Mammoth Oil Co. v. United States
Headline: Court cancels Teapot Dome oil lease, finding it fraudulently obtained and ordering return of the naval reserve, blocking private control and requiring accounting for oil taken.
Holding: The Court affirms that the oil lease and supplemental agreement were fraudulently obtained through collusion between a Cabinet secretary and oil interests, cancels them, and orders return of the reserve and accounting for oil taken.
- Cancels private lease and returns naval reserve control to the federal government.
- Requires companies to account for oil taken and stops private use of reserve facilities.
- Prevents private construction or exhaustion of naval fuel reserves without Congressional authority.
Summary
Background
The federal government sued to cancel an April 7, 1922 oil and gas lease and a February 9, 1923 supplemental agreement that gave a private company broad rights over Naval Reserve No. 3 (Teapot Dome). The lease, signed by the Secretary of the Interior and the Secretary of the Navy, granted exclusive oil production rights and included plans for a long pipeline and large storage tanks paid for by exchanging royalty oil. The District Court upheld the lease, but the Court of Appeals found the deal was obtained by fraud and collusion and ordered cancellation.
Reasoning
The Court examined the law Congress had given and the lease’s terms, and concluded the arrangement went beyond any authority to conserve or store reserve oil. The record showed secrecy, special treatment for one company, and circumstances suggesting collusion between a Cabinet secretary and oil operators. Key witnesses did not testify and unexplained transfers of Liberty Bonds supported the suspicious picture. The Court found the lease and supplemental agreement were fraudulently procured, canceled them, and required return of the reserve and an accounting for oil taken.
Real world impact
The ruling restores control of the naval oil reserve to the United States and prevents private parties from keeping or using the reserve’s products under this contract. Companies that built tanks, pipelines, or bought storage face court orders to account for oil and cannot rely on the canceled lease; Congress will decide what happens to the improvements and any removal or compensation.
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