Full opinion text
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 Febuary 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 9 th, 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 somewnat 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 ease, 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 in the year 1910. These tracts so withdrawn were scattered over different portions of the country, and among them was the structure over which this controversy arises. As there is no dispute about the lands, it will not be necessary to set them forth in detail, but Suffice it to say that they are located in townships 38 and 39, range 78 west of the sixth principal meridian. These lands under the withdrawal order rested in status quo until April 30, 1915, when by executive order they were constituted a naval petroleum reserve known as No. 3, to be held for the exclusive use and benefit of the United States Navy. Then followed another interim of nondevelopment of the petroleum lands of the government until February 25, 1920 (Comp. St. Ann. Supp. 1923, §§ 4640%-4640%jff, 4640y4g-4640:*4ss), when the so-called Mineral Leasing Act was enacted by Congress, which provided generally for the development of lands chiefly valuable for petroleum and other certain kinds of mineral owned by the government under the form of leasing said lands. Lands within naval reserves were excluded from the operation of the act, except as to a provision for the leasing of wells within such reserves. ■ The next governmental step was in the enactment by Congress of the Act of June 4, 1920, relating to the naval petroleum reserves, under which act the lease in controversy is purported to have been made, as set forth in plaintiff’s bill, and is as follows-: “That 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 eoal, 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.” 41 Stat. 813. (Comp. St. Ann. Supp. 1923, -§ 2804i). After the passing of the General Leasing Act, the Interior Department, under regulations adopted by authority of the act, proposed to lease lands in the Salt Creek field adjacent to the Teapot Dome upon showihg of preferential rights authorized by it. It appears that there was a substantial portion of this oil land area in this vicinity which was not claimed, testified to by Judge Finney, Assistant Secretary of the Interior, as being 6,400 acres. On March 3, 1921, under the direction of the then Secretary of the Interior, John Barton Payne, this unclaimed oil land was directed to be offered for leasing at public auction to the highest bonus bidder, the royalties being fixed by the department. On March 5, 1921, Secretaries Denby, of the Navy, and Fail, of the Interior Departments', took office. On March 31, 1921, an executive order was signed by ‘President Harding, committing the lands in the naval petroleum reserves to the Interior Department for administration, in consultation and co-operation with the Secretary of the Navy. This executive order appears on page 18 of plaintiff’s bill as Exhibit A, in the following language: “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 naval petroleum reserve, authorizing the President to permit the drilling of additional wells or to lease the remainder of 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. 912), 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 Congress pertaining thereto.” The first draft or memorandum of this order appears to have been made by Judge Finney, then First Assistant Secretary of the Interior, and from the testimony offered was the outgrowth of a desire to secure the machinery and experience of the Interior Department in handling public lands, the administration of which had never before been committed to the Navy Department. Previous to the completion of the document it was submitted to the Navy Department,’ and certain modifications made, after which it was carried to the President by Assistant Secretary of the Navy Roosevelt and the President’s signature secured to the same. Some time prior to the middle of June, 1921, it was apparently discovered that drainage was taking place in naval reserves Nos. 1 and 2, located in California, and there was a granting of strip leases to protect against' this, coupled with a settlement of certain adverse claims held by the United Midway Company, by the granting of leases on certain sections. On July 8,1921, during the negotiations over the California leases, Secretary Fall addressed a letter to one Do-heny, in which it appears that he had been having some conflict with officials in the Navy Department, and stated that he had the matter arranged so that he would have no further conflict with these officials, but would consult only the Secretary himself in regard to matters pertaining to the naval reserves. On July 23, 1921, with respect to what should be done with the oil from offset leases on reserves in California, Secretary Fall asked Secretary Denby for instructions concerning the handling and disposition of the royalty oil resulting, in which letter the suggestion was made that there might be an exchange of the royalty oil for fuel oil, or for fuel oil in tanks, the title to both to be vested in the Navy. On July 29th the Secretary of the Navy addressed a letter to the Secretary of the Interior, approving the suggestion for the taking care of the oil resulting from the California leases. Sometime in the early part of September, .1921, Dr. H. Foster Bain, then, and'at the time his evidence was taken in this case, Director of the Bureau of Mines under the Department of the Interior, in company -with Arthur W. Ambrose, holding at the time the position of Chief Petroleum Technologist in the Bureau of Mines, made a trip to the Rocky Mountain region, visited naval reserve No. 3, interviewed one Carroll H. Wege-mann, formerly in the government service, and one G. A. Fisher, of the firm of Fisher & Lowrey, consulting geologists and engineers, located in the city of Denver. A full discussion of the conditions existing in naval reserve No. 