Oakland Bulk & Oversized Terminal, LLC v. City of Oakland

• Decision Date: 26 May 2020
• Docket Number: 18-16141,Nos. 18-16105,s. 18-16105
• Citation: 960 F.3d 603
• Parties: OAKLAND BULK & OVERSIZED TERMINAL, LLC, Plaintiff-Appellee, v. CITY OF OAKLAND, Defendant-Appellant, and Sierra Club; San Francisco Baykeeper, Intervenor-Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

960 F.3d 603

OAKLAND BULK & OVERSIZED TERMINAL, LLC, Plaintiff-Appellee,

v.CITY OF OAKLAND, Defendant-Appellant,andSierra Club; San Francisco Baykeeper, Intervenor-Defendants-Appellants.

Nos. 18-16105

18-16141

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 12, 2019 San Francisco, California

Filed May 26, 2020

OPINION

Lee, Circuit Judge:

In a bid to revitalize the site of a shuttered U.S. Army base near the bay, the City of Oakland agreed to have Oakland Bulk & Oversized Terminal, LLC("OBOT") develop a commercial terminal there.But amid public backlash after the announcement that coal would be transported through the terminal, Oakland moved to block coal there, citing a provision in the agreement that allows it to impose new regulations if "substantial evidence" shows that the project would be "substantially dangerous" to "health and safety."

At the San Francisco federal courthouse just miles across the bay from the site of the proposed terminal, the district court held a bench trial on whether Oakland breached its contract with OBOT.The court ruled against Oakland, finding that its health and safety determination about coal was "riddled with inaccuracies, major evidentiary gaps, erroneous assumptions, and faulty analyses."

The City of Oakland and IntervenorsSierra Club and San Francisco Baykeeper appeal the district court's ruling.We have jurisdiction under 28 U.S.C. § 1291.A key legal issue is whether we defer to the district court's factual findings or the City's health and safety findings.Because this is a breach of contract dispute — and not an administrative law proceeding — we must defer to the district court's factual findings, which were not clearly erroneous.We affirm.

BACKGROUND

I.Oakland contractually agrees to have a former Army base developed into a commercial terminal.

After the Oakland Army Base closed in 1999, the City of Oakland acquired some of its land.The City initiated a redevelopment plan in West Oakland to counter the physical and economic blight caused by closure of the base.As part of this plan, the City in 2012 entered into a Lease Disposition and Development Agreement with OBOT's predecessor-in-interest.¹This agreement envisioned the development of a rail-to-ship terminal on the West Gateway portion of the closed base, which lies south of the Bay Bridge Toll Plaza and west of West Oakland.

In 2013, Oakland and OBOT entered into a Development Agreement (the "Agreement"), which gave OBOT the "right to develop the Project in accordance with ... the City Approvals and the Existing City Regulations."Under California law, development agreements are intended to assure that, "upon approval of the project, the applicant may proceed with the project in accordance with existing policies, rules and regulations."Cal. Gov. Code § 65864(b).In other words, governmental regulations are frozen in recognition that a private party is investing substantial resources for the development project.This eliminates the "lack of certainty" that can "discourage investment in and commitment to comprehensive planning which would make maximum efficient utilization of resources."Id . § 65864(a).To that end, California Government Code Section 65866(a) provides that "those rules, regulations, and official policies in force at the time of execution" continue to apply to the project under a development agreement.Id . § 65866(a).

Consistent with this regulatory framework, the Agreement froze existing regulations as to OBOT's proposed terminal, except to provide under Section 3.4.2 that:

City shall have the right to apply City Regulations adopted by City after the Adoption Date, if such application (a) is otherwise permissible pursuant to Laws (other than the Development Agreement Legislation), and (b)City determines based on substantial evidence and after a public hearing that a failure to do so would place existing or future occupants or users of the Project, adjacent neighbors, or any portion thereof, or all of them, in a condition substantially dangerous to their health or safety .

(emphasis added).Importantly, the Agreement did not limit the types of bulk goods that could be shipped through the terminal.And prior to its execution, Oakland had some indication that coal was one of the potential commodities that might be handled.

II.Amid backlash at coal being shipped through the terminal, Oakland moves to block the proposed plan.

