City of Oakland, Sierra Club and SF Baykeeper Move to Dismiss Coal Industry’s Lawsuit As Trial Looms

  • Grand Lake Theater marquee deploring Tagami's lawsuit against the City of Oakland
The City of Oakland’s motion may be found by clicking here and the Sierra Club/S.F. Baykeeper’s motion, by clicking here.

On Tuesday, December 5, the City of Oakland and Sierra Club/S.F. Baykeeper filed two powerful motions calling on U.S. District Court Judge Vince Chhabria to dismiss developer Phil Tagami’s lawsuit against the City of Oakland, Oakland Bulk & Oversized Terminal, LLC vs. City of Oakland.  The lawsuit is being financed by Bowie Resource Partners, a Kentucky-based coal company with plans to ship tens of millions of tons of Utah coal through Oakland if Tagami’s lawsuit is successful.

The defendants’ two motions for summary judgment argue that there is no need for a trial in the case because there are no relevant factual disputes to be resolved and the City is entitled to prevail as a matter of law.

The defendants’ motions come on the heels of a similar but opposite motion filed by Phil Tagami’s legal team in November.  Judge Vince Chhabria will hear the dueling summary judgment motions on January 10, 2018, six days before the case is set to go to trial.

Summary judgment is a procedure by which some or all of a case is decided in favor of one side or the other prior to trial on grounds that there are no contested facts that would affect the outcome.

Oakland Bulk & Oversized Terminal, LLC (OBOT), the plaintiff in the suit, is the corporate shell through which Tagami and his partners in California Capital and Investment Group (CCIG) hold a 66-year-lease on a 35-acre corner of the former Oakland Army Base. The site near the Bay Bridge toll plaza is known as the West Gateway.

OBOT sued the City of Oakland last December seeking to overturn the City’s July 2016 Ordinance barring large-scale storage and handling of coal in Oakland.  OBOT says the Ordinance and its application to the West Gateway “violates the Constitution, is preempted by federal statutes, and the City’s application of that Ordinance breaches the Development Agreement between the City and OBOT as a matter of law.”

Not so, say the defendants in their motions.

The City’s Motion

The City’s motion begins with an account of Tagami’s scheming with coal company Bowie Resource Partners to bring coal to Oakland, recalling Tagami’s public proclamation in December 2013 denying any “purported plan to develop a coal plant or coal distribution facility as part of the Oakland Global project” as “simply untrue.”  Tagami alleged that “[t]he individuals spreading this notion are misinformed.  CCIG is publicly on record as having no interest or involvement in the pursuit of coal-related operations.”

But, outside of public view, says the City, Tagami “secretly pursued plans to bring millions of tons of unhealthy, dust-generating, spontaneously-combustible substances (i.e., coal and petcoke) to the terminal” through arrangements with Bowie Resource Partners and its wholly-owned subsidiary Terminal Logistics Solutions (TLS). In exchange for $1.2 million (the first of many payments by Bowie/TLS to Tagami), Tagami granted Bowie/TLS an option to sublease the West Gateway although OBOT had not yet leased the land from the City.  Under the plan, Bowie/TLS would own and operate the terminal, and Tagami’s OBOT would be its landlord.

Ban does not violate the agreement between the City and developers

The City’s legal argument focuses first on OBOT’s claim that the ban on storage and handling of coal at the West Gateway violated the 2013 Development Agreement (DA) between the City and the developers.  The City acknowledges that, under the DA, OBOT was free to develop a marine export terminal subject to the City land use laws that existed in 2013, but points to a provision in the DA that explictly permits the City to apply new laws to protect health and safety if certain conditions are met.

Specifically, in section 3.4.2 of the DA, the City reserved the right to apply new laws if, after a public hearing and based on substantial evidence, the Council found 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.”  The City contends that these conditions were met.

