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February 22, 1999


The opinion of the court was delivered by: Lamberth, District Judge.


I. Introduction

This matter comes before the court on the court's December 18, 1998 Order to Show Cause. In that order, the court required defendants Bruce Babbitt, Secretary of the Interior; Robert Rubin, Secretary of the Treasury; and Kevin Gover, Assistant Secretary of the Interior to "show cause why they should not be held in civil contempt of court" or "sanctioned for their failure to comply with the Orders of this Court as set forth in plaintiffs' [Consolidated Motion for Order to Show Cause Why Defendants Should Not Be Held in Contempt and for Sanctions for Failure to Comply With Court Orders]."*fn1 After receiving Defendants' Memorandum of Points and Authorities in Response to the Court's Order to Show Cause Why Defendants Should Not Be Held in Contempt and or Sanctioned, the court held a two-week contempt trial.

Upon consideration of the evidence presented and representations made at the contempt trial and contained in both parties' briefs, the court finds that Secretary Babbitt, Secretary Rubin, and Assistant Secretary Gover are in civil contempt of this court's First Order of Production of Information, issued November 27, 1996 and subsequent Scheduling order of May 4, 1998. Accordingly, the court will impose compensatory, monetary sanctions on the defendants and will appoint a special master to oversee the administration of this case, as discussed and ordered below. The court finds these remedies to be necessary in light of the defendants' flagrant disregard for the orders of this court and the defendants' corresponding lack of candor in concealing their wrongdoing.

II. Legal and Factual Background

A.  Applicable Civil Contempt Standards

A federal district court has two bases for finding a party or its attorneys in civil contempt of that court's discovery order. First, pursuant to Rule 37(b)(2) of the Federal Rules of Civil Procedure, the court can hold in contempt and sanction a party for "fail[ing] to obey an order to provide . . . discovery." FED.R.CIV.P. 37(b)(2). Second, the court has the "inherent power to protect [its] integrity and prevent abuses of the judicial process" by holding parties in contempt and ordering sanctions for violations of the court's orders. Webb v. District of Columbia, 146 F.3d 964, 971 (D.C. Cir. 1998) When the source of the potential civil contempt is a failure to comply with a discovery order, the analysis under both of these bases is "essentially the same." Id.

Two requirements must be met before a party or its attorneys may be held in civil contempt. First, the court must have fashioned an order that is clear and reasonably specific. Armstrong v. Executive Office of the President, Office of Administration, 1 F.3d 1274, 1289 (D.C. Cir. 1993). Second, the defendant must have violated that order. Food Lion v. United Food and Commercial Workers Internat'l Union, 103 F.3d 1007, 1016-17 (D.C. Cir. 1997); Shuffler v. Heritage Bank, 720 F.2d 1141, 1146 (9th Cir. 1983); In re Baum, 606 F.2d 592, 593 (5th Cir. 1979). Generally, to properly hold a party or its attorneys in civil contempt, the court must find facts meeting these two elements by clear and convincing evidence. NLRB v. Blevins Popcorn Co., 659 F.2d 1173, 1183-84 (D.C. Cir. 1981); Washington-Baltimore Newspaper Guild v. The Washington Post Co., 626 F.2d 1029, 1031 (D.C. Cir. 1980).*fn2 In this circuit, a finding of bad faith by the contemnor is not required, and "the [contemnor's] failure to comply with the court decree need not be intentional." Food Lion, 103 F.3d at 1016 (quoting Blevins Popcorn Co., 659 F.2d at 1183)).

A civil contempt action is "a remedial sanction used to obtain compliance with a court order or to compensate for damages sustained as a result of noncompliance." Food Lion, 103 F.3d at 1016. Upon a finding of civil contempt, the court has several remedies at its disposal to meet the dual purposes of compliance and compensation. In this regard, Rule 37(b)(2) specifically authorizes the following:

  [T]he court in which the action is pending may
  make such orders in regard to the failure [to
  comply] as are just, and among others the
    (A) An order that the matters regarding which
  the order was made or any other designated facts
  shall be taken to be established for the purposes
  of the action in accordance with the claim of the
  party obtaining the order;
    (B) An order refusing to allow the disobedient
  party to support or oppose designated claims or
  defenses, or prohibiting that party from
  introducing designated matters in evidence;
    (C) An order striking out pleadings or parts
  thereof, or staying further proceedings until the
  order is obeyed, or dismissing the action or
  proceeding or any part thereof, or rendering a
  judgment by default against the disobedient party;
    (D) In lieu of any of the foregoing orders or in
  addition thereto, an order treating as a contempt
  of court the failure to obey any orders except an
  order to submit to a physical or mental
    In lieu of any of the foregoing orders or in
  addition thereto, the court shall require the
  party failing to obey the order or the attorney
  advising that party or both to pay the reasonable
  expenses, including attorney's fees, caused by the
  failure, unless the court finds that the failure
  was substantially justified or that other
  circumstances make an award of expenses unjust.

