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Case number 19-50-05 et al.

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Cook Inlet Tribal Council, Inc.

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versus Christopher Mondragon, Director, Alaska Area Office, U.S.

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Indian Health Service et al.

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Appellants.

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Mr. Copell for the appellants, Ms.

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Patterson for the appellee.

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May it please the court, I'm John Capell from the Justice Department representing the appellants, the Indian Health Service in this case involving, this appeal involving the

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Indian Self-Determination and Education Assistance Act, known as ISTA.

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Under ISTA, the plaintiffs are tribal organizations who seek to operate programs that were previously operated by the government under, are entitled to receive the,

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be treated on equal footing with the government.

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They are supposed to receive the resources that the government would have used to implement the program.

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And Congress has established this parity principle in 25 U.S.C.

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5325A.

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And that section

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contains two funding categories.

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First is A1, which is the basic program, substantive program cost known as the secretarial amount.

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And then the second category is contract support costs, which are found in subsections A2 and A3.

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The contract support costs provide additional administrative funding for additional administrative costs that are not covered by the secretarial amount.

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The district court and the plaintiffs, however, seek to blur the distinction between the secretarial amount and contract support costs and to turn the contract support cost provision into an open-ended supplement to the secretarial amount.

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Congress wrote no such blank check, however, as is clear from the plain language of 25 USC 5325A and from the structure, purpose, and history of the ISTA.

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Turning to the history of these provisions,

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Congress in 1975, when it enacted ISTA enacted, it provided only for the secretarial amount.

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That is the core amount that provided funding, substantive funding for these programs.

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However, it became apparent to Congress thereafter that that was not sufficient

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because tribes were having to expend additional resources for administrative costs and therefore were eating into the substantive program amount.

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So therefore in 1988, Congress enacted the first, the core contract support cost provision in 5325A2.

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And that established that the tribes can get administrative costs for certain items, for things that are not normally carried out by the secretary through the

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the secretarial amount and also items where the funding is provided from resources other than the contract.

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Now the Congress further refined the statute in 1994 when it adopted

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the related, a subordinate contract support cost provision in A3.

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That simply refined and clarified the meaning of contract support costs, which is set forth broadly in A2 and it provided for is certain for direct and indirect contract support costs.

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However, again, this was done because Congress was concerned that

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that tribes were being forced to use funds from the secretarial amount for administrative costs that the government would not have had to incur.

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So.

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Mr. Capel, may I ask you about how your agency reads 3A

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Little, what I call little.

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3A, which, your honor?

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Judge Henderson, you may have cut out there after 3A.

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Additional administrative or other expense related to the overhead.

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Can you hear me now?

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Yes, I do.

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Your honor, I just want to be clear.

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You're referring to A2, little A, little 2?

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No, two, three, big A, and then little two.

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Little two.

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All right.

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Sorry, I misspoke.

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Yes, your honor.

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First of all, I would... Well, let me just ask my question.

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Let me just ask... Let me ask my question.

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Okay.

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Sure.

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That says any additional administrative or other expense related to the overhead.

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Now, do you read administrative

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to have to be related to overhead or do you read administrative expense or other expense related to the overhead?

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And then what do you consider overhead?

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What does the agency consider overhead?

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Well, first, before I answer that question, Your Honor, I would like to stress that that provision

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3A little two is not involved in this case.

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This case only concerns direct contract support costs under A little one.

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So that has... The reason it's interesting to me is why overhead, which I can't find a find anywhere, would not include rental costs, so forth, of this facility's cost.

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Well, Your Honor, we don't read overhead that broadly.

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We believe that overhead concerns items where the government is providing across-the-board funding.

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It's not separating out items that

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Can I find that anywhere where overhead is set out as what it includes?

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Well, Your Honor, I don't think that the statute or the Indian Health Manual really defines overhead.

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But when you look at the way the statutory provisions interact,

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it is clear that overhead is a more limited category.

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In section A to A, that is the basic contract support costs provision, and that really does not

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That provides for things like workman's compensation, payment, premiums, and insurance costs that the government does not have to pay.

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And then A2, to B,

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applies to things like attorney's fees, which the government provides for from resources outside of the contract.

