[00:00:00] Speaker 01:
Case number 24-1598, Bradley, band of Chippewa Indians, a federally recognized Indian tribe, a ballot, versus United States Department of Health and Human Services.

[00:00:11] Speaker 01:
Ms.

[00:00:11] Speaker 01:
DeGordon for the ballot, Ms.

[00:00:13] Speaker 01:
Neumeister for the appellees.

[00:00:16] Speaker 03:
Good morning, counsel.

[00:00:17] Speaker 03:
Due to unforeseen circumstances, Judge Henderson will not be joining us for this argument session, but we'll listen to the argument recording afterwards as part of our deliberations.

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You may begin now, counsel.

[00:00:35] Speaker 04:
May it please the court.

[00:00:38] Speaker 04:
The court below erred in upholding the agency's refusal to compensate the Red Lake Band for both depreciation and principal and interest under its self-determination lease.

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Principal and interest and depreciation are distinct costs arising from distinct causes and are incurred at different times.

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principle and interest is a cost occurred in acquiring a capital asset.

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Whereas depreciation is a subsequent expense that occurs when the asset declines in value as a result of use or obsolescence.

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Congress identified them as distinct costs in Section 105L of the Indian Self-Determination Act and in the parallel leasing provision

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in the Indian Health Care Improvement Act.

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The agency concedes that they're distinct concepts.

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And indeed, HHS acknowledges in the Medicare regulation that they are distinct costs.

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Finally, the Bureau of Indian Affairs, in its Section 105L leases, including one with the Red Lake tribe, treats them as distinct costs.

[00:02:03] Speaker 03:
It might be distinct as a matter of technical auditing language, but in this case, it would reimburse the same underlying expense by the tribe that is the cost of getting this building.

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Either you get the principal and interest or the depreciation, which again is the value of the building.

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So how would they put aside technical accounting principles?

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and tell me what distinctly depreciation would get you that isn't always already covered by the principal and interest.

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Well, the principal and interest would simply reimburse the cost of the acquisition.

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When the asset is used, there's a distinct cost because it's being used.

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This court has said so.

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I'm asking you in practicality, you acquired it for this service.

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And so if they essentially pay for the building, if we think of the principal and interest reimbursement, I know it's a little more complicated in different parts here.

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But if you think of the principal and interest reimbursement as covering the costs of the building,

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And depreciation covers the cost of the building in pieces over time.

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Are they both covering the cost of the building?

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Only in a most... Non-accounting sense.

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In a non-accounting sense.

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I know, but I'm asking you in a real-world sense.

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In a real world sense, no lesser in the private sector would lease a premises to a runner who says, you know what, I'll cover the costs that it took to provide this facility for me to use.

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No private lesser if they would already be get paid for the cost of the entire building to build it in the first place.

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If the US government built the building,

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They could rent it out without asking someone for both principal and interest and depreciation.

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No renter goes in and plays both of those.

[00:04:26] Speaker 04:
Yes, lessees pay that all the time, Your Honor.

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In the private sector, every private lessor that's out there is going to get reimbursed for cost of acquisition, cost of depreciation, and they'll get a profit too.

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When the federal government leases from private lessors, it's paying all of that.

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It doesn't pay the tribes a profit because that's not one of the components.

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This is already the government's building.

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It's not the government's building, Your Honor.

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If you're getting principal and interest, they're paying for the building.

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It's the government pays for a lot.

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And then you use it and then you're only getting reimbursed for the cost of the use of the building facility.

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If you buy planes from Boeing, Boeing has capital costs and depreciation too.

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Those are built into it and it's not the case that the government owns those.

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The fact that the Congress has said

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Congress has said... Excuse me, isn't there a difference here that the government, by paying principal and interest, is effectively buying the building?

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They're paying the cost of acquiring the building.

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Correct?

[00:05:31] Speaker 04:
No, I don't agree with that.

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When they reimburse you for principal and interest, they are not... They're not acquiring the building.

[00:05:37] Speaker 04:
No, you're not.

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I'm not asking for a title thing.

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I'm asking if they're paying for the cost of the building.

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Congress said it's a lease.

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Are they paying for the cost?

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When you deduct principal and interest, are they not paying for the cost of the building?

[00:05:50] Speaker 04:
No, they didn't.

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In the case here, they didn't pay for the entire cost.

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No, they didn't.

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OK, we're talking about the percentile here.

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So just assume, I know there were some percentiles that were different here, but just assume we have a building that is entirely financed by the government.

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All right.

[00:06:04] Speaker 03:
OK.

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All right.

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And then you all use it to deliver a service, an important service.

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Right.

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But they have paid, when they reimburse you for all the principal and interest, they are paying the cost of that building being there and being used.

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They are, but they're not paying you for your coming up with the lease, getting the financing, supervising the construction, operating the building or any of those things.

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All they're paying is principal and interest.

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is either interest, or if you're talking about time, that's not on the list of things that Congress reimburses.

[00:06:44] Speaker 04:
No, it isn't.

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But depreciation is, Your Honor, along with principal and interest, one right after the other.

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Excuse me.

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Appreciation is not the cost of the trouble of getting financing for a building.

[00:06:55] Speaker 04:
No, it's not, Your Honor.

[00:06:56] Speaker 03:
OK, then.

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That's my point.

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So you mentioned that, that they're not paying for that.

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But that's beside the point, because Congress doesn't authorize them to pay for that.

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Congress has authorized various expenses here.

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And they've twice authorized both

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principle and interest and appreciation.

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And because of the arbitrary position of the agency that these are somehow duplicative, because Congress hasn't called them duplicative, Congress didn't put a duplicative limitation in the statute.

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They're refusing to pay for both here, even though BIA does.

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There's the Indian canon of construction, which is now since 2020 baked into

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the Self-Determination Act itself.

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How can it possibly be consistent with that to have the BIA paying for both and IHS refusing to do that?