FED.R.CIV.P. 37(b)(2). Thus, Rule 37 provides some specific, nonexclusive remedies available to the court, with the parameters of the available measures being "such orders in regard to the failure as are just." See id.

The remedies available for a citation of civil contempt of court based upon the inherent powers of the court are largely the same. As the Court of Appeals for the District of Columbia Circuit has stated, "the inherent power enables courts to protect their institutional integrity and to guard against abuses of the judicial process with contempt citations, fines, awards of attorneys, fees, and such other orders and sanctions as they find necessary, including even dismissals and default judgments." Shepherd, 62 F.3d at 1472; see also id. at 1475 ("The inherent power encompasses the power to sanction attorney or party misconduct. . . . Other inherent power sanctions available to courts include fines, awards of attorneys' fees and expenses, contempt citations, disqualifications or suspensions of counsel, and drawing adverse evidentiary inferences or precluding the admission of evidence."). The remedies drawn upon under the inherent power, however, should be exercised only when the rules do not provide the court with sufficient authority to protect their integrity and to prevent abuses of the judicial process. Id. at 1474 (citing Chambers v. NASCO, Inc., 501 U.S. 32, 46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)). Therefore, when a discovery order has been violated, the court should turn to its inherent powers only as a secondary measure.

B.  Factual Background

The underlying facts in this case are discussed at length in one of this court's earlier opinions in this matter. See Cobell v. Babbitt, 30 F. Supp.2d 24 (D.D.C. 1998). For this reason, the court will begin by highlighting only a few of the basic background facts pertinent to the discussion at hand. The opinion will then turn to the pertinent background facts regarding document storage and production.

This class-action suit stems from the government's alleged mismanagement of the Individual Indian Money (IIM) trust accounting system. In this system, the United States acts as trustee of accounts that hold money on behalf of individual Indian beneficiaries. These accounts allegedly hold approximately four billion dollars.

The IIM accounts hold money that originates from various sources, but a majority of the funds are derived from income earned off individual land allotments. These allotments date back to 1934, pursuant to a United States government policy of breaking up Indian tribes and tribal lands. In implementing this policy, the bulk of the tribal lands were divided into tracts, generally of 80 or 160 acres. These tracts were patented to individual Indians, with legal title held by the United States as trustee. The government's involvement was originally intended to provide banking services for "legally incompetent Indian adults" and Indian children without legal guardians. See Misplaced Trust: The Bureau of Indian Affairs' Mismanagement of the Indian Trust Fund, H.R. No. 102-499 (1992). These land allotments held in trust by the government generated income by the lease of their grazing, farming, timber, and mineral rights.

At the most general level, this suit involves the government's management of the IIM trust accounting system. This court has already certified the named plaintiffs under FED.R.CIV.P. 23(b)(1)(A) and (b)(2) as representatives of a class consisting of all present and former beneficiaries of the IIM accounts. This class purportedly includes at least 300,000 individual Indian beneficiaries.

The plaintiffs generally seek two types of relief. First, in what has become known as the "retrospective" prong of the case, the plaintiffs seek a formal accounting of the IIM accounting system. Second, in the so-called "prospective" component, the plaintiffs seek a court order requiring the government to bring their accounting practices in conformity with their trust obligations under statutory and common law.

Because the matter currently before the court arises out of civil contempt proceedings related to document production in the underlying case, a general background discussion on the current structure of the management and document storage systems administered by the defendants is required.

While OST must manage the financial aspects of the IIM system, the Bureau of Indian Affairs (BIA) — which is completely independent of OST — takes responsibility for the realty side of the trust management system throughout the country. BIA is divided up into twelve area offices around the nation; each area contains agency offices, of which there are approximately 92 in the United States.

It should be noted that this description of the Department of Interior structure with regard to IIM administration is an oversimplification. Other branches of the Department clearly manage records that are relevant to IIM administration. For example, the Minerals Management Services and the Bureau of Land Management each have custody and control over certain documents that pertain to the IIM system, such as producing oil and gas leases. Moreover, the Federal Records Centers and the Federal Archives may each house a substantial number of IIM trust-related documents, since each of the relevant governmental entities may send their archived documents to these locations.

