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November 2018: Victory for City of Oakland

November 2018

In 2008, two Quinn Emanuel partners tried and won a jury trial against the Town of Mammoth, California. The jury returned a verdict of $30 million after finding that the Town of Mammoth had breached a particular type of contract known as a “Development Agreement.” Development Agreements are authorized by a 1976 California statute. To provide certainty to private developers who contract with the government on significant public projects, the statute guarantees a developer can be subject to only those laws and regulations in existence at the time the applicable Development Agreement is signed. No subsequent rules can be applied unless specific exceptions are met—one being a finding that “substantial evidence” establishes that a “substantial danger” to health and safety would result absent application of a new regulation.

Based on the verdict in the Mammoth case, including its affirmance on appeal, Quinn Emanuel was retained to represent a different real estate developer in Oakland regarding its Development Agreement. The developer had entered a Development Agreement with the City of Oakland to redevelop a portion of the former Oakland Army Base. The Development Agreement gave the developer the right to build a marine terminal located near the Port of Oakland. A terminal operator would then “transload” bulk commodities from interstate railroads to cargo ships for international export, typically to Asia.

After the Development Agreement was signed, the developer determined that it might ship coal through the terminal. In response, the Oakland City Council passed legislation imposing a coal ban on the terminal. The City claimed that it had established a record of substantial evidence that substantial danger to the surrounding community would be caused by “transloading” coal. The public record included a 154-page report from a City-retained environmental consultant, and tens of thousands of pages of studies and other comments submitted by the public and various special interest groups. Oakland claimed that the coal shipments would pose substantial dangers regarding air quality and emissions, fire hazards, and worker safety.

Our client was unsuccessful in convincing Oakland that, in fact, there was no substantial danger from the transportation—as opposed to the burning or mining—of coal. Eventually, Quinn Emanuel filed a complaint against the City of Oakland in federal court in San Francisco, California. The complaint asserted a breach of the parties’ Development Agreement, a violation of the Dormant Commerce Clause (because the local legislation impacted interstate and foreign commerce, a regulation of which is reserved for the federal government), and violations of the Supremacy Clause (based on federal statutes that governed certain aspects of the proposed terminal’s activities).

Following a bench trial, the court issued a 37-page decision finding in favor of our client. In ruling that the City of Oakland had breached the Development Agreement, the court credited testimony offered by our client’s experts exposing significant inaccuracies, evidentiary gaps, erroneous assumptions, and faulty analyses in the evidence relied on by the City. In particular, significant flaws were exposed regarding the key coal-dust emissions estimates prepared by the City’s retained consultant. The City also failed to assess how expected emissions would actually impact air quality, and the levels of exposure to emissions that people in Oakland would face. Finally, the court found no substantial evidence supporting the City’s claim of fire risks associated with the terminal, dangers to terminal worker health or safety, or global warming-related danger to the people in Oakland.

Based on the evidence, the court found a breach of contract and awarded the relief requested by our client— an injunction precluding Oakland from enforcing the coal ban legislation against it. Because it was able to decide the entire controversy in our client’s favor based on the contract claim, the court declined to reach the constitutional claims.