Wallis v. Pan American Petroleum Corp.

Supreme Court of the United States · 1966 · Federal Courts

Federal Courtsfederal common lawstate lawMineral Leasing Act of 1920federal policysignificant conflictprivate partiesoil and gas leases

Facts

Wallis filed applications with the Secretary of the Interior for leases on federally owned oil-rich tracts near the mouth of the Mississippi River. He later entered a written joint venture agreement with McKenna giving McKenna a one-third interest in the pending applications and any lease issued under them, and he also sold Pan American an option to acquire any lease he might obtain under the applications then on file. After the tracts were determined to be public domain lands, Wallis received a lease under the Mineral Leasing Act of 1920 rather than under the acquired-lands statute. McKenna and Pan American then sued, claiming interests in that lease, while Wallis argued Louisiana law controlled and barred or limited those claims.

Issue

Whether dealings among private parties concerning an oil and gas lease validly issued under the Mineral Leasing Act of 1920 are governed by federal common law rather than state law. More specifically, the question was whether any identifiable federal policy or interest required displacement of Louisiana law in this private dispute.

Rule

Federal common law should be fashioned only when a significant conflict between an identifiable federal policy or interest and the use of state law is specifically shown. The mere existence of federal power to regulate, or related federal legislation in the area, is not enough to displace state law governing the rights inter se of private parties.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Tulsa, Nora Benton obtained a federal geothermal lease on public land after applying through the Interior Department. Before the lease issued, she signed a side agreement with Eli Navarro promising him a 25% interest, but Oklahoma law requires such transfers or contracts to transfer lease interests to be in writing. Eli sues in federal diversity court and argues that because the lease came from the United States, federal common law should govern their dispute.

Which is the best answer on the choice-of-law issue?

Explanation. The majority held that federal common law is fashioned only when a significant conflict between state law and an identifiable federal policy or interest is specifically shown. The mere fact that the lease was issued by the United States, that Congress could regulate the area, or that the case is in federal court does not displace state law governing private rights inter se.