3 was had, in which Dr. Bain, Ambrose, Wegemann, and Fisher participated. Recent maps were exhibited in which changes in the geological formation in Teapot Dome were indicated, showing faults at a different location than those having before been represented to the government by Wege-mann while in its employ. Later in September, 1921, the said Wege-mann made a report to the Geological Survey that a further examination of the Teapot Dome had convinced him that his. previous examination made in 1916 was faulty, in that he was convinced that the saddle was located farther south upon the structure, making a greater area of the' structure susceptible to drainage. The substance of this report was communicated to the Paymaster of the Navy, and to Commanders' Stuart and Shafroth, in the Bureau of Engineering of the Navy, that bureau apparently having charge of the naval reserves. About the 1st of October, 1921, Admiral John K. Robison was made Chief of the Bureau of Engineering in the Navy Department by the Secretary of the Navy. On October 8, 1921, by an oral direction of the Secretary of the Navy, Admiral Robison took direct charge of the naval reserves. A short time thereafter the appointment was confirmed by a formal written order. It seems that some feeling had been developed between Secretary -Fall and Commanders Stuart and Shafroth, which the evidence discloses was the opposition in the Navy Department referred to in Fall’s former letter to Dohemy, but that Admiral Robi-son, under date of October 8, 1921, issued an order from the Bureau of Engineering retaining Commander Stuart in his position on account of his knowledge of the naval reserves. This aetion was later confirmed by the Secretary under letter of October 24, 1921. Admiral Robison testifies that the first thing he did, after being placed in charge of the Bureau of Engineering, was to get in touch with the officials of the Interior Department, Secretary Fall, Assistant Secretary Finney, Dr. Bain, of the Bureau of Mines, and Ambrose, the Chief Petroleum Technologist. He informed Secretary Fall that he had been placed in charge of the naval reserves. He consulted with Dr. Bain, of the Bureau of Mines. He consulted with Commander Stuart, to familiarize himself with the history of the reserves. His investigation led him to the conclusion that, while one of the California reserves was practically nonexistent as a reserve on account of checkerboarding, the other reserve was suffering from very serious drainage, and that No. 3 reserve was pretty secure, but not absolutely so. Some time in October, 1921, which time is not more definitely fixed, there was a conference between Admiral Robison, Secretary Fall, Dr. Bain, and Mr. Ambrose, in which, among other things, the possible drainage of naval reserve No. 3 was discussed. At that time the second Wegemann report was before these officers, and it was agreed that it at least suggested an investigation of the conditions surrounding the possibility of drainage, and it was determined that a representative of the Bureau of Mines would be dispatched. The conclusion of the Wege-mann report, contained in paragraph 3, is as follows: “(3) There is no doubt that, from the point of development of the property and recovery of oil from it, it will be mueh better to develop the property as a unit before the invasion of water. The Navy Department cannot prevent draining of the property as outlined above. It can make arrangements for the proper development of the property under conditions which will be mutually advantageous to the Navy Department and the operators.” One Heald was an officer consulted in making the investigation of Teapot Dome, he being a geologist of the Bureau of Mines or the Geological Survey. The examination by Heald was made about the middle of November, 1921, and his report was dated on or' about the middle of November of the same year. The substance of this report appears to be that there was no immediate danger of substantial damage on account of drainage, because of the fact that there were few wells immediately adjoining the reserve, but that, if loss became imminent, due to intensive drilling near the line of the reserve, fractions should immediately be leased. The testimony of Heald discloses that he must have made a limited examination of that portion of the reserve where the saddle was supposed to be located, as he was upon the ground, according to his own testimony, only about four hours, and was engaged chiefly in cheeking the later report of Wegemann in regard to the location of the saddle. On or about the 30th day of November, 1921, there was held in the Navy Department what is described as the Secretary’s Council, consisting of the chiefs of bureaus in the department, supplemented by others of the more important naval advisors, numbering in all about 14. Apparently among those present were the Secretary of the Navy, the Assistant Secretary, the Chief of Operations, the Paymaster, the Chief of the Bureau of Engineering, and the Judge Advocate General. At this council meeting, the question of carrying out the plans of the Navy was discussed, in which it was virtually agreed that it would be desirable, in perfecting those plans, to have the use of the oil from the naval reserves, inasmuch as the appropriations of Congress were not sufficient to enable the council to carry out its plans. It was suggested that, under the Act of June 4, 1920, oil from these reserves could be secured by exchange directly for the use of the Navy, but doubt was expressed by some members of the council as to the legality of it. The plans above referred to related to the national defense, and had been in existence prior to the advent of Mr. Den-by as Secretary of the Navy. As a result of this conference, it was determined to submit the legal phase of the situation to the Judge Advocate General of the Navy, which was accordingly done by Admiral Robison, bringing in reply a legal opinion, the conclusion of which is in the following language: “It would be legal to exchange