Indian Trust Fund Litigation: Legislation to Resolve Accounting Claims in Cobell v. Norton

Indian Trust Fund Litigation: Legislation to Resolve Accounting Claims in Cobell v. Norton

ȱ
—?’Š—ȱ›žœ?ȱž—?ȱ’?’?Š?’˜—ǱȱŽ?’œ•Š?’˜—ȱ?˜ȱ
Žœ˜•ŸŽȱŒŒ˜ž—?’—?ȱ•Š’–œȱ’—ȱ˜‹Ž••ȱŸǯȱ
˜›?˜—ȱ
ǯȱŠž›ŽŽ—ȱž›™‘¢ȱ
Ž?’œ•Š?’ŸŽȱ??˜›—Ž¢ȱ
Š›Œ‘ȱŞǰȱŘŖŖŝȱ
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȬśŝŖŖȱ
   ǯŒ›œǯ?˜Ÿȱ
ŘŘřŚřȱ
ȱŽ™˜›?ȱ?˜›ȱ˜—?›Žœœ
Pr
epared for Members and Committees of Congress

—?’Š—ȱ›žœ?ȱž—?ȱ’?’?Š?’˜—ȱ
ȱ
ž––Š›¢ȱ
The Cobell v. Norton litigation has been before the courts since 1996. Cobell is a class action
lawsuit alleging federal government mismanagement of accounts held in trust for individual
Indians. To date the litigation has not been able to secure from the Department of the Interior
sufficient data in the form of an historical accounting to determine the accuracy of the payments
to individual account holders. Although a full historical accounting is unlikely to be judicially
required, the prospect that pursuit of an accounting through litigation will be costly, protracted,
and elusive resulted in the introduction, in the 109th Congress, of S. 1439/H.R. 4322 and a
concerted effort by Indian representatives to develop principles for a legislative settlement. A
letter, dated March 1, 2007, from the Secretary of the Interior and the Attorney General to the
Chairmen and Ranking Members of the Senate Indian Affairs Committee and the House
Committee on Natural Resources, outlined key elements that the Bush Administration requires for
a legislative settlement. To date, no legislation has been introduced in the 110th Congress. The
purpose of this report is to provide an overview of the development of a legislative solution.
Updates will occur as warranted by legislative activity. Background information on the history,
major developments and issues in the Cobell litigation is provided in CRS Report RS21738, The
Indian Trust Fund Litigation: An Overview of Cobell v. Norton, by M. Maureen Murphy.

˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

—?’Š—ȱ›žœ?ȱž—?ȱ’?’?Š?’˜—ȱ
ȱ
ŠŒ”?›˜ž—?ǱȱŽ?’œ•Š?’˜—ȱ’—ȱ?‘ŽȱŗŖş?‘ȱ˜—?›Žœœȱ
S. 1439, the Indian Trust Reform Act of 2005, and an identical measure, H.R. 4322, were
introduced in the 109th Congress to address settlement of the Cobell v. Norton1 litigation. They
cover claims by individual Indian beneficiaries that funds held in Individual Indian Moneys (IIM)
accounts in their names by the Department of the Interior (DOI) have not been properly handled.2
Funds in the IIM accounts represent receipts from the leasing of trust land held in the name of
individual Indians, or leasing of mineral rights, timber management contracts, grants of rights of
way, or other income-producing activities relative to such land. There are also IIM accounts that
represent per capita shares of tribal distributions.
In introducing the legislation, Senator McCain stated that S. 1439 would resolve the Cobell
litigation by creating a “settlement fund and direct[ing] the Secretary of the Treasury to develop a
formula for distributing the fund to the beneficial owners of IIM accounts, in full settlement for
losses, errors, and unpaid interest in their IIM Accounts,” as well as reform the Indian trust
management system, restructure the Bureau of Indian Affairs under an Under Secretary for Indian
Affairs, and phase out the Office of Special Trustee.3
The legislation was premised on findings that although Congress has appropriated tens of
millions of dollars to provide an historical accounting of funds held by the federal government in
IIM accounts, some data indicates that a complete historical accounting of the receipts and
disbursements may be impossible, cost hundreds of millions of dollars, and be incomplete at the
death of many of the elderly account beneficiaries.4 There are also findings respecting the need
for a complete historical accounting to determine losses in the IIM accounts resulting from errors
or mismanagement and the possibility that the cost of an accounting may exceed the current
balance of, total sums passing through, or the enforceable liability of the United States for losses
from the IIM accounts.5 There is also a finding that because many of the beneficiaries would
prefer a monetary settlement rather than protracted litigation, Congress should “provide benefits
that are reasonably calculated to be fair and appropriate ... in order to transmute claims by the
beneficiaries of IIM accounts for undetermined or unquantified accounting losses and interest to a
fixed amount,” taking into consideration the risks of delay and litigation to the claimants.6
Title I, Resolution of Historical Accounting Claims in Cobell v. Norton, would provide a lump
sum, the amount of which is to be determined during the course of legislative consideration, for
an Individual Indian Accounting Claim Settlement Fund, to be administered by the Secretary of
the Treasury, who is to appoint a Special Master. Of the Fund, 80% is to be used to make
payments to claimants with one portion distributed to all claimants on a per capita basis and

