Mason v. United States

Decision Date16 June 1972
Docket NumberNo. 417-70.,417-70.
PartiesArchie L. MASON and Margaret R. Mason, Administrators of the Estate of Rose Mason, Osage Allottee #327, a Deceased Restricted Osage Indian v. The UNITED STATES. The UNITED STATES v. STATE OF OKLAHOMA, Third Party Defendant.
CourtU.S. Claims Court


Charles A. Hobbs, Washington, D. C., for plaintiffs. Pierre J. LaForce, Wilkinson, Cragun & Barker, Washington, D. C., and Files, Mahan & Wilson, Pawhuska, Okl., of counsel.

David W. Miller, Washington, D. C., with whom was Asst. Atty. Gen., Kent Frizzell, for defendant.

Paul C. Duncan, Asst. Atty. Gen., State of Okl., for third-party defendant.

Before COWEN, Chief Judge, DURFEE, Senior Judge, and DAVIS, SKELTON, NICHOLS and KUNZIG, Judges.


DAVIS, Judge.

This case presents the sensitive problem of whether we should continue to follow a ruling of the Supreme Court which is said no longer to be good law. The decision is West v. Oklahoma Tax Comm'n, 334 U.S. 717, 68 S.Ct. 1223, 92 L.Ed. 1676 (1948), upholding the right of Oklahoma to levy its estate tax on certain trust property of restricted Osage Indians. Officials of the Bureau of Indian Affairs paid the tax on behalf of, and out of the estate of, a restricted Osage, and her administrators now claim that in doing so the Federal Government breached its fiduciary obligation and is therefore liable for the amount of the tax. The United States has impleaded Oklahoma and, if ruled responsible, seeks judgment over. We hold for plaintiffs against the Federal Government, and for the latter against the state.

Better to explain why we consider the two governments liable, we shall follow a somewhat winding path to the end: first, setting out the general nature of the property involved (Part I, infra); then, the particular facts of the case (Part II); third, disposing of defendant's preliminary objections to reaching the merits (Part III); next, setting forth the history of the taxation, both federal and state, of Osage restricted property (Part IV); fifth, discussing the Government's fiduciary obligation with respect to payment of the Oklahoma estate tax (Part V); then, the present status of the West decision, supra (Part VI); and, finally, the liability of Oklahoma (Part VII). The first four sections will be the necessary ramble through the lower reaches of the mountain while the last three will be the stiffer climb to the peak.


Osage restricted property

The General Allotment Act of 1887, 25 U.S.C. § 331, empowered the President to allot reservation land to the Indians covered by the statute; the allotment was to remain in trust until the Indian was declared capable of managing it, when it would be turned over "free of all charge or incumbrance whatsoever." The Osages were omitted from this 1887 statute but were finally given their own allotments by the Osage Allotment Act of 1906, 34 Stat. 539 (often amended).

Previously, "the Osage reservation was held by the United States in trust for the Osage tribe. By the 1906 act, the tribal lands and funds were equally divided among the 2,229 tribal members. The lands were surveyed and allotted directly to individuals and the minerals were evenly divided through the provision for `headrights', which is the term used to describe a right to 1/2229th share of the distributable income from the minerals, plus a reversionary title to a like share of the minerals whenever the mineral trust terminates. The act provided that the royalties derived from the extraction of the minerals be placed in the United States Treasury and held in trust for a period of 25 years to the credit of the individual members of the tribe, subject to periodic distributions. By statutory amendment the trust period has been extended to 1983 (52 Stat. 1034, section 3). While the trust exists, legal title to the minerals is in the United States as trustee, but thereafter the minerals will vest absolutely in the allotees or their heirs. See section 2(7) and section 5 of the act, supra. These basic arrangements have not been changed in any of the 12 amendments to the act between 1906 and 1957." Big Eagle v. United States, 300 F.2d 765, 766, 156 Ct.Cl. 665, 667-668 (1962) (footnote omitted). See, also, West v. Oklahoma Tax Comm'n, supra, 334 U.S. 717, 719-723, 68 S.Ct. 1223 (1948).