[00:07:51] Speaker 05:
Further, in 2020... If you built a building today and the government paid for principal interest on your loan, let's say you borrowed the full amount for the building, and by the time 39 years have passed,

[00:08:10] Speaker 05:
the full interest in loan, you've paid your creditor the full amount of interest and principal, and the government has reimbursed you the full amount of interest and principal.

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And then after 39 years, the building is dilapidated, it's not usable anymore.

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You build a new building.

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You once again take out a loan as principal and interest.

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And the government, once again, going forward, reimburses you for your principal and interest.

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And on and on and on and on.

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You could repeat this every 39 years.

[00:08:47] Speaker 05:
Yes.

[00:08:47] Speaker 05:
It seems like there, you're out the principal and interest, but you then get reimbursed by the government for the principal and interest.

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So you come out even.

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So far so good?

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You come out even.

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And then now let's say a different hypothetical.

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Everything I just said, but those first 39 years, not only are you getting principal interest, you're also getting depreciation back.

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And then at 39 years after the depreciation is fully depreciated, you build a new building.

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And then once again, you get principal and interest, plus you get depreciation.

[00:09:28] Speaker 05:
It seems like you're getting paid twice every 39 years.

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to build a building that you only need reimbursement for once?

[00:09:38] Speaker 04:
No, because if you're the renter, if you rent a place and you pay off and your rent is set equal to the mortgage, you as the renter don't own it.

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And what lessor do you know, Your Honor, respectfully, that would

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lease to you precisely at a rent that's set equal to what their principal and interest is.

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Assuming they got 100% financing, which they didn't.

[00:10:08] Speaker 05:
And I understand analogies to the private sector.

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I think there are a lot of things here that are different than private sector.

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Usually, when a person in the private sector wants to build a new building, they have to pay for the new building.

[00:10:22] Speaker 05:
The government doesn't reimburse them.

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The government didn't reimburse them here?

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This is a different situation.

[00:10:28] Speaker 04:
The tribe went out and got a loan.

[00:10:31] Speaker 04:
The tribe, like a private party, it went out and got a loan.

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But unlike a private party, they will be reimbursed for the principal and interest on that loan by the government.

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A private party is reimbursed through the rent that it charges, Your Honor.

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The rent's going to include all of those components.

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They have to go find a rent.

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The government doesn't just pay them for their costs.

[00:11:00] Speaker 03:
The rentor is there to make a profit.

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The tribe is not supposed to be making a profit off of this.

[00:11:08] Speaker 03:
It's supposed to be.

[00:11:09] Speaker 04:
But it's entitled to both Congress's head.

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That's the difference.

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I mean, that's why your landlady or landlord when you're renting an apartment is going to charge more than just their principal and interest because they're there to make a profit, but you're not.

[00:11:24] Speaker 04:
To do it the way that IHS is doing it rewrites it from a lease to a grant in aid.

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program, which it is not.

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Congress has called it a lease.

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Congress has twice done that, both in the Health Care Improvements Act and in the Self-Determination Act.

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And it's twice said, Congress has said this, that you're entitled to both principal and interest and depreciation.

[00:11:46] Speaker 04:
They didn't say and or depreciation.

[00:11:48] Speaker 04:
Can I ask, what work does the reserve fund do?

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I know there's... That's a separate cost category.

[00:11:56] Speaker 05:
No, I know that.

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that was created after the fact by regulation.

[00:12:01] Speaker 05:
I'm asking what work it does.

[00:12:03] Speaker 04:
It takes care of some of the fixtures, replacing some of the fixtures in the building and things like that.

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But it is not a substitute for the depreciation.

[00:12:17] Speaker 05:
Does it cover any costs that would normally be covered by depreciation?

[00:12:23] Speaker 04:
It was structured by IHS and BIA, which wrote the reg, to be something beyond depreciation because they already had depreciation by the statute.

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The reserve for replacement was one of the additional cost categories that they created.

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So it's covering different costs.

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So there's nothing that's covered by the reserve fund?

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would otherwise be covered by depreciation?

[00:12:49] Speaker 04:
To my knowledge, no.

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And beyond that, Your Honor, that was not the claim that the agency made below.

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They didn't say it's duplicating what's in the replacement reserve.

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They said it's duplicating principle.

[00:12:59] Speaker 03:
That's an example of something that the replacement fund covers that depreciation wouldn't.

[00:13:04] Speaker 03:
That either the replacement fund, the repairs to building and equipment, and the operation and maintenance expenses, those three categories, tell me what they cover that depreciation would not

[00:13:16] Speaker 04:
Some of the fixtures in the building, Your Honor, there's the building itself, building the facility... Is the wear and tear on fixtures part of depreciation?

[00:13:23] Speaker 04:
I'm sorry?

[00:13:24] Speaker 03:
Isn't the wear and tear of sort of the inter... First of all, it's replacement of facilities, not... I don't think that's replacement.

[00:13:30] Speaker 03:
I would assume replacing fixtures might be repairs to the equipment.

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but contributions reserved for replacement of facilities, I assume, would not be the... I know, Your Honor, I think it goes... I think that there are distinctions between them.

[00:13:45] Speaker 04:
You know, the facility... Some overlap maybe between replacement of facilities... When you build a health care center, you've got to have various equipment in it.

[00:13:55] Speaker 04:
You've got to repair it and you've got to replace it.

[00:13:58] Speaker 03:
So that would be covered by repairs to buildings and equipment.

[00:14:01] Speaker 04:
Yes.

[00:14:02] Speaker 04:
Well, repairs would cover repairs, wouldn't necessarily cover replacement.

[00:14:05] Speaker 04:
No.

[00:14:06] Speaker 03:
All right.

[00:14:07] Speaker 03:
Operation and maintenance expenses.

[00:14:08] Speaker 03:
Would maintenance expenses include having to replace something?

[00:14:12] Speaker 04:
Within the building, but not the building itself.

[00:14:15] Speaker 03:
All right.

