United States v. Mammoth Oil Co.

• Decision Date: 19 June 1925
• Docket Number: No. 1431.,1431.
• Citation: 5 F.2d 330
• Parties: UNITED STATES v. MAMMOTH OIL CO. et al. TEAPOT DOME CASE.
• Court: U.S. District Court — District of Wyoming

5 F.2d 330 (1925)

UNITED STATES v. MAMMOTH OIL CO. et al. TEAPOT DOME CASE.

No. 1431.

District Court, D. Wyoming.

June 19, 1925.

COPYRIGHT MATERIAL OMITTED

Atlee Pomerene, of Cleveland, Ohio, Owen J. Roberts, Sp. Counsel, of Philadelphia, Pa., and Albert D. Walton, U. S. Atty., of Cheyenne, Wyo., for the United States.

John W. Lacey, of Cheyenne, Wyo., Martin W. Littleton, of New York City, 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., and Cravath, Henderson & De Gersdorff, of New York City, for defendant Mammoth Oil Co.

Edward H. Chandler, of Tulsa, Okl., for defendants Sinclair Crude Oil Purchasing Co. and Sinclair Pipe Line Co.

KENNEDY, District Judge.

This is a suit in equity, in which the United States seeks to cancel and annul a lease upon certain oil lands, commonly known as Teapot Dome, located in the county of Natrona, state of Wyoming, purporting to have been made on behalf of the plaintiff by the Secretaries of the Navy and Interior Departments with the principal defendant the Mammoth Oil Company, upon the ground, first, that said lease was executed as the result of a conspiracy to defraud the plaintiff, between one Albert B. Fall, the then Secretary of the Interior, and one Harry F. Sinclair, who negotiated the lease on behalf of said Mammoth Oil Company; and, second, that said lease was executed without authority of law.

The Pleadings.

The bill of complaint sets forth the corporate capacity of the defendants, the description of the property involved, of which plaintiff is the owner, the official capacities of Secretaries Fall and Denby, the Act of June 4, 1920, under which the lease is purported to have been made, and the executive order of May 31, 1921. It is alleged that the executive order was invalid and illegal, and that it was obtained under representations and persuasions of Secretary Fall, as Secretary of the Interior, upon which the President acted, and that said representations were false, and made for the purpose of placing Fall in a position to transact government business in connection with oil lands with Harry F. Sinclair, the promoter, organizer, officer, and large stockholder of the defendant corporation the Mammoth Oil Company. Then is alleged the execution of the lease by Secretaries Fall and Denby, in pursuance of and in reliance upon the executive order, together with an allegation that the lease is null and void and effected without authority in law, a copy of the lease being attached to the pleading. The agreement of February 9, 1923, supplemental to the agreement of April 7, 1922, is set forth, coupled with an allegation that that contract is void for the reason that its terms were being carried out without advertisement or competitive bidding. It avers that under the lease the Mammoth Oil Company entered into possession of the lands in controversy, explored and drilled them for oil, and took over the oil so found, and will continue to do so unless restrained, and that it has trespassed upon the property of the plaintiff. It is alleged that the defendant has issued certificates as in the agreement provided, and that the certificates have been illegally used in the payment of construction work of storage tanks in different parts of the United States.

