A state appeals panel has agreed a developer rightly won a ruling against Oakland on claims city officials, bowing to anti-fossil fuel activists, improperly abandoned what was supposed to be a 66-year lease for a port terminal.
Oakland Bulk and Oversized Terminal sued the city, alleging violation of the terms of its contracts for redevelopment of 34 acres at a former army base. Court records indicate a primary issue was “public backlash after word spread that coal might be transported through the terminal,” scuttling a project that began on paper in 2010.
At specific issue is the 2016 ground lease under which OBOT — wholly owned by California Capital & Investment Group — secured rights for the “West Gateway” portion of the old base.
In her ruling, Alameda County Superior Court Judge Noel Wise noted “there were surprisingly few factual discrepancies” and said both parties’ witnesses were “earnest and credible.” She also detailed the civic involvement of OBOT principals Mark McClure and Phil Tagami as a “history of public service and successful collaboration.”
But as Justice James Richman wrote for the California First District Appellate Court, “the history of cooperation and collaboration would not continue. More like pulling teeth.”
Concurring justices on the June 27 appellate opinion were Therese Stewart and Marla Miller.
Richman said the coal backlash started after the initial 2013 development agreement, and in 2016 the city council enacted an ordinance banning any bulk material facilities from handling coal, then adopted a resolution applying that law specifically to OBOT’s terminal. That prompted a federal lawsuit that ultimately led to an injunction preventing Oakland from applying its ordinance.
“But the worst was yet to come,” Richman wrote, when the city terminated the ground lease in 2018 on assertions OBOT failed to meet an initial milestone date.
The panel detailed the ensuing legal actions but focused its decision on only that it found “germane to the issues presented on appeal,” specifically the question of which party breached the contracts, which Wise found to be the city.
Richman said Wise found the city to have a “resolute trajectory toward terminating the lease” and although it couldn’t “undermine or improperly terminate the contracts it had with OBOT,” officials indeed selected that path. The panel further said the city erred by allowing the lease to become operative in February 2016 and not clarifying intent to evaluate individual commodities by March or supplying a list of applicable regulations until June. That failure to provide specific guidance, Wise said, made hitting the initial deadline practically impossible.
Wise ultimately ruled OBOT didn’t default on its obligations, invalidated the city’s terminations and extended the initial milestone date by 30 months. The city appealed that ruling. Wise awarded OBOT more than $6.5 million in legal fees as a prevailing party, then later added $276,000 in costs. The city appealed those orders as well, but stipulated the move was protective and not in dispute of the amounts. Richman said the panel agreed to consolidate both appeals.
“The Ground Lease had a ‘Force Majeure’ provision that provided that a party ‘whose performance of its obligations hereunder is hindered or affected by events of Force Majeure shall not be considered in breach of or in default in its obligations hereunder to the extent of any delay…’ and that a party may seek an extension of time to perform its obligations with notice to the other party,” Richman wrote. “Judge Wise found force majeure, indeed in six specific respects.”
Force majeure is a legal term describing a contract clause that excuses a party from fulfilling their obligations due to unforeseen and uncontrollable events.
The panel rejected the city’s arguments against all six aspects, finding in none of them any conflict with the lease terms or state law, despite the city’s insistence California law holds a general force majeure clause doesn’t override specific contract terms.
The city pointed to a ground lease term stipulating how the law could release OBOT of its obligations, but the panel noted OBOT didn’t want a release or to end the lease, just more time to advance the project subject to contractual extension rights. It also spotlighted the earlier federal court ruling afforming OBOT’s “right to build a terminal that could handle coal, and the evidence here established multiple City acts intended to delay and hinder terminal development as an end-run around that decision and the Development Agreement.”
The panel further agreed with Judge Wise’s finding the city should’ve provided feedback on a preliminary design document in 2015 and said Oakland intentionally delayed executing a rail access agreement during the coal dispute.
“OBOT needed access to the rail right of way to be able to complete the rail components of the minimum project, but the city never turned over possession of any portion of the rail right of way,” Richman wrote. “Moreover, the rail improvements would never be constructed in the absence of an easement or other use agreement that ensured the tracks could be used over the 66-year lease term. And without rail, it would be ‘impossible’ to operate the terminal because bulk commodities are transported by rail.”
Wise also correctly determined the city delayed completing public improvements such that OBOT also was delayed, the panel said, and further she correctly found the city violated the covenant of good faith and fair dealing.
“The city’s second sub-argument on force majeure is that ‘each ‘event’ of Force Majeure was anticipated,’ ” Richman wrote. “The city suggests in a footnote that Judge Wise’s finding is contradicted by ‘record evidence,’ but fails to cite any such evidence, no evidence to suggest, let alone demonstrate, that OBOT anticipated the several years of the city’s efforts to thwart OBOT’s performance.”
The panel also said the city incorrectly argued OBOT was trying to relitigate issues already addressed in federal court. The bulk of the state court litigation, Richman explained, addressed the ground lease whereas the federal complaint centered on the development agreement. The city didn’t declare a default on that lease until October 2018, making it impossible for those terms to be litigated in 2016.
After affirming Judge Wise’s ruling on the issues, the panel also affirmed the orders for legal fees and court costs. In both cases the panel also awarded OBOT its costs of defending the appeal.
The office of Oakland City Attorney Barbara Parker represented the municipality.
Oakland Bulk was represented by attorneys from the firm of Manatt, Pehlps & Phillips.