[00:14:15] Speaker 03:
So then replacement of the facilities you're saying is when part of the building itself wears down.

[00:14:22] Speaker 04:
I'm saying it could be or machinery within the building or things.

[00:14:28] Speaker 03:
I thought you just said machinery.

[00:14:29] Speaker 03:
So replacement of facilities is different than repair of equipment.

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Unless you're agreeing that there's just some overlap between all these categories.

[00:14:39] Speaker 04:
Your Honor, I think that they are distinct.

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If you've got an x-ray machine in there, you've got to repair it.

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You've got to operate and repair it.

[00:14:46] Speaker 03:
If the windows break down, you need to replace the windows.

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Would you use the contribution to the reserve for replacement of facilities?

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Or would you use maintenance expenses, operation maintenance expenses, or repairs to building and equipment?

[00:15:01] Speaker 03:
Which of those would that be?

[00:15:02] Speaker 05:
I don't know, Your Honor.

[00:15:03] Speaker 05:
Well, and how can you know that the reserve fund and depreciation are not sometimes duplicate?

[00:15:10] Speaker 04:
Well, because the agency structured it to be a non-duplicative cost, or if they are sometimes duplicative, then that's why they've got the anti-duplication provision in there.

[00:15:22] Speaker 03:
But the agency didn't assume... Some of these things on the regulatory list here of reimbursement things, some of them can be or will be duplicative of each other.

[00:15:35] Speaker 03:
I mean, they can overlap.

[00:15:38] Speaker 04:
When the agency added the additional categories, Congress specified five.

[00:15:46] Speaker 03:
My question to you is, it sounds like you just agreed that some of the things on the list A through I can overlap with each other.

[00:15:58] Speaker 04:
It is possible that the ones, not the first ones, the ones that are statutorily enumerated, I do not agree can overlap each other.

[00:16:12] Speaker 04:
The ones that were added by the agencies may occasionally overlap each other.

[00:16:18] Speaker 04:
The agencies added those provisions and they added the anti-duplication limitation.

[00:16:25] Speaker 04:
But that anti-duplication limitation cannot be applied

[00:16:28] Speaker 03:
And the statute, it talks about list things, then adds other reasonable expenses that the secretary determines by regulation to be allowable.

[00:16:38] Speaker 03:
Is there a chance that some of those, so your view is that the other reasonable expenses have to not overlap with the other ones on the statutory list?

[00:16:47] Speaker 04:
Right, or each other, Your Honor.

[00:16:48] Speaker 04:
Yes, that's correct.

[00:16:49] Speaker 03:
So if it counts as a reasonable expense, it's not already on the statutory list.

[00:16:54] Speaker 04:
Your Honor, I believe we're on the same wavelength.

[00:16:59] Speaker 03:
No, I'm asking you for an example of something.

[00:17:01] Speaker 03:
What else could the Secretary add?

[00:17:02] Speaker 03:
Because the statute already covers principal interest, depreciation, operation, and maintenance expenses.

[00:17:10] Speaker 03:
Right.

[00:17:11] Speaker 03:
So what's off that list that would need to be covered by the Secretary?

[00:17:15] Speaker 03:
What would be distinct from those?

[00:17:17] Speaker 04:
The Secretary came up that they're now in the red.

[00:17:21] Speaker 03:
I'm not a landlady.

[00:17:23] Speaker 04:
I'm sorry your honor I don't have it's it's in it's in they're enumerated in 25 CFR 900.70.

[00:17:32] Speaker 03:
I know but you said there can be no duplication between the things in the statute so now I'm reading from the statutory list in 5324 L. Right.

[00:17:42] Speaker 03:
And the statutory list is

[00:17:46] Speaker 03:
Rent, depreciation, principal and interest, operation and maintenance expenses, and other reasonable expenses.

[00:17:55] Speaker 03:
And so you just told me that those statutory ones don't overlap at all.

[00:17:59] Speaker 03:
So I'm just trying to understand as someone who doesn't manage property like your client does, what are some of those, what other reasonable expenses was Congress envisioning that wouldn't be covered by the statutory list?

[00:18:11] Speaker 04:
I'm not sure that Congress had any in mind.

[00:18:13] Speaker 04:
It was leaving it to the agency, and the agency specified those in the reg in 900.70.

[00:18:22] Speaker 03:
But you said there can't be any overlap.

[00:18:24] Speaker 04:
No, I said as between the ones Congress has enumerated.

[00:18:27] Speaker 03:
That's the one I'm talking about?

[00:18:29] Speaker 03:
That's the list I'm talking about?

[00:18:30] Speaker 04:
There is no overlap.

[00:18:32] Speaker 03:
Okay.

[00:18:34] Speaker 03:
But then Secretary's regulations can have some overlaps.

[00:18:39] Speaker 04:
may overlap with either congressional ones or with the ones that they.

[00:18:43] Speaker 03:
The congressional one and they can't pay twice right.

[00:18:50] Speaker 04:
But yes, your honor, that's our position.

[00:18:53] Speaker 05:
You agree that the non duplication provision is consistent with the statute.

[00:18:59] Speaker 04:
As we noted in our in our brief.

[00:19:08] Speaker 04:
The anti-duplication provision is permissible with respect to the other expenses that the Congress authorized the agencies to provide for.

[00:19:27] Speaker 04:
No, the anti-duplication provision cannot be used to limit the expenses that Congress authorized.

[00:19:36] Speaker 05:
And did you preserve that argument in the district court?

[00:19:39] Speaker 05:
We did, Your Honor.

[00:19:40] Speaker 04:
We argued that and it's cited in our brief.

[00:19:42] Speaker 04:
We cite in our brief to where it was argued to the district court.

[00:19:47] Speaker 05:
I saw a cite to

[00:19:50] Speaker 05:
I saw a site to a document in the district court, but I didn't see where in that document you preserved.

[00:19:56] Speaker 04:
We made the same argument that they cannot use.