the royalty crude oil for fuel oil in storage at Pearl Harbor, or other points to be designated by the Secretary of the Navy, under arrangement whereby the exchanged oil shall be stored in tanks provided by the lessees.” Within a few days thereafter the opinion of the Judge Advocate General was submitted to tbe Secretary of tbe Navy, who entered his approval thereon, and, according to the testimony, opposite the paragraph which has been above quoted the Secretary of the Navy made in his own handwriting the following entry: “Do this. E. D. Dec. 5th, 1921.” On December 9,1921, Assistant Secretary of the Navy Roosevelt addressed a letter to the Secretary of the Interior, inclosing certain plans and specifications of that department covering the storage of fuel oil at Pearl Harbor, Hawaiian Islands, to be carried out with oils secured from the California reserves. In that letter the Assistant Secretary of the Navy requested that, in so far as the war plans of the Navy were concerned, the matters contained in the communication “be regarded as confidential as possible.” This letter was replied to by Assistant Secretary Finney, of the Interior Department. On December 14, 1921, Secretary Denby addressed a letter to the Secretary of the Interior, advising him of the decision of the Judge Advocate of the Navy Department, and expressing the desire that all royalty crude oil should be used in payment of tank-age for the Navy and in filling the tankage with fuel oil for storage. The Secretary of the Interior was also advised, as soon as practicable, to make a contract for constructing storage tanks at Pearl Harbor in accordance with plans and specifications formerly forwarded by the Navy Department to the Interior Department. It contains the following clause: “If practicable, I also desire to use the crude royalty oil received during the months of November and December, 1921, as a credit against the construction and filling of the Pearl Harbor storage.” The letter also contains a clause advising the Interior Department that Rear Admiral J. K. Robi-son had been designated as the representative of the Secretary of the Navy “to handle all details in connection with naval petroleum reserve questions.” Further, it asked for a monthly summary of the operation of the reserves, as to the progress being made on storage tanks. On December 31, 1921, Harry F. Sinclair and one Zevely, his attorney, were at the home of Secretary Fall, Three Rivers, N. M., in a conference which, according to the testimony of Zevely, concerned Osage Indian leases, but that inquiry by Sinclair was made of Fall in regard to leaking Teapot Dome. Some time in January, 1922, Mr. Salford, Assistant to Secretary Fall, asked Assistant Secretary Finney, of the Interior Department, to suggest some one who would be able to prepare a report giving the status, of the various mining claims at Teapot Dome. Judge Finney suggested Mr. Tallman, a former special agent of the Land Department. In the early part of January, 1922, Mr. Salford spoke to one Eddy, an employe of the Department, about such a report, and thereafter Mr. Eddy secured the services of Mr. Tallman, who made a report, underwritten by Mr. Eddy, which shows, among other things, that the mineral claims on Teapot Dome did not deserve serious consideration and that there was no imperative need of opening up Teapot Dome. About January 21, 1922, Dr. Bain and Mr. Ambrose returned from their Western trip. On January 27, 1922, Secretary Fall returned to Washington, after which return, and within a comparatively short time, a conference was held, attended by Fall, Robi-son, Bain, and Ambrose. At this conference the matter as to the conditions in the West were discussed, including those surrounding Teapot Dome. Ambrose had met one Tough, who was a mineral supervisor of the Bureau of Mines. At this conference Mr. Ambrose stated that wells were going down in the southern part of Salt Creek, indicating that the boundary line between the north and south sections of the Dome would be affected, which would affect the distribution of oil and water in the territory. Admiral Robison testifies that at this conference Secretary Fall suggested that his information from reports of people in the field led him to the conclusion that these reports were confirmatory of the Wegemann report, suggesting danger of drainage in the Wyoming reserve, and further that Dr. Bain and Mr. Ambrose confirmed that statement. Admiral Robison then suggested that, in view of the California experience, action should be immediate to save a repetition of grave losses. Immediately thereafter Admiral Robison testifies that he took the matter up with Secretary Denby, in which he recommended the opening for development of the Wyoming reserve as a whole, the insistence upon the necessity of a pipe line for military reasons, and that only complete development of the reserve, as distinguished from a single line of wells, would insure complete protection from drainage from the Salt Creek field. He also testifies that Secretary Denby thereupon agreed, after having demurred somewhat in the first instance, to a complete development of the reserve. Admiral Robison then communicated the decision of the Secretary of the Navy to Secretary Fall, telling him that the Navy would require the building and filling of fuel oil storage tanks ■ along the Atlantic coast at certain points, of which he gave an approximation as to quantities. He insisted upon a pipe line. He required that they should have the right to exchange crude oil at the wells in Wyoming for quantities of fuel oil in storage. He further testifies that he stated to Secretary Hall that they would undoubtedly have to “deal with some big oil company, other than a Standard Oil interest, because it did not seem there was anyone else who could do it.” Admiral Robison testifies that his motives in making the recommendation were based upon the consideration of national defense and economic necessities. At a later point he summarizes his reasons for his recommendations