Oakland Bulk & Oversized Terminal, LLC v. City of Oakland, Case No. 16-cv-07014-VC

Decision Date15 May 2018
Docket NumberCase No. 16-cv-07014-VC
Citation321 F.Supp.3d 986
CourtU.S. District Court — Northern District of California
Parties OAKLAND BULK & OVERSIZED TERMINAL, LLC, Plaintiff, v. CITY OF OAKLAND, Defendant.

David Edward Myre, III, Robert P. Feldman, Eliyahu Ness, Quinn Emanuel Urquhart & Sullivan, LLP, Redwood Shores, CA, John Steven Gordon, Quinn Emanuel, Los Angeles, CA, John M. Neukom, Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, CA, Meredith McChesney Shaw, Quinn Emanuel Urquhart Sullivan, LLP, San Francisco, CA, Stephen A. Swedlow, Quinn Emanuel Urquhart & Sullivan, LLP, Chicago, IL, for Plaintiff.

Colin Troy Bowen, Oakland City Attorney, Kevin Drake Siegel, Gregory Aker, Timothy Alan Colvig, Burke, Williams & Sorensen, LLP, Oakland, CA, Amy Eileen Hoyt, Burke Williams & Sorensen, LLP, Riverside, CA, Christopher Michael Long, Hopkins & Carley, San Jose, CA, Collin Spencer McCarthy, Berkeley, CA, Deborah Ann Sivas, Environmental Law Clinic Mills Legal Clinic at Stanford Law School, Stanford, CA, Gail Elizabeth Kavanagh, Burke, Williams & Sorensen, LLP, Helen Kang, Environmental Law and Justice Clinic Golden Gate University School of Law, San Francisco, CA, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

VINCE CHHABRIA, United States District Judge

An old army base sits along the water in Oakland, next to the Bay Bridge toll plaza. In an effort to convert the old base into something useful to the community, the City of Oakland entered into an agreement with a developer to build and operate a bulk cargo shipping terminal. The idea was to allow commodities to be delivered to the terminal by train and then shipped out by boat for export to other countries.

The development agreement froze in place the local regulations that existed at the time the agreement was signed. This means, generally speaking, that any regulations adopted by Oakland thereafter would not apply to the shipping terminal. But the agreement contains an important exception: a regulation that postdates the development agreement can be applied to the shipping terminal if the City determines that the failure to apply the new regulation would pose a "substantial danger" to the health or safety of people in Oakland. The agreement specifies that any such determination by the City must be supported by "substantial evidence."

After the development agreement was signed, word spread that the developer was making plans to transport coal through the terminal. Many people in Oakland expressed concern about this. The Oakland City Council responded by adopting two measures: (i) an ordinance that bans coal operations at "bulk material facilities" in Oakland; and (ii) a resolution that applies the ordinance to this terminal, through a finding by the City Council that coal operations at the terminal would pose a substantial danger to the health and safety of people in Oakland.

The developer responded by filing this lawsuit. Among other things, the suit alleges that the City lacked substantial evidence to conclude that the proposed coal operations at the terminal would pose a substantial health or safety danger to people in Oakland. This means, according to the developer, that the City breached the development agreement by applying the coal ban to the terminal.

The parties have a number of disputes about how to interpret and apply the provision in the development agreement that allows the City to protect its people from substantial health or safety dangers. With respect to many of these disputes, Oakland makes strong arguments. For example, Oakland is correct that the "substantial evidence" standard is deferential and gives policymakers significant latitude to determine whether a danger to health or safety is significant enough to justify applying a new regulation to the facility. Oakland is also right to say that it has a special obligation to protect vulnerable members of the community – people who, partly because of their income status and where they live, are more likely to experience adverse health effects from pollution. Furthermore, Oakland is probably right that local policymakers are not required to take it on faith that existing federal or state pollution standards will adequately protect people.

But on the primary question presented by this lawsuit, Oakland is wrong. The question, as both sides agree, is not whether any evidence that might possibly exist could support the City Council's decision to ban coal operations at the facility. Rather, the question is whether the record before the City Council when it made this decision contained substantial evidence that the proposed coal operations would pose a substantial health or safety danger. Even under the deferential standard of review in the development agreement, the record before the City Council does not contain enough evidence to support the City Council's conclusion that the proposed coal operations would pose a substantial danger to people in Oakland. In fact, the record is riddled with inaccuracies, major evidentiary gaps, erroneous assumptions, and faulty analyses, to the point that no reliable conclusion about health or safety dangers could be drawn from it. Perhaps a more thorough investigation could result in a lawful determination that coal operations may be restricted at the facility, but in this case, the record was inadequate. Because the resolution adopted by the City Council applying the coal ordinance to this shipping facility constitutes a breach of the development agreement, it is invalid and the City may not rely on it to restrict operations there.

