Judges Disagree

Less than three months after he had taken the case under advisement, Federal Judge T. Blake Kennedy of Cheyenne, Wyo., rendered a decision. The case was the suit of the U. S. to cancel the lease of Naval Oil reserve No. 3 (known as Teapot Dome) to Harry F. Sinclair's oil interests. The decision was that the lease should stand.

Only three weeks previously, Federal Judge Paul J. McCormick, Los Angeles, before whom was tried a similar case--the Government trying to cancel the lease of Naval Oil Reserve No. 1 (known as Elk Hills) to the Doheny interests--had rendered his decision (TIME, June 8). He had decided that the lease should be cancelled. The Two Cases. In each case, the Government charged 1) fraud and conspiracy in the execution of the leases, 2) the lessor's lack of authority to make the leases.

The two cases were practically identical, even as to the evidence presented, except as to part of the evidence of fraud. In the Doheny case, there was undisputed evidence that Mr. Doheny had made a loan of $100,000 in cash (carried in the black satchel) to Secretary of the Interior Fall when the Doheny leases were under consideration. In the Sinclair case, the only admitted payment to Fall was one of $25,000 in Liberty Bonds made after the latter had left office. The Government tried to establish that Fall had also received several hundred thousand dollars in Liberty Bonds which were the profits made by Sinclair in another transaction; but, with most of the witnesses of this alleged transaction out of the country, the evidence was fragmentary.

The Two Decisions. 1) Judge Kennedy held that there was no conspiracy or fraud, that the payment of $25,000 in Liberty Bonds "falls short of constituting a fraudulent transaction." that the evidence of other payments was insufficient:

"The Court has been impressed by two unusual situations not ordinarily found in a case of this character. First, although a conspiracy is one of the bases for annulment of the lease, one alone of the many Government officials having taken an active part in its consummation is charged with corrupt and ulterior motives.

"Secondly, there is the significant lack of material damage to the Government which usually attends allegations of fraud, for, in the case at bar, no attempt has been made to show that the lease in controversy in itself was a bad lease for the Government, except perhaps theoretically by counsel; but, on the other hand, the testimony of the plaintiff's own witnesses who are competent to speak upon the subject tends to show that it is a lease much more favorable to the Government than they as oil operators would be willing to assume."

Judge McCormick had held that the $100,000 paid by Fall was "a colossal infamy."

2) Judge Kennedy found that President Harding's executive order transferring control of the Naval Oil Reserves from the Secretary of the Navy to the Secretary of the Interior was lawful.

Judge McCormick had found the contrary, and had ruled that on this count as well as on the count of fraud and conspiracy, the Doheny leases were void.

3) Judge Kennedy held that Secretary Denby took part in making the leases:

"The evidence clearly shows that the negotiations preceding the execution of the lease (on the Teapot reserve) were actively, earnestly and completely participated in, if not dominated by, the Secretary of the Navy and his designated representative of that department, Admiral [J. K.] Robison.

"Admitting, for the sake of argument, that Fall suggested full development of the reserve by lease and the exchange of oil for fuel oil in storage, and Denby adopted the suggestion and executed the lease after mature consideration, as the evidence shows he did, to hold that it was not Denby's official act is, it seems to us, little short of branding him as an imbecile."

Judge McCormick had held that Secretary Denby signed the Doheny leases "under misapprehension and without full knowledge of their contents."

4) Judge Kennedy declared that the only logical inference was that the Teases were held secret for military reasons.

Judge McCormick had declared that the Doheny leases were held secret to conceal the true facts from Congress and the public.

General Opinions. Judge Kennedy declared:

"In reaching a conclusion in this case, we fully realize the degree of unpopularity with which it will be received. This is true, in the nature of things, because the great general public is reached only with the sentimental features surrounding the transactions involved, and being largely in the dark as to all the other multitudes of circumstances with which the case is sur rounded, and knowing perhaps less of the great legal principles which the experience of the ages has taught man kind must control in dealing with the rights of persons and property.

"As repeatedly stated by the courts, fraud cannot be presumed, but must be proved."

It may be admitted that the transaction arouses suspicion, but further than this the Court does not feel justified in going toward a finding in favor of plaintiff, in view of the principles of law announced."

Future Action. The Government will appeal Judge Kennedy's decision just as the Doheny interests will appeal Judge McCormick's. The Supreme Court will probably settle legal differences between the decisions, but the Circuit Court of Appeals will try first. Meanwhile, both Naval Oil Reserves remain in the control of receivers.'