City Says Coal Terminal Lease Is Dead; Tagami Threatens New Suit
In a dramatic new challenge to developer Phil Tagami’s plan to build a marine coal terminal in West Oakland, the City of Oakland has given notice that he will soon lose his 66-year lease on the West Gateway for failure to meet critical milestones for beginning construction. Although Tagami’s lawyer asserts that the lease has not been terminated, City Attorney Barbara Parker notified Tagami that the lease will automatically terminate on November 22, 2018 without any further notice.
In response, Tagami is threatening a new lawsuit against the City demanding $26 million in damages and a court order giving him a two-year reprieve on meeting his deadlines under the lease. On October 19, Attorney Barry Lee of the megafirm Mannatt Phelps sent the City a 51-page letter arguing that Tagami’s delay in getting the project underway is entirely the City’s fault. Under state law, the City has until December 3 to consider Tagami’s demands before Tagami can file suit.
On November 13, Tagami’s company Oakland Bulk and Oversized Terminal LLC (OBOT) issued a media release warning that the City “may soon find itself in court, again, over its abuse of power in seeking to block the approved reuse plan for the former Oakland Army Base.” OBOT charges that City officials knew all along that coal was the most likely anchor commodity for the proposed marine terminal and suggests that City Attorney Barbara Parker and staff may have kept information about a 2012 report as well as the developer’s recent settlement offers from the City Council.
City: Developer “had years to move the project forward”
In February 2016, even as the battle raged over the health and safety impacts of building a coal terminal, the City and OBOT signed a 66-year ground lease giving Tagami full control of the West Gateway for development of a marine bulk commodity export terminal. The lease required Tagami to begin construction within 6 months.
The City did not enforce the lease provision during the ensuing period of federal litigation. The developer’s first lawsuit resulted in U.S. District Court Judge Vince Chhabria’s May 2018 order invalidating the City’s resolution applying a new ban on coal storage and handing to the proposed terminal on grounds that the City had not gathered sufficient evidence to show that the ban on coal was necessary to protect public health and safety. The City and intervenors Sierra Club and San Francisco Baykeeper have appealed Judge Chhabria’s decision and are expected to file their opening briefs in the Ninth Circuit on December 10.
The new dispute over the lease raises different issues not addressed in the federal suit.
“This isn’t about coal. This is about the developer’s failure to meet its obligations and perform the work it agreed to do. [The developer] had years to move the project forward and has used every excuse in the book to justify its failure to perform,” City Attorney Barbara Parker said in a statement.
On September 21, the City sent Tagami a letter giving him 30 days to catch up on his obligations or work out an extension. Tagami’s attorney responded on October 19 with the $26 million notice of claim on behalf of OBOT and Oakland Global Rail Enterprise (OGRE). OGRE is an OBOT-affiliated rail shuttle operation that is part of Tagami’s plan for the coal export facility.
Supporters of the City’s efforts are hoping the termination of the lease will mark the end of the Oakland coal terminal, but the fusillade from Tagami’s lawyers indicates that more litigation is likely.
“Unless Tagami’s coal industry backers decide to pull the plug, Tagami could tie up the future of the West Gateway for years to come,” said lora jo foo of No Coal in Oakland. “We are glad the City has taken a firm stand against this toxic project in the face of threats from high-priced lawyers working for the coal industry.”
Tagami: City Knew Coal Was Likely
The 51-page notice of claim and OBOT’s press release present a slick narrative suggesting that the City knew all along that coal would be the most likely commodity to anchor the terminal.
The claim includes a long background history from Tagami’s perspective. Tagami’s story begins in 2008 when Tagami proposed developing a marine terminal on the West Gateway section of the old Oakland Army Base, now City property. Tagami’s story stresses that the plan was heralded as an environmental as well as economic boon to the community:
“The Oakland Army Base is uniquely situated with its immediate proximity to both a deep-water port and existing rail capacity… [so that] transporters of bulk commodities will not have to rely on trucks for transportation, which would remove truck traffic and long lines of 18-wheelers queued up and idling in and around the facility and the corresponding diesel emissions that inundate the surrounding community.”
The letter portrays the terminal’s success as a long shot that “largely hinged on the ability to identify and secure the commitment of a commodity provider with long-term needs for the processing and handling capacity this terminal would provide over its 66-year useful life.” … “’obtaining a firm commitment of patronage is mandatory, but nearly impossible before committing to erecting facilities.’” The developer says he met this daunting challenge by securing binding contracts with “just such a commodity provider.”
The developer claims that the City knew all along that the only commodity provider likely to fill this role would be a coal company based on a report by the Tioga Group allegedly commissioned by the City in 2012. NCIO has not yet seen the report and has been unable to verify the developer’s characterization of the report’s purported conclusion that the project
faced a competitive global market for the handling of bulk commodities and would require a commodity willing to invest decades and hundreds of millions of dollars to the long-term success of both the rail and terminal operations over the Project’s 66-year life, noting that only one commodity at the time, coal, commanded a requisite share of the global market for such a facility.
