Phil Tagami New Lawsuit vs. City Over Oakland Bulk And Oversized Terminal Coal Issue?

UPDATE: Phil Tagami has filed a new Oakland Bulk And Oversized Terminal-related lawsuit against the City of Oakland. Here’s the news and how the matter is related to Tom Steyer’s political efforts and gentrification in Oakland.

Phil Tagami, Managing Partner of California Capital & Investment Group (CCGI), and developer of the West Oakland Army Base Redevelopment Project called the “Oakland Bulk and Oversized Terminal” (OBOT), had his lawyers draft what is a 51-page letter to the City of Oakland that explains in great detail how the City of Oakland failed to meet the terms of its least with CCGI and OBOT.

As the City of Oakland announced that it was terminating its Army Base Project lease with Oakland Bulk and Oversized Terminal, today, the letter takes on a higher level of importance.

The letter, made public on October 19, 2018, is below and here. One point of information stands out: that the City of Oakland did, indeed, know and support plans for a coal-handing facility, before it shifted messages (for reasons not made clear) and elected to object to the same plans it initially supported.

And here, it must be made clear why the City of Oakland went in this direction, initially.

The overall problem Oakland is under contract with the Federal Government to solve is how the 2,400 low-skilled yet well-paying jobs that were at the center of the Oakland Army Base operations are to be replaced. If Oakland doesn’t solve that problem, we may have to pay damages to the government for breach of contract.

Understand that the Federal Government planned for the closure of the Oakland Army Base and other naval stations around the country. And to that end, a local group was formed called The Alameda Base Reuse Committee in 1992 through 1993. I was on that committee at the request of Alameda County Supervisor Keith Carson.

After that group disbanded, the East Bay Conversion and Reinvestment Commission was formed to give more detail to the land-use planning effort. The rule was always to replace the 7,000 lost Army Base jobs – something no one talks about today, even as Oakland still has not fulfilled its responsibility.

Evidence City Of Oakland Knew The OBOT Would Handle Coal In West Oakland

The letter lists the following instances where coal-handing was mentioned as part of the Army Base Project:

While CEQA review does not require the City to evaluate the impact of particular commodities transported through the Facilities, the City was aware that coal was one of the bulk commodities that would be transported through the Facilities prior to approving the DA. Coal was identified in each of the following materials reviewed by the City:

Kinder Morgan PowerPoint from 2011 identifies “Bulk Tonnage Breakout” and lists coal.
April 19, 2012 report to the Oakland Community and Economic Development Agency (“CEDA”) regarding “OBOT and OGRE as of April 19, 2012” by the Tioga Group, Inc.

June 2012 video of comparable facility in Long Beach featured coal.

May 8-11, 2012 email exchanges between Port staff expressly referencing coal as a potential commodity to be shipped.

Port-funded review dated May 31, 2013 by Lautsch Davis, expressly including coal as one of several commodities on suggestion list.

September 12, 2013 letter from Betsy Lake attaching a copy of the Long-Range Property Management Plan for the Oakland Army Base that shows the proposed use of Parcel E is a bulk commodities terminal for commodities, “(e.g. lumber, coal, sulfur)” to be transported from link rail to vessel.

September 15, 2013 emails between staff members at BCDC and Development Commission to attorney at Earthjustice and forwarded to attorney at Sierra Club, noting that coal had been expressly included in discussions regarding potential commodities at OBOT.

Also, Fred Blackwell, who was the City of Oakland’s Director of Economic Development and Army Base point person in 2012, talked to me about the status of the project on August 16th of that year. Blackwell mentioned the planned handling minerals, mentioning iron ore. Iron ore is mixed with coal to produce steel. So, it’s logical to assume the facility could send minerals like coal and iron ore to steel plant locations throughout the Pacific Rim.

Watch:

Tagami Letter: “Re: Notice Of Claim Regarding West Oakland Gateway Project”

October 19, 2018

Barry W. Lee
Manatt, Phelps & Phillips, LLP

BY E-MAIL
City of Oakland
Office of the City Attorney
Barbara J. Parker, City Attorney
Bijal M. Patel, Deputy City Attorney
One Frank H. Ogawa Plaza, Sixth Floor
Oakland, California 94612
Re:

Notice of Claim Regarding West Gateway Project

Dear Ms. Parker and Ms. Patel:

The beneficial reuse plan for the former Oakland Army Base is at a critical and potentially fatal crossroads. The development of the West Gateway property (“Project”) was uniformly heralded across all levels of government and the public as bringing critical jobs and economic activity to an underserved and disadvantaged community, while establishing new technological and environmental standards for goods movement via rail rather than dieselemission-spewing trucks.

At the time, this was viewed as a textbook “win-win” for all. But as a report commissioned by the City of Oakland (“City”) in conducting diligence in advance of the Project plainly stated, the ultimate success of the crown jewel of the proposed Project – a rail-to-ship bulk commodity terminal – was far from a certainty and was wholly contingent on identifying and partnering with a commodity provider with long-term needs for the capacity the terminal could provide. Tens of millions of dollars and a decades long commitment to the facility would be required of this yet-to-be-identified, though essential partner.

The proponents and developers of the Project have successfully identified and executed binding contracts with such a commodity provider. But since that commodity provider finds it commercially unfeasible to voluntarily forego the shipping and handling of commodities that recently elected City officials and vocal special interests find politically objectionable, the City is taking affirmative actions and refusing to honor its obligations under governing agreements that will, unless brought to legal account and forced to specifically abide by the terms of those agreements, likely cause the fatal demise of the Project.

A federal district judge has already ruled that the City’s actions in this regard are unlawful. Nonetheless, the City continues undeterred, all to the great and tangible detriment and very viability of the Project, its proponents, and as importantly, the community.

This letter identifies the currently known principal claims that must be addressed now, together with a summary of key supporting evidence, if the Project is to survive. Absent an immediate consensual resolution of these issues, Claimants will be left with no alternative but to seek legal redress.

GOVERNMENT CLAIM

OBOT hereby presents a claim against the City of Oakland pursuant to Govt. Code §§ 810-996.6. In accordance with Govt. Code § 910, OBOT presents the following claim information. OBOT concurrently submits the form Claim Against the City of Oakland as required by the Office of the City Attorney:

(a) The name and post office address of the claimant:
Phil Tagami
Oakland Bulk and Oversized Terminal (“OBOT”)
300 Frank H. Ogawa Plaza, Suite 340
Oakland, CA 94612

Mark McClure
Oakland Global Rail Enterprise (“OGRE”)
300 Frank H. Ogawa Plaza, Suite 340
Oakland, CA 94612
OBOT and OGRE are collectively referred to as “Claimants.”

(b) The post office address to which the person presenting the claim desires notices to be
sent:

Barry W. Lee, Esq.
Manatt, Phelps & Phillips
One Embarcadero Center
30th Floor
San Francisco, CA 94111

Further described below.

(d) A general description of the indebtedness, obligation, injury, damage or loss incurred
so far as it may be known at the time of presentation of the claim.

Oakland has failed to perform under the Army Base Gateway Redevelopment Project Ground Lease for West Gateway between the City of Oakland and Oakland Bulk and Oversized Terminal,
LLC, dated February 16, 2016 (“Lease”). Oakland’s failure to perform under the Lease has caused harm to Claimants, continues to cause harm to Claimants, and excuses any non-performance by Claimants under the Lease and/or the Development Agreement by and Between City of Oakland and Prologis CCIG Oakland Global, LLC Regarding the Property and Project Known as “Gateway Development/Oakland Global” dated July 16, 2013 (“DA”).

Claimants’ injury, damages, and losses are further described below. (e) The name or names of the public employee or employees causing the injury, damage, or loss, if known. Further described below.

(f) The amount claimed. The claim is well in excess of $10,000, and would not be filed as a
limited civil case. Consistent with Section 38.13 of the Lease, OBOT will also be seeking attorney’s fees incurred by OBOT in bringing the action.

If the City does not act upon this letter within 45 days, OBOT will consider the claim to
be rejected pursuant to Govt. Code sections 912.6(a), 912.4(c).

II.

BACKGROUND FACTS

General Overview.

In 2008, the City of Oakland (“Oakland” or “City”) began considering a proposal by California Capital & Investment Group (“CCIG”) and others to develop the decommissioned Oakland Army Base. The Oakland Army Base is uniquely situated with its immediate proximity to both a deep-water port and existing rail capacity. The unique characteristics of the site allows for significant international goods movement through a to-be-constructed bulk goods shipping terminal 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).

Utilizing existing and to-be-constructed rail infrastructure, transporters of bulk commodities will not have to rely on trucks for transportation, which would remove truck traffic and long lines of 18-wheelers queued up and idling in and around the facility and the corresponding diesel emissions that inundate the surrounding community.

OBOT’s predecessor-in-interest in the Project introduced the vision for the Oakland Global Trade and Logistics Center, a model public-private partnership for an integrated, multimodal, and state-of-the-art facility. The Oakland Global Trade and Logistics Center includes a portion of the Oakland Army Base referred to as the West Gateway.

OBOT negotiated with Oakland to develop the Project, which consists of a Bulk and Oversized Terminal, Rail Improvements, and Wharf Improvements, as each is defined in the Lease (collectively, “Facilities”). However, the City has since reneged on its contractual obligations and thwarted development and construction of the Facilities.

At all times related hereto, the City was informed and aware of the universe of commodities handled and processed by bulk commodity terminals, both in California and throughout the world. At the time of adoption and execution of the Project entitlements in 2012 and 2013, for example, materials were provided to the City documenting that coal constituted 40 percent of the bulk commodities actively being shipped by such facilities. The City itself acknowledged the types of commodities to be shipped by this project.

A September 12, 2013 Report on Compliance prepared by Holland & Knight, the City’s then outside counsel, confirmed mandatory compliance obligations of the City with regard to numerous outside agencies, including the provision of a “Long Range Property Management Plan” (“LRPMP”).

That LRPMP spelled out explicitly what the subject facilities would be and the typical commodities that would be shipped:

The proposed use of Parcel E is as part of a new working waterfront and break bulk commodities terminal. See site plan attached as Attachment D. The transition by the major U.S. ports to container terminal and mechanized operations has forced break bulk products, mainly commodities (e.g. lumber, coal, sulfur), to be transported via truck to vessel, or to operate from secondary, smaller ports (e.g. Stockton) both of which limit the capacity, decrease the efficiency and increase the cost of these types of bulk product shipping operations. The proposed Oakland Bulk Oversized Terminal, using Parcel E and other adjacent land, would link rail to vessel break bulk shipping operations. (September 12, 2013 … Exhibit 4 [Oakland Oversight Board Resolution No. 201312], Exhibit A [Long-Range Property Management Plan Oakland Army Base], p. 8 [emphasis added].)

The Project at a Crossroads.

As a report and analysis commissioned by the City in early 2012 foretold, the ultimate success and viability of the Facilities largely hinged on the ability to identify and secure the commitment of a commodity provider with long-term needs for the processing and handling capacity this terminal would provide over its 66-year useful life. This implicated tens of millions of dollars and decades’ worth of committed engagement. The Tioga Group provided a preliminary report to the City in April 2012 that concluded:

Tioga’s experience is that ventures such as OBOT and OGRE tend to be too optimistic. The batting average for securing business is rarely better than one in ten because competitive conditions and market conditions are too frail and commodity values too cheap. Of the ones that actually start to move product, only one in another ten result in movements as large as full unit train volumes. Such large movements tend to want/need dedicated facilities thereby negating the ability of the service provider to obtain better asset utilization across multiple customers.

Hence, obtaining a firm commitment of patronage is mandatory, but nearly impossible before committing to erecting facilities. Then, even when all operates well, a certain percentage fail due to mismanagement, usually over capitalization, or inflexible terms, or wrong location.

Finally, the true size and characteristics of the market for overweight, deep draft services at the Port of Oakland are not known. There is lots of talk, but only one known, current movement is a candidate. It is difficult to find candidate movements. Each commodity movement is its own story.

As the City well knows, OBOT and OGRE have secured binding contracts with just such a commodity provider. However, because that commodity provider refuses to voluntarily and unilaterally refuse to handle and ship fully legal commodities to which the City has political objection, the City has conducted an affirmative campaign of actions and omissions, in direct violation of the many agreements between OBOT and the City, but especially the Lease.

In its zeal to keep legal but politically disfavored commodities out of Oakland, the City is at this critical juncture implicating the fatal demise of the Project. At least one Federal District Judge has told them they may not do so.