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So 3A1 in the government's view, which is the direct contract support provision, direct contract cost,

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Provision deals with things like things like rents and you know facility facilities costs such are such as are involved here that is not overhead.

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Within the meaning of

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Uh, three a little too.

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How about utilities and phone and water?

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Again, those would be, those are, would be considered, um, direct costs under three a one rather than overhead, uh, under, under three a two.

[00:10:24] Speaker 03:
All right.

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All right.

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Thank you.

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Does it matter?

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I thought your main theory, I'm a little confused.

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Um,

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why you seem to want to frame the answer to Judge Henderson's question as one about 3A1 versus 3A2.

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I thought your primary theory, tell me if this is wrong, but your primary theory is it doesn't matter whether or not they satisfy three because they also have to satisfy two independently.

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That's correct, Your Honor.

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Two is basically, two is the principle contract support cost provision.

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It's essentially the gatekeeper.

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They have to be within two before they even get to three.

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Three really is a refinement and clarification of two.

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Can I ask you one question about two?

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Yes.

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Which is, to me, this case

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seems to come down to the question whether the kinds of costs that are at issue here, the rent and the salaries and the utilities, are items normally not carried on by the secretary in operation of the program if the federal government ran the program.

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That is the government's view.

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intuitively appealing point that this seems pretty self-evident that if the government runs an alcohol treatment facility, they're gonna have rent costs and salaries and they have to pay for telephones and such.

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How should we think of that question?

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Is it enough for you to win just by saying,

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Give me a break.

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This is self evident or is that something you have to prove with Is something you somehow have to prove with record evidence or a brand ice brief or I don't know what How do we figure that out?

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Your Honor, in our view, it's the, it's really, it is clear on the face of the statute, this is the only way, this is the way the statute works and the way it makes sense, this is the way to harmonize the various provisions, the

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secretarial amount provision and the contract support clause provisions.

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And it's consistent with the history of the ISTA and it's also basically, in our view, this is the clear meaning of the statute.

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Sorry, how does the statute on its face make clear what activities

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the government would normally carry on if it were running this facility?

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Well, your honor, certainly things like rental costs, like salaries, these are things that obviously that on their face, the government would normally be carrying on to operate

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its program.

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There's no question here.

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As a matter of here, there actually is record evidence that there was that from the original contract in 1992, FY1992, that the

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that facilities costs were included.

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And the plaintiffs acknowledged that, the $11,838.50 figure.

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So there's no dispute.

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There certainly can't be any dispute in this case that this was part of the secretarial amount.

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Included in the secretarial amount.

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Yes, your honor.

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Which tends to support

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What the seemingly obvious, but maybe not proven proposition that those are costs that of course the government would incur if it were running the program.

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It is awfully dated, but I take your point.

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Yes.

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And one final thought on that, the Indian Health Manual is also consistent with that, because it says with respect to things like rents, that it's only in extremely rare circumstances that rents could be treated as contract support costs.

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That is because they are generally within the purview of the secretarial amount.

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So thank you.

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I will now reserve.

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We'll give you a minute and reply.

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Ms.

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Patterson.

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May it please the court.

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This case centers on two statutory provisions, one general and the other quite specific.

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The general one announces that the secretary must add contract support costs to the contract.

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And the later enacted very specific one, section 85325A3, defines with precision exactly what those added contract support costs are.

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The general provision

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Would you be able to pick up perhaps where Judge Katz is questioning left off and I'll phrase it this way.

[00:16:29] Speaker 02:
When Indian Health Services directly operates a hospital, it almost always pays for facilities costs like rent, right?

[00:16:44] Speaker 01:
No.

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Okay, tell me why I'm wrong.

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The Indian Health Service, first of all, may incur some facilities costs, but not necessarily of the same kind and like that a tribe might incur.

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Rent is a good example.

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The government may rent a building.

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The government might just own it outright.

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Things like a mortgage.

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The government does not incur mortgage costs.

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The government either has funds to buy a building or it doesn't or

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funds to build a building or a dozen.

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Property insurance, the government self insurers, they don't buy commercial property insurance out on the market.