The developer claims that the project was then sabotaged, starting in 2015, by the elected Mayor and City Council members responding to special interests for “political” reasons. According to the developer’s spin, the Mayor and City Council reneged on the City’s commitments to the project, first by banning the project’s inclusion of coal and, later, after a federal judge invalidated the ban, by bringing the project to a standstill by, among other things, failing to provide a guarantee that termination of Tagami’s lease would not interfere with the rights of any subtenants. The claimants assert that the City’s pattern of misconduct has cost the claimants millions of dollars and put the project’s completion in jeopardy.
What’s Wrong With This Picture
Effective lawyers tell good stories, but this yarn has a few holes that stand out even at first glance.
First, the Tioga report, according to a document filed in 2016 by the developers, was not commissioned by the City but by the Community and Economic Development Agency (CEDA), a redevelopment agency that was officially dissolved along with 400 other redevelopment agencies across the State on February 1, 2012 by an act of the State Legislature. In 2012, the City took over the redevelopment of the Oakland Army Base after CEDA dissolved but Tagami’s claim letter does not assert and provides no evidence that City officials ever received or reviewed the Tioga report.
Second, on numerous occasions between 2012 and 2015 during a period when the City allegedly knew that a coal producer would most likely fill the role of Tagami’s “essential partner,” Tagami painted a very different picture both publicly and privately. City Councilmember Dan Kalb reportedly told the Bay Area News Group that Phil Tagami assured him that coal wouldn’t be shipped through Oakland terminals when he was awarded the development rights to the city-owned land in 2012.
“He said it to my face,” Kalb said. “He said, ‘Dan, climate change is the premiere issue of the day. I care very much about my children and I would never let coal go through any of my property or terminal.’ And he was very passionate about that.”[1]
Later, Tagami wrote in a December 2013 newsletter that the developers’ plans did not include “the pursuit of coal-related operations at the former Oakland Army Base.” “It has come to my attention that there are community concerns about a purported plan to develop a coal plant or coal distribution facility as part of the Oakland Global Project,” Tagami wrote. “This is simply untrue. The individuals spreading this notion are misinformed. CCIG is publicly on record as having no interest or involvement in the pursuit of coal related operations at the former Oakland Army Base.”
Pro forma spreadsheets submitted by the developer to demonstrate the economic viability of the project did not include coal as one of the commodities.
Finally, the April 2015 Oakland Global Newsletter listed several commodities, not including coal, as potential goods to be shipped through the dry bulk terminal, and then added that “the specific mix of those commodities has not yet been determined.”[2]
End of the Road for the Coal Terminal?
Oakland residents are asking whether this is the end of the road for the coal terminal plan. Lawyers warn that a project is never dead until the developer gives up or exhausts his last appeal in court and Tagami is not at that point. Rather, Tagami hopes to beat the Ninth Circuit appeal of Judge Chhabria’s decision and, with his new suit, persuade a state court to force the City to reinstate his lease, conduct no further environmental review, and give him an extension of at least two years to meet OBOT’s obligations under the lease.
Even if the courts grant his every wish, it is not clear that Tagami will be able to build a coal terminal. Tagami’s partner in the project, Bowie Resource Partners has stumbled financially in recent years. Bowie abandoned an initial public offering in 2016 and, in 2017, failed to float a junk bond for $500 million that would enable it to merge with Murray Energy, the largest deep mine coal company in the United States. After 10 days in which Wall Street showed no interest in the bond, the offering was withdrawn and Murray walked away from the deal.
All this raises question about who will lend the developers the money to build a coal terminal.
“The idea that any knowledgeable investor would lend $250 million to build a marine terminal dedicated to coal in 2018 is absurd,” Ted Franklin of No Coal in Oakland told the East Bay Times. “They say they’re not interested in filing another suit or fighting more with the city, but this looks more like an attempt to blame the inevitable collapse of the financing of the terminal on the City. Tagami has never identified any private investors willing to back the terminal.”
The most recent shuffle in Bowie’s boardroom does not suggest that Bowie is in a strong position to fund the Oakland effort. Bowie cut loose its former president John Siegel, who presided over the efforts to situate a coal terminal in Oakland, moved its headquarters to Utah, and changed its name to Wolverine Fuels LLC. Terminal Logistics Solutions, the 100% owned subsidiary of Bowie that had an option to sublease the West Gateway and operate the marine terminal, was dissolved, only to be replaced in OBOT’s plan by Insight Terminal Solutions LLC, whose executive chairman is none other than John Siegel. ITS took over and rebranded TLS’s website.
“Oakland’s termination of Tagami’s lease is a major and significant development,” commented Steve Masover of No Coal in Oakland. “It may not be the end of the coal terminal, but it may be the beginning of the end.”
[1] Bay Area News Group, “Oakland City Council to Have Public Hearing on Exporting Coal,” Bay Area News Group (July 17, 2015) http://www.insidebayarea.com/breaking-news/ci_28499049/oakland-city-council-have-public-hearing-exporting-coal
[2] The Oakland Global website formerly posted this newsletter on its website at http://oaklandglobal.com/assets/April_2015.pdf. As of July 7, 2017, the item can no longer be found at this address.