The Federal District Court for the Northern District of California (Chhabria, J. presiding), recently heard and issued a ruling on claims by OBOT and OGRE that actions by the City in this matter breached the July 16, 2013 Development Agreement (“DA”) between OBOT/OGRE-related parties and the City, which DA gave OBOT vested rights to develop and to operate a bulk-commodity terminal (“Chhabria Ruling”). The City appealed the Chhabria Ruling, which is pending before the Ninth Circuit Court of Appeals. The following excerpts from the May 15, 2018 “Findings of Fact and Conclusions of Law” in the Chhabria Ruling accurately characterize the general history of this matter, Judge Chhabria’s findings of fact and conclusions of law, and the events that led to the City’s numerous breaches of the Lease, as further elaborated in the following sections:

“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 [citation]. 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 [citation].

(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 Solutions1 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.” (Chhabria Ruling, p. 3.)

“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.” (Id. at pp. 3-4.)

“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. [Citation.] 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.” (Id. at p. 4.)

“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.” (Id. at p. 4.)

Since issuance of the Chhabria Ruling, the contractual relationship between OBOT and Terminal Logistics Solutions (“TLS”) has been replaced with a relationship between OBOT and Insight Terminal Solutions, LLC. This fact does not affect the conclusions of the Chhabria Ruling.

“In response to broader concerns about climate change and the environment, the City Council adopted a resolution expressing Oakland’s opposition to transporting fossil fuels through the city in mid-2014. [Citation.] Soon thereafter, word began to spread about the developers’ plans to ship coal through the bulk goods terminal, which generated significant public concern in Oakland. In September 2015 and May 2016, the City Council held public hearings to receive testimony about the health and safety effects of storing, handling, and transporting coal through Oakland. Community members, organizations, and stakeholders from across the Bay Area testified and submitted written comments. The City Council asked its staff to evaluate the submissions to determine what actions the City Council should take, if any. As a part of this undertaking, the City Council authorized the City Administrator to hire Environmental Science Associates (“ESA”), an outside consultant, to analyze the health and safety effects of transporting coal through OBOT.” (Id. at pp. 5-6.)

“ESA produced its report on June 23, 2016. The report summarized the existing public record before the City Council and purported to estimate the environmental impact of the proposed coal operations. A handful of other reports in the record also summarized the public comments and offered opinions on the health and safety question. For instance, one was prepared by Dr. Zoe Chafe for City Councilmember Dan Kalb, andanother was prepared and sent to the City Council by a group of public health professionals called the ‘Public Health Advisory Panel.’ Environmental organizations, such as the Sierra Club, also submitted comments.” (Id. at p. 6.)

“Based in large part on the ESA report, as well as the public testimony and comments, the City Administrator recommended that the City Council enact an ordinance prohibiting the storage and handling of coal at bulk goods facilities in Oakland. It is undisputed that no such facility currently exists in Oakland, and only one such facility has been contemplated – OBOT. But the City appeared to operate under the assumption that this new ordinance could not automatically apply to the OBOT facility because of the restrictions in the development agreement. So the City Administrator also recommended that the City adopt a resolution that would apply the ordinance to OBOT on the grounds that it would be necessary to prevent conditions substantially dangerous to the health and/or safety of existing and/or future occupants or users of the Project and Adjacent Neighbors.’

These recommendations were contained in an Agenda Report, which attached drafts of the proposed ordinance and resolution, the ESA report, and other comments, and was transmitted to the City Council on Friday, June 24, 2016. [Citation.] On Monday, June 27, 2016, the City Council held a public hearing, at which it approved the proposed resolution and ordinance.” (Id. at pp. 6-7.) Judge Chhabria reviewed the record that was before the City of Oakland at the time it approved the Ordinance and Resolution.

The court considered whether there was substantial evidence that OBOT’s operations would diminish air quality in Oakland and thereby endanger human health. There was no such evidence. The court ruled that “the record before the City Council does not contain substantial evidence that OBOT’s proposed operations would pose a substantial danger to the health or safety of people in Oakland.” (Id. at p. 8.) “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.” (Id. at p. 34.)

Ultimately, the court found that, “[t]he resolution applying the coal ordinance to the OBOT facility is invalid, because it is a breach of the development agreement. The City is therefore enjoined from relying on the resolution either to apply the ordinance to OBOT or to restrict future coal operations at the facility.

As a practical matter, this renders the coal ordinance a nullity, because the only reason the City adopted it was to restrict OBOT’s operations, and OBOT is the only facility in Oakland to which it could conceivably apply.” (Id. at p. 37.) Subsequent to the Chhabria ruling, OBOT entered into a sublease with Insight Terminal Solutions, LLC (“ITS”), whereby ITS will develop and operate the rail-to-ship marine terminal to be constructed as the West Gateway. As part of this effort, again OBOT submitted the basis of design to Oakland on September 28, 2018. Despite OBOT’s continued efforts to honor its contractual obligations and construct the Facilities, Oakland has engaged and continues to engage in conduct that breaches the express obligations of the Lease, and breaches the covenant of good faith and fair dealing.

In fact, the adoption of the judicially invalidated Ordinance and Resolution was simply the culmination of a long and multi-faceted effort by the later elected Oakland City Council and Mayor, collectively and individually, to thwart OBOT’s efforts to construct and operate the Facilities. Council members and the Mayor herself stated expressly and publicly that they would never allow and “do whatever it takes” to keep certain commodities from being shipped by and through the Facilities, notwithstanding the provisions of the DA.

OBOT has a vested right to build the Facilities, and OBOT will suffer irreparable harm if Oakland prevents it from completing the Project in a commercially reasonable timeframe.

At the time Oakland agreed to provide OBOT with the vested right to build the Project, OBOT relied on various factors including market demand, transport logistics, and site-capabilities to secure an anchor subtenant. OBOT also relied on representations by the City regarding its financial capacity to perform and representations that it was entering into agreements with the Port of Oakland (a department of the City) 2 necessary for the operation of the Facilities. The circumstances that existed when the Parties negotiated the Lease and DA no longer exist today. OBOT has spent in excess of $26 million (+$8.8 million of which is TCIF eligible, as defined below) 3 over the last ten years in justifiable reliance on the contracts between OBOT and Oakland, and the vested rights therein. OBOT must obtain assurances that its justifiable reliance on Oakland’s promises was not made in vain. Deadlines must also be tolled given the City’s obstructive conduct in interfering with OBOT efforts to develop the Facilities, as well as OBOT’s economic relationships with third-parties.

A Tale of Two Projects.

The City is remarkably inconsistent in its approach to and conversations regarding the Project, depending on with whom it is speaking or reporting. As provided in greater detail in the facts above and the allegations of omissions and breaches below, the City, by and through both its elected officials and staff, have reiterated on numerous occasions that it will not allow a facility to operate unless it complies with the now judicially invalidated “coal ban.” And its threats are not just words. It has taken and continues to take actions to thwart progress in developing the Facilities and interfering with essential contractual negotiations related to financing, partnering, and leasing the Facilities for operation, all in contravention of the express terms of the Lease as well as the implied covenant of good faith and fair dealing.

But unfortunately for the City (and Port), it has already accepted and expended millions of taxpayer dollars from the state and federal government via grant funds, under an extraordinary and progressive vision for a one-of-a-kind, state-of-the-art facility that will capitalize on an existing rail corridor’s immediate proximity to a deep water port, allowing for the transport of goods and commodities via rail, rather than emission-spewing diesel trucks. The Project..

“The City’s Charter itself describe[s] the Port as a ‘department’ of the City of Oakland, rather than as an instrumentality or entity of the State of California.” SSA Terminals, LLC, and SSA Terminals (Oakland), LLC Complainant, v. the City of Oakland, acting by and through its Board of Port Commissioners, Respondent., 2011 WL 7143995 (holding that the Port “‘walks, talks, and squawks’ like a city-run facility instead of an arm of the State of California.”).

This amount does not include the approximately $5 million dollars spent on the MH-1 Lease Area. promised to not only set a new standard for the industry globally, but also to be an environmental boon to the local community.

Once significant dollars are handed over by the government, the government likes to know that those dollars are being expended in a manner consistent with the understanding for which they were initially granted. Central to the funding proposal for which the grant funds were allocated was the bulk commodity terminal at the West Gateway.

As it so happens, the state has called for an audit of the City’s portion of the Project, commencing Monday, October 22, 2018. The City is painting a picture for the state, as it has repeatedly done, of the Project progressing as expected and portrayed in order to get the funds that have long-since been spent. No mention of a politically driven Ordinance and Resolution seeking to limit, on purely political bases, the operations of the Facilities, let alone the fact that such action was invalidated by a federal court. No mention of the City’s threatening to subject the Project to inappropriate additional layers of legal review with potential exposure for litigation. No mention of the refusals to address essential prerequisites for permit submittals. No mention of the failure and refusal to turn over the very premises that are to be improved. No mention of intentional acts to thwart and interfere with funding and permitting efforts with outside regulatory agencies. Indeed, no mention of the City’s myriad actions outlined below.

In fact, a recent state audit of the Port’s portion of the overall Army Base project resulted in a finding that it had inappropriately expended and must remit back to the state $7,405,013.

The state’s audit is not just financial, but also programmatic. Even if the fund expenditures and required matching contributions align, the state will also be assessing the degree to which on-the-ground progress with the Facilities – i.e., whether the intended economic and environmental benefits of substantial bulk goods movement via rail as opposed to diesel truck – is happening on schedule. Unfortunately, based upon the affirmative actions and omissions by the City designed to undermine and potentially kill the Project absent the developer’s agreement to adhere to the judicially invalidated “coal ban,” the City cannot demonstrate the necessary progress to the state. Anticipating this deficiency, the City requested that OBOT and OGRE join it in proposing to the state that the bulk commodity terminal and related rail service (including its attendant air quality improvements) be moved to a later phase of the Project. OBOT and OGRE declined to do so.
Oakland’s acts, omissions, and breaches of its contractual obligation under the Lease are set forth below.

III.

OAKLAND’S OMISSIONS AND BREACHES OF ITS OBLIGATIONS

OBOT Disputes it Committed an Unmatured Event of Default.

The City erroneously claims OBOT committed an Unmatured Event of Default by failing to commence construction of the Minimum Project by the Initial Milestone Date, as such terms are defined under the Lease, and that OBOT must cure this Default by October 22, 2018. As described in detail in this letter, the City’s acts, omissions and breaches of its contractual obligations to OBOT excuse any non-performance by OBOT under the Lease. In fact, the City’s conduct has prevented OBOT’s performance.

In a letter dated August 20, 2018, the City accepted OBOT’s payment of Base Rent under the Lease, paid under protest, despite OBOT’s inability to occupy the West Gateway lease area due to the continued occupation by a separate third party with the City’s consent.4 In addition, the City claimed that OBOT failed to satisfy the obligation to commence construction of the Facilities and “at least one of the components of the Minimum Project Rail Improvements” byAugust 14, 2018. The City acknowledged – but disregarded – OBOT’s notice that the City had committed force majeure under the Lease.

Despite OBOT’s presentation of evidence to demonstrate that it has not committed any default under the Lease, in a letter dated September 21, 2018, the City formally took the position that OBOT had failed to comply with the Initial Milestone Date deadline under the Lease resulting in an Unmatured Event of Default and demanded several unreasonable terms from OBOT to extend the proposed Cure Period. Indeed, in its September 21, 2018 letter, the City further breached its contractual obligations by demanding that OBOT comply with the City’s illegal Resolution applying the coal ban Ordinance to OBOT. Moreover, the City further demanded OBOT release all claims for damages against the City, the existence of which have prevented and are preventing OBOT’s timely completion of the Project.5 While OBOT continues to pursue completion of the Project in good faith, it rejects the City’s unreasonable demands.

On July 30, 2018, and August 3, 2018, OBOT paid rent for the West Gateway under protest, expressly stating, inter alia, that the City’s actions had created a Force Majeure Event as defined under the Lease.

Of concern to OBOT is the City’s disclosure of confidential settlement negotiations in a public document. It is a breach of the City’s agreement with OBOT regarding settlement discussions, as well as a breach of the City’s statutory obligations. OBOT reserves the right to pursue additional remedies for such disclosure.

Force Majeure.

The City has prohibited OBOT from progressing with construction of the Project and performing under the Lease. The City’s actions constitute Force Majeure, as defined by the Lease, and, in addition to causing monetary damage to Claimants, excuse any delay or noncompliance with the Lease by OBOT.

