City awaiting Court’s final decision and proposed remedy in the case; appeal is possible
Alameda Superior Court Judge Noël Wise has handed down the Court’s proposed decision after an eight-week trial in Oakland Bulk and Oversized Terminal (OBOT) v. City of Oakland (Case Nos. RG18930929/RB20062473). The Court found the City breached its contract with Oakland-based developers California Capital Investment Group (CCIG) and its affiliated companies, all owned and run by Phil Tagami. The proposed decision indicated OBOT should have been granted an extension on the construction deadlines specified in the contract that it is undisputed OBOT failed to meet. The trial commenced on July 10, 2023 and involved testimony from 15 witnesses and the admission of hundreds of exhibits.
“We are disappointed that the trial court did not recognize what we strongly believe the evidence demonstrated and contract language required,” said Oakland City Attorney Barbara J. Parker. “The City will carefully consider all of its options in light of this unfortunate decision.”
The trial is the latest phase in a years-long conflict over development contracts for a portion of City-owned land known as the West Gateway, located adjacent to the Bay Bridge, on the former Oakland Army Base. The property at issue abuts West Oakland, a community that has long suffered from systemic, environmental racism. In an earlier phase of this long-running dispute, OBOT and its parent company, CGIG, objected to an attempt by the Oakland City Council to prevent the handling of coal at the proposed shipping facility due to concerns about potential public health impacts. OBOT eventually sued, in an earlier lawsuit funded and backed by well-resourced coal interests, and a federal court found that the City had not provided enough evidence that shipping coal through a pollution-burdened community would present a substantial danger to the people who live there, as required by contract.
While that dispute over coal was brewing with the City, OBOT signed a new contract to lease this City-owned land in February 2016, and promised to commence construction on the proposed bulk and oversized terminal and associated rail on that land no later than August 14, 2018. OBOT and the City agreed the project would move forward notwithstanding the dispute over coal. However, OBOT failed to take any steps to meet that deadline.
After the deadline to commence construction passed on August 14, 2018 without any construction, or even the precursor steps to construction, the City invoked the relevant contract provisions and terminated the contract in late 2018. OBOT responded by refusing to vacate the land and sued, claiming incorrectly that the City’s actions related to the question of whether coal could be transported through the terminal extended the contract’s deadlines.
Thus, instead of returning the land to the City, OBOT and its affiliated rail company OGRE filed the current lawsuit alleging breach of contract against the City of Oakland in Alameda County Superior Court in 2018. The City filed its own breach of contract lawsuit against CCIG and OBOT to regain possession of the West Gateway based on the City’s termination of OBOT’s Ground Lease. The lawsuits were consolidated and a bench trial that just concluded was held. Closing arguments were presented on October 11, 2023 and the Court issued its proposed decision on Friday, October 27th.
While OBOT blamed its inaction on the City, the evidence at trial clearly demonstrated that OBOT’s failure to meet the contract deadline was the result of its own flawed business decisions which were the root cause of its construction delays, not the City’s actions. Unfortunately, notwithstanding this evidence and the language of the contract making these deadlines mandatory, the Court concluded that OBOT should have been granted an extension of time.
The issuance of the proposed statement of decision by the Court triggers a two-week time period for the City to file comments before the decision becomes final. After that, the Court will decide on the appropriate remedy. After that process concludes the City of Oakland can file an appeal if it chooses to do so.
The West Gateway Ground Lease at issue in this lawsuit is the latest in a series of related development contracts. Previously, in 2013, the City entered into a Development Agreement with OBOT’s parent company, CCIG. The agreement granted CCIG and OBOT rights to develop a parcel of public land adjacent to the Port of Oakland and the San Francisco Bay Bridge. The Development Agreement expressly authorized the City to adopt new regulations and apply them to OBOT’s development if the City determined, based on substantial evidence and after a public hearing, that a failure to do so would be substantially dangerous to the health and safety of adjacent neighbors and others using, occupying, or surrounding the West Gateway.
In 2015, the City learned that OBOT was pursuing development of a bulk terminal that could ship coal. After studying the health and safety risks associated with handling coal at the terminal over a nearly year-long public hearing process, the City Council concluded that the evidence established that OBOT’s plans posed serious health and safety risks to West Oakland residents. As a result, in July 2016, the Oakland City Council adopted an Ordinance and Resolution prohibiting the handling of coal at the West Gateway.
Shortly thereafter, OBOT filed suit in federal court to invalidate the Ordinance and Resolution. The federal trial court ruled in OBOT’s favor and the Ninth Circuit Court of Appeals affirmed, invalidating the City’s Resolution that applied the ordinance to OBOT. The Court concluded that the evidence before the Council at the time it passed the Resolution did not meet the standard required by the Development Agreement but acknowledged that the City could choose to enact a new Resolution based on a different record if it chose to do so; to date the City has not passed a new Resolution.
The litigation in Alameda Superior Court involved the subsequent West Gateway Ground Lease, the City and OBOT signed on February 16, 2016, and that contract’s construction deadlines. The City and OBOT signed that Ground Lease with the express acknowledgement that the City could enact the coal legislation and that OBOT also intended to challenge it. The parties agreed to move the project forward anyway. Unfortunately, OBOT chose not to commence or even begin planning for the construction to meet the August 14, 2018 deadline spelled out in the lease. The dispute in this trial focused on the question whether OBOT was entitled to an extension of the contract deadlines in light of the City’s actions with respect to coal.
The evidence presented at the recent trial revealed that the reason OBOT failed to take any steps to fulfill its contractual obligations was not because the City had done anything to prevent it from moving forward with the project. Rather, unbeknownst to the City, OBOT had made a deal with a potential sublessee that was owned by Kentucky coal interests before OBOT even signed the Ground Lease. That potential sublessee paid OBOT and CCIG more than $19 million over time for the exclusive rights to enter a sublease, but then chose to await the outcome of the federal litigation over the City’s attempt to prevent the storage and handling of coal at the proposed terminal before committing to moving forward with the project. Even after that federal litigation was resolved in May 2018, OBOT and its potential sublessee still took no steps to commence design or construction of the terminal or rail, instead they spent the summer negotiating with each other over money. As a result, by the August 14, 2018 deadline, no construction had begun.
Once the Court issues a final decision, assuming the Court does not revise the outcome in response to the parties’ comments, the next phase of the trial will focus on OBOT’s remedy. To date, OBOT has asked the Court to impose damages on the City and to keep possession of the land. If OBOT keeps possession of the land, it will be required to comply with all the other requirements of the contract, which to date it has not demonstrated the ability to do.