Earl Warren: Mr. Hollander.
Morton Hollander: May it please the Court. The respondents in the napalm gel case and by incorporation by reference, the respondents in Number 19 have argued that there are outstanding a number of decisions of this Court holding that the two-year limitation period prescribed by Section 16 (3) of the Interstate Commerce Act is jurisdictional in a sense that it sets an outside boundary on the power of the Commission to entertain proceedings filed with -- after the expiration of the two-year period. I believe that that was the -- the question Mr. Justice Harlan was interested in. Now, we -- we recognized the -- the existence of these series of decisions characterized by the respondents as an unbroken line of decision. We feel though that they are besides the point here. All of those decisions to the extent that they involved proceedings by shippers before the Interstate Commerce Commission are proceedings initiated independently as a matter of first resort by the shipper against the carrier before the Commission and none of those cases cited is establishing these jurisdictional limits on the Interstate Commerce Commission deal with the power of the Court as an incident of a proceeding timely filed before it to refer to the Commission. I repeat as an incident of the power of the Court hearing the case to refer to the Commission a proceeding notwithstanding the lapse of the two-year period. For that reason, we believe that -- that line of jurisdictional cases by itself, that reason alone, requires that those decisions on the jurisdictional point would be viewed as not -- not being in point. Now, their jurisdictional argument or the argument that these cases set a jurisdictional limit and the Commissions thereby deprived the power and can't take the case also ignores the fact and this is recognized by respondents in another face of their argument. It -- it ignores the fact that the Government is because it is the Government because it is the sovereign. It is entitled to a special immunity from statute of limitations provisions. So that even if it were to be assumed as respondents necessarily contend that the reach of Section 16 (3) goes far beyond its language and extends not only to independent reparation proceedings but also to proceedings referred to the Commission as an incident of a timely filed suit in court. And even if that assumption were indulged in, the respondents cannot possibly explain away the fact that the United States traditionally has been held to be immune from such a statute of limitations provisions. Now, the only time -- the only time the United States may be subjected to a limitation defense, the only time such a defense may be ruled to apply to the United States, and this Court has consistently held, is in a situation where Congress has explicitly manifested an intent to subject the United States to that particular statute of limitations. In other words, if in Section 16 (3) (b), there were some explicit manifestation and the only way that manifestation could possibly be expressed would be by saying that independent reparation proceedings filed by the United States just as an independent reparation proceedings filed by any other shipper, they would have to refer explicitly to the United States and subject the United States to the bar of their two-year period. That, of course, was not done here. The respondents seem to us to take a very inconsistent position because they recognize on the one hand that because of the sovereign -- this traditional sovereign immunity from limitations, the United States, the United States if it went into court beyond the expiration of the two-year period, if it went into court, Section 16 (3) they say they agree would be no bar. Here, however, they insist that if rather than going to the Court directly, they are hailed into court and try to get before the Commission as an incident of a timely filed judicial proceeding, they somehow reason that this traditional sovereign immunity from limitations is thrown out of the window, so that the United States may be met whether he joined to that, you're too late now to go over to the Commission, even though you want to get there as an incident to a timely filed judicial proceeding. Now, we believe on either one of those two grounds, the line of cases holding that Section 16 (3) is jurisdictional, really has no application here. First, as I've pointed out those cases involved independent reparation proceedings not those referred as an incident. Secondly, it gives no consideration to the unique position. The United States has always occupied in its immunity, special immunity from limitation defenses. For the reasons I've tried to outline and the reasons we advanced in the earlier case and those in our brief, we respectfully submit that the judgment of the Court of Appeals in number 19 and that the judgment of the Court of Claims in number 18 to be reversed with instructions in both cases remanding the cases to the lower courts in order to afford the Government, the petitioner here, a full opportunity to present all of its defenses.
Earl Warren: Mr. Spicer.
Meade T. Spicer, Jr.: May it please the Court. With reference to the question just discussed by Mr. Hollander, I do like to call attention to the brief filed in number 18, page 29, we incorporated by reference the argument there on this particular point. And on page 29, the -- as quoted from the Commission case itself, in fact in 80 I.C.C. in which it went into the reasons for its conclusion that it could not pass on a claim that was filed after two years. And it said, “It is fundamental that we act only under the jurisdiction conferred upon us by Congress. It is the status of the tribunal rather than the status of the litigant.” In other words, that that point is relied upon here by the respondent. The power -- in other words, the statute created the right and also created the remedy. Certainly, situation is not unusual to the law, one that is common I believe among the death statutes in -- throughout the United States, in the state statutes as well as on the Federal Employers' Liability Act statute that the -- where the right goes with the remedy when it's destroyed. Now, I would like to ask the Court to look at page 21 of the record at a stipulation of counsel with this case. I do not think that this case, there's anything to decide in this case that hasn't already been decided in the case 12, and like 68. Before this case was tried, there were a number of cases pending in the District Court in which the questions of frustrated traffic were involved. A stipulation of counsel was entered into in which it was agreed and signed -- signed stipulation on page 21, that the final judgment in case 12, Number 68 should govern the disposition of claims involved in this action to the extent that it is applicable. Now, that copy -- that stipulation was filed in this case. That was entered into -- back in 1953. 12, 68 was a test case which was litigated through the District Court and through the Circuit Court of Appeals, a year ahead of this case and that is the case that is referred to in the -- my opinion of Court of Appeals to say -- in which they said, it seems to us that this case has been fully decided and that we might well add nothing more. In other words, those -- that -- the shipments involved in this case arose at the same time that the shipments involved in that case. The parties were the same, the destinations were the same, the starting points were the same, Pontiac, Michigan, Newport News, goods intended eventually to go to China by the port of Rangoon. The only difference, the only factual difference there was that the Government in that case did not attempt to show anything after the goods got to Newport News. They just closed that and said that we weren't able to carry out our plans because of all developments and that that was entered here. In this case, they did go to the extent of showing that a year-and-a-half later after the goods had been unloaded and stayed at Newport News for three months as it did in the other case, they were reconsigned back to storage points in the country, government storage points. They stayed in storage points and went to two-storage points stayed for a year, and were eventually exported not to China but to India not by Newport News but by Wilmington, California. Now quite obviously, say that -- that was not a compliance as we see it with the tariff and we have filed here original transcript of a copy of a portions of the tariff that seemed to be applicable. That was in -- in the first case. They --
Earl Warren: Suppose something had happened that they couldn't get out of the -- out of the port there at Norfolk and -- and they had to be -- the material had to be shipped up to Baltimore and eventually it went out of Baltimore, would that have destroyed the rate, do you think?
Meade T. Spicer, Jr.: Well, I think it would have printed -- present a fairly close question. I think possibly, they would have been entitled to it because of this particular tariff allowed other eastern ports, allowed exportation to be made through other eastern ports. It had no application to anything, specific ports at all.
Earl Warren: But suppose it have -- it have to have applications just in Norfolk and something occurred there and they couldn't get out of the -- of that port and they moved -- moved the things by rail again up to Baltimore and then shipped them overseas in accordance with their previous intentions. Do you think that would -- should deprived them of that right?
Meade T. Spicer, Jr.: Well, I -- possibly not if the question of reasonableness I think they have construction, that should be construction.
Earl Warren: Well, do you think the Government wanted to -- to abandon this project and -- or do you think that it wanted to ship these goods clear across the continent to California again and -- and then send them?
Meade T. Spicer, Jr.: Well, I think it was a -- there were sent to a storage cellar.
Earl Warren: Well, they have to --
Meade T. Spicer, Jr.: And repacked and we crated apparently. And then, of course, they had to go to Pacific and they were -- suddenly where we crate it and stayed -- stayed there.
Earl Warren: And they did go to the Pacific?
Meade T. Spicer, Jr.: A year and a half later.
Earl Warren: Yes.
Meade T. Spicer, Jr.: Now, we think that's a separate movement. There were two intervening, at least two -- three intervening domestic movements on which they paid freight charges.
Earl Warren: Yes.
Meade T. Spicer, Jr.: And on which they ultimately got an export rate according to allegations through Wilmington railroads in California. In other words, they did get an export -- export rate. Well, that is, they don't deny that they didn't get export rate. Well, it went out of Wilmington, North -- California.
Earl Warren: But they had to pay two rates across the continent to get it, didn't they?
Meade T. Spicer, Jr.: Well, they had some --
Earl Warren: They had come here to -- come here to Atlantic Coast and then pay that and they are taken back again --
Meade T. Spicer, Jr.: Well, we --
Earl Warren: -- in order to accomplish the same purpose?
