A summary of the Teapot Dome scandal from the Brookings Institution

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A summary of the Teapot Dome scandal from the Brookings Institution; with several
quotes from the congressional inquiry, this provides a good background on the case in a
fairly readable fashion.

One Lesson From History:
Appointment of Special Counsel and the Investigation of the Teapot Dome Scandal
by Leslie E. Bennett

Intern for the Independent Counsel Statute Project

Table of Contents

I. The Trail is
Uncovered

A. The Leases

B. Disclosure

II. The Trail Widens: Congress Investigates the Teapot Dome Lease

A. A Call For Special Counsel

B. Appointment of Pomerene and Roberts

C. Loss of Confidence in the Justice Department

III. The Special Counsel Follow the Trail

A. The Cases

Civil Litigation

U.S. v. Pan American Petroleum

U.S. v. Mammoth Oil Company Criminal Prosecutions

U.S. v. Sinclair

U.S. v. Doheny, Doheny, and Fall

U.S. v. Fall and Sinclair

U.S. v. Sinclair

U.S. v. Fall

U.S. v. Doheny and Doheny

B.
Roberts Seeks to Resign

C. Special Counsel Face Financial Difficulties

IV. The Trail Ends

PRESIDENTIAL
APPOINTMENT OF SPECIAL COUNSEL:

THE TEAPOT DOME MODEL

If Congress considers alternatives to a system of temporary,
court appointed independent counsel, history provides an important model--the
investigation and prosecution of the Teapot Dome scandal. In 1924, President Coolidge
nominated two special counsel, one a Republican and one a Democrat, to investigate and
pursue the civil and criminal cases arising from allegations that members of President
Harding's cabinet had corruptly leased naval oil reserves to private oil firms. His
appointees, Democrat Atlee Pomerene and Republican Owen Roberts, were confirmed by the
Senate.

Deep concerns over the integrity of then Attorney General
Harry Daugherty mobilized Congress and the President to look outside the Department of
Justice for counsel who could be trusted to vigorously pursue the case. Once such counsel
were appointed, Congress continued to play a critical role, aggressively pursuing the
facts through a Senate committee and working cooperatively with special counsel to further
their efforts. The President, for his part, offered counsel his assistance but then
withdrew to permit them the necessary independence to pursue the wrongdoers. The
investigation was fraught with difficulty and high drama, consuming more than six years
and culminating in significant victories in civil litigation and a mixed bag of results in
the criminal prosecutions. Special counsel suffered intermittent shortages of funds and
for one of them, frustration with the impact of the job on his ability to maintain his law
practice.

Those difficulties notwithstanding, history has largely judged
the Teapot Dome investigation a success. The tale of corruption was told, the fraudulent
leases were set aside and the oil leases returned to the government, and at least some of
the perpetrators were successfully prosecuted. Consequently, when allegations of
high-level wrongdoing in the government again arose, Teapot Dome has served as a call to
action. See, e.g., Watergate:
Clean-Up Precedent , Chr. Sci. Monitor, reprinted in 119 Cong. Rec. 13721 (1973)
(Watergate); Byron York, How Congress
Can Break Through the Reno Stonewall , Wall St. J., Dec. 16, 1997, at A18
(Campaign finance).

Should the Teapot Dome model of presidentially appointed and
Senate confirmed prosecutors be considered for any future investigation that has
significant political implications?

--Elaine W. Stone

I.
The Trail is Uncovered

[TABLE OF
CONTENTS]

It started with rumors that members of the Harding
Administration had leased a rich naval oil reserve in Wyoming to private interests in
return for bribes. It resulted in numerous investigations, the resignation of several
cabinet members and civil and criminal prosecutions spanning more than six years. Teapot
Dome became the nomenclature for what North Dakota Senator Gerald Nye called "the
slimiest of slimy trails beaten by privilege." S. Rep. No. 70-1326, Part 2, at 3 (1928) .
Seventy-five years later, it remains an important chapter in the ongoing debate over how
best to investigate and prosecute alleged criminal activity by high-level government
officials. (1)

A. The Leases

[TABLE OF
CONTENTS]

The naval oil reserves were three oil-rich tracts of land set
aside by the Taft Administration to provide naval ships with fuel in case of a national
emergency. Congress gave the Secretary of the Navy control over the reserves through the
naval appropriation bill approved on June 4, 1920. It provided that the Secretary of the
Navy would have the power "to conserve, develop, use and operate the same in his
discretion, directly or by contract, lease, or otherwise, and to use, store, exchange, or
sell the oil and gas products thereof, and those from all royalty oil from lands in the
naval reserves, for the benefit of the United States." 41 Stat. chap. 228 (1920) .

