Issues
This case raises important issues regarding the nature of the federal government's contractual obligations, particularly in the context of ongoing relations with the Native American nations. The U.S. Supreme Court granted certiorari to resolve a split between the between the Court of Appeals for the Federal Circuit and the Tenth Circuit Court of Appeals over whether Indian tribes were contractually or statutorily entitled to recover administrative costs incurred while performing self-determination contracts under the Indian Self-Determination and Education Assistance Act ("ISDA"). The Court must decide whether the government is obligated to fully fund programs based on contracts with the tribes, whether there are any limits to what the government is required to provide under these arrangements, and whether the government possessed the funding to cover the administrative costs of these programs.
In 1975, Congress passed the ISDA to promote tribal autonomy and self-governance by allowing Indian tribes to manage programs and services that benefit Indian tribes but which had previously been administered by the federal government. Congress believed that transferring control of these programs would help tribes develop leadership skills crucial to the realization of self-government. See 25 U.S.C.A. § 450. The ISDA requires the Secretary of Health and Human Services ("Secretary") to enter into contracts with any tribe that requests control of a federally-funded service program. Tribes that enter into such "self-determination contracts" must receive the same amount of federal funding that the Secretary would have been provided ("the secretarial amount") to operate the program. Tribes then manage, on behalf of themselves, these programs which the Secretary would otherwise manage on their behalf.
By 1987, many tribes had implemented ISDA programs for education, health, and job training. Unfortunately, government funding was sometimes insufficient to cover the full cost of the programs; while funding levels comprehended direct program costs, additional administrative costs that the Secretary had not previously incurred were not included in the funds distributed to the tribes. In an effort to rectify this problem, Congress passed the Indian Self-Determination Amendments of 1988, which required the Secretary to provide contract support costs ("CSC") for the full administrative costs incurred by the tribes. However, these funds are "subject to the availability of appropriations," ("the Appropriations Clause") and "the Secretary is not required to reduce funding for programs, projects, or activities serving a tribe to make funds available to another tribe or tribal organization." 25 U.S.C § 450j-1(b). In addition to the availability clause in 25 U.S.C § 450j-1(b), Congress tried to contain cost escalation by passing the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 Pub.L. No. 105-277, § 314, (1998), which imposed a mandatory cap on the total amount of CSC funding for new and expanded self-determination programs.
In resolving the circuit split over whether the Indian tribes were entitled to recover costs incurred in performing self-determination contracts under ISDA, the Court will examine the appropriations clause of the ISDA as well as the 1998 Omnibus Act to determine the limits of the government's obligations to fund administrative costs. If the Court agrees with the Tenth Circuit and rules that the government incurs no liability because Congress limited the amount of money available to the tribes for administrative costs, the ruling may discourage Indian tribes from entering into self-determination contracts, thus defeating one of the primary policy objectives of the ISDA. Such a ruling may have a chilling effect and discourage future private parties from contracting with the government, fearing that the government might abuse its power and retroactively limit the funds available to pay the contract. However, if the Court agrees with the Federal District, Congress's ability to limit cost overruns and instill financial discipline could be severely curtailed. In the long run, this may discourage Congress from relinquishing control of programs and services traditionally managed by the federal government.
Questions as Framed for the Court by the Parties
02-1472 CHEROKEE NATION OF OKLAHOMA v. THOMPSON
1. Whether the federal government can repudiate, without liability, express contractual commitments for which it has received valuable consideration, either by spending down discretionary agency appropriations otherwise available to pay its contracts, or simply by changing the law and the contracts retroactively.
2. Whether government contract payment rights that are contingent on "the availability of appropriations" vest when an agency receives a lump-sum appropriation that is legally available to pay the contracts, as is the law of the Federal Circuit under 622 F.2d 539 (Fed. Cir. 1980), or is the government's liability calculated only at the end of the year after the agency has spent its appropriations on other activities, as the Tenth Circuit ruled below.