[00:20:00] Speaker 04:
Can you show me?

[00:20:02] Speaker 04:
I don't have the brief with me right here, Your Honor, but I'm happy to submit that.

[00:20:06] Speaker 04:
I'm happy to submit it to the court as a supply letter.

[00:20:10] Speaker 05:
You did say page number, but I couldn't find it on that page.

[00:20:15] Speaker 05:
So if you resubmit the page, that won't help.

[00:20:19] Speaker 05:
I know.

[00:20:20] Speaker 05:
I'll be happy to submit both the language, Your Honor.

[00:20:23] Speaker 05:
I can read all the language on the page.

[00:20:26] Speaker 05:
Is it that you don't have your appellate brief, or you don't have the district court brief?

[00:20:29] Speaker 05:
I don't have the district court brief.

[00:20:31] Speaker 03:
You don't have it here with you at the table?

[00:20:32] Speaker 05:
No, Your Honor.

[00:20:36] Speaker 03:
All right.

[00:20:36] Speaker 03:
We'll give you a couple of minutes for rebuffs.

[00:20:38] Speaker 03:
Thank you.

[00:20:52] Speaker 02:
May please the court, McKay Neumeister on behalf of the federal government.

[00:21:01] Speaker 02:
The tribe here is seeking double recovery for the acquisition cost of its treatment center.

[00:21:05] Speaker 02:
$4.95 million in acquisition costs for the facility were financed by a loan.

[00:21:12] Speaker 02:
Now, IHS could either pay that $4.95 million in the form of depreciation

[00:21:16] Speaker 02:
or cover it in the form of principal payments on the loan.

[00:21:20] Speaker 02:
Our only point here is that IHS can't do both because it would be duplicative.

[00:21:24] Speaker 02:
Those are just two different ways of paying for the same acquisition cost.

[00:21:29] Speaker 02:
Now there are various compensation elements that aren't contested here like depreciation on the money that the tribe invested itself.

[00:21:35] Speaker 02:
That would total $856,000 at the end of the life of the facility.

[00:21:40] Speaker 02:
There is also no argument against the $3.27 million in interest payments that the government would pay over the life of the loan or the $4.95 million in principal payments that the government would pay.

[00:21:51] Speaker 02:
The only thing at issue is whether the tribe gets an additional $4.95 million over again with respect to depreciation, but nothing in the statute or regulation entitles the tribe to that kind of windfall.

[00:22:03] Speaker 02:
I'm happy to answer any questions that the court may have.

[00:22:06] Speaker 03:
How are you defining duplicative?

[00:22:09] Speaker 03:
Because it is pretty basic accounting principles that principle and interest and depreciation are two very different things.

[00:22:16] Speaker 03:
They're not the same thing, which is what the word duplicative means.

[00:22:21] Speaker 03:
They might end up capturing some overlapping costs, but they are not the same.

[00:22:28] Speaker 02:
And we agree with that, Your Honor.

[00:22:33] Speaker 02:
The concepts are distinct, but the costs that those different categories relate to are the same costs.

[00:22:40] Speaker 02:
And so looking at the statutory text, the Secretary shall compensate

[00:22:45] Speaker 02:
tribes for the use of the facility.

[00:22:47] Speaker 02:
And so the question is, what cost elements are necessary to fully compensate for that use?

[00:22:53] Speaker 02:
And when you have different categories of compensation elements that are compensating for the same underlying costs, those are duplicative.

[00:23:02] Speaker 02:
To pay both of those would not be to compensate for the use.

[00:23:04] Speaker 02:
It would be to go beyond that, to give them double recovery and go beyond what is actually necessary to compensate for the use of this facility.

[00:23:11] Speaker 03:
I'm not sure duplicative is the right word.

[00:23:14] Speaker 03:
word for that.

[00:23:15] Speaker 03:
Deplicative means it's the same thing, whereas you're saying sort of getting more

[00:23:23] Speaker 03:
back than the cost of use.

[00:23:27] Speaker 03:
But that doesn't mean that depreciation and principal and interest are duplicative.

[00:23:31] Speaker 03:
They're not.

[00:23:31] Speaker 03:
They're just very different measures, different ways of accounting them.

[00:23:34] Speaker 03:
They're just not duplicative.

[00:23:37] Speaker 02:
So in certain circumstances, they wouldn't be duplicative, Your Honor.

[00:23:40] Speaker 02:
But here they are, because here paying... I don't think they're duplicative.

[00:23:44] Speaker 03:
Maybe you're saying some of the money you're spending is duplicative, but those categories are not duplicative.

[00:23:49] Speaker 02:
They are not categorically duplicative.

[00:23:51] Speaker 03:
But to compensate both of those here would- Congress listed these categories for reimbursement by category.

[00:23:57] Speaker 02:
But in listing them, Your Honor, Congress was just providing an illustrative list of the kind of compensation elements that might be appropriate for these leases under given circumstances.

[00:24:08] Speaker 02:
The language that Congress used is just such compensation may include and then a list of things.

[00:24:13] Speaker 02:
But we know that those things are not categorically mandatory because

[00:24:18] Speaker 02:
They're simply not applicable in every case.

[00:24:20] Speaker 02:
For instance, here, there was no request for rent because there is no rent to be paid here.

[00:24:25] Speaker 02:
So we know that Congress was just providing a list of the various things that could be paid under these leases, but they can only be paid to the extent that they are necessary to compensate

[00:24:36] Speaker 02:
for the costs incurred in the use of this facility.

[00:24:39] Speaker 02:
And here, principal payments and depreciation payments on the $4.95 million are two different ways of paying for the same acquisition costs.

[00:24:49] Speaker 03:
So with... Do they come out to the same number mathematically?

[00:24:53] Speaker 02:
They do, Your Honor.

[00:24:53] Speaker 02:
So the principal payments are $4.95 million and the amount of depreciation that the tribe is seeking is exactly $4.95 million.

