Navajo were cheated out of royalties
Court says feds violated trust responsibilities to Navajo and favored Peabody

By Kathy Helms
Diné Bureau

WINDOW ROCK — The U.S. Court of Appeals reversed a federal claims court decision Thursday, saying the federal government breached its trust responsibility to the Navajo Nation when it approved coal lease amendments between Navajo and Peabody Coal Co., paying the Nation royalties well below rates deemed appropriate.

Reversing a decision by the Court of Federal Claims, the Appeals Court in Washington, D.C. remanded the case to the lower court to determine monetary damages.

George Hardeen of the Office of the President and Vice President said Thursday evening that the Nation brought suit against the federal government during the tenure of Interior Secretary Donald Hodel, asserting that a former Interior official who went to work for Peabody influenced Hodel at a time when new lease and royalty rates were being negotiated.

“And this is where the court found the breach of trust responsibility. It was his responsibility to look after the interests of the Navajo Nation, not the coal company. The Navajo Nation asserted that it suffered a $600 million damage, and now that has been upheld by this Appeals Court,” Hardeen said.

In 1964, the Nation and Peabody executed a lease, which was approved that same year by the Secretary of the Interior, granting Peabody the “exclusive right and license to prospect, mine, and strip” 24,858 acres of the reservation for coal.

In return, the lease established royalties of not more than 37.5 cents per ton, but also provided that the royalty provisions were subject to reasonable adjustment by the Secretary of the Interior after 20 years.

As the 20-year anniversary approached in 1984, it became apparent that the 37.5 cents per ton maximum royalty was “by any measure, an inequitable deal” for the Nation and was “substantially lower” than the 12.5 percent minimum royalty set by Congress in 1977 for coal mined on federal lands, according to the court.

In March 1984, the Nation requested then-Secretary of the Interior William Clark make a reasonable adjustment of the royalty rate as provided by the coal lease. In July 1985, the new secretary, Hodel, effectively refused to make any permanent adjustments after meeting with Peabody’s representative, whom the government conceded was “a former aide and friend of Secretary Hodel.”

“On or shortly after the date of the ex parte meeting, Secretary Hodel signed a memorandum prepared by Peabody, making only one insignificant change in the company’s draft.” The Nation was not advised of the memorandum but “learned that someone from Washington had urged a return to the bargaining table.

Facing severe economic pressure, the tribe resumed negotiations with Peabody in August 1985 and in September reached a tentative settlement agreement on a package of amendments. The amendments were approved by the Navajo Tribal Council in August 1987 and by Hodel in December 1987.

The amended lease raised the royalty rate to 12.5 percent for one lease and raised the royalty rate for two other existing leases which did not contain the reasonable adjustment provision. It also added 90 million tons of coal to the 200 million tons originally leased by Peabody.

In 1993, the Nation brought suit seeking $600 million in damages against the United States in the Court of Federal Claims, asserting that the “leasing of coal of the Navajo Nation is subject to a comprehensive statutory and regulatory scheme of the United States”; that the government “claimed and exercised broad authority and control over the leasing of coal it holds in trust for the Navajo Nation”; and that the government violated its statutory and fiduciary duties when it approved the 1987 amendments, causing economic loss, a diminution of the value of the trust responsibility, and harm to the Nation’s sovereignty.

The court said the Nation sought Secretarial approval precisely because the government exercised control over the leasing of coal resources.

“This active and effective assumption of control resulted in, as the Court of Federal Claims found, ‘Navajo enter[ing] the process unarmed with critical knowledge’ and unaware ‘that it no longer had [a] competitive edge in its bargaining while the companies were well aware of the fact.’

“Then after very briefly reviewing the merits of the proposals, the Secretary approved lease amendments with royalty rates well below the rate that had previously been determined appropriate by those agencies responsible for monitoring the federal government’s relations with Native Americans.”

The court said that faced with a claim for damages for this exercise of control, “the government now takes the opposite stance, asserting that it had no control — statutory, regulatory, or otherwise — regarding the determination of the royalty rate in lease amendments.”

“The law does not allow the government to have it both ways. That is, the government cannot assume comprehensive control of the Nation’s coal, as it did here, and disclaim liability for exercising such control.”

The Appeals Court concluded that the network of statutes and regulations asserted by the Nation identify substantive sources of law that establish specific trust duties and can be interpreted as mandating compensation for damages sustained as a result of a breach of the duties imposed by the governing law.

It also found that the Nation demonstrated that the government violated its common law trust duties of “care, candor, and loyalty,” and its duty under the Navajo-Hopi Rehabilitation Act of 1950 to keep the Nation informed regarding the development of its coal resources.

Hardeen said Navajo Nation President Joe Shirley Jr. is “extremely pleased” with the Appeals Court decision.

“This kind of substantiates what the president has been saying now for years. The president talks – it just happens to be coincidental – about a $600 million unmet need on the Navajo Nation, and of course, that’s everything from infrastructure to health care to education. Go down the list of the various divisions of the Navajo government and there are huge needs in every area.

“And now you have a federal Appeals Court acknowledging the fact that the trustee, the federal government, has not lived up to its trust responsibility in a specific case, but a case that is potentially worth hundreds of millions of dollars to the Navajo Nation.

“Now, the next step is for the Claims Court to revisit the case and then determine how much money damages the Navajo Nation is entitled to.”