1 Cobell v. Norton, et al. Case No. 1:96CV01285 (D.D.C.). Documents are available on the Department of Justice
website http://www.usdoj.gov/civil/cases/cobell/index.htm and the Cobell plaintiff’s website
http://www.indiantrust.com/ (last visited December 2, 2005). A recent appellate decision in the case, Cobell v. Norton,
___ F. 3d ___, 2005 WL 3041512 (D.C. Cir. 2005), suggests that a complete historical accounting will not be judicially
mandated.
2 The headright or mineral estates of the members of the Osage Nation are excluded as being the subject of separate
legislation. S. 1439/H.R. 4322 (as introduced), §§ 101(10) and (11).
3 151 Cong. Rec. S8565 (July 20, 2005).
4 S. 1439/H.R. 4322 (as introduced), § 101 (1) - (4).
5 Ibid., § 101(5).
6 Ibid., §§ 101(7) and (8).
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗȱ

—?’Š—ȱ›žœ?ȱž—?ȱ’?’?Š?’˜—ȱ
ȱ
another to pay more to beneficiaries based on volume passing through accounts. “Claimant” is
defined to mean IIM beneficiaries living on the date of enactment of the American Indian Trust
Fund Management Reform Act of 19947 and their heirs. Attorneys’ fees, administrative costs, and
payments to beneficiaries who successfully challenge to their distributions in court are also to be
covered by the fund. The legislation specifies the time limits and judicial venue for challenges
and appeals. To receive a distribution, claimants must submit a proper waiver. The legislation
specifies that the benefits provided are substituted for any other claims arising before the date of
enactment for losses resulting from accounting errors, mismanagement, or interest owed in
connection with IIM accounts. Excluded from waiver are claims relating to trust resources
management. Under the legislation, payments to claimants are not to be subject to federal or state
income tax; to be taken into account for eligibility or for the amount of benefits under any other
federal program; or to preclude courts from entertaining tribal trust account claims.
Title II would establish a twelve-member Indian Trust Asset Management Commission to review
all DOI trust resource management laws and regulations and practices and report on these to the
Senate Committee on Indian Affairs, the House Committee on Resources, and DOI.
Title III would establish an eight-year Indian Trust Resource Management Demonstration Project
open to all Indian tribes participating in the FY2005 demonstration project8 and up to 30 other
tribes submitting a proposed trust asset management plan and application to DOI. If approved, a
demonstration project is to be in effect for eight years from the date of enactment, with tribes able
to modify or terminate the plan annually. Tribes would also be able to negotiate how to prioritize
the trust asset management budget for their reservations; compacting and contracting tribes
participating in the demonstration project would be able to vary their trust asset management
systems, practices, and procedures from those of DOI provided they meet the standards
established in the legislation. Among the standards provided in the legislation are: determination
by the Secretary of the Interior (SOI) that the plan meets the trust obligations of the United States;
consistency with applicable federal and tribal law; and SOI determination that the plan will meet
certain standards. These standards must include protecting trust assets from loss, waste, and
unlawful alienation; promoting the interests of the beneficial owner of the trust assets;
conforming to the beneficial owner’s preferred use unless inconsistent with law; protecting
applicable treaty-based rights to the use or enjoyment of the asset; and requiring good faith and
loyalty to the beneficial owner in carrying out any activity under the plan. The legislation
specifies that nothing in the legislation or an approved trust asset management plan shall affect
the liability of the United States or a participating Indian tribe for any loss resulting from
management of an Indian trust asset under an Indian trust asset management plan.
Title IV would set up a Fractional Interest Purchase and Consolidation Program and amend the
Indian Land Consolidation Act’s9 pilot program for acquiring individuals’ fractional interest in
land to be held in trust for tribes, under 25 U.S.C. § 2212, which currently limits the amount that
may be offered for fractional interests to fair market value. It would permit DOI to offer from
$100 up to $350 over fair market value for interests in tract of land having 20 or more fractional
interests. Another provision would permit the SOI to pay up to $2,000 to any individual owner of
trust or restricted interests who agrees to sell all such interests owned by that individual to the

7 25 U.S.C. §§ 4001, et seq.
8 This project is authorized under Section 131 of Title III, Division E of the Consolidated Appropriations Act, 2005,
P.L. 108-447, 118 Stat. 2809, 3067.
9 25 U.S.C. §§ 2201, et seq.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řȱ