[00:25:00] Speaker 02:
Because essentially, it's paying for that acquisition over time.

[00:25:04] Speaker 02:
And that's what depreciation is.

[00:25:05] Speaker 02:
It's a means of allocating the acquisition costs of an asset over the useful life of that asset.

[00:25:12] Speaker 02:
And when you have principal payments, it's the same thing.

[00:25:14] Speaker 02:
The tribe has to pay the principal, pay the acquisition costs over the life of the loan in order to pay to acquire this facility.

[00:25:22] Speaker 02:
So if the government pays that acquisition cost and also pays depreciation,

[00:25:26] Speaker 02:
which allocates the cost over time, it's paying for the same thing twice.

[00:25:30] Speaker 02:
At the end of the day, those numbers will be exactly the same 4.95 million.

[00:25:35] Speaker 02:
And there's simply no reason in the statute why that kind of windfall is required.

[00:25:40] Speaker 02:
It's helpful to step back and to think about this in terms of what would happen if there was a different means of financing.

[00:25:47] Speaker 02:
If the federal government paid rent on a brand new facility for the tribe for the entire life of the facility, the tribe would be out of pocket nothing.

[00:25:55] Speaker 02:
The federal government would pay all of the rent costs.

[00:25:57] Speaker 02:
The tribe would have this new facility to use to provide these services for 40 years and have no out of pocket loss.

[00:26:04] Speaker 02:
or if there were federal grant money, or if the government just constructed a brand new facility and gave it to the tribe.

[00:26:10] Speaker 02:
The tribe has no out-of-pocket acquisition cost, no loans, no losses at all.

[00:26:16] Speaker 02:
It just has a brand new facility to use.

[00:26:18] Speaker 02:
And at the end of the day, it's gotten 40 years of use of this new facility.

[00:26:21] Speaker 02:
But under the tribe's theory, if they take out a loan, they're entitled to an additional $5 million.

[00:26:28] Speaker 02:
So at the end of the day, they're out of pocket nothing, and they've gotten an extra $5 million.

[00:26:32] Speaker 02:
just because they chose to find us a facility with a loan.

[00:26:36] Speaker 03:
The government gives them a facility that we used in one of the covered forums.

[00:26:45] Speaker 03:
So they just hands them title to it.

[00:26:47] Speaker 03:
So they're the owners of it.

[00:26:48] Speaker 03:
They just got this nice gift from the government.

[00:26:51] Speaker 03:
They don't get depreciation on their gift.

[00:26:53] Speaker 03:
It's now their property.

[00:26:54] Speaker 02:
They don't, Your Honor.

[00:26:56] Speaker 02:
And that's clear under the regulation, 900.70.

[00:26:58] Speaker 02:
I believe it's... Where is that clear in the statute?

[00:27:03] Speaker 02:
Well, it's clear from the statute, Your Honor, because the statute is talking about the expenses of using the facility.

[00:27:09] Speaker 03:
That's exactly what depreciation is, an expensive use, not acquisition.

[00:27:13] Speaker 03:
I'm not sure why, if you all just gave them a gift.

[00:27:18] Speaker 02:
Depreciation is the way of accounting for the acquisition over time.

[00:27:21] Speaker 02:
When you purchase or build a brand new facility, you convert whatever your cash was, $5 million, into an asset that's worth $5 million.

[00:27:31] Speaker 02:
Over time, that asset loses value.

[00:27:34] Speaker 02:
So depreciation restores your acquisition costs to you so that at the end of the useful life, we've accounted for the acquisition costs of that full facility.

[00:27:42] Speaker 02:
You get that back.

[00:27:43] Speaker 03:
Isn't that that the government is the one that paid the principal and interest?

[00:27:46] Speaker 03:
just a very wealthy person, a very wealthy tribal member or whatever, dies and leaves to the tribe this building, this pristine new building to be used for, you know, health care.

[00:28:04] Speaker 03:
So they've got a gift, but it's not from the government.

[00:28:07] Speaker 03:
Would they then be allowed to claim depreciation?

[00:28:10] Speaker 02:
So, Your Honor, that's a question that the agency hasn't answered in this case.

[00:28:14] Speaker 02:
If we look at the regulation.

[00:28:15] Speaker 02:
Well, if we look at the regulation, Your Honor, it specifically says it's talking about depreciation with respect to if the federal government is the one paying.

[00:28:24] Speaker 02:
If the federal government is the one who's given them this facility, this grant facility, then the tribe doesn't get depreciation on it.

[00:28:30] Speaker 02:
And that makes sense because the tribe.

[00:28:34] Speaker 03:
Yes, apologies, Your Honor.

[00:28:37] Speaker 02:
That's B. Right.

[00:28:40] Speaker 03:
Precisely.

[00:28:41] Speaker 03:
If there's no federal acquisition costs, do they get depreciation?

[00:28:50] Speaker 03:
Because that wouldn't have any.

[00:28:52] Speaker 02:
It wouldn't.

[00:28:53] Speaker 02:
So I think the agency would have to look at that and say, OK, is this a cost to the tribe of using this facility?

[00:29:00] Speaker 02:
And I think likely the answer, I don't want to get out ahead of the agency, likely the answer is yes, because of the tribe.

[00:29:07] Speaker 02:
I think it likely is, Your Honor, because if the tribe has this facility, this value, it can dedicate that facility to different uses.

[00:29:13] Speaker 02:
If it's dedicating the facility that it has to the use of this program, then the cost to the tribe is the

[00:29:19] Speaker 02:
acquisition costs that allocated over time that it's losing by dedicating it to the program.

[00:29:25] Speaker 02:
But that's essentially the same acquisition costs that are covered through these principal and interest payments.

[00:29:29] Speaker 02:
Now, as I said, if the government paid through a grant, at the end of the day, the tribe does not get a $5 million windfall.

[00:29:37] Speaker 02:
There's no reason in the statute why they should get an extra $5 million purely because they choose to finance it with a loan.