03-853 THOMPSON v. CHEROKEE NATION OF OKLAHOMA
The Indian Self-Determination and Education Assistance Act (ISDA), 25 U.S.C. §§ 450-450n, authorizes the Secretary of Health and Human Services (the Secretary) to enter into contracts with Indian Tribes for the administration of programs the Secretary otherwise would administer himself. The ISDA also provides that the Secretary shall pay "contract support costs" to cover certain direct and indirect expenses incurred by the Tribes in administering those contracts. The ISDA, however, makes payment "subject to the availability of appropriations," and declares that the Secretary "is not required to reduce funding for programs, projects or activities serving a tribe to make funds available" for contract support and other self-determination contract costs. 25 U.S.C. § 450j-l(b). The questions presented are:
1. Whether the ISDA requires the Secretary to pay contract support costs associated with carrying out self-determination contracts with the Indian Health Service, where appropriations were otherwise insufficient to fully fund those costs and would require reprogramming funds needed for noncontractable, inherently federal functions such as having an Indian Health Service.
2. Whether Section 314 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999, Pub. L. No.105-277, 112 Stat. 2681-288, bars respondent from recovering its contract support costs.
Facts
In 1994, under the terms of the Indian Self-Determination and Education Assistance Act ("ISDA"), see 25 U.S.C.A. § 450, the Shoshone-Paiute and the Cherokee Nation Tribes of the Duck Valley Reservation ("Plaintiffs") entered into self-determination contracts to administer a range of health care programs for their tribal members with the Secretary of Health and Human Services ("Secretary"). Under the ISDA, Indian tribes could manage, on behalf of themselves, certain programs which the Secretary would otherwise manage for them. The ISDA legislation and the contracts provide that, in exchange for their management of the programs, the tribes are to receive program funding from the federal government in an amount equal to what the government would have appropriated had it continued to provide such programs directly to the Indians. 25 U.S.C.A. § 450. Funding levels did not comprehend administrative costs that the Secretary had not previously incurred; in response, Congress passed the Indian Self-Determination Amendments of 1988, which required the Secretary to provide contract support for the administrative costs incurred by the tribes.
02-1472 CHEROKEE NATION OF OKLAHOMA v. THOMPSON
In 1996, the Cherokee Nation submitted a claim for contract support costs ("CSC"), claiming that the Secretary had not properly funded its health care services program and therefore sought relief. The tribe argued that since the CSC were expressly funded in both the ISDA and in their contracts with the Secretary, the Secretary had breached the contracts and therefore owed them the unfunded balance for the years 1994 to 1996. Cherokee Nation of Oklahoma v. Thompson, 311 F.3d 1054, 1060 (10th Cir. 2002). The Secretary, however, called attention to the fact that § 450j-l(b) of the ISDA expressly states that the provision of these funds is "subject to the availability of appropriations." Cherokee Nation of Oklahoma, 311 F.3d at 1060-61. The Secretary argued that because Congress placed retroactive caps on these appropriations, the tribe should not receive additional funding to cover the CSC. The tribe's claim was denied.
The Cherokee Nation then sought damages and declaratory relief in Oklahoma district court against the United States, the Secretary, and the Director of the Indian Health Service ("IHS"). On June 25, 2001, the district court granted the Secretary's motion for summary judgment and dismissed the case. , 190 F.Supp.2d 1248 (E.D. Okla., 2001). The court determined that all available funding for tribal programs had been exhausted, and if the Secretary provided more funds to the Cherokee, another tribe would be under-funded.
The Cherokee Nation then appealed to the Tenth Circuit Court of Appeals, which unanimously affirmed the district court decision in favor of the Secretary. Specifically, the Tenth Circuit found that: (i) funding for the tribe's ongoing CSC was subject to the availability of appropriations from Congress, and that there were insufficient appropriations to fully pay those CSC; (ii) Congress intended to limit the amount available for new or expanded CSC; (iii). Congress intended to make available for CSC for new or expanded contracts only the earmarked amount, and that the earmarked amounts in the committee reports for ongoing CSC were intended to be legally binding; and (iv) the government's contractual and statutory obligation to pay CSC was expressly subject to the availability of appropriations not here available. Cherokee Nation of Oklahoma, 311 F.3d 1054 at 1063-66.
In April 2003, the Cherokee Nation filed a petition for a writ of certiorari with the U.S. Supreme Court.