The reserves consisted of three pieces of property: Naval
Reserve Number One, in Elk Hills, California; Naval Reserve Number Two, in Buena Vista,
California; and Naval Reserve Number Three, in Salt Creek, Wyoming, better known as Teapot
Dome because of the shape of a formation on the land.

The protection of the naval reserves was short-lived, however,
as private interests found a receptive ear in members of the Harding administration. Soon
after Albert B. Fall was appointed Secretary of the Interior, he sought to have
jurisdiction over the naval reserve lands transferred to the Department of the Interior.
Fall convinced Secretary of the Navy Edwin Denby that he should support transferring
authority to Fall because he had more experience with such matters. President Harding
agreed and with the signing of Executive Order 3474, authority over the lands shifted from
the Secretary of the Navy to Secretary of the Interior. Executive Order No. 3474 . (2)

Critics were skeptical that Fall would adequately protect the
resource, since his record favoring commercial development was well known from his
participation on the Senate Public Lands and Surveys Committee. That skepticism was well
founded.

The first of the oil reserves surrendered to private interests
were in California. Edward L. Doheny was an "old prospecting pal" of Fall's and
the owner of the Pan-American Petroleum and Transport Company. During 1921 Fall and Doheny
began making preliminary arrangements for a lease of part of the Navy's oil reserves.

In November of that year, Doheny made what he and Fall would
later characterize as a loan to Fall. Doheny had his son draw $100,000 in cash from the
son's account, wrap the bills up in paper, put them in a little black bag and bring the
bag to Fall in Fall's apartment. In later testimony some thought implausible, Doheny
claimed that he had received a note from Fall for the money, eventually producing a note
whose signature had been torn off. Busch, Enemies of the State at 112-13.

During 1922, Doheny's company leased portions of California
Naval Reserve Number One (Elk Hills) and Number Two (Buena Vista). Doheny was obliged to
build storage tanks at Pearl Harbor, fill them with oil, erect a refinery in California
and build a pipe line from the naval reserves to the refinery. In return, Doheny received
exclusive rights to exploit about 30,000 acres of proven oil lands, with a profit
estimated by him at one hundred million dollars. Two other companies had expressed
interest but had insisted that Congress approve the proposed contract before it was
executed, a condition rejected by Fall and Navy officers. Werner and Starr, Teapot Dome,
at 42, 54-57, 84-86.

During the same period, Fall was secretly negotiating away
Wyoming's Teapot Dome, believed to be the richest of the remaining oil reserves. See
62 Cong. Rec. 6042 (1922) . Harry
F. Sinclair was head of the Mammoth Oil Company. In December, 1921, Fall entertained
Sinclair, his attorney, Colonel J.W. Zevely, their wives, and several others at his ranch
at Three Rivers, New Mexico: "[i]n the evenings, Sinclair and Zevely sat before
Fall's ranch-house fire and discussed a lease to Sinclair of the entire naval reserve at
Teapot Dome." Werner and Starr, Teapot Dome at 56. They also discussed Fall's cattle
needs. After Sinclair returned home, Fall received six heifers, a yearling bull, two
six-months-old boars, four sows and for his foreman, an English thoroughbred horse. Id.
at 57.