[00:29:44] Speaker 02:
And that creates incentives with respect to financing

[00:29:48] Speaker 02:
that cannot find any support in the statute.

[00:29:51] Speaker 02:
Ultimately here, the tribe is being reimbursed for all of its out-of-pocket expenses.

[00:29:58] Speaker 02:
The objective of this program is to enable the tribes to take on the management and operation of these health services.

[00:30:04] Speaker 02:
And so that is what these leases do.

[00:30:06] Speaker 02:
They're compensating the tribe for all of their out-of-pocket expenses.

[00:30:10] Speaker 02:
And so at the end of the day, the tribe can have this new facility, provide these services to their members, and suffer no out-of-pocket losses in connection with that.

[00:30:18] Speaker 03:
So our review's de novo, right?

[00:30:21] Speaker 03:
No deference to the agency.

[00:30:22] Speaker 03:
Yes, Your Honor.

[00:30:26] Speaker 03:
And if the agency just aired as a matter of basic accounting principles and calling depreciation and principal and interest duplicative, the reason it should have given is in this case, there would be a windfall collection.

[00:30:45] Speaker 03:
And explained like you've been explaining here,

[00:30:48] Speaker 03:
But it's not because the two categories are duplicative.

[00:30:52] Speaker 03:
Because the regulation talks about those categories being duplicative.

[00:30:58] Speaker 03:
Are we bound by chennery?

[00:31:00] Speaker 03:
Or does our de novo review mean we don't have any chennery constraints?

[00:31:03] Speaker 02:
So Your Honor, the argument that I'm making now is the same argument that the agency make.

[00:31:07] Speaker 03:
When we say these categories are duplicative, and they're just different accounting concepts.

[00:31:12] Speaker 02:
Well, and I'd like to respond to that, Your Honor.

[00:31:16] Speaker 02:
With respect to these concepts, they are different in the sense that they don't always have to be talking about the same underlying cost.

[00:31:24] Speaker 02:
But in this circumstance, they are.

[00:31:26] Speaker 03:
They're not talking about the same thing.

[00:31:28] Speaker 03:
One is talking about the use and wear and tear on a building.

[00:31:33] Speaker 03:
The other one is talking, as I said, about acquisition costs.

[00:31:36] Speaker 03:
Those are just two completely different concepts.

[00:31:39] Speaker 03:
And Congress presumably knows what depreciation means.

[00:31:42] Speaker 03:
It shows up in a lot.

[00:31:44] Speaker 03:
statutes.

[00:31:45] Speaker 03:
Presumably knows what principal and interest are in an acquisition process.

[00:31:50] Speaker 03:
That shows up as well.

[00:31:52] Speaker 03:
And they aren't the same thing.

[00:31:54] Speaker 03:
Your point here is that in this case, the compensation would end up paying them twice the building.

[00:32:04] Speaker 03:
But that's not the same thing as saying that those categories of reimbursement are duplicative.

[00:32:10] Speaker 02:
As they are requested in this case, they are.

[00:32:12] Speaker 02:
And I would just like to pre-order.

[00:32:14] Speaker 03:
It's a lot more.

[00:32:15] Speaker 03:
I want to get back to my original question, which is, if, it's just a question, if we thought the agency's explanation, these categories of payments are duplicative, is wrong, just as a matter straight of accounting principles and statutory tax and congressional usage of those terms.

[00:32:40] Speaker 03:
But the agency's concern about windfall was accurate.

[00:32:51] Speaker 03:
What do we do with Chenery on our general review?

[00:32:54] Speaker 02:
So I think that the court would simply be able to affirm on the basis that the agency explained.

[00:33:02] Speaker 02:
Because even if the agency was using the wrong label, this was the concern that the agency identified.

[00:33:09] Speaker 02:
If the answer is clear that this is a permissible basis for denying these payments because the statute does not contemplate a windfall, it contemplates compensation, then we know what the agency's answer to this is and the court could simply affirm because it would be affirming for 2002 the exact same level of funding that was issued.

[00:33:27] Speaker 02:
I do want to just point, Your Honor, to two sources with respect to the statement that these are fundamentally distinct kinds of costs.

[00:33:37] Speaker 02:
I want to point, Your Honor, to a couple of sources describing them.

[00:33:39] Speaker 02:
that shows that they actually are the same cost.

[00:33:42] Speaker 02:
So one sort of basic source, irs.gov, topic number 74, depreciation.

[00:33:49] Speaker 02:
says, quote, depreciation is the recovery of the cost of the property over a number of years.

[00:33:55] Speaker 02:
You deduct a part of the cost every year until you fully recover its cost.

[00:34:00] Speaker 02:
It's about allocating costs over time.

[00:34:02] Speaker 02:
Another quotation from the GAAP accounting standards codification cited in the record at JA 121 in one of the declination letters or one of the negotiation letters.

[00:34:12] Speaker 02:
I forget which.

[00:34:14] Speaker 02:
But that accounting standards codification says that appreciation and accounting is, quote,

[00:34:18] Speaker 02:
A system of accounting which aims to distribute the cost or other basic value of tangible capital assets less salvage, if any, over the estimated useful life of the unit and it says that so it is essentially describing that these are.

[00:34:35] Speaker 02:
depreciation is a means of allocating the cost of an asset, which refers to the acquisition cost, the initial value over the useful life of that asset.

[00:34:45] Speaker 02:
And so by paying depreciation, the government would be paying for the acquisition costs over the life of this facility.

[00:34:51] Speaker 02:
That's the same thing that the government does when it pays

[00:34:54] Speaker 02:
for principal payments.

[00:34:55] Speaker 02:
It's paying for that acquisition cost over time.

[00:34:59] Speaker 02:
And in this case, it's clear.

[00:35:00] Speaker 02:
Those two things are exactly $4.95 million.

