Letter to Editor: Councilmen Defend Settlement

From Hermosa Beach City Councilmen Kit Bobko and Michael DiVirgilio.

Over the past two weeks Hermosa Beach residents have begun digesting news of the Macpherson settlement. Naturally, after nearly 15-years and more than $4 million of no-holds-barred litigation, there are many questions about the details, such as, “Why did this occur so quickly?” or “Why settle now?” or “Why notride out the trial?” We thought it important to answer those questions as best we could, and to quash the rumors and misinformation we’ve heard circulating in the community.

While we strive to fill in details and address new questions that develop - we also ask you for patience. We’re not asking that you dismiss your questions or concerns or doubts, but only that you not leap to conclusions before getting all the facts. As part of this effort we’ve established a City Council sub-committee of our Mayor and Mayor - Pro Tempore to educate the community on the settlement and to address issues as they arise going-forward.

One of the greatest challenges for the City has always been to effectively communicate with the public about the details of the litigation without compromising the City’s legal defenses or showing our hand to the other side. The City enjoys the same attorney-client and litigation privileges that any individual or corporation has, for the same good reasons. The City, and the public, would be at a pronounced disadvantage if it had to conduct its litigation and settlement discussions in public.

As you probably know, the Macpherson settlement included three transactions. First, a new firm, E&B Natural Resources paid the Macpherson Oil Company $30 million. Macpherson, in turn, assigned E&B all of its rights and privileges to drill for oil in Hermosa Beach and dismissed its lawsuit against the City. In exchange for that payment and the subsequent dismissal, the City committed to place a measure on a future ballot that would allow the community to decide if itwants to repeal the current ban on oil drilling. If the measure passes, the City will reimburse E&B $3.5 million of the $30 million from royalties it will earn from the project. If the measure does not pass, the City must repay E&B $17.5 million.

Some might ask why the City didn’t take its chances at a trial with a sympathetic jury that would naturally side with us against society’s villain du jour – an oil company. This is a partial and romanticized view of our case, and our research with “mock juries” showed otherwise. (“Mock juries” are assembled by professional firms from the LA County juror pool. They are just like a real jury, and give the trial team a chance to run through a dress rehearsal of their case before they start trial.) Our research revealed it was just as likely we would escape with a judgment against us in the tens-of-millions as it was that we would get ajudgment against us in the $100’s of millions.

There are a number of reasons for this, the primary one likely being that Macpherson’s case was simply understood and easily explained. Simplicity can be a huge advantage at trial. To the contrary, our defense required 20 minutes (assuming you were paying attention,) with expert opinions, complex lega ltheories, and the necessity for follow up questions. Add to the mix our knowledge that juries were likely to enter verdicts against us that were anywhere from merely crippling to the financial equivalent of a neutron bomb, and the desire to avoid the risks inherent to a jury trial become even more apparent.

Further, if there had been a trial and a judgment against the City it would have become much harder to negotiate, and incredibly more expensive. This is a lesson we recently learned after losing the tattoo case in the Ninth Circuit Court of Appeals.

But our eyes weren’t the only ones that got a little bigger as we approached trial. Macpherson also realized the potential downside in a jury trial and saw the benefits of settlement. That both sides were within a month of picking jurors and making their opening statements was a scenario that never existed before and would never exist again. As it turns out, there is some truth to the old saying that most settlements occur on the courthouse steps. Last month, we were on the courthouse steps.

Others have said the City should have taken the case to judgment, because