United States v. Mammoth Oil Co.

• Decision Date: 28 September 1926
• Docket Number: No. 7188.,7188.
• Parties: UNITED STATES v. MAMMOTH OIL CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

14 F.2d 705 (1926)

UNITED STATES v. MAMMOTH OIL CO. et al.

No. 7188.

Circuit Court of Appeals, Eighth Circuit.

September 28, 1926.

Owen J. Roberts, of Oklahoma City, Okl., and Atlee Pomerene, of Cleveland, Ohio (Albert D. Walton, of Cheyenne, Wyo., on the brief), for the United States.

Martin W. Littleton, of New York City, John W. Lacey, of Cheyenne, Wyo., and Edward H. Chandler, of Tulsa, Okl. (George P. Hoover, of Washington, D. C., G. T. Stanford, of New York City, Herbert V. Lacey, of Cheyenne, Wyo., R. W. Ragland, of New York City, J. W. Zevely, of Washington, D. C., Ralph W. Garrett, of Tulsa, Okl., and Cravath, Henderson & De Gersdorff, all of New York City, on the brief), for appellees.

Before KENYON and VAN VALKENBURGH, Circuit Judges, and CANT, District Judge.

KENYON, Circuit Judge.

This suit is one in equity brought by the United States in the District Court of the United States for the District of Wyoming, to secure the cancellation of a certain lease of date April 7, 1922, made by the United States with the Mammoth Oil Company, one of the appellees, for the development and exploitation of the oil and gas within naval petroleum reserve No. 3, in Natrona county, Wyo., embracing approximately 9,000 acres, commonly known as Teapot Dome; also to secure the cancellation of the contract supplemental to said lease signed February 9, 1923, between the same parties, on the ground (a) that the lease and supplemental agreement were fraudulently secured as a result of a conspiracy between Albert B. Fall, the then Secretary of the Interior, and Harry F. Sinclair, organizer of, and owner of all the capital stock of, the Mammoth Oil Company, who negotiated the lease on behalf of said company; and (b) that the lease and supplemental agreement were without authority of law and contrary thereto.

March 13, 1924, a temporary restraining order and one appointing receivers for the property involved were entered. Answers were filed by all defendants, and the case was tried in March, 1925, after two continuances had been granted to the United States of America, appellant (so hereinafter designated). The trial court held against the contentions of the United States, and decided that the lease and supplemental agreement were not procured by fraud, that there was no conspiracy between Fall and Sinclair to defraud the United States or otherwise, and that both the lease and agreement were authorized by a special act of Congress, which took the matter out of the operation of general laws. Numerous findings of fact were made by the court, and the bill was dismissed on the merits. Prior to trial the appellant attempted to secure a continuance in order to procure the evidence of certain witnesses residing in Canada, particularly one H. S. Osler. The court refused the request for continuance, and denied the petition to reopen the case after trial and before decree, in order to permit the United States to then secure the evidence of the said Osler and other Canadian witnesses; the appellate court of Ontario having in the meantime held that answers must be made to the questions theretofore propounded to Osler in the attempt to take his evidence prior to trial.

Sixty-four assignments of error are presented. They relate to the validity of the executive order of President Harding of May 31, 1921, under which the administration of naval reserves was committed to the Secretary of the Interior; to the question of alleged fraud; to the action of the court in striking from the record certain exhibits and testimony; to the action of the court in sustaining the refusal of M. T. Everhart, son-in-law of Secretary Fall, to testify on the ground of incriminating himself; to alleged abuse of discretion in denying the motion for continuance, and in refusing to reopen the case after hearing and before decree in order to secure the evidence of said Osler. The vitally important questions presented may be grouped as follows:

(a) Was there authority of law to make the lease of April 7, 1922, and the supplemental agreement of February 9, 1923, and were they made in compliance with law?

(b) Were the lease of April 7, 1922, and the supplemental agreement of February 9, 1923, procured by fraud, as claimed by the appellant?

(c) Was there an abuse of discretion in not granting the continuance asked for to secure certain evidence or in refusing to re-open the case for that purpose?

