Lame Duck Congress Approves $4.55 Billion to Settle Pigford, Indian Land Trust Suits

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money in handDemanding reparations from the federal government is now a growth industry. And Congress just helped it grow some more. Yesterday the House of Representatives voted 256-152 to authorize $4.55 billion to settle a pair of unrelated longstanding class-action lawsuits, one against the U.S. Department of Agriculture (USDA) and the other against the Department of the Interior. In the first case, tens of thousands of black farmers - or at least blacks claiming to have been farmers - will receive $1.15 billion for alleged discrimination during 1981-96 at the hands of administrators of USDA aid programs, but who filed (or could have filed) claims after the deadline. This would be on top of the more than $1 billion that over 15,000 other plaintiffs have received. In the second case, an estimated 300,000 to 500,000 Indians will receive access to a $3.4 billion trust fund intended to rectify alleged Interior Department mishandling of royalty payments for the extraction of oil, gas, timber and other natural resources from tribal lands for economic activity. The Senate on November 19 unanimously had approved the settlements

President Obama vigorously supports the plaintiffs' claims, despite at best spotty evidence of discrimination or negligence. "While these legislative achievements reflect important progress, they also serve to remind us that much work remains to be done," said Obama. "That is why my administration also continues to work to resolve claims of past discrimination made by women and Hispanic farmers [i.e., the Love and Garcia cases] against the USDA." In a similar spirit, Agriculture Secretary Tom Vilsack, the nominal defendant in the black farmers case, termed the Senate approval "a major milestone in USDA's efforts to turn the page on a sad chapter in our history...President Obama and I pledged not only to treat all farmers fairly and equally, but to right the wrongs of the past for farmers who faced discrimination." Secretary of the Interior Ken Salazar, the nominal defendant in the Indian land trust litigation, also celebrated. "The progress we have made over the last two years in reaching critical Indian country settlements is unprecedented," he remarked. Senate Majority Leader Harry Reid, D-Nev., issued this statement: "Black farmers and Native American trust account holders have had to wait a long time for justice, but now it will finally be served." And House Speaker Nancy Pelosi, D-Calif., glowing over yesterday's House vote, stated, "We close the door on an old injustice." She added that the settlement was fiscally responsible, as it "would not add a dime to the deficit."

But the devil, as always, is in the details. And the details suggest that these two lawsuits and their outcome - the new law is called the Claims Settlement (or Resolution) Act (P.L. 111-291) - far from being "legislative achievements," amount to successful shakedowns by plaintiffs and fee-hungry litigators skilled in the art of employing the language of civil rights for personal gain. Of course, these settlements will add to the deficit - about $4.55 billion worth. But it's important to understand the groveling by Congress and administration officials in the context of the political culture of the shakedown.

National Legal and Policy Center several times this year has dissected the black farmer case, currently known as Pigford v. Vilsack. To briefly recap, a North Carolina black farmer, Timothy Pigford, in 1997 brought forth a civil suit against the USDA claiming he had been victimized by racial discrimination in his quest for credit. Another North Carolina black farmer, Cecil Brewington, soon joined him. Triggering this action was an inconclusive consultant's report indicating minorities had lower participation rates in USDA payment and loans programs, though the report admitted that willful discrimination was next to impossible to discern due to "gross deficiencies" in the data base. A group of activists calling itself the National Black Farmers Association soon burst onto the scene, conducting regular demonstrations in front of the White House. President Clinton, irritated, called upon Agriculture Secretary Dan Glickman to resolve the issue.

Secretary Glickman and top USDA officials "resolved" it by all but admitting culpability, thus opening the doors for legal action. Soon enough, plaintiffs' attorneys filed suit in District of Columbia federal court. They eventually won class-action status for 400 additional black co-plaintiffs who claimed the department had discriminated against them during 1983-97. They subsequently raised the total of aggrieved parties to 2,000 and intimidated the Agriculture Department, against the better judgment of the Justice Department, into accepting blanket rather than case-by-case negotiation. Payday came on April 14, 1999. The court approved a consent decree for a settlement that created "Track A" and "Track B" forms of relief dating back to 1981. Virtually all plaintiffs, now numbering in the many thousands, opted for Track A, with its guaranteed minimum payout of $50,000. To date, the settlement has triggered more than $1 billion in payments to more than 15,000 black farmers. Yet in only a tiny minority of cases was there even a possibility of willful racial discrimination by USDA program officers.