Meade T. Spicer, Jr.: We said -- we said that is another movement. That's another freight movement. How long will this thing going to last? No, doubt, I think they keep on doing that indefinitely. But the statute, this tariff, by exportation from Newport News. And that was the way it was submitted to the initial agent in Pontiac, Michigan through Newport News. Now, of course, this tariff wasn't put into effect just for military shipments. It was started in peace times. It's a -- it's a traffic matter. It's a competitive matter. Norfolk is not as big a port as New York and Boston and that's -- that's the -- that's the background of -- for having it. And when it got to Newport News and it was -- we didn't know anything about it being going across. They -- we -- we -- bills for the freight charges were assessed as soon as it went to the first other point, which was Bloomfield, New Jersey. Now, in this case, as soon as there was -- they shipped to Bloomfield, New Jersey, bills were rendered by the CNO. They not -- they all -- they -- they got -- collected a domestic rate from Newport News back to Bloomfield. But in -- before doing that or when doing that, they presented the bill on the basis of a domestic rate movement from Pontiac to Newport News. They were paid properly and that's the way this thing remains insofar as the Government is concerned. I mention that because of the situation in other cases but they were paid properly and it was four years later before the CNO had any knowledge that there was any question about that being the proper rate to pay. The CNO had no knowledge of any subsequent transporting, transferring to India across -- across the country. It had -- it didn't have any bill presented to it for -- to revise or anything like that, but four years later. So that this claim, if there was a claim for reasonableness, died or -- or attacked on the reasonableness died while the matter was in the hands of the Government.CNO had no status before the Commission. Now, all that was gone until we say about the other case, we think it -- that by virtue of this stipulation of counsel in the case that that judgment is -- is binding in this case that there's nothing legally additional that make any difference. The difference was simply that -- and the fact that I believe in -- in the case below, the first case, they did not actually apply for a hearing before the Interstate Commerce Commission. They did question. They bring up the question of reasonableness. Now, we say that there isn't any question of reasonableness involved here and we think it's been a while substantiated because the same thing was brought up in both cases, in the first cases. The District Court said, “Well, isn't that a question of reasonableness here? All you're contesting is which rate applies.” And he said, “I -- it seems to me that this Court is confident under these circumstances to say whether a though rate applies or vested.” But he found that was a voluntary conversion in that first case and he specifically set out in the opinion of the Court. There was a change of intention and that -- that was required. He thought it was a domestic movement. And that was -- that was a basis of the opinion. He said it was a voluntary -- Government voluntarily converted what had started out as an export shipment into a domestic shipment. There is no reason why it should not pay the domestic rate. Now, in the course, the testimony wasn't very long here but is a reference to the fact that when the -- sometimes before the trial, question was raised as to what -- what was -- what we're trying to do with the goods in between and it was stated by a witness in General Accounting Office that they were trying to decide what they're going to do with it. That was all that -- they knew it at the time they -- they moved it back to Bloomfield, New Jersey except they won't put some additional freighting order. Now, we submit that they say there -- there is no question of reasonableness except in a very superficial way involved. There -- the shipments did not stop until after the attack of Pearl Harbor, December the 10th through January. They are -- nothing was shown to have happened since then except the fall of Rangoon which happened about six weeks after they got there. And, of course, Rangoon was not the place, it has ultimate destination. Rangoon was simply the port that they were scheduled to go out from. Now, we submit that it is not fair to place on the railroad with the knowledge that the Government had when these shipments moved from Pontiac.War had begun at that time. And that this is a -- not a risk that would -- should be fall upon the railroad to make a revision of its records or rates. The carrier was -- the Government knew that when a shipper was submitted at Pontiac, Michigan that the rates and tax have effected that time ago. And to see that the initial carrier, they had to take them under those tariffs which remained in effect. That is so plain and it seems to us and it seemed to the District Judge, there's no question here. Nobody has attacked, presented any attack on these rates of reasonableness of its other rates by any proper proceedings and there's nothing to do but to enforce them. And they came back and say, that was in -- held in the first case. And that was -- it was conceived by this stipulation that the further second case should be governed by it. No -- no application for a writ of certiorari was filed closing the first case. And they came back with exactly the same position and just said, “Well, it's unreasonable.” And the court tried to bring -- for -- for what circumstances make it unreasonable. And the only thing they could say, “Well, Rangoon fell, war was on before we began and that's all.” Now, that kind of a situation in relation to the great law and element of the case simply calls for a simple decision of a court. It didn't require any battery of tariff experts, economic experts, anything of that kind. It was a -- something that's similar to what a federal judge has to decide everyday.
Speaker: May I ask you about that situation? Do you (Inaudible)
Meade T. Spicer, Jr.: Well, I think that the -- I -- I think that the -- the position was when -- when the first case was over, we appeared to ask for judgment in this case and the Government said, “No, this -- this stipulation takes care of it while the court says that if there's some other questions involved, why, it shall not be controlling. But so far as the first raise rule, they will be controlling. And they said, “Well, we got some additional circumstances here.” And they -- were afterwards exported at some remote time. Of course, we didn't agree that that was true, but we tried to facilitate a method by which the court might provisionally hear that question. The court -- there wasn't any witness there from the General Accounting Office at all to explain anything. They simply submitted a sheet -- worksheets. Now, what there's one -- one ultimate, sir, printed in the record, just one sheet, but they're about 25 sheets altogether and that's the transcript right back. There wasn't any witness there to explain anything about them. And we just had to take them as it were, and I guess as the best contention of through movement and unreasonable rate should be sustained on that basis.
Earl Warren: I noticed that one of these shipments is made on December 10th --
Meade T. Spicer, Jr.: Yes.
Earl Warren: -- 1941, three days after Pearl Harbor and the other one was made on January 31st, 1942. There were -- there were a lot of things going out in the Pacific besides the fall of Rangoon --
Meade T. Spicer, Jr.: That's -- that's certainly --
Earl Warren: -- would bear that that might influence the Government in delaying somewhat --
Meade T. Spicer, Jr.: Well, that is certainly --
Earl Warren: -- the transportation of these things and you got to blame the Government for any -- any delay that was occasioned by conditions out in the Pacific immediately after -- after --
Meade T. Spicer, Jr.: Well --
Earl Warren: -- Pearl Harbor.
Meade T. Spicer, Jr.: Well, Your Honor, our -- our position we don't question the delay, if they had stayed at Newport News and going on from Newport News, I suppose they could have stayed rather indefinitely to deal with the development issues.
Earl Warren: Well, I thought you said that the breach was made when they took them up to New Jersey.
Meade T. Spicer, Jr.: Well, that's what the court said that that was a voluntary thing that he did and there was no -- there was no indication from any dealings with the carrier that they were ever going to be shipped anywhere over the country after that time. In other words, there wouldn't be any mark put on freight bills or any notice given to carrier or anything. As far as the CNO knew that was the end of the transaction. And they only knew different four years later when the General Accounting Office said we have deducted these amounts. Now, that -- that was --
Earl Warren: Isn't that the reason that the Government gave them a right to offset on these charges that were made so that you could get paid immediately and those things could take due course?
Meade T. Spicer, Jr.: Well, that's a part of the statute, same statute, yes, sir.
Earl Warren: Yes.
Meade T. Spicer, Jr.: That's certainly true.
Earl Warren: And that was done at the request of the railroads, wasn't it, so they could --
Meade T. Spicer, Jr.: Well, I don't think that --
Earl Warren: -- paid immediately.
Meade T. Spicer, Jr.: I don't think that part of it was at the request of the railroads but it wasn't done at the same time. In other words, the railroads were interested in getting from or more from the payment than they had gotten by reason of things that hadn't been audited.
Earl Warren: And as Mr. Hollander said, the railroads represent it to -- to Congress. Well -- we'll let the audit go until -- whenever --
Meade T. Spicer, Jr.: Yes.
Earl Warren: -- the Government gets around to it, you can make the deductions there and pay it, but we want our money --
Meade T. Spicer, Jr.: Yes.
Earl Warren: -- now and --
Meade T. Spicer, Jr.: That's -- that's entirely true.
Earl Warren: So you wouldn't expect under those circumstances, would you, that they would challenge the payment right at that moment. We're in a war and a desperate one and -- and all kinds of things were happening out in the ocean --
Meade T. Spicer, Jr.: Well --
Earl Warren: -- and many and many shipment couldn't be made on time and perhaps had to be routed to other places before they could be done. Do you think the Government should be penalized for that --
Meade T. Spicer, Jr.: Well, I think it should have stated --
Earl Warren: -- by our own railroads?
Meade T. Spicer, Jr.: I -- I think it should have stated. You could use all. I have to conceive that there may have been strategic developments that demanded that other things be done with it. Well, if that was true, that was a military risk. That wasn't a carrier risk. The carrier had a risk that was set forth in the tariffs and in the bill of lading. And that was what it is. When -- when they were shipped after -- after the war begun and all of these were that -- that wasn't a risk that was put on the carrier and it was -- no military risk. And I say that the expense here may have been very small compared to what the importance -- military for having these goods somewhere else. They might have sent them back to entirely into the continent and they may -- may have used them for self-defense, but that wouldn't affect the --
Earl Warren: But they did -- but they didn't. They sent them overseas.
Meade T. Spicer, Jr.: They sent them overseas after two independent, two or three independent movements indicating that they probably decided what to do then, what they're going to -- but it just -- it just -- just happens that they ultimately sell them to the same continent not to the same country, but to the same continent that they were suppose to go and start there. Now, we say that that's an unwarranted burden upon the railroads or I should say something had been done but that was -- we weren't -- not -- not until four years later.