The bill then sets forth that Fall and Sinclair conspired and confederated to defraud the United States by the execution of the lease, and that in pursuance of said conspiracy they did certain unauthorized and unlawful things, among them being: The preliminary negotiations of Fall, purporting to act under the executive order; the negotiation and conclusion of the agreement between the government and the Mammoth Oil Company; the awarding of the lease and the subsequent construction work under the agreement of February 9, 1923, without advertising and competitive bidding; that Edwin Denby, the Secretary of the Navy, took no part in the negotiations of the contract of April 7, 1922, exercised no discretion in regard thereto, and affixed his signature thereto as a colorable attempt in the exercise of his discretion; that other persons and corporations were desirous of obtaining a lease, but were denied an opportunity and discouraged from bidding, of which fact the Mammoth Oil Company was cognizant, and in which Sinclair conspired with Fall to that end; that Fall refused to take the opinion of the Solicitor of the Department of the Interior or the Attorney General of the United States in regard to the legality of the lease; that Fall communicated to Sinclair, acting for the defendant Mammoth Oil Company, that he would not make a lease upon the land unless Sinclair should present a quitclaim deed for mining claims asserted to a portion of the land in controversy, which claims Fall then knew were worthless; that Sinclair secured and lodged with Fall, as Secretary of the Interior, a quitclaim deed from said claimants, some of which were held by a company which was a competitor of Sinclair desiring to become a bidder for the lease; that Fall, with intent to stifle competition and acting with the knowledge of Sinclair, made the obtaining of quitclaim deeds a condition precedent to receiving any offer for said lands or to granting a lease upon said lands; that Fall agreed with one Shaffer to see that Sinclair set apart a portion of the lands in controversy for the benefit of Shaffer in accordance with a prior agreement with Sinclair, and as a condition precedent to receiving a lease upon the premises; that Fall fraudulently caused information concerning the agreement before and after it was made to be kept secret and concealed from his associates, from Congress, and from the public; that in negotiating and concluding the agreement Fall and Sinclair, acting for and in behalf of the Mammoth Oil Company, did fraudulently conspire and confederate, and in furtherance thereof did defraud the United States, by granting the lease in violation of law to favor and prefer the Mammoth Company over other persons desirous of taking a lease, and give to the Mammoth Company the right to receive and take to exhaustion all oil and gas in the lands, and to lease the lands at an inadequate, improper, and fraudulent consideration; that the lease of April 7, 1922, and the agreement of February 9, 1923, are fraudulent and illegal, and of no force and validity against the plaintiff; that the agreement of April 7th constitutes a lien, incumbrance, and cloud upon the title of the plaintiff, which plaintiff is entitled to have removed; that the defendant company should make discovery in the nature of an accounting as to its transactions under said lease; that the defendant Sinclair Crude Oil Purchasing Company and the Sinclair Pipe Line Company claim to have some interest in said lands, but that in fact they are trespassers upon them; that the plaintiff is without an adequate remedy at law, and that the resort to a remedy in equity will prevent a multiplicity of suits.

The prayer of the petition is for a restraining order, the appointment of receivers, a final injunction against the defendants, a decree nullifying the agreements of April 7th and February 9th, a decree for an accounting, a decree ousting the Sinclair Crude Oil Purchasing Company and the Sinclair Pipe Line Company from the lands, and other equitable relief.

The answers of defendants, while long, amount practically to denials of the allegations of conspiracy and fraud, and affirmance of the regularity and legality of the lease and agreement and the transactions surrounding them.

The Facts.

A somewhat extended review of the facts presented upon the trial, together with those of which it is urged the court should take judicial notice, will undoubtedly be necessary before beginning a discussion of the legal points contended for by opposing counsel. While one basis of the relief sought revolves around and is determinative solely upon the surrounding facts, a rather unusual situation exists in the case, in that there are scarcely any of the facts and circumstances in dispute; each party relying upon its own combination of facts to sustain its conclusions as to what inferences should be drawn therefrom. Thus the court is confronted with the duty of assuming that substantially all the evidence is true, which in turn will undoubtedly require a careful consideration of all the evidence, in order to give both sides of the controversy fair treatment. While some of the facts have been accentuated by counsel for plaintiff, and others by counsel for defendants in their briefs, the court will endeavor to present all the facts considered material to a decision of the issues, whether mentioned by counsel or not, as near as may be, in their chronological order, in order to gather a full perspective of the entire situation.

For a considerable period of time prior to the year 1909 the lands of the United States chiefly valuable for petroleum deposits were open to entry under what is commonly known as the Placer Mining Act, which permitted the location of mineral claims upon the public domain, ripening into a property right upon the discovery of oil, which might be extracted to exhaustion without the payment of any royalty to the United States as owner. Union Oil Co. v. Smith, 249 U. S. 337, 39 S. Ct. 308, 63 L. Ed. 635. In the year 1909 the government began what is apparently a new policy in dealing with at least some of its mineral lands, for in that year by presidential orders certain portions of the public domain, having been characterized as proven oil lands, were withdrawn from entry. There being some question about the legality of this executive order, which legality, however, was subsequently sustained by the Supreme Court, Congress passed an act permitting the President by order to withdraw such lands, and they were again withdrawn by a second presidential order...