Within this decentralized structure, the document storage situation becomes even more intricate. In short, OST and BIA each maintain documents that the other needs. The most general example would be a lease on a piece of land owned by an IIM beneficiary. BIA would need the lease from the realty management standpoint, but OST would also need the lease because it may generate income that would be credited to the lessor's IIM account. Today, OST houses most of the financial documents relevant to the five named plaintiffs in its warehouses in Albuquerque, New Mexico. The BIA, however, still maintains its documents at the area and agency levels throughout the country.

In terms of document production and trust administration, this decentralized system — which the Department of Interior (with the help of Congress) has created for itself — clearly places a premium on coordination and management. To effectively, efficiently, and reasonably produce documents responsive to the court's orders, clear and accurate instructions would need to be given by the attorneys to the field staff, who would ultimately carry out the actual document production. Of course, if the defendants' attorneys handling this matter needed reasonable enlargements of time along the way, they would be well advised to be candid with the court. Unfortunately, the well coordinated, closely managed, and candid approach required for reasonable document production and case management has not been taken by the defendants or their attorneys. The defendants must suffer the consequences for these failures.

III. Analysis

A. Introduction

The issue before the court today is whether the defendants should be held in contempt for not complying with two of the court's document production orders, one of which was issued over two years ago. The defendants' document production failures are undoubtedly related to the plaintiffs' allegations of trust mismanagement because the defendants' recordkeeping "system" is so decentralized and disorganized that it will not allow them to produce documents with the normal effort that it should take a responsible trustee. The testimony of Paul Homan, former Special Trustee, substantiates this proposition. Homan testified that "[t]he recordkeeping system [for the IIM accounts] is the worst that I have seen in my entire life." Transcript at 639. This is especially credible testimony, coming from the person appointed by the President and confirmed by the Senate, whose specific task was to oversee and reform the IIM trust system which the plaintiffs attack. Moreover, Homan has a vast experience in trust management and with failing financial institutions. For five years, Homan directly supervised the trust operations of the Comptroller of the Currency, which licenses and supervises trust companies owned by national banks. Transcript at 599. Homan also served as chief executive officer of First Florida Bank, which had a trust department that exceeded $5 billion, and as chief executive officer of Riggs Bank. Thus, given Homan's unique duties and relevant experience, his commentary on the IIM system's disarray is extremely noteworthy.

More immediately troubling, however, are Homan's statements that, in his opinion, the OST will become less, rather than more, responsive, due to a reorganization of OST by Secretary Babbitt. See supra note 4 (discussing OST's reorganization). Homan's prediction has already come to fruition in one concrete aspect. At the November 24, 1998 hearing, John Miller, Deputy Special Trustee for Policy, OST, was called by the government to testify on the time needed for OST to complete document production. Miller testified that the document "clean-up" effort — i.e., completing the protocol to eliminate the potential for hantavirus infection — would be finished in February 1999, so that OST boxes could begin being searched at that time. See Transcript of November 24, 1998 Hearing, at 91. Miller stressed that this estimate could be followed (or else he would notify the court to the contrary) because the Assistant Secretary had dedicated $6.9 million for Miller to carry out this project. Id. at 119. Secretary Babbitt's reorganization of OST, however, has stripped Miller of his authority (and funding) to carry out his prior representations, thereby preventing the clean-up effort from being finished on the represented time frame. For this reason, Miller wrote a letter to the court and the parties stating that he will be unable to carry out the document production efforts as he represented at the November hearing due to Secretary Babbitt's recent reorganization of OST. See Letter of January 8, 1999, from John M. Miller to the Court (filed January 11, 1999). Miller explicitly stated in this letter as the reason for his inability to timely comply that "Secretary [Babbitt] has transferred the funds out of my control and withdrew my line authority." Id. In short, Miller's recent statements provide strong support for Homan's prediction that the Secretary's reorganization will hinder defendants' compliance with this court's orders. Indeed, the prediction has already come true, as the OST documents will not begin to be searched until at least March 1999. See Transcript of February 16, 1999 Status Call, at 7-8. This lends further credence to the court's finding of contempt in this case, which stems from the noncompliance, lack of good faith, cover-up, and misconduct discussed with specificity below.

The way in which the defendants have handled this litigation up to the commencement of the contempt trial is nothing short of a travesty. Yet, despite the largely undisputed facts that evidence clear contempt of this court's orders, the Assistant Secretary of the Interior proclaims that "I consider this, as the Secretary does, the most important pressing management issue the Department [of Interior] faces." Transcript at 1114.