—?’Š—ȱ›žœ?ȱž—?ȱ’?’?Š?’˜—ȱ
ȱ
SOI, who would thereby avoid the cost to the United States of probate. Another provision allows
SOI to make payments to individual owners of trust or restricted land to settle claims not covered
in Title I, against the United States. There is also a special provision applicable to tracts owned by
200 or more individuals. It sets up a procedure permitting SOI to offer not less than four times
fair market value to every owner of such tracts. Such offers will be deemed to have been accepted
should the owner not respond to the offer by returning a notice of rejection included in the
certified mail packet making the offer. To fund this program, the legislation authorizes SOI to
borrow from the Treasury amounts to be approved in annual appropriations to be backed by SOI-
issued obligations in amounts and carrying interest rates to be determined by the Secretary of the
Treasury, subject to an aggregate limitation yet to be specified in the legislation, with repayment
of principal and interest by SOI to flow from the revenues derived from land restored to tribes
under this program. The legislation would require the Secretary of the Treasury to determine that
the revenue stream from the purchased lands is sufficient to meet the repayment of the
obligations; there is also authorization of appropriations in every year following a shortfall to
meet the amount of the shortfall between what SOI repays to the Treasury and what was required.
Title V would establish in DOI an Under Secretary for Indian Affairs and an Office of Trust
Reform Implementation and Oversight. Functions of the Assistant Secretary for Indian Affairs
would be transferred to the new position, which would also have oversight over the new office
and broad responsibility over DOI activities, including those relating to Indian affairs carried out
in various DOI offices. The Office of Special Trustee for American Indians would be terminated
and all functions transferred to the Under Secretary as of December 31, 2008.
Title VI would require SOI to prepare financial statements for individual Indian, Indian tribal, and
other Indian trust accounts each fiscal year in accordance with generally accepted accounting
principles of the federal government. Concurrently, the SOI is to prepare an annual internal
control report establishing responsibility for maintaining internal control and procedures for
reporting under this legislation and assessing the effectiveness of such procedures for the
preceding fiscal year. The Comptroller General of the United States is to contract with an
independent external auditor to prepare an audit report, funding for which is to be transferred to
Government Accountability Office from DOI at the request of the Comptroller General.
ȃ›’—Œ’™•Žœȱ?˜›ȱŽ?’œ•Š?’˜—Ȅȱ˜?ȱ?‘Žȱ›žœ?ȱž—?ȱ
Ž?˜›–ȱŠ—?ȱ˜‹Ž••ȱŽ??•Ž–Ž—?ȱ˜›”?›˜ž™ȱ
The Trust Reform and Cobell Settlement Workgroup (Workgroup) was organized by National
Congress of American Indians (NCAI) President Tex Hall and Inter-Tribal Monitoring
Association Monitoring Association (ITMA) Chairman Jim Gray. It includes the Cobell plaintiffs,
tribes, individual Indian allottees, and Indian organizations. It was formed in response to a request
“to provide a set of principles that would guide the lawmakers’ drafting of legislation to provide a
prompt and fair resolution of the trust issue,” from the Chairmen and Ranking Members of the
Senate Indian Affairs Committee and the House Resources Committee, the Senators McCain and
Dorgan and Representatives Pombo and Rahall; and it released “Principles for Legislation” on
June 20, 2005.10 There are 50 Principles, each of which is accompanied by a “Rationale.” These

10 “Settlement Principles. Elouise Cobell and Indian Leaders Join to Announce Settlement Principles for the Individual
Indian Trust Litigation.” http://www.indiantrust.com/
(continued...)
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
řȱ

—?’Š—ȱ›žœ?ȱž—?ȱ’?’?Š?’˜—ȱ
ȱ
Principles are divided into four groups. The first is “Historical Accounting and Individual Indian
Trust Accounts.” It calls for a lump sum settlement amount of $27.487 billion, which is seen as
justified, among other things, in terms of the level of mismanagement of the IIM accounts and the
potential cost of an accounting. It requires that the sum be agreed to by class representatives and
distributed by the district court. Also included in this section is a requirement for separate
legislation to address the Osage Tribe headright issue.
Another group of Principles, “Reforming the Individual and Tribal Trust Systems,” includes
standards for administering trust funds and lists16 specific duties which should be made
applicable.11 It calls for an independent Executive Branch entity, headed by a Presidential
appointee with a five-year term, to oversee DOI’s trust administration and to ensure proper audits
of trust accounts.12 It recommends a Deputy Secretary of Interior for Trust Management,
sunsetting the Office of Special Trustee, and expansion of tribal resource management rights
within self-determination contracts.
The “Indian Land Consolidation” Principles advocate further legislation to promote consolidation
of franctionated interests in land and specify various practices, including those designed to assure
that adequate notice is provided to land owners, assistance is given to promote practices that will
lead to land consolidation, and tribal government purchase of fractionated lands is fostered.
Principles under the heading, “Individual Indian Resource Management Claims,” propose that
Congress “provide a fair offer to individual Indians for decades of federal mismanagement of
their trust resources.”13
ŽŠŒ?’˜—ȱ
In introducing S. 1439, Senator McCain presented it as a preliminary step rather than an
unalterable legislative package. He thanked plaintiff’s representatives and various Indian
organizations, but cautioned them and other “stakeholders” that:
... they may have issues with certain aspects of the bill as it is now written.... I do not think
that there is any provision in the bill that is immutable, closed to debate or negotiation.
Hopefully the stakeholders will remain engaged and continue to provide me with information
and suggestions to make it a better bill, a bill that brings substantial improvements to the
administration and management of Indian trust assets.14