03-853 THOMPSON v. CHEROKEE NATION OF OKLAHOMA
In 1999, the Cherokee and Shoshone-Paiute and tribes filed suit against the Secretary in the Oklahoma district court, seeking relief for funding gaps incurred by the Shoshone-Paiute for 1996 and 1997 and the Cherokee for 1997. The tribes previously submitted the claim to a federal contract officer, who rejected the claim.
The Secretary again argued because the ISDA provisions state the funds are subject to the availability of appropriations, the government was not obligated to pay these costs when Congress did not allocate sufficient funds. However, the Interior Department's Board of Contract Appeals found that there was "no clear indication that Congress intended [the Omnibus Act] to modify or repeal the Secretary's obligation to provide full indirect contract support costs under the ISDA or to authorize the Secretary to abrogate his past existing contractual obligations." Thompson v. Cherokee Nation, 334 F.3d 1075, 1083 (Fed. Cir. 2003). The Board reversed the decision of the contract officer and granted summary judgment for the tribes.
The Secretary subsequently appealed to the Court of Appeals for the Federal Circuit, which unanimously upheld the Board's ruling. The court stated that where "the Secretary has the authority to reprogram and there are funds available in a lump-sum appropriation, there are ‘available funds.'" Thompson, 334 F.3d at 1088. When considering the CSC that originated during the fiscal year of the relevant appropriations act, or "initial and expanded contracts," the court directly contradicted the Tenth Circuit's decision by finding that the language "shall remain available" in the act did not constitute a statutory cap.
In 2003, the Secretary filed a certiorari petition with the U.S. Supreme Court.
Both parties agreed to consolidate their cases since the issues were identical. The U.S. Supreme Court granted certiorari on March 22, 2004, to review these rulings and to resolve the split between the circuits.
Analysis
The U.S. Supreme Court will likely find for the Cherokee Nation. The Court may reason that the federal government cannot repudiate, without liability, express contractual commitments for which it has received valuable consideration, and that government contract payment rights, contingent on the "availability of appropriations," vest when an agency receives a lump-sum appropriation that is legally available to pay the contract costs. Cherokee Nation, 311 F.3d 1054 at 1057. In addition, the Court will likely find that the ISDA requires the Secretary to pay contract support costs associated with carrying out self-determination contracts, and that Section 314 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act does not bar the respondent from recovering its contract support costs.
The Court will likely rule that the federal government cannot repudiate, without liability, express contractual commitments for which it has received valuable consideration. When the United States enters into contract relations, its rights and duties therein are governed generally by law applicable to contracts between private individuals. United States v. Winstar, 518 U.S. 839, 876 (1996). Under the contracts and the ISDA, the government has an obligation to pay full support costs, subject only to the availability of congressional appropriations. The Secretary defends on the grounds that the funds were not available for disbursement. The availability clause says that "[n]otwithstanding any other provision in this subchapter, the provision of funds under this subchapter is subject to the availability of appropriations." 25 U.S.C § 450j-1(b). However, this provision does not apply here to protect the federal government from liability because there is no statutory cap on appropriations.
The Secretary argues that appropriations committee reports that made recommendations of funding amounts acted as a cap on appropriations. However, these were merely recommendations and not statutory acts, which are not binding. Lincoln v. Vigil, 508 U.S. 182, 192 (1993). There is also no indication that the recommendations were designed to modify or repeal the Secretary's obligations. The Secretary further argues that Section 314 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act makes the recommendations of the appropriations committee retroactively binding. However, the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999, Pub. L. No.105-277, 112 Stat. 2681-288, does not bar respondent from recovering its contract support costs.
In 1993, the Supreme Court allowed five principles of appropriations law in Lincoln:
(1) an agency is not free to increase funding beyond a program's limit if a statutory restriction is available on available appropriations to that program;
(2) Congress generally uses standard phrases to impose a statutory cap;
(3) a statutory cap may not be enforced on an agency without being carried in legislation -- in essence, mere committee report statements cannot impose a cap;
(4) an agency may reallocate funds from one program to another if there is a lump-sum appropriation without a statutory cap; and
(5) an agency is required to reprogram to meet debts or obligations if there is no statutory cap or other definitive statutory restriction. Lincoln, 508 U.S. at 193.