Earl Warren: How did this cost the railroad any more money?
Meade T. Spicer, Jr.: Well, I don't know that it did, but it's a --
Earl Warren: And then what's the burden?
Meade T. Spicer, Jr.: Well, I -- we were entitled to it on the situation that existed for a year afterwards and we have until four years afterwards. And we had no way of knowing that we would be called upon to pay anything more. I think that's right along a period of time for something to be -- come back on -- on you is -- without any notice. But we know whether they were had -- had been put and sent somewhere else in the country. They are used for National Guard or inside the country and otherwise, we had no way of --
Earl Warren: And I think if they had been, you'd have -- might have an entirely different case here and maybe it wouldn't be here at all.
Meade T. Spicer, Jr.: Well, we didn't think we would ever be here on these shipments after so did -- for -- for months. Now, I think that the fact, this first point we made in our brief, that the fact that two courts, the lower court and the Circuit Court of Appeals, found in both cases that there had been a voluntary conversion of these goods back into domestic shipments that that should justify affirmance of the opinion. Now, I realize that's not a mandatory rule by anyway, but I think it's a reasonable rule and in view of the stipulation in this case, which have all the elements, I have never seen one in which it was so much alike and just the different shipments and what -- as far the time and the places and the parties and everything. Now, I don't think that question of statute of limitations was involved in this case. The -- the brief, Government brief starts off in this Court by saying the two years limitation thing. Well, that statute of limitation was not mentioned in the trial court. It wasn't mentioned in the trial court in the preceding case. And we submit that the briefs had said nothing about them in -- in the Court of Appeals case. And there's only an effort on -- apparently on the part of the Government to get this case into the move that the other case was that their question was presented. We don't think it has anything to do with the case. We adopted Colonel Weiner's argument on the point, but the jurisdictional power lacking in the Court of Claims. But the record just doesn't say anything about it. There's no testimony. There's no position taken by a counsel and the first thing we heard of it was in the application for certiorari here.
Speaker: Did the Court of Appeals (Inaudible)
Meade T. Spicer, Jr.: The Court of Appeals as -- in its opinion in the last case said in this case, said that the case is just like -- is like the one before and nothing further need -- need to be said. The case, we think, is clearly governed by our own former decision and nothing may be added -- nothing need to be added to what was said there. That it went on to say in answer to the Government's contention that this is a great hardship on us, for two-year limitation and you're assuming on a six-year limitation that this is hardship, its unfair and uneven and referred to the Kansas City Southern case in which the court said there was no such administrative questions involved in -- in this case as it was in that case which involved element of charges at -- at a port where there was no -- where there was a tariff, it provided that it should be absorbed by the carrier, but where the shipper didn't elect to take them that way, but went out and got some of his own, took the same elevator company, hired it privately and then claimed afterwards that he ought to have the allowance for it. And -- and after that, the court has -- it went on to say more or less to placate to the other side that furthermore it would not have been a reasonable discretion to stay proceedings pending action by the Commission where all parties before the court were barred by limitations from asking for such action. Now, the Government grabbed on to that which was not necessary to the decision at all because the court had previously decided the case. It's not necessary to say anything else. The Government grabbed on to that and makes it the first point in his brief in this case.
Speaker: (Inaudible)
Meade T. Spicer, Jr.: [Laughs] Well, I think it was too late in this case. It wasn't presented in the lower court in any sense. It wasn't presented in the Court of Appeals in any sense. So it just wasn't litigated there. And I -- as I understand this Court to review is what happened in -- in the trial court, as long as the case was affirmed. The decision of the District Court was affirmed by the District -- Court of Appeals, this case and in the preceding case without any change at all. And we -- it was submit that -- here, the question here is what happened in the District Court. And here, the Government brief starts out by saying something about the statute of limitations of two-year, which -- well, I don't think the trial judge would recognize the case. Now, we submit therefore that -- that under the circumstances that -- and the findings, specific findings, that there was (Inaudible) conversion back into a -- from an interstate movement -- export movement into a domestic movement that the domestic rates was properly applied and that judgment should therefore be affirmed. The reason we're putting this tariff excerpt in was that it did not appear on the -- necessarily in the trial that the rate applied in Newport News but it did supply to Northern but the tariff shows that they provide in both places.
Earl Warren: Thank you, Mr. Spicer. Do you have anything further, Mr. Hollander?
Morton Hollander: Well, I think the court's questions are fully explored all of the issues in the case. I have nothing further to add, except I would like to take two or three minutes, Your Honor, to show why the stipulation Mr. Spicer relies on.
Earl Warren: All right.
Morton Hollander: The -- the stipulation controlled the Government, it is true to the extent that that case was similar to this. But that case was different from this in at least these three respects and it was because of these differences in these three respects that we found it necessary to further litigate the second series of Chesapeake & Ohio cases. The first time the -- the first case, the one in which the stipulation is supposedly controlling, the first case did not involve any subsequent exportation. Judge Parker's opinion in the first case seemed to place a great deal of emphasis on that fact that we had not, on the record shown, that there was any subsequent exportation. In the second case, we were ready to show it.We had ample evidence of subsequent exportation. That was a major difference number one. In the first case, we never suggested that there should be a referral of the reasonableness question to the Interstate Commerce Commission. Judge Parker in the first case thought that that was terribly important when we suggested that the Court of Appeals, the first time should -- and that the District Court, the first time we suggested the Court of Appeals should have state its proceedings and referred to the ICC. Judge Parker said, “Well, you didn't ask the District Court to.” That was in the first case. In the second case, we very explicitly asked the District Court to refer, the District Court denied the motion. It's basic difference number two. Finally, in the first case, there is a specific factual finding by the District Court that there was a voluntary conversion of that shipment from export into domestic by the Government, the District Court relying in large part on the fact that we never showed any evidence of subsequent exportation. There is no such similar finding by the District Court in this case. In this case, the District Court simply viewed it as a question as to whether or not we're entitled to export rate, even though while he acknowledged subsequent exportation, it was from a port other than the original concerned port.
Earl Warren: Well --


William H. Rehnquist: We'll hear argument next in Number 99-244, Mobil Oil Exploration and Producing v. United States, Marathon Oil Company v. United States. Mr. Phillips.
Carter G. Phillips: Thank you, Mr. Chief Justice, and may it please the Court: This is a contract case in which my clients have paid more than $156 million for the right, as it said in... at Pet. App. 175a, to drill for, develop, and produce oil and gas resources off the Outer Banks of North Carolina. Later, Congress intervened in the Outer Banks Protection Act and declared, quote, that the Secretary... and this at page 161a of the appendix to the petition... the Secretary of Interior shall not conduct a lease sale, issue any new leases, approve any exploration plan, approve any development and production plan, approve any application for permit to drill, or permit any drilling, for a period of not less than 13 months, and potentially for an indefinite period thereafter. Congress could hardly have been any clearer in its efforts to repudiate the basic lease obligations that the United States had undertaken with respect to the Mobil and Marathon leases here. Indeed, Congress specifically identified by name the Mobil Oil Corporation in the context of this particular statute, and said that it wanted to bring this lease to a halt. Not surprisingly, it had exactly that effect. Not only did the Government categorically repudiate its obligations under the lease, but at the first opportunity in August of 1990, when Mobil, on behalf of the other producers in the Manteo Unit, submitted a plan of exploration, and sought approval to go forward at the very first steps under this lease, what the United States did, and it was quite clear about this, was it said, this is approvable in all respects under the Outer Continental Shelf's Lands Act, but we cannot approve it because of the Outer Banks Protection Act. We are prohibited from doing so, and as a consequence we suspended the lease. And then when the Secretary addressed the question from North Carolina as to whether or not the plan should be disapproved or otherwise modified, the Department said categorically, we cannot do that because it is approvable in all respects based on the 2,000-page report that had been submitted by the United States just months before this action was taken.
Sandra Day O'Connor: Mr. Phillips, may I ask, this is a case with some complex provisions, and is it the case that under the lease the Government had the power at least to suspend the lease?
Carter G. Phillips: Well, it certainly had the power to suspend the lease under certain conditions in section 5 of the lease that said that if there is a threat of irreparable injury to the environment, irreparable and significant injury, there was certainly the opportunity to do that. But of course there's clearly, 1) never been a finding by the Secretary of Interior or anyone at Interior along those lines and, indeed, the Outer Banks Protection Act itself cannot substitute for that finding, because the Congress in the Outer Banks Protection Act made no effort to conclude that there was a serious threat. All it said was that there were concerns that had not been fully allayed even though this was in the face of a 2,000-page report.
Stephen G. Breyer: I may not understand this. I'm stopping you because I want it clarified. I thought to suspend a lease is a technical activity. The suspension of a lease means that the companies need not pay a series of payments. The suspension of the lease does not mean that they suddenly do not have a time-related obligation in the Government to approve or to disapprove by a CZMA the plan of exploration. Now, am I right about that, or not? I mean, you are suspending the lease. What you're complaining about is not... you're complaining about the fact that they did not within a specified time either approve or disapprove that plan, and you believe, and they don't contest it, they would have had to approve it under CZMA.
