City Within Its Rights to Abandon Casino Deal

     SAN FRANCISCO (CN) - The City of Richmond, Calif., did not breach an agreement with a developer when it backed out of a proposed Indian casino project, finding that the impacts to traffic and historic resources would be too great, a federal judge ruled.
     Upstream Point Molate LLC and the City of Richmond began discussing the possibility of developing a gaming project on a piece of land, formerly a Navy fuel depot, known as "Point Molate" located along Richmond's shoreline in 2003.
     In 2004, Upstream paid Richmond $250,000 for the exclusive rights for the redevelopment of the depot and then entered into a Land Disposition Agreement with the city, in which the it agreed to transfer the property to Upstream for development of an Indian casino upon the project's final legal approval.
     As part of the agreement, Upstream made payments to Richmond in exchange for the exclusive purchase rights to Point Molate. Upstream made an "Initial Consideration" payment of $1 million for the first 12 months and made additional payments in the following four years, increasing the amount by $1 million each year.
     The payments were non-refundable, but were to be credited against the purchase price of the property if the sale closed. Upstream was not entitled to a refund if the project was disapproved or became legally or economically infeasible.
     The agreement obligated the city to provide support for the casino project, which would be run by the Guidiville Rancheria of California tribe, in terms of communicating with the government and the Bureau of Indian Affairs about getting all the approvals necessary for the project.
     When the agreement between Richmond and Upstream was made, an environmental review of the casino project under the California Environmental Quality Act (CEQA) had not yet been completed, sparking a lawsuit filed by the Citizens for the Eastshore State Park. The group claimed that the agreement constituted a de facto approval of the project without the required CEQA review.
     The California Attorney General intervened on behalf of the group, also claiming that the city violated CEQA by choosing one potential use of the land over all other alternatives.
     To resolve the lawsuit, the parties entered into a court-approved settlement agreement and stipulated order clarifying that the agreement between Richmond and Upstream did not commit the city to the project and did not restrict the city's discretion to approve or deny the project. The settlement stated that the city would not be defaulting on its agreement with Upstream if it were to deny the project after an environmental review.
     Upstream and Richmond amended their agreement to reflect the settlement agreement.
     The Richmond City Council continued to agree to more extensions of time on the agreement. However, in 2006 a new mayor, Gayle McLaughlin, was elected to the council and was outspoken in her opposition to the casino.
     Upstream claimed that the city initially had advocated on behalf of the project, but around 2009, McLaughlin and other city council members began to undermine Upstream's ability to achieve the conditions precedent to the casino project. Among other things, McLaughlin sent letters to state Assembly members and U.S. Senators lobbying in favor of denying the Guidiville Rancheria tribe's application to engage in gaming at Point Molate.
     In March 2011, the city certified a final CEQA Environmental Impact Report (EIR) evaluating the potential impacts that could result from the proposed casino project. The city determined that the casino would have significant impacts to traffic and historic resources.
     The city concluded that the benefits of a casino did not outweigh these factors, and decided not to adopt a Statement of Overriding Considerations that would allow approval of the project despite the negative impacts.
     Based on this decision, the city council decided that the casino was not legally permitted at Point Molate and that it would no longer consider the project as a use of the land.
     Upstream responded by filing a lawsuit in federal court. It claimed that Richmond breached the parties' Land Disposition Agreement (LDA) by discontinuing consideration of the casino project.
     U.S. District Judge Yvonne Gonzalez Rogers ruled on Thursday that the city was well within its rights to disapprove the casino project.
     "The terms of the LDA itself gave the City discretion to approve, or disapprove, the Casino Project and any Alternative Project. While Upstream argues that the LDA is a 'sales contract' not an 'options agreement,' the plain terms of the LDA state that the transfer of the property to Upstream is 'on and subject to the terms, covenants and conditions set forth herein.' One of these conditions was CEQA review and approval, with ultimate approval authority vested in the City," Rogers wrote.
     The payments made by Upstream to the city were for exclusive consideration rights to the property and did not guarantee any particular outcome.
     "To the extent there was any doubt about the meaning of the terms of the LDA and the discretion that the City retained, the Settlement Agreement removed that doubt," Rogers noted.
     She pointed out that, by way of the settlement, the parties agreed that the city's exercise of its discretion to disapprove the project would not constitute a default and that the city was not obligated to transfer or lease the land to Upstream.
     Also pursuant to the settlement, the city's agreement to support the casino project was contingent upon approval of the project, which never came to pass.
     Rogers was equally unpersuaded by Upstream's argument that Richmond breached its agreement through its unfavorable CEQA determination.
     "CEQA regulations provide that, when the EIR shows that the proposed project would cause substantial adverse changes in the environment, the governmental agency can respond to it in several ways, including '[d]isapproving the project.'," the judge wrote.
     Furthermore, the exclusive means for challenging a CEQA disapproval is through a writ petition. Upstream never made such a challenge and its time to do so has expired.
     Accordingly, Rogers found in favor of Richmond on Upstream's claims for breach of contract, breach of the covenant of good faith and fair dealing, quantum meruit, unjust enrichment and specific performance. A claim for declaratory relief remains.