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U.S. Court of Appeals revives Fletcher II, remands to Court of Federal Claims

Judge says individual Osages have trust relationship with federal government, not just the Osage Nation

The U.S. Court of Appeals for the Federal Circuit on Feb. 24 revived a lawsuit by four Osage shareholders seeking damages against the United States for mishandling minerals royalties.

Last year, the U.S. Court of Federal Claims found that those pressing the suit – William Fletcher, Tara Damron, Richard Longsinger and Kathryn Redcorn – lacked standing to sue because they had no legally protectable interest. In other words, the lower court found that the four headright owners did not have a trust relationship with the government, but that only the Osage Nation, as owner of the Osage mineral estate, did.

The appellate court disagreed, noting that the 1906 Act that reserved the mineral estate to the Osage Nation, had leases to be overseen by the Secretary of the Interior and the income to be held in trust and distributed to tribal members.

“[T]he 1906 Act plainly indicates that individual headright owners have a trust relationship with the United States,” the appellate decision says.

Although the Act clearly says that the minerals are owned by the tribe, it equally clearly says that the royalties from the mineral estate are to be placed in a trust account “to the credit of the members” and “distributed to the individual members,” Judge Raymond Chen noted in the 3-0 decision.

“We reject the government’s interpretation that the … headright owners have only a narrow interest in the actual distribution of headright payments …

“We agree with the plaintiffs that the government’s obligation to them cannot begin and end essentially when the check is cut.

“[A]s common sense dictates, the improper handling of the funds while still in the tribal account can ‘improperly diminish their pro rata share.’”

Fletcher II

At oral arguments on Dec. 10, Judge Chen sought answers to distinguish the claims in this case, known as Fletcher II, and the Osage Nation case against the federal government for mismanagement that ended with a $380 million settlement that was paid out in 2011.

“Is it a double recovery?” he asked Fletcher lawyer Jason Aamodt, inquiring how much Fletcher himself was paid from the $380 million.

Aamodt replied that he didn’t know how much Fletcher got and denied that his clients were double-dipping at the federal trough.

“Why not?!” Chen interrupted, sounding annoyed.

Aamodt explained that the Fletcher case centers on poor accounting for money as it leaves the trust account: The Department of Interior paid 5 percent gross production taxes to Oklahoma across the board, even when the taxes due were far less or even zero percent and failed to properly calculate the interest that should have been paid to shareholders for each quarterly headright payment. The case that settled in 2011 did not address those issues at all, but rather centered on mismanagement of the minerals and the price paid for oil before funds arrived in the account.

“The interest that should have been paid and the gross production taxes were never part of the underlying claims that the Osage tribe made,” Aamodt said.

Brian Toth, an attorney with the Department of Justice, tried to revisit the issue of double recovery when he spoke during oral arguments, however.

“The issue of double recovery is driving the inquiry here,” Toth said. “They’ve already recovered the money at the end of the day.

But Chen openly wondered about that. The $380 million settlement did in fact bar the Osage Nation from bringing further suits about the same issues, but Fletcher and the other plaintiffs in this case, he said, were not parties to the Nation’s lawsuit. In fact, some shareholders had tried to intervene in the tribe’s suit but were not allowed to do so – and the Fletcher plaintiffs were not among those intervenors.

The appellate ruling did not decide the issue of double recovery but said it needs to be examined when the federal claims court takes up the case again on remand.

“As an aside, in terms of the settlement agreement’s effect, other factors will need to be examined, including whether the tribe had the authority to settle and waive plaintiffs’ claims on their behalf,” Chen wrote.

The decision also said that the trust relationship between shareholders and the government is not a general but is one with “specific responsibilities relating to a trust fund that is entirely controlled by the government.”

“It naturally follows that a breach of those responsibilities should be remedied by money damages,” the ruling says. “Therefore, allegations of mismanagement that reduced the amount in the trust fund ultimately disbursed to headright owners, such as failure to collect required interest or the improper overpayment of taxes, sufficiently establishes jurisdiction …”

DOJ attorney Toth also argued that the Fletcher plaintiffs were “not fact-based” and are manifestly vague in their claims that Osage shareholders as a whole suffered $100 million in damages due to the alleged mismanagement.

“A number of these allegations are made ‘on information and belief,’” Toth said during oral arguments.

Judge Sharon Prost shot back. She said that the evidence showed that the federal government paid more taxes to the state than the state levied, offering the example of new oil wells only having to pay 2 percent gross production tax for the first two years but that the state was actually paid 5 percent.

Prost said those issues need to be litigated and fleshed out in the Court of Federal Claims to which the appellate court remanded the case.

“I don’t feel like I’m in a position to assess the correctness of what you’re saying,” Prost told Toth. “Maybe you’re right. I don’t know. You need to litigate the sufficiency of the claim.”


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Louise Red Corn
Louise Red Corn has suffered from wanderlust for decades: She has lived and worked as a journalist and photographer in Rome, Italy, New York City, Detroit, Kentucky, Mississippi and Oklahoma, where she published The Bigheart Times for 12 years. She loves diving in-depth into just about any topic but is especially fond of covering legal issues, perhaps because her parents were both lawyers. She is married to Assistant Principal Chief Raymond Red Corn, who enticed her to move to the Osage Reservation in 2004. She and her husband live south of Pawhuska with one extremely large dog named Max, one extremely energetic dog named Pepper, and, if he bothers to make an appearance, a surly cat named Stinky.

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