into three divisions: Hirst, fear of loss by drainage based upon experience in California; second, pressing national emergency regarding our state of security; and, third, securing of better terms by development of the entire Dome, as distinguished from a series of small leases. Some three or four days thereafter Admiral Robison met Mr. ■ Sinclair in Secretary Hall’s office. Robison testifies that Hall told him that he had sent for Sinclair, stating that “Sinclair was a big oil man, and was the kind of man from whom he would like to get a proposal, because he would be able to put it through.” At that time Hall told Robison .to set forth to Sinclair in as much detail as possible what was needed'. At that time Admiral Rob-ison told Sinclair in the presence of Hall: “That the reserve should be developed as a whole, that a pipe line should be constructed of adequate capacity to care for the production of the field, that the naval proceeds from royalties should be directed towards the erection and filling of specified storage facilities along the Atlantic coast, that the exchange be operated without the use of cash, and that the oil from the wells should be used in exchange for the accomplishment, for naval account, of the facilities to be created.” Thereafter, and on Hebruary 3d, Sinclair -Submitted a proposal for a lease upon Teapot Dome. This proposal was for a contract including, among other things, the following : The right to' take out all the oil in the reserve and to pay a reasonable royalty therefor, to be agreed upon, graduated according to the size of the wells, a development of the property as rapidly as conditions and circumstances- would permit, the construction of steel storage tanks to take care of the production temporarily, the building of a pipe line, the exchange of royalty oil for fuel oil, the building of storage tanks along the coast, and the quieting of outstanding claims on the reserve. It also contained the proposer’s reasons of the necessity for opening up the reserve, the economy of leasing to one interest, and the advantages to be gained by the construction of storage tanks. On the following day, Hebruary 4th, the proposal of Sinclair was submitted to Admiral Robison, who then conferred with Am-brose and Hall in regard to it. During these conferences, the matter of proposals for lease from other companies was discussed. Then followed, covering a considerable period, negotiations looking to the formulating of plans for a lease with Sinclair. Admiral Robison testifies that he actively participated in these negotiations, being particularly interested in fixing the rates of royalties on oil and gas. Computations along this line were made in the Bureau of Mines, because they had available data concerning production from the adjoining wells in the Salt Creek field. Ambrose, the Petroleum Technologist of the Bureau of Mines, was set to work drafting terms upon the technical matters involved in a proposed lease. - Others of the government, who apparently had a part in the drafting of the lease, were Secretary Hall and Eddy, of the General Land Office, who participated in that portion relating to rights of way. ' Suggestions were secured from Dr. Bain, of the Bureau of Mines. Stanford and Zevely, attorneys for Sinclair, also worked upon the lease. This work was carried on at Zevely’s office and at Hall’s office. Others were engaged in the cheeking of the terms of 'the lease, among them H. W. Lane and one H. B. Hill. Ambrose had been in the department about four years, and had been during that time engaged in the preparation of leases under both Secretaries Payne and Hall. Ambrose does not remember that he was specifically committed to secrecy by Secretary Hall, but understood that all matters concerning the Navy were generally considered as secret. The drafting and redrafting of the lease covered a period of from a month to six weeks, from Hebruary 18, 1922, according to the testimony of Ambrose. On Hebruary 18, 1922, Ambrose filed a report in connection with Teapot Dome, which is somewhat technical, but in which his conclusion as to drainage is set forth, that if oil should be found in the saddle in the second Wall creek sand, that drainage would result to a certain southern point, and “if conditions are favorable, the productivity of the sand will be affected even,further to the. south.” During the time that the lease was in the course of drafting, information in regard to it evidently reached the public, or at least some of those who were interested in oil development. One James C. Crawford called on Secretary Fall some time in February and made inquiry in regard to the leasing of Teapot Dome. Crawford was a practicing lawyer in the District of Columbia, and Fall at that time told him that he had concluded to offer the Teapot Dome for development, “but that he was not going to offer it publicly, because he did not want to be embarrassed by a lot of irresponsible oil companies and individuals applying to him for a lease.” Fall further stated that it would be best to offer it to two or three responsible companies, who would be willing to develop it and undertake the construction of a pipe line involving $15,000,000 or $20,000,000. Crawford and his associates then concluded to affiliate with some of the larger companies and talked with the Texas Company. On February 28, 1922, Sinclair caused the Mammoth Oil Company, the principal defendant in the ease, to be incorporated. During March and the early part of April a number of persons called upon Secretary Fall with reference to leases on Teapot Dome. One of-these was Kistler, of the Producers’ & Refiners’. Secretary Fall told Kistler at that time that he was not ready to lease Teapot Dome, and would not consider propositions, but would give Kistler another chance. At that time Kistler recommended that a first well be drilled on each structure, and that the remainder of the land should be cut up into quarter sections and sold to the highest bidders. Kistler did not again hear of the matter until he