Nation v. United States

JICARILLA APACHE NATION, Plaintiff, v. UNITED STATES, Defendant.

No. 02-25L

United States Court of Federal Claims

April 13, 2016

Indian breach-of-trust case; claim of alleged breach of fiduciary duties by the Bureau of Indian Affairs as trustee of Tribe's funds; Phase 2 of case; pre-trial in limine motions

Steven D. Gordon, Holland & Knight, LLP, Washington, D.C. for plaintiff. With him at the hearing was Christine Walz, Holland & Knight, Washington, D.C.

Stephen Finn, Trial Attorney, Natural Resources Section, Environment and Natural Resources Division, United States Department of Justice, Washington, D.C. for defendant. With him on the briefs were John C. Cruden, Assistant Attorney General, and Stephen R. Terrell, Trial Attorney, Environment and Natural Resources Division, United States Department of Justice, Washington, D.C. Of counsel was Barbara M.R. Marvin, Environment and Natural Resources Division, United States Department of Justice, Washington, D.C., Gladys Cojocari, Dondrae Maiden, Holly Clement, Michael Bianco, and Karen Boyd, Office of the Solicitor, United States Department of the Interior, Washington, D.C., and Thomas Kearns and Rebecca Saltiel, Bureau of the Fiscal Service, United States Department of the Treasury, Washington, D.C.

OPINION AND ORDER

LETTOW, Judge.

Plaintiff Jicarilla Apache Nation ("Jicarilla") has filed two motions in limine seeking to prevent the government from introducing various exhibits and expert testimony into evidence during the Phase 2 trial scheduled to take place in July 2016 in this Indian breach-of-trust case. See Pl.'s Mot. in Limine to Exclude Exhibits Pertaining to Private Investments ("Pl.'s Private Invest. Mot."), ECF No. 413; Pl.'s Mot. in Limine to Exclude the Testimony of William G. Hamm ("Pl.'s Hamm Mot."), ECF No. 414. Jicarilla contends that Dr. William Hamm, one of the government's proposed expert witnesses, is not qualified to opine on damages resulting from allegedly imprudent investment activities. Jicarilla further asserts that aspects of Dr. Hamm's testimony regarding pre-judgment interest, along with several proffered exhibits regarding Jicarilla's private non-trust investments, are irrelevant to this case and should be excluded. A hearing on these motions was held on April 4, 2016.¹

BACKGROUND

Jicarilla alleges that the United States ("defendant" or "government") through the actions of the Bureau of Indian Affairs ("BIA"), Department of the Interior, breached its fiduciary duties as trustee of Jicarilla's funds by making imprudent investment choices between 1974 and 2012. See Pl.'s Mem. of Contentions of Fact and Law (Phase 2 Trial) ("Pl.'s Pre-Trial Br.") at 1, ECF No. 442; see also Am. Compl., ECF No. 12. This case was originally assigned to Judge Francis M. Allegra, who bifurcated it into three phases. Order of Oct. 7, 2008, ECF No. 152. Phase 1 would cover claims relating to defendant's alleged mismanagement of trust funds prior to September 30, 1992, id., Phase 2 would cover fund-mismanagement claims after that date, Hr'g Tr. 12:13-22 (Jan. 14, 2016), ECF No. 461, and Phase 3 would relate to oil and gas and timber claims, id. Judge Allegra held a trial in November 2011 on Phase 1 and found that the United States had "grossly mismanaged [Jicarilla's] funds" during the pertinent time, "entitling plaintiff to damages in the amount of $21,017,491.99." Jicarilla Apache Nation v. United States, 112 Fed. Cl. 274, 278 (2013) (the "Phase 1 award"). Nonetheless, Judge Allegra declined to enter final judgment on Phase 1 until after Phase 2 had concluded. His decision to defer judgment was based on Jicarilla's claim that the Phase 1 award should have been included in its federal trust account as of October 1992. Therefore, in Jicarilla's view, it is entitled to additional investment returns on that Phase 1 award during the Phase 2 period. Owing to this claim, Judge Allegra decided that Phase 1 damages could be finally decided only as a component of a judgment reached at the culmination of Phase 2. Id. at 312 ("[Q]uestions regarding how much [Jicarilla's] accounts would have increased from October 1, 1992 to present day are inextricably intertwined with the calculation of other underinvestment damages owed, if any, for the same period."). For these reasons, this court's Phase 2 decision will result in a final judgment covering both Phases 1 and 2.

Judge Allegra scheduled a trial on Phase 2 to begin April 20, 2015. Order of Oct. 20, 2014, ECF No. 410. Because of Judge Allegra's untimely illness and death, however, that trial date was vacated and the case was reassigned, first to Judge Mary Ellen Coster Williams and then to the undersigned. See Order of Jan. 7, 2016, ECF No. 456. Trial of Phase 2 is now scheduled to begin on July 11, 2016. Order of Jan. 14, 2016, ECF No. 459.