In 2015, the City began a public hearing process under section 3.4.2 to consider whether to impose new regulations to prevent substantially dangerous health and safety conditions.  The City’s brief sums up what happened next:

Throughout the nearly yearlong process, the City provided multiple opportunities for OBOT, its supporters, and the public to offer evidence and comments.  The City and third parties submitted extensive, substantial evidence showing that the storage and handling of coal and petcoke at the Terminal would create substantially dangerous health and safety conditions.  The conditions include both emissions of fugitive coal dust containing fine particulate matter, toxins, and heavy metals–in a West Oakland community already disproportionately impacted by pollution–as well as fire and explosion risks.  In response, OBOT only offered unsubstantiated contentions, aspirational assurances, and contradictory claims that the Terminal plans were so uncertain that the City should not bother evaluating the health and safety impacts.

Weighing in favor of the ban on coal storage and handling were extensive testimony and a number of expert reports analyzing the Terminal’s health and safety impacts. Recounting the voluminous evidence presented during the City’s process, the City argues that its ban on coal handling and shipping was based on “more than enough substantial evidence” and that the court should look no further or consider the testimony of expert witnesses dredged up by OBOT after the City’s hearing process came to an end.

Ban not preempted by federal laws

The City also argues for dismissal of Tagami’s claims that the City’s action is preempted by three federal laws–the Interstate Commerce Commission Termination Act (ICCTA), the Hazardous Materials Transportation Act, and the Shipping Act of 1984.  Federal preemption is based on the Supremacy Clause of the Constitution under which federal law takes precedence over state law and can deprive state and local governments from jurisdiction in areas that are deemed exclusively controlled by federal law.

ICCTA regulates the business and operation of the rail industry and contains an explicit preemption provision barring state and local governments from regulating “transportation by a rail carrier.”  OBOT argues that Oakland’s refusal to allow Bowie to ship coal by rail to Oakland where it can be loaded onto ships bound for Asia constitutes impermissible regulation under this provision.  The City responds that its ordinance was carefully crafted to regulate the “Owner or Operator of a Coal or Bulk Material Facility” and to prohibit “Storing and Handling” of coal at such a facility.  It doesn’t restrict what the Union Pacific and BNSF railroads or any other rail carrier may transport through Oakland, which the City concedes would be beyond its powers.

The City also disputes the claim that the Hazardous Materials Transportation Act preempts the City’s ban on storage and handling of coal.  The act expressly preempts only those state and local laws that impose conflicting shipping requirements on substances designated as “hazardous material” by the Secretary of Transportation.  The City argues that, because the act does not designate or regulate coal or petcoke as “hazardous,” the preemption provision doesn’t apply.

The Shipping Act of 1984 regulates agreements between ocean common carriers and marine terminal operators, with a focus on prohibiting certain discriminatory acts.  Unlike ICCTA and the Hazardous Materials Transportation Act, the Shipping Act contains no express preemption clause.  OBOT has advanced a novel claim that the City’s ban on coal is discriminatory.  The City argues that a health and safety regulation on storing and handling a potentially dangerous commodity that applies equally to all operators and carriers “simply gives no rise to an ‘unreasonable’ preference or prejudice.”

Sierra Club/SF Baykeeper’s Motion

The motion filed by Sierra Club and SF Baykeeper, defendant intervenors in the case, targets OBOT’s third major claim–that the Oakland’s ban on coal handling and storage violates the Commerce Clause of the United States Constitution.

The Commerce Clause simply grants Congress the power to regulate commerce between the states, but it has long been interpreted to imply that states may not unjustifiably discriminate against or burden the interstate flow of articles of commerce.  This doctrine is referred to as the “dormant Commerce Clause.”  As with many constitutional doctrines, the courts have set up a series of tests to determine whether a given action by a state or local government violates the dormant Commerce Clause.

Ban does not violate Commerce Clause

The intervenors argue that the City’s ban on coal storage and handling passes each of the tests and characterize OBOT’s arguments as “a futile struggle to fit a square breach of contract peg into any of the round holes of dormant Commerce Clause jurisprudence.”

The first test courts apply in dormant Commerce Clause cases is whether the Ordinance “directly regulates” or “discriminates against” interstate commerce.  The intervenors explains that “direct regulation” means “application of a state statute to commerce that takes place wholly outside of the State’s borders” such that “the practical effect of the regulation is to control conduct beyond the boundaries of the State.”  Oakland’s ban only applies to coal storage and handling activities taking place within the City of Oakland.

