April 20 Court Date Looms Big In Oakland Coal Struggle

Next Thursday, April 20, U.S. District Court Judge Vince Chhabria will hear the first arguments in the historic courtroom battle between the City of Oakland and local developer Phil Tagami who wants to build a major coal export facility on the West Oakland waterfront.

The City of Oakland, Sierra Club, and San Francisco Baykeeper will face off against Oakland Bulk and Oversized Terminal LLC (OBOT), a corporate shell through which Tagami and his business partners hold a 66-year lease and rights to develop and operate a marine terminal on the West Gateway portion of the former Oakland Army Base.

In December 2016, OBOT sued the City in an attempt to overturn the City’s ban on coal storage and handling at the facility. Represented by Quinn Emanuel, the second richest law firm in the United States, Tagami is arguing that the ban violates his Constitutional and contractual rights and is preempted by federal law.

In 2015, investment banker Jeff Holt put together a hush-hush scheme involving coal mining company Bowie Resource Partners, four Utah counties, and prospective private investors that would raise $250 million to construct the terminal and promise guaranteed access to export millions of tons of Utah coal from Oakland each year.

After news leaked that $53 million worth of Utah public money was involved, the City of Oakland held a public hearing and commissioned a study of the health and safety impacts of the proposed coal terminal.  Alarmed by the magnitude of those impacts, the City Council passed an ordinance banning large-scale storage and handling of coal within Oakland and a resolution explicitly applying the ban to Tagami’s project.

The Court will hear several motions attacking the suit on April 20. As a preliminary matter, Sierra Club and San Francisco Baykeeper will argue a motion to permit them to participate as “intervenors” in the lawsuit. If the Court grants the environmental groups intervenor status, they will be able to engage as full parties in the effort to defeat OBOT’s lawsuit. OBOT’s lawyers have asked the Court to keep Sierra Club and Baykeeper out.

Assuming the motion to intervene is granted, the Court will then hear arguments on two motions to dismiss the lawsuit–one by the Sierra Club and Baykeeper seeking dismissal of OBOT’s claim that its constitutional rights were violated by the City’s ban because it discriminates against out of state commercial interests and unduly burdens interstate commerce and a separate motion by the City of Oakland seeking dismissal of Tagami’s claim that the City’s actions breached his contracts with the City.

If the City’s and the environmental groups’ motions to dismiss are granted, the case will be considerably narrowed, making Tagami’s path to victory more difficult at the district court level. Judge Chhabria could, however, be just the first of many judges to weigh Tagami’s argument that the Constitution and federal law forbid localities from interfering with expansion of fossil fuel transportation infrastructure.  The controversy could ultimately wind up before the United States Supreme Court years down the road.

Environmental Groups Take Aim at Constitutional Claim

The Sierra Club/Baykeeper motion asks the court to dismiss two of OBOT’s Constitutional claims:  that the ban on coal discriminates against out-of-state interests in favor of California interests and that it places an undue burden on interstate commerce.  These claims are based on the Commerce Clause of the U.S. Constitution which grants Congress authority to regulate interstate commerce.  Over the years, the courts have developed an “extra-textual” legal theory that the Commerce Clause’s grant of authority to Congress also implies certain limits to regulation by the States. These limits are referred to as the “dormant Commerce Clause” or “negative Commerce Clause” because they are not set forth in the text of Constitution but have arisen as a result of judicial inference.

The Sierra Club/Baykeeper motion says that OBOT’s complaint provides insufficient factual allegations to support either of its claims and, thus, in legal terms, “has failed to state a claim upon which relief can be granted.”

The intervenors state they “are at a complete loss” to interpret OBOT’s first claim that the ordinance discriminates against out-of-state companies in favor of local interests because the complaint does not identify any in-state economic interests that will benefit.  Oakland’s effort to maintain a clean and healthy environment in West Oakland and prevent the burning of massive amounts of coal overseas may impact Utah’s coal industry, but Sierra Club/Baykeeper argue this impact does not suffice to show an intent to discriminate against businesses from Utah or any other state in favor of local businesses.

OBOT’s second Commerce Clause claim is simply that the coal ban imposes an “undue burden” on interstate commerce.  Even if a state or local law does not discriminate against out-of-state interests in favor of local one, it may still violate the Commerce Clause if the burden imposed on interstate commerce is “clearly excessive” in relation to the purported local benefits.  Generally, courts will uphold even burdensome regulations enacted in the interest of local health and safety so long as they are not pretextual or flimsy.

Sierra Club/Baykeeper’s motion does not call on the court to weigh the burden versus the benefit at this early point in the case but instead argues that OBOT’s complaint has failed to establish the type of burden addressed by the dormant Commerce Clause.  “The flaw with this claim is that OBOT confuses market-level burdens on the free flow of goods in interstate commerce with burdens on a particular company,” they say. “The dormant commerce clause is only concerned with the former, not the latter.” In short, Sierra Club/Baykeeper say, “OBOT’s undue burden claim should be dismissed because if fails to allege any burden on the interstate market in coal.”

City Aims to Knock Out Contractual Claim

The City’s motion to dismiss focuses on OBOT’s claim that, through its contracts with the City (in particular a development agreement signed in 2014), it obtained a vested right to ship any and all bulk goods including coal and petcoke through the West Gateway marine terminal.

The City argues that none of the agreements between the City and OBOT contains language conferring a right to ship “any and all” bulk goods or a specific right to ship coal and coke through the terminal.  OBOT argues that it was the City’s obligation to include language in the agreements if it wanted to impose any limitations on the commodities to be shipped.

The City also argues that, if the ordinance is understood to be a land use regulation as OBOT contends rather than a health and safety measure as the City contends, the contractual claim must be dismissed because OBOT failed to file its lawsuit within 90 days of the ordinance’s enactment in accordance with California law.

After the motions have been argued, Judge Chhabria will also conduct a case management conference (CMC).  A CMC is a planning session in which the Court can issue orders that affect the timeline and sequencing of the case.  This CMC may shed light on whether the Court will allow the wide open discovery (depositions, document requests, etc.) that Tagami’s lawyers seek or more limited discovery that the City contends is proper.

The environmental groups are represented by Colin O’Brien, Adrienne Bloch, and Heather M. Lewis of Earthjustice.  Sierra Club is also represented by Jessica Yarnall Loarie, Joanne Spalding, and Daniel P. Selmi of Sierra Club.

The City of Oakland is represented City attorneys Barbara J. Parker, Otis McGee Jr., and Colin Troy Bowen and by Kevin D. Siegel, Gregory R Aker, and Christopher M. Long of Burke Williams & Sorensen LLP.

OBOT is represented by Robert P. Feldman, David Myre, and Meredith M. Shaw of Quinn Emmanuel Urquhart & Sullivan LLP.