Section 6.1.1 of the Lease sets forth the schedule for commencing and completing construction of the Facilities. However, the schedule is subject to extension provisions for delay due to Force Majeure, as defined in Section 16.1 and Article 40 of the Lease:

16.1 Delay Due to Force Majeure. For all purposes of this Lease, a Party whose performance of its obligations hereunder is hindered or affected by events of Force Majeure shall not be considered in breach of or in default in its obligations hereunder to the extent of any delay resulting from Force Majeure, provided, however, that the provisions of this Section 16.1 shall not apply to Tenant’s obligation to pay Rent, including Additional Rent. A Party seeking an extension of time pursuant to the provisions of this Section 16.1 shall give notice to the other Party describing with reasonable particularity (to the extent known) the facts and circumstances constituting Force Majeure within (a) a reasonable time (but not more than thirty (30) days unless the other Party’s rights are not prejudiced by such delinquent notice) after the date that the claiming party has actual knowledge of the scope and magnitude of the applicable Force Majeure event or (b) promptly after the other Party’s demand for performance.

Force Majeure means events which result in delays in a Party’s performance of its obligations hereunder due to causes beyond such Party’s control, including, but not restricted to, acts of God or of the public enemy, acts of the government, acts of the other Party, fires, floods, earthquakes, tidal waves, terrorist acts, strikes, freight embargoes, delays of subcontractors and unusually severe weather and, in the case of Tenant, any delay resulting from a defect in Landlord’s title to the Premises other than a Permitted Exception. Force Majeure does not include failure to obtain financing or have adequate funds. The delay caused by Force Majeure includes not only the period of time during which performance of an act is hindered, but also such additional time thereafter as may reasonably be required to complete performance of the hindered act. [Emphasis added.]

There have been several instances of Delay Due to Force Majeure caused by the City’s actions precluding OBOT’s performance of numerous obligations under the Lease. OBOT first informed the City of these Delays and their preclusive effect of OBOT satisfying its obligations under the Lease on March 11, 2016, and again on April 10, 2018.

Health and Safety Hearing and Adoption of Resolution/Ordinance.

In 2013, after completion of CEQA and adoption of the vesting entitlements for the Facilities, the Sierra Club and other special interests began a public campaign against the transportation of coal through the terminal or elsewhere in Oakland. Oakland Global (OBOT’s predecessor-in-interest) stated that its immediate commodity focus was on iron ore and copper concentrate, which was accurate at the time. However, Oakland Global refused to make a pledge to take coal and all fossil fuels off of the table as potential commodities to be handled by the Facilities. To be viable in the competitive marketplace, Oakland Global explained that the Facilities must be responsive to the demands of the market over the 66-year life of the Lease.

In mid-2014, the City first expressed concerns regarding the transportation of coal through the Facilities. Oakland passed Resolution No. 85054 Opposing Transportation of Hazardous Fossil Fuel Materials through Oakland. This 2014 resolution was not specific to nor did it specifically identify the Facilities. Rather, it stated a general opposition to the transport of fossil fuels through the City, notwithstanding the fact that coal was regularly transported through the City by rail already. After passing the Resolution, the City approved the Third Amendment to the Lease Disposition and Development Agreement (“LDDA”) and the Mid-Project Budget

Revise on December 16, 2014.

On September 21, 2015, the City convened an evidentiary Health and Safety Hearing regarding the implications of potential coal shipments. The City kept the public record open for two additional weeks, requesting that interested parties submit any additional material related to the coal within that time period. The City continued to review the record after the meeting for several months, and the City retained consultants Environmental Science Associates (“ESA”) to analyze the record received on the matter and to evaluate options.

On December 2, 2015, the San Francisco Chronicle reported on efforts of Mayor Schaaf and her staff confirming “a plan . . . to stop coal from being shipped . . . .” Additional troubling reports from the Chronicle article included:

“City leaders have hired a consultant to come up with enough ammunition to prove that coal is indeed dangerous, and thus allow Oakland to adopt a health regulation that would essentially make the coal deal unworkable.” [Emphasis added.]

“The mayor believes Oakland has the authority to act as long as [the developer] hasn’t taken out the final permits for the project. He isn’t likely to do so until spring.”

“‘The city has telegraphed its intentions in a way it hadn’t done before,’ Earthjustice attorney Irene Gutierrez said of Oakland’s possible move to block coal shipments.”

In the wake of this reporting, the City set a hearing for February 16, 2016, to retain ESA to review the record compiled to date regarding coal. In the proposed retention, the staff recommended waiving all standard advertising, competitive bidding, and a request for proposals/qualifications competitive selection requirements mandated in the Oakland Municipal Code for such work. According to the proposed scope of work, the cost would be $208,000 and would take seven to eight (7-8) months.

But just before the hearing was called to order, according to reporting by the East Bay Express on February 17, 2016, Mayor Schaaf asked the Council to refrain from acting on the proposal, “‘so that we may further evaluate other, potentially more effective options,’ to bar coal shipments through Oakland. ‘I remain strongly opposed to the transport of coal and crude oil through our city,’ Mayor Schaaf wrote in her letter.”

Later, the City revised the scope of work for ESA to include not only coal and petcoke, but also “Fuel Oils, Gasoline and/or Crude Oil Products.” A new hearing on retaining ESA was set for May 3, 2016. By this time, however, significant changes had been made to the proposed ESA Scope. The staff recommendation still included a waiver of the Municipal Code mandated competitive selection requirements, but the terms of the ESA proposal were different:

The scope of review was substantially expanded to include the now almost eight month old “record” on coal as well as the yet-to-be-compiled record on “other hazardous fossil fuel materials;”

Notwithstanding the significant expansion in work and scope, the budget for the effort was slashed from $208,000 to $120,000; and

Notwithstanding the significant expansion in work and scope, the time frame for completing the review and reporting back to the Council was slashed from “7-8 months” to six weeks.

At the May 3, 2016, City Council hearing, not only did the Council approve the ESA scope proposal, they also unanimously voted to override normal City Council scheduling protocols for scheduling hearings through the City Rules Committee, and directly scheduled the June 27, 2016 hearing on the proposed Ordinances.

And, apparently, the City could have saved itself the cost of the ESA report, a majority of the Council having stated publicly that they would never allow coal to be shipped through the Facilities. In May 2016, Council President Lynette Gibson-McElhaney issued a press release stating that she “is unequivocal in her opposition to coal being exported from the City-owned lands.”

Then, from the dais on May 3, 2016 prior to consideration of the ESA proposal, Councilmember Noel Gallo stated on the record in open session that he was “ready to vote no on the coal.” And almost simultaneously, a fourth City Councilmember, Abel Guillen, posted a picture on Instagram of himself holding a sign that said, “NO COAL IN OAKLAND.”

And Mayor Libby Schaaf repeatedly made clear to the public and press her adamant opposition to coal being transported at and through the Facilities and her intention to do anything necessary to prohibit it. And on at least one occasion in October 2015, she personally told a principal of OBOT that she would do anything in her power to make sure that no coal would come through Oakland, “even if it meant killing the entire project to do so.”

On July 27, 2016, the City held a hearing on the proposed Ordinance to ban coal and petcoke in Oakland, and a Resolution applying the ban to the Facilities. Three days in advance of the hearing (including Saturday and Sunday), the City disseminated a 225-page staff report that included a report by ESA (later thoroughly and unequivocally discredited by Judge Chhabria) and the proposed Ordinance and Resolution. OBOT sent a letter to the City on the same day as the hearing to discourage the Councilmembers from breaching the DA by adopting the Ordinance/Resolution, and criticizing the findings in the ESA report.

The City’s actions are in clear violation of the DA, which prevents the City from imposing new regulations that will thwart the development and operation of the Facilities:

3.4.1 Future City Regulations. Except as otherwise specifically provided in this Agreement . . . City shall not impose or apply any City Regulations on the development of the Project Site that are adopted or modified by City after the Adoption Date (whether by action of the Planning Commission or the City Counsel, or by local initiative, local referendum, ordinance, resolution, rule, regulation .. . that would: (i) be inconsistent or in conflict with the intent, purposes, terms, standards or conditions of [the DA]; (ii) materially change, modify or reduce the permitted uses of the Project Site . . . (iii) materially increase the cost of development of the Project . . . (iv) materially change or modify, or interfere with, the timing, phasing or rate of development of the Project; (v) materially interfere with or diminish the ability of a Party to perform its obligations under the City Approvals, including [the DA], or the Subsequent Approvals, or to expand, enlarge or accelerate Developer’s obligations under the City Approvals, including [the DA], or the Subsequent Approvals; (vi) materially modify, reduce or terminate any of the rights vested in City Approvals or the Subsequent Approvals made pursuant to [the DA] prior to expiration of the Term.

Federal Case and Appeal.

On December 7, 2016, OBOT filed a federal lawsuit against Oakland for breach of the DA for adopting the Ordinance and Resolution without any “substantial evidence” that transporting coal through the terminal would present a “substantial danger” to people in Oakland. OBOT also argued that the ordinance violates the Commerce Clause of the U.S. Constitution and is preempted by a variety of federal statutes: the Interstate Commerce Commission Termination Act, the Hazardous Materials Transportation Act, and the Shipping Act of 1984.6 The court considered the record evidence regarding the potential health and safety impacts of operating the Facilities. “The most significant parts of the record before the City Council focus on whether OBOT’s operations would diminish air quality in Oakland and thereby endanger human health. ESA used the evidence from the record to estimate emissions for the project, which were then reprinted in the City Administrator’s June 23, 2016 report recommending that the City Council pass the ordinance and apply it to OBOT. [Citation.] ESA’s

Given the court’s finding of breach of the DA, the court made no ruling on OBOT’s constitutional or preemption claims.

Estimates, however, were almost completely unreliable.” (Chhabria Ruling, p. 11, [emphasis added].) The court found the following findings to be unreliable:

“ESA emphasized that there are no existing rules or regulations that would require the coal operations to use covers. Other commenters, and later, the City, echoed this point. But this simply begs the question. [Citation.] The project developers submit that they are willing to obligate themselves to accept only coal that is carried to the terminal on covered rail cars. That is, OBOT could, and seemingly would, contractually require the terminal operator, coal supplier, or rail carrier to use covers as a condition of doing business. This would address any concerns about limits on local governmental authority to impose constraints on the coal or rail operations. [Citation.] And it appears that after the ordinance was passed, OBOT did just that, requiring the terminal operator to use covered rail cars as part of its lease agreement.” (Id. at p. 14.)

“Alternatively, the Air District in the Bay Area could require OBOT to mitigate emissions by using coal covers. As OBOT points out, the South Coast Air Quality Management District recently adopted a rule requiring covers. The rule requires facilities that store, handle, and transport coal and coke to cover vehicles carrying these goods before they leave the facilities. The rule also specifies the kinds of covers that are acceptable, allowing alternatives only if they are capable of preventing fugitive particulate matter emissions. [Citation.] Not only could the Air District in the Bay Area require the use of covers as a condition of issuing a permit to operate, but it could pass similar regulations that would apply more generally.” (Id. at pp. 14-15.)

“ESA excluded surfactants from its main emissions estimates because it claimed it did not have objective scientific data about how well surfactants would reduce coal dust emissions from rail cars. But instead of attempting to estimate their effectiveness, ESA simply decided that surfactants would not be effective and did not account for them in its final emissions estimates. [Citation.] This again was a big mistake. Because the project developers had told the City they would require surfactants to be used on the coal arriving at the terminal, ESA should have made a meaningful effort to incorporate them in its final estimates rather than deeming them irrelevant.” (Id. at pp. 15-16.)

“ESA’s final estimates thus wrongly assumed that emissions during transport and staging would be uncontrolled. ESA provided rough estimates of ‘controlled’ emissions earlier in its report, where it assumed (without any meaningful analysis) an 85 percent reduction in emissions during the transport and staging phases (Tables 5-2 and 5-5). But these numbers were excluded from the final table (Table 5-7). Although these earlier tables suggested the dramatic reduction in emissions that controls might make possible, ESA, and later, the City, gave them little, if any, weight. As explained earlier, the City Administrator reprinted Table 5-7 in the June 23, 2016 Agenda Report and concluded from it that the emissions from OBOT would pose a substantial danger to health and safety and that the City Council should pass the ordinance. As the City Administrator put it, ‘Per the table . . . the overall emissions from the OBOT project are expected to exceed both the daily and annual PM 10 and PM 2.5 City of Oakland CEQA Thresholds of Significance, which would be considered a significant unavoidable impact under CEQA and thus presumptively a substantially dangerous condition to health.’” (Id. at p. 17.)

“Therefore, given the record before it, the City Council was not even equipped to meaningfully guess how well these controls would mitigate emissions.” (Id. at p. 17.)

“The emissions estimates were further flawed because they resulted from a misapplication of federal guidance and mistaken assumptions about the type of coal to be transported to the terminal.” (Id. at p. 18.)

