The Navajo Indian Nation has filed a lawsuit in federal court charging the world's largest private coal producer with influence peddling at the Interior Department during the Reagan administration and defrauding the tribe of at least $600 million in mining royalties.
The Navajos contend that officials of the $2 billion-a-year Peabody Group of coal mining companies conspired with then-Interior Secretary Donald P. Hodel and his deputies to force the tribe into a disadvantageous bargaining position that allowed Peabody to exploit Navajo reservation coal in northeast Arizona at far below its fair value.
The civil suit, filed in U.S. District Court here and served on the defendants last Friday, alleges that the St. Louis-based company engaged in misconduct that included "corruption" of a federal administrative appeal, fraudulent misrepresentation, obstruction of justice, breach of contract and interference with the fiduciary trust relationship between the U.S. government and the Navajo Nation.
A related lawsuit pending in the U.S. Court of Claims against the government contends that the Interior Department and its Bureau of Indian Affairs abrogated their responsibilities as trustees of the Navajos' lands by failing to ensure that the mineral lease yielded the greatest possible return to the tribe.
Hodel, while not named as a defendant in the Peabody lawsuit, is accused by the plaintiffs of derailing a decision by the Bureau of Indian Affairs to increase the Navajos' royalty rate from an effective rate of 2 percent of the extracted coal's value to 20 percent. The intent was to let Peabody negotiate directly with the tribe for a royalty rate of 12.5 percent, saving 7.5 percent of the coal's value.
Peabody operates the Black Mesa and Kayenta mines in northeast Arizona, which together ship 12 million tons of low-sulfur coal annually from a large reserve on Navajo and Hopi Indian lands.
The lawsuit contends that the Navajos were at a distinct disadvantage in direct talks with the coal company because they had neither the backing and services of the U.S. government, as trustee of the tribal lands, nor knowledge of the earlier BIA decision affirming the 20 percent royalty rate and the technical studies supporting it.
The complaint alleges that Hodel's action followed a 1985 meeting he held with Peabody lobbyist Stanley Hulett, described by the plaintiffs as a "former [Interior] official, close friend and later business associate" of the secretary.
Documents filed with the lawsuit include a July 17, 1985, memo from Hodel to an assistant warning that disclosing to the Navajos the earlier decision by a BIA area director to raise the royalties to 20 percent would be "ill timed." The lawsuit asserts that Hodel instructed the deputy to suppress the information so Peabody could press for a lower royalty rate and other favorable concessions in direct negotiations with the tribe.
The plaintiffs contend that an Interior Department associate solicitor for Indian affairs had urged Hodel not to discuss the royalty question with anybody from Peabody and had expressed "deep concerns over the possible impropriety of Hodel's actions" in withholding from the Navajos the earlier departmental decision that the tribe should get a 20 percent rate.
The Navajos contend that because they were not aware that the BIA already had made a royalty decision favorable to the tribe before Hodel intervened on Peabody's behalf--and because the tribe was losing $50,000 a day in royalties at the lower rate--they agreed to negotiate directly with Peabody.
In August 1987 the tribe signed a lease agreement with Peabody for a 12.5 percent royalty--the federal minimum--and was required to waive back taxes and royalties totaling, at that time, $100 million.
"This was after two and a half years of stalling by the government and we did not know what was going on behind the scenes," said Estelle Bowman, executive director of the Navajo Nation's Washington office. "The nation needed the money and a decision was made to go ahead and sign."
Peabody Group Vice President Roger B. Walcott Jr. said the company provides the Navajo Nation and the Hopi Tribe with more than $40 million a year in royalties and taxes. He added that more than $1.2 billion has been injected into the tribes' economies since mining operations began three decades ago.
"We value our longstanding relationship with the Navajo Nation and are proud of the tremendous economic contribution that mining operations have brought to reservation communities," Walcott said in a statement. "We are confident that the lawsuit is without merit, and our intent is to aggressively defend our actions."
Peabody spokeswoman Beth Sutton said company officials would not comment on specific allegations in the lawsuit because "we are still reviewing the documents."
Hodel, who now lives in Silverthorne, Colo., said he had "no recollection at all" of the circumstances of the Navajo lease and that he testified to that effect in two depositions he gave in the Court of Claims case.
"My understanding is the Navajo Nation is seeking to create a case against the U.S. government that we failed in our fiduciary duties as trustees," Hodel said. "That they haven't done this so far suggests to me the facts don't support the theory they are pursuing and the aggressive allegations they put forth in the complaint."
Hodel, who was interior undersecretary under James Watt before taking the department's top post, earlier this year resigned as president of the Christian Coalition, the political organization of religious conservatives founded by Pat Robertson. Before joining the Interior Department, Hodel founded and ran an energy consulting firm whose clients included major utility companies. Before becoming interior secretary in 1985, Hodel was energy secretary in the Reagan administration.