Judge Close to Decision in Oakland Coal Ban Case

Demonstration before pre-trial hearing, January 10, 2016 | Photo Credit: Michael Eisencher

JUDGE MAY CALL OFF FINAL HEARING NOW SET FOR APRIL 5

UPDATE (March 30): Judge Chhabria has CANCELLED the hearing first scheduled on March 28 then moved to April 5. His ruling in OBOT v City of Oakland will be issued without holding further hearings. He could issue his written ruling at any time, in April or later.

United States District Judge Vince Chhabria is close to a decision in the case seeking to overturn the City of Oakland’s ban on coal storage and handling. In an order posted late last week, Chhabria rescheduled the post-trial hearing date from March 28 to April 5 while notifying the parties that he is “tentatively of the view that a hearing will not be required.”

The order states that the judge will aim to notify the parties this week on whether the April 5 hearing will be needed. The only reason for the hearing would be to resolve lingering questions in the judge’s mind so his tentative view that a hearing will not be required indicates that his mind is all but made up.

The order contains no hint as to which way he will rule and could be consistent with a decision in favor of the City of Oakland or in favor of Oakland Bulk and Oversized Terminal LLC (OBOT). OBOT brought the suit with the financial backing of Bowie Resource Partners, Utah’s largest coal producer, that hopes to own and operate a marine terminal in West Oakland for 66 years.

As he mulls over his decision, Chhabria has on his desk over 300 pages of briefs, the transcript of the 3-day trial that took place in January, and thousands of pages of exhibits.

Because there are three claims in the case, the decision could take many directions. According to OBOT, these are the issues raised by the three claims:

Did the City place an undue burden on interstate commerce by prohibiting storage and handling of coal in Oakland and thus violate the Commerce Clause of the United States Constitution?
Is the City’s ordinance preempted by any of three federal laws: the Interstate Commerce Commission Termination Act, the Hazardous Materials Transportation Act, or the Shipping Act of 1984?
Did the City breach its contract by adopting the ordinance without “substantial evidence” that failure to prohibit the storage and handling of coal would result in substantial danger to the health and safety of West Oakland residents, workers at the site, and the thousands of commuters who pass through the adjacent Bay Bridge toll plaza each day?

The City of Oakland and intervenors Sierra Club and San Francisco Baykeeper are optimistic that the judge will decide all three questions in their favor and uphold the ordinance.

OBOT’s Commerce Clause and preemption claims are based solely on federal law and were the subject of dueling motions for summary judgment that the judge declined to decide prior to holding a trial on the state law claim for breach of contract. (NCIO provided a brief summary of the issues at the January 10 summary judgment hearing in a handout which you can access here.)

But here is where things get complicated.

If Judge Chhabria decides that the City did not breach its contract with the developers, he will then be required to consider whether either of OBOT’s federal claims is valid. There is no need for the Judge to consider the federal claims if the City loses on breach of contract, because the City’s ordinance will be struck down if OBOT succeeds with any one of its claims. By declining to rule on matters of federal law in advance of the trial, the judge has signaled that he will avoid making decisions beyond the minimum necessary to decide the case.

If the City loses, the consequences will be very different depending on whether the court bases its decision on one of the federal claims or the breach of contract claim vis-à-vis “substantial evidence.”

A decision based solely on the breach of contract claim would give the City an opportunity to gather more evidence in support of the ordinance to fill any gaps identified by the court before adopting a new ordinance identical or similar to the one invalidated by the court. If the developer sued a second time, the City would have an opportunity to present a stronger case by including the newly-gathered supporting evidence.

On the other hand, an adverse decision based on one of the federal claims would require the City to look to the Ninth Circuit Court of Appeal for relief. Oakland would have no “do-over” option if the case is decided against the City on one of the federal claims.

How the City Can Win

When the judge ordered the case to trial solely on the breach of contract claim, he implicitly ruled that there were no factual disputes that would affect his ruling on the cross motions for summary judgment that had been brought on those claims. Attorney General Xavier Becerra, on behalf of the State of California, filed a well-crafted amicus brief in support of the defendants on those claims. Assuming Judge Chhabria agrees with the AG’s reasoning, his resolution of the case will turn on the state law breach of contract claim.

The judge held a trial on the breach of contract claim to resolve facts to determine whether the City had “substantial evidence” of the risks to health and safety of workers and residents in West Oakland when it adopted the ordinance.

At the heart of the breach of contract claim is the City’s alleged violation of Section 3.4.2 of the Development Agreement. This section of the contract between the City and OBOT states that, although Oakland’s land use regulations were frozen in place as of the 2013 date of the Development Agreement, the City retains the right to apply new regulations to the property for the protection of public health and safety provided the “City determines based on substantial evidence and after a public hearing that a failure to do so would place existing or future occupants or users of the Project [or] adjacent neighbors … in a condition substantially dangerous to their health and safety.”