learned that the lease had been granted to the Mammoth Oil Company. Some time in March one Shaffer called upon Secretary Fall, after hearing that a lease was contemplated to Sinclair; he having theretofore made application for a lease .on certain lands in the Teapot Dome. He had formerly inquired about this from Secretary Denby by letter. Shaffer maintained that he had some equitable rights on certain lands in Teapot Dome, in connection with lands which he was developing adjacent thereto in the Salt Creek field. Secretary Fall told Shaffer that a lease was being arranged with Sinclair, and that he had taken up with Sinclair the matter of having Sinclair give Shaffer 200 acres in Teapot Dome. To this Shaffer demurred, on account of the smallness of the acreage, and Fall suggested that he take the matter up with Sinclair direct. Some time between the 15th of March and April 1, 1922, G-erald Hughes called upon Secretary Fall with reference to the matter of securing a lease upon Teapot Dome. Previous to that time, and in the fall of 1921, Hughes had had correspondence with the Secretary along the same line. At the March conference, Fall told Hughes that he had decided to lease the Dome to Sinclair; the reasons for leasing being that reports of the Bureau of Mines and geologists acting for the government indicated that drainage was taking place, and outlined in a general way the terms of the Sinclair lease. Upon hearing these terms, Hughes concluded that he would not be interested in that kind of a lease, as it would be a much better one than he could consider. Fall told him that the matter was not concluded, as he was in touch with other oil companies or operators, for the purpose of attempting to get still better terms. He mentioned one of the larger companies with whom he was negotiating, but the witness does not distinctly remember the name. Fall further told him that he did not want to lease to the Standard of Indiana or the Midwest Companies, as they already had a monopoly in that field. Presumably in consequence of the interview between «Secretary Fall and Crawford, one Beaty, president of the Texas Company, heard of the proposed leasing of Teapot Dome, and by arrangement called upon Secretary Fall. Beaty subsequently made some tentative proposals, although not in detail, and a dispute apparently arose over a provision in the proposal concerning Bunker A oil'. Some telegrams were afterward exchanged. Beaty went to North Carolina, and asked the Secretary to await his return to New York, a week or ten days later, before continuing the negotiations further. The scale of royalties proposed by Beaty was discussed, however, by Fall, Robison, and Dr. Bain, of the Bureau of Mines; their joint conclusion being that, upon the basis of their expectations as to production, the Beaty proposed royalty would not yield as much oil to the government as the Sinclair proposed royalty. In any event, the negotiations with Beaty were not pursued further. In the interview between Fall and Beaty, it developed that certain mineral claims upon Teapot Dome were discussed, in' which it appeared that Sinclair had secured deeds of these claims to the government and filed them with the Secretary of the Interior, to become effective upon the contingency of his securing the lease. In regard to them Beaty testifies: “I had heard something about those claims, and had the impression that they had not bnen delivered irrevocably, bnt that, if my company should obtain a lease, it could acquire these claims, and I stated that to the Secretary.” These parties also discussed the exchange of Salt Creek royalty oil for fuel oil. The disputed mining claims located upon Teapot Dome seem to have been held by organizations commonly spoken of as the Pioneer and Belgo Companies. These claims, or a portion of/ them, had several times been before the Department of the Interior, and had been denied, bnt applications for rehearings of some character were still before the department. One of the conditions to go with a lease upon Teapot Dome was a requirement from the lessee to negotiate a settlement of these claims. This it appears Sinclair did, for a consideration paid and to be paid, approximating $1,000,000, conditioned, as heretofore stated, upon his securing the lease. There is some evidence that Secretary Pall had talked with others about a lease on the Dome, although it does not appear that others than those mentioned have testified to such conversations. Mr. Beaty testifies that it was generally known among oil companies that a lease was under .consideration, and that in his connection with the transaction he saw no indication of secrecy. The lease itself was signed on April 7,1922, in the presence of Mr. Ambrose. The lease was then transmitted to the Navy Department and the matter was retained in that department and considered by the Secretary of the Navy and Admiral Robison for about a week, being signed by the Secretary of the Navy on April 12th. The rough draft of the lease had been previously considered in detail by Secretary Denby and Admiral Robison, going over the terms section by section. The lease itself is an exceedingly long and technical instrument, containing many features not material to the consideration of the issues here involved, but neverthless requiring at least a summarized analysis of its provisions. The preamble recites the duty of securing and storing fuel oil for naval purposes and the desirability of securing that storage at accessible points; the desire of the government to avoid the risk of loss of oil in naval reserve No. 3 on account of reduction of gas pressure, because of operating in adjacent territory; the desire of the government to create a' competitive market for its royalty oil received from the Salt (jreek field; and the desire to exchange crude oil for fuel oil for the use of the navy, and the securing of adequate storage facilities for such fuel oil. A description of the property, consisting of 9,321 acres, is then set forth. A bond of $250,000 is required of