The Supreme Court at 10 a.m. Wednesday will hold a one-hour argument on the federal government’s failure to pay Indian tribes in full for running a federal program in place of a government agency.  The case is Salazar (Interior Secretary) v. Ramah Navajo Chapter, et al. (docket 11-551).   Arguing for the government will be Mark R. Freeman, an assistant to the U.S. Solicitor General, and for the tribes will be Carter G. Phillips of the Washington office of the Sidley Austin law firm.

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Background

Sometimes, a major constitutional controversy turns up in unexpected places.  A fairly routine dispute over the government’s financial ties with Indian tribes usually is not the stuff of such fundamental controversy.  But the Supreme Court is about to confront the basic constitutional question of Congress’s spending power, and, specifically, the lawmakers’ power to tell a government agency it could spend this much, and no more.  The government insists that such caps set the outer limit of what it can spend, but the tribes insist that the Constitution does not bar the government from finding the money it needs to pay what it promised under legal contracts.

The case of Salazar v. Ramah Navajo Chapter, et al. grows out of a running feud between the Interior Department and Indian tribes over the tribes’ recovery of their costs when the government signs contracts with them to take on a government program and run it themselves, as part of the tribes’ self-governing opportunities.  Under the Indian Self-Determination Act of 1975, the Department’s Bureau of Indian Affairs pays for a series of educational and social services programs for tribal members, with the tribes themselves actually running programs that, overall, account for 40 percent of all the money spent on such services.  All but 12 of the more than 550 Indian tribes in the country run such programs on the Bureau’s behalf.

The Court has seen this controversy before, ruling in favor of the tribes seven years ago in Cherokee Nation v. Leavitt.   And, as expected, both sides in the new case have their own, conflicting interpretations of what that ruling means.  It seems clear, though, that the 2005 decision did not settle the specific spending limit issue that the new case raises, so its force as a precedent is unclear.  Moreover, lower courts have read that ruling in differing ways.

Under the Constitution, the power of the federal purse belongs to Congress.  The Appropriations Clause specifies that no money can be taken out of the U.S. Treasury unless Congress has passed a law to approve the spending.  A federal law originally passed in 1884 and updated several times since then, the Anti-Deficiency Act, orders government officials not to commit their agencies to any spending unless it has had Congress’s approval.  That law, the Supreme Court said long ago, was intended to limit the “dangerous discretion” government officials might claim to spend more than Congress had allowed.

A complicating factor in the constitutional analysis, though, is that beginning in 1956, Congress set up something called the “Judgment Fund.”  It was created to pay off court rulings that went against the government, or to pay the government’s part in settling such lawsuits out of court.  Part of the reasoning for it was to pay those judgment awards quickly, so that the government did not run up big bills in interest on the obligations.   Money can be spent out of the Judgment Fund without a specific appropriation by Congress.

In the new case before the Supreme Court, in fact, the Indian tribes are arguing that, if the government does not have enough appropriated money to pay the tribes what it has promised them, the government can dip into the Judgment Fund to pay the balance due.  The government contests that claim, insisting that the Fund is available only if there is no other congressionally approved payment, and, it notes, Congress has explicitly provided for paying the tribes, but with ceilings imposed on such spending.

The tribes’ dispute with the government is now, as it has been for several years, over the costs that the tribes run up in administering social services contracts for the Indian Affairs agency — that is, the contract support costs such as overhead and auditing.   Before 1994, Congress approved lump-sum funding for the entire Interior Department, and the self-determination contracts with tribes were financed out of that.  But in 1994, the lawmakers indicated that they were worried that the contract support costs were growing too rapidly and they cautioned that they would not go on funding them at uncontrolled levels.

In fact, the spending bill that year for the self-determination program imposed a cap on these administrative costs, saying they could not go beyond $91.2 million for the entire program.   That started a pattern and Congress has imposed a cap each year since 1994.   In those years, the tribes have not received full reimbursement for their contract support spending, with the Bureau paying somewhere between 77 and 93 percent of the tribes’ claims.

