A supersized Bakken deal for thousands of acres looked sweet from the outside and like a swindle to the original Native Americans who once owned the leasing rights.

A group of investors paid three tribes a total of $14 million and a share of future revenues for the original drilling rights, law firm Baker Botts said in news release. The investors eventually flipped those rights for $949 million.

The sale prompted a 2012 class action lawsuit brought by the tribe to challenge the original deal, which had been approved by the Bureau of Indian Affairs (BIA). On June 12, the 8th U.S. Circuit Court of Appeals in North Dakota ruled that the case was properly dismissed.

At the heart of the complaint was that the U.S. government, through the BIA, rubberstamped the lease purchase well before the “scheme hatched,” court documents say.

“The BIA never rejected any of the leases presented” by the investors or representatives, the suit said.

The case has its roots in the sale of Indian leases in 2007 and 2008 in North Dakota’s Fort Berthold Reservation and more directly in the oil business.

Since its boom, the Bakken has become a destination for white collar crime, human trafficking, drugs and weapons trafficking. Montana and North Dakota law enforcement said June 3 they have formed a strike force to target organized crime in the 200,000-square-mile Bakken Shale play.

Members of the Three Affiliated Tribes─also known as the Mandan, Hidatsa and Arikara Nation─sold about 85,000 acres of land that was eventually bundled together afterward and sold, according to court documents filed by two members of the tribes.

A lawsuit accused the manager of a casino at the Fort Berthold Reservation, Spencer Wilkinson, of partnering with investors including hedge fund Och-Ziff and oilfield services giant Schlumberger (SLB) to lease drilling rights to more than 85,000 acres of Indian-owned land, Baker Botts said. The suit accused the investors of “aiding and abetting breach of fiduciary duty committed by the United States of America and for other causes of action.”

The federal government has a fiduciary responsibility to protect Native American landowners in the leasing process, including the language on leasing forms, terms, payments and approval when the leases are in their economic best interests.

However, the U.S. was not named as a party to the suit.

Plaintiffs Ramona Two Shields and Mary Louise Defender Wilson leased oil and gas mining rights on their allotments to the companies, and affiliated individuals bought them in a sealed bid auction conducted by the BIA in 2007.

The suit said that the Bakken’s potential was known by the government at the time of the sale in 2006 and that one of the biggest oil discoveries in recent memory was under Native American lands.

“Sadly, however, this Bakken Shale is the site of what could be the biggest swindle of Native Americans in American history,” the suit said.

Wilkinson, a member of the Three Affiliated Tribes, characterized the dispute as a case of “seller’s remorse,” Baker Botts said.

Federal regulations required the leases have a minimum royalty rate of about 16.7%. Plaintiffs received lease bonuses ranging from about $50-450 and an 18% royalty. The suit argued the investors received more than $10,000 per acre from their own sale.

The BIA says that its Fort Berthold agency has approved more than 1,700 oil and gas leases and distributed $80 million in bonus payments.

In February 2013, Two Shields and Defender Wilson filed a separate complaint in the United States Court of Federal Claims, in which they sought monetary damages from the U.S. for alleged breaches of fiduciary duty that occurred when the BIA approved the leases.

The court in that case granted summary judgment to the U.S. because Two Shields and Defender Wilson had already settled their claims with the government.

In the case against the investors, the court concluded that the federal interests in administering leases and overseeing the grant of new leases would be affected. Under those circumstances, it was a required party.

While Two Shields and Defender Wilson argued that the investors would make the same arguments as the U.S., the court said the question of whether the U.S. acted illegally in approving the oil and gas leases for plaintiffs’ allotments “cannot be tried behind its back.”

Since the U.S. has not waived its sovereign immunity “it cannot be joined in this action,” the appellate court concluded.

Van Beckwith, the Baker Botts Dallas partner who chairs the firm’s class-action practice, led the trial team and argued the case before the 8th circuit.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.