Split decision in stratospheric lawsuit

A 12-year lawsuit that could bankrupt the City of Hermosa Beach has been sent back to square one by an appeals court ruling, in what amounts to a split decision for the city.

The $500 million breach-of-contract lawsuit by Macpherson Oil Company had been on hold while a state appeals court considered a long-shot request by city officials to dismiss it altogether.

Courts had previously ruled that the city was guilty of breaching Macpherson’s oil drilling contract, and high stakes were riding on the city’s request: if it was granted, Macpherson’s lawsuit would simply go away. But if it was rejected outright, the case would be returned to a lower court to determine how much of that $500 million the city would have to pay Macpherson.

With all that on the line, the appeals court denied the city’s request to dismiss the lawsuit, but added a crucial caveat allowing the city to argue all over again that it did not illegally breach the lawsuit in the first place, and the whole matter should be dismissed.

The city already had argued that it had an unquestioned discretion to strike down Macpherson’s oil drilling project as unsafe, legally nullifying the contract he held with the city. Although that argument eventually failed, the appeals court ruling allows the city to return to the safety issue. But this time the city must provide convincing evidence that Macpherson’s project was unsafe, rather than claiming an unquestioned power to strike down such projects.

And so, after 12 years of courtroom battles, the appeals court has backed the trial up all the way to its primordial question: did the city illegally breach Macpherson’s contract when it shut down the planned oil project over safety concerns.

Jim Bright, an attorney for Macpherson, said the ruling is a victory for the oil company because it returns the lawsuit to the court that was in the process of determining the damages the city would have to pay. And the ruling did not appear to halt the process of determining damages, even though the oil-drilling safety issue will be reconsidered.

“We are going back to trial, and in that case the city lost and we won,” Bright said.

But he said it would have been a purer victory had the court not allowed the city to reargue the safety issue.
Hermosa Beach City Attorney Michael Jenkins said the best outcome for the city would have been a dismissal of the lawsuit. But he also said it is “a victory” that the city will be allowed to argue the safety issue again.

“We live to fight another day,” Jenkins said.

The appeals court ruling did not come as a surprise. In a courtroom hearing in downtown Los Angeles two months ago, the three judges on the appeals court panel made comments that suggested they might send the lawsuit back to square one.

The justices expressed strong concerns that a full hearing on the safety of the oil drilling project had never been held by any of the courts that have had the case before them. Perhaps, they said, a lower court should determine whether the safety concerns were sufficient for the city to cancel a contract.

City officials have said they never offered extensive arguments in court over the safety of the oil drilling project because they had temporarily prevailed with their broader argument that the city had the right to strike down such projects without being second guessed. ER

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