of field
collections to the proper official. Indeed, this appears unlikely, because, as illustrated by other
portions of the BIAM Supplement, a “field” collection appears to be one received “in the field;
e.g., away from the normal duty location.” 42 BIAM Supp. 3 § 3.9B(8)(a). Accordingly, it is far
from apparent that collections received at the Jicarilla Agency Office in Dulce was subject to the
“field collections” provisions – and, even if they were, these provisions seemingly would have
afforded the agency only one extra day within which to make the Nation’s deposits.

                                              - 36 -
that even if defendant collected negative interest, the Nation suffered no discrete damages as a
result. Plaintiff’s expert, Rocky Hill, admits that its damages model “does not calculate any
separate damages attributable to the negative interest claim,” and that “the amount of damages
[the model] calculates would not change if the negative interest claim was withdrawn.” Put
another way, plaintiff explains that “damages attributable to negative interest end up being
redundant to damages caused by the other breaches of trust, and the amount of damages the
model calculates would not change if the negative interest claim is ignored.” The court must
give effect to plaintiff’s admissions and, therefore, must dismiss the Nation’s negative interest
claim for the period in question. There is no waiver of sovereign immunity to support the court’s
exercise of jurisdiction over this issue, as it is axiomatic that “the futile exercise of suing merely
to win a suit was not consented to by the United States when it gave its consent to be sued for its
breaches . . . .” Severin v. United States, 99 Ct. Cl. 435, 443 (1943), cert. denied, 322 U.S. 733
(1944); see also Perry v. United States, 294 U.S. 330, 355 (1935) (“the Court of Claims has no
authority to entertain an action for nominal damages”); Nortz v. United States, 294 U.S. 317, 327
(1935) (same); Marion & Rye Valley Ry. Co. v. United States, 270 U.S. 280, 282 (1926) (same);
D’Andrea Bros. LLC v. United States, 2013 WL 1316534, at *3 n.3 (Fed. Cl. Mar. 28, 2013)
(same).

       F.      Damages

        Under general trust law, “a beneficiary is entitled to recover damages for the improper
management of the trust’s investment assets.” Conf. Tribes of Warm Springs, 248 F.3d at 1371;
see also Mitchell, 463 U.S. at 226 (“It is well established that a trustee is accountable in damages
for breaches of trust.”). Courts determine the amount of damages for such a breach by
attempting to put the beneficiary in the position in which it would have been absent the breach.
Conf. Tribes of Warm Springs, 248 F.3d at 1371 (citing Roth v. Sawyer-Cleator Lumber Co., 61
F.3d 599, 604 (8th Cir. 1995)); Donovan v. Bierwirth, 754 F.2d 1049, 1058 (2d Cir. 1985); Scott
on Trusts, supra, at § 24.11.1; see also Osage Tribe of Indians of Okla. v. United States, 96 Fed.
Cl. 390, 407 (2010); Bogert’s Trusts, supra, at § 701; Restatement (Second) of Trusts § 205(c) &
cmt. i (1959). The Federal Circuit has instructed, regarding this calculation, that “[i]t 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.” Conf. Tribes of Warm Springs, 248 F.3d at 1371; see also Restatement (Second) of
Trusts § 205(c) (1959). Amplifying these points, Judge Bryson, writing on behalf of the panel in
Confederated Tribes of Warm Springs, stated:

       Where several alternative investment strategies would have been equally
       plausible, the court should presume that the funds would have been used in the
       most profitable of these. The burden of providing that the funds would have
       earned less than that amount is on the fiduciaries found to be in breach of their
       duty. Any doubt or ambiguity should be resolved against them.

248 F.3d at 1371 (quoting Donovan, 754 F.2d at 1056); see also Osage Tribe, 96 Fed. Cl. at 408.
More generally, “[t]he ascertainment of damages is not an exact science,” the Federal Circuit has
warned, and “where responsibility for damages is clear, it is not essential that the amount thereof

                                                - 37 -
be ascertainable with absolute exactness or mathematical precision.” Bluebonnet Sav. Bank,
F.S.B. v. United States, 266 F.3d 1348, 1355 (Fed. Cir. 2001); see also Franconia Assocs. v.
United States, 61 Fed. Cl. 718, 746 (2004).

