Focus narrowing in a mega-lawsuit

Unless attorneys for the city beat long odds with an appeal attempt, they will find themselves trying to convince a jury of the danger of a once-planned oil drilling project, with municipal bankruptcy hanging in the balance.

Attorneys for the city have asked the state Supreme Court to consider intervening in a 12-year-old breach-of-contract lawsuit by Macpherson Oil Company. If the high court says yes, that could lead to an outright dismissal of the multimillion dollar lawsuit. But city officials say that based on court history, they have a mere 5 percent chance of being granted the hearing they seek.

Those long odds presage a likely showdown before a jury to decide whether the oil company can claim all or any of the $700 million it claims in lost profits.

That pushes front-and-center some timeworn arguments over the danger posed by Macpherson’s once dear project to slant-drill under the Pacific Ocean from city-owned land at Valley Drive and Sixth Street.

The city in 1992 signed a contract allowing the drilling. Then Hermosa voters weighed in against the project in 1995, and a City Council in 1998 declared the contract canceled.

After years of arguing up and down the court system, the city has been told that it can get out from under the breach-of-contract claim if it can convince a jury that the oil drilling project was too dangerous to allow. So unless the Supreme Court intervenes, that is what the city will try to do.

Was it safe?

A prepared statement by City Manager Steve Burrell, officially announcing the appeal attempt, outlined the city’s position on the dangers of the project.

“Macpherson Oil Company had proposed drilling up to 30 oil wells and placing permanent tanks and production facilities on a scant 1.3 acres in Hermosa Beach, a proposal that would have been equal to placing two or three wells on an average Hermosa Beach residential lot,” Burrell said.

The drilling, he said, would have occurred “next to the city’s popular greenbelt, a half block from South Park, a block from residences and about a half-mile from the beach, pier and downtown.”

Jim Bright, the lead attorney for Macpherson, called the description a “slight overstatement” of the project.

He said “no significant production” would be routinely stored at the site, which is now a city maintenance yard. With space at a premium, oil and gas would be shipped from the site through a roughly 2.5-mile pipeline that would be laid underground from the site to an Edison terminal, and thence to a refinery.

Addressing possible criticisms of pipelines, Bright said such underground lines are common across the greater L.A. area, and come equipped with pressure sensors that allow the lines to be shut down if problems arise.

Bright agreed the contract called for as many as 30 wells over the 35-year life of the project, but he said that was only about half the size of a drilling project in neighboring Redondo Beach.

However, Mazin Azzawai, a civil engineer with the City of Redondo Beach, said there were only eight or 10 wells at the Redondo site, near the corner of Harbor Drive and Beryl Street. Azzawai said the drilling was ended about two decades ago.

Bright also pointed out that oil drilling projects had occurred within Hermosa – including one now-capped oil well at the same Valley Drive maintenance yard – before voters banned them.

 Burrell hearkened to a risk analysis of the drilling project prepared by a consultant for the city. Burrell said the project was found to pose a one in 3,000 risk of a single fatality, a one in 700 risk of one or more serious injuries to the public, a 4 percent likelihood of an offsite flash fire with potential for human casualties, and a risk of 31 leaks, two major releases and one rupture over the 35-year life of the project.

In addition to the chance of a single fatality, a report by the consultant also found there was a one in 7,000 chance of one or more fatalities over the life of the project.

Bright said the consultant’s report “did not consider all the safety features in the project because the city did not make that information available” to the consultant.

Bright also said the report concluded that the safety risk was “a little bit higher” if the land continued to be used as a maintenance yard, compared to its use as an oilfield.

The report states that an early “test phase” of the oil project would be “somewhat” more risky than the continued use of the site as a maintenance yard. Then, looking over the 35-year span of the project, a chart in the report shows that using the site as a maintenance yard would be slightly more dangerous than turning it into an oilfield. The report states that vehicle traffic is the main hazard of operating the maintenance yard.

Bright also pointed out that Macpherson’s project had gotten the green light from the California Coastal Commission, and had passed muster in a legally mandated environmental impact report.

Acceptable risk?

The report, published a month before the city canceled the drilling project in 1998, concludes that in the end, the city should determine what level of risk is unacceptable.

“Naturally, although criteria for the acceptability of the annual risks have been presented, the City of Hermosa Beach’s sense of risk acceptability should be the overriding arbiter of what goes on within its jurisdiction in terms of annual risks,” the report concludes.

“In general it can be said that the proposed project by a safe and reputable operator contains industry standard safety and reliability provisions, which will make it as safe as any comparable modern operation,” the report states. “Yet because of its setting in a medium-density urban, commercial and residential location, it poses risks…The ultimate decision on the acceptability of the risks rest with the City of Hermosa Beach.”

Zero hour

The death knell for the drilling project was sounded shortly before 10:30 p.m. on Thursday, Sept. 17, 1998, when then-City Council members John Bowler, Sam Edgerton and Julie Oakes declared that Macpherson’s contract posed an unacceptable risk. Council members J.R. Reviczky and Bob “Burgie” Benz were absent from the meeting.

The decision was made following a nearly three-hour hearing in which council members questioned consultant Frank Bercha about the safety of the oil project.

“In response to council questions, Dr. Bercha said the major risk associated with the project would result from the ignition of methane gas vapor clouds,” according to official minutes of the City Council meeting.

“Noting that the methane vapor cloud risk was in the gray zone, he said whether or not a gray area represented a substantial amount of risk depended on a person’s perception,” the minutes read. “Then, in response to further questions, he said from his experience any risks in the gray region were substantial.”

A consultant for the oil company told the council that “there was no way to say whether or not a risk in the gray area was acceptable,” and that “the risks from [the maintenance yard] were the same” as those of the planned drilling project.

The council heard from 37 members of the public, and all but two of them expressed concern or outright opposition to the project.

One more time

The last time lawyers argued in court over the oil project was Dec. 7, 2009, when a state appeals court gave the city a partial victory by allowing it to argue the safety issue before a jury. The three justices on the appeals panel said the safety issue should determine the outcome of the 12-year lawsuit.

The justices gave scant weight to the City Council’s deliberations in 1998. Justice H. Walter Croskey suggested that the council guided the city consultant to a conclusion on the drilling project, saying Bercha “had to be dragged kicking and screaming into saying it posed a safety risk.”

But the city’s recent statement, which can be taken as a position paper on the drilling project, points to the obligation of city leaders to protect Hermosans.

“In 1988 the City Council determined that the oil company’s proposal to drill up to 30 oil wells and operate a large oil production project in the midst of a residential area posed the risk of catastrophic and potentially fatal results to the thousands of people who live, work and enjoy outdoor recreation nearby,” Mayor Michael DiVirgilio said.

He said Hermosa officials are trying to protect “the most fundamental of a city’s rights and obligations – the right and obligation to protect the health and safety of its residents.” ER

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