Although the City conducted a public hearing and amassed a trove of evidence in support of its ordinance, the “substantial evidence” test included in Section 3.4.2 is more demanding than the “rational basis” test that customarily applies to legislation. Under the “rational basis” test, courts consider whether a regulation is rationally related to a legitimate government interest. Virtually every law enacted passes the test.

As reported by the East Bay Express, Bowie spent $1.75 million or more to enable OBOT to hire a high-profile law firm and team of experts to knock the coal ordinance off its “substantial evidence” perch. During the three-day trial in January, OBOT’s counsel repeatedly attacked the validity of the methods and conclusions of Environmental Science Associates, authors of a report commissioned by the City and relied upon by the City Council. The City called its own witnesses who defended the City’s conclusion it had “substantial evidence” to act.

In post-trial papers, the City has objected to the testimony of OBOT’s experts on grounds that they were improper attempts to introduce evidence, including facts and expert opinions, that were not before the City Council when it enacted the coal ordinance in 2016. The City is basically asking the court to throw out most of the evidence presented by OBOT at trial on grounds that OBOT is asking the court to look at new evidence outside the City’s record, reweigh the evidence that was in the record, and come to its own independent conclusions about the facts in complete disregard of the deference that courts are expected to show towards a municipality’s own process.

If Judge Chhabria agrees with the City on the admissibility of OBOT’s evidence, OBOT will have no realistic chance of prevailing on the breach of contract claim.

Does the City Have a New Silver Bullet?

In this case, the environmental intervenors filed an unusual motion for judgment after trial that asserts, in effect, that the trial of the state law claim for breach of contract should never have taken place. According to the motion, California’s development agreement law, Government Code section 65866, entitles the City to judgment as a matter of law on the breach of contract claim because it renders the section of the Development Agreement that requires “substantial evidence” either inapplicable to the City’s ban on coal storage and handling or invalid.

At the summary judgment hearing six days before the trial began, Judge Chhabria asked the City’s attorney why Oakland had not argued that the provision in the Development Agreement that the City allegedly violated was invalid, to the extent it conflicts with the State’s development agreement law. Government Code Section 65866 provides that a development agreement “shall not prevent a city … from applying new rules, regulations, and policies which do not conflict with those rules, regulations, and policies applicable to the property.”

The City did not have a clear response on the spot, but, on the first day of the trial, an attorney representing Sierra Club announced that the intervenors would indeed be bringing a motion for judgment based on Section 65866. Judge Chhabria added the motion to the post-trial briefing schedule to the dismay of OBOT’s legal team. If the motion succeeds, it, like the defendants’ omnibus evidentiary objection, will all but wipe out the evidence presented at trial by OBOT.

Sierra Club engaged Altshuler Berzon LLP, a highly regarded San Francisco-based law firm, to brief the intervenors’ Section 65866 argument. In their brief, Sierra Club and SF Baykeeper argue that the coal ordinance does not “conflict” with the land use rules applicable to the West Gateway property in 2013 when the Development Agreement was signed, so either Section 3.4.2 does not even come into play or it is invalid.

OBOT has raised a host of procedural objections to the motion, claiming that the intervenors’ argument (1) was “waived” because it was not brought forward over a year ago; (2) should not be considered because OBOT has not had an opportunity to be “fully heard” on a relevant issue; (3) was already decided when the court rejected an early motion to dismiss brought by the City; or, (4) is outside the scope of what the intervenors are allowed to raise as intervening parties. The intervenors’ reply brief provides sharp responses to OBOT’s “medley of procedural objections.”

When it comes to the substance of the motion, the motion evokes two diametrically opposed views of the “vested rights” that the Development Agreement conferred on the developers.

OBOT claims that any restriction on the products it can ship through the marine terminal that was not spelled out explicitly in the Development Agreement or other contracts with the City is in “conflict” with the land use rights guaranteed to it by its authorization to operate a bulk goods terminal.

The intervenors disagree.

“Arguing that a health and safety regulation like the Ordinance conflicts with OBOT’s general land use authorization is akin to arguing that prohibition on the sale of non-pasteurized dairy products conflicts with the rights of a grocery store or restaurant developer with a development agreement that predates the prohibition,” they contend. “OBOT is essentially arguing that all new regulations conflict with the regulatory framework in force at the time of a development agreement.”

Intervenors hope the judge will accept their analogy and see OBOT’s definition of “conflict” as overbroad.

There is a possibility that the judge will decide he has heard enough from the parties and will cancel the hearing on April 5. It would be unusual, however, to decide a motion like the intervenors’ Section 65866 motion without giving the party he is inclined to rule against a last chance to overcome his doubts about their argument.

The judge will eventually issue a full written decision, which could come at any time. If the hearing goes forward on April 5, it is highly likely to reveal how he will rule. However, nothing he says will be final until it is in writing.