        Given the state of the record here, it bears emphasizing that any gaps in the BIA’s records
must be weighed in plaintiff’s favor. In this regard, it is well-accepted that “if a trustee fails to
keep proper accounts, ‘all doubts will be resolved against [the trustee] and not in [the trustee’s]
favor.’” Conf. Tribes of Warm Springs, 248 F.3d at 1373 (quoting William F. Fratcher, Scott on
Trusts § 172 (4th ed. 1987)).51 In Confederated Tribes of Warm Springs, 248 F.3d at 1373-75,
the Federal Circuit applied this principle to the calculation of damages in tribal trust cases,
stating that Tribes do not bear the burden of proving damages “that cannot be established with
certainty” because of the United States’ failure to keep adequate records. That controlling
precedent further teaches that “to the extent that the difficulty in determining the amount of loss
suffered by the Tribes is attributable to improper accounting procedures followed by the BIA, the
consequences of those difficulties should not be visited upon the Tribes.” Id. at 1375; see also
Osage Tribe, 96 Fed. Cl. at 407; Osage Tribe, 72 Fed. Cl. at 670-71; Shoshone Indian Tribe of
Wind River Reservation, Wyo. v. United States, 58 Fed. Cl. 77, 94 (2003).

         In discussing damage calculations in a situation like this, Cheyenne-Arapaho Tribes
indicated that it is incumbent on the trial judge to determine several points: First, “both in the
earlier segment of the period and later,” the court “should take into account the availability of
eligible investments” that would constitute alternatives to how the funds were actually invested.
512 F.2d at 1395. Second, the court must “decide the length of time within which it would have
been reasonable for [the Government] to make funds available for investment, to make actual
investments, and to reinvest where appropriate.” Id. If the United States breached its fiduciary
duty, damages are to be calculated as “the difference between what interest defendant paid for
the funds and the maximum the funds could have legally and practically earned if properly
invested outside.” Id. at 1396. The Court of Claims elaborated:

       In fixing damages, it will be necessary . . . to make some determination as to the
       term for which funds were available for investment. In the absence of a showing

       51
           Part and parcel of the damages enquiry here is the need for an accounting. See 28
U.S.C. § 1491(a)(2); Yankton Sioux Tribe v. United States, 84 Fed. Cl. 225, 234 (2008); see also
E. Shawnee Tribe of Okla. v. United States, 582 F.3d 1306, 1308 (Fed. Cir. 2009), judgment
vacated on other grounds, 131 S. Ct. 2872 (2011); Gregory C. Sisk, “The Jurisdiction of the
Court of Federal Claims and Forum Shopping in Money Claims Against the Federal
Government,” 88 Ind. L.J. 83, 112-13 (2013) (“Through this statutory grant of limited equitable-
type powers, the CFC may both award a money judgment for mismanagement of Native
American resources and, incident and collateral to that money judgment, order correction of the
financial records and trust accounts maintained by the government, either directly or by
remanding the matter to the appropriate agency to reconcile trust accounts.”).

                                               - 38 -
       by defendant of specific immediate budgetary commitments by the tribes, claimed
       liquidity needs should be considered in the light of the actual history of the tribes’
       funds.

Id. at 1395 n.9; see also Menominee Tribe, 101 Ct. Cl. at 21; Osage Tribe, 72 Fed. Cl. at 666.
With these principles in mind, the court moves to consideration of the parties’ damages models.

               1.     The Parties’ Damages Models

         Both parties employ investment modeling techniques to calculate the Nation’s damages
in this case – defendant does so reluctantly, as it strenuously maintains that no breach occurred
here and no damages, consequently, are owed. These models use an investment portfolio proxy
to calculate investment returns and the accretion of principal that would have resulted if the BIA
properly had invested and managed the trust funds. The models apply earning rates to the trust
account balances that should have been available for investment at a given time. To do this, they
make various assumptions regarding the balances that should have been in the accounts at a
given time, how those balances should have been invested, and the returns or yields that would
have been produced by that investment. Each model ultimately calculates the resulting
investment income over time and, correspondingly, the accretion of principal that would have
resulted from the periodic reinvestment of earnings. This figure is then compared to the actual
return that was obtained by the BIA, the difference being what is termed the “underinvestment
gap,” if any, owed for the period between February 22, 1974, and September 30, 1992.

