Tentative $33M settlement reached in lawsuit alleging Utah mismanaged Navajo oil-trust fund

$33M settlement proposed in Navajo trust fund suit

SALT LAKE CITY — When auditors looked at an oil-and-gas royalty trust set up by Congress to benefit Utah’s Navajo Indians, they found $50 million had disappeared or was squandered on bribes, bad business deals and payoffs.

Now, 18 years later, Utah’s attorney general has agreed to settle a lawsuit over the damage for $33 million in taxpayer money, echoing the federal government’s recent decision to settle a much bigger case over Indian trust funds nationwide.

The Utah lawsuit accused the state of failing to ensure royalties, paid by U.S. oil companies, were properly spent, although two Navajo investment groups “were the real culprits,” said Brian Barnard, lead attorney for the Navajos’ class-action lawsuit.

Those groups, which no longer exist, loaned money to their own board members and to a New Mexico garment factory that never opened. They also underwrote a Lake Powell marina that was swept away by a flood; it was built on a known flood plain.

“I think it’s to everyone’s benefit to make this work,” assistant Attorney General Philip Lott said Tuesday. The settlement awaits approval by a federal judge and Utah Legislature, which would make four years of payments to settle the case.

Lott said the case has cost the state millions of dollars to defend and could have cost millions more if it had gone to trial.

The state never had proper records accounting for the money, Barnard said.

In 1991, the year before the lawsuit was filed, the Utah Legislature’s auditor general reported suspected self-dealing and mismanagement by trust fund officials. Federal criminal indictments followed, alleging bribery, conspiracy, fraud, money laundering and misuse of tribal funds against seven Navajo Nation leaders in Arizona.

Utah was accused of failing in its duty as the trust’s fiduciary — a role it never wanted and is trying to shed. It is asking Congress to appoint another trustee — the Navajo Nation or one of its corporations. For years, Utah has refused to appropriate any but the most essential trust funds.

Utah was supposed to ensure the money was spent on reservation roads, health care and “tuition of Indian children at white schools,” according to a federal statute.

“This agreement is in the best interest of the citizens of Utah,” Attorney General Mark Shurtleff said Tuesday in a statement. “It will bring money to the most impoverished area of our state.”

Many on the Navajo reservation have no running water or electricity, and unemployment runs up to 50 percent.

The idea of setting aside the state’s share of oil and gas royalties for the Indians surfaced when Congress decided to expand the Navajo Reservation from New Mexico and Arizona into southeastern Utah, where a number of Navajo clans fled when Kit Carson marched the tribe into New Mexico in 1865.

Congress made it law in 1933. But it wasn’t until oil and gas companies started drilling in the Aneth oil field about 30 years later that Utah Navajos started receiving a 37.5 percent royalty. The remaining 62.5 percent goes to the tribe, headquartered at Window Rock, Ariz.

The Utah Legislature has few options for paying the money — it will undoubtedly have to come from the taxpayer-funded General Fund, Lott said.

“The key point from the state’s perspective is this is a fair resolution,” Lott said. “There may be some Navajos or legislators that question it, but we’ve gone through a mediation involving a respected judge.”

U.S. Court of Appeals Senior Judge William C. Canby of Phoenix, a widely recognized expert in Indian law, declined comment Tuesday through his administrative assistant.

Barnard said he and three other lawyers will ask for around $5 million in fees for shepherding the case over 18 years. The rest of the $33 million will go directly into the trust fund, which is largely frozen because Utah refuses to release any but the most essential funds. It contains around $25 million, he said.