(...continued)
index.cfm?FuseAction=PDFTypes.Home&PDFType_id=15&IsRecent=1 (last visited December 2, 2005).
11 These include the duty of loyalty and candor; duty to keep and render accounts; duty to exercise reasonable care and
skill; duty to administer the trust; duty not to delegate; duty to furnish information; duty to take & keep control; duty to
preserve the trust property; duty to enforce claims and defend actions; duty to keep trust property separate; duty with
respect to bank deposits; duty to make trust property productive; duty to pay income to beneficiaries; duty to deal
impartially with beneficiaries; duty with respect to co-trustees; and duty with respect to persons holding control. Ibid.,
p. 4.
12 Ibid., p. 5.
13 Ibid., p. 9.
14 151 Congressional Record S28565 (July 20, 2005).
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Śȱ

—?’Š—ȱ›žœ?ȱž—?ȱ’?’?Š?’˜—ȱ
ȱ
Testifying at a Senate Indian Affairs Committee Hearing on July 26, 2005, were representatives
of various Indian interest groups; Elouise C. Cobell, the named plaintiff in Cobell; and DOI
officials. All praised the fact that the process of looking to a legislative resolution had begun. DOI
took the position that any legislative solution should: (1) eliminate any requirement for historical
accounting; (2) address all claims related to funds mismanagement; (3) include methods of
ameliorating fractionated interests; and (4) address the issue of resource mismanagement
claims.15 Elouise C. Cobell voiced a mixed response to the legislation, comparing it unfavorably
with the “Principles,” but resolving to continue working with the Committee and expressing hope
for the ultimate resolution of the issue. She endorsed the bill’s provisions requiring the use of the
Judgment Fund instead of DOI program funds and indicating that the settlement amount could be
expected to be in the billions of dollars. On the other hand, she criticized the bill for: (1) placing
the administration of the settlement fund within the Executive Branch and eliminating judicial
oversight over the distribution process; (2) not setting an actual amount for the settlement fund;
and (3) failing to provide a thoroughgoing reform for the trusts held for individual Indians
through clear definition of: trust duties, enforcement by the courts, remedies for breach, and
independent oversight.
žœ‘ȱ?–’—’œ?›Š?’˜—ȱŽšž’›Ž–Ž—?œȱ?˜›ȱŠȱŽ?’œ•Š?’ŸŽȱ
Ž??•Ž–Ž—?ȱ
On March 1, 2007, in a letter to the Chairmen and Ranking Members of the Senate Committee on
Indian Affairs and the House Committee on Natural Resources, Secretary of the Interior, Dirk
Kempthorne, and Attorney General, Alberto R. Gonzales, indicated that the Bush Administration
was prepared to commit $7 billion on a multi-year basis to settle the Cobell litigation provided
that the legislation covered “all existing and potential individual and tribal claims for trust
accounting, cash and land mismanagement, and other related claims, along with the resolution of
other related matters (e.g., trust reform, IT security, etc.).”16 Attached to this letter is a one-page
summary of “Key Facets of Acceptable Indian Trust Reform and Settlement Legislation.”17

ž?‘˜›ȱ˜—?ŠŒ?ȱ —?˜›–Š?’˜—ȱ

M. Maureen Murphy

Legislative Attorney
mmurphy@crs.loc.gov, 7-6971

15 Statement of James Cason, Associate Deputy “Secretary, and Ross Swimmer, Special Trustee for American Indians
on the Cobell Lawsuit,” before the Senate Committee on Indian Affairs, at 4-5 (July 26, 2005), at
http://indian.senate.gov/2005hrgs/072605hrg/cason.pdf (last visited December 2, 2005).
16 See http://www.indianz.com/docs/cobell/bush030107.pdf (last visited March 8, 2007).
17 Id, at 3.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
śȱ