“[T]he ordinance does not have the effect of controlling conduct beyond the boundaries of the State.  It does not regulate any product or conduct outside the city limits, let alone in other states.  It does not regulate transportation of coal across state lines or even within Oakland; in fact, since it was enacted, coal trains have continued to run undisturbed through the City.” - Sierra Club/SF Baykeeper Brief

The intervenors also challenge OBOT’s claim that the city’s ordinance “discriminates against” interstate commerce or favors in-state interests.  Quoting the United States Supreme Court, they explain that “the modern law of … the dormant Commerce Clause is driven by concern about ‘economic protectionism–that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.”  The ordinance banning coal storage and handling protects no in-state competitors of out-of-state coal companies.

OBOT’s discrimination argument hinges on an exception in Oakland’s ban on coal storage and handling for non-commercial facilities using small amounts of coal or coke for “personal, scientific, recreational, or incidental use” and on-site manufacturing facilities that use coal or coke “as an integral component in a production process.”  OBOT complains that this exemption is a “blatant form of economic protectionism.”  Intervenors respond, “Oddly, OBOT’s argument appears to be that the Ordinance benefits these local entities at the expense of OBOT–another local entity.  But the Ordinance does not favor these entities at OBOT’s expense (or anyone else’s) because the undisputed evidence shows that these entities all consume coal or petcoke, and thus do not compete with marine terminal landlord OBOT or any out-of-state coal producers.”

The motion then tackles OBOT’s final dormant Commerce Clause argument, namely, that the City’s ordinance “unduly burdens” interstate commerce by interfering with national uniformity in railroad operations.  This claim is based on a separate prong of dormant Commerce Clause analysis that applies even if a state or local law does not “directly regulate” or “discriminate against” interstate commerce.

“The Ordinance has nothing to do with regulating railroads, and thus does not burden uniformity in national railroad operations,” say the Intervenors. The Ordinance “provides only that an ‘Owner of a Coal or Coke Material Facility‘ may not ‘(4) Load, unload, transload, or transfer any Cole or Coke … or (5) Otherwise Store or Handle any Coal or Coke.”  The intervenors say that “the Ordinance could not be clearer in exempting railroads from its ambit” pointing to a further provision in the Ordinance that explicitly states that the Ordinance does not regulate transportation of coal or coke by train or marine vessel through Oakland.

The intervenors cite undisputed evidence that 18 months after the Ordinance was enacted, coal trains that occasionally ran through Oakland continue to do so and that Bowie, which owns TLS and wants to export coal via the Terminal, continues to ship Utah coal through other California ports without interference from Oakland’s ban on coal storage and handling.

“Because the Ordinance does not burden interstate commerce, and any theoretical burden is outweighed by the Ordinance’s putative public health benefits, the Court should grant Defendants’ motion for summary judgment on this claim.”

At the end of their briefs, both the City and Sierra Club/SF Baykeeper adopt each other’s arguments, effectively joining them in moving for dismissal of the entire case before trial.  Briefing will continue until the end of the month. OBOT will file another brief on December 18 and the defendants will file their final brief on December 29.  If the judge fails to grant summary judgment to either side, the trial will begin in district court on January 16, 2018.

The City is represented by City Attorney Barbara J. Parker, Otis McGee, Jr., and Colin Troy Bowen of the Oakland City Attorney’s office and outside counsel Kevin D. Siegel, Gregory R. Aker, Timothy A. Colvig, and Christopher M. Long of Burke, Williams & Sorensen LLP.

The Sierra Club and SF Baykeeper are represented by Colin O’Brien, Adrienne Bloch, Heather M. Lewis, and Marie E. Logan of Earthjustice and Sierra Club is represented by in-house counsel Jessica Yarnall Loarie and Joanne Spalding, Loyola law professor Daniel P. Selmi, and James M. Finberg and Stacey M. Layton of Altshuler Berzon LLP.

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