        The models diverge on key points – for example, as to the appropriate mix of investments
in the proxy portfolio. That disagreement, however, becomes a chasm once the parties reach the
question whether the damages calculated as of October 1, 1992, should be carried forward to
September 30, 2011, a time immediately preceding trial. Defendant argues that its figures, as of
September 30, 1992, represents the maximum recovery owed the Nation during this stage of the
proceedings, with any future damages stemming from underinvestment to be determined in
subsequent proceedings. Plaintiff instead carries forward the calculation to shortly before the
time of trial, presuming, for this purpose, that the Nation would have continued to reinvest the
principal available as of September 30, 1992.

       The following chart compares the parties’ respective approaches to calculating the
underinvestment damages:

                                               - 39 -
                                          Plaintiff*                   Defendant (High)**                Defendant (Low)***
            Period                 2/22/1974 to 9/30/1992                        Same                             Same
    Beginning Cash Balance             $ 2,319,423.80                       $ 2,316,751.00                   $ 2,319,424.00
                                      (as of 2/22/1974)                     (as of 2/1/1974)                (as of 2/22/1974)
    Receipts/Disbursements      925 receipts = $211,523,420.97                   Same                             Same
                                     243 disbursements =
                                       $244,869,456.15
       Mix of Investment            Barclays U.S. Treasury          80% five-year Treasury notes;   Twelve-month Treasury bills or six-
                                Subcomponent Index = average           20% three-month CDs                     month CDs
                                 maturity of about four to nine
                                years; no maturities less than a
                                              year
    Projected Cash Balance             $ 26,407,691.93                      $ 14,019,278.00           $ 5,427,484.00 – 5,441,423.00
       as of 9/30/1992
      Cash Balance as of               $ 5,392,040.48                            Same                             Same
         9/30/1992
           Phase-1                      $ 21,015,651.45                     $ 8,627,237.52              $ 35,442.52 – 49,382.52
       Underinvestment
          Damages
      Extended Damages                 $ 82,846,608.37                             0                                0
          (1992-2011)
    Total Underinvestment             $ 103,861,259.82                      $ 8,627,237.52              $ 35,442.52 – 49,382.52
           Damages
                           * Rocky Hill model        ** Dr. Goldstein model             *** Dr. Alexander model

As can be seen, the parties varied approaches yield very different damage figures. Traced back
through the calculations, these differences primarily are attributable to two premises: First, the
parties disagree greatly as to the financial features of the hypothetical portfolio that should act as
a proxy for how a prudent investor would have invested the trust funds. As will be discussed in
greater detail below, plaintiff assumes a mix of investments – the Barclays U.S. Treasury Index
(Barclays UST) – that includes a much greater percentage of long-term instruments. By
comparison, defendant’s lowest damage estimate assumes a portfolio mix roughly equivalent to
that in the original portfolio; defendant’s alternative estimate, which is higher, is predicated upon
a hypothetical used by one of plaintiff’s experts, Dr. Goldstein. That hypothetical puts a
significant portion of the portfolio into five-year notes, but leaves 20 percent of the proxy
portfolio in three-month CDs. As can be seen from the chart, a second major difference between
the parties’ damages calculations stems from differing views as to whether the damages found as
of September 30, 1992 should be projected to shortly before the date of trial. Plaintiff says
“yes;” defendant says “no.” Plaintiff’s approach would add nearly $83 million to its recovery.
The court will examine these major points of disagreement seriatim in the segments that follow.