Carter G. Phillips: Right, and part of that's because--
Stephen G. Breyer: Now, is the suspension of the lease... did they have a right under this reg? This is hitting me cold suddenly. I mean, did they have a right under the reg to suspend the lease, not in just the sense, no payment, but in the sense that we can suspend the plan of exploration approval?
Carter G. Phillips: --My guess is that under the Outer Continental Shelf Lands Act, if they had made the specific kinds of findings that are provided for in section 5, they could bring all of this to a halt, including their obligation under the 30-day requirement, but of course prior to the time--
Antonin Scalia: But those findings are environmental findings?
Carter G. Phillips: --Yes, under the--
Antonin Scalia: Serious risk?
Carter G. Phillips: --Serious harm, yes.
David H. Souter: And contrary to that they had a 2,000-page report that said there wasn't one, isn't that--
Carter G. Phillips: They said there was no significant risk created as a consequence of that, and while the Government has made the effort in this Court to suggest that there's no materiality in this context because the Outer Banks Protection Act basically supplies the findings that could have otherwise been supplied under the Outer Continental Shelf Lands Act, it is absolutely clear to me that that cannot be the case. The Outer Continental Shelf Lands Act first of all does have a set of timing requirements and a certain specific suspension obligations that look to serious threats of harm, and also examines these things on the basis of environmental considerations. The Outer Banks Protection Act, in stark contrast, first of all has no timing element to it. Once you get into the studies that are required under the Outer Banks Protection Act, there is no requirement to come back at any time within a reasonable period and, second of all, the question of environmental concerns is completely wiped away and, third of all, and I think perhaps in some ways most important, there is a socioeconomic obligation to collect information with respect to socioeconomic effects that you might engage in on the outer continental shelf lands by this exploration and production, and none of that occurs in the Outer Continental Shelf Lands Act. That's strictly a function of the new amendments under the Outer Banks Protection Act.
William H. Rehnquist: --Mr. Phillips, it seems to me there are some factual issues here. You claim repudiation. You claim a material breach. You seek restitution. The Government says you may have waived by continued performance. Are the findings of the... of a claims court judge in this case sufficient to support your view? In other words--
Carter G. Phillips: Absolutely.
William H. Rehnquist: --do you have to argue for some factual determination here different from that made by the claims court?
Carter G. Phillips: No. We have no... there's no dispute about what happened in this particular case. The question is, given, 1) that Congress came in and categorically repudiated all of its obligations, given 2)... and these are undisputed facts... given, 2) that the Secretary refused to approve a POE approvable in all respects and second, again, subsequently refused to approve a POE even though it was in full compliance with the Outer Banks Protection Act, so there is substantial nonperformance in the face of a repudiation. Hornbook law for 300 years and this Court's decision in Nash v. Towne makes clear that under those circumstances the violating party is not free to keep something for nothing.
William H. Rehnquist: But the Government says you waived the acceptance of the repudiation, if that's the right phrase, by continued performance. Now, did the claims court judge make finding... was that raised in the claims court?
Carter G. Phillips: That was... one aspect of that was raised in the claims court, and the claims court I think viewed it as sufficiently insubstantial. He didn't bother to address it specifically. They did address the suspension, our exercise of our rights under the memorandum of understanding, not under the lease but under the memorandum of understanding, to suspend these leases during the period of time that the CZMA objections were ongoing. They identified that in the claims court as the only basis for waiver. But even if you give the United States the benefit of the opportunity to put waiver on the table at this stage, based on our filing of the exploration plan... based on our filing an appeal of the CZMA objection and then based on the suspensions, as a matter of law that cannot possibly represent an intentional relinquishment of our rights under this contract, particularly in the context of Court of Federal Claims litigation, where you have no right to seek specific performance. You have no right to seek a declaration of your rights. And in this case it's even worse than in any other case, because the United States could with all credibility argue until 1996 that they had never breached this contract because of the unmistakability doctrine and the sovereign acts doctrine that this Court had not repudiated at least until the Winstar decision.
John Paul Stevens: Mr.--
Carter G. Phillips: We didn't even know if there was a breach of this contract--
John Paul Stevens: --Can I ask you one question? The facts are a little complex here. There's another lawsuit that's been pending and stayed, as I understand it, in which you're challenging the decision of the Secretary of Commerce not to override the State's objections. Is that case still alive?
Carter G. Phillips: --That case is still alive.
John Paul Stevens: Now, the thing I want you to explain to me, and I'm sure you have an answer to this, if you filed that case seeking to protect your rights under the whole program, and if that's still pending, how can you simultaneously say that the whole deal is off?
Carter G. Phillips: Essentially for the reasons I was just explaining to you, Justice Stevens. Since we didn't know, and the Government even today is saying there's been no breach of contract, and we have no mechanism by which to obtain any kind of an assessment of what our rights are. All we've done is essentially try to maintain the status quo and act reasonably in response to the Government's repudiation of our rights.
John Paul Stevens: But let me ask you this. If... say you lost this case, just hypothetically, but yet, then you went ahead with the other case and you won that case, would you then not be able to develop the leases?
Carter G. Phillips: Well, at that point we would be able to go to the plan of exploration, but we would still have... well, at this stage now the Outer Banks Protection Act has been repealed, but--
John Paul Stevens: Is it not--
Carter G. Phillips: --assuming the Outer Banks Protection Act was still in place, we would still have the same objection.
John Paul Stevens: --I guess the ultimate question I'm trying to ask, is it not conceivable that you could lose this case and still develop the properties by winning that case and get your approvals later?
Carter G. Phillips: I mean, in reality, and if you're asking for a practical answer as opposed to a theoretical answer, as a practical answer, no, because all of the other leases surrounding us have all been turned in because all of the other leasehold owners had caved years ago, rather than try to litigate this matter, so that the Manteo Unit no longer exists as a unit. It's all... all of its participants have walked away from this.
John Paul Stevens: But you would have the legal right to develop it if you won that case?
Carter G. Phillips: Well, we would have the legal right now to have the Secretary approve our plan of exploration.
John Paul Stevens: And if they approved it, then you'd have the legal right to go out and drill the wells. Maybe you can't do it because of changed circumstances.
Carter G. Phillips: Well, we would have to get... we would still have to get permits, and we would have to go through all of the approvals of the Outer Continental Shelf Lands Act, that's true. We try to preserve the opportunity to retain our relationship with our contracting partner in this context, that is, the United States, as a consequence of this, given that there's no mechanism for specific performance and no... or declaratory relief. All we could do is basically try to preserve as much of the status quo ante as we could, while at the same time being as clear as humanly possible that what we really wanted was to take advantage of the repudiation, seek restitution, and be out... and be done with this particular--
Anthony M. Kennedy: So--
Ruth Bader Ginsburg: --Mr. Phillips--
Anthony M. Kennedy: --is your answer, then, that by attempting to preserve your ability to perform, you do not foreclose yourself from seeking restitution when the other party has repudiated the contract?
Carter G. Phillips: --That is exactly our position, that in the ordinary course it's an election of remedies issue which comes much later in the process. We didn't... and all we did was to try to preserve our ability to have an election of remedies at the appropriate time, and if we have to elect them today, I'd take the $156 million, Your Honor.
Ruth Bader Ginsburg: May I take you back to where Justice Stevens was, because you mentioned very quickly that there's a statute in this picture, the CZMA, and as far as I understand your argument, you are not in any way suggesting that the States couldn't... subject to the override of the Secretary of Commerce, the States couldn't say, even if you had every approval from Interior promptly, the State could still say, North Carolina could still say, no go, no exploration. We think you're out of whack with our coastal management plan.
Carter G. Phillips: Right. I mean... and I mean, it's subject to that last statement, of course, that they would have... there would have to be a reasonable basis for in fact saying that there's an inconsistency with the Coastal Zone Management Act. But yes, subject to that, the only ability to go forward under those circumstances would be to go to the Secretary of Interior, or of Commerce, excuse me, and seek to have the objection overridden and, indeed, in the dozen cases between 1984 and 1994 in which that course has been followed, the Secretary in fact did overturn State objections under the CZMA.
Ruth Bader Ginsburg: Here he didn't, at least in the first round. The Secretary of Commerce did not--
Carter G. Phillips: Did not in 1994, however.
Ruth Bader Ginsburg: --And there's one peculiar feature of this case that follows on to your answer that yes, North Carolina could do this subject to the override of the Secretary of Commerce. It's almost as though the Outer Banks act has given you a way out that you never would have had without that Outer Banks act. In other words, if there were only the outer continental shelf act--
Carter G. Phillips: Right.
Ruth Bader Ginsburg: --you could get everything you wanted from Interior and North Carolina could still say no. It's only because there is this other act that looks like it's stopping you in your tracks that enables you to repudiate, that enables you to seek--
Carter G. Phillips: No, seek restitution.
Ruth Bader Ginsburg: --restitution.