“Despite the absence of any adequate air quality analysis, the City argues that OBOT would cause impermissible exceedances of the national standards. The record does not contain meaningful evidence to support this assertion.” (Id. at p. 27.)

“The City raises a host of other concerns about the terminal, including fire hazards, worker safety, and greenhouse gases. But on these points, too, the City’s record lacks substantial evidence that the coal operations will pose a substantial health or safety danger.” (Id. at pp. 30-31.)

“It is facially ridiculous to suggest that this one operation resulting in the consumption of coal in other countries will, in the grand scheme of things, pose a substantial global warming-related danger to people in Oakland.” (Id. at p. 33.)

Following a bench trial before Judge Chhabria, the court found in favor of OBOT on its breach of contract claims. The resolution applying the coal ordinance to the Facilities is invalid, because it is a breach of the DA. The City was therefore enjoined from relying on the Resolution either to apply the Ordinance to OBOT or to restrict future coal operations at the Facilities. The City was quite aware of the impact that the Ordinance and Resolution would have on Claimants’ ability to survive as a business. From the time well before the City’s purported “Health and Safety Hearing” on September 21, 2015, OBOT openly shared with the City its need to finalize an option agreement and sublease for the Facilities with a bulk commodity provider willing to make a substantial investment in the Facilities including tens of millions of dollars and a decades-long commitment.

While OBOT initiated the lawsuit against Oakland, the City’s adoption of the Ordinance and Resolution as well as its defense against OBOT’s action with no substantial evidence to support the City’s position were acts of Force Majeure that delayed OBOT’s performance under the Lease. Rather than resolving OBOT’s claims, Oakland vigorously defended its erroneous position. Oakland continues to prosecute its appeal of the Chhabria Ruling, which interferes with OBOT’s ability to perform timely under the Lease.

Permit Application, Pre-Meeting & Cappio Memo.

On November 6, 2015, Assistant City Administrator Claudia Cappio sent an internal memorandum to the Oakland Planning and Building Department regarding Permitting for the Facilities (“Cappio Memo”). The Cappio Memo represents a transparent effort by Oakland to slow down or halt construction of the Facilities, contrary to the intent of the parties set forth in the DA. The Cappio Memo provides that, “[d]ue to the high-profile nature of the project it is important for the City Administrator’s Office to provide updates to the City Council on the status of OBOT implementation,” and Cappio intends to notify the City Council whenever an application for a building or construction related permit is submitted by OBOT. It is important to note that no other development project at the Oakland Army Base has had a similar restriction placed upon it, particularly one that modifies the regulatory scheme in place in violation of the DA.

Cappio instructed the Planning and Building Department to notify City staff “upon receipt of any building or construction-related permit application for OBOT (including, without limitation, building permit, p-job permit, grading permit, creek protection permit, etc.)” [emphasis added] and further instructed that the Planning and Building Department that it may not “deem the application complete or issue the permit until after consultation with” Cappio, Rachel Flynn, the Director of Planning and Building, and Darin Ranelletti, the Deputy Director of Planning and Building. OBOT is not aware of any other project in the City that is subject to such direction.

Subsequently, during a pre-application meeting on March 9, 2016 at which the OBOT team expected to discuss with City department heads the necessary components for a complete application for a building permit for the Facilities, OBOT presented the basis of design to relevant department heads and permit decision-makers. Oakland clarified that the purpose of its stepped-up attention to OBOT’s permit applications is to subject OBOT to additional discretionary approvals, notwithstanding the provisions of the DA. Section 3.4.4 of the DA provides that the City “shall have the right to apply to the Project at any time, as a ministerial act, the Construction Code and Standards in effect at the time of the approval of any City Approval or Subsequent Approval thereunder.” [Emphasis added.] The purpose and intent of the DA is to establish the existing regulations and permit requirements and shield the developer from future changes in regulation with limited exceptions. The purpose of development agreements, generally, and this DA, specifically, was aptly summarized in the Chhabria Ruling: “As a general matter, development agreements are contracts between local governments and developers that freeze existing zoning and land use regulations into place. These agreements are intended to provide developers with a measure of certainty that new and unexpected government regulations will not stymie their projects, particularly when the projects require years of investment, government approvals, and construction. Consistent with this general approach, the agreement between the City and OBOT includes a provision that prevents the City from imposing new regulations on the terminal project after the date on which the City signed and adopted the agreement. Development Agreement § 3.4.1 (Ex. 584.0022-0023); see Save Tara v. City of W. Hollywood, 45 Cal. 4th 116, 138 (2008); Santa Margarita Area Residents Together v. San Luis Obispo Cty., 84 Cal. App. 4th 221, 226-27 (2000).” (Chhabria Ruling, p. 8.)

In the March 9, 2016 meeting, the OBOT team questioned the City’s continued and repeated references to the review being “discretionary.” OBOT’s concern was that discretionary decisions by the City, in some instances, potentially re-opens analysis under the California Environmental Quality Act (“CEQA”). But the CEQA analysis of the Facilities had long-since been completed, as evidenced by the dismissal of two lawsuits by the Sierra Club and others a based upon the lack of timeliness of the challenge. Given the DA’s express provision that review of the Facilities for permitting would be “ministerial,” OBOT informed the City that designation of such review as “discretionary” in order to trigger new CEQA review, would violate the DA.7 It was clear, nonetheless, that by subjecting each permit application to increased scrutiny and discretionary review, the City was attempting to reopen CEQA review improperly, all for the purpose of interfering with completion of the Project.

Additionally, the City stated at the March 9, 2016 that it was unsure of whether the current Construction Codes and Standards were sufficient to address the issues that may be raised by the construction and operation of a bulk terminal facility and that it was going to implement a process to review the current codes and standards and determine if they need to be supplemented for the Project.

On March 11, 2016, OBOT provided notice of the Force Majeure Delay caused by the City’s inability to inform OBOT of the Construction Codes and Standards and applicable City Regulations that will apply to Premises and Project Improvements. (See Stice Letter, dated March 11, 2016.) Because the City stated that it was unable to provide the foundational information set forth in the applicable Construction Codes and Standards and applicable City Regulations as required under Sections 3.4.3 and 3.4.4 of the DA, OBOT was not able to continue its work on the design of the Project Improvements beyond the preliminary stage. This constitutes a Force Majeure event beyond OBOT’s control that results in actual delay of OBOT’s performance under the Lease. Due to the City’s act of Force Majeure, OBOT is entitled to an extension of at least two years of the Commencement Date with respect to the specified, material lease obligations in order to complete the design and construction of the Facilities.

The core foundation on which any terminal will be constructed and operate is the Basis of Design. The City was provided the Basis of Design in September 2015 to provide the minimum construction and operational standards applicable to the terminal, regardless of commodity to be shipped. Since that submittal, OBOT has consistently requested feedback and direction from the City on specific requirements and expectations for a permit application, including that leading up the March 9, 2016 meeting noted above. Never has the City provided any meaningful feedback regarding the Basis of Design. In fact, OBOT expressed its concern to the City on September 24, 2015, that the Council was not being provided copies of the Basis of Design and that it was not being included electronically with other documents in the administrative record for the Project.

There are legal principles that would justify re-opening of CEQA (e.g., a significant change in the Project proposed by OBOT), but none of those principles were or are present in this instance.

Additionally, under the terms of the DA, Section 3.4.3, the City had the obligation to compile a record of all “existing City regulations” applicable to the Project in that one of the primary points of the DA is to prohibit the imposition of new laws and regulations to the project.

Despite repeated requests, the City refused to provide the record of applicable regulations. The following March 7, 2016 email from Phil Tagami to Claudia Cappio is exemplary of the numerous frustrating attempts the Project made to get the record, from which a permit application could be premised and brought forward:

My latest of several request, by e-mail of 2/23/16 now two weeks old, for the “binder” (s) from the City to fulfill a city obligation contained in the Development Agreement section 3.4.3 (page 19)
remains unanswered. The submittal is now almost 2.5 years late. We do not want our design team, consultants proceeding with design work, nor our prospective tenants making operational and timing representations that are not consistent with the rules. Time continues to slip past us on this request. Consider this as an official plea for a written response with the status of the binder and when we might get it.

How is one to be expected to apply for a permit when the permitting agency itself refuses to verify which rules are applicable to the Project for which the permit is sought?

The Basis of Design, with other materials, were provided to the City again on September 28, 2018. In an October 18, 2018 response, the City acknowledged receipt of the Basis of Design and other materials. However, the City stated that it was recognizing only “conceptual drawings,” merely a portion of the full context of the Basis of Design, and is apparently disregarding the rest. The City then went on to contend that the submittal is “incomplete,” curiously asserting that “[t]he City’s response to this submittal shall in no way be construed as a substantive response or acceptance of a cure or commencement of cure of the Unmatured Event of Default described in the letter form the City Attorney dated September 21, 2018.” The context and true facts related to “cure” provisions are addressed below. The City’s October 18, 2018 response is but the latest example of its efforts to obfuscate and to erect improper roadblocks to Project completion. OBOT will be shortly responding in full to the City’s letter separately.

Threat to Reopen CEQA.

The Cappio Memo and the City’s subsequent representation that it considers each permit application to require discretionary review raises the likelihood of the City’s anticipatory breach of Section 3.5.1 of the DA, which permits the parties to rely on the Project EIR for review and processing of subsequent approvals. This contradicts the terms of the Lease and DA, and California law regarding CEQA review of ministerial decisions.

An EIR for the Army Base was prepared in early 2000s. The City prepared an Addendum EIR in 2012 with the revised proposal from Oakland Global (OBOT’s predecessorin-interest), and adopted the Addendum. The Addendum included the imposition of an extensive suite of mandatory mitigation measures and conditions of approval. Supported by the EIR, the City adopted the first of the vesting entitlements for Oakland Global, a LDDA on October 23, 2012. The City relied upon and reaffirmed the EIR in connection with future approvals:

Adoption of the Addendum EIR on June 21, 2012;

Letter from City to stakeholders dated August 30, 2012 reaffirming the adequacy of the CEQA review;

Approval of Project grants by the California Transportation Commission including reliance on the EIR, on October 24, 2012;

Adoption of the DA on July 16, 2013;

Adoption of the Third Amendment to LDDA and Mid-Project Budget Revision on December 16, 2014;

Adoption of resolution forming Community Facilities District in support of development activities at Facilities on July 21, 2015; and

June 17, 2016 City resolution authorizing the City Administrator to secure up to $53 million in bridge financing to complete the public infrastructure project.

The 2014, 2015, and 2016 reliance on the Addendum in support of Project approvals contradicts the City’s prior stance that further CEQA review would be necessary and appropriate for Project permitting review in that the City, in these approvals, continued to affirm the 2012 Addendum as accurate and sufficient to support additional Project-related approvals.

Per the terms of the DA, the certified EIR already addressed the environmental impacts of the Project:

3.5.1 Reliance on Project EIR. The EIR, which has been certified by City as being in compliance with CEQA, addresses the potential environmental impacts of the entire Project as it is described in the Project Approvals. It is agreed that, in acting on any discretionary Subsequent Approvals for the Project, City will rely on the EIR to satisfy the requirements of CEQA to the fullest extent permissible by CEQA and City will not require a new initial study, negative declaration or subsequent or supplemental EIR unless required by CEQA, as determined by City in its capacity as the Lead Agency, and will not impose on the Project any mitigation measures or other conditions of approval other than those specifically imposed by the City Approvals, specifically required by the Existing City Regulations or by subsequent CEQA review.

In order to justify supplemental CEQA review under the law, the following criteria must be present: (1) substantial changes in the project; (2) substantial changes in the environment; or (3) new information that was not known or could not have been known at the time of CEQA compliance. Pub Res Code § 21166; Melom v. City of Madera (2010) 183 Cal.App.4th 41, 48. None of those circumstances are present here.

While CEQA review does not require the City to evaluate the impact of particular commodities transported through the Facilities, the City was aware that coal was one of the bulk commodities that would be transported through the Facilities prior to approving the DA. Coal was identified in each of the following materials reviewed by the City:

Kinder Morgan PowerPoint from 2011 identifies “Bulk Tonnage Breakout” and lists coal.

April 19, 2012 report to the Oakland Community and Economic Development Agency (“CEDA”) regarding “OBOT and OGRE as of April 19, 2012” by the Tioga Group, Inc.

June 2012 video of comparable facility in Long Beach featured coal.

May 8-11, 2012 email exchanges between Port staff expressly referencing coal as a potential commodity to be shipped.

Port-funded review dated May 31, 2013 by Lautsch Davis, expressly including coal as one of several commodities on suggestion list.