Tribal funds from the sale of tribal lands in Kansas were also divided equally by the 1906 act, which set up a Segregated Trust Fund for the 2,229 allottees in the sum of $3,819.76 each. Interest at 5% is to be paid until the trust ends in 1984, and the fund may be invaded by a non-competent Osage only with the approval of the Secretary of the Interior.1

The 1906 statute likewise provided for issuance by the Secretary of certificates of competency to an adult Osage who was "fully competent and capable of transacting his or her own business and caring for his or her own individual affairs."


This case

Rose Mason was an Osage living in Oklahoma who never received a competency certificate. For that reason the United States held in trust certain of her property, including headrights (described in Part I, supra), securities held in trust (derived from headrights), cash held in trust (derived from the trust fund described in Part I, supra), unpaid headrights payments (income from headrights), and surplus trust funds (derived from headrights).

On her death intestate, representatives of the Federal Government in the Osage Agency, under the usual practice, prepared, signed, and filed an Oklahoma estate tax return for her, including as part of the corpus of the estate the above items of trust property. In September 1967 and December 1968, the Osage Agency paid to the Oklahoma Tax Commission a total of $8,087.10 for state death taxes relating to the decedent. This payment was made out of trust funds of decedent held by the Government.

Plaintiffs are administrators of the estate of Rose Mason, appointed by the County Court of Osage County, Oklahoma.2 They had nothing to do with the filing of the estate tax return, or the payment of the state taxes. They were discharged in May 1968, but in November 1970 the District Court of Osage County reopened the estate and reappointed plaintiffs "for the purpose of instituting such suit as may be proper to recover the estate taxes erroneously paid, together with interest thereon."

The result was the petition here, filed on November 20, 1970, alleging that the Federal Government breached its fiduciary duty in paying the Oklahoma estate tax on the trust properties described above. The United States impleaded the State of Oklahoma as third party defendant, asking for judgment against the state "equal to such judgment, if any, as may be entered on behalf of the plaintiffs against the United States."

Both the Federal Government and the plaintiffs have moved for summary judgment. The motion of the United States asks that, if plaintiffs prevail, there be recovery over against the state. Oklahoma has not moved for judgment, but it appeared and argued orally that the challenged tax was properly imposed on the trust property under West v. Oklahoma Tax Comm'n, supra.


Defendant's preliminary objections

The United States interposes some preliminary reasons for dismissing the petition without reaching or even touching on the merits, but we reject those threshold defenses. One is that the plaintiffs, administrators of the estate, are not the proper parties to sue; Rose Mason's heirs are said to be the real parties in interest and indispensable suitors. The shortest answer is that under Rule 61(a) of our Rules the plaintiffs may sue as duly authorized administrators on behalf of the estate, out of the funds of which the disputed tax was paid before distribution of the estate's assets to the heirs.

Another defense is that the claimants failed to exhaust their administrative remedies by omitting to appeal within the Bureau of Indian Affairs, under 25 CFR § 2.3 (1967), from the Osage Agency's payment of the tax.3 It is unlikely that this § 2.3 intended to cover as a "decision" the action of the Osage Agency in paying the tax; some more formal determination seems to have been contemplated since 25 CFR § 2.2 and 2.4 require such "decisions" to be put in writing and that notice be given to the affected Indian—and neither of these directives was fulfilled here. In any event, the administrative appeal is optional, not mandatory—the regulation says the affected Indian "may" appeal—and under the familiar principle does not preclude a court suit.

In its own motion for summary judgment (which was filed first), the defendant sought to reserve, as "factual matters" calling for further trial proceedings, its separate defense that plaintiffs are barred by their failure to object to the payment of the tax.4 However, after the plaintiffs filed their motion for summary judgment the Government did not file any affidavits or indicate in any other way that there were further facts to be tried or found. We shall therefore assume that we now have all the facts upon which the defenses of estoppel and laches are based and dispose of them in connection with our discussion of the Government's fiduciary responsibility (Part V, infra).


The course of taxation of Osage restricted property

To understand our analysis of the obligation of the United States (Part V, infra) and of the current status of West v. Oklahoma Tax Comm'n, supra (Part VI, infra), it will help to begin by setting out, descriptively, the history of the taxation by the United States and the states of Osage (and comparable) Indian restricted property.

A. With regard to that type of asset, as we have indicated the Osage Allotment Act, as amended, places it in trust and goes on to say (as spelled out in the 1947 amendment, 61 Stat. 747):

That the Osage lands and funds and any other property which has

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