OBOT’s Rough Road to Success

Editor’s Note:  The analysis that follows first appeared on our website on December 13, 2023, after Judge Noël Wise issued her Proposed Statement of Decision on Damages in the state court lawsuit, OBOT v. City of Oakland.  See “Chump Change or Steep Road to Coal: Court Narrows Tagami’s Options.” It explains reasons why OBOT might be better off abandoning the project, even though OBOT’s attorneys represented in court that the developers preferred restoration of their lease (and right to build a coal terminal) to accepting a monetary remedy.

In their final pitch, the developers sought an opportunity to choose between $159.6 million to walk away or $24.6 million if they want to go ahead with the project. Instead, the court offered a choice between a much smaller monetary award or an opportunity to move ahead with the project – with no option to mix and match.

Recent history shows the wiser course might be to take the money and run.

The late John Siegel, the coal executive who collaborated with Phil Tagami in efforts to bring a coal terminal to Oakland, reportedly threw $27 million at the West Oakland bulk terminal project before his Insight Terminal Solutions (ITS) collapsed into bankruptcy. Picked up out of bankruptcy by hedge fund Autumn Wind Lending, ITS now holds a 66-year sublease with exclusive rights to build and operate the terminal.

Walking away might not be too painful for Tagami. He has already made $19.5 million by selling Siegel ten options and a sublease to develop the property. But for Vikas Tandon, CEO of Autumn Wind and frontman for wealthy hedge fund operator Jonathan Brooks, it might be a painful loss. Court records show Autumn Wind invested an estimated $17 million of its own to bail out and later acquire ITS as Segal’s grip on the Oakland project faltered.

As hard as it may be to write off the loss, Tandon’s effort to build a terminal faces major hurdles.

First, ITS is just a shell corporation without any experience constructing or operating a terminal. ITS would have to find a buyer willing to gamble on the terminal’s future prospects. A 2012 draft report commissioned by the City of Oakland stated, “The economic prospects for the business that might be conducted using the OBOT and OGRE facilities are limited and fragile.”

Second, it will take an estimated $250-300 million or more to build the terminal. Even the supposed cornerstone $50 million of funding from the State of Utah is not, and never has been, legally committed to this specific project. Prospective investors have no assurance that the money from Utah will materialize. The money is in a suspense fund that could be awarded to other projects, including construction of a potential coal export facility in Ensenada, Mexico. Environmental groups based in Utah are prepared to bring credible legal challenges to the fund’s use on any out-of-state infrastructure project.

Third, although the City of Oakland is bound to honor the terms of the ground lease executed with OBOT in 2016, the community is not. The first thing a prospective investor will come across in a simple online search is the fierce resistance to coal that derailed OBOT in 2016 and threatens to disrupt any attempt to revive plans for a coal terminal. Years ago, a robust and broad-based coalition drove the Bank of Montreal to abandon its plan to sucker pension funds into making unsecured loans to the developers.

Fourth, the City has not exhausted its options to keep coal out of Oakland. The federal court decided in 2018 that the City’s ban on coal at the West Gateway site violated the developers’ rights because the City had not yet gathered sufficient evidence of dangers to the health and safety of workers and nearby residents. The decision left the door to a “re-do” wide open, so long as a new vote to prohibit storage and handling of coal at the West Gateway is based on more compelling evidence. A recent study has filled a crucial gap in the earlier case by quantifying the amount of coal dust that blows off of passing coal trains with the same grade of Utah coal that the developers propose to ship through the West Gateway.

Meanwhile, a 2023 decision by the California Court of Appeal (Discovery Builders v. City of Oakland) has called into question the rationale of the federal court’s ruling in 2018 which assumed that the development agreement could restrict the City’s police power to regulate health and safety. Judge Chhabria applied a stricter standard derived from contract interpretation, but the recent Court of Appeal decision holds that a City cannot narrow its police power by contract.

Finally, the City may be required to conduct further review of the terminal project under the California Environmental Quality Act. Tagami has repeatedly insisted since the 2015 revelation of his dalliance with the coal industry that the perfunctory Initial Study/EIR Addendum prepared in 2012 was the City’s last chance at CEQA review. But this may not prove to be the case. The 2012 study described a project that would reuse an existing terminal that could not handle coal.

CEQA review could consider many factors – including greenhouse gas impacts, pollution of Bay waters, noise, and blockage of key intersections by increased train traffic – that the City Council could not consider when it was considering whether to ban coal under the narrow criteria set forth in the development agreement. Environmental lawyers say that a coal terminal could easily be blocked under full CEQA review and, if there is a proper trigger for new CEQA review, the challenge could be undertaken by a non-governmental organization.

Despite the numerous potential obstacles to success, Tagami and Tandon may elect to proceed with a good plan, a bad plan, or no plan at all. The easiest way to clear away some obstacles would be to enter into an ironclad agreement not to bring coal to Oakland, but the developers’ refusal to rule out coal apparently killed the settlement framework negotiated in 2022