Court’s Decision on Remedy Analyzed
Editor’s Note: What follows is a revised version of the analysis that appeared on our website on December 13, 2o23, 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.” The analysis has been revised to reflect changes between the proposed statement of decision issued on December 11 and the final decision issued on December 22.
This is a big loss for OBOT. 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 renew their efforts to develop a marine export terminal.
The largest part of OBOT’s $159.6 million damages claim consisted of “lost profits.” Most of the four-day trial on damages revolved around OBOT’s assertion that “but for” the City’s unlawful termination of its lease in November 2018, OBOT would have earned vast sums of money over the 66-year life of its lease.
Judge Wise rejected the lost profits claim on numerous independent grounds, making a successful appeal of her decision very unlikely. She noted that the development agreement and ground lease contain provisions that do not allow OBOT to receive incidental or consequential damages, including those for “lost profits, loss of opportunity, lost revenues, or similar consequential damage[s].” Under the terms of the lease, if the City breached the agreement, OBOT’s “exclusive” remedy was “actual damages incurred by [OBOT] as a direct result of [the City’s] default.” The lease also contained a waiver of “consequential damages.” The court concluded that the most reasonable conclusion is that “consequential damages” should be interpreted to have the same meaning in both agreements; therefore, barring recovery of lost profits.
Even if the explicit exclusions of “lost profit” and “consequential” damages did not apply, the court held that OBOT “failed to demonstrate with any reasonable probability that it would have received those amounts; instead, the evidence demonstrated those projections were uncertain, moving targets.” Under California law, “lost profits” damages are “recoverable [only] where the evidence makes reasonably certain their occurrence and extent.”
To prove its monetary losses, OBOT relied almost exclusively on the testimony of Tagami and Peter Brown, a CPA who was called to testify as an expert in “quantifying economic damages in commercial disputes.”
Brown tried to hit a home run and wound up striking out.
“Brown has no experience or expertise in the development of bulk commodities terminals, the rail industry, or the commodities markets for coal and soda ash,” wrote Judge Wise, “and OBOT did not call any other expert to provide foundational testimony as to those topics.” Further, while Brown conceded that experts should not rely excessively on client-provided data with no independent analysis, the judge identified as one of the flaws of Brown’s opinion that he “uncritically relied” upon a preliminary design document and two subleases provided by his client to calculate the terminal’s projected revenues.
Judge Wise also questioned the reliability of many assumptions underlying his “lost profits” estimates: “These include but are not limited to his assumptions that: the terminal will be commissioned on February 2025; the demand for coal will not decrease between now and 2082; no future federal, state or local regulations regarding fossil fuels will have any negative impact on the Project for 66 years; the project will never handle any commodities other than coal or soda ash; transports by ship or rail will never be disrupted (meaning no acts of war, earthquakes, storms, labor disputes, pandemics, or political controversies will ever impact the constant flow of coal or soda ash); etc.”
Judge Wise concluded that Brown’s calculations of “lost profits” were “speculative and unreliable,” nowhere close to meeting the required legal standard, “reasonably certain.”
Although the court’s rejection of “lost profits” wiped out the lion’s share of OBOT’s damage claims, Judge Wise didn’t stop there. On multiple grounds, she disallowed recovery of $4.6 million for attorneys’ fees and costs allegedly racked up in the earlier trial in federal court and another $331,740 claimed for the federal appeal.
Judge Wise allowed claims for $317,683 to cover project-related staff costs and costs related to illegal dumping between June 2018 and December 2023, but denied OBOT’s claim it should recover the damages even if it elects to move forward with the project, the option referred to as the “equitable remedy.” She pointed out that the parties waived “incidental damages” in the lease. Also, OBOT did not present the court with evidence that these expenses were lost because of the City’s termination of the lease, that they would have been unnecessary if OBOT had been able to proceed with the project in 2018, or that OBOT will need to “replace” them once the project resumes, assuming OBOT elects the “equitable remedy.”
The “equitable remedy,” stripped of claims for “lost profits,” “out-of-pocket costs,” and legal fees incurred in federal courts, amounts to a simple opportunity to restart the project with two years and six months to get the initial construction underway.