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And this was some of what the district court struggled with when they said that there, when he said there's no definition of what the secretary quote unquote normally incurs.

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And the other thing is that the statutory text in A2 directs you to look at the secretary and his direct operation of the program.

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Well, in most cases, as Mr. Capel pointed out, a tribe is taking over a program that the federal government is running, and they know what the federal government incurs.

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There's an actual budget, the actual expenditures.

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This is a unique case because the government never ran this program, and

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And so the parties agreed to what a budget of what that would incur.

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They agreed what cost the secretary normally would carry on.

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Here it was a portion of rent and it was a portion of a facility's coordinator salary.

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And here the government agreed that the council has over $302,000 of other reasonable allowable costs related to the subject of the IHS contract that have not been reimbursed in the secretarial amount.

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So that's why we're here today.

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Let me ask a different hypothetical maybe, and that answer was helpful.

[00:18:26] Speaker 02:
I appreciate it.

[00:18:28] Speaker 02:
Let's take a less general question.

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Imagine that IHS wants to open up a hospital in Anchorage on land that the government doesn't already own.

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And that's somewhat analogous here because here the Cook Inlet presumably opened the rehab treatment on land that it did not already own.

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Am I right about that?

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They didn't already own this land when they opened the treatment center, right?

[00:18:56] Speaker 01:
Correct.

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Okay.

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So government, IHS decides it wants to open a hospital in Anchorage on land that it doesn't already own.

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And it's going to operate that hospital directly.

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It would have to either buy the land, which would be an expense,

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or it would either have to rent the land, which would be an expense.

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Is that correct?

[00:19:20] Speaker 02:
Correct.

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So in that case, I don't understand how this wouldn't be almost a textbook example of a secretarial amount.

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This is a cost that IHS would almost always have to pay out of its pocket

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if it were going to operate directly, the type of facility that Cook Inlet is operating.

[00:19:49] Speaker 01:
So I'd like to make a few points in response.

[00:19:52] Speaker 01:
First,

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We agree that if facilities costs had been paid in the secretary amount, the federal government would get an offset that would get a credit for every dollar for every facilities costs that they had and they transferred to Cook Inlet.

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The issue is here,

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the federal government was not operating that facility, right?

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And so all they provided was $12,000.

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And we give them, I mean, it was 11,838, but we give them credit for every dollar that they've shown that were transferred.

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And the whole contracts of per cost provisions were added.

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And as Mr. Capel explained, because the agency was underfunding,

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indirect costs, they were underfunding.

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Let me ask about that.

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Let's say I take as a given what you just said that IHS is underfunding a program that they agreed to fund.

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And it probably would not be the first time IHS underfunded a program that agreed to fund.

[00:21:03] Speaker 02:
I would think that your remedy in that situation is to say your secretarial amount is too small.

[00:21:13] Speaker 02:
So give us the extra $300,000 as an addition to our secretarial amount.

[00:21:21] Speaker 02:
Why didn't you ask for that?

[00:21:24] Speaker 02:
Why didn't you go to court and demand that?

[00:21:28] Speaker 01:
Well, there's a few reasons, but the first is we're not talking about expanding the program.

[00:21:34] Speaker 01:
That's the government's argument.

[00:21:36] Speaker 01:
We're talking about the subject of the IHS contract, and we're looking at the funds that are needed to run that IHS program under contract so that the program that the council runs is on parity, like Mr. Capel said, with the same program.

[00:21:51] Speaker 01:
I get that.

[00:21:52] Speaker 02:
I may have misspoken, but that was supposed to be kind of a given and assumption in my question.

[00:21:59] Speaker 02:
let's say IHS authorizes this program as it currently exists, every bed, every square foot, every everything, they've authorized that program and yet they've underfunded it by $300,000.

[00:22:13] Speaker 02:
That seems to me to suggest that what Cook Inlet needs to do is go to court and say our secretarial amount is 300,000 less than

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the statute requires IHS to pay.

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And so maybe there is a strategic reason that Cook Inlet didn't do that, or maybe you're gonna tell me that I'm misreading the statute and what secretarial amount means, but I am curious, why wouldn't Cook Inlet have just done that?

[00:22:45] Speaker 01:
I mean, maybe that would have been an option.