[00:35:04] Speaker 02:
If these were distinct costs, you would expect that the wear and tear on the facility and what that cost is to the tribe, it would be some other number.

[00:35:13] Speaker 02:
But it's not, because these really are just two ways of accounting for the same thing, the acquisition costs over time.

[00:35:20] Speaker 03:
If we were to disagree with your position and the district court's position,

[00:35:24] Speaker 03:
Would these funds come out of the statutory program so you ended up having in your view to pay them twice and their view paying them for two distinct authorized categories?

[00:35:37] Speaker 03:
Those payments would just come out of the program, right?

[00:35:39] Speaker 03:
Not the judgment fund?

[00:35:43] Speaker 02:
I'm not certain.

[00:35:44] Speaker 03:
Not a damages suit.

[00:35:45] Speaker 03:
This is in order to pay funds under the program.

[00:35:48] Speaker 02:
That's probably right, Your Honor.

[00:35:50] Speaker 02:
I'm not exactly certain.

[00:35:51] Speaker 02:
I'll just put you into the general statute for this is 25 USC 5331 talks about these actions.

[00:35:59] Speaker 02:
And it also talks about the extent to which the Contract Disputes Act comes into play under ISDA.

[00:36:05] Speaker 02:
I think that's probably right.

[00:36:06] Speaker 02:
I'm just not certain of the answer.

[00:36:09] Speaker 03:
OK, because they just find this isn't a damages action.

[00:36:13] Speaker 03:
This is an action to obtain in order to make the payments required by the statute itself.

[00:36:18] Speaker 02:
Yes, I think the complaint might have framed it.

[00:36:20] Speaker 02:
It might have also included a request for damages in exactly this amount.

[00:36:23] Speaker 02:
But they were essentially requesting an order to the agency to be compensating them fully the way they're requesting.

[00:36:28] Speaker 02:
And for the reasons that we've explained, that would be inconsistent with the statute and the regulation.

[00:36:32] Speaker 02:
There's nothing in those sources that would permit this kind of windfall.

[00:36:35] Speaker 02:
It would go way beyond compensating them for the actual costs incurred.

[00:36:38] Speaker 02:
for the use of this facility.

[00:36:41] Speaker 02:
If there's nothing further, we ask the court to approve.

[00:36:44] Speaker 03:
Thank you very much.

[00:36:45] Speaker 03:
Mr. Borden, we'll give you two minutes on remittal, please.

[00:36:49] Speaker 04:
Thank you, Your Honor.

[00:36:50] Speaker 04:
I just have a couple of points I'd like to make.

[00:36:53] Speaker 04:
Number one, we skipped over the fact that the tribe invested over $850,000 of its own money into the acquisition of this building of this facility.

[00:37:04] Speaker 04:
And under the approach that IHS takes, it simply has repaid that money as depreciation over the course of 39 years.

[00:37:16] Speaker 04:
Meanwhile, it loses the time value of that money, which at 5% interest would be approximately $5 million.

[00:37:23] Speaker 04:
So the tribe, for its efforts in constructing and operating this facility, loses over the course of 39 years about $4 million that it could otherwise have had under IHS's interpretation.

[00:37:39] Speaker 03:
Say that again?

[00:37:40] Speaker 03:
How are they?

[00:37:40] Speaker 03:
I'm sorry, you're going to have to say it again.

[00:37:42] Speaker 03:
How they're losing $4 million?

[00:37:44] Speaker 04:
Your honor, the tribe invested $857,000 into the construction of this building.

[00:37:52] Speaker 04:
It borrowed the remainder in the loan that you've heard about.

[00:37:57] Speaker 04:
But in terms of that $857,000, IHS, under its compensation, under the position it's taking, will reimburse the tribe for that as depreciation

[00:38:14] Speaker 04:
over the course of 39 years.

[00:38:17] Speaker 04:
So at the end of 39 years, they'll end up with their $895,000 again.

[00:38:21] Speaker 04:
But it'll be 39 years later, and they'll have lost the value that they could have obtained during that 39 years had they invested the funds elsewhere.

[00:38:31] Speaker 04:
Mr. Gordon, can you remind me where this is in your briefing?

[00:38:34] Speaker 04:
It's in our briefing at page 26 of the opening brief, footnote five, your honor.

[00:38:41] Speaker 04:
Footnote nine, sorry, footnote nine.

[00:38:44] Speaker 03:
The whole point here is that you could have taken that building and used it for whatever you want and charged whatever you wanted for it.

[00:38:52] Speaker 03:
But when you agree to work with the government to use property for particular services, they want to make sure you break even.

[00:39:01] Speaker 04:
Well, this isn't breaking even.

[00:39:03] Speaker 03:
You just said you could have used it for something else, but then you wouldn't have gotten principal and interest if you used it for something else.

[00:39:09] Speaker 04:
If you'd used it for something else, the tribe would have had five million dollars at the end of 39 years.

[00:39:14] Speaker 04:
As it is, they end up with the money.

[00:39:15] Speaker 03:
You wouldn't have had your loan money repaid.

[00:39:19] Speaker 03:
Right?

[00:39:19] Speaker 03:
And you wouldn't have any maintenance and you wouldn't have a reconstruction facilities fund.

[00:39:26] Speaker 04:
The other thing here is that the government has suggested that this is that the tribe is gaming the system somehow because it's borrowing the funds rather than just investing it.

[00:39:36] Speaker 04:
I think we ought to be real here.

[00:39:38] Speaker 04:
We're talking about tribe.

[00:39:39] Speaker 04:
This is not a wealthy tribe.

[00:39:41] Speaker 04:
It's out in the middle of nowhere in Minnesota.

[00:39:44] Speaker 04:
And Congress is not so naïve as to think that they were going to be investing their own funds.

[00:39:50] Speaker 05:
The money here, does it come from a general congressional appropriation for tribes?

[00:39:58] Speaker 05:
And then the agency just figures out which tribe gets what?

