Mobil Oil Exploration & Producing Southeast, Inc. v. United States
530 U.S. 604 (2000)
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Rule of Law:
When the U.S. government enters into a contract, it is bound by the same common law principles as private parties, and its enactment of a statute that prevents it from performing a central contractual obligation constitutes a repudiation of the contract, entitling the other party to restitution.
Facts:
- In 1981, Mobil Oil Exploration & Producing Southeast, Inc. and other oil companies paid the United States government approximately $156 million in upfront 'bonus' payments for 10-year renewable lease contracts.
- These contracts gave the companies the right to explore for oil off the North Carolina coast, conditioned on obtaining a series of government permissions under existing statutes and regulations.
- The governing Outer Continental Shelf Lands Act (OCSLA), incorporated into the contracts, required the Department of the Interior to approve a compliant Exploration Plan within 30 days of submission.
- On August 18, 1990, Congress enacted the Outer Banks Protection Act (OBPA), which imposed a moratorium preventing the Secretary of the Interior from approving any Exploration Plan for at least 13 months, pending new environmental reviews.
- On August 20, 1990, two days after OBPA's enactment, the companies submitted their final Exploration Plan to the Department of the Interior.
- In September 1990, the Interior Department informed the companies that their plan was 'approvable in all respects' but that the new OBPA law prohibited its approval, and thus the plan would remain on file and the leases would be suspended.
- In November 1990, the State of North Carolina formally objected to the companies' certification that their plan was consistent with the state's coastal zone management program, a separate requirement for obtaining drilling permits.
Procedural Posture:
- The oil companies sued the United States for breach of contract in the U.S. Court of Federal Claims.
- The Court of Federal Claims, as the trial court, granted summary judgment for the oil companies, finding the government had repudiated the contracts and was liable for restitution of the $156 million.
- The United States, as the appellant, appealed the decision to the U.S. Court of Appeals for the Federal Circuit.
- A panel of the Federal Circuit reversed the trial court's judgment, holding that the government's breach was not the 'operative cause' of the companies' failure to proceed.
- The oil companies, as petitioners, were granted a writ of certiorari by the U.S. Supreme Court to review the decision of the Federal Circuit.
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Issue:
Does the U.S. government repudiate its lease contracts with private companies, entitling them to restitution of their initial payments, when Congress enacts a new law that prevents the government from complying with a central contractual obligation within an agreed-upon timeframe?
Opinions:
Majority - Justice Breyer
Yes, the U.S. government repudiated its lease contracts, entitling the companies to restitution. The government's enactment of the Outer Banks Protection Act (OBPA) and its subsequent refusal to consider the companies' Exploration Plan constituted a substantial breach of the contract. The contracts incorporated the specific procedural requirements of the Outer Continental Shelf Lands Act (OCSLA), including the 30-day approval timeline, which was a central part of the bargain. OBPA's imposition of a minimum 13-month delay and new approval standards was a material change that substantially impaired the value of the contracts to the companies. The government's argument that a potential state veto would have blocked the project anyway is irrelevant to the remedy of restitution, which is awarded for repudiation and simply requires the return of money paid, regardless of whether the non-breaching party would have ultimately profited from the contract.
Dissenting - Justice Stevens
No, the government's actions did not amount to a repudiation justifying restitution, although they did constitute a breach. A breach must be total and destroy the essential object of the contract to warrant restitution. Here, the government's failure to approve the plan within 30 days was not the primary obstacle to the project; the foreseeable and ultimately dispositive factor was the State of North Carolina's objection to the plan, which occurred just two months after the government's breach. The government continued to perform other obligations, and the companies continued to act as if the contract were ongoing by seeking to override the state's objection. The breach caused only a minor delay in a long-term project and was not material enough to justify the draconian remedy of returning the entire $156 million; the proper remedy should be damages for the delay.
Analysis:
This decision reaffirms the principle that the government, when acting in a commercial capacity, is subject to the same common law contract rules as a private party. It establishes that a subsequent act of Congress that materially alters the government's contractual duties can be treated as a repudiation, not merely a sovereign act that might excuse performance. The case clarifies the distinction between the remedies of restitution and damages, holding that when a contract is repudiated, the non-breaching party is entitled to the return of its investment without needing to prove what its ultimate success or profit would have been. This strengthens the position of private parties contracting with the government, as it limits the government's ability to unilaterally change the terms of a bargain through subsequent legislation without consequence.
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