September 12, 2013 letter from Betsy Lake attaching a copy of the Long-Range Property Management Plan for the Oakland Army Base that shows the proposed use of Parcel E is a bulk commodities terminal for commodities, “(e.g. lumber, coal, sulfur)” to be transported from link rail to vessel.

September 15, 2013 emails between staff members at BCDC and Development Commission to attorney at Earthjustice and forwarded to attorney at Sierra Club, noting that coal had been expressly included in discussions regarding potential commodities at OBOT.

No further permits that are required to develop and construct the Facilities require discretionary review, absent a request by OBOT for changes beyond the scope of the existing entitlements. Nonetheless, in both the Cappio Memo and at the March 9, 2016 meeting, the City indicated that it would require OBOT to obtain a Creek Protection Permit, which is unnecessary under the scope of the Project. This is particularly befuddling considering that the Addendum (prepared for and adopted by the City as lead agency) expressly states that a Creek Protection Permit is not needed: “In conclusion, waters in the project area are not defined as a creek by the Creek Protection Ordinance. This finding is consistent with the 2002 EIR findings that there are no creeks in or near the project area, and conditions do not exist that could cause a conflict with the City’s Creek Protection Ordinance.” (2012 Oakland Army Base Project Initial Study/Addendum, at 183). Thus, the only reason for the City to require OBOT to obtain a creek permit would be to subject the Project to further, unnecessary discretionary review in bad faith.

“Ban-Compliant Facility” Mandate.

The City has insisted that OBOT construct a facility that complies with the illegal Coal Ban. However, in the federal litigation regarding the Coal Ban, the court ruled that application of the Coal Ban to the Facilities is invalid, constitutes a breach of the development agreement, and the City may not rely on it to restrict operations at the Facilities.

Under Section 12.4 of the Lease, OBOT has the right to sublet the Premises without the City’s consent. The City’s position that the Facilities comply with an illegal Ordinance that has been found to be invalid as applied to the Facilities constitutes anticipatory breach of the DA and Lease. See Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes (2010) 191 Cal.App.4th 435, 441 (city’s insistence that developer resolve FAA objections before moving forward with the development agreement, which resolution was not a condition for performance in the development agreement, constituted anticipatory breach of the DA and the developer was entitled to money damages).

Fence Permit.

Among the responsibilities originally allocated to the City was the provision of perimeter
fencing to secure the site. When it was clear the City was either incapable or unwilling to provide the fencing on the schedule that would allow the Project construction to continue, OGRE agreed to provide the fence. The City stated that construction of the fence would require a permit from the City. In the course of evaluating the permit application for the fence, the City departed from the previously agreed upon plan for the placement of the fence in the public right of way and instead insisted that the fence be constructed on Claimants’ private leased lands.

Additionally, though the design of the fence had been long-since agreed upon, the City insisted on a new review of the proposed fence, including revised plans and design drawings. Even after Claimants acquiesced, the City continued to drag its feet on processing the fence permit, which has still yet to be issued.

In addition to the City permit, the fence implicated the need for authorization from the
Bay Conservation and Development Commission (“BCDC”). As a separate and independent claim of breach by the City as addressed below, the City affirmative interfered with and sought
to thwart OBOT’s efforts to secure BCDC’s authorization for the necessary work and
improvements.

Additional City Breaches.

To the extent the City breaches set forth in Sections I(A) and (C) – (K) have delayed
OBOT’s performance under the Lease, OBOT is entitled to a corresponding extension of the
time for required performance.

Non-Disturbance Agreement.

Under Section 12.5 of the Lease, the City has an obligation to issue a Non-Disturbance Agreement for the Subtenant (“NDA”) who will operate the Facilities. 12.5.1 Conditions for Non-Disturbance Agreements. From time to time upon the request of Tenant, Landlord shall enter into agreements with Subtenants providing generally, with regard to a given Sublease, that in the event of any termination of this Lease, Landlord will not terminate or otherwise disturb the rights of the Subtenant under such Sublease, but will instead honor such Sublease as if such agreement had been entered into directly between Landlord and such Subtenant (“Non-Disturbance Agreements”). . . (v) if Tenant is then in default of any of its obligations under this Lease, Landlord may condition its agreement to provide a Non Disturbance Agreement on the cure of such defaults as Landlord may specify either in a notice of default given under Section 18.1 or in a notice conditionally approving
Tenant’s request for such Non Disturbance Agreement (and if an Event of Default or Unmatured Event of Default on the part of Tenant then exists, then Landlord may withhold or condition the giving of a Non Disturbance Agreement) . . .

Because a form of NDA was not attached to the Lease, OBOT submitted a form of NDA to the City four times. After the third submission, on August 24, 2018, the City finally responded by making redline interlineation changes to the form previously submitted. OBOT and OGRE executed the NDA and submitted it to the City; however, at the conclusion of a meeting with the City on August 29, 2018, the City indicated that it needed to make additional changes to the NDA, stating that it would have the changes to OBOT and OGRE later that day.

After a week and a half of following up with the City, but no response, in a letter to the City Attorney dated September 7, 2018, OBOT and OGRE rescinded their respective signatures and provided suggested revisions to the NDA to correct the items orally raised by the City, as well as to make corrections to bring the NDA back into conformance with the language of Section 12.5.1 of the Lease.

On September 27, 2018, the City refused to issue a NDA with respect to the proposed sublease between OBOT and OGRE, notwithstanding the City’s contractual obligation to do so.

As a pretext, the City predicated its refusal on Section 12.5.1 of the Lease and the City’s incorrect claim that it is entitled to withhold or condition the grant of a NDA to a Subtenant because OBOT has committed an Unmatured Event of Default related to the Initial Milestone Date. The City argued that OBOT may renew its request for an NDA for the OGRE Sublease following “resolution of the Unmatured Event of Default.” As demonstrated in this letter and prior correspondence to the City, no Event of Default or Unmatured Event of Default exists given the City’s actions, omissions, and breaches of its express and implied contractual and legal obligations.

Additionally, as noted in the City’s September 27, 2018 letter, the September 7, 2018 submission by OBOT and OGRE was not only a request for the City to enter into an NDA, but, consistent with Section 12.5.2 of the Lease, included a copy of the form of NDA showing requested interlineations or deletions to the form of NDA previously circulated by the City.

Importantly, Section 12.5.2 of the Lease requires the City to approve or specifically disprove the requested interlineations or deletions within twenty (20) days. That Section also provides:

“Failure by Landlord to approve or disapprove of specific interlineations, deletions or other modifications requested by a Subtenant within such twenty (20) day period shall be deemed to be approval of the requested changes . . . .” (Emphasis Added).

Unlike Section 12.5.1, the City’s obligation under Section 12.5.2 to comment upon requested changes to a form of NDA is not conditioned upon the absence of an Event of Default under the Lease. As such, the City was notified that OBOT and OGRE deemed the City’s nonresponse as approval of the requested changes to the form of NDA. Despite the plan language of Section 12.5.2, in an October 17, 2018 letter, the City rejected this assertion, claiming that the City’s refusal to issue an NDA somehow relieves it of its obligations under Section 12.5.2.

Again, for the City to comply with Section 12.5.2 of the Lease, it is required to specifically approve or disapprove the requested changes. A blanket “I refuse to comment” is not sufficient.

This only further evidence the City’s total disregard to the bargained for process and OBOT’s rights under the Lease.

Moreover, concurrent with the execution of the ITS sublease, on September 28, 2018, OBOT submitted a request to the City for an NDA in favor of ITS. No legitimate reason exists for the City’s refusal to provide the requested NDA. To reinforce this point, on October 3, 2018, Manatt sent a letter to Oakland notifying the City that its refusal to issue the NDA has and will continue to cause substantial damage to OBOT and OGRE, and it is interfering with their business and contractual relationships with third-parties. Despite these aforementioned warnings, on October 17, 2018, the City circulated a letter stating that it was once again refusing to provide an NDA to OBOT in favor of ITS based upon its alleged Unmatured Event of Default. OBOT—and by extension, OGRE and ITS—are entitled to an NDA according to the terms of the Lease. The City’s failure to issue the NDA is causing damage to OBOT and its subtenants.

It is worth noting that when Ms. Bijal Patel—Special Counsel for the City and the author of these letters as well as most (if not all) other letters sent to OBOT by the City—first met OBOT in or around October 2017, one of the very first things she stated was that she thought the Project was a horrible deal for the City, and that if she had been around when the parties negotiated the agreements, the deal would have never happened. Such a sentiment truly typifies the City’s ongoing efforts (even before Ms. Patel’s involvement) to renegotiate the deal despite the City’s binding contractual and other legal obligations.

Estoppel.

Under Section 26.1 of the Lease, the City has an obligation to provide an Estoppel Certificate at OBOT’s request certifying that the Lease is in effect and other basic facts.

26.1 Estoppel Certificate by Landlord. Landlord shall execute, acknowledge and deliver to Tenant (or at Tenant’s request, to any Subtenant, prospective Subtenant, prospective Mortgagee, or other prospective transferee of Tenant’s interest under this Lease), within fifteen (15) Business Days after a request, a certificate stating to the best of Landlord’s knowledge (a) that this Lease is
unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the modifications or if this Lease is not in full force and effect, so stating), (b) the dates, if any, to which Rent and other sums payable hereunder have been paid, (c) whether or not, to the knowledge of Landlord, there are then existing any defaults under this Lease (and if so, specifying the same), and (d) any other matter actually known to Landlord, directly related to this Lease and reasonably requested by the requesting Party. In addition, if requested, Landlord shall attach to such certificate a copy of this Lease and any amendments thereto, and include in such certificate a statement by Landlord that, to the best of its knowledge, such attachment is a true, correct and complete copy of this Lease, including all modifications thereto. Any such certificate may be relied upon by Tenant, any successor, and any prospective subtenant, mortgagee or transferee of Tenant’s interest in this Lease.

On September 28, 2018, OBOT requested of the City estoppel certificates for both ITS and OGRE. As permitted under item (d) of Section 26.1 of the Lease, for the OGRE estoppel, OBOT asked for a list of matters affecting the status of the Rail Right of Way, including, without limitation, the date when City will turn over the Rail Right of Way to OBOT, as well as OBOT’s ability to enter onto lands identified as owned by the Port to perform the rail improvements contemplated under the Lease. On October 18, 2018, the City provided an estoppel for OGRE, which erroneously references the Unmatured Event of Default; however, the City refused to provide an estoppel for ITS.

On October 18, 2018, the City issued responses to the requests for estoppels as to ITS and OGRE, respectively. As to ITS, though acknowledging that the Lease is in full force and effect and that OBOT has been paying rent, it improperly and erroneously states that OBOT’s sublease with ITS is invalid and reiterates the assertion that an Unmatured Event of Default is pending.

Accordingly, the City wrongfully states, ITS may not rely on the estoppel. The response to the request for estoppel as to OGRE is similarly mistaken and violates the City’s clear obligations under the Lease. In neither response does the City address, other than to summarily dismiss, OBOT’s assertion of repeated force majeure events knowingly and intentionally caused by the City. While OBOT and OGRE will respond directly to these latest communications from the City separately from this letter, the October 18, 2018 letters serve to reinforce the City’s goals— to continue to impose unreasonable and improper delay and costs on OBOT in the hope that completion of the Project will become financially and commercially impossible. OBOT—and by extension, OGRE and ITS—are entitled to unconditional Estoppel Certificates according to the terms of the Lease. The City’s failure to issue the Estoppel Certificates is causing damage to OBOT and its subtenants.

ACTC Funding Withdrawal.

In 2014, Alameda County voters approved Measure BB, authorizing an extension and augmentation of the existing transportation sales tax (Measure B). Measure BB is projected to generate approximately $8 billion in revenues from April 2015 to March 2045 for transportation improvements for Alameda County. In addition to monies set aside for the City, ACTC allocated $22 million of funds generated by Measure BB to the Project as part of its goal of recognizing the economic importance of the Port of Oakland and providing connections between goods and markets with minimal impacts to residential neighborhoods. The City asked OBOT to support Measure BB, which it did. Measure BB passed but no funds have been disbursed to aid in development of the Project to date. The City must request disbursement of the funds from Alameda County Transportation Commission (“ACTC”), however, Councilwoman-at-large Rebecca Kaplan refuses to request the funds because she does not want to support the Project absent a promise to not ship coal or petcoke. On June 13, 2015 Councilwoman Kaplan introduced a resolution at an ACTC Board meeting to prevent the ACTC funds from being released for the City Funded Wharf Improvements.

Pursuant to Section 6.3.1 of the Lease, Oakland has an obligation to identify and pursue third party funds, like ACTC monies, necessary to construct the Facilities.