[00:40:02] Speaker 04:
The Congress appropriates money every year for the Indian Self-Determination Act.

[00:40:06] Speaker 04:
honor.

[00:40:06] Speaker 05:
I guess maybe a more specific way of putting it is if you say that your tribe is a poor tribe that's correct I don't don't

[00:40:15] Speaker 05:
I'm not here to disagree with you on that.

[00:40:17] Speaker 05:
If you get paid twice for what you should get paid for once, that means more money for you, but does that mean less money for another tribe?

[00:40:26] Speaker 04:
No, Your Honor, because our position is that all tribes should be compensated in exactly the same way under their leases.

[00:40:33] Speaker 05:
But what if that leads to more money required, requiring the agency to spend more money than Congress appropriated?

[00:40:40] Speaker 04:
Well, Congress, then Congress can adjust it.

[00:40:42] Speaker 04:
Congress has put that mechanism into the Self-Determination Act itself.

[00:40:48] Speaker 05:
Congress could appropriate more, but if Congress doesn't appropriate more, then at a certain point, the fund runs out.

[00:40:58] Speaker 05:
And if you're getting more than the statute entitles you to, that's going to mean less money for other tribes.

[00:41:05] Speaker 04:
But our position here, the only way we get more money is if all tribes do.

[00:41:09] Speaker 04:
Our position is that this has got to be the uniform construction for all tribes that do leases.

[00:41:15] Speaker 04:
So we're not seeking anything that we're not trying to advantage ourselves at the expense of any other tribe.

[00:41:22] Speaker 04:
This is a uniform position we are taking here.

[00:41:25] Speaker 05:
I get that it's a uniform position, but if that uniform position leads to the agency needing to spend more money and Congress appropriate it, the agency will have to.

[00:41:34] Speaker 05:
Then Congress will have to deal with it.

[00:41:36] Speaker 05:
Well, unless Congress does deal with it, the agency will give

[00:41:41] Speaker 05:
either some tribes or all tribes, less than they are entitled to.

[00:41:46] Speaker 04:
Whatever the consequences would be, if we run out of funding for any agency, Your Honor, that would be the case.

[00:41:51] Speaker 04:
One other thing, Your Honor asked a question of the government that I'd like to take a shot at, and that was, what if you don't agree with the rationale that the agency gave?

[00:42:04] Speaker 04:
Although you think that there's some substance, but not the rationale that they gave.

[00:42:09] Speaker 04:
The statute itself addresses this.

[00:42:11] Speaker 04:
The Indian Self-Determination Act, Section 25 U.S.

[00:42:14] Speaker 04:
5321 says in Section B1 that whenever the secretary declines to enter into a self-determination contract or part of it, that the secretary shall state any objections, any objections in writing to the tribe.

[00:42:36] Speaker 04:
And then it provides further envy that the tribe can take an appeal.

[00:42:41] Speaker 04:
And then if you go down to section E1, it says that with respect to that appeal, which would be or a civil action, which is where we are now, the secretary shall have the burden of proof to establish by clearly demonstrating the validity of the grounds

[00:43:00] Speaker 04:
for declining the contract proposal or portion they're up.

[00:43:04] Speaker 04:
So the statute, Congress has placed the burden on the agency to articulate its objection and to uphold that objection, not some other objection.

[00:43:16] Speaker 03:
I'm trying to reconcile that and Channery principles, which this would be consistent with, with our de novo review.

[00:43:27] Speaker 03:
What is our de novo review?

[00:43:30] Speaker 03:
of the legal issue.

[00:43:31] Speaker 04:
Your de novo review is whether the agency has upheld the rationale that they gave, which was that these two costs are duplicative, which they're not, Your Honor.

[00:43:40] Speaker 04:
As Your Honor was pointing out, they're different concepts.

[00:43:44] Speaker 04:
And I don't see the windfall if the tribe is invested $800,000 and they're saying at the end of the day, it will get, it doesn't get principal and interest twice.

[00:43:56] Speaker 04:
They're simply saying it gets principal and interest and then it gets the depreciation of the value of the facility, which is $400,000, $4,950,000.

[00:44:05] Speaker 04:
I mean, by my math, in this case, the tribe would come out about even with that.

[00:44:13] Speaker 05:
All right.

[00:44:15] Speaker 05:
Any further questions?

[00:44:16] Speaker 05:
I just have one follow-up on the Orbiture question I asked, because I did go back and look at the page.

[00:44:22] Speaker 05:
I think my question was about whether you think the duplication provision is consistent with the statute.

[00:44:30] Speaker 05:
The duplication provision is in 900.70.

[00:44:34] Speaker 05:
Am I right so far?

[00:44:38] Speaker 05:
Yes, Your Honor.

[00:44:39] Speaker 05:
OK.

[00:44:39] Speaker 05:
And then I went back and looked at the page

[00:44:42] Speaker 05:
from the district court briefing that you cited to, and that page doesn't refer to 900.70.

[00:44:48] Speaker 05:
So how did you preserve a challenge to 900.70 without mentioning 900.70?

[00:44:56] Speaker 04:
Your Honor, I don't have the page in front of me, and I don't have my brief with me, so I'm at a disadvantage.

[00:45:05] Speaker 05:
Let me just ask in the abstract, if a page of a brief

[00:45:10] Speaker 05:
does not cite to a regulation, is it fair to say that the page of that brief does not preserve a challenge to the legality of that regulation?

[00:45:23] Speaker 04:
I have to see the language.

[00:45:25] Speaker 05:
How could a page of a brief preserve a challenge to a reg's legality if the page doesn't cite the reg?

[00:45:32] Speaker 05:
If it challenges the concept of the regulation, it would preserve it, Your Honor.

[00:45:36] Speaker 04:
Is it specific enough to preserve?

[00:45:37] Speaker 04:
I think it could be, absolutely.

[00:45:41] Speaker 03:
Thank you very much to both counsel for the helpful discussion cases submitted.