                                                                   - 40 -
               2.      Evaluation of the Hypothetical Portfolios

        As has been done in calculating damages elsewhere, plaintiff seeks to calculate damages
by using a market index as a benchmark for determining the performance of a properly invested
portfolio.52 Plaintiff’s Rocky Hill investment model uses, for this purpose, a Barclay’s index of
U.S. Treasury instruments, specifically the Barclays UST, which is part of the Barclays U.S.
Government Index. That index captures all public obligations of the U.S. Treasury with a
remaining maturity of at least one year, and includes Treasury obligations with maturities
ranging from one to 30 years. Under this index, the allocation as between short-, medium-, and
long-term bonds at any point reflects market forces (i.e., all relevant obligations outstanding)
rather than any judgment by plaintiff’s experts or others regarding what that mix should have
been. Put another way, the Barclays UST is a passive, mechanical representation of market
performance for a defined debt instrument market. In measuring performance, the Barclays
index also includes, on a quarterly basis, the gains and losses on the bonds being tracked, thereby
providing for the further accretion of principal.

        In selecting this index, the Rocky Hill experts carefully considered the maturity structure
of the Barclays UST to make sure that it aligned with what would have been a prudent
investment of Jicarilla’s funds. They ascertained that the Barclays UST had an aggregate

       52
           See, e.g., Maiz v. Virani, 253 F.3d 641, 664-65 (11th Cir. 2001); Alco Indus., Inc. v.
Wachovia Corp., 527 F. Supp. 2d 399, 410 (E.D. Pa. 2007); William v. Sec. Nat’l Bank , 358 F.
Supp. 2d 782, 804 (N.D. Iowa 2005). Defendant complains that the use of such indices is
inappropriate unless it can be shown that the exact mix of assets reflected in an index could have
been purchased by investors. Adoption of this argument, however, would impose unreasonable
limitations on the recovery of damages – while awards may not be speculative, approximations
certainly are appropriate. See Franconia Assocs., 61 Fed. Cl. at 746 (“care must be taken lest the
calculation of damages become a quixotic quest for delusive precision or worse, an
insurmountable barrier to any recovery”). Contrary to defendant’s claims, a beneficiary injured
by the misfeasance of a fiduciary need not demonstrate exactly what would have happened but
for the breach. As stated in the Restatement (Third) of Trusts § 100 cmt. b(1) (2012):

       Depending on the type of trustee and the nature of the breach involved, the
       availability of relevant data, and other facts and circumstances of the case, the
       projected returns on indefinite hypothetical investments during the surcharge
       period may appropriately be based, inter alia, on: the return experience (positive
       or negative) for other investments, or suitable portions of other investments, of the
       trust in question; average return rates of portfolios, or suitable parts of portfolios,
       of a representative selection of other trusts having comparable objectives and
       circumstances; or return rates of one or more suitable common trust funds, or
       suitable index mutual funds or market indexes (with such adjustments as may be
       appropriate).

See also Meyer v. Berkshire Life Ins. Co., 250 F. Supp. 2d 544, 572-73 (D. Md. 2003), aff’d, 372
F.3d 261 (4th Cir. 2001).

                                               - 41 -
average maturity that grew from 3.8 years to 9.1 years over the period in question,53 but observed
that during this entire period, approximately 60 percent of the index was comprised of maturities
ranging between one and five years, with an average maturity for this component of less than 2.5
years.54 In their view, the maturity structure of the Barclays UST aligned well with the maturity
capacity of the funds in the Nation’s trust accounts. They viewed their choice of the Barclays
UST as somewhat conservative, as it was based neither upon the notion that there would be
active management of the tribal trust funds nor upon any assumption that the funds would have
been invested so as to generate an extraordinary performance that beat the market. In their view,
the use of this index was also consistent with Jicarilla’s demonstrated liquidity needs – a view
that this court has confirmed in concluding that the BIA’s short-term investment practices
constituted a breach of trust.