The court's response to this, and the plaintiffs' rallying cry for decades with regard to IIM trust management, can only be that actions speak louder than words. The Assistant Secretary himself paraphrased this idea when he testified that he "manages by results." Transcript at 1190. Whether the measuring stick is the defendants' actions or the results they have achieved, the grade is the same — the defendants have failed miserably.

The defendants' statements regarding the importance of this litigation are belied by their actions, as discussed in detail below. As usual, and aside from the true issues at the contempt trial, the defendants continue to represent that the check is in the mail with regard to document production. The defendants point to Kenneth Rossman as one of the answers to their problems. Rossman is the newly installed Director of the recently created Office of Trust Litigation Support and Records for OST. This position was created during the recent OST reorganization. See supra note 4. Yet, even the circumstances of Rossman's appointment contradict the notion that the defendants care about complying with this court's orders. Rossman was originally detailed on October 13, 1998, from the State Department to do a study on document management reform for the IIM system as a whole. Although the defendants had been in defiance of this court's orders for four months at that point, the defendants still chose to spend Rossman's efforts for the following three months on the defendants' long range plan, as opposed to bringing the defendants into compliance with this court's orders. Given this type of highlevel decisionmaking at the Department of the Interior, the defendants to this contempt proceeding would be well advised to make sure that their respective Departments' actions live up to their words. For if they do not, the defendants will suffer consequences far greater than those being handed down today. Like the Assistant Secretary of the Interior, this court will be managing by results.

B. Order to Show Cause

Before turning to the contempt analysis, it is useful to briefly address how the order to show cause came to be issued. The court notes that it had no desire to hold the defendants in contempt unless absolutely necessary. Indeed, plaintiffs' counsel states that, to his knowledge, no sitting Secretary in modern times has been held in contempt of court. Transcript at 1463.

Contrary to the impression some would seek to create, I do not relish holding these cabinet officials in contempt. And I do so today more out of sadness than anger. But courts have a duty to hold government officials responsible for their conduct when they infringe on the legitimate rights of others. These officials are responsible for seeing that the laws of the United States are faithfully executed. In this case, the laws — the orders of this court — were either ignored or thwarted at every turn by these officials and their subordinates. The court must hold such government officials accountable; otherwise, our citizens — as litigants — are reduced to mere supplicants of the government, taking whatever is dished out to them. That is not our system of government, as established by the Constitution. We have a government of law, and government officials must be held accountable under the law.

The court tried to take reasonable alternative steps to allow the defendants to bring themselves into compliance with the court's stipulated document production order of November 27, 1996 ("First Order of Production of Information"), and its subsequent Scheduling Order of May 4, 1998, which placed the final deadline on the pertinent document production. But the court is left with little choice when the alternative avenues have been exhausted without avail.

The situation crystalized at the end of the second day of a November 1998 hearing the court held regarding setting a trial date in the retrospective part, of this case. This hearing was yet another attempt by the court, in part, to allow the defendants to explain their noncompliance. But at the end of the hearing, when the court was trying to set another status conference on the state of document production compliance by defendants, the following exchange occurred:

  [The Court:] Okay. Let's plan on 10:00 a.m. on the
  4th, and this will be on the status of compliance
  with plaintiffs, the five plaintiffs' records.
  [Mr. Wiener:] Your Honor, is it possible to
  schedule this at a point where plaintiffs can at
  least submit something in writing, so we know what
  the issues are? I kind of feel like we've been
  ambushed here.
  [The Court:] They said you haven't given them
  everything I've ordered produced. I think that's
  the issue.
  [Mr. Wiener:] Well, but is that the issue? I mean,
  it seems to be somewhat of a moving target here,
  and if that's the issue, that's fine.
  [The Court:] Let's do it this way. He wants a
  written submission. File a motion for an order to
  show cause why I shouldn't hold the government in
  contempt. Get that in, and I'll set a hearing on
  the contempt motion, and we'll have it all in
  writing that way.

Transcript of Hearing, Nov. 24th, 1998, at 213-14.

The orders of this court are simply not moving targets. Because twenty-six months had passed since the original production order was issued and the defendants had not even come close to bringing themselves into compliance, as discussed below, the court's last available option was to proceed by contempt.

But before formally issuing the order to show cause, the court was willing to give the defendants one final opportunity to avoid a contempt trial. At the status call held December 15, 1998, one week after plaintiffs filed their motion for an order to show cause, the defendants reported to the court on the state of document production. When defendants' lead counsel, Lewis Wiener, ended his report without mentioning a word about the potential for an Order to Show Cause, the following exchange occurred:

  [The Court:] In the Motion for Order to Show
    Cause, you wanted written specifications. So
    you've got it here filed December 9. What is
    your proposal ...

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