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System fix decision goes against Lamberth; PART TWO

Both sides take satisfaction in latest trust funds turn

WASHINGTON - A federal appeals court panel ruled on Dec. 10 that Judge
Royce C. Lamberth could not dictate Indian trust management reform measures
to the Interior Department. The ruling empowers Interior to submit its own
reform plans, including a statistical sampling methodology of arriving at
monetary losses from the Individual Indian Money trust.

Congress and the courts have found Interior in breach of fiduciary duties
toward the trust funds. Even so, Lamberth must permit Interior to pursue
reform without interference from the court.

Besides overruling Lamberth on the fine points of a historical accounting,
the appeals panel also voided his directives to "fix the system" of trust
accounting in a September 2003 injunction.

But Interior, in its appeal of the injunction, had also argued that a
congressional law had relieved it of any legal basis for the systemic fix
of IIM accounts ordered by Lamberth. To the contrary, the appellate opinion
of Dec. 10 strongly asserts that Interior has "enforceable fiduciary
duties" for trust funds that have entered the IIM system over more than a
century. Indeed, the appeals panel plainly states that "ordinary trust
principles" will compensate plaintiffs, with interest, for any losses
incurred through delays in accounting.

"That does not mean, however, that the district court may simply copy a
list of common law trust duties ... and then order Interior to explain how
it will satisfy them ... the court's innovation of requiring defendants to
file a plan and then to say what 'might' be wrong with it turns the
litigation process on its head. However broad the government's failures as
trustee, which go back over many decades and many administrations, we can
see no basis for reversing the usual rules in litigation and assigning to
defendants a task that is normally the plaintiffs' - to identify flaws in
the defendants' filing."

The appellate ruling also rejects Lamberth's order that Interior list and
comply with tribal laws. A number of additional provisions are overthrown.

A court-appointed trust master also gets the heave-ho, though here
appellate Judge Stephen Williams contemplates an eventual monitoring role.
"If at some future time the non-accounting aspects of the case culminate in
a true remedial injunction with specific duties tied to specific legal
violations ... the usual latitude for masters to oversee compliance would
come into play ... Alternatively, appointment of a true judicial monitor,
with duties focused on determining just how defendants' management of their
trust duties is proceeding, might become appropriate. [Quoting a precedent
case:] 'Monitors are appropriate if the remedy is complex, if compliance is
difficult to measure, or if observation of the defendant's conduct is
restricted.' (Interior's quarterly reports have given an overly optimistic
and inaccurate portrait of their reform efforts.)"

The appellate court's willingness to speculate on a "remedial injunction"
suggests that if Interior has gained some relief from Lamberth, it still
isn't out of the woods on trust reform.

Keith Harper, a Native American Rights Fund attorney on the case, said the
Dec. 10 decision advocates cease and desist authority for the court against
Interior, and he predicted "ongoing discovery" if the court identifies
specific problems with Interior's proceedings.

"We're not at all discouraged by this decision." Harper read from the
decision itself a passage that he said represents a triumph for plaintiffs:
"... trust income beneficiaries are typically entitled to income from trust
assets for the entire period of their entitlement to income, and for
imputed yields [read interest] for any period of delay in paying over
income or principle ..." He added that by the appellate court's analysis,
any attempt to ignore the entitlement to interest, or to foreshorten the
entire period of trust income, constitutes an illegal taking.

If Harper is correct in his reading, he may be correctly assessing its
significance as well. On occasion Interior has sought to limit the duration
of trust transactions it must account for, and compensatory interest on
principle losses has been a bone of contention throughout.

Harper acknowledged that the decision finds Lamberth in error procedurally.
"But as far as the ability of the court to go in and solve problems, that
was resoundingly endorsed."

Overall, he said of the appellate court decisions of Dec. 3 and Dec. 10,
"We're still winning the war, not the battle."

For the Interior Department, the Dec. 10 ruling especially came as a
gratifying validation after its many spats with Lamberth and its long
public drubbing over trust funds management. J. Steven Griles, the outgoing
deputy secretary, noted in an Interior release that Dec. 10 marked a third
consecutive overturn on appeal of major rulings from Lamberth.

"This important ruling is a watershed victory for individual Indian account
holders, for the Interior Department and its employees, for Congress, and
for American taxpayers," Griles said. "With this ruling, the appellate
court has recognized the department's ongoing determination to fulfill its
duties to account for individual Indian Trust funds.

"The Interior Department has invested hundreds of millions of dollars on
this issue since this lawsuit was filed back in 1996. In recent years, the
department has conducted more than 30,000 intricate accountings of
Individual Indian Money accounts, found almost no discrepancies exceeding
$1, and no evidence of systemic accounting irregularities. When combined,
the net of the discrepancies uncovered in this multimillion-dollar effort
amounts to merely hundreds of dollars. It's no wonder, then, that the
appellate court has repeated the concerns of Congress, which lead many to
believe that the litigation is succeeding only in enriching accountants,
lawyers and consultants while producing little benefit for actual Indian
account holders."

Griles seized upon the appellate court's attention to congressional intent
in passing the reform law Lamberth has had to adjudicate. "Today's ruling
points to concerns raised by a committee of the U.S. Congress that the
district court rulings were out of sync with congressional intent. In its
opinion, the Court of Appeals noted: 'The committee reject[ed] the notion
that in passing the American Indian Trust Management Reform Act of 1994,
Congress had any intention of ordering an accounting on the scale of that
which has now been ordered by the court. Such an expansive and expensive
undertaking would certainly have been judged to be a poor use of federal
and trust resources."

The Interior release concluded with Griles referencing the "false hope that
has enveloped Indian country" as assertions of astronomical losses from the
trust funds have all but entered folklore. Knowingly or not, the quote
echoed comments heard on Capitol Hill in recent months.