        In challenging plaintiff’s investment model, defendant reiterates many of the claims that
this court has already rejected. Echoing assertions made by its experts (or vice-versa),

       53
           The increase in the average maturity of the index over this time was not based upon
any variation in the modus operandi of the index in terms of its selection of investments, but
rather upon changes in the actual debt issuances of the United States, which reflected the needs
of the Treasury as well as the demand by the public for longer-term Treasury securities.
       54
            In this regard, the Rocky Hill expert report provided the following statistics:

        Year              Total           Total             1-5 Year %    Index         1-5 Year
                       Securities in   Securities 1-          of Index   Maturity       Maturity
                          Index          5 Year
        1976             138,520          98,924             71.41%        5.00               2.42
        1977             158,146         115,243             72.87%        4.98               2.51
        1978             182,924         130,143             71.15%        5.48               2.32
        1979             206,044         133,801             64.94%        6.26               2.23
        1980             240,014         155,323             64.71%        6.41               2.28
        1981             301,668         190,093             63.01%        6.55               2.37
        1982             380,733         234,592             61.62%        6.78               2.38
        1983             508,581         311,096             61.17%        6.85               2.37
        1984             617,556         363,046             58.79%        7.39               2.40
        1985             743,150         423,174             56.94%        8.26               2.46
        1986             879,758         484,845             55.11%        8.78               2.45
        1987             975,100         533,222             54.68%        8.58               2.45
        1988            1,044,577        553,750             53.01%        8.90               2.58
        1989            1,139,375        589,457             51.74%        9.33               2.58
        1990            1,283,509        657,188             52.60%        9.13               2.56
        1991            1,455,993        802,816             55.14%        9.26               2.73
        1992            1,614,756        902,821             55.91%        9.08               2.76
   (In millions $$)                     Average =            60.28%      Average =            2.46

                                                   - 42 -
defendant’s banner claim thus is that the short-term investment strategy employed by the BIA
was prudent and particularly attuned to the Nation’s liquidity needs. Based on the evidence
discussed above, however, the court has rejected both prongs of this claim. And these arguments
are no more persuasive the second time around, in this damages context, even if they now take
on a somewhat different cast.55 As such, based upon the strength of its liability findings, the
court cannot remotely accept Dr. Alexander’s damages model, which, in relying upon those
rejected propositions, produces damages of at most approximately $50,000.

        That said, in talking about damages, defendant takes a somewhat different tack regarding
liquidity. It claims that even if a significant portion of the portfolio should be treated as having
been invested in longer-term securities, some portion of the portfolio needed to be kept in short-
term instruments, to provide some opportunity for the Nation to make withdrawals without
having to liquidate investments. Based on this proposition, defendant claims that, at most,
plaintiff is entitled to the damages associated with a hypothetical used by plaintiff’s witness, Dr.
Goldstein, who examined the performance of a portfolio invested eighty percent in five-year
Treasury notes and twenty percent in three-month CDs – the approach that, in the chart above,
the court references as “Defendant (High).” But, there are several major flaws with this claim.

        First, defendant’s claim hinges on an unproven proposition, namely, that the Nation’s
trust funds needed to maintain a certain balance of cash or cash equivalents in order to meet
periodic withdrawal needs. The record simply does not support this factual claim. While the
record suggests that the BIA often invested in very short-term obligations, there is no evidence
that this was necessary to meet the Nation’s true liquidity needs. Even assuming arguendo that
there was a periodic need for the BIA to have cash on hand, there is no reason to believe that the
BIA could not have produced that cash by selling longer-term securities – that, for example, the
U.S. debt instruments in the Barclays UST were any less marketable or liquid than the three-
month CDs used in Dr. Goldstein’s hypothetical portfolio.56 To the extent that the sale of such
instruments might have produced gain or loss, this was accounted for in the Barclays UST,
which presumed that there would be periodic sales of the instruments in that index. Lastly,
plaintiff was, in the court’s view, entitled to assume in its model that the special debt certificates

       55
          These rejected factual propositions impact various aspects of the calculations
performed by defendant’s experts. For example, Dr. Alexander’s comparison of short-term and
long-term investments is heavily biased in favor of the former because he assumes that all of the
instruments in his hypothetical portfolio would be sold off on a monthly basis and then
reinvested. But, the record reflects that no prudent investor would do this under the
circumstances presented and that, in particular, there was no need to conduct such periodic sell-
offs to meet the Nation’s liquidity needs.
       56
            Indeed, it is important to note that Dr. Goldstein’s 80/20 portfolio was designed not as
an alternative to the Rocky Hill model, but rather as a “simple, passive model” to test Professor
Starks’ assertion that liquidity constraints required all of the Nation’s funds be invested in short-
term instruments. Thus, in his report, Dr. Goldstein indicated that his model demonstrated that
“a substantial portion of the trust monies could have been invested in longer-term maturities,
with little-to-no risk of pre-mature liquidation.”