6.3.1 Pursuit of Additional Funds. The Parties shall cooperate in the identification and pursuit of third party funds necessary to Complete the following improvements (the “Additional Funds”): the Pre-Closing Off-Site Improvements, the WGW Additional Site Preparation Work and the City Funded Wharf Improvements (the “Unfunded Improvements”); provided, however, such obligation shall not require either Party to (i) provide its own funds or (ii) secure debt to pay the required costs. The Parties’ obligations with respect to the identification and pursuit of Additional Funds shall terminate upon the earlier to occur of (a) the date that the Unfunded Improvements have been fully funded and (b) April 16, 2019, as such date may be extended pursuant to Force Majeure events, but only to the extent such an event (1) first occurs after February 16, 2016 and (2) only if notice is provided within thirty (30) days of the event triggering the claim of Force Majeure. For the purpose of this Lease, the term “Additional Funds” shall include the $166,661.31 payment made by Tenant to the City pursuant to Section 5.6 of the LDDA Third Amendment.

If Additional Funds have been identified by the Parties and allocated to City prior to the April 16, 2019 deadline but have not yet been received by City, City’s obligation with respect to such previously identified and allocated Additional Funds shall continue until City has received such Additional Funds.

Additionally, on July 31, 2015, Mayor Libby Schaaf and Council President Lynette Gibson-McElhaney co-signed a letter to the Executive Director of ACTC in which they differentiated between public versus private improvements at the former Oakland Army Base. They expressly highlighted that “the potential for the export of coal and related product is an extremely controversial issue” related to the “private improvements.” Distinguishing their request for funding for the public improvements from that allocated for the private improvements, the letter states: “Please be advised, however, that our efforts to appropriately address the coal export issue related to the developers [sic] private improvements do not affect the City’s request for ACTC grant funding for the public infrastructure improvements at the Army Base.” (Emphasis in original.)

In spite of the foregoing, on October 31, 2016, the City applied for +$27.46 million in
ACTC funding for wharf improvements at Wharf 7 on the OBOT WGW lease premises—
improvements that would need to be made no matter the type of bulk commodity handled by the

Facilities. However, in yet another act of bad faith, Rebecca Kaplan, City of Oakland Councilmember at large and Alameda County CTC Commissioner, used her influence with ACTC to block the funding of the +$27.46 million over the coal and petcoke issue.9 Thereafter, the City has failed to make any effort to pursue the ACTC funds or to locate any other source of funding, instead electing to engage in a campaign of obstruction.

The City’s failure to cooperate to obtain additional funds from, instead affirmatively acting to rescind funds specifically allocated for this Project, constitutes a breach of the Lease and causes millions of dollars in damages to OBOT. Moreover, as the Measure BB funds are specifically allocated to the Project, the City is permitting tax-payer dollars to go to waste.

BCDC.

San Francisco Bay Conservation and Development Commission (“BCDC”) is a California state planning and regulatory agency with regional authority over the San Francisco Bay, the Bay’s shoreline band, and the Suisun Marsh. In general, it is necessary to obtain a BCDC permit prior to undertaking work in the Bay or within 100 feet of the shoreline, including filling, dredging, dredged sediment disposal, shoreline development and other work. BCDC retains jurisdiction over certain portions of the premises, and OBOT must obtain certain BCDC permits related to aspects of the Project.

Under Section 37.9.1 of the Lease, the City has an obligation to use “commercially reasonable efforts” to obtain third party permits for the construction of the Public Improvements, including permits from BCDC.

37.9.1 Third Party Approvals. City shall use commercially reasonable efforts to obtain all third party permits or approvals necessary to construct the Public Improvements in accordance with the dates set forth in Exhibit 37.9.1, and shall cooperate with Tenant in Tenant’s pursuit of third party permits and approvals related to the Improvements to be constructed by Tenant under this Lease.

Notwithstanding the preceding provisions of this Section 37.9.1 or Exhibit 37.9.1, the timing of construction of the Public Improvements by City shall be governed exclusively by Section 37.9.2(b).

In another example of inconsistent behavior, Counsel Member Kaplan, this time in her role as a board member of the Bay Area Air Quality Management District, advocated for OGRE to obtain a grant through Carl Moyer program to purchase a Tier IV locomotive for use at the Oakland Army Base.

On June 5, 2014, the City obtained an amendment to the BCDC Permit previously issued for a portion of the Public Improvements (the “BCDC Amendment”). The BCDC Amendment included, at the City’s direction, (a) the installation of the re-aligned Burma Road that will provide primary vehicular access to the West Gateway and (b) certain driveway, parking and public access improvements located to the west of the West Gateway (the “Public Access Improvements”). The BCDC Amendment characterized the Public Access Improvements as both part of the permitted improvements and the required mitigation.

The City has now objected to the previously agreed upon Public Access Improvements that were included in the BCDC Amendment. BCDC has stated that it will not permit the use of the Burma Road improvements that are required to provide access to the West Gateway and that it will not process the additional BCDC permits that are required for the development and operation of the Project until the City constructs the Public Access Improvements required under the BCDC Amendment. But the City is now refusing to honor its prior commitments with regard to the funding of such mitigation measure improvements as set forth in the Master Plan and is actively interfering with OBOT’s ability to obtain the BCDC permits necessary to continue withthe Project. The City’s refusal to cooperate with BCDC constitutes a breach of Section 37.9.1 of the Lease.

Community Facilities District.

The Mello-Roos Community Facilities Act of 1982 permits the establishment of a MelloRoos Community Facilities District (a “CFD”), which, in turn, allows for financing of public improvements and services.

Section 37.9.3 of the Lease acknowledges the establishment of a CFD: 37.9.3 Special District. The Parties acknowledge that a Community Facilities District (CFD) final ordinance was approved by City on July 30, 2015 in accordance with the terms of Section 3.6 of the LDDA (the “Special District”). The Special District shall be managed by the City Council in accordance with the Mello-Roos Community Facilities District Act of 1982 (as amended from time to time). The parties negotiated which public improvements are designated as OBOT obligations under the CFD. The parties’ agreement is set forth in Exhibit C to the DA. However, the City has indicated that it intends to renege on its agreement and expects OBOT to incur additional public improvement costs under the CFD. For example, the City has represented to OBOT that itconsiders any mitigation measures required by BCDC to be allocated to the CFD. Additionally, even though the Master Plan contemplated the Port be included in the CFD, and the Port is receiving beneficial use of the public infrastructure within the CFD’s jurisdiction, the City has not yet added the Port to the CFD.10

Budget/Funding Shortfall.

OBOT has acted in good faith in its interactions with the City throughout the Project process. In contrast, the City has taken advantage of OBOT’s cooperation for its benefit. For example, the City and OBOT/Prologis cooperated to obtain Trade Corridor Grant funds from the State of California. While OBOT has helped Oakland to comply with the grant requirements by providing extensive required financial reporting on the Project, the City has not demonstrated that it will support OBOT in developing the Project or that it will allocate the funds Oakland received from the Trade Corridor Grants to the Project.
1.

Mid-Project Budget Revise.

In an April 24, 2014 letter, Fred Blackwell, the then City Administrator, itemized various categories of funding deficiencies in City accounts relative to the original agreements for the project. Specifically, he noted:

The City is looking to both to [sic] the City’s Agent and Developer to work collaboratively with the City to solve the funding shortfall, through value engineering and other means and methods to help address Attachment 6 [of the LDDA regarding public improvements] and additional environmental cost concerns. City staff is also prepared to make any necessary recommendations to City Council at the appropriate time regarding the application and acceptance of any additional grant funding for the Public Improvements. As discussed, City staff is also prepared to evaluate advantages of termed pre-paid rent scenarios for the purposes of generating up-front capital as a back stop measure to help close the gap on the City obligation to the state to realize the necessary vertical private match prior to April 2019. . . . While we would like to focus on moving forward to close the gap, we will arrange line by line walk through to better understand the City’s loss of Tax Increment, accounting, short and long term needs. (April 24, 2014 letter from Fred Blackwell, City Administrator, to Phil Tagami and Mark Hansen.) CCIG, as the City agent and Manager of the City’s public improvement obligations for the Project, responded to the City’s April 24, 2014 letter on July 8, 2014:

OBOT acknowledges that the City has stated it intends to add the Port to the CFD in the future, but OBOT has no adequate assurances when or if that will be done.

CCIG notes that previous iterations of the budget funding sources have not included tax increment funding, but have nonetheless identified sources sufficient to meet the City’s $54.5 million contribution. In a city agenda report dated May 3, 2013, Progress of Oakland Army base Development Project, City Match Funding Sources are identified as : [TIGER II] Planning Grant ($1.6 million); Tidelands Trust Burma Road Fund ($4.1 million); Joint Environmental Remediation Fund ($5.7 million); Leasing Program and Fund Balance ($9.0 million); Joint Infrastructure Development Fund ($16.1 million); and, Land Sale Proceeds ($18.0 million); enclosed herein as Attachment 2. CCIG requests a clarification of current City Match Funding Sources.

CCIG requests that the City provide accounting documentation forthe Tidelands Trust Funds. CCIG notes that there have been major inconsistencies regarding the inclusion of Tidelands Trust Funds in City accounting of the Project’s Sources & Uses. The above-noted city agenda report from May 3, 2013, Progress of Oakland Army Base Development Project, included $4.1 million in funding from the Tidelands Trust Burma Road Fund [ ]. However, the Residual Fund Balance Scenario Analysis for Funds Available for Construction Base on FYTD Fund Balance Summary, dated June 30, 2013, provided here as Attachment 3, identified $7,019,000 in Tidelands Trust funding as being available and unencumbered for use. The most recent Sources & Uses put forth by the City, contained within Attachment 1, did not identify any money as coming from the aforementioned Tidelands Trust Funds. If these funds exist outside of the project budget, they may only be used for purposes consistent with the tidelands trust; in which case, CCIG recommends that Staff seek authorization to apply these funds within the scope of the project budget.

Per section 2.2 of the 2007 Amended and Restated Memorandum of Agreement (ARMOA), these funds are required to be held in separate City trust accounts: $3,000,000 for the use of Gateway Development Area Public Park and related public access purposes; and $4,019,000 for the benefit of tide and submerged lands granted to the City.

CCIG notes that the city agenda report from May 3, 2013, Progress of Oakland Army Base Development Project, identified $9.0 million in the Leading Program and Fund Balance (Attachment 2). However, in the City’s April 24th letter, LDDA First Amendment Section 3.3.2.5 Accounting provided here as Attachment 1, only identifies $4.5 million in leasing revenues allocated to the project budget. If there is indeed $9.0 million in the Leasing Program and Fund Balance, then these additional funds are required to be expended in the redevelopment of the army base . . .

Additional accounting irregularities and funding discrepancies identified in CCIG’s July 8, 2014 letter include:

Failure to separately account for funds to be distinguished between disparate segments of the overall project;

Questions regarding allocation of third-party legal expenses.

In a November 4, 2014 letter, Doug Cole provided a further update on the project, City finances, and the respective responsibilities of the parties under what had been termed the “MidProject Budget Revision”:

To better position the Public Improvements schedule to meet the construction completion and grant matching deadlines set forth in the CTC grant agreement, the City and Developer have agreed to pursue a “Mid Project Budget Revision” which re-sequences the Public Improvements GMP Phases 1 and 2 (currently referenced as the “above the line” and “below the line” GMP scopes).

To re-sequence and accelerate the completion of the Public Improvement components listed above (Phase 1), the City and Developer have created Attachment 3, which sets out the sources (monies available as a result of re-sequencing) and uses (monies required to complete the re-sequenced project elements), which is intended to form the basis for the final budget. The final budget revisions for the re-sequenced Phase 1 must remain within the GMP and sources of funds currently available and the source and uses must also balance.

With respect to funds available, the City has completed its=accounting review as required in the First Amendment to the LDDA and has identified that approximately $8 million was clawed back by the state in the Redevelopment Agency dissolution process. In addition, CCIG, as the City’s Manager, [h]as identified additional remediation costs that are excluded from the GMP and do not qualify for the Joint Environmental Remediation Fund.

Therefore, the Public Improvements phasing must be planned to ensure the costs stay within the City’s available and anticipated sources of money.