Plaintiffs' attorneys, undeterred, weren't done. Because tens of thousands of farmers supposedly were unable to file a claim prior to the deadline (despite extensive publicity, as required in the earlier consent decree), the lawyers took the case to court. This new case, known as Pigford II, eventually triggered another settlement worth $1.25 billion announced by the Agriculture Department this February. As Congress in 2008, as part of a farm bill, authorized $100 million for this purpose (then-Sen. Obama played a major role), the new law on behalf of "late filers" involves $1.15 billion.

If the previous Pigford settlement is any guide, the new one should be an invitation to fraud. In that case, a claimant did not have to prove ownership of, or even employment on, a farm. A claim of being turned down for a loan, whether substantiated or not, could qualify as having "attempted to farm." That the USDA kept unsuccessful loan applications on file for only three years sent a signal that black "farmers" claiming discriminatory treatment prior to 1994 could qualify for money, since nobody was the wiser. Claimants included children, spouses filing for relief separately in hopes of a double award, and estates of deceased persons. So disturbing was the lack of evidence of discrimination that this past September three members of the House of Representatives - Michele Bachmann, R-Minn., Bob Goodlatte, R-Va., and Steve King, R-Iowa - held a press conference to call upon Congress to conduct a thorough investigation. 

The Indian land trust case, which NLPC thus far has not covered, deserves a more detailed examination. The case, currently known as Cobell v. Salazar, is unrelated to the Keepseagle suit against the USDA, which recently netted the plaintiffs a $760 million settlement after 11 years of wrangling. The Cobell litigation wound its way for more than 13 years in the federal courts, going through around 3,600 filings and 80 district-level decisions before being settled last December for $3.4 billion. Of that figure, $1.4 billion will go to class-action plaintiffs alleging federal mismanagement of their land trust assets; the other $2 billion will go to federal repurchase and consolidation of lands, with all property owner participation being voluntary. Details can be found at www.cobellsettlement.com.

If the original plaintiffs in Cobell had a more legitimate basis than those in Pigford, it wasn't by much. But the case was more complex, a fact owing to difficulties in determining ownership and monetary value of tribal lands following the conclusion of the U.S. government-Indian wars. The points of reference are a series of late 19th-century land acts passed by Congress, most importantly, the General Allotment Act of 1887, or the Dawes Act, named after Massachusetts Republican Senator Henry Dawes. Under this law, assets on Indian reservations formally would be owned by individuals living on them. But they would be held in trust and managed by the Interior Department, which would divide these lands into parcels ranging from 40 to 160 acres. This constituted a relatively small portion of all tribal lands; the remainder were declared surplus and opened for non-Indian settlement.

The Dawes Act was intended to run for 25 years, a period assumed to be one generation. Unfortunately, "temporary" laws, then as now, had an unintended way of becoming permanent. And in this case, the culprit was a concept called "fractionation," affecting mainly lands in the Great Plains and Rocky Mountain regions. In a nutshell, as the original Indian owners died off, their intestate heirs received an equal and undivided interest in the lands. But Indians rarely, if ever, employed wills for transferring property to heirs. And rather than work the land, they typically leased it or granted rights-of-way to whites, living off the revenues. With each generation, properties were increasingly fragmented by undivided interests. As a result, a single parcel of land eventually could acquire dozens, if not hundreds, of owners. Annual financial returns often amounted to less than one cent per owner.

This exponential logic has created extreme inefficiency. According to Interior Department records, as of September 30, 2009 there were 143,663 individual Indian allotments, but more than 4 million fractionated interests. Around 131,600 these accounts had balances of less than $15. In many cases, a single piece of property has a per-person ownership interest of less than 0.0000001 percent, or well under a penny. And things are likely to become even more absurd. The 4 million interests may expand to 11 million by 2030. Congress formally repealed the Dawes Act's allotment policy when it passed the Indian Reorganization Act of 1934, but the consequences of fractionation remain today over 75 years later.