Phase 2 presents the questions of (1) whether the United States breached its fiduciary duties by imprudently investing funds in Jicarilla's Proceeds of Labor account, which receivesfunds from severance, timber, mineral, ranching, and farming activities; (2) whether the United States breached its fiduciary duties by imprudently investing funds in Jicarilla's Water Rights Settlement Account, which was created by statute, see Pub. L. No. 102-441, § 8, 106 Stat. 2237, 2239 (forming the "Jicarilla Apache Water Resources Development Trust Fund"); and (3) whether Jicarilla is entitled to further investment returns on the Phase 1 award during the Phase 2 period. Pl.'s Pre-Trial Br. at 1; United States' Phase 2 Pre-Trial Mem. of Contentions of Fact and Law ("Def.'s Pre-Trial Br.") at 5-6, ECF No. 441; see also Jicarilla, 112 Fed. Cl. at 311-12.

The Phase 2 trial promises to be a "battle of the experts . . . over whether the funds in Jicarilla's accounts were prudently invested and, if not, how great a loss Jicarilla suffered." Pl.'s Pre-Trial Br. at 2. To prove its case, Jicarilla will generally rely upon expert testimony from Kevin W. Nunes and Peter A. Ferriero of Rocky Hill Advisors, Inc., who reportedly will offer evidence that the government improperly focused on short-term and undiversified investment strategies. Id. The government indicates it will respond by offering evidence that its investment strategies were reasonable under the circumstances, given statutory and regulatory limitations and Jicarilla's preferences and liquidity needs. Def.'s Pre-Trial Br. at 5. The government's case will be supported with expert testimony from Professor Laura Starks and Dr. William Hamm. Id. at 25-28. Jicarilla will rebut these witnesses with expert testimony from Professor Michael Goldstein. Pl.'s Pre-Trial Br. at 17.

ANALYSIS

Pursuant to Fed. R. Evid. 104(a), a trial judge must determine "at the outset" whether an expert witness is qualified or whether his or her opinions constitute admissible evidence. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592 (1993). "These matters should be established by a preponderance of proof." Id. at 592 n.10 (citing Bourjaily v. United States, 483 U.S. 171, 175-76 (1987)).

A. Jicarilla's Motion to Exclude the Testimony of Dr. William G. Hamm

Jicarilla makes two arguments regarding Dr. Hamm's testimony. First, Jicarilla contends that Dr. Hamm should be prohibited from testifying about pre-judgment interest on the $21 million Phase 1 award because the issue is irrelevant. Pl.'s Hamm Mot. at 1. Second, Jicarilla asserts that Dr. Hamm should not be allowed to testify about whether the investment strategies adopted by BIA were prudent and about damages suffered by Jicarilla because he is not an expert on management of trust funds. Id.

1. Relevance of testimony about pre-judgment interest.

The government proposes to have Dr. Hamm testify about what interest rate could be applied to the Phase 1 award to determine how it might have grown during Phase 2. Def.'s Opp'n to Pl.'s Hamm Mot. ("Def.'s Hamm Opp'n") at 5, ECF No. 416. In response, Jicarilla argues that Dr. Hamm's testimony about interest rates is irrelevant because Jicarilla does not seek interest on the $21 million award. Pl.'s Hamm Mot. at 1. Rather, Jicarilla concurs with Judge Allegra's ruling at the end of the first trial that "what plaintiff seeks as additional damagesis investment income it claims was lost during the period between October 1, 1992 and the end of fiscal year 2011 [now September 30, 2012]." Pl.'s Hamm Mot. at 10-11 (quoting Jicarilla, 112 Fed. Cl. at 311) (alteration in motion). This is income that "would have been received if the amount of principal produced by proper investment practices as of October 1, 1992, were further invested properly." Id. The income "does not represent interest on the damages owed, but rather is an actual component of those damages." Id.

"Evidence is relevant if . . . it has any tendency to make a fact more or less probable" and "the fact is of consequence in determining the action." Fed. R. Evid. 401; see also Fed. R. Evid. 402 (relevant evidence is admissible unless barred by some source of law). In this case, pre-judgment interest is not "of consequence in determining the action" pursuant to Rule 401 because Jicarilla does not seek pre-judgment interest. Instead, in Phase 2, the court will focus on "the prudence of defendant's investment practices during [the] extended period," "the alternative investments that might have been available during [that time]," and particularly an "appropriate investment proxy" for that duration. Jicarilla, 112 Fed. Cl. at 311. Accordingly, testimony about pre-judgment interest during the Phase 2 period is irrelevant and shall not be admitted into evidence.

2. Qualification of Dr. Hamm as an expert witness on prudent trust strategies.

Pursuant to Fed. R. Evid. 702, "[a] witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact . . . ; (b) the...