The tribes have chafed over those limits on reimbursement, and two tribes had pursued court challenges to the failure to pay part of their contract costs, and the government had tried to head off those claims by arguing that it had spent some of the available money for other purposes, and did not have enough left for the tribes’ full reimbursement.  In this lawsuit, there was no congressional cap at issue.   That round in the ongoing controversy led to the Supreme Court’s Cherokee Nation ruling in 2005.   The Court decided that the government could not back out on its contract promises to the tribes, so long as Congress had appropriated enough money to cover the obligations.  The decision, though, stressed that there were other funds available that had been approved by Congress, and they were sufficient to pay off what the two tribes were owed.

While the Cherokee Nation case was developing in the courts, the lawsuit that is now before the Supreme Court got its start.  During the 1980s, a small tribe in New Mexico that is part of the Navajo Nation, the Ramah Navajo Chapter, had received a number of self-determination contracts and it sued in 1990 to challenge the way the Interior Department calculated contract costs.  The lawsuit later added a claim for underpayment of those costs in specific contracts.

After the Supreme Court decided the Cherokee Nation case, a federal judge rejected the Ramah Navajo claim, saying that the caps Congress had imposed were binding on Interior.  The judge noted that his ruling paralleled decisions by two federal appeals courts.  It was up to Congress, that judge concluded, to decide how much could be spent on contract support costs, and Congress had set specific ceilings.

The Tenth Circuit Court, in a split decision, ruled for the tribes (two other tribes had joined the Ramah Navajo Chapter in the case).  Conceding that it was splitting from other appeals courts, the Tenth Circuit said that, as long as Congress had approved enough funds under the cap to pay any single tribe’s contract support costs, the government could not escape its obligation to pay all tribes’ claims for such cost reimbursement since it had promised them full payment in their contracts.

Finding that this case was not really different from the Cherokee Nation case, the Tenth Circuit said that the lack of an appropriations cap in that case did not matter because both cases involved decisions by the Interior Department to spend available appropriated funds for different purposes, leaving insufficient funds to pay the tribes’ contract costs.  The caps that Congress had imposed on paying such costs, the Circuit Court said, were not on a contract-by-contract basis, but on the overall reimbursement allotment.

If funds provided by Congress are not sufficient to pay all tribes’ contract support costs, the Tenth Circuit said, that is not the tribes’ fault, and the tribes cannot be left holding the bag.  It relied on an 1892 U.S. Court of Claims ruling, Ferris v. U.S., for the proposition that, if there are several government contractors and the government does not have enough funds to pay each what it had promised, each of them cannot be expected to know how the government is managing its money and the legal rights of each one cannot be forfeited because of the agency’s spending choices.

The Tenth Circuit concluded that the tribes could collect any balance due them from the Judgment Fund, and doing that would not skirt the Constitution’s Appropriations Clause or the Anti-Deficiency Act.

The Circuit panel voted 2-1 for the tribes’ claims.  The dissenting judge argued that the case was not controlled by the Supreme Court’s Cherokee Nation decision, because what the government had sought in that case was merely the discretion to allocate among tribes an appropriation that was too small to go around, while this new case involved a mandate by Congress compelling the government to limit its coverage of tribes’ costs.   The dissenter also noted that the ruling conflicted with decisions of two other Circuit Courts — including the Federal Circuit Court which, that judge said, is most familiar with federal contract law.

Petition for Certiorari

Interior Secretary Kenneth L. Salazar and other government officials took the case on to the Supreme Court last October, raising the single question of whether the spending caps that Congress had imposed barred the government from paying the tribes the full amount of their contract support costs.  The petition for review focused heavily upon the constitutional issue in the case, arguing that “it is difficult” to imagine a question more firmly committed to Congress than whether to curb spending on a given federal program.

Disputing the Tenth Circuit’s conclusion that Interior had breached a legal obligation to the tribes, the government petition argued that “Congress’s refusal for more than 15 years to write a blank check for…contract support costs does not reflect a ‘breach’ of any legal duty, but rather rests on a congressional judgment that the important federal policies served by underwriting such costs do not justify the unlimited disbursement of public funds at the expense of other priorities for the public welfare, including other programs benefitting Indians and Indian tribes.”

The petition also noted that the Ramah Navajo case involved a nationwide class action, and said that total demands of all tribes for reimbursement “are already estimated to exceed $1 billion, and the problem grows worse with each federal budget cycle.”

