Drilling down into the Hermosa Beach oil deal
‘Nearly impossible’
As recently as October 2009 Fishman, then a candidate for City Council, said an out-of-court settlement of the Macpherson lawsuit was “nearly impossible.”
At the time, attorneys for Macpherson were eyeing each other over a seemingly unbridgeable chasm.
The first settlement talks in more than a decade, brokered by then-Assemblyman Ted Lieu, had been followed by a $4.5 million settlement offer from the city, which Macpherson dismissed as a “nuisance value” amount.
Macpherson and the city had even taken the step of undergoing a two-day nonbinding mediation session led by Judge John E. Ryan, who presided over the landmark bankruptcy ofOrangeCounty.
The two sides sat apart while the judge shuttled back and forth, but no settlement resulted.
Doing the deal
Negotiations that led to Friday’s settlement began in early February, with a call from the oil company seeking DiVirgilio and Bobko.
“The first phone call was from Don Macpherson to us, suggesting we speak to E&B,” Bobko said.
“We met with E&B a few days later, and within days we were briefing the rest of the council,” he said.
Bobko and DiVirgilio said Macpherson sought them out because he felt he knew them better than other council members. The two had been prominently involved in earlier talks with the oil company, either as members of council subcommittees or as holders of the city’s rotating mayoralty.
“We consulted with our colleagues on the council at every turn, and advised them of the status of the negotiations,” Bobko said. “It was always a 5-0 vote.”
“Today is a momentous day for us. It’s a red letter day, it’s a fabulous day forHermosa Beach,” DiVirgilio said.
“This news is possible because of Don Macpherson’s willingness to settle,” with the help of an imaginative approach of E&B Resources, he said.
DiVirgilio said the costs to Hermosa are “reduced and capped.”
“It’s never going to be over $17.5 million,” he said, comparing that to the potential of a $100 million to $700 million court judgment against the city.
The most recent significant ruling in the lawsuit had come in early 2010, when a state appeals court told the city it could argue one more time that Macpherson’s oil project was so unsafe that canceling the drilling contract was legal. But, the court said, if the city failed to convince a jury on that point, the trial set for April would determine how much of that $750 million claim the city would have to pay Macpherson.
The city had spent more than $3 million preparing for the trial.
“We were burning about $200,000 to $300,000 a month on trial preparation, and it was going to spike. The burn rate was pretty substantial for both sides,” Bobko said.
“Everybody was spending a tremendous amount of money to get ready for trial, in what was a potentially apocalyptic lawsuit,” Bobko said.
“The city is not taking any money out of its hide to fund the settlement,” Bobko said. “E&B was generous enough to put $30 million on the table.”
A similar settlement could not be reached with Macpherson because “the city does not have enough money to pay Macpherson what he wanted,” DiVirgilio said.
E&B enters
Laytonsaid E&B volunteered to take part in the settlement process after noting the progress of the Macpherson lawsuit and studying the potential for oil drilling off the Hermosa shore.
“Oil resources in the Hermosa Beach area have been talked about for a long time in the industry,” he said. “The status of the [Macpherson] litigation…is something we looked at last fall, and with the upcoming trial, it seemed that circumstances were there for a third party to come in, in some fashion, and possibly facilitate a solution that might benefit everyone.”
Layton met with Don Macpherson early this year, and then both oilmen began meeting with DiVirgilio and Bobko.
“A line of discussion was always open [between the city and Macpherson], which is a good thing,”Layton said.
Neighborly talk
Former Councilman Gary Brutsch said he had a chance meeting with Macpherson, a former neighbor, on a pre-Christmas flight to Hawaii, and urged him to talk again to DiVirgilio and Bobko about the lawsuit.
Although the Brutsch and Macpherson families have been close, Brutsch had not seen the oilman in about 15 years, and knew he was unhappy about the battle with Hermosa.
“He is a businessman and a family man. He’s a straight up guy, and he did not want the city to go bankrupt,” Brutsch said. “I really didn’t know how to handle it, but then he came up to me.”
The two caught up, and then talked about the lawsuit.
Macpherson “said Michael had reached out to him recently,” Brutsch said, and after some conversation, Brutsch urged the oilman to keep the lines of communication open.
“I suggested he call Michael and Bobko,” Brutsch said.
Brutsch said he mentioned Bobko because he is familiar with him, and knew Bobko “wanted to solve this thing.”
DiVirgilio said he had been keeping in touch with Macpherson over a long period of time “hoping that a relationship might lead to something.”
The city posted the full settlement agreement on its website Friday.