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Mobil Oil Exploration & Producing SE, Inc. v. United States

Citation: 30 ELR 20716
No. No. 99-244, 120 S. Ct. 2423/50 ERC 1737/(U.S., 06/26/2000)

The Court reverses the Federal Circuit and holds that the United States breached its contracts with two oil companies when, acting under the Outer Banks Protection Act (OBPA), it delayed approval of the companies' exploration plan. The companies paid the government $ 158 million in return for contracts giving them the right to explore for and develop oil off the coast of North Carolina, provided that the companies received exploration and development permission under the Outer Continental Shelf Lands Act (OCSLA) and the Coastal Zone Management Act (CZMA). While the companies' exploration plan was pending before the U.S. Department of the Interior (DOI), the OBPA was enacted. Because the plan complied with the OCSLA, the DOI had 30 days to approve it. The OBPA, however, prohibited the DOI from approving the exploration plan until the OBPA's requirements were met, which was estimated to take 13 months. The government then suspended the leases. The Court first holds that because the government failed to follow the OCSLA's approval process, the government repudiated the contracts. The new procedural requirements created by the OBPA do not apply to the contracts. Although an OCSLA regulation authorizes a governmental suspension in order to conduct an environmental analysis, the regulation does not apply to requirements imposed by a new statute such as the OBPA. Therefore, in communicating to the companies its intent to follow the OBPA, the United States was communicating its intent to violate the contracts. The Court next holds that the government's violation of the contracts' terms was substantial and material. Under the contracts, the incorporated procedures and standards amounted to a gateway to the companies' enjoyment of all other rights. To significantly narrow that gateway by announcing an OBPA-required approval delay of at least 13 months, violated material conditions in the contracts. The Court further holds that because the government repudiated the contracts, the companies are entitled to restitution of their original lease payments. The companies did not receive significant postrepudiation performance and it is irrelevant whether the contracts would ultimately have produced a financial gain or led the companies to obtain a definite right to explore.

Counsel for Plaintiff
E. Edward Bruce
Covington & Burling
1201 Pennsylvania Ave. NW, Washington DC 20004
(202) 662-6000

Counsel for Defendant
Mark A. Melnick
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Joined by Rehnquist, O'Connor, Scalia, Kennedy, Souter, Thomas, and Ginsburg, JJ.; Stevens, J., dissenting