In 2014, OBOT agreed to sublease the terminal to Terminals and Logistics Solutions, LLC("TLS"), a subsidiary of a Utah coal company.TLS intended to ship commodities, including western bituminous coal from Utah, through the terminal.TLS delivered a letter to the City outlining its plan for the terminal.

Once word spread that coal would be shipped through the terminal, public and political pressure mounted against this plan due to concern that coal dust would affect the air quality of West Oakland residents and those working at the terminal.In September 2015, Oakland held an initial public hearing to assess the potential health and safety effects of OBOT's proposed coal operations.In connection with the hearing, the city received: (i) an expert report by HDR Engineering supporting the project; (ii) expert reports by Dr. Phyllis Fox and Sustainable Systems Research, LLC opposing the project; and (iii) numerous comments from the public.

Following the hearing, Oakland solicited additional comments and evidence.It retained Environmental Science Associates("ESA") to analyze the evidence and evaluate the health and safety risks from the proposed coal operations.Separately, a councilmember also commissioned Dr. Zoe Chafe to prepare a report.

In June 2016, Oakland held a second public hearing.In connection with this hearing, Oakland received expert reports by ESA, Dr. Chafe, and the Public Health Advisory Panel("PHAP"), all opposed to the project.The ESA report — a highly technical 160-page expert report — was publicly released one business day before the hearing.

Following the hearing, Oakland enacted OrdinanceNo. 13385(the "Ordinance"), which categorically barred bulk material facilities in Oakland from maintaining, loading, transferring, storing or handling any coal.The City then invoked Section 3.4.2 of the Agreement and adopted ResolutionNo. 86234(the "Resolution"), which applied the Ordinance specifically to OBOT's terminal.The passage of the Ordinance and Resolution thus barred coal at the terminal, even though the Agreement itself did not prevent it.

III.OBOT sues Oakland for breach of contract, and the district court rules against Oakland after a bench trial.

OBOT sued Oakland in December 2016, alleging that the City breached the Agreement, and that the Ordinance and Resolution violated the Commerce Clause and were preempted by federal law.Shortly after Oakland filed a motion to dismiss, Sierra Club and Baykeeper moved to intervene.The district court denied intervention of right, but granted permissive intervention limited to "defending against the developer's claims," which did "not include the right to bring counterclaims, the right to bring cross-claims, or the right to prevent the case from being dismissed on a stipulation between the developer and the City."

The court denied Oakland's and Intervenors’ motions to dismiss.Following expedited discovery, the court denied the parties’ cross-motions for summary judgment on the breach of contract claim.The court scheduled a bench trial, and took the constitutional and federal preemption claims under submission pending resolution of the breach of contract claim.

At trial, the court heard testimony from experts and other witnesses proffered by both sides.Following post-trial briefing, the court issued its findings of fact and conclusions of law.The court found that Oakland lacked substantial evidence that the proposed coal operations posed a substantial health or safety danger.As the court put it, 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."The court, as a result, determined that Oakland breached the Agreement when it passed the Resolution, and it declared the Resolution invalid.

STANDARD OF REVIEW:

Deference to the Trial Court or to the City?

Standard of review is pivotal to the outcome of this appeal: Should this court review this case as a breach of contract dispute in which we must give deference to the trial court's factual findings — or as an administrative law proceeding in which the City's health and safety findings are afforded deference?

Appellants contend that the district court erred by applying the traditional rules that govern a breach of contract case.According to Appellants, the district court should have instead adhered to administrative law review principles by limiting evidence to the record before the city council when it enacted the disputed Resolution and by giving special deference to the City's health and safety determinations.Appellants argue that this deferential standard of review is mandated both by the terms of the Agreement and as a matter of law.We disagree.

Section 3.4.2 of the Agreement provides that Oakland may apply a new regulation to OBOT only if the City determines, based on "substantial evidence," that the absence of the regulation will result in a condition substantially dangerous to health or safety.The district court found that "substantial evidence" refers only to the amount of evidence required to make a health and safety determination (e.g. , "substantial evidence" vs. "clear and convincing evidence").In contrast, Appellants assert that the parties, in using the phrase "substantial evidence," incorporated a judicial standard of review used in administrative law proceedings into Section 3.4.2.This interpretation of the Agreement is untenable for several reasons.

First, the plain...