Oakland Disputes Tagami Lease Reinstatement in Opening Appeal Brief
On August 27, the City of Oakland filed its opening brief in its appeal of Superior Court Judge Noël Wise’s ruling requiring the City to give Oakland Bulk and Oversized Terminal (OBOT) another 2½ years to begin construction of a marine export terminal on the West Oakland waterfront.
The City terminated the developers’ lease in 2018 for failure to meet an August 2018 construction deadline set out in the lease. The developers blamed their failure on unforeseeable roadblocks (so-called “force majeure”) the City placed in their way, most importantly the passage in 2016 of a ban on storage and handling of coal in Oakland, including at the West Oakland site.
OBOT sued the City for reinstatement of its lease and $159.6 million in damages, claiming massive loss of hypothetical profits they imagined earning over the 66-year life of the lease. The City countersued to have its termination of the lease upheld.
After a six-month bench trial, Judge Wise rejected 99.8% of the developers’ bloated and highly speculative damages claim but gave OBOT a win on its claim for breach of contract. The court held that, when the developers missed the August 2018 deadline to begin construction, the City ought to have extended the deadlines in the lease rather than exercise the termination provision. Judge Wise ordered reinstatement of OBOT’s lease.
The City immediately appealed. This triggered an automatic stay putting the court’s judgment on hold until the court of appeal renders a decision, likely next year.
Judge Wise found that six events of force majeure excused OBOT’s failure to get construction underway by August 2018:
- The City’s 2016 ban on coal;
- Failure to provide an exhaustive list of commodities the City might prohibit;
- Failure to provide feedback on conceptual design documents;
- Failure to conclude a railway access agreement;
- Failure to complete public improvements in the rail corridor; and
- Breach of the implied covenant of good faith and fair dealing.
The judge’s factual conclusions about what happened are not at issue in the City’s appeal. The appeal focuses on the judge’s legal interpretation of the events, namely, whether anything on the list of alleged roadblocks provided a valid excuse for OBOT’s failure to begin construction.
The City disagrees since the doctrine of force majeure will not excuse a party from fulfilling its contractual obligations (for example, to meet construction deadlines) where obstacles emerge that were reasonably foreseeable. The City asserts that, not only were the obstacles entirely foreseeable, “each of the six events of Force Majeure found by the trial court involved issues that were already addressed by specific contract terms in which the parties had carefully defined their respective performance obligations.” The court wound up “replacing the parties’ deal with the court’s hindsight view of fairness, which is contrary to California law.”
The City points to the 2016 ban on coal subsequently set aside by a federal judge. The trial court opined that, after the enactment of the coal ban, OBOT was not “legally obligated to spend countless additional millions of dollars to advance the development of the Project that would transport unknown commodities.” Here, the City argues, the court abandoned its duty to interpret the lease and impermissibly rebalanced the allocation of risks agreed to by the parties in their written contract.
“No developer is guaranteed the regulatory certainty the court wanted here, and the court’s conclusion defied the contract,” the City explained. “At the time the contract was signed, the parties were already engaged in a dispute over whether the City could prohibit the shipment of coal through this terminal. Anticipating that this dispute could lead to the passage of legislation (and ensuing litigation), the parties agreed that any legislative or regulatory action (or inaction) taken by the City would not excuse OBOT’s performance” of its responsibility to meet the construction deadlines in the lease.
Under the City’s interpretation of the lease, OBOT was obligated to move forward with construction of a multi-commodity terminal on the timeline set forth in the lease regardless of how the dispute over coal played out. The lease made no commitment to allow coal and, for years, Phil Tagami, OBOT’s CEO, asserted that OBOT had no commitment to coal and could ship many different commodities. Indeed, testifying at the trial, Tagami conceded that he and his partners had many ways to comply with the minimum project requirements of the lease, that they could have funded it themselves, but chose to wait for a third party sublessee to fund the project.
The City argues that its actions fell far short of making OBOT’s performance of its contractual obligations impossible or impracticable. OBOT could have gotten construction underway by August 2018, but failed to do so. Because OBOT’s performance was not rendered impossible or impracticable, the City argues, no force majeure occurred.
The City’s brief also argues that Judge Wise’s ruling that the City breached the lease should be overturned on grounds that OBOT could have raised (and even did raise) identical claims in the federal lawsuit brought years earlier. As a fundamental principle of civil litigation, claim preclusion (aka res judicata) prohibits parties from relitigating the same cause of action in a second suit. Without claim preclusion, litigation might never come to an end. It bars not only claims actually raised, but all claims, theories, and remedies that could have been raised in the first lawsuit. In popular terms, it means litigants don’t get “two bites at the same apple.”
Both the federal lawsuit filed in 2016 and the state lawsuit filed in 2018 centered on the City’s ban on coal. For its own tactical reasons, OBOT did not seek monetary damages in the federal lawsuit, and it raised and, again for its own tactical reasons, dropped demands for an extension of the construction deadlines in the lease.
If the City’s appeal succeeds, the case will be sent back to Alameda County Superior Court for resolution of remedies to which the City might be entitled. These would include eviction of OBOT from the City’s waterfront and an award of attorneys’ fees and costs to the City. If the City’s appeal fails, the lease will be reinstated, OBOT will have 2½ years to begin construction of a terminal, and OBOT will be entitled to collect attorneys’ fees and costs from the City. If either party is disappointed, it can seek review by the California Supreme Court.
Image/credit: The Earl Warren Building and Courthouse (former California State Building) — at Civic Center Plaza in the San Francisco Civic Center, California. This building is home to the Supreme Court of California and the Court of Appeal for the First Appellate District. Image credit: Coolcaesar, via WikiMedia Commons, Creative Commons license CC By-SA 3.0.