Case Study - a complex transaction with a Native American Tribe

In 1947 the Bureau of Reclamation or BOR (part of the Department of the Interior) constructed a dam on a river at the southeast end of our tribal client’s reservation. Under the 1878 treaty establishing the reservation the tribe was entitled to a portion of the water in the river for its use.

In 2001 the Bureau of Land Management or BLM (also part of the Department of the Interior) completed a study of the uses of land in the area of the reservation and concluded that more had to be done to prevent floods along the river.  BOR then conceived a project to raise the level of its existing dam thereby impounding more water which in turn affected the tribe’s water usage.

Sweetwater had a relationship with the tribe extending back some 20 years and the tribe approached us seeking help in determining a value of the water resource they would be giving up and the peripheral costs in agricultural production. Of special interest was that the reduction in water would adversely affect a proposed coal bed methane drilling project on the reservation.

In the high plains there are no issues more contentious than water rights and the collision of tribal rights with non tribal society so whatever happened would be controversial.

The tribe had an inalienable right to the water granted by the Federal government and those water rights had value.  Agencies of the Federal government were proposing to take away that value and to reduce the possibility of the tribe developing its other resources.  
The first thing Sweetwater did was to sit down with various parties involved in the tribe’s position to be sure of what they wanted to accomplish.  The second part was to read the BLM report and the BOR study on the dam construction to better understand the reasoning, timing and impacts.  The next was to meet with the proposed developer of the coal bed methane project to determine their needs and the probably of success including an estimate of the reserves present. Finally, we met with the tribe’s legal advisors including their general counsel, land use counsel and water lawyers to get a feeling for the legal theories that might be operative and available to the tribe.

After our due diligence it became obvious that the tribe would be disadvantaged by the new dam project. We constructed a relatively simple model of the impacts, showing the decline in current revenue from agriculture and water sales due to the increased impoundment.  We also, with the aid of the coal bed methane developer demonstrated that the gas project would have to be reduced by 50% without the water the tribe had planned to contribute and that the 50% reduction would  for technical reasons reduce the recoverable reserves by 60+ % again to the economic disadvantage of the tribe. Against this we balanced the possible revenues from increased recreational use of the lake’s littoral.  The result of the model was to show a substantial immediate and even larger future economic loss to the tribe.

Legal Theories

Once it had been established that an economic loss would occur the next question was if there were methods of redress.  The tribal lawyers advanced the theory that since the Department of the Interior through its Bureau of Indian Affairs (BIA) was trustee for the tribe under the Indian Reorganization Act of 1934 and that the tribe’s water rights had been reserved to it by act of Congress, the BIA’s highest duty was to be loyal to the trust beneficiary (the tribe) and protect it from actions adverse to its well being. The fact that all the agencies involved were parts of the Department of Interior meant that the trustee was violating one of the first rules of a fiduciary, the duty of loyalty.

At a meeting of the entire governmental and tribal representatives along with other stakeholders and water users, Sweetwater presented its model and calculations of the economic loss to the tribe.  The lawyers presented their legal theory supported by suitable legal precedents. After all evidence was presented the hearing officer ruled that BLM and BOR had not properly considered the costs of their actions on the tribe and ordered that restitution be made.

At the end of a long series of negotiations (over 3 years)  the BLM and BOR agreed to compensate the tribe via transfers of assets and the payment of damages equal to the discounted value of the losses the tribe would sustain. The tribe was given land on the littoral of the reservoir to develop for recreational use, it was granted lands adjacent to the reservation containing coal reserves and cash compensation.

Like all good negotiations the settlement did not fully compensate the tribe nor was it ideal for the government but it was the best solution short of expensive and lengthy litigation.

The model developed by Sweetwater has become a standard in the Native American world for assessing the economic impacts of governmental projects affected reservations.

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