by Scott Patterson
SmartMoney.com
An investigation by SmartMoney.com has found that officials in the Bush administration had detailed knowledge of fraudulent practices that allowed energy companies to cheat Native American Indians out of tens of millions of dollars over dozens of years. These officials were aware that employees of the federal government were helping oil and gas companies underpay to operate on Indian lands in the state of New Mexico — and did nothing to stop it. This is the second article of a two-part series.
INTERSTATE ROUTE 550 CUTS through the heart of northwest New Mexico, a sparse, rugged region dominated by huge mesas and a wide sky. There are no Wal-Marts (WMT), Home Depots (HD) or Rite-Aids (RAD) here. There are no major hospitals, either.
Pipelines, oil drills and gas flares abound, however. The region, known as the Checkerboard, is located square atop the San Juan Basin, which supplies all of the natural gas used by Southern California.
Passing through, one might think this land is deserted. But just a few miles off the highway, down a dusty, unpaved road, a scattering of ramshackle houses and motor homes appears on the horizon. The inhabitants are Navajo Indians who live outside the official Navajo Nation reservation to the west. Referred to as “allottees,” they own individual parcels of land created by the General Allotment Act of 1887. Navajo allottees are among the poorest ethnic groups in the U.S. According to a 2001 report by the Navajo Nation Division of Economic Development, 56.1% of Navajo people live below the poverty level, with per-capita income of $6,217 and an unemployment rate of 43.65%.
Major energy companies such as Apache (APA), Burlington Resources (BR) and ChevronTexaco (CVX) do business on the Checkerboard, extracting natural gas, coal and oil from the huge mineral reserves in the San Juan Basin. With the price of natural gas and oil soaring during the past year, these companies have been posting record profits.
That’s why allegations that the federal government has helped energy companies get sweetheart deals to operate on allotted Navajo land have captured the attention not only of Congress, but also of a federal district court in Washington, D.C. Testimony submitted to the court last week by an employee of the Interior Department alleges that a number of officials in the federal government were aware of these practices, possibly for years, and failed to stop them. (To read the first part of our series, click here.)
A Special Kind of Trust
Last Thursday, Deborah Lewis, an appraiser with the Office of the Special Trustee for American Indians (OST), a branch of the Interior Department, filed an affidavit with the U.S. District Court for the District of Columbia detailing allegedly illegal activities she uncovered in 2002.
Lewis’s 18-page affidavit chronicling her assignment at the Navajo Regional Office of the Bureau of Indian Affairs in Gallup, N.M., reveals that she had found evidence of document destruction and improper appraisal methodologies that allegedly violated federal law and resulted in consistently low values for rights-of-way easements used by oil and gas companies on Indian land. (A rights-of-way easement is an agreement allowing a person, government or corporate entity the right to use private land.)
Lewis, herself a Navajo Indian from the Checkerboard with a master’s degree in public administration from the University of New Mexico, found that the chief appraiser of the Navajo office, Anson Baker, had been approving rights-of-way appraisals for values ranging from $25 to $40 a rod on a major trunk pipeline. (A rod, the standard measurement for rights-of-way valuations, is a 16.6-foot length of pipe; widths can vary.) When Lewis asked Chief Appraiser Baker how he’d arrived at the $25 to $40 per-rod valuation, he was unable to give an adequate explanation, according to her affidavit.
Public records of pipeline rights-of-way agreements show that a $25-to-$40 per-rod valuation for a major trunk pipeline, as opposed to a much smaller gathering line, which transports natural gas or oil directly from a wellhead, is extremely low. Pipeline companies paid $37.9 million for rights-of-way in the U.S. in 2003, according to the trade magazine Oil & Gas Journal. According to construction-permit applications for pipeline rights-of-way filed with the Federal Energy Regulatory Commission (FERC), the average rights-of-way agreement came to $130.80 a rod in 2003.
In the San Juan Basin, a 36-inch-diameter pipeline — a major transportation pipeline — fetched an average of $469.20 a rod in 2003, according to FERC filings. Some private landowners in the San Juan Basin receive far more than the average, as Alan Balaran, special master overseeing the Cobell v. Norton class-action lawsuit, found in his 2003 investigation of the appraisal office at Navajo. A rancher with land in Bloomfield, N.M., told SmartMoney.com that he received more than $1,000 a rod for three major pipelines crossing his property (see the pipeline agreement here).