On February 3, 1922, Sinclair, Fall, Admiral John Robison
(Chief of the Navy's Bureau of Engineering and at one time in charge of the administration
of the Naval Petroleum Reserves), and others met in Fall's office to outline the terms of
an agreement. Teapot Dome would be leased in its entirety, Sinclair would build a pipe
line with adequate capacity from the Teapot Dome oil fields, and the proceeds from the
Navy's share of oil from the reserve were to be used by Sinclair to build storage tanks on
the Atlantic coast and fill them with fuel oil. Under their arrangement, the Navy would
not receive any cash, as cash would have to be turned over to the United States Treasury
and the Navy could then only benefit in the ordinary way, through congressional
appropriations. Id. at 59.

During these discussions, the participants considered whether
they should obtain an opinion from Attorney General Daugherty on the legality of the
exchange, but Fall rejected the idea:

[W]hen questioned later about his failure . . . [to ask Daugherty for a legal opinion]
he said that he himself had been a lawyer for many years and neither needed nor wanted
outside legal opinions. In this way, Fall protected himself from cutting Daugherty in on
his profit and Daugherty was glad to be able to say later, when he was in trouble for
shady deals of his own, that at least he had had nothing to do with Teapot Dome.

Id. at 60-61. Fall, (Secretary of the Navy) Denby and Sinclair secretly signed
a lease for the entire tract on April 7, 1922, and Fall locked it in his desk drawer.

One month later (after a Senate inquiry into the leases had
already begun), Fall sent his son-in-law, M.T. Everhart, to see Sinclair in Sinclair's
private railroad car. Sinclair gave Everhart $198,000 in Liberty Bonds. Shortly
thereafter, Sinclair gave Everhart another $35,000 worth of the same issue of bonds.
Everhart in turn gave Sinclair a check for $1100, to pay for the livestock shipped from
Sinclair's farm to Fall (presumably because congressmen were now asking questions about
those gifts), and then advised Sinclair that Fall would like a loan. Sinclair obliged with
$36,000 in cash. Id. at 69-70.

As one historian wrote: "By the time he was finished
leasing the navy's reserves, Fall had given his two benefactors reserves which each of
them estimated roughly to be worth $100,000,000, and he had collected from them $409,000
in cash and bonds." Id. at 86. With respect to Teapot Dome, an oil man would
later testify that it was so valuable that the government could have easily gotten "a
bonus of at least $10,000,000, and possibly as much as $50,000,000, over and above the
royalties Sinclair was obligated to pay, if the lease had been awarded after competitive
bidding instead of in the privacy of Fall's ranch house." Id. at 79.

B. Disclosure

[TABLE OF
CONTENTS]

Despite Fall's efforts to keep the Teapot Dome lease secret,
the news began to spread: "[s]ome men in New Mexico became suspicious when they
noticed Fall buying more land and improving his property there, and oil men in Wyoming and
Colorado began to wire their Congressmen in protest and for information." Werner and
Starr, Teapot Dome at 64. On April 14, 1922, the front page of the Wall Street Journal
reported that Fall had leased Teapot Dome to Sinclair. Noggle, Teapot Dome: Oil and
Politics in the 1920's, at 36.

On April 15, 1922 the Senate passed Resolution 277, requesting
the Secretary of the Navy and the Secretary of the Interior to inform the Senate whether
negotiations were in fact pending to lease naval oil reserves and if so, the parties
involved, the terms and conditions of any such proposed agreements and "whether
opportunity will be given the public for competitive bidding for the operation of these
lands . . . ." See Senate
Resolution 277 (3)
and S. Res. 277, 67th Cong. (1922)
(enacted) .

Responding to Senate Resolution 277, the first defenders of
the lease were Denby and since Fall was out of town, Acting Secretary of the Interior
Edward Finney. Denby and Finney provided the Senate with a copy of the lease. See
S. Doc. No. 67-196 (1922) .
They rationalized in a letter to the Senate that the lease had been executed in the public
interest because crude oil in the reserves was unsuitable as fuel for naval ships so it
was necessary to exchange it for fuel oil and provide for the construction of storage
tanks to minimize evaporation. S. Doc.
No. 67-191, at 1 (1922) .