[00:22:47] Speaker 01:
But you also have a statute that says these fees overhead, administrative, support costs, the costs that are necessary to run the program are recoverable as contract support costs.

[00:22:59] Speaker 02:
And so if they're not normally paid by IHS or IHS to operate this program directly,

[00:23:11] Speaker 01:
But what does that mean, you have to look at the direct operation of the program and here the direct operation included $12,000 included part of rent.

[00:23:21] Speaker 01:
And then when they added additional funds around 2004, there is no funding of facilities because you have these statutory provisions that allow a contractor if they have to not have to take from those program dollars, not have to take for the money that pays for those counselors and those treatment beds and the people with the white jackets,

[00:23:45] Speaker 01:
but there is a funding mechanism available for the necessary support costs to operate the program.

[00:23:52] Speaker 01:
And there's a whole manual and facility support costs are one of the main three categories of contract support costs that can be recovered.

[00:24:01] Speaker 04:
Suppose it were crystal clear that we were talking about

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a category of expense that the government would have to incur if it were to run the program, whether it's rent or salaries or whatever, just assume that's clear.

[00:24:26] Speaker 04:
And the secretary, if he ran the program, let's say would spend a million dollars

[00:24:39] Speaker 04:
and let's say that the contractor reasonably spends, I don't know, $1.2 million on that category.

[00:24:50] Speaker 04:
And it's reasonable, but it's more than the secretary would have spent.

[00:24:58] Speaker 04:
Your theory is you get to recover that extra $200,000

[00:25:07] Speaker 04:
because it's a reasonable expense, no matter how much it is the kind of thing that the secretary spends and he just wouldn't have spent as much.

[00:25:22] Speaker 01:
If it's a support cost, yes.

[00:25:24] Speaker 01:
And let me give you a real life example.

[00:25:26] Speaker 01:
I'm going to take a thought of facilities context for a second and talk about health insurance.

[00:25:31] Speaker 01:
The government provides health insurance for its employees.

[00:25:34] Speaker 01:
Everyone agrees they have to do that.

[00:25:36] Speaker 01:
But the government generally has the federal employees health benefits program.

[00:25:40] Speaker 01:
It's good insurance and it's pretty cheap.

[00:25:43] Speaker 01:
Tribes, when they provide health insurance for their employees, they have to go out on the commercial market and purchase that insurance.

[00:25:50] Speaker 01:
And it's often at quite a bit higher expense.

[00:25:53] Speaker 01:
direct contract support costs pay that difference between what the tribe pays on the commercial market and what the federal government pays for its health insurance.

[00:26:03] Speaker 01:
It's the same type of item that the government is providing, but the contract support costs are there so that that extra, you know, premium, if you want to call it, that the tribe has to pay

[00:26:14] Speaker 01:
does not have to come out of the program costs.

[00:26:17] Speaker 01:
And you actually see this in the IHS manual in exhibit 6-3-G.

[00:26:21] Speaker 01:
They actually have a chart with theoretical health insurance amounts, right?

[00:26:27] Speaker 01:
The government pays $200 and it costs the tribe $300 and that $100 come out.

[00:26:35] Speaker 01:
And it explains, after determining the total cost of the activities to be supported with CSC, IHS will deduct any funds that may have been provided to the awardee in the secretarial amount for this activity to avoid duplication of costs.

[00:26:52] Speaker 01:
So that's what we're talking about here.

[00:26:59] Speaker 03:
Okay.

[00:26:59] Speaker 03:
All right, if there are no more questions.

[00:27:03] Speaker 03:
Mr. Capel, why don't you take a minute if there are any questions for you?

[00:27:12] Speaker 03:
Oh, gosh.

[00:27:13] Speaker 03:
OK.

[00:27:14] Speaker 03:
Thank you.

[00:27:20] Speaker 05:
Thank you, Your Honor.

[00:27:22] Speaker 05:
I would respectfully disagree with the last thing that Council said, because we're not talking about insurance costs here.

[00:27:31] Speaker 05:
We're talking about rental costs and salary costs, which certainly are part of the secretarial amount, and they are not part of 2A.

