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Oakland Loses Court Battle Over Coal Terminal for the Second Time

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The City of Oakland was rebuffed for a second time in its attempt to prevent the shipment of coal through Insight Terminal Solutions (ITS) under a contract with Oversize Bulk Commodity Terminal (OBOT) at the Oakland Army Base.

On May 26, 2020, the United States Ninth Circuit Court of Appeal upheld a May 15, 2018, ruling by US District Court Judge Vince Chhabria that the City of Oakland failed to prove that the transportation of coal through the city posed a substantial health and safety hazard to Oakland residents.

Judge Chhabria found that Oakland lacked substantial evidence to prove coal shipment was substantially dangerous because the record it relied on “was riddled with inaccuracies, major evidentiary gaps, erroneous assumptions, and faulty analyses.”  The court further found that emissions estimates provided by Environmental Science Associates (“ESA”) were “unreliable based on five flaws in ESA’s analysis.”

Based upon those findings, and others, Judge Chhabria ruled that the city breached its 2013 contract with OBOT, the master developer of the terminal. OBOT may now be eligible for hundreds of millions of dollars in damages caused by the city’s failure to issue the necessary permits to begin construction of the terminal.  These damages will ultimately be shouldered by Oakland’s taxpayers.

After hearing city and community concerns about the project, ITS, the terminal builder and operator, tried to strike a compromise.  ITS’s proposed compromise included: a.) building a state-of-the-art terminal with hermetically sealed loading and transporting systems to prevent dust from escaping during the processing of coal and all other commodities, b.) a community benefits package totaling $6 million a year for 66 years controlled by a citizen commission which would decide how money should be allocated, and c.) a phasing out of coal processing by 2040, which is five years ahead of Gov. Gavin Newsom’s goal of ending fossil fuels usage by 2045 as published in SB 100. ITS’s proposal was not accepted.

The city played a risky game and lost.  Now that the Court of Appeals has affirmed the lower court’s decisions in favor of the developers, ITS is not required to offer any mitigations or community benefits under the terms of the court ruling.

Nevertheless, ITS’ CEO, John Siegel, has said he will stand by his commitment to community benefits under the Oakland Initiative. “No matter whether the court requires this or not, we want to help underserved communities with jobs and benefits. We believe we all do better when everyone has a chance to benefit.”

Siegel went on to say he is still willing to talk to the city about other concessions and that ultimate decisions on those issues depend on how the city moves forward.

The City Council approved a development agreement with a unanimous vote on June 18, 2013.  Importantly, Judge Chhabria found, and the court of appeals affirmed, “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.”

The Court ruled that after the city had entered into an agreement, to prevent the shipment of coal through the terminal, it would have to prove that such shipment created a substantial health and safety risk to residents.  On June 27, 2016, the City Council passed a resolution declaring that the transport of coal posed a health and safety hazard to residents.  They based that determination in large part ESA’s severely flawed study presented at a City Council hearing.

“The question now is will the City Council throw good money after bad?” asked Greg McConnell, a consultant working with ITS.  McConnell – who has more than three decades of experience navigating choppy political waters – points out that the city currently has an estimated $120 million deficit, and he questioned whether it makes sense to spend hundreds of thousands more continuing to appeal a decision that has already lost twice in court.

“At a time when the city is reeling from major budget shortfalls and planning to lay off workers and cut vital services that taxpayers desperately need, it does not make sense to continue wasting money on this losing case,” McConnell stated. “That would be a double whammy to Oakland residents.”

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