A majority of owners of a given parcel typically must agree as to economic activity requiring a lease or right-of-way. But in situations of high fractionation and small ownership interests, diseconomies of scale have prevented land from being used for the benefit of individual Indians or their tribal community. The lack of consolidation not only thwarts economic activity, but also reduces the value of the land. Appraisal studies generally have concluded that when the number of owners per tract exceeds 10, the fair market value of each individual's interest declines, often dramatically. Wouldn't it make sense, then, for each nominal owner to sell the land? From an economic standpoint it would. But to Indian owners, this isn't simply land; it is their nation, a manifestation of collective tribal history.

The federal government - that is to say, taxpayers - bears the brunt of these inefficiencies. The Interior Department's Bureau of Indian Affairs not only absorbs the entire cost of land management, but also returns to the Indians whatever modest incomes are generated by the land. This isn't a new problem. During the 1920s the Brookings Institution and the General Accounting Office (i.e., Government Accountability Office) each conducted studies revealing how fractionation had rendered Indian land nearly worthless, while holding taxpayers hostage. GAO auditors, having visited 12 reservations, counted around 80,000 individual owners yet over a million associated ownership records. Divided by fractional interests, many holdings consisted of less than one square foot. In 2002, the Interior Department, attempting to update the GAO report with the same methodology, found that fractionation had grown by more than 40 percent since 1992.

Just how ludicrous the situation could get was underscored in Hodel v. Irving [481 U.S. 704 (1987)], a case decided by the U.S. Supreme Court in favor of three members of the Oglala Sioux who had sued the Interior Department, headed by then-Secretary Donald Hodel. The ruling provided the following real-world illustration:

Tract 1305 is 40 acres and produces $1,080 in income annually. It is valued at $8,000. It has 439 owners, one-third of whom receive less than $.05 in annual rent and two-thirds of whom receive less than $1. The largest interest holder receives $82.85 annually. The common denominator used to compute fractional interests in the property is 3,394,923,840,000. The smallest heir receives $.01 every 177 years. If the tract were sold (assuming the 439 owners could agree) for its estimated $8,000 value, he would be entitled to $.000418. The administrative costs of handling this tract are estimated by the BIA at $17,560 annually. Today, this tract produces $2,000 in income annually and is valued at $22,000. It now has 505 owners but the common denominator used to compute fractional interests has grown to 220,670,049,600,000. If the tract were sold (assuming the 505 owners could agree) for its estimated $22,000 value, the smallest heir would now be entitled to $.00001824. The administrative costs of handling this tract in 2003 are estimated by the BIA at $42,800.

Quite obviously, productive use of land in this case is highly difficult and insofar as Indians would benefit it would be virtually impossible. Moreover, the administrative cost is deadweight for taxpayers. Yet the Supreme Court, though recognizing as much, ruled for plaintiffs Mary Irving, Patrick Pumpkin Seed and Eileen Bissonette, each an heir or devisee of deceased tribe members. The 1889 statute allotting land to each male Sioux head of household, the court said, was an unconstitutional taking requiring just compensation. Justice Sandra Day O'Connor, writing for the majority, argued that the right to will property to one's heirs is one of the most important "sticks in the bundle" of Anglo-American common law property rights - as if the Sioux cared a whit for Anglo-American law.

It isn't as if Congress hasn't tried to rectify the situation. The Indian Land Consolidation Act of 1983, as amended in 2004, along with the American Indian Probate Reform Act of 1994, each sought to promote better estate planning among Indian tribes. Each law offered opportunities for fractionated land holders to sell their interests and consolidate ownership with tribal governments. These steps, however, have been to little avail because they don't deal with the fact that the Bureau of Indian Affairs is hostage to the primitive nature of tribal economics and law. Abolishing the BIA, or at least removing its role as custodian of Indian lands, would seem the only way out of this dilemma. But it would be politically unpalatable, especially to American tribes whose members might be predisposed toward suing the government to make some real money from natural resource extraction.