I. History and Facts.

It is advisable briefly to review the situation with reference to its historical aspect and the matters leading up to the execution of the lease and supplemental agreement. What the policy of the federal government may have been as to oil and mineral lands in the past, or whether it had any policy, may not be clear. However, on September 27, 1909, a federal order was issued, withdrawing as part of the public domain part of the oil lands now constituting a portion of naval reserve No. 3, the subject of this controversy. June 18, 1910, another executive order was issued to the same effect, covering other lands now included in said naval reserve No. 3. April 30, 1915, naval petroleum reserve No. 3 was created by executive order. The General Leasing Act applying to oil and gas lands became a law February 25, 1920 (chapter 85, §§ 1-38, 41 Stat. 437 Comp. St. Ann. Supp. 1923, §§ 4640¼-4640¼ss). After the passage of this act it was reasonably probable that the Salt Creek field bordering naval reserve No. 3 would be partially, if not entirely, developed, and that this would probably affect the question of drainage as to said naval reserve. Other naval reserves would also be affected by development of adjacent territory. Actuated presumably by said situation Congress passed the Act of June 4, 1920, c. 228, § 1, 41 Stat. 813 (Comp. St. Ann. Supp. 1923, § 2804i). This section was contained in the Naval Appropriation Act of June 4, 1920, and is as follows:

"The Secretary of the Navy is directed to take possession of all properties within the naval petroleum reserves as are or may become subject to the control and use by the United States for naval purposes, and on which there are no pending claims or applications for permits or leases under the provisions of an act of Congress approved February 25, 1920, entitled `An act to provide for the mining of coal, phosphate, oil, oil shale, gas, and sodium on the public domain,' or pending applications for United States patent under any law; to conserve, develop, use, and operate the same in his discretion, directly or by contract, lease, or otherwise, and to use, store, exchange, or sell the oil and gas products thereof, and those from all royalty oil from lands in the naval reserves, for the benefit of the United States: And provided further, that the rights of any claimant under said Act of February 25, 1920, are not affected adversely thereby: And provided further, that such sums as have been or may be turned into the Treasury of the United States from royalties on lands within the naval petroleum reserves prior to July 1, 1921, not to exceed $500,000, are hereby made available for this purpose until July 1, 1922: Provided further, that this appropriation shall be reimbursed from the proper appropriations on account of the oil and gas products from said properties used by the United States at such rate, not in excess of the market value of the oil, as the Secretary of the Navy may direct."

Prior to the time that Mr. Denby and Mr. Fall became respectively on March 4, 1921, Secretaries of the Navy and of the Interior, some leases requiring drilling had been made by the retiring Secretary of the Interior for oil drilling on lands in the Salt Creek field, and he had also offered other leases for sale at public auction subsequently to be held. In May, 1921, Secretary Denby suggested to the President that the Secretary of the Interior be placed in charge of the administration of the naval reserves. Secretary Fall on May 11, 1921, wrote to Secretary Denby concerning the matter, and inclosed a letter for him to sign and send to the President, together with an executive order for the President's signature, placing in the Interior Department the control and development of the naval reserves. There was opposition to this order in the Navy Department, and changes were made therein which were assented to by Secretary Fall. The order as finally agreed upon by Secretary Denby and Secretary Fall was taken to the President by Assistant Secretary of the Navy Roosevelt, and signed by the President May 31, 1921. It is as follows:

"Under the provisions of the Act of Congress approved February 25, 1920 (41 Stat. 437), authorizing the Secretary of the Interior to lease producing oil wells within any navy petroleum reserve; authorizing the President to permit the drilling of additional wells or to lease the remainder or any part of a claim upon which such wells have been drilled, and under authority of the Act of Congress approved June 4, 1920 (41 Stat. 812), directing the Secretary of the Navy to conserve, develop, use and operate, directly or by contract, lease, or otherwise, unappropriated lands in naval reserves, the administration, and conservation, of all oil and gas bearing lands in naval petroleum reserves Nos. 1 and 2, California, and naval petroleum reserve No. 3 in Wyoming and naval shale reserves in Colorado and Utah, are hereby committed to the Secretary of the Interior subject to the supervision of the President but no general policy as to drilling or reserving lands located in a naval reserve shall be changed or adopted except upon consultation and in cooperation with the Secretary or Acting Secretary of the Navy. The Secretary of the Interior is authorized and directed to perform any and all acts necessary for the protection, conservation and administration of the said reserves subject to the conditions and limitations contained in this order and the existing laws or such laws as may hereafter be enacted by Congre...