the lessee to insure a compliance with the terms of the lease. A drilling requirement is made to begin within a period of 180 days, specifying the place at which the first well shall be drilled, and that tests shall be made from time to time. It further provides that, when the wells shall reach or exceed a capacity of 20,000 barrels per day, a pipe line shall be constructed by the lessee, extending from the field td a connection with a line of the Prairie Pipe Line Company to Chicago, 111. Second and third' series of wells are required to be drilled under certain conditions. "Wells to offset the wells of others on adjoining lands are required. Royalties are provided on gas, casing-head gas, easing-head gasoline, and oil to be produced. These royalties range on gas from 12% to 16% per cent., on casing-head gasoline they are 16% per cent., and on oil, depending upon the quality and daily production per well, they range from 12% per cent, to 50 per cent. The contract further provides that the lessor shall sell to the lessee the royalty oil produced at a price to be controlled by the market, which shall be the highest in any one of three specified oil-purchasing areas, and that certificates shall be delivered by the lessee to the lessor, which may be, at the option of the latter, used in four different ways: (a) In exchange for the construction by the lessee of steel storage tanks in carrying out the plan of exchanging crude oil for fuel oil; (b) in exchange for fuel oil; (e) in exchange for gasoline, kerosene, lubricating oils, and other petroleum products required by the Navy; and (d) redeemed in cash. Detail is set forth as to how these exchanges shall be carried out, and reference is made to future contracts to specify in more» detail the manner of the exchange. It is also provided as to what points, at the option of the government, fuel oil may be delivered. The quality of fuel oil is prescribed. Provision is made for making reports of drilling operations, logs of wells, and the like, and in regard to payment of taxes and wages of employes of the^lessee. Methods for conducting operations and for computing royalties are set up. Rights of way, easements, and surface rights are covered, as well as matters concerning the termination of the lease and proceedings in case of default. Inquiries in regard to the leasing of the Dome began to multiply, not only coming from those who were prospective lessees, but from those having a public interest. On April 12, 1922, Secretary Fall, in answer to a letter of April 6th, wrote to Senator La Follette, in which he reviewed what the Navy and Interior Departments had been doing in regard to naval reserves — that is, as to general plans for the leasing of the reserves. On April 13,1922, Secretary Fall left for his ranch at Three Rivers, N. M., and before leaving told Judge Finney, Assistant Secretary, that the Wyoming naval reserve lease had been signed and was locked in his desk, to which Mr. S afford, his assistant, had the key, but that he did not care to have the matter get out until the lease for the building of tanks at Pearl Harbor had been consummated, and that the Navy desired to keep the location of the tanks in secrecy. This secrecy, according to Admiral Robison, had been requested of the Secretary of the Interior as to the military portion of the contracts. Before leaving Washington, Secretary Fall addressed a letter to Senator La Follette, stating that the details as to handling naval oils would not be given out unless permission should be given by the President. On April 18, 1922, a publicity statement was given the press regarding the lease to Sinclair of the Wyoming reserve, as well as the decision to award a contract to the Pan-American Petroleum Company upon the California reserves. On April 21, 1922, a letter was addressed by Secretary Denby and Assistant Secretary Finney to the President of the Senate, in response to a resolution for full information in regard to leases for naval reserves. Some time on or about April 26th copies of the lease itself were available. Some time in December, 1922, the Mammoth Oil Company submitted its bid for the purchase of royalty oil from the government’s leases in the Salt Creek field, and represented to the Secretary of the Interior that, if its bid was accepted, construction of the pipe line called for in the lease would be started immediately, irrespective of the fact that the Teapot Dome structure would not yield a production of 20,000 barrels, as specified by the lease. Shortly thereafter, the Mammoth bid being the highest and' best, that company was advised that the bid would be accepted, provided the bidder would agree, at the option of the United States, to exchange a barrel of fuel oil for each barrel of royalty oil so purchased, and a purchase contract was thereafter consummated. On or about 'December 20, 1922, the Sinclair Pipe Line Company, the nominee of the Mammoth Company, entered into a contract for the construction of the pipe line mentioned in the lease of April 7, 1922, which pipe line was subsequently constructed at an expense of approximately $21,000,000. On January 26, 1923, Secretary of the Navy Denby addressed a letter to the Secretary of the Interior, giving certain specifications as to the storage of fuel oil, gasoline, and lubricating oils, and requesting the Secretary of the Interior to call upon the Mammoth Oil Company to enter into a supplemental contract, referred to in the contract of April 7, 1922, covering these matters. A supplemental contract was subsequently drawn up, which provided for the construction, at cost plus percentage overhead, of storage tanks at specified points, the exchange of oils, and the like, which was submitted to and gone over by Secretary Denby and Admiral Robison, and subsequently signed and became the contract known as that of February 9,1923; this contract bearing both the signatures of Secretaries Denby of the Navy and Fall of the Interior, like the former lease agreement. Under this contract, the construction of