This brings us to Cobell v. Salazar. The class-action lawsuit, filed on June 10, 1996 in U.S. District Court for the District of Columbia, alleged the Interior Department had mishandled Individual Indian Money (IIM) trust accounts. Lead plaintiff Elouise Cobell, a Montana resident and Blackfeet tribe member, claimed that the evidence revealed federal "mismanagement, ineptness, dishonesty, and delay." She and co-plaintiffs were represented by Dennis Gingold and Thaddeus Holt, plus attorneys from the Native American Rights Fund and the Atlanta-based litigation firm of Kilpatrick Stockton. Formally, they weren't seeking damages; such a suit would have fallen under the purview of federal claims court. But the plaintiffs did assert that a full accounting of IIM accounts would show the government had squandered billions of dollars.

The lower court in December 1999 ruled on behalf of the Indians. The government appealed. But the U.S. Court of Appeals for the District of Columbia Circuit in February 2001 upheld the decision, directing Secretary of the Interior Gale Norton to devise a plan to fully account for IIM trust money. The Indians' most forceful advocate, ironically, sat on the federal bench. That would be the normally sensible U.S. District Judge Royce Lamberth, a Reagan appointee. The Interior Department, Lamberth wrote, is "a dinosaur - the morally and culturally oblivious hand-me-down of a disgracefully racist and imperialist government that should have been buried a century ago, the last pathetic outpost of the indifference and anglocentrism we thought we had left behind." He even found Interior Secretaries Bruce Babbitt and Gale Norton in contempt of court. So vitriolic were Judge Lamberth's opinions that in 2006 the circuit court took the rare step of taking him off the case and reassigning it to U.S. District Judge James Robertson.

Eventually, the case, by now known as Cobell v. Kempthorne, reached a conclusion. In 2008, Judge Robertson awarded the plaintiffs $455.6 million, a sum neither side found satisfactory. In July 2009, the appeals court vacated the award and remanded the previous decision to the district court. Negotiations then began. On December 8, 2009, the parties announced a $3.4 billion settlement, clearing the way for congressional action. It is hardly a trifling sum. Yet it actually may have been a taxpayer bargain because the plaintiffs claim they deserve far more. "Personally, I still think we're owed a hundred billion dollars, but how long do you drag this thing out?" said Elouise Cobell after the Senate vote. "Do you drag it out until every beneficiary is dead? You just can't do that."

Actually, the plaintiffs should have gotten nothing, or at most, a nominal sum. Even if the allegations against the Interior Department were true, the more relevant fact is that fractionation made "mismanagement" inevitable. No fiduciary, whether public or private, could have done the job properly. The primary source of the problem is the Indians' lack of legal-cultural assimilation and unwillingness to engage directly in grazing, timber harvesting, oil drilling, mining and other economic activity on their land. The Interior Department proved more a scapegoat than a villain in a case where nobody could discern true costs and benefits. Judge Robertson, in a reference to Charles Dickens' classic, Bleak House, noted that "the suit has, in the course of time, become so complicated" that "no two lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises."

The Pigford and Cobell cases each underscore how much race and ethnicity have become a form of economic rent in this country, providing aggrieved minorities and their litigators with vast opportunities to gain advantages through government unavailable through the market. These lawsuits failed to provide sufficient evidence of discrimination (Pigford) or neglect (Cobell), relying instead on moral theater. Neither case should have been granted legal standing. But in this age of the civil-rights shakedown, the outcomes could have been predicted. Now the general public, once more, is being prevailed upon to foot the bill.

Related:

USDA Capitulates to Native American Farmers; Settles for $760 Million.

Congressmen Charge Black Farmer Settlement Rife with Fraud.

Congress Delays ‘Black Farmer' Settlement; Shirley Sherrod in Line for Millions.

Feds Cave into Hispanic Farmers; Make $1.33 Billion Offer.

Lawyers, ‘Black Farmers' Shake Down Taxpayers.