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Wednesday, December 6, 2023
Courthouse News Service
Wednesday, December 6, 2023 | Back issues
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Oakland officials at fault in stalled port project, judge rules

In another legal blow to Oakland, a judge found the city acted in bad faith and breached a deal to complete a bulk shipping terminal at its port.

OAKLAND, Calif. (CN) — A major developer has likely won another legal battle against the city of Oakland in a yearslong dispute over a long-stalled plan for a bulk shipping terminal at Port of Oakland. 

Alameda County Superior Court Judge Noël Wise tentatively ruled in favor of Oakland Global Rail Enterprise, finding that Oakland officials breached a ground lease agreement to develop a parcel of public land adjacent to the Port of Oakland and the San Francisco Bay Bridge. 

The decision signals the end after more than three months of trial and a seven-year political battle over the city’s goal to avoid any possibility that coal could be shipped through the terminal. The development company testified that it lost more than $148 million in profits after the city introduced an ordinance to ban coal at its terminals. Oakland, which countersued for breach of contract in 2020, said the developers hurt the project by missing construction milestones while scheming to close a lucrative coal export deal.

In a 96-page proposed statement of decision released late Friday, Judge Wise said the city failed to assert causes of action for breach of contract and declaratory relief. She said officials breached the ground lease and an implied covenant of good faith and fair dealing with the developer, Oakland Bulk & Oversized Terminal LLC. 

The judge said the city could have taken steps to move the project forward, rather than undermine or improperly terminate contracts with the developer. She cited many emails and letters from a period of several years, which she said portray the city failing to respond to the developer’s communications about why the project was not moving forward and demonstrating “general apathy” and a lack of good faith. 

That created a “lose-lose situation” as Oakland argued the developer was obligated to spend millions of dollars and time to advance the project “to circumvent the city’s lack of feedback, its failure to cooperate and meet its own legal obligations, and its absence of good faith."

“These communications reinforce the conclusion that the city had caused and was continuing to cause project delays by failing to complete the public improvements,” Wise said. “The city’s conduct hamstrung [Oakland Bulk and Oversized Terminal], making it difficult, exceedingly impracticable or functionally impossible for OBOT to fulfill its own obligations under the lease. Considering the totality of the circumstances, the only reasonable inference is that the city believed it could coerce OBOT into agreeing to build a coal-free project, or it would stop the project altogether.”

Wise determined that the developer proved it was excused from completing the project by the deadline, thanks to the city’s acts of force majeure. This standard allows for not meeting agreement terms in the case of “events which result in delays in a party’s performance” of lease obligations. 

“The city sought to coerce OBOT to make concessions OBOT was not obligated to make,” the judge said. “OBOT proved it was harmed by the city’s conduct because the city terminated the ground lease, which stopped the project.”

The developer and attorney Barry Lee did not respond to a request for comment. 

In a statement Monday, Oakland’s city attorney said that the evidence presented at trial demonstrated the developer’s “flawed business decisions” by pursuing development of a bulk terminal that could ship coal, under a deal with a potential sublessee owned by Kentucky coal interests, who paid more than $19 million for exclusive rights to enter a sublease.

In 2016 the Oakland City Council adopted an ordinance and resolution prohibiting the citywide handling of coal, which a federal judge and the Ninth Circuit Court of Appeals subsequently ruled could not stand at the proposed terminal. To date, the city has not passed a new resolution.

“We are disappointed that the trial court did not recognize what we strongly believe the evidence demonstrated and contract language required,” said city attorney Barbara Parker. “The city will carefully consider all of its options in light of this unfortunate decision.”

The trial, which began July 10, next enters a damages phase on Nov. 28 and is expected to end by Dec. 1. Before then, both sides can still file comments or objections, and the judge can decide if her statement of decision is final. 

Wise said the developer may be required to choose between certain remedies, such as monetary damages or reinstatement of the ground lease. The latter would allow the developer to resume developing the marine terminal project. 

Parker's office said that if the developer maintains possession of the land, it must comply with all other requirements of the contract, "which to date it has not demonstrated the ability to do. “

Ted Franklin, co-coordinator of the activist group No Coal in Oakland, which has opposed the bulk terminal for year,— said he was disappointed by Wise's ruling and hopes the judge rejects co-developer Phil Tagami's claims for lost profits. 

"Phil Tagami was once considered a well-respected developer in this town," Franklin said. "His legacy will be forever tarnished by his effort to make the city’s resistance to coal a source of personal gain. Coal interests paid him $19.5 million over the years for the right to build a coal export facility on our publicly owned waterfront."

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