                                                - 43 -
made available by the Treasury to the BIA – which offered the BIA the ability to shift in and out
of investments without transaction costs or penalties – still would have been available if the BIA
had employed an investment strategy using maturities like those in the Barclays UST. For all
these reasons, the court credits the testimony of plaintiff’s experts that a portfolio patterned after
the Barclays UST represented a reasonable proxy for how the trust funds in question should have
been invested.57 And, on that basis, the court concludes that the model proposed by plaintiff
provides a reasonable and appropriate basis for calculating the damages owed here.

        The court would reach these conclusions even if the burden of proof on these issues were
on the Nation. But, it is important to remember that that is not the case. Likewise, it is important
to remember what the Federal Circuit taught in Confederated Tribes of Warm Springs, 248 F.3d
at 1371, regarding the calculation of damages in a case like this, specifically: (i) among several
alternative investment strategies that are equally plausible, the court should presume that the
funds would have been used in the most profitable way; (ii) the burden of providing that the
funds would have earned less than this figure is on the United States, as the breaching fiduciary;
and (iii) any doubt or ambiguity regarding the foregoing should be resolved against the United
States. Under the Federal Circuit’s standard, the Nation is required to select and prove neither
the “best” nor the “most appropriate” benchmark. In the court’s view, the record amply shows
that plaintiff’s damages model reflects an investment strategy that was at least as plausible as the
alternatives offered by defendant – indeed, a strategy much more plausible than those
alternatives – requiring the court to presume that the funds would have been invested in this
fashion. Defendant has not borne its burden of demonstrating otherwise. Accordingly, the court
concludes that plaintiff has demonstrated that it is entitled to damages in the amount of
$ 21,015,651.45 for the period from February 22, 1974, through September 30, 1992.58

               3.      Plaintiff’s Damages From 1992 to the Present

       Plaintiff claims that, as part of its underinvestment damages, it is entitled to the
investment return that should have been earned on the funds that should have been in the
Nation’s account on October 1, 1992, up to the present. It argues that the same measure of
accumulating damages has been applied in breach of contract cases involving lost profits or other
expectancy damages, citing, for this purpose, Energy Capital Corp. v. United States, 302 F.3d
1314, 1330 (Fed. Cir. 2002). And it notes that damages of the sort that it seeks were awarded in

       57
           Although defendant argues that the Barclays UST is an inappropriate proxy portfolio
because it cannot be reproduced in the “real world,” a passive model exactly like the Barclays
UST – invested in U.S. securities in proportion to those outstanding in the market – was
suggested as one of many possibilities for the investment of tribal funds by Price Waterhouse in
1983.
       58
          As explained by the experts from Rocky Hill, this figure includes damages attributable
to the unauthorized disbursement of the Nation’s trust funds because the investment model
employed computes the growth of Jicarilla’s funds as though these disbursements had not been
made. Accordingly, no separate calculation is required to make the Nation whole on its
unauthorized disbursement claim.

                                                - 44 -
Osage Tribe. See Osage Tribe, 93 Fed. Cl. at 39-40; Osage Tribe, 75 Fed. Cl. at 480-82. For its
part, defendant contends that plaintiff is actually seeking prejudgment interest, for which there is
no waiver of sovereign immunity. It argues that any underinvestment damages the Nation is
owed post-September 30, 1992, should be determined in the subsequent phases of this case.