I.

After the Oakland Army Base was closed in 1999, some of its land became the property of the City of Oakland. The City then embarked upon years of planning to redevelop it, which culminated in contractual agreements with a group of developers who were interested in building a bulk goods shipping terminal. A bulk goods shipping terminal is a facility that can receive, store, handle, and ship goods that are typically transported in large quantities, such as cement, iron ore, coal, and petroleum coke (also known as petcoke or coke). In 2012, Oakland officially entered into a "Lease Disposition and Development Agreement" with the Oakland Bulk & Oversized Terminal ("OBOT") to develop this terminal. Lease Disposition and Development Agreement (Trial Exhibit ("Ex.") 65). In July 2013, the City and OBOT entered into a "Development Agreement," which further established and elaborated OBOT's rights to build a bulk goods terminal on this property. Development Agreement (Ex. 584). (Technically, both agreements were signed by a legal predecessor of OBOT, but OBOT has assumed all of the relevant rights and obligations under the agreements, so for all relevant purposes, it is effectively the contracting party.) Since then, OBOT has contracted with a company named Terminal Logistics Solutions to design and manage the terminal, although OBOT remains the landlord. Collectively, OBOT, Terminal Logistics Solutions, and their partners are considered the project developers. "OBOT" is used to refer to both the company and the bulk goods terminal being planned.

At this stage, the most detailed description of OBOT's operations is contained in its "basis of design." The basis of design is a set of documents that the project developers gave the City in September 2015. These documents describe, in general terms, how the terminal will operate, the permits the developers will seek, and the rules and regulations the developers believe they will have to follow. The basis of design is no more than a basic framework for the project, with the details yet to be filled in. It reflects the design process at 8 to 10 percent completion, meaning that approximately 90 percent of the pre-construction process remains, including further design and permitting. Basis of Design, Volume 1, July 2015 Presentation (Ex. 1238.0005); May 16, 2016 OBOT Response to City Questions at 2 (Ex. 166.0002); Trial Transcript ("Tr.") 59:10-60:4, 61:15-24 (Tagami).

The basis of design lists goods that could be shipped through the terminal but does not specify which of these goods the developers will actually ship. Two of the listed commodities are coal and coke, and it is widely understood that they are intended to be the primary goods to be shipped. Although OBOT continues to say it is considering other commodities, news articles have reported that Terminal Logistics Solutions has been negotiating the transport of coal from Utah. ESA Report at 2-3 to 2-4 (Ex. 14.0024-0025); May 16, 2016 OBOT Response to City Questions at 1-2 (Ex. 166.0001-0002); Oct. 6, 2015 OBOT Response to City Questions (Ex. 149.0001). Moreover, Terminal Logistics Solutions, which was formed to operate bulk terminals like OBOT, is a wholly owned subsidiary of a natural resources company named Bowie Resource Partners that primarily owns coal mines in Utah.

According to the basis of design, the developers are planning for roughly 5 million metric tons of coal and/or coke to pass through the terminal each year. Both commodities would be brought to Oakland from other parts of the country. Basis of Design, Volume 1, July 2015 Presentation (Ex. 1238.0011); June 23, 2016 Agenda Report at 8-9 (Ex. 135.0008-0009). While the Port of Oakland, which is adjacent to the former army base, ships many different kinds of goods, it does not currently ship coal or have a bulk coal facility. Therefore, OBOT would be the first coal shipping facility of its kind in Oakland. June 23, 2016 Agenda Report at 4 (Ex. 135.0004). For the purposes of this dispute, the parties have not meaningfully distinguished between coal and coke, focusing almost exclusively on coal. Accordingly, for ease of reference, this ruling describes OBOT's proposed operations as "coal operations" and uses the word "coal" as shorthand to refer to both commodities.

The proposed coal operations can be broken down into three phases. The first is the "transport" phase. The coal will be mined in western...

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