Specifically, in accordance with the LDDA, the City is obligated to contribute (1) its share of the $5.7 million Joint Environmental Remediation Fund, which is a “first come first serve” account shared with the Port, (2) $3.8 million as the City’s contribution to the planning of the Port’s rail yard, which money has been spent on the design documents, and (3) $45 million, which amount has been reduced by the approximately $8 million claw back. As of September 5, 2014 there is approximately $3.55 million remaining in the Joint Environmental Remediation Fund (which amount is also available to the Port), and all but approximately $12 million of the City’s Contribution resulting from projected land sales proceeds has been spent on the Public Improvements to date. In response to Developer’s letter dated July 8, 2014, there is no separate tidelands trust account; rather, the tidelands trust monies are accounted for in a separate project budget within the Joint Infrastructure Development Fund. (November 4, 2014 letter from Doug Cole to Philip Tagami.)

Joint Environmental Remediation Fund.

A joint account between the City and Port was established to fund the environmental remediation for the entirety of the former Oakland Army Base reuse plan. Remediation of areas essential to the core operations of the Facilities were and remain an essential prerequisite to being able to construct and operate the Project on formerly contaminated lands.

The U.S. Army made the initial contribution to the Joint Environmental Remediation
Fund (“JERF”) in the amount of $19,000,000. The City and Port made additional contributions.

The JERF was used by the City and Port for consultants and remediation work. A memorandum of agreement between the City and Port stated that separate consultants for the respective entities (i.e., City versus Port) were required. This doubled consulting costs far in excess of what was originally estimated and budgeted.

The Project budget expressly excluded environmental remediation costs, but Project funds were utilized by the City initially. Later, funds acquired from ACTC for “public infrastructure” costs (as opposed to “private,” still being withheld at the request of the City) were used to pay back to the Project the funds inappropriately used for some of the remediation work.

We are uncertain of the exact amount of Project funds inappropriately utilized for remediation activity and the amount of ACTC funds used to reimburse some or all of such Project funds. The City is requested to provide and comprehensive accounting of such funds and activities. Additionally, we note that both the City and Port are required to yearly certify to the state that funds exist for any further remediation necessary for the Project. This year, in both cases, they refer to the JERF. In fact, all funds in the JERF have long-since been exhausted.

Rail Related Force Majeure Events.

The use of rail to transport bulk commodities to and from shipping vessels is a linchpin of the Project. The City, the Port, OBOT, and OGRE all have repeatedly acknowledged the importance of rail to the Project. The core vision for this Project—converting diesel-trucktransported shipments to and from the Port to rail for substantial air quality and other environmental improvements—was central to the obtaining a grant for the Project from the California Department of Transportation, Division of Rail Trade Corridors Improvement Fund (“TCIF”). In addition to the TCIF grant, the Federal Railroad Administration provided funding to the Port through FRA’s TIGER program to supplement the construction of the multimillion dollar Port Rail Terminal, a facility that, due to the City’s delays, is currently siting largely underutilized.

What is more, the 2012 EIR Addendum describes the state-of-the-art rail facilities that will be constructed to support the international, national, regional and local movement of goods. (See Initial Study/Addendum, at 29.) Moreover, the Bay Area Air Quality Management District (“BAAQMD”) provided a +$1.7 Million grant to OGRE to purchase a Tier 4 locomotive. The BAAQMD grant was premised upon the rail traffic assumptions for the Project outlined in the City’s Master Plan. The City has repeatedly represented to the State of California, to the developers, and to the community, that the Project is to be rail served, including the clear statement that “[t]he proposed Oakland Bulk and Oversized Terminal . . . would link rail to vessel break bulk shipping operations.” (See City Of Oakland, Long-Range Property Management Plan Oakland Army Base at 8 (2013).)

Nevertheless, for years the City has intentionally blocked and interfered with OBOT’s efforts to acquire rights for, to access properties for, and to rehabilitate essential rail improvements. The City’s refusal to advance and often outright hindrance of the rail improvements not only blocks Project progress, it jeopardizes the essential funding from State.

The most egregious refusals by the City include the City’s failure for over six years to process, to secure and to provide the Rail Access Agreement, the City’s failure to turn over to OBOT areas of rail right of way (ROW) to allow rail construction and operations, and the City and Port’s active interference with OGRE’s efforts to obtain approvals from the Surface Transportation Board (STB) to facilitate track rehabilitation.

Rail Access Agreement.

Section 5.2.3 of the Lease provides:

5.2.3 Rail Access Agreement and other Third Party Agreements.
Subject to the Parties’ cooperation as set forth in Section 5.2.2.2:
(a)
City shall use commercially reasonable efforts to enter into a “Rail Access Agreement” (as defined in the Amended and Restated CSA11) with the Port which shall provide a definitive written agreement regarding (i) the rights of use with respect to the Port Rail Terminal to be reserved in favor of the West Gateway, New Central Gateway Lease Area, MH-1 Lease Area and East Gateway (including, if applicable, the CE-1 Lease Area and CE-2 Lease Area), (ii) the services to be provided by the Port Rail Terminal Operator, and (iii) the parameters for the rates to be charged for such services, all as contemplated by the Amended and Restated CSA (the “Rail Access Agreement”). Notwithstanding
the preceding provisions of this Section 5.2.3(a) or any other provision of this Lease to the contrary, in the event that,notwithstanding City’s exercise of commercially reasonable efforts, City is unable to enter into the Rail Access Agreement, then, Tenant may elect, upon not less than ninety (90) days prior written notice to Landlord and as Tenant’s sole and exclusive remedy for such inability to enter into the Rail Access Agreement, to terminate this Lease, whereupon (A) the Parties shall execute and record a quitclaim deed or other instrument necessary to remove the Memorandum of Lease from the Premises (which obligation of the Parties shall survive such termination); (B) Tenant shall promptly quit and surrender the Premises to Landlord pursuant to Section 30.1 (which obligation of Tenant shall survive such termination); and (C) except for those obligations which are
expressly stated in this Lease to survive termination of this Lease, all of the Parties’ obligations under this Lease shall terminate. Despite OBOT’s written demands, including its recent letter dated July 20, 2018, the City has failed to use and refuses to use commercially reasonable efforts to pursue a written Rail Access Agreement.

After four years of stagnation, Claudia Cappio committed in October 2016 for the City and Port to meet and discuss the draft Rail Access Agreement by early November 2017. To OBOT’s knowledge, such a meeting did not take place until August 29, 2018, nearly a year after the date originally promised. And while the City, Port, and OGRE met on three occasions during August-September 2018, it became apparent that the City and Port were attempting to collude to expand the access rights of the Port beyond what had previously been agreed to by the parties, depicted in all drawings, and represented to the State and Federal governments. On September 26, 2018, the City elected to discontinue any regularly scheduled Rail Access Agreement meetings. To OBOT and OGRE’s knowledge, no further meetings to discuss the Rail Access Agreement have been held. Instead, as further discussed below, the City and Port have joined forces to interfere with OGRE’s efforts to rehabilitate the rail.

Alternatively, even if the City and the Port fail to enter into the Rail Access Agreement, OBOT still believes it has the right to use the Port Rail Terminal through a transfer of the City’s rights. Specifically, Section 11 of the Amended and Restated CSA provides as follows: “If the Port operator is unable to deliver the rail services as provided in the preceding paragraph, the City shall have the right to provide such services for its own uses of the Port Rail Terminal using its own operator.” The Port has previously represented to OGRE that it is unwilling to enter into a Rail Operating Agreement for rail service at the Port Rail Terminal until the Rail Access Agreement is executed. At this time, there is no permanent rail operator at the Port Rail Terminal. Thus, the Port is currently unable to provide the City rail service to the Port Rail Terminal and, despite a failure to finalize the Rail Access Agreement, the City and its rail operator still have the right to use the Port Rail Terminal. Additionally, because the City granted to OBOT (and OGRE) the City’s “rights to access and use the Port Rail Terminal” under Section 1.5.1 the Lease, OBOT (and OGRE) currently have the right to use the Port Rail Terminal. This is consistent with Section 2.2.2 of that certain Army Base Gateway Redevelopment Project Lease Disposition and Development Agreement, stating that if the City is entitled to exercise a self-help remedy under the CSA, the City shall assign such remedy to the developers—in this case, OBOT. Therefore, in the absence of an executed Rail Access Agreement, OBOT and OGRE request that the City acknowledge in writing OBOT’s and OGRE’s right to use the Port Rail Terminal.

Failure To Deliver the Rail Right of Way.

The City’s bad faith is further evidenced by how it has handled the delivery of the Rail Right of Way (“Rail ROW”) to OBOT/OGRE. Upon the threat of default, in a July 24, 2018, the City demanded that OBOT pay rent for the West Gateway, including the Rail ROW, going back to February 16, 2018. In an instance of the left hand not knowing what the right was doing, up through September 31, 2018, the City and its contractor were performing public improvements within the Rail ROW and neither OBOT nor OGRE had beneficial use of this area. To avoid a claim by the City, OBOT paid and continues to pay rent to the City for the West Gateway (including the Rail ROW) under protest. OBOT and OGRE have diligently and in good faith attempted to pursue the physical work necessary for rail access to the Project and the rehabilitation of pre-existing rail on the Project site. OBOT/OGRE hired a contractor to perform the rail work, are working to obtain an industrial track agreement with Union Pacific Railroad12, and have expended over $1.6 million on rail materials and labor, with the materials currently on site waiting for installation. Yet, all of this is in vain because the City has still not turned over the Rail ROW to OBOT. On October 9, 2018, the City confirmed that it was not prepared to turn over the rail corridor to OGRE, citing an uncompleted survey of the facilities. As recently as October 18, 2018, the City stated that the Rail ROW had not been turned over. This clearly constitutes a Force Majeure claim against the City.

The City also has caused extended delays related to the Northern Interface, where the rail meets the northern edge of the Project, in turn delaying the Industry Track Agreement with Union Pacific Railroad for that area.
3.

The City And The Port’s Failure To Cooperate At The STB.

OGRE’s engagement with the Surface Transportation Board (“STB”) for the rehabilitation and operation of the rail goes back to 2015. Each time OGRE has attempted to move the rail forward with the STB, the City, the Port, or both have objected despite representations to the State and Federal government concerning the importance of rail to the Oakland Army Base project and the foundation of hundreds of millions of dollars in grant money. Most recently, in May 2018, OGRE filed a petition the STB, seeking confirmation from the Board that no additional Board approval was required to construct the rail improvements at the Oakland Army Base, primarily those the City obligated OBOT/OGRE to construct under Section 6.1 of the Lease; OGRE expressly noted in its petition for declaratory order that it would be seeking operation exemption from the STB under a separate application. Under the Lease, the City is obligated to cooperate in good faith to obtain regulatory approvals, such as the approval sought by OGRE from the STB.

Section 5.2.2.2 of the Lease provides: 5.2.2.2 Cooperation. Without limiting the requirements set forth in Section 5.2.2.1, the Parties agree to communicate regularly and to cooperate in good faith regarding Tenant’s efforts to obtainRegulatory Approvals for the Project from any regulatory agency other than City. The Parties’ obligation to cooperate in good faith shall include, but not be limited to, meeting and conferring as necessary, joint invitations to and attendance at meetings, copies of correspondence, and execution of mutually acceptable applications as owner and applicant where necessary and appropriate to implement the Project and this Lease; provided, however, that Landlord shall have no obligation to make any expenditures or incur any expenses in connection therewith other than reasonable administrative expenses.

Despite the City’s clear obligation to cooperate in obtaining STB concurrence with OGRE’s request, the City and the Port (a department of the City) have actively opposed OGRE’s efforts to obtain STB’s agreement that the agency’s approval is not required prior to the rehabilitation of the existing rail at the Project site as agreed between the City and OBOT/OGRE. In violation of Section 5.2.2.2, where the City and the Port should have cooperated with OBOT and OGRE, instead each filed papers with the STB to oppose and to delay a ruling on OGRE’s STB petition. Now, what should have been a relatively easy and quick endeavor has turned into an elongated process with OGRE forced to spend tens of thousands of dollars in legal fees to clarify for the STB the City (and Port’s) misrepresentations.

Moreover, at this point, the only reason for the City to object to OGRE’s petition is a fear that the STB’s ruling will give it jurisdiction over the rail, thus prohibiting the City from attempting to enforce the Ordinance. This is yet another event of Force Majeure under the Lease.

City and Port Property Rights Issues Affecting OBOT/OGRE.