[00:27:44] Speaker 04:
What's your answer to the conceptual point that sometimes

[00:27:50] Speaker 04:
It's the same category of cost, but it's just, it's obvious.

[00:27:55] Speaker 04:
It's much cheaper to the government than to any other provider.

[00:27:59] Speaker 05:
Your honor, if it's the same category of costs, and it's within the secretarial amount, that unfortunately they are not able to get additional contract support costs for that.

[00:28:11] Speaker 05:
That's not the purpose of contract support costs.

[00:28:16] Speaker 05:
It is a categorical non-duplication principle.

[00:28:21] Speaker 04:
So for workers comp,

[00:28:25] Speaker 04:
federal government just they self insure.

[00:28:29] Speaker 04:
Right.

[00:28:30] Speaker 04:
And so that's a different category.

[00:28:32] Speaker 04:
And so that's recoverable.

[00:28:34] Speaker 04:
That's right.

[00:28:36] Speaker 04:
For health insurance.

[00:28:39] Speaker 04:
In the providers, you know, they sorted by it, but sort of not.

[00:28:46] Speaker 04:
I mean, FIBA is

[00:28:49] Speaker 04:
Ms.

[00:28:49] Speaker 04:
Patterson is right.

[00:28:50] Speaker 04:
It's freakishly cheap and good to those of us who are lucky enough to have it.

[00:28:57] Speaker 04:
But because that is hugely subsidized, but costs IHS a little bit, then the provider who has to pay three times as much on the open market to get that insurance is just out of luck.

[00:29:18] Speaker 05:
Well, to the extent that any costs are within the secretarial amount, that is true.

[00:29:25] Speaker 05:
They can't just get the difference through contract support costs.

[00:29:31] Speaker 02:
Mr. Koppel, why not just say, if it's correct, the example Ms.

[00:29:36] Speaker 02:
Patterson was giving is textbook contract support costs, that the secretarial amount covers what the secretary would have paid

[00:29:48] Speaker 02:
but there are other necessary expenses that the secretary wouldn't incur.

[00:29:53] Speaker 02:
And that's where contract support costs kick in.

[00:29:57] Speaker 02:
But with rent, we're talking about bread and butter secretarial amount, because assuming the government doesn't own the land already, just as Cook Inlet doesn't own this land already, the government has to, the government wants to rent a thousand square foot, it's got to pay the market price for a thousand square foot.

[00:30:15] Speaker 02:
And if Cook Inlet wants to rent 1,000 square foot, they should get that amount, whatever the amount is for that rent, from IHS.

[00:30:23] Speaker 02:
If they're not getting that much, then they should go to court and they should demand the difference as part of the secretarial amount.

[00:30:28] Speaker 02:
Now, if Cook Inlet decides, well, it's reasonable to rent 1,020 square feet.

[00:30:34] Speaker 02:
And so there's going to be an extra cost there that the government wouldn't incur because the government would only pay, were it running the program, 1,000 square foot facility.

[00:30:44] Speaker 02:
then that is extra money that's going to have to come out of Cook Inlet's treasury and it's not going to be reimbursed, right?

[00:30:51] Speaker 05:
Your honor, that's exactly right.

[00:30:53] Speaker 05:
That is precisely the government's position here.

[00:30:57] Speaker 05:
And just to close very quickly, I would point out that there was a lump sum increase.

[00:31:04] Speaker 05:
In 1992, when they were only getting the $11,838 for rental and salaries, Congress added $1.5 million

[00:31:20] Speaker 05:
To the secretarial amount for cook inlet in 2003 and so it's now approximately 2 million and This is lump sum.

[00:31:32] Speaker 05:
So even though there's no reason to think that it's sort of that that just that they're limited to the 11,838

[00:31:41] Speaker 05:
that they originally got for rent and salaries.

[00:31:44] Speaker 05:
The tribe allots the lump sum as its seeds fit, but it is obviously limited by the parameters of the secretarial amount.

[00:32:01] Speaker 05:
So if there are no further questions, I would urge the court to reverse the judgment of the district court.

[00:32:10] Speaker 03:
All right, thank you.

[00:32:13] Speaker 03:
And Madam Clerk, if you'd give us an adjournment.