“Devaluing property merely because it could be condemned “violates the Constitution in that we’re entitled to due process, and it violates that spirit of the law that the government can’t take property without proper compensation.”
Steve Snyder, certified general appraiser
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Appraisal regulations are laid out in the Uniform Standards of Professional Appraisal Practice (USPAP). Lewis believed that Baker was violating USPAP standards, according to her affidavit, since he was unable to produce any supporting documents to validate the $25-to-$40 valuations, and since Lewis suspected that $25 to $40 was much less than fair-market value.
In her attempt to find supporting documentation for previously approved appraisals, Lewis found that Baker, who’d worked at the Navajo office since 1984, had erased the database on his computer that contained his appraisal log and had made no hard copies, a violation of federal law and court orders mandating the protection of all records relating to Indian trust funds. Absent such records, the Indian beneficiaries are unable to determine whether they are getting the maximum value for their property, which the government is obligated to ensure as a matter of law, according to federal court rulings.
In a series of e-mails and conversations, Lewis described what she’d found at the Navajo Regional Office to several of her superiors. According to her affidavit, she received little to no response from these individuals, including her immediate supervisor, Eldred Lesansee, OST regional appraiser; Kenneth Rossman, OST Trust Funds chief of staff (Rossman has since resigned from the OST); Gabriel Sneezy, OST chief appraiser; and Steven Graham, BIA realty officer.
Dan Dubray is the Interior Department’s spokesman on all matters related to the Cobell litigation. “It’s premature to respond to anything that’s in [the Lewis] affidavit,” he says. “The department takes every issue raised in Cobell seriously, and we’re going to conduct an internal investigation.”
The fact that Lewis’s superiors had been notified of potentially illegal conduct by a chief appraiser of the BIA — the destruction of trust-fund records, the inappropriate appraisal methodology — prompts the question about what they planned to do, if anything, about it.
“They Do Things Differently at Navajo”
Ross Swimmer, head of the OST and a former tribal leader of the Cherokee Nation, says in general he’s “not at all happy with the way business is being done and was done” at the Navajo Regional Office. Swimmer says that while he doesn’t dispute the allegations in Balaran’s report — notwithstanding Interior spokesman Dubray’s earlier charge that it was biased and faulty — he can’t comment on any disciplinary action being contemplated against Baker.
As of press time, there has been no significant disciplinary action against any employees of the OST relating to Balaran’s August 2003 report. Anson Baker remains a certified appraiser in four states and is chief appraiser of the OST’s Portland Regional Office. Asked what he would do if he learned that other officials in the OST had knowledge that Baker had destroyed trust-fund documents and was using faulty appraisal methodologies, Swimmer said he “would have to look at disciplinary action.” At the time of the interview, Swimmer apparently didn’t know about Deborah Lewis.
Swimmer nevertheless challenges the notion that the companies were systematically paying less to the allottees for rights-of-way than they deserved, although he admits that in some cases the appraisals were too low.
“If you talk to some of those companies, you get a little different perspective,” says Swimmer. “Their concern is, ‘How do I get a right of way’? The price is inconsequential.”
But Swimmer has claimed that there are good reasons to devalue allotted land. In his June 23, 2003, deposition with the federal district court hearing the Cobell v. Norton lawsuit, Swimmer argued that the involvement of the federal bureaucracy in the appraisal process “could decrease the value” of allotted land, since companies might theoretically have to spend more to obtain the rights-of-way.
Central to the government’s argument that allottees justifiably receive less than tribal or private landowners is the fact that energy companies have the legal authority to file condemnation proceedings against allotted land. If a court finds in favor of the company, it then decides the fair-market value for the land, and the company pays it.
“To say that the guy who points out the problem is the problem, is perverse.”
Alan Taradash, attorney
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In his Navajo site-visit report, Balaran wrote that when he asked Chief Appraiser Baker why allottees receive a “value lower than the amount” paid for rights-of-way running across private and tribal land, Baker said he “did so out of concern that a valuation commensurate with the valuation of private and tribal holdings would invite protracted proceedings” by the energy companies seeking to condemn the land.
Steve Snyder, director of audit and a certified general appraiser with Rocky Mountain Valuation Specialists, an independent appraisal consulting company based in Lakewood, Colo., says that to devalue property based on the argument that it can be condemned is a violation of federal law. Such a practice “violates the Constitution in that we’re entitled to due process, and it violates that spirit of the law that the government can’t take property without proper compensation,” says Snyder.