        The court disagrees with defendant that plaintiff improperly is seeking prejudgment
interest. Defendant correctly asserts both that, absent a waiver of sovereign immunity, the
United States generally is “not liable for interest on claims against it” and that there is no waiver
for prejudgment interest applicable here. See Library of Congress v. Shaw, 478 U.S. 310, 317
(1986). However, defendant is flatly wrong in suggesting that what is being sought here is
prejudgment interest. In fact, what plaintiff seeks as additional damages is investment income it
claims was lost during the period between October 1, 1992 and the end of fiscal year 2011 –
income that, it claims, would have been received if the amount of principal produced by proper
investment practices as of October 1, 1992, were further invested properly up to the time of trial.
This interest, accordingly, does not represent interest on the damages owed, but rather is an
actual component of those damages. Indeed, a variety of cases have recognized this distinction
in the past, among them the Supreme Court’s decision in Peoria Tribe of Indians of Oklahoma v.
United States, 390 U.S. 468, 471-72 (1968), where the Court held that interest appropriately may
be included in a damage award against the United States for breach of its trust obligations. See
also Short v. United States, 50 F.3d 994, 998-99 (Fed. Cir. 1995). As in that case, defendant here
may owe the Nation additional investment income as part of the damage award itself. See
Peoria Tribe, 390 U.S. at 472; Short, 50 F.3d at 999; Cheyenne-Arapaho Tribes, 512 F.2d at
1393-94. Indeed, there is little doubt that the proper measure of damages for defendant’s
misfeasance in investing the trust funds will include some degree of investment income lost from
October 1, 1992, to the present. See Shoshone Indian Tribe, 364 F.3d at 1351-52; Osage Tribe,
75 Fed. Cl. at 468-69; Pueblo of San Ildefonso v. United States, 35 Fed. Cl. 777, 797 (1996).

        The proper parameters of that extended award, as well as the timing of its determination,
are different questions. Several observations impact this calculus. First, in the cases above, the
courts simply extended the damages stream by assuming that the principal in the funds as of a
given day would have produced a very predictable amount of additional interest via the
application of the 4-percent simple interest statutorily available to tribes under 25 U.S.C.
§161a.59 Because of this, the courts in these cases were required to make additional findings
neither regarding the alternative investments that might have been available during the extension
period nor regarding the prudence of defendant’s investment practices during that extended
period. Plaintiff’s request for extension damages, however, does not rely upon the simple
application of interest, but rather continues to assume that the appropriate index to use in
calculating these additional damages is the Barclays UST. But, plaintiff has made no showing
that this index would remain the appropriate investment proxy during the period from October 1,
1992, through September 30, 2011. Indeed, to this point, the Nation has not demonstrated that
any proxy is needed at all during this time period, in which defendant’s investment practices may
       59
           As noted earlier, effective October 4, 1984, 25 U.S.C. § 161a was rewritten to
authorize the payment of interest at a variable rate, rather than at the 4-percent rate paid
previously.

                                               - 45 -
have shifted from those that gave rise to the breach during the earlier period. Moreover, while
certain findings made by the court likely would hold true during this extended period – for
example, that the Nation’s liquidity needs did not dictate a more conservative investment
approach – the court has had no opportunity whatsoever to examine the actual facts in this regard
to confirm whether these additional findings are warranted.

        That these facts are undeveloped is expected. Plaintiff’s complaint raises several issues
that date as far back as August 14, 1946, and forward to present day. At the urging of the parties,
the court broke this case into tranches, the first of which was for the period currently under
consideration, from February 22, 1974, through September 30, 1992. Later phases of this case
will focus on issues involving the management of the Nation’s trust funds and trust assets (e.g.,
timber); at least one of these phases, however, will address issues involving the potential
underinvestment of plaintiff’s trust funds from October 1, 1992, to present day. While it is
conceivable that the court could have organized this case by subject matters, it did not do this,
but instead followed the case management approach suggested by the parties. But, the selection
of one versus another case management approach should not affect the amount ultimately
recoverable here. In the court’s view, questions regarding how much the Nation’s accounts
would have increased from October 1, 1992, to present day are inextricably intertwined with the
calculation of other underinvestment damages owed, if any, for the same period. Given the
complexities of these calculations, any extended award here risks a double recovery based upon
the court’s inability to distinguish, in its damages calculation, between those damages strands.

