Coal Trial Ends: Light at the End of the Tunnel?
Judge’s Decision on Who Broke the Lease Expected in October
On the 29th day of the OBOT v. City of Oakland trial, testimony ended today with the playing of a 2 hour 20 minute video deposition of Adam Rosen, an investment advisor who tried to raise money to save the floundering coal terminal project from collapse in 2018. Based on Rosen’s testimony about events in the summer and fall of 2018, lack of financing, rather than alleged City of Oakland sandbagging, appears to have doomed the project.
The City declared the lease terminated after the Developers failed to commence construction of a multi-commodity terminal and at least one of five rail improvements by the August 14, 2018 deadline set forth in the 2016 lease. The Developers assert that their failure to get construction underway resulted from delays caused by the City. They seek damages and reinstatement of their lease. The City seeks their eviction.
Coal executive John Siegel hired Rosen, a consultant at B. Riley Financial, during the final year of Siegel’s effort to build a coal export terminal in West Oakland. Rosen interacted extensively with Siegel and local developer Phil Tagami as Siegel sought a 66-year sublease from Tagami to build and operate a coal export terminal in West Oakland. Rosen’s testimony confirmed that Siegel never succeeded in raising the $250 million needed to build the terminal and never began construction.
When challenged a few days earlier on the lack of financing, Tagami’s partner Mark McClure testified that the project had $53 million lined up from the State of Utah. But, as No Coal in Oakland reported earlier, in 2018, the $53 million that the Oakland coal terminal developers hoped to tap was not earmarked for the Oakland project and could have been awarded to proponents of other infrastructure projects. Even if he could have counted on $53 million from the State of Utah, Siegel needed to line up another $200 million to construct the terminal.
As Rosen went to work trying to connect Siegel up with third-party lenders or investors, Siegel’s new company Insight Terminal Solutions (ITS) did not even have a sublease to secure its development rights in Oakland. Rosen testified that Tagami was very committed to Siegel but played no active role in raising money. Instead, Tagami insisted that ITS would have to pay off millions of dollars owed to OBOT by ITS’s predecessors (also run by Siegel) as well as additional millions for the privilege of entering into the sublease.
By mid-August 2018, Tagami expressed impatience in an email to Rosen and Siegel. Siegel had not met the agreed-upon deadline for signing a sublease and Tagami reminded Siegel that ITS would have to pay a $10,000 per day late charge as required under ITS’s exclusive negotiating agreement.
Events came to a head in September 2018. ITS’s sublease was executed but Tagami had not yet received the $6.6 million he was owed. On Thursday, September 20, Tagami sent an email stating that ITS’s sublease would be held in escrow until Tagami received payment – by Monday, September 24 at the latest.
Autumn Wind Lending, a hedge fund run by Vikas Tandon, wired the money on ITS’s behalf on September 24. But neither Rosen, nor his client Siegel, nor Siegel’s lender Tandon knew that the City had served a Notice of Event of Unmatured Default, the first step towards termination of OBOT’s lease, on September 21, three days before the wire transfer. Siegel had paid Tagami $6.6 million for the privilege of owning a sublease that the City had just declared potentially worthless. Siegel had just become indebted to Autumn Wind Lending for $6.6 million pursuant to a loan that, within a matter of months, would drive ITS into bankruptcy.
Tagami and McClure claim their hands are clean. They say the City’s Notice of Event of Unmatured Default was left under the door on Friday afternoon, September 21, and wasn’t found until Monday, September 24. However, OBOT’s lawyer wrote a “same day” response that was not copied to Rosen, Siegel, or Tandon.
When Rosen got wind of what happened, he sent an email to OBOT attorney Skyler Sanders saying, “Simply call me URGENT.” In the ensuing phone call, Rosen testified, “I’m sure there were expletives.” The OBOT lawyer’s detailed “same day” response to the City’s Notice fed his suspicions that OBOT had the Notice before the $6.6 million landed in OBOT’s account.
Rosen testified that, from the time negotiations on the sublease began through September 24, 2018, no construction took place and no construction drawings that could be used to seek a building permit existed.
The direct and cross examination of Deputy City Administrator Elizabeth Lake also concluded prior to the screening of the Rosen deposition.
Superior Court Judge Noël Wise will hear closing arguments on October 11, 2023 and is expected to issue a decision on who broke the lease between Phil Tagami’s Oakland Bulk and Oversized Terminal LLC and the City of Oakland shortly thereafter. If Judge Wise rules in favor of the Developers, a second phase of the trial will follow to determine what remedy is appropriate. If Judge Wise rules in favor of the City, the Developers will be evicted, subject only to appeal.
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Photo credit: Michael from Calgary, AB, Canada, CC BY 2.0, via Wikimedia Commons
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What’s Next in the Litigation:
September 19, 2023 – 3 p.m.
The court will hear arguments on res judicata and force majeure
September 25, 2023
Each side shall file a proposed statement of decision before 9 a.m.
October 5, 2023
Each side shall file a response to the opposing side’s proposed statement of decision by close of business
October 11, 2023 – 9 a.m.
Closing arguments of up to 1 hour 20 minutes per side
October 13, 2023
Court will make clear whether there will be a phase two trial on remedy and, if so, will start phase two as soon as possible as the court has other trials scheduled that cannot be moved out