When OBOT and the City entered into the Lease, the City represented that it had easements with the Port that would allow OBOT and its subtenants the right to enter upon Port property (see Lease Sections 1.1.1, 1.1.2, 1.5.1, and 1.5.2) to construct and use this segment of Track. Indeed, Section 6.1 of the Lease requires OBOT to make improvements to “WGW Lead Track No. 2 that is located within the Port Rail Easement,” “The portion of WGW Lead Track No. 2 to be constructed on the Port property located east of the Railroad R/O/W Property and north of the Port Rail Terminal,” and “[t]he rail Improvements designated as Industry Drill Track No. 1” which track is depicted in Exhibit 6.1-B of the Lease as located on Port property. In filing its opposition with the STB, however, the primary argument by the Port for why OGRE should not be allowed to rehabilitate the rail is that “OGRE has not yet obtained the property rights that it needs from the Port to build any track on Port property . . . .” (See Port of Oakland Comments in Response to Oakland Global Rail Enterprise Petition for Declaratory Order, Docket No. 36168, at 13.) The Port goes on to argue the following:

OGRE does not have the property rights necessary to construct any portion of [the] West Gateway Lead No. 2 track on the Port’s property. The City did have a temporary easement from the Port to perform some ongoing preparatory work on this portion of Port property as part of the OAB redevelopment project, but that temporary easement expired and no permanent easement allowing OGRE to proceed with any track construction on the Port’s property has been negotiated by the parties. (Id. at 7.)

This is problematic for two reasons. First, to the extent the Port is correct, and OBOT/OGRE do not have the right to enter upon Port property to make the Rail Improvement, the City has materially misrepresented the property rights granted to OBOT under the Lease.

Moreover, the obligations contained in Section 6.1 are illusory as OBOT has no way under the Lease to perform the same. Second, is the concept of “Port property”. As set forth above, the Port is a department of the City.13 Additionally, the Charter of the City of Oakland specifies that

The Charter of the City of Oakland (as amended through November 2016), Section 700.

“[a]ll real property acquired by the City shall be held in the name of ‘The City of Oakland.’”14

Consequently, the concept of “Port property” is a misnomer as title to all property is legally held by the City of Oakland. This also means that any purported easement between the City and the Port (or vice versa) would automatically merge—in a meeting with Ms. Patel she argued the same. Thus, electing this door, the Port (a department of the City) misrepresented its property rights before the STB. Either way, there are material issues once again providing OBOT a claim of Force Majeure under the Lease.

The City and Port have failed to deliver access to the Project by rail as promised, and have failed to execute the Rail Access Agreement contemplated by the CSA, thereby thwarting OBOT and OGRE’s ability to move forward with the project. Moreover, the City and the Port have opposed and interfered with OGRE’s efforts before the STB to rehabilitation of the railroad ROW at the Project. These are breaches on the part of the City and/or the Port under their agreements with OBOT and OGRE, as well as constituting Force Majeure under the Lease.

Development Agreement Annual Review.

Each year since executing the DA, OBOT has an obligation to provide a summary of its efforts to substantially comply with the terms of the DA. For the first time, on August 27, 2018, the City claimed that OBOT has not met its obligations under Section 3.3 of the DA, to “develop the Private Improvements for each Phase of the Project in accordance with the ‘Minimum Project’ description, scope, schedule and sequencing set forth in the Ground Lease for each Phase.” The City claimed that OBOT failed to submit schematic drawings or a building permit application to the City for review prior to the Initial Milestone Date. As discussed above, the City prevented OBOT’s ability to progress with construction of the Project. Furthermore, the City’s assertion that OBOT failed to comply with the Initial Milestone Date was premature because the DA expressly provides that the annual review is meant to be a retrospective review of compliance over the prior year and it should not include a review of the current year’s compliance. Nevertheless, to demonstrate its good faith in complying with the DA, OBOT resubmitted a basis of design on September 28, 2018, and seeks cooperation with the City to obtain the necessary building permits.

Section 1204. Under the Charter, the powers of the Port include the ability “[t]o acquire in the name of the City by purchase, condemnation, gift, lease, or otherwise take over and hold all lands, property, property rights, leases, or easements, and personal property of every kind, necessary or convenient for the development and operation of the port, or for the carrying out of the powers herein granted to the Board. Whenever the Board determines that any lands owned by the City within its jurisdiction have become unnecessary for port purposes or harbor development, it may in its discretion transfer such lands to the control of the Council, free from all restrictions, or it may sell or exchange such lands, by ordinance subject to the referendum provisions of this Charter.” Section 706(15) (emphasis added).

Pursuant to Section 6.3 of the DA, if the City does not agree with OBOT’s response, it must commence a meet and confer/mediation process. Despite repeated requests to meet, the City refuses to do so, constituting another breach of the DA. Instead, the City contends that OBOT is obligated to “cure” the purported Unmatured Event of Default by October 22, 2018. In responding to the City’s claims of an Unmatured Event of Default, OBOT does not waive its rights under the Section 6.3 (or any other section) of the DA.

Rail Right of Way Edge Conditions.

As OBOT and OGRE have previously notified the City in writing, there are several edge condition items that need to be addressed by the City, including, without limitation the failure by the City’s contractor to install a proper slope along the majority of the W. Burma Road portion of the rail right of way (leaving an unsafe condition and insisting that it is now OGRE’s problem to deal with), grading and drainage issues, and the encroachment of the East Bay Municipal Utility District property into the rail right of way.

Cooperation Agreement.

In order to induce OBOT and the other developers to pursue their respective projects, the City represented that it had entered into a Cooperation Agreement with local community groups in West Oakland, as well as various labor organization. As represented by the City, the purpose of the Cooperation Agreement was to make sure the neighbors and labor groups supported the Project in exchange for job’s and other concessions, including, without limitation, a job center located in West Oakland. Although OBOT and the other developers were not parties to the Cooperation Agreement, the City mandated that the related cost and obligations be borne by OBOT and the other developers. Once the community groups and labor received the benefit of the bargain, however, they refused to honor their obligation to support the Project, and instead were quick to interfere with the Project. The City’s failure to enforce compliance with the Cooperation Agreement delayed Project completion and caused monetary damage to Claimants.

IV.

OBOT’S CURE OF ANY UNMATURED EVENT OF DEFAULT

Assuming, arguendo, the City had correctly (it has not) asserted a claim against OBOT for an Unmatured Event of Default based upon the fact that OBOT did not Commence Construction on the Minimum Project on or before August 24, 2018, OBOT has commenced the required cure within thirty (30) days of the City’s September 21, 2018 notice and is prosecuting the cure with diligence and dispatch to completion.

Section 18.1.7 of the Lease provides as follows:

“18.1.7
Tenant violates any other covenant, or fails to perform any other obligation to be performed by Tenant under this Lease (including, but not limited to, any Mitigation Measures) at the time such performance is due, and such violation or failure continues without cure for more than thirty (30) days after written notice from Landlord specifying the nature of such violation or failure, or, if such cure cannot reasonably be completed within such thirty (30)-day period, if Tenant does not within such thirty (30)-day period commence such cure, or having so commenced, does not prosecute such cure with diligence and dispatch to completion within a reasonable time thereafter;” The alleged default, failure to timely Commence Construction of the Minimum Project, cannot be reasonably cured within thirty (30) days. Section 6.1.1.1 of the Lease provides as follows:

“6.1.1.1
Initial Milestone Date. Commenced Construction of the Bulk and Oversized Terminal and at least one of the components of the Minimum Project Rail Improvements listed in Section 6.1(b) above prior to the date that is 180 days after the Commencement Date (the “Initial Milestone Date”);”
As the City understands, OBOT intends to have its sublessees complete the Minimum Project improvements. As such, the actions required to complete the cure include, but are not
limited to, the following:
a)
With respect to the Minimum Project rail improvements required by Section 6.1(b) of the Lease (the “Rail Improvements”):
(i)
Complete the construction drawings for the Rail Improvements;
(Completed, City has approved the drawings prepared by HDR in conjunction
with the Public Improvements.)
(ii)

Enter into the Sublease with OGRE; (Completed.)

(iii) Obtain the required NDA so that OGRE may secure its right to the
sublease premises in order to justify the required expenditures needed to complete
the Rail Improvements; (Requested, See Section III(C) above.)

(iv)
OGRE to obtain the required clearances from the federal Surface
Transportation Board to confirm that no federal permits are required for the
construction of the Rail Improvements; (Petition submitted, See Section III(I)(3)
above.)
(v)
OGRE to obtain the City’s approval of the HDR rail improvement plans
pursuant to Section 6.2.1 of the Lease; (Complete per (i) above.)
(vi)
OGRE to obtain the required materials for the construction of the Rail
Improvements; (Substantially complete, materials have been ordered and stored
on site.)
(vii) OGRE to obtain the City’s approval of the Construction Plans and Air
Quality Plan (construction) for the Rail Improvements pursuant to the applicable
SCA/MMRP; and
(viii) OGRE to obtain BCDC permit for the construction of the Rail
Improvements;15
(ix)
OGRE to enter into a contract with the applicable contractor for the
construction of the Rail Improvements; (Substantially complete, parties have
agreed upon form and contractor completing final amendments to scope of work.)
(x)
City to complete the rail improvements included in the Public
Improvements and surrender possession of the applicable rail right of way;
(Pending.)
(xi)
OGRE to confirm that the rail portion of the Public Improvements have
been completed pursuant to the applicable plans; and
(xii) Contractor to mobilize and commence construction on the Rail
Improvements.
b)
With respect to the terminal improvements required by Section 6.1(a) of the Lease
(the “Terminal Improvements”):
(i)

Enter into a sublease for with the terminal developer (ITS); (Completed.)

The City does not issue permits for rail improvements, so no City building permit is required.

(ii)
Obtain the required NDA and Estoppel Certificate necessary to satisfy the
conditions set forth in the ITS’ financing; (Requested, Section III(C) above.)
(iii) ITS to obtain the City’s approval of the Terminal Improvements plans
pursuant to Section 6.2.1 of the Lease; (Basis of Design submitted for approval)
(iv)
ITS to advance the design for the Terminal Improvements from the Basis
of Design to final construction plans and obtain required City approvals/permits;
(v)
ITS to obtain the City’s approval of the Construction Plans and Air
Quality Plan (construction) for the Rail Improvements pursuant to the applicable
SCA/MMRP;
(vi)

ITS to obtain regulatory permits for the Terminal Improvements;

(vii) ITS to enter into a contract with the applicable contractor for the
construction of the Terminal Improvements; and
(viii) Contractor to mobilize and commence construction on the Rail
Improvements.

As stated above, OBOT has commenced the cure with respect to both the Rail and Terminal Improvements and requires the City to act (in both its regulatory and proprietary capacity) in order for OBOT and the sublessees to complete the cure. In the best of circumstances, and with the City’s full cooperation as required by the Lease and the DA, it will take approximately six to nine months for OGRE to commence construction of the Rail Improvements and substantially longer for ITS to commence construction on the Terminal Improvements. These schedules will be materially extended if the City continues to frustrate OBOT’s and its sublessee’s efforts.

Because OBOT has commenced the required cure in a timely manner and continues to
prosecute the cure to completion, the City cannot continue to assert that the originally alleged
Unmatured Event of Default relieves the City of the obligation to issue the required NDA and
Estoppel Certificates that are necessary to complete the cure.

CONCLUSION AND CLAIMANTS’ DEMANDS

For the better part of ten years, Claimants (or their predecessors) competently and
diligently worked to complete construction of the Facilities, investing more than $26 million in
the process. They did so with respect for the City’s goals, and equally important, for the needs

of the surrounding community and its citizens. Other than to accommodate requested changes
by the City, Claimants honored all of their obligations, and satisfied all of the conditions within
their control stemming from the heavily negotiated Project documents, including the LDDA, DA
and the Lease.

The same cannot be said for the City.

Beginning with the Ordinance and Resolution aimed at stopping development of the Facilities and continuing with its “slow roll” consideration of Claimants’ submissions, including its instructions not to process any applications without approval from specific individuals and its declaration that ministerial approvals recognized in the Project documents now will be viewed as discretionary, the City has repeatedly breached its contractual and legal obligations. To redress the City’s failures to perform, Claimants seek declaratory, injunctive, and monetary relief against the City that can be summarized as follows:

Declaratory relief that no Unmatured Event of Default by OBOT has occurred under the Lease;

Specific performance of all obligations set forth in the DA and Lease;

Enjoining the City from requiring any further discretionary reviews for Project completion, absent a change in scope by OBOT/OGRE;

Declaratory relief as to the parties’ rights and obligations under the DA and Lease;

Tolling of OBOT’s obligations under the Lease for at least a period of two (2) years (as extended by the City’s continued Force Majeure actions);

Monetary relief consisting of, among other things, delay damages, labor and material cost escalations, lost profits, attorneys’ fees, and interest; and

Such other and further legally recoverable relief.

We are available to discuss these matters.

Very truly yours,

Barry W. Lee
cc:

Oakland Bulk and Oversized Terminal c/o Phil Tagami
Oakland Global Rail Enterprise c/o Mark McClure