District Court Confirms that City of Oakland Breached its Development Agreement with Coal Terminal Developer


On May 15, the U.S. District Court for the Northern District of California held that the City of Oakland’s attempt to apply a new “coal ban” ordinance to a coal handling terminal was invalid. The District Court concluded that the record evidence placed before the City Council did not satisfy the ”substantial evidence” criteria contained in the development agreement entered into by the City and Oakland Bulk & Oversized Terminal (“OBOT”) governing a bulk cargo shipping terminal to be built and operated by OBOT. The case is Oakland Bulk & Oversized Terminal, LLC v. City of Oakland.

The District Court notes that the new coal handling terminal would be located at an old Army base that sits along the water in Oakland near the Bay Bridge (the writer spent a few days at the Oakland Army Terminal many years ago), and the City believes this area can be redeveloped into a valuable resource. In 2012, the City entered into an agreement with OBOT governing a bulk cargo shipping terminal that OBOT would build and operate. The agreement between the City and OBOT freezes in place all local regulations that existed at the time the agreement was signed, with one exception: a regulation or ordinance that postdates the development agreement can be applied to the terminal if the City determines that the failure to apply a new regulation would pose a “substantial danger” to the community, if this determination is supported by “substantial evidence.” After the agreement was signed, it was learned that OBOT plans to have large amounts of coal transported by rail to the terminal from Western coal-producing states, where it will be stored until it is transported to overseas customers. This would be the first facility of its kind in Oakland.

In 2015 and 2016, the City Council was made aware of the fact that there was considerable local concern about the impacts of shipping coal through the City to the terminal. The City Administrator was authorized to engage an outside consultant, Environmental Science Associates (ESA) to analyze the health and safety effects of transporting coal to the OBOT facility. Based on the ESA report as well as pubic testimony and comments, the City Administrator recommended that the City Council enact a new ordinance prohibiting the storage and handling of coal at bulk goods facilities in Oakland, and in July 2016, such an ordinance was adopted. OBOT then filed this lawsuit to set aside this ordinance on contractual and even constitutional grounds.

Following a searching review of the evidence before the City Council, the District Court agreed with OBOT that the City had breached its agreement to develop this facility. According to the District Court,

“The city was not required to compile a perfect evidentiary record; far from it. But the gaps and errors in this record are so numerous and serious that they render it virtually useless. Perhaps a record that more carefully and thoughtfully laid out the evidence, accompanied by a more rigorous analysis, could have satisfied the standard the City imposed on itself in the development agreement. But this record does not come close to doing so, which means that OBOT prevails on its contract claim.”

As a result, the District Court held that applying the coal ordinance to OBOT’s facility cannot be done, and the City is enjoined from relying on the ordinance either to apply it to OBOT or restrict coal operations at the facility. The District Court also notes that the operation of the facility will be regulated through appropriate environmental permits and state and local enforcement authorities, quite apart from this ordinance.