By Khorri Atkinson

Law360 (June 15, 2020, 6:15 PM EDT ) A D.C. federal judge on Monday appeared skeptical that the Treasury Department can delay allocating the remaining $679 million in COVID-19-related funding to tribal governments while separate litigation challenging the government's allocation formula is pending.

The department told U.S. District Judge Amit P. Mehta in a status report Friday that it was withholding roughly 8.5% of the $8 billion in direct tribal government funding provided by the coronavirus relief funding that Congress appropriated for tribes in March as part of the CARES Act. This amount, the agency wrote, is to resolve any potentially adverse decision in a complaint the Prairie Band Potawatomi Nation filed earlier this month.

But Judge Mehta, who heard oral arguments Monday morning in a renewed preliminary injunction bid initially filed in May by eight Native American tribes, asserted that the Prairie Band Potawatomi Nation case, which he is also overseeing, might take the court "some number of months" to resolve. That litigation alleges that the government's allocation formula was arbitrary and capricious under the Administrative Procedure Act.

According to the Potawatomi, the government should have allocated funds according to tribal enrollment data but instead wrongly based its decision on the number of people who select "American Indian or Alaska Native" on their census form in a given geographic area.

Judge Mehta, while asking probing questions to attorneys for both sides during the teleconference hearing, also noted his recent ruling that the Potawatomi's argument that the agency wrongly failed to first consult the tribe was "unreviewable." He later appeared skeptical of the department's next move in the case and whether it would be appropriate to make the several tribes in the instant case wait further.

"I'd be very surprised if I changed my position," Judge Mehta told U.S. Department of Justice attorney Jason Lynch on Monday..

Lynch responded that the remaining funds in the current dispute will not be distributed until the court issues a final ruling in the tribe's case and that the department will hold discussions with attorneys for the tribe on the possibility of resolving there matter quickly.

He also said the CARES Act's payment provision gives Treasury Secretary Steven Mnuchin the discretion to determine the appropriate amount to allocate to tribes, making the current holdup legal. 

The government said Friday in documentation supporting its decision to withhold the remaining funds that $679 million is the amount it believes it needs to hold in reserve in case it loses the Potawatomi case.

According to the department, the number "represents an estimate of the difference in total payment amounts to Tribal governments if Treasury had made population-based payments based on tribal enrollment data provided by the Bureau of Indian Affairs, rather than the census-based Indian Housing Block Grant data used for the first distribution as announced on May 5, 2020." The department acknowledged it is not required to maintain this reserve but described it as "a prudent course at this stage."

But Kilpatrick Townsend & Stockton LLP's Keith M. Harper, an attorney for the eight tribes, said during Monday's hearing that none of his clients — including the Agua Caliente Band of Cahuilla Indians in California and the Ak-Chin Indian Community in Arizona — has received funding from the government. It would be unreasonable for them to wait any longer given the uncertainty over when the other case will be resolved, he said. 

"Now we're 88 days out, more than two-and-a-half the time that Congress mandated for the deadline. There's no justification for further delay," Harper said. 

"It is stunning to us that there seems to be callous disregard for the tribes," he added. "I'm not suggesting ill motives, but the conduct is problematic especially coming from a trustee and it is well settled that the federal government act as a trustee for the Indian tribes. ... The tribes have only until the end of this year to figure out how to spend these funds."

The judge did not indicate how he might rule on the eight tribes' preliminary injunction bid or how soon a decision might be issued.

The original complaint in early May sought to force the department to immediately allocate the full $8 billion the government owes tribes to fight the COVID-19 pandemic after missing the 30-day deadline.

Judge Mehta had denied the initial injunction bid on May 11 on the basis that the department's delay was not yet egregious enough to warrant an injunction. But "should the secretary's delay verge on doubling the time Congress mandated to fully disburse Title V funds to tribal governments, then the question of egregiousness becomes a closer one than it is today," he added. 

The government later that month distributed $4.8 billion based on tribal population information. Last week, the tribes moved again for the allocation of the remaining $3.2 billion, which the government had said will be distributed based on additional tribal employment and expenditure data that each tribe would be required to submit to the department. On Friday, the department informed the court that all but $679 million has been allocated. 

The tribes are represented by Keith M. Harper, Catherine F. Munson and Mark H. Reeves of Kilpatrick Townsend & Stockton LLP.

The Treasury Department is represented by Joseph H. Hunt, Eric Womack and Jason C. Lynch of the U.S. Department of Justice's Civil Division.

The case is Agua Caliente Band of Cahuilla Indians et al. v. Mnuchin, case number 1:20-cv-01136, in the U.S. District Court for the District of Columbia.

--Additional reporting by Kelly Zegers, Emma Whitford and Andrew Westney. Editing by Peter Rozovsky.

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