## Facts

- Mobil Oil Exploration & Producing Southeast, Inc. and Marathon Oil Co. bought federal offshore oil and gas leases off the North Carolina coast, paying \$158 million in up-front bonuses.
- The leases granted exploration and development rights subject to federal approval processes set out in the Outer Continental Shelf Lands Act (OCSLA), the Coastal Zone Management Act (CZMA), and implementing regulations.
- Under OCSLA, the Department of the Interior was required to act on a lessee’s Plan of Exploration within a specified, short timetable if statutory criteria were met.
- Under CZMA, the lessees had to certify consistency with affected states’ coastal programs; if a state objected, the Secretary of Commerce could override the objection or the certification would fail.
- In 1990, the lessees submitted a Plan of Exploration to Interior.
- While the plan was pending, Congress enacted the Outer Banks Protection Act (OBPA), which barred Interior from approving any plan off North Carolina for at least 13 months and imposed additional prerequisites (including a panel report and a certification to Congress).
- Interior told the lessees their plan met OCSLA requirements but refused to approve it due to OBPA and suspended the relevant leases; even after OBPA’s stated prerequisites occurred, Interior required further studies before considering approval.
- North Carolina objected under CZMA, and the Secretary of Commerce ultimately declined to override the objection.

## Issues

1. Whether the Government’s OBPA-driven refusal to process and act on the Plan of Exploration under the promised OCSLA/CZMA framework was a material breach and repudiation of the lease contracts.
2. Whether the lessees waived rescission and restitution by continuing to seek performance-related relief while disputing the Government’s nonperformance.
3. Whether the proper remedy was a rent-free lease extension or cancellation with restitution of the up-front payments.

## Decision

- The Supreme Court reversed the Federal Circuit in an 8–1 decision (Justice Breyer).
- The Court held the Government breached the lease contracts by failing to follow the approval procedures and timing incorporated into the bargain through OCSLA/CZMA and their regulations.
- The breach was material and amounted to repudiation because it signaled the Government would not perform a central contractual obligation when due.
- The Court rejected the view that the state CZMA objection eliminated liability, holding the Government’s breach was complete when it failed to perform its own promised processing duties.
- The lessees did not waive rescission and restitution by pursuing measures aimed at preserving their position while seeking performance.
- The appropriate remedy was cancellation of the leases and restitution of the lease-bonus payments, not merely a rent-free extension.

## Legal Principles

- The United States, when it contracts, is generally subject to ordinary contract doctrines, including material breach, repudiation, rescission, and restitution.
- Where a contract’s value depends on government compliance with specified statutory and regulatory procedures, a later refusal to follow those procedures can constitute a material breach.
- Repudiation can occur when a party’s conduct clearly indicates it will not perform a central contractual obligation as promised and when due.
- A nonbreaching party may continue to press for performance without necessarily waiving the right to treat a material breach as grounds for rescission, absent an intentional relinquishment of that remedy.
- Restitution may be awarded to return consideration paid when the Government repudiates and cannot retain the benefits of the bargain while failing to perform its core obligations.

## Conclusion

The Court held that federal legislation and agency action that prevented timely processing of the lessees’ exploration plan under the contractual statutory framework constituted a material breach and repudiation, entitling the lessees to cancel the leases and recover their up-front bonus payments.


Mobil Oil Expl. & Producing Se., Inc. v. United States, 530 U.S. 604 (2000)