In addition, the petition relied on the split in the federal appeals courts, suggesting that the Court needed to step in to “resolve this recurring problem of nationwide importance.”

The tribes urged the Justices to bypass the case, arguing that the Tenth Circuit had faithfully applied the Cherokee Nation precedent, and contending that the mere fact of a conflict among appeals courts should not lead the Court to review the Tenth Circuit opinion.   The Cherokee Nation ruling had come only six years before, and that ruling had settled the contract law and appropriations issues that the government was seeking to have reviewed again, the tribes’ brief said.

If Congress believed that the Court had gotten it wrong in the Cherokee Nation case, it was free to amend the law on disbursements to tribes, the brief in opposition contended.  But, it added, the indications are that Congress agreed with that precedent, and has stated flatly that the government should pay all contract support costs that it had promised to do so in the contracts with the tribes.  Indeed, it added, Congress has said that it intends to provide full funding for the contract support obligations in the future, so there is no need for concern about future liabilities.

Turning to contract law issues, the opposition brief argued that the government was trying to get the Court to overlook that what was at issue in this dispute were binding legal contracts.   It is clear, from the Cherokee Nation precedent, the brief said, that “where a contractor has performed services for the federal government, the law will enforce its right to be paid….At bottom, the government’s position would allow one party to a contract to set the price after performance by the other.  This defies ordinary contract principles long recognized by this Court.”

To the government’s Appropriations Clause argument, the tribes said there was a complete answer: the availability to the tribes of money in the Judgment Fund to cover a final judgment for violating the contractual obligation to pay support costs.   The brief contended that “a recovery of a damages award does no violence to the Appropriations Clause because Congress always controls whether to pay such awards,” and it has done so in creating the Judgment Fund.  The Anti-Deficiency Act is also not a bar to the tribes’ cost recovery, the brief said, because that law has an express exemption for contracts that are authorized by law, and the Indian Self-Determination Act provides that authority.

The Justices considered the Interior petition simultaneously with one filed in the case in which the government had won in the Federal Circuit (Arctic Slope Native Association v. Sebelius, 11-83), but chose to grant review only of the Interior appeal.   The grant came on January 6.  The other case is on hold until the granted case is decided.

Briefs on the Merits

The bulk of the Interior brief on the merits is devoted to the constitutional question, repeatedly stressing how no government official had any authority “to pay sums that Congress has not authorized to be paid from the Treasury.”  Even if Congress had created an entitlement for repayment of the tribes’ contract costs, which it had not, the brief said, the Interior secretary would have no authority to commit the Treasury to pay the full amount of those costs in the face of the caps imposed by Congress.

While there are several laws that give federal agencies authority to enter some contracts and to bind the U.S. to fund them even before Congress has passed actual appropriations, the law governing tribal contracts is not among them, the brief said.  In fact, it added, that law expressly says that any commitments to spend money under it are subject to the availability of appropriations, according to the Interior filing.

Criticizing the Tenth Circuit for failing to support its ruling by any “coherent theory,” the government document said the lower court had concluded that if the government had enough money to cover its obligations to one contractor, it could be required to cover its obligations to all of them, no matter how high that total obligation might rise.   Since Congress set a ceiling, and told Interior not to go above it, the lawmakers did not give government officials a license to pay “an unlimited number of contracts,” each of which involved a cost claim of just under that ceiling, the brief argued.

The brief also contested the idea that the Judgment Fund would be available to cover the balance due to the tribes on their contract costs.  The fund, it said, “is not a back-up source of agency appropriations.”  In any event, the brief said, since the government has no legal duty to cover all of the tribes’ costs, because the caps impose a contrary duty, there is no liability of the government that could be covered by the Judgment Fund.

The overall thrust of the tribes’ brief on the merits is on the government’s having backed out on the bargain it had made with the tribes, after they had performed as required.   The brief was heavily focused on the old Claims Court ruling in Ferris v. U.S. in 1892.  “For 120 years,” the tribes said on the first page of their brief, “it has been settled law that, when the government signs too many contracts and consequently runs out of money, it must nevertheless fulfill its contractual promises, just like any other contracting party.”