storage facilities was to he undertaken at Portsmouth, N. H., Melville, R. I., Governor’s Island, Boston Harbor, and Yorktown, Va., and construction had proceeded to a point at Portsmouth that about $1,-000,000 had been expended at the time this litigation ensued. Two collateral transactions are relied upon by the plaintiff in respect of its contention of conspiracy set forth in its bill. In November, 1921, one Henry M. Blackmer, at that time president of the Midwest Refining Company, made a contract with one A. E. Humphreys, president of oil'companies doing business in the state of Texas, for the purchase of 33,000,000 barrels of oil at the agreed price of $1.50 per barrel. Humphreys telegraphed his attorney, Senator Thomas, of Denver, to come to New York, advising that he had made a sale of the oil to Blaek-mer at $1.50 per barrel. There was then a meeting in New York, at which there were present Humphreys, Thomas, Blackmer, Sinclair, O’Neil, president of the Prairie Oil & Gas Company, and Stuart, an officer of the Sinclair Crude Oil Purchasing Company, a company apparently jointly owned by the Sinclair interests and the Standard interests. The terms of a contract was agreed upon for the sale of this oil, and Mr. Blackmer requested that the Continental Trading Company, a Canadian corporation, be named in the contract as the purchaser. To this suggestion Col. Humphreys made some objection, upon the ground that he was not familiar with the financial responsibility of this company, and was then informed by O’Neil, Stuart, and Sinclair that, as their companies had made a deal for the purchase of the oil involved, they would guarantee the Humphreys contract. After the contract was prepared 'and ready for signature, one H. F. Osier was by Blaekmer introduced as the president of the Continental Trading Company, who executed the contract in its behalf. Two other contracts were at the same time made between Humphreys and the Sinclair and Prairie Companies, one covering 50 per cent, of the production of Humphreys’ companies over and above the 33,000,000 barrels covered by the Continental Trading Company contract at market, and the other a contract between the Continental Trading Company and the Prairie and Sinclair Companies, purchasing upon the basis of $1.75 per barrel the oil covered by the contract between Humphreys and the Continental. A guaranty contract by the Sinclair and Prairie Companies of the Continental contract was also executed. As to the presence of Sinclair, Stuart, and O’Neil, Senator Thomas testified that he assumed that they were representing the Sinclair Crude Oil Purchasing Company and the Prairie Oil & Gas Company, which entered into the contracts for the purchase of oil. The oil produced under the Humphreys contract, and repurchased by the Sinclair Crude and Prairie Companies, yielded a profit which Osier, as president of the Continental Trading Company, invested in government bonds. These bonds, on request of Osier of a bank in New York City, were purchased at various brokerage houses. The Continental Trading Company had been organized under the laws of Canada, and, as is permitted by that government, only shares of stock sufficient to constitute the corporation were issued, but holding warrants without name were issued and distributed to those having property interests in it. The deposition of Osier was taken upon a commission issued out of this court, but which ended by the plaintiff not being able to secure answers in full to questions propounded to the witness (the witness principally refusing to disclose the name of his client for whom he organized the Trading Company, upon the ground that it was a privileged communication between attorney and client). The matter was taken upon appeal to intermediate and higher courts of Canada, and no decision upon the legal questions involved in the witness refusing to answer was seemed, so as to make any additional. testimony available at the trial, although several continuances were granted for that purpose. So far as this court knows, the matter is still pending before the Canadian courts. The testimony which Osier did volunteer to give was to the effect that he had no recollection of meeting Sinclair in New York upon the occasion of his visit there to complete the contracts, and further that he had no recollection of having distributed the holding warrants, and therefore to the best of his knowledge had no information of the actual persons who were the owners of share warrants issued by the Continental Trading Company. Osier’s testimony is of an uncertain character, evidently very carefully guarded and unsatisfactory, so far as giving positive information is concerned. A portion of the government bonds which were purchased by the Continental Trading Company, according to the trend of testimony admitted over the objection of defendants, and ruling upon which was reserved, later appeared in the hands of one Everhart, a son-in-law and partner of Secretary Fall in the state of Texas, and were partially used by Everhart in retiring some indebtedness of the company in which he and Fall were jointly interested, and partially deposited to the credit of Fall individually. Everhart was called as a witness by the plaintiff, and refused to testify, upon the ground that his answer would tend to incriminate him; but, his reasons not appearing to the court sufficient, his claim to exemption was denied. He then niade an additional statement of reasons sustaining his position, which the court did recognize as sufficient, so that he did not testify. Attempt was made to take depositions of Blaekmer and O’Neil, who were then in France, and who apparently refused to testify. Stuart was not presented as a witness in the case. The other collateral transaction relied upon by plaintiff involves the matter of a transfer of $25,000 in government bonds by Sinclair to Fall. These bonds were shipped by express by the employes of Sinclair to the First National Bank of El Paso, Tex., with a letter of transmission stating that they