Kennerly v. United States

721 F.2d 1252
Court of Appeals for the Ninth Circuit·Decided December 15, 1983·No. No. 82-3196·Published·Cited by 29 cases

Opinion

SCHROEDER, Circuit Judge:

Leo Kennerly, Sr., a member of the Blackfeet Indian Tribe, brought this action in the district court against the United States, officers of the Department of Interior and Bureau of Indian Affairs, the Blackfeet Tribe, and members of the Tribal Credit Committee. The suit challenged, on due process and breach of trust grounds, the government’s withdrawal of funds from Kennerly’s tribal land income fund to repay debts owed to the Tribe; the Bureau of Indian Affairs administered the fund and made the withdrawals at the Tribe’s request. Kennerly sought to recover damages and also sought prospective injunctive relief on behalf of himself and similarly situated tribal members.

The district court granted summary judgment for the federal government and the individual Interior officials (federal defendants). It held that the Interior Board of Indian Appeals had not acted arbitrarily or capriciously when it held that the payments were valid so long as the fund assignments which secured the underlying debts had been formally approved by the Secretary of the Interior as required by applicable regulations. The court dismissed the action against the Blackfeet Tribe (Tribe) and the individual tribal defendants on grounds of immunity. We affirm the dismissal against both the Tribe and the tribal defendants. We reverse the judgment in favor of the federal defendants because the payments of Kennerly’s trust funds to the Tribe without any hearing on the amount or validity of the underlying debts or assignments violated his due process rights, and, given the unique role of the federal government as trustee, that violation indicates a breach of fiduciary responsibilities.

I

FACTS

The background of this appeal and the basis for the suit are fully set forth in the district court’s opinion which is reported at 534 F.Supp. 269 (D.Mont.1982). We summarize only the essential facts.

Leo Kennerly owned interests in several parcels of land which the Bureau of Indian Affairs (BIA) leased on his behalf. The income from these leases was held for Ken-nerly in an Individual Indian Money Account (IIM account) administered by the BIA. Between 1943 and 1957 Kennerly received several loans from the Blackfeet Tribe, some of which were secured by written, notarized assignments of income from his IIM account. Government approval of the assignments was required. 25 U.S.C. § 410 (1976).

Although the loans apparently were not repaid, the Tribe took no action to enforce any rights under the assignment provisions until 1977, when the Tribal Credit Committee sent Kennerly a letter stating the amount still owed on the loans and informing him that the Tribe “will use this Assignment and levy against your annual lease income immediately.” The letter further stated: “If you do not want your lease income held, please make other satisfactory arrangements.”

The Credit Committee then requested the BIA to attach funds in the IIM account pursuant to the provisions of 25 C.F.R. § 104.9 (current version at 25 C.F.R. § 115.9 (1982)), which provides:

Restrictions.

[1255]*1255Funds of individuals may be applied by the Secretary or his authorized representative against delinquent claims of indebtedness to the United States or any of its agencies or to the tribe of which the individual is a member, unless such payments are prohibited by acts of Congress, and against money judgments rendered by courts of Indian offenses or under any tribal law and order code. Funds derived from the sale of capital assets which by agreement approved prior to such sale by the Secretary or his authorized representative are to be expended for specific purposes, and funds obligated under contractual arrangements approved in advance by the Secretary or his authorized representative or subject to deductions specifically authorized or directed by acts of Congress, shall be disbursed only in accordance with the agreements (including any subsequently approved modifications thereof) or acts of Congress. The funds of an adult whom the Secretary or his authorized representative finds to be in need of assistance in managing his affairs, even though such adult is not non compos mentis or under other legal disability, may be disbursed to the adult, within his best interest, under approved plans. Such finding and the basis for such finding shall be recorded and filed with the records of the account.

This regulation is based on 25 U.S.C. § 410, which states:

No money accruing from any lease or sale of lands held in trust by the United States for any Indian shall become liable for the payment of any debt of, or claim against, such Indian contracted or arising during such trust period, or, in case of a minor, during his minority, except with the approval and consent of the Secretary of the Interior.

Pursuant to that request, the BIA began transferring Kennerly’s lease income to the Tribe. Kennerly protested these payments and engaged in some informal negotiations with the Tribe and the BIA Blaekfeet Indian Agency Superintendent. The withdrawals were temporarily stopped, but were resumed when the BIA Area Director, after consultation with the Interior Department field solicitor, concluded that the payments were properly authorized pursuant to the regulation.

Kennerly then protested the Area Director’s decision in accordance with the provisions of 25 C.F.R. §§ 2.1-2.20, which set forth procedures for appeals from BIA administrative actions. These administrative appeals led to a decision by the Interior Board of Indian Affairs (IBIA). See 43 C.F.R. §§ 4.290-4.297, 4.350-4.369 (procedures applicable to IBIA administrative appeals) (current amended version at 43 C.F.R. §§ 4.310-4.317, 4.320-4.340 (1982)). In response to Kennerly’s contentions that the BIA procedures had violated due process, the IBIA held that the payments were appropriate so long as the assignments had been approved as required by 25 C.F.R. § 104.9. See Kennerly v. Billings Area Director, BIA, 8 IBIA 106 (1980). As a result of this decision, further payments were made to the Tribe until the total amount transferred from Kennerly’s IIM account equaled the amount of his assignments: $3,705.50. It is undisputed that there has never been any judgment against Kennerly on the underlying debt secured by the assignments, nor any formal hearing or even ex parte administrative proceeding to determine the amount owed to the Tribe.

Kennerly next filed this action in district court. Leo Kennerly, Sr. died during the pendency of the district court proceedings, and his son, Robert Kennerly, the personal representative of the estate, was substituted as his successor and is the appellant here. We refer to both plaintiff and appellant as “Kennerly.”

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