         Accordingly, the court determines, without prejudice, that plaintiff has not demonstrated
its entitlement to the additional damages requested for the extended period. Barring a settlement
by the parties, the determination of those damages awaits further proceedings in this case.60

               4.      Damages for Deposit Lag

        Recall that plaintiff’s deposit lag claim asserts that defendant is liable for taking an
excessive amount of time to deposit the Nation’s trust revenue into interest-bearing trust
accounts. The court has concluded that this claim is well-taken. To calculate damages on its
deposit lag claim, plaintiff began with the data contained in the Arthur Andersen report, which
detailed the number of days between the time funds were received by the BIA and the time those
funds were deposited into the Nation’s trust accounts. Rocky Hill then deducted one day for
       60
           Contrary to plaintiff’s claims, this case is fundamentally different than Osage Tribe for
several reasons. First, in that case, the court employed a relatively static interest rate – that
associated with 7-year Treasury bills – in calculating the compounded interest owed. Osage
Tribe, 93 Fed. Cl. at 39. Second, the nature of the extension there was fundamentally different
because the trial in Osage Tribe only covered a sample period – a few of the months of the entire
period at issue (from 1973 through 1992) – and the court’s case management order had
anticipated that the results from that sample period would be extended to that entire period. Id.
at 40. The nature of the case management approach here is fundamentally different. Finally, in
Osage Tribe, the court noted that, in its pretrial filings, defendant had not objected to this
extension. Id. at 5 n.3, 30. Such is not the case here.

                                               - 46 -
each receipt – reflecting the period allowed by the BIA’s own policy – to determine the number
of “excessive” lag days for each deposit.61 See Osage Tribe, 72 Fed. Cl. at 662-65. Using these
figures, Rocky Hill applied its investment model to determine that defendant’s deposit lag
resulted in uncollected nominal earnings of $607.55. Taking into account the investment model,
which would have generated investment earnings of $1,233.00, plaintiff is entitled to $1,840.54
in damages for its deposit lag claim for the period at issue.62

III.   CONCLUSION

         Plaintiff has demonstrated that, during the period from February 22, 1974, to September
30, 1992, defendant breached its fiduciary duties to the Nation by mismanaging the Nation’s
trust assets and other funds. Plaintiff has established all the traditional elements for recovery of
damages on those breach claims. Based on the foregoing, the court finds that, for the period in
question, plaintiff is entitled to damages in the amount of $21,017,491.99 – $21,015,651.45 on
its underinvestment claim and $1,840.54 for its deposit lag claim. Plaintiff is entitled to recover
nothing on its negative interest claim, which claim is dismissed for lack of jurisdiction. On or
before June 17, 2013, the parties shall file a joint status report indicating how this case should
proceed. Said report shall also discuss whether any form of additional relief is currently required
under 28 U.S.C. § 1491(a)(2).63

       IT IS SO ORDERED.

                                                         s/ Francis M. Allegra
                                                        Francis M. Allegra
                                                        Judge

       61
           Despite defendant’s protestations that there was no bank in Dulce, New Mexico during
part of the period at issue, as well as its related suggestion that more time was required to mail
deposits to Albuquerque, New Mexico, the court will not reduce plaintiff’s calculation of
damages on this claim for three reasons. First, as noted above, there is no exception in the BIA’s
policy that would forgive deposit lags of the length demonstrated by plaintiff here. Second, the
court will not allow defendant to take advantage of gaps in the record – regarding, for example,
the circumstances surrounding certain deposits – that are of the BIA’s own making. See
Confederated Tribes of Warm Springs, 248 F.3d at 1375; Franconia Assocs., 61 Fed. Cl. at 746.
Finally, the court finds that plaintiff’s calculation, which produces damages of $607.55, is
reasonable under the circumstances.
       62
            For the reasons described above, the court will not project the damages associated with
plaintiff’s deposit lag claim beyond the period at issue here.
       63
           It is the court’s intention to unseal and publish this opinion after June 13, 2013. On or
before June 13, 2013, each party shall file proposed redactions to this opinion, along with the
specific reasons therefor.

                                               - 47 -