were the property of Fall, and asking the bank to receive them for his account. This was in June, 1923. Fall also wrote the bank at about the same time, instructing them to credit these bonds to his account, authorizing a charge to be made against it, and stating that he was leaving for Europe on business. The bonds were received and used in the manner directed. The transaction is explained, that after the retirement of Fall from the employment of the government he was sought by Sinclair to go with him to Russia upon business concerning the securing of contemplated oil leases in Russia; that Fall indicated that he would go, provided he secured the approval of the administration at Washington, but that he would need some money to close up some deals he had on hand before leaving, and that he would follow Sinclair to Russia at a later date. Fall went to Russia, and upon his return gave Zevely, Sinclair’s attorney, his note for the $25,000, representing the value of the bonds transferred, which note, when the matter was under investigation, had not been paid, and no considerable portion of the money had been used by Fall before, or at least for some time after, he returned from Russia. The Legal Questions. In beginning an analysis of the intricate legal problems involved in this ease, the court has been impressed with two unusual situations not ordinarily found in eases of this character: First, although a conspiracy is one of the bases for the annulment of the lease, one alone of the many government officials having taken an active part in its consummation is charged with corrupt and ulterior motives. We take it, from the evidence and the expressed views of plaintiff’s counsel, that although Denby, Roosevelt, Robison, Finney, Bain, Ambrose, and Eddy had more or less of an intimate knowledge of the entire transaction, and some of them, at least, an active and persuasive influence in bringing it about, they must be considered as absolved from any incriminating fault as to fraudulent motive. Counsel for the government in argument, being asked as to the basis of Admiral Robison’s assertive attitude, charged it to superenthusiasm and zeal for the welfare of that defense arm of the government which he represented. Second, there is the significant lack of material damage to the government which usually attends allegations of fraud, for in the ease at bar no attempt has been made to show that the lease in controversy was in itself a bad lease for the government, except perhaps theoretically by counsel; but, on the other hand, the testimony of the plaintiff’s own witnesses, who are competent to speak upon the subject, tends to show that it is a lease much more favorable to the government than they, as oil operators, would be willing to assume. These elements are perhaps not controlling in a ease of this character, but they are at least worthy of mention, as being conspicuous, because their presence is usually the basis of relief sought in eases of this kind. There are so many legal questions presented and discussed that it is difficult to select a logical order for their presentation. However, the following order may be as convenient as any other: (a) The Attack upon the Bill. (b) The Executive Order. (e) The Charge of Fraud. (d) The Legality of the Lease. (e) The Policy of the Government. (f) The Motion to Strike. (a) The Attack upon the Bill. Counsel for defendants have in a measure challenged the bill as to the allegations of the conspiracy to the effect that, in the absence of any showing, of fraud in the proofs as to the Mammoth Oil Company being a party to the conspiracy, the proofs of it among those specifically charged will not necessarily sustain the action; the legal basis of such an action being in reality a tort committed from which damages will logically flow. The idea is expressed in the case of James v. Evans, 149 F. 136, at page 140, 80 C. C. A. 240, 244, in the following language: “This is in substance an action on the ease in the nature of conspiracy. Being a civil remedy, the gist of the action is not the conspiracy charged, but the tort working damage to the plaintiff.” In answering this contention, counsel for plaintiff rely upon equity rule 19, to the effect that the court must disregard errors and 'defects which do not affect the substantial rights of the parties, and upon a number of federal eases requiring liberal construction of pleadings, among them being Swift & Co. v. United States, 196 U. S. 375, 25 S. Ct. 276, 49 L. Ed. 518, and United States v. United Shoe Machinery. Co. (D. C.) 234 F. 127. While the allegations of conspiracy do seem to be emphasized more particularly in the bill than do the averments of specific fraudulent acts, yet this court is inclined to the view that such latter acts are sufficiently alleged to fully apprise the defendants of the charges to be met, so as to entitle the plaintiff to a decision upon the merits. We are further of the opinion that the evidence in the ease discloses that the defendant Mammoth Oil Company was the creature of Sinclair to such an extent that it must be held responsible and liable for all his acts in and about tbe transactions involved. (b) Tbe Executive Order. While the invalidity of the executive order of May 31,1921, is alleged in the bill, as being void in law and brought about by Secretary Fall for the purpose of enabling him to carry out the plans under the alleged conspiracy, we assume that this matter may as well be disposed of'first, because of the fact that it has been very largely eliminated frpm the case, for the following reasons: First, in the opening argument, counsel for the government used the following language : “The executive order was issued May 31,1921. We have certain averments in this petition or bill which were in accordance with what information we had at that time. Frankness compels the statement that our evidence, so far as that is concerned, is limited to the fact that the Secretary of the Interior and the Secretary of the Navy prepared this executive order and