Applying the rules of statutory construction, the Omnibus Act of 1999 did not explicitly impose any statutory caps on the funding available. The provision in question states "7,500,000 shall remain available until expended." Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub.L. 104-134, 110 Stat. 1321, 1321-189 (1996); Department of the Interior and Related Agencies Appropriations Act, 1995, Pub.L. No. 103-332, 108 Stat. 2499, 2528 (1994); Department of the Interior and Related Agencies Appropriations Act, 1994, Pub.L. No. 103-138,107 Stat. 1379, 1408 (1993). The Secretary of the Interior himself conceded at oral argument in the Federal Circuit, that an explicit statutory cap would state "shall not exceed 7,500,000." Thompson, 334 F.3d at 1089.
In addition, as the Federal Circuit Court reasoned, the Act could not have made legally binding previous Appropriation Committee reports which specifically recommended funding amounts. Although Congress intended the Act to be retroactively binding, Congress did not intend for the Act to affect the government's prior obligations to the Cherokee Nation.
The Supreme Court will likely rule that government contract payment rights that are contingent on "the availability of appropriations" vest when an agency receives a lump-sum appropriation that is legally available to pay the contract. Therefore, the rights to the funding had already vested in the tribe and the Secretary breached the contract by withholding the support costs. Indeed, the Cherokee Nation's contract rights to the $6,369,009 in unpaid indirect costs had already vested by the time Congress passed the Act in 1999.
The Secretary argues that full payment would require a reduction in funding to other tribes, but evidence has not been provided that shows that such a reduction would be necessary. There is evidence, however, that funding that was earmarked for federal functions and leftover funding could have been utilized to meet the government's full contractual obligations. Thompson, 334 F3d at 1093. Since support costs may not be reduced to pay for federal functions, 25 U.S.C § 450j-1(b)(3), it is clear that the full support costs could be paid without reducing the amounts to other tribes.
The Supreme Court may further support its decision favoring Cherokee Nation using congressional intent. In the first session of the 100th Congress, the Interior and Insular Affairs Committee of the U.S. Senate noted that the "single most serious problem" with implementing ISDA was the disproportion between the amount of indirect costs, such as contract support costs, needed by tribes and the amounts requested from Congress by the Bureau of Indian Affairs ("BIA") and . Ramah Navajo Chapter v. Lujan, 112 F.3d 1455, 1457 (10th Cir. 1997). The Senate Committee attributed this problem to the failure by the BIA and IHS to request appropriate funding, and expected the BIA to submit possible solutions to the Senate Committee. S.REP. 100-274, 1988 U.S.C.C.A.N. 2620, 2628. In fact, Congress was so concerned with the chronic under-funding of ISDA contracts that it amended the ISDA in 1988 to provide additional contract support costs for the Indian tribes under contract. S. Rep. No. 100-274 at 9-13 (1987). The additional appropriations again grew to be inadequate, but given that Congress had previously allocated additional funds to fix the under-funding of ISDA tribal programs, the Court may very well reason that Congress could not have intended to deprive the same programs of funding today.
Additionally, the Court may find for Cherokee Nation on the basis that defendant's interpretation of the availability clause contravenes the purpose of the statute. The stated goal of the ISDA is to effect an "orderly transition from Federal domination of programs for and services to Indians to effective and meaningful participation by the Indian people in the planning, conduct, and administration of those programs and services." 25 U.S.C. § 450a(b). A refusal by the Department of Health and Human Services to provide contract support costs to tribes that had already rendered services in the 1994 to 1997 would contravene the statutory purpose of a smooth government-to-government transition. The retroactive capping of funding for the years 1994 to 1997 would unfairly pass the contract support costs to the tribes, or would force tribes to seek funding directly from Congress themselves. See S. REP. 100-274, 1988 U.S.C.C.A.N. 2620 (noting that since the BIA and IHS have failed to request from the Congress the full amount of funds needed, tribes have had to request supplemental appropriations directly from Congress to make up the shortfall).