Snyder adds that using the threat of condemnation against Indian allottees to get a lower value for their land “sounds like coercion.”
According to Lewis’s affidavit, Steve Graham, a realty officer with the BIA at the Navajo Regional Office, claimed that the government didn’t negotiate for higher values because “the oil and gas companies might sue the BIA.” The following account details a conversation between Lewis and Graham in November 2002 — nine months before Balaran wrote his report:
Graham said that he knew that the appraised value of pipeline rights-of-way across Navajo allottee trust lands is much less than the amount that they should be paid. However, he said this is generally known and allowed because BIA officials were afraid that “the oil and gas companies might sue the BIA” if the pipeline rights-of-way were appraised higher than $25 per rod, the amount that the oil and gas companies told the BIA they were willing to pay. I was surprised by Graham’s comments and asked him, “[I]sn’t BIA’s job to watch out for the best interest of the allottees?” Graham replied, “Well, they [at the BIA] do things differently at Navajo,” and he turned his back and walked away.
An Ugly History
Alan Taradash, a lawyer with the Nordhaus law firm in Albuquerque, N.M., stares across his desk, fuming. Taradash, who has battled energy companies operating illegally on allotted Navajo land for decades, had recently finished a meeting with the former special master Alan Balaran in his office. He was clearly agitated.
“What the government did to the special master was perverse,” Taradash says, pounding his meaty fist onto his desk. “To say that the guy who points out the problem is the problem, is perverse.”
Balaran, who declined to comment, would no doubt agree. In his resignation letter, he noted that one of the most curious and revealing aspects of this entire case involves the decision by the government to hire two private attorneys to defend Baker in a deposition for the Cobell lawsuit.
The Lewis affidavit includes a foreword by the plaintiff’s attorneys describing the unusual activities of Larry Jensen, an attorney with the Interior Department’s Office of the Solicitor.
Immediately after Balaran’s August 2003 site-visit report was filed with the court, Jensen, the No. 2 official in the Interior’s Solicitor’s Office, contacted Baker, according to the plaintiffs’ attorneys.
“I’d like to think that 50 years after Brown v. Board of Education, we’re far enough past virulent racism that we wouldn’t be using the mechanisms of government in such an oppressive fashion. Which leaves us with protecting the oil and gas extraction industries [as the rationale for the government’s actions].”
Tiawagi Helton, professor of Native American law, University of Oklahoma
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“Conspicuously, Jensen called Baker not because he was alarmed that [Balaran] had documented the irreparable harm that Baker had inflicted on Navajo trust beneficiaries…Instead, Jensen called Baker to make sure that he kept his mouth shut and…volunteered to help him secure private counsel at taxpayer expense,” the plaintiffs allege.
Jensen’s efforts to protect Baker might have been for naught, however. (Jensen declined to comment.) The Lewis affidavit explicitly states that Baker, who was deposed by the Cobell plaintiffs on March 31, committed perjury in his deposition.
“Baker was permitted by government lawyers and senior Interior Department Officials to lie during his deposition,” Lewis alleges on Page 18 of her affidavit. “I fear that he continues to act against the best interests of the trust beneficiaries.”
Shii Shi Keyay spokesman Ervin Chavez thinks the government’s extraordinary efforts to protect Baker show that it’s trying to hide something.
“When you know the amount of money that is spent on people like Anson Baker, and you see that the federal government is paying all kinds of legal fees, you walk away from these depositions and you think, ‘My gosh, you mean to tell me that the federal government is covering this up at all costs?'” says Chavez.
A spokesman for the Justice Department declined to respond to allegations that it tried to have Balaran removed because he was investigating the dealings of energy companies on Indian land.
Tiawagi Helton, a professor of Native American law at the University of Oklahoma who has followed the Cobell case, suspects the Bush administration has gone to such extreme lengths to stall prosecution of the case in order to protect the energy industry from any future litigation concerning its suspect practices on Native American lands.
“It’s not money,” says Helton. “The federal government spends and receives money with a sufficient number of zeroes that are difficult to fathom.” The choice, he says, comes down to either virulent racism or protection of the energy industry.
“I’d like to think that 50 years after Brown v. Board of Education, we’re far enough past virulent racism that we wouldn’t be using the mechanisms of government in such an oppressive fashion,” he says. “Which leaves us with protecting the oil and gas extraction industries.”
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