High Stakes as Remedy Phase of Coal Trial Begins
Will developer Phil Tagami be awarded an imagined $150 million in past damages and future profits he claims he has lost or been prevented from gaining as a result of the City’s alleged efforts to block construction of a coal export terminal in West Oakland? Will Tagami be granted an extension of time to break ground on the terminal? Will he get an opportunity to choose between a massive amount of money or an opportunity to go ahead with the controversial project, in partnership with a Los Angeles hedge fund operator? Or will Tagami’s victory in his lawsuit against the City of Oakland turn out to be much more limited when the dust settles?
These are some of the questions going to trial this week in the wake of Judge Noël Wise’s October 27 decision that the City of Oakland breached the lease held by Tagami’s Oakland Bulk & Oversized Terminal LLC when the City failed to give OBOT an extension of time to meet initial construction deadlines. The City terminated OBOT’s lease for nonperformance in November 2018, and high-stakes litigation erupted over who broke the lease.
Having ruled in favor of OBOT on the question of who broke the lease, the judge must now decide on the proper remedy – monetary damages, or “specific performance” (such as reinstatement of the lease with a new deadline for construction to get underway), or some combination of both. The scope and measure of remedies available are hotly contested and will be the subject of a four-day trial.
In its pretrial brief, OBOT has asked the Court to provide it with a choice of two alternative packages of remedies. OBOT’s Scenario 1 would include an extension of OBOT’s construction deadlines by at least two years and five months and approximately $20 million of actual past damages caused by the delay. Under OBOT’s Scenario 2, OBOT would receive approximately $150 million of damages, mostly for “lost profits,” but no specific performance to extend OBOT’s construction deadlines.
Under both scenarios, OBOT seeks a declaration that the ground lease and 2014 Development Agreement remain in effect. OBOT has not explained how, under Scenario 2, it could claim both continued rights under the contract and future damages based on losing those rights.
Under Scenario 1, the City has agreed in advance of trial that OBOT is entitled to an extension of between 1 day and 2 years plus 180 days of the construction deadlines in the lease, but will await the evidence presented by OBOT before taking a position on the specific amount of time. The City argues that most of the $20 million of past damages falls into categories to which OBOT is not entitled, based on legal bars and the specific facts of this case.
The City has filed a motion to exclude evidence of damages that were not disclosed in the report by OBOT’s damages expert. OBOT has repeatedly stated that all of its damages claims are contained in the expert report. The City hopes the Court will rule on this motion at the outset of the trial and set limits on what testimony and documentary evidence OBOT can present in court.
The City also argues Judge Wise should set other limits by rejecting the extravagant damage claims in Scenario 2 outright. The City contends that the Court should not allow evidence on lost profits at all. First, the City argues, the lease expressly and unambiguously waives “consequential damages”, and lost profits ordinarily fall into that category. Second, lost profits are never allowed for an entirely unestablished business where it is impossible to establish with reasonable certainty whether and how much profit may have been lost as a result of the defendant’s breach. Here, the calculations of lost profits by OBOT’s damages expert are based solely on highly speculative estimates of profit that OBOT might have made from third-party subleases.
If the Court allows OBOT’s damages expert to present lost profits claims, the City will be forced to call its damages expert in rebuttal. According to the City, this duel of experts will waste a significant amount of trial time on establishing a basis for and quantifying a type of damages which OBOT cannot claim. Judge Wise has made clear to the parties that the trial must end this week and each side will have no more than ten hours to make its case.
The four-day trial on remedy follows a three-month trial on liability that began with opening statements on July 10, 2023 and ended with closing arguments on October 11. Both sides waived a jury trial. Judge Wise heard testimony from 15 witnesses and admitted 321 exhibits into evidence, then issued a proposed statement of decision siding with OBOT on October 27 and a minimally revised final decision on November 22.
In her decision, Judge Wise accepted the developers’ claims that they were unable to meet construction deadlines in their lease because the City placed roadblocks in their way. Chief among these was the City Council’s 2016 ban on coal storage and handling at the proposed terminal. Judge Wise relied heavily on the earlier decision by a federal judge who held that the City Council acted without compiling sufficient evidence of health and safety risks to local residents and workers.
Judge Wise also concluded that the City hindered and delayed OBOT’s effort to build the terminal by
- failing to provide OBOT with a list of preapproved commodities that could be shipped through the terminal;
- failing to provide substantive feedback on a “Basis of Design” document submitted in September 2015 in connection with the City Council hearings on coal;
- failing to use commercially reasonable efforts to enter into a Rail Access Agreement with the Port of Oakland; and
- failing to complete certain public improvements and turn property over to OBOT to complete private rail improvements.
The City has presented extensive factual evidence and legal argument rebutting each of these allegations and retains the right to appeal Judge Wise’s decision on liability in its entirety. For now, though, the battle is over remedy.
The remedy phase of the trial will begin on Tuesday, November 28, and is expected to end with closing arguments by Friday, December 1. The final decision may not be issued until early next year after post-trial briefing.
Graphic Design: Dani Zacky