They also argued that drilling was necessary because millions
of barrels of oil had already been lost from the California reserves due to drilling from
adjacent lands and that Teapot Dome faced a similar fate. Id. at 1-2. Finally,
they asserted that the lease did not contradict the administration's policies as
"[t]he Interior Department and the Navy Department have been in close cooperation and
have been endeavoring, as they saw it, to carry out the purposes for which these naval
reserves were created, i.e., not the sale of oil for commercial or other purposes but the
securing of a reserve of fuel oil for Navy purposes." Id. at 3.

After the Senate received a copy of the lease, it unanimously
passed Senate Resolution 282 on April 29, 1922, providing for the Committee of Public
Lands and Surveys to conduct an investigation. Senate Resolution 282 (draft version) (4) and S. Res. 282, 67th Cong. (1922)
(enacted) . Senator Miles Poindexter, a Republican from Washington, defined the two
issues needing resolution:

In the first place, was it necessary for the Government to sink wells or to have wells
sunk upon its reserve in order to meet an attack upon the oil underneath its own property
by which it was being drained? In the second place, are the means which have been adopted
by the Government for doing that the proper ones, the best ones, to the greatest advantage
of the Government, which could be obtained?

62 Cong. Rec. 6048 (1922) .

In response to Senate Resolution 282, Harding sent a
presidential message to the Senate, asserting that "the policy which has been adopted
by the Secretary of the Navy and the Secretary of the Interior in dealing with these
matters was submitted to me prior to the adoption thereof, and the policy decided upon and
the subsequent acts have at all times had my entire approval." S. Doc. No. 67-210, 67th Cong., 2d
Sess. , at III (1922). The message included a report from Fall, but Harding made clear
that Fall's explanation "[was] not to be construed as a defense of either specific
acts or the general policies followed in dealing with the problems incident to the
handling of the naval reserves." Id. at 3.

Fall too declared that the report was not "written in the
slightest degree as an attempt at defense of actions or of policies" since
"[t]he writer recognizes no necessity for such defense." Id. at 26.
Closely following the President's message, Fall, in a letter to the Senate, again insisted
that he was in compliance with President Harding's Executive Order of May 31, 1921, giving
him permission to administer the naval reserves for the Secretary of the Navy and thus,
the lease was proper. H.R. Rep.
No. 67-1079, at 9 (1922) . Fall also insisted that he had discussed the Teapot Dome
lease with Denby. In his words, "[t]he Secretary of the Interior has proceeded under
this order in constant communication and consultation and cooperation with the Secretary
of the Navy, and is so continuing at the present time." Id.

In the face of continuing reports that Fall's personal
fortunes had mysteriously improved, these assurances were not enough to quell growing
suspicion of wrongdoing. Members of the oil industry expressed their outrage to Wisconsin
Republican Senator Robert La Follette, who presented their point by point letter of
protest on the Senate floor on May 13, 1922:

First. Against the policy of the Secretary of the Interior and the
Secretary of the Navy in opening the naval reserves at this time for exploitation.

Second. Against the method of leasing public lands without
competitive bidding, as exemplified in the recent contract entered into between Secretary
Fall of the Interior and Secretary Denby of the Navy and the Standard Oil-Sinclair-Doheny
interest.

Third. Against the policy of any department of the Government of the
United States entering into a contract of any character whatsoever, whether competitive or
not, which would tend to continue or perpetuate a monopolistic control of the oil industry
of the United States or create a monopoly on the sale of fuel oil or refined oil to the
Navy or any other department of the Government.

For the following reasons:

There exists no emergency or necessity which would warrant the
opening of the naval reserves at this time for exploitation in order that the Navy might
be supplied with the various grades of oil required by it, there being already above
ground and in storage in the United States the greatest amount of oil that has been in
storage in the history of all times.

The prices of fuel oil at the seaboard are lower than they have been
in years, and there is an abundant supply.

The oil industry of the United States is just now convalescing from
the greatest depression it has ever suffered, the daily production now being the largest
in its history, and therefore, the turning over of Government lands to the large pipe-line
interests for exploitation will have the direct result of depressing the price of crude
oil without in any way relieving the people of the onerous and burdensome high prices of
refine

A summary of the Teapot Dome scandal from the Brookings Institution

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