If the government over-commits itself on spending, the brief went on, the burden of that should fall on the government, not the contractors.  “This is the Ferris doctrine, which has endured for well over a century, which Congress has never statutorily modified, and which this Court recently reaffirmed in Cherokee Nation v. Leavitt,” the tribes asserted.

A contractor, they added, “cannot be expected to know the condition of an appropriation on the agency’s books or what the agency plans to do with its money,” the tribes argued. “Without this rule, it would be madness to contract with the government, which would have unfettered discretion to over-commit and then breach with impunity, paying whomever it wants and short-changing the rest, all without judicial recourse.  The Court should reject the government’s imprudent effort to overturn the Ferris doctrine and shift the risk of nonpayment to the contractor.”

No one, it added, disputes that the government promised to pay the contracts in full, and no one disputes that the tribes did their part.  “All that is left is whether the government must uphold its end of the bargain.”

The tribes disputed the Interior secretary’s argument that the government never had an obligation to pay the contract costs in full, saying that such a duty was “unambiguously” spelled out in the contracts themselves.   And it disputed that Congress’s inclusion in the Interior appropriations bills of the ”not to exceed” language was sufficient to put the risk of agency over-commitment on the contractors.  That phrase did not bar Interior from creating a contract obligation to pay in full, and it definitely did not take away remedies that contractors would have if the government breached its obligations under such a contract, according to the brief.

The Judgment Fund is open to the claims the tribes are making, their brief insisted.  It cited a specific provision in federal law which, it said, “expressly directed [Indian tribal] contractors to recover damages from the Fund.”  And, it went on, the Court in the Cherokee Nation ruling “recognized the Fund’s availability.”

The tribes are supported by amicus briefs from other tribes and Indian advocacy organizations, and by the U.S. Chamber of Commerce, together with the National Defense Industrial Association.  Those business groups entered the case to argue that there would be a “seriously destabilizing effect” on government contracting in general if the government wins this case.  Making the government an unreliable contracting partner, those groups contended, would only increase the overall cost of government contracting.

Analysis

Going into the oral argument, the tribes may well have at least a small advantage in that their argument amounts to three simple propositions: what is at stake is a matter of simple fairness in living up to one’s promises, the government’s ineptness in managing its money deserves no sympathy, and both antique and recent precedent clearly control the outcome.  That may stack up well against the government’s rather complex effort to draw a clear distinction between the Cherokee Nation precedent and this new case, its fairly dismissive treatment of the Judgment Fund as a source of funds for the tribes’ claims, and its studied effort to treat the old 1892 precedent in the Ferris case as a matter deserving of little notice and not much argument.

The Court is often seen as quite sympathetic to the plight of Indian tribes, and that can add an emotional factor to any case involving tribal rights.  But here, the tribes’ usual, quite zealous protectors — the Interior Department and its Bureau of Indian Affairs — are on the other side, and they are making an argument that their overall obligations to care for the tribes’ interests should not be sacrificed to a legal duty to pay for administrative costs, especially in the face of Congress’s continuing skepticism about those costs.

If the Court is drawn mainly to the constitutional issue that the government has sought to make so prominent, that could work to the government’s considerable advantage.  Congress since 1994 has left no doubt that it intended to curb what the Interior Department could spend on a very specific item, and that is difficult to argue around.   If the Court is sensitive to separation of powers concerns in this case, and it presumably is always sensitive to that core constitutional concept, it may not want to be seen as second-guessing the lawmakers’ primacy in overseeing the federal Treasury.  In this respect, the tribes’ effort to play down the significance of the language used to impose spending caps appeared to be a bit strained.

The tribes’ reliance on the Cherokee Nation precedent has some surface appeal, but, on closer examination, it does not seem to be as clear cut as the tribes would prefer.  The lower courts have not been of one mind on its impact, and that no doubt will be noticed by the Justices.
 

 

 

Posted in Salazar v. Ramah Navajo Chapter, Analysis, Featured, Merits Cases

Recommended Citation: Lyle Denniston, Argument preview: Are Congress’s spending caps binding?, SCOTUSblog (Apr. 13, 2012, 3:33 PM), http://www.scotusblog.com/2012/04/argument-preview-are-congresss-spending-caps-binding/