Carter G. Phillips: There are two answers to that. First of all, that may be true, because that is exactly what restitution seeks to accomplish, which is to acknowledge or recognize that in certain circumstances events may work to the fortuity of the innocent party in a way that allows them to seek restitution where... even though it's a losing contract. I mean, that is the basis of the Restatement 373 illustration. One says that if you pay $20,000 to buy land, and the land's value drops to nothing, and the other side still doesn't, for whatever reason, give you the property, you are still entitled to the $20,000. The other side doesn't get something for nothing under those circumstances, so you can classify it as a fortuity, but it is right at the core of what 300 years of restitution law is designed to allow us to do. The second part of this, though is, you know, the expectations of the party at that point in time, in 1982, was that this was going to go through quite cleanly, and the evidence of that is pretty clear. First of all, the first two requests for exploration plans were both approved by the Secretary and by the State of North Carolina with no objection at that point in time, and what... of course, it took us a while to develop the kind of environmental evidence we would need in order to put together this kind of a novel arrangement in this particular setting, and so time certainly ran through, but our expectations all along were that we would be in fact able to drill. I mean, that's what my clients are in the business of doing. They're not in the business of generating litigation. They're in the business of generating oil and natural gas, while at this stage I think they're quite content to walk away and try to get back the money the Government took for doing nothing--
Anthony M. Kennedy: Is it part of--
Carter G. Phillips: --they would have preferred to be able to drill.
Anthony M. Kennedy: --Is it part of your submission that had the POE been approved, you then would have been in a stronger legal position to insist upon obtaining permits, or of overruling the North... North Carolina's objections in a subsequent court action? Is that part of your submission, or--
Carter G. Phillips: I'm not sure if it--
Anthony M. Kennedy: --I didn't see that in the briefs, and I--
Carter G. Phillips: --I'm not sure it's so much in the subsequent court action. I think if the POE had been approved and the State had objected to the plan of development at that point in time, I think we would have had a very substantial argument for going to the Secretary of Interior and asking the Secretary to set it aside as overbalanced, instead of getting into the Outer Banks Protection Act problem of saying, well, what we don't have is enough information, and we don't have enough information about the environment, we don't have enough information about bottom blowers--
Anthony M. Kennedy: --Well, at least your legal position with the Secretary would have been enhanced but for what you allege to be the repudiation.
Carter G. Phillips: --Yes. I think there's no question that we would have had an opportunity... our working assuming in 1982, when we entered into this agreement, was, we would get our approvals... remember, in 1982 the Outer Continental Shelf Lands Act had been in effect for almost 30 years. The Secretary had never disapproved a plan of exploration, and I think it's important to recognize that. That was the basis, that's the essence of the bargain. It's not, were we ever going to ultimately get oil in this case. The essence of the bargain was, were we going to get performance by the United States Government? That is, was it going to apply the Outer Continental Shelf Lands Act and the legal standards embodied in there and allow us to move forward under those circumstances? If they had followed that course, we would be now drilling hopefully for 6 trillion cubic foot of natural gas. They didn't follow that course. They repudiated, they materially breached, and the appropriate course of action for the Court to follow at this stage is restitution. If there are no questions, I'd waive the balance... I'd reserve the balance of my time.
William H. Rehnquist: Very well, Mr. Phillips. Mr. Jones.
Kent L. Jones: Mr. Chief Justice, and may it please the Court: At page 118 of the joint appendix, Mobil tells us that the leases involved in this case encompass what may be the largest hydrocarbon deposit discovered in the United States since the Prudhoe Bay field in Alaska in the 1960's. At the same time, the tract of land on which these leases are located, the point of the Outer Banks off of North Carolina, is unquestionably one of the most unique and important environmental resources on the Eastern Seaboard. In this context, it is perfectly understandable that it is a matter of high importance to North Carolina and to the United States to determine whether this enormous hydrocarbon resource could be developed without causing undue harm to the environment, and the statutes under which the leases are issued and to which they are subject is highly protective of these important environmental interests.
Antonin Scalia: That's okay. They just want their money back. I mean, they're perfectly willing to protect the environment and call the deal off.
Kent L. Jones: Well--
Antonin Scalia: But the issue before us is whether they get their money back.
Kent L. Jones: --Well, that is an issue before us, and under the leases, under the terms of the leases that are applicable to us as well as to the lessee, the United States has the absolute right to suspend all operations on the lease, including consideration of these kinds of exploration plans, whenever the United States determines that there is a threatened harm to the environment, or that economic... I'm sorry, environmental studies--
David H. Souter: Right, but his argument is that you've never determined it.
William H. Rehnquist: You never made that determination.
Kent L. Jones: --Well, no... I'm sorry, but I disagree with both of those. In 1990, when Congress enacted the OBPA, Congress determined that there were threats of environmental harm--
Stephen G. Breyer: I don't have that in your brief.
William H. Rehnquist: No--
Stephen G. Breyer: --That is, what I have in my... in the statute is that it says, regulation... and here I gather there was no regulation. The regulation prescribed by the Secretary allows the suspension--
Kent L. Jones: --Yes.
Stephen G. Breyer: --if there is, and these are the key words, a threat of serious, irreparable, or immediate harm to the environment, among other things. Then I looked at the best finding that you can find as a substitute, and you cannot find a regulation because there is no such regulation.
Kent L. Jones: I'm sorry--
Stephen G. Breyer: I take it there is no regulation by the Secretary that says that, or that provides for... that makes that finding.
Kent L. Jones: --You mean a finding by the Secretary.
Stephen G. Breyer: No. I'm saying--
Kent L. Jones: There is a regulation.
Stephen G. Breyer: --But not that has a finding.
Kent L. Jones: There is a regulation that says we can suspend whenever... to do an environmental study, or to investigate threatened environmental harms.
Stephen G. Breyer: That... I'm sorry.
Kent L. Jones: That's what the regulation says.
Stephen G. Breyer: That--
Kent L. Jones: What the OBPA, what Congress found in enacting the OBPA was that there were both threatened environmental harms--
Stephen G. Breyer: --Why don't you say... let me pose a question, though I may not do it perfectly, then you'll see what... I thought the statute says there has to be a regulation, and it says if there is a threat of serious, irreparable or immediate harm. Then I look to what you say in your brief about that, and it seems to me the best you can do is a finding by the conference committee of the Congress which says that, quote, it is a reasonable action to prevent a public harm that could result from lack of such information, and it--
Kent L. Jones: --There's--
Stephen G. Breyer: --My question is, it doesn't sound to me like a finding that it would be a reasonable thing to do to have the suspension. There is a finding that there is a serious threat, a threat of serious, irreparable or immediate harm.
Kent L. Jones: --If you--
Stephen G. Breyer: Now, that's my question.
Kent L. Jones: --Okay. If you look at pages 159 and 160 of the petition appendix in the Marathon petition, where the OBPA findings are set out, one of those findings is item number--
William H. Rehnquist: These were in the statute?
Kent L. Jones: --They're part of the Outer Banks Protection Act. These are the findings that were part of that act, and the third finding under (a), 6003(a)(3) is that a major--
William H. Rehnquist: Where are you... what page are you reading from, Mr.--
Kent L. Jones: --159a of the Marathon petition.
William H. Rehnquist: --Yes. What number?
Kent L. Jones: 159a.
William H. Rehnquist: 15... thank you.
Kent L. Jones: The petition number is 99-253. It's the Marathon petition. In any event, the third finding of Congress was that a major industry in coastal North Carolina is subject to potentially serious... significant disruption by off-shore gas development. Now, this really goes to the heart--
William H. Rehnquist: That isn't the same finding as the statute calls for.
Kent L. Jones: --It is, because what the statute... and that's the confusion that I need to clear up. This is very important. The statute says that if there is a threat of a harm to the marine coastal or human environment, then... then the lease may be suspended. The statute in 1334(i), which is also in the same appendix at page 102a, defines the term, human environment for the purposes of this statute to include... and I'll paraphrase... adverse effects on the local economy. This is an unusual--
William H. Rehnquist: Where... where--
Kent L. Jones: --environmental determination.
William H. Rehnquist: --Where are you reading from? What are you--
Kent L. Jones: Page 102a of the Marathon petition--
William H. Rehnquist: --Yes.
Kent L. Jones: --appendix, at the bottom, item--
William H. Rehnquist: Human environment?
Kent L. Jones: --Human environment. In enacting the OCSLA Congress did something a little different than it has in normal environmental statutes. It has put into the statute a requirement that the Secretary review and analyze threatened harms to the... if you'll allow me to paraphrase, the local economy, and how that affects people who live in the coastal environment, and that gets us to one of the hearts of what Congress was concerned about in the OBPA, because the National Research Council had told Congress that the MMS had failed to look at this issue. The environmental study panel that Congress put together under the OBPA concluded that the MMS had failed to look at this issue. It needed to be addressed. And Secretary Lujan 2 years into his... after... on completion of his review that Congress required also concluded that the MMS needed to make further investigation of this issue by ordering the two studies that Mobil wants to dismiss as socioeconomic studies. These are studies--
Antonin Scalia: But the need to make further investigation does not equate with a finding of immediate or serious danger.
Kent L. Jones: --Well, there was a--
Antonin Scalia: That's what you have to get to, and I keep listening for--
Kent L. Jones: --Immediate or serious.
Antonin Scalia: --where that finding is.
Kent L. Jones: Yes, immediate or serious, and one of... and what I quoted to you from the findings of the OBPA says that a major industry is subject to potentially significant disruption.
Stephen G. Breyer: You tell me where you discuss that in your brief, because I didn't... I didn't really have that one. When I looked at the brief what I had is on page 32, where you discuss the finding of the conference report, and now I'm--
Kent L. Jones: Well, we only--
Stephen G. Breyer: --totally not up to speed--
Kent L. Jones: --Right.
Stephen G. Breyer: --on what you just read me. Can you just tell me where in your brief you discuss that finding?
Kent L. Jones: I can't... I'm not sure that we discussed that finding in the brief.
Stephen G. Breyer: Well, if that... if that finding is so obvious, then why didn't you discuss it in your brief? I mean, if that's the--
Kent L. Jones: Well, I'm not sure that we had enough pages to discuss every possible issue in this case.
Stephen G. Breyer: --No, no, just give... all right, but--
Kent L. Jones: I mean, that's an honest answer, because I can tell you from working on this brief, there were a lot of issues that had to be narrowly dealt with in an abbreviated fashion, and perhaps unfortunately this was one, but the point is that in--
Stephen G. Breyer: --cite. Let me just write it down, because I want to be sure that I read it.
Kent L. Jones: --Cite to which?
Stephen G. Breyer: To the finding of Congress that you think was equivalent to--
Kent L. Jones: I think there's--
Stephen G. Breyer: --the threat of serious, irreparable or immediate harm.
Kent L. Jones: --It was... again, I quoted from it at page 159a of the--
William H. Rehnquist: That just says potentially.
Kent L. Jones: --Yes. It's a threatened harm. That's all that's required, and that's also important. All that's required for a suspension is that there be a threat of harm, and then we're supposed to investigate, and if we--
Antonin Scalia: Is subject to. What is subject to? Does that mean an immediate threat? It says, is subject to potentially significant--
William H. Rehnquist: --It's... that's vague, typical congressional language--
Kent L. Jones: --I... well--
William H. Rehnquist: --you know, backing back and forth.
Kent L. Jones: --from my perspective, Chief Justice Rehnquist, this is authoritative congressional language that directs the Secretary of Interior to conduct a review to determine whether he is capable--
William H. Rehnquist: Okay. I agree with the... but you're saying it's not only directs the Secretary, but it suffices for the finding required under the other law, and I'm saying I don't think it does. Now, we can disagree on that.
Kent L. Jones: --The other law that applies is simply a regulation that says we can conduct... we can suspend a lease whenever we need to perform an environmental study. That's what the applicable law is. We can suspend the lease to perform an environmental study.
David H. Souter: No, but isn't... isn't it--
Kent L. Jones: That's what Congress directed the Secretary to do.
David H. Souter: --Isn't it the case, though, that the lease, which in effect is the contract between you, was referring to what the... was referring to contingencies that could occur under the law and under the regulations as they stood at the time the lease was passed, and quite apart from the Chief Justice's objection, if I understand your argument, your argument is that this issue was raised by subsequent congressional action, and if it was raised by subsequent congressional action, it's irrelevant, as a point in your favor, in construing the lease.
Kent L. Jones: This issue, the effect of development on the human environment, was in the statute, OCSLA. It's in section 1334(i) of the OCSLA, and I'm quoting a statutory provision that preceded the adoption... the enactment... I'm sorry, any of this. I mean, this goes back to the 1970's.
David H. Souter: But all of the studies and the further inquiries were being made under the Outer Banks Act, and the two oil companies have gotten in the record the letter, as I recall, addressed to the Governor of the State saying everything's fine with respect to the law except, I may not give an approval as a result of the Outer Banks act.
Kent L. Jones: The letter to which you're referring was not written to Mobil. It was written to a Governor of North Carolina. It was written by a regional supervisor. At the time that that letter was written, the Secretary of the Interior had the responsibility to make these determinations, not the regional supervisor.
David H. Souter: So you're saying that does not bind the Government--
Kent L. Jones: I'm saying it--
David H. Souter: --because it was unauthorized?
Kent L. Jones: --Well, it's not binding. It's certainly not binding, because--
David H. Souter: But it was not... in other words, the Government--
Kent L. Jones: --Congress had already--
David H. Souter: --It was not the Government's position, in other words.
Kent L. Jones: --Certainly not. Congress had already enacted the OBPA and determined that additional environmental analyses needed to be performed because of threatened harms, not only the one that we have already discussed--
David H. Souter: But we may not consider that letter even for the purpose of determining whether, under the law and regs as they stood at the time of the lease, there was any basis for the Government to refuse to approve the POE. We cannot consider it even for that purpose, you're saying?
Kent L. Jones: --I frankly don't understand exactly what your question is, but I will--
David H. Souter: Let me start again. My basic premise is that what the Government is authorized to do under the lease depends on the terms of the lease and, to the extent that there is reference to statutes or regs, it refers to statutes or regs at the time the lease was signed. The letter that we're referring to appears to be a statement on behalf of the Government that so far as the lease, statutes, and regs at the time of the lease are concerned, there is no basis for the Government not to approve the POE. It is nonetheless not approving the POE because of obligations upon it under the Outer Banks act which was subsequently passed. My question is, may we consider the letter for the purpose of understanding that that was the Government's position when the letter was sent?
Kent L. Jones: --That was not the Government's position. That was a... again, that was not a formal communication to Mobil. That was a piece of correspondence from a regional supervisor to another interested party. The Government--
David H. Souter: And you're saying it may not be considered as evidence for any purpose. I guess that's what you're saying.
Kent L. Jones: --Certainly not... it is certainly incorrect. Let me put it that way. The document... the exploration plan was not approvable because Congress, and, we believe, within its authority, had directed the Secretary of Interior to conduct an appropriate environmental investigation to analyze the environmental harms that the MMS had not sufficiently evaluated. I mean, frankly, one of the things that we have going on here is a question of who's in charge. Can Congress tell the Secretary of the Interior how to perform his responsibilities under this statute?
David H. Souter: Sure it can, but it can't amend the terms of the lease.
Kent L. Jones: No, it can't, and it didn't purport to. What Congress did in this case is exactly like what happened in 1898 in this Court's opinion in the North American Commercial Company case. Now, in that case there was also a Federal lease. The Federal lease allowed the lessee to take 60,000 seals a year in Alaska, or such lesser number as the Secretary of the Treasury determined was appropriate to protect the species. The United States, 2 years into that treaty, after having allowed 60,000 seals a year to be taken, made a treaty, which to protect the species limited the number of seals taken to 7,500. The lessee sued saying that the United States can't tell the Secretary of the Treasury... I'm sorry. I may have said that wrong. It was the Secretary of Treasury who was supposed to make the decision there... can't tell him how to exercise his discretion, and this Court said that... it rejected that claim and found there was no breach, and the reason applies directly here. The Court said, the United States is the lessee, is the lessor. The United States is the party to this contract, not the Secretary of the Interior, or the Secretary of the Treasury. The Secretary is merely the agent of the United States, and the United States, as the real party at interest under these leases, can direct its agent, the Secretary of the Treasury or Interior, to perform an act that is within the rights of the Government under the lease. Now, it was plainly within the rights of the Government under the lease to suspend the lease performance to conduct these environmental investigations. It should be common ground that the Secretary of the Interior had that authority, and because the Secretary had that authority under the lease, the United States, as the real party at interest, could direct him to do so, which is what happened here.
Stephen G. Breyer: I wouldn't say that was a... just one of a thousand issues. I'd say that's your basic point--
Kent L. Jones: That's--
Stephen G. Breyer: --and I take it that it's also... yes.
Kent L. Jones: --That is our basic point on the question of breach, the first issue.
Stephen G. Breyer: --in the brief.
Kent L. Jones: We did. We have relied completely on that--
Stephen G. Breyer: Yes, you did, but--
Kent L. Jones: --in our brief.
Stephen G. Breyer: --the key point I think, if I'm right, is that was there a finding of a threat of serious, irreparable, or immediate harm, and now we're back where we started, is that right?
Kent L. Jones: I hope not, because I hope that it is as apparent on your further review of this material as it was to me that that's exactly what Congress said it was concerned about. That was exactly what Congress wanted the Secretary to address, and that's why it took the actions that it did to compel him to exercise the rights of the United States under these leases. Now, I want to address briefly the suggestion--
Anthony M. Kennedy: Before we leave this point, is it your position that, had Congress made this finding at the... as you call it, at the time the lease was negotiated, that it's quite likely the oil companies still would have entered the lease?
Kent L. Jones: --I have... I... the only... yes, because all that Congress said is, make a realistic review of these environmental issues. That should have been--
Anthony M. Kennedy: No, but you earlier said that it's a finding that absolutely forecloses--
Kent L. Jones: --No, no, no. I'm sorry. This... I need to get clear about this. What is needed in order to conduct the review is a threat of harm. Now, if the investigation of that threatened harm results in a finding that there's a probable harm, then the Secretary may cancel the leases, and the leases... the moneys would be returned. But if, investigating the threatened harm, there is no resulting finding of a probable harm, then the lease suspension is terminated, operations recommence and, under the regulations throughout this entire period the substantial rights of the lessee are protected by an automatic, rent-free extension of the lease for the period that the investigation is occurring. Now, one of the things that Mobil says is, but there's a 30-day approval period in the statute for exploration plans. Well, that, I... I think they may have backed away from that here, because it's quite clear in the legislative history and, indeed, in the text of the statute that that 30-day approval period, like any other period that applies under this statute, may be extended and suspended whenever the Government concludes that a suspension is warranted and that, of course, is exactly the reason that these leases were suspended by the United States. But even if Mobil could find a basis for saying that we'd breached the lease, they still would not be entitled to rescission unless they established that there was a material breach, one that, in the words of the Second Circuit in the Frank Felix case, goes to the root of the agreement and destroys its essential object and, plainly, Mobil can't satisfy that requirement for two separate reasons. The first is that time of performance is not the sort of thing that routinely in the eyes of the law is of the essence and, plainly, it was not of the essence here because the document itself authorizes suspensions for environmental studies to be conducted and protects the rights of the lessee while those are occurring by giving him rent-free extensions of the lease provisions.
Antonin Scalia: --Well, I mean, you know, true, time is normally not of the essence, but that phrase means, you know, if you're 1-minute late it's no big deal. It doesn't mean that you can perform at an unreasonably late time and it's okay, unless you've said you have to perform within a reasonable time.
Kent L. Jones: I--
Antonin Scalia: Reasonable time is of the essence, and if you have not approved these operations within the reasonable time that the contract envisioned, it seems to me you're in breach of the contract.
Kent L. Jones: --Like all other issues of materiality, ultimately you're looking at a question that requires you to look at all the facts and circumstances, and my point is simply that the facts and circumstances of this lease are plainly that these kinds of suspensions are contemplated. They are understood. It's known it's going to happen. Indeed, as this Court says--
Sandra Day O'Connor: Well, it was--
Antonin Scalia: --Known that Congress is going to pass a new statute making a finding that under the contract is supposed to be made by an executive official which could be reviewed by a court, as I assume a congressional finding cannot be?
Kent L. Jones: --I don't understand that... Congress in the OBPA didn't usurp authority from the Secretary of the Interior. They directed him to carefully exercise his authority to conduct investigations that he had failed to do and which, after Congress directed him to, on further reflection he decided yes, I should do those additional studies.
William H. Rehnquist: Well, the claims court judge... I'm reading from 71a... it said, clearly the old... he said, clearly the OBPA imposed severe, burdensome new conditions upon the Department of Interior's obligations under OCSLA to approve POE's offshore North Carolina. Now, I take it you disagree with that.
Kent L. Jones: Yes. The OBPA did not alter by one wit or jot the substantive standards by which the Secretary of Interior ultimately was... is to determine whether to approve the plan of exploration. The OBPA simply said, exercise the rights of the United States under this lease to investigate these important environmental issues in a manner that you have so far failed to do. This was--
Ruth Bader Ginsburg: Are you saying that--
Kent L. Jones: --supervisory.
Ruth Bader Ginsburg: --if we had nothing but the outer continental shelf, that the Secretary, who was on the verge of giving approval to beginning exploration, on the verge of that when the second act passed, that the Secretary was out of compliance with the Outer Continental Shelf Act at the time the next act intervened? Is that what you're saying?
Kent L. Jones: Well, I'm saying that Congress had a justifiable concern about the inadequacy of the environmental, including human environmental analyses that had been conducted thus far. It had received information from the National Research Council advising it of the inadequacies of these investigations that had been conducted to that date, and it directed the Secretary to conduct a thorough, realistic review.
Stephen G. Breyer: What did it buy? What was Mobile buying if they weren't at least buying a promise from the Government that they'd get an exploration permit? They might not ever be able to drill, but at least we get our exploration permit if we comply with OCSLA, or CZMA, or whatever they are.
Kent L. Jones: Well, that's the question.
Stephen G. Breyer: Yes. Well now, what else could they have been buying, because in these things I'd imagine they think they're never going to be able to drill--
Kent L. Jones: I mean, that's--
Stephen G. Breyer: --but we'll take a risk.
Kent L. Jones: --That's the question. Had they complied with OCSLA--
Stephen G. Breyer: No... oh, well--
Kent L. Jones: --and the answer is no--
Stephen G. Breyer: --I--
Kent L. Jones: --because the Secretary had not yet been in the position to make the determination that he was required to make.
Stephen G. Breyer: --Obviously, if that's so you're going to win on those grounds, et cetera, if all that's relevant. I'm addressing only the point of materiality.
Kent L. Jones: Okay.
Stephen G. Breyer: I'd say on that question, what are they buying if they're not at least buying a promise that, look at this law. It says we give you your permission within 30 days. You might never drill exploratory wells, et cetera, but at least you get a certificate from us within 30 days if you comply and... you know, et cetera. And now, assuming that they complied with that act, that preexisting act, didn't they at least buy that promise?
Kent L. Jones: Well, that, of course, is an assumption that I can't follow along on your hypothetical with, because plainly there was no compliance with the OCSLA ultimately, and I think, however, the answer--
Stephen G. Breyer: Did they buy the promise? You could follow this far. Did they buy the promise that, if you comply with the preexisting, whatever those were there, you get the POE?
Kent L. Jones: --I think that what they probably bought was a right to pursue the procedures that are established in order for them to obtain this and that, of course, is where we are. We're in the middle of those procedures. We haven't repudiated them. In fact, we're fully ready to go forward. And that leads me to the second reason why the alleged breach isn't material which is that, as the court of appeals correctly explained, at all times, before the OBPA was enacted, while it was in effect, and even to this very minute, Mobil is conclusively barred from taking any actions to drill or develop these leases by the entirely separate provisions of the Coastal Zone Management Act. That was a statute that Congress enacted to give the States a voice in the development of these leases and, as this Court said in 1984 in the Secretary of Interior case, lessees need to be well aware of these restrictions, because they are significant, and they can cause substantial delays in any development of Federal leases, and one of--
Antonin Scalia: Mr. Jones, you're essentially saying that these savvy businessmen bought a commitment from the Government that was dependent upon not just a finding by some expert board, or by some Secretary, but that was ultimately dependent upon whatever finding Congress... that, you know--
Kent L. Jones: --No, I'm not saying that.
Antonin Scalia: --that scientifically precise body--
Kent L. Jones: Again--
Antonin Scalia: --was likely to make in the future?
Kent L. Jones: --Again, what we're deciding is that what--
Antonin Scalia: This is a crazy contract--
Kent L. Jones: --No, it's not--
Antonin Scalia: --if they really said, so long as Congress thinks further study should be done, further studies will be done, and that's what we're buying.
Kent L. Jones: --Congress simply said that there's enough information for it to conclude that further studies need to be done. That's all... that's really what the OBPA said.
Sandra Day O'Connor: Well, but Congress--
Kent L. Jones: All--
Sandra Day O'Connor: --in the act also suspended everything for an indefinite period of time. That's hardly a reasonable time, is it?
Kent L. Jones: --It is... I think it might be a reasonable time, because what Congress actually suspended... it was until the Secretary could certify that he had the information required to make the findings that he needed to make under the OCSLA. The Secretary certified that he would do that in 1992, but he found that in order to make the findings required by the OCSLA he had to go out and do the additional studies that MMS hadn't yet done. When he completed those studies in 1994, Mobil didn't ask him to review the exploration plan. Mobil asked him to continue the lease suspensions in effect that had been in effect since before the OBPA was enacted so that Mobil could continue its challenge to the State's CZMA objections, and so the court of appeals said, well, how can Mobil say that these leases that were materially breached by these... by the delay for Federal review when the alleged delay for Federal review actually had no consequence whatever on the ultimate performance of protection of Mobil's rights. The OBPA was just a little sliver of time in the larger spectrum of things. Before it happened, the leases had been suspended at Mobil's request because of the CZMA objection of North Carolina, and that suspension extends to today, so the Court, it seems to us, correctly found there is no material breach now. The last point I need to make very briefly, and that is that even if there had been a material breach, Mobil would not be entitled to rescission because they did not make a prompt demand for it. Mobil says that the leases were breached in August of 1990, when the OBPA was enacted. Mobil took no steps to obtain rescission until October of 1992, more than 2 years later, and during that interim period Mobil submitted an exploration plan, challenged the State's CZMA objections, and obtained... 2 weeks before it filed this lawsuit obtained a perpetual extension from the United States of these leases rent-free so that Mobil could challenge the State's CZMA objection.
David H. Souter: That I... no, please.
Antonin Scalia: I'm just not aware of the principle of contract law you're appealing to. If I have a contract with someone that requires performance over a long period of time, and he does not perform, I cannot press that person to perform--
Kent L. Jones: You can press the--
Antonin Scalia: --for a period of a year, for a period of 2 years, and finally say, look, this is just useless, I want out of the contract?
Kent L. Jones: --The key difference is that they didn't just press. They obtained performance, even if, in their view, it was imperfect performance. The rights--
Antonin Scalia: What performance--
Kent L. Jones: --They--
Antonin Scalia: --from the Government?
Kent L. Jones: --They obtained... the United States spent 2 years doing the environmental reviews that were needed to put it in the position to determine whether to approve the exploration plans.
Antonin Scalia: That was the quid pro quo?
Kent L. Jones: That was additional performance.
Antonin Scalia: I'll pay you money, in exchange for which you will do an environmental review?
Kent L. Jones: No, that wasn't the quid pro--
Antonin Scalia: That's not the performance under the contract.
Kent L. Jones: --That was the additional performance by the United States. Also, the United States and 16 agencies--
Antonin Scalia: The performance by the United States is giving them permission to drill. That was the quid pro quo--
Kent L. Jones: --Perform--
Antonin Scalia: --ultimately, that they were seeking, certainly not--
Kent L. Jones: --That may have been what they ultimately wanted, but in order to get there the United States had to perform many tasks, one of which was to put themselves in a position to do this environmental determination, which it was... and when the United States finally got itself in the position to make that environmental determination, Mobil didn't ask it to do it. Mobil said, we want additional lease suspensions to challenge the CZMA. Now, what this Court said in the Smoot's case and what the Ninth Circuit more recently said in Far West is that a party seeking rescission can't seek and obtain some kind of imperfect performance from the other party and then--
David H. Souter: --Well, what you're describing as--
Kent L. Jones: --come back and say the contract is at an end.
David H. Souter: --imperfect performance as I understand it is the suspension of the lease payment. As I... Mobil says, please stop charging me money for giving me nothing, and that's what you're characterizing as performance of the contract.
Kent L. Jones: I... well, Mobil did get a change in position by getting the rent-free extensions, but that's not really--
David H. Souter: It got a rent-free extension for nothing. It got nothing out of it.
Kent L. Jones: --Mobil also got 16 agencies to conduct a review of its lease request--
David H. Souter: To do what it had to do--
Kent L. Jones: --To do what it--
David H. Souter: --presumably to perform its side of the contract.
Kent L. Jones: --That's my--
David H. Souter: Which it never did.
Kent L. Jones: --point. We had to take those actions to perform our side of the contract. Now, rescission, the purpose of rescission is to restore you to the status quo ante. You can't restore a party to the status quo ante when you propel them into further performance, even if it's imperfect, and then say, oh, but really, let's treat the contract like an end. This Court so held--
David H. Souter: Well, in every frustration case it's going to be an answer to rescission to say, gee, I tried. I can't give you a thing. I can't perform one iota of what I agreed to, but I tried.
Kent L. Jones: --I--
David H. Souter: And that's a benefit to--
Kent L. Jones: --It's not that they're losing a remedy, Justice Souter. It's that they have a different remedy. Their remedy is to seek damages if they had any, which they don't contend they do, and they obviously didn't, because they were barred--
William H. Rehnquist: --Well, but you can get rescission lots of times when you can't get damages, just when there's an early repudiation.
Kent L. Jones: --Yes. You can get rescission sometime when you can't get damages, but you can't get rescission when you propel the other party into additional performance and then, 2 years later, say, oh, well, let's undo it after all. Now, Mobil plainly knew what they were doing. They plainly sought to perfect their rights under the leases, rather than to abrogate them, and it was that 2 years of efforts to perfect their rights that limits them so they can't get rescission. Now, the other remedy they get is the one that they're entitled to under these leases, which is a rent-free lease extension which leaves them in the same... they have the same rights today that they had even before the OBPA was enacted, because they have requested and obtained 10 years, now, worth of rent-free extensions of their lease rights. Now, through this period they say the United States hasn't performed as well as it should have, but they can't honestly say that the United States has not, at their insistence and sometimes on its own, decided to take steps to perform its obligations under the lease.
William H. Rehnquist: Thank you, Mr. Jones. Mr. Phillips, you have 13 minutes remaining.
Carter G. Phillips: Mr. Chief Justice, I'll try not to use all of those 13 minutes. The Government's position here is a fairly astonishing one in now suggesting that we have not complied with the Outer Continental Shelf Lands Act prior to the time of the Outer Banks Protection Act. The reason that's astonishing is, first of all, the officials involved at the time said we were in full compliance with the Outer Continental Shelf Lands Act. The United States Government, in the court of... in the Federal Circuit at page 39 of their brief said, if there had never been an OBPA in 1990, plaintiffs ostensibly would have received approval of their exploration plan within 30 days. To come here today and say, well, in order to save this case we've got to take the findings of the OBPA and... take those round findings and stuff them into the square pegs of the Outer Continental Shelf Lands Act suggests to me just a sense of desperation. The truth is, the Government has never made... the right party has never made the right findings that would justify not going forward with respect to the lease.
Stephen G. Breyer: Well, but I take it his argument, which I really didn't understand till I heard it... now I think his argument... I don't blame him for this, but I think his argument--
Carter G. Phillips: I might, but--
Stephen G. Breyer: --is the following. He says, look at that finding. That finding 3 is, the major industry in North Carolina, tourism, is subject to potentially significant disruption, all right, by oil and gas development.
Carter G. Phillips: --Right.
Stephen G. Breyer: Now look at the reg.
Carter G. Phillips: Right.
Stephen G. Breyer: And what the reg says is that there shall be... the regulations shall provide for suspension if there is a threat of serious harm to the environment. So he says, how can you look at that finding without seeing it as a finding of a threat, and a serious one, and really what you have to look at OBPA as is telling the Secretary, suspend the leases and use whatever regulatory authority you have to do it. So that, I think, is basically his argument.
Carter G. Phillips: Right, and I think that--
Stephen G. Breyer: That is not a... that's... I grant you that reg wasn't quoted in the brief, I don't think, but--
Carter G. Phillips: --Right. No, it wasn't quoted in the brief.
Stephen G. Breyer: --But anyway, that's his argument.
Carter G. Phillips: And it's subject essentially, I think, to three answers. First of all, under the lease we didn't buy into the idea that the Outer Banks Protection Act or Congress or any other action by Congress could come in and substitute for the Secretary, and this case is fundamentally different from the North American case that they rely on, because that case said specifically that the question of how many seals you could kill is completely subject--
Stephen G. Breyer: Well, whatever about the case--
Carter G. Phillips: --to future statutory change and regulation change.
Stephen G. Breyer: --Whatever about the case... whatever the case said, why isn't this a finding... maybe it was in the brief, too. I don't know... a finding that there is a threat of serious harm to the North Carolina environment?
Carter G. Phillips: Well, in part because the definition... and we, of course, have not had an opportunity to brief what it means to be in the human environment, but recall finding number 3 is tourism. It's not an environmental provision at all. It talks about injury to tourism, which they now try to tie in oral argument on the fly to the notion that somehow there's an environmental impact here. I think it actually makes my point, which is that the Outer Banks Protection Act takes you out of the kinds of environmental concerns that were the core of what we entered into with the Outer Continental Shelf Lands Act, and has added this entire socioeconomic set of analyses that never had to exist before, and I think that finding is specifically embraced within it and completely beyond anything that the Outer Continental Shelf Lands Act would have provided for. So it's the wrong... again, it's the wrong entity making the wrong findings, under circumstances that completely violate our agreement. With respect to the question of the timing of this and the notion of whether time was of the essence, I would simply note that in our memorandum of understanding that was entered into as part of the process in 1989, all three of the parties, the State, the Secretary, and the producers, specifically found at joint appendix 84 that time was of the essence by that point in this process, so that, frankly, is not an argument, even though I do think, Justice Scalia, you're right, is that time is the essence. There's got to be at least some reasonableness requirement that gets imposed. At the end of the day, again, it seems to me what we're talking about here is the simple question of when are you entitled to restitution to get something for nothing. Justice Souter made it as plain as possible. There was no performance by the United States. To the extent that there were studies that were done, they were done to comply with its obligations under the Outer Banks Protection Act. The need to get clear on this is today, and I ask the Court to reverse the judgment below. Thank you.
Ruth Bader Ginsburg: May I ask you just a question perhaps I should have asked Mr. Jones. It's odd that the Interior is doing everything, and at the end of the line of the CZMA we get another Secretary from another Department into the picture. Do you know why there was that split between Interior and Commerce?
Carter G. Phillips: Well, I think it's not uncommon in some of these cases to have Interior and Commerce disagree about the right way to proceed. I mean, they are answering slightly different questions.
Ruth Bader Ginsburg: But why would Congress assign the supervising role, the control role to Interior under the Outer Continental Shelf Act, and then under the CZMA give the control to the Commerce Department?
Carter G. Phillips: Justice Ginsburg, I think the theory there is that there may be instances in which the Secretary of Interior might be too wedded to environmental concerns, and that there are other commercial issues that are of greater importance, and in the appropriate balance... which is what he's supposed to do, because he's supposed to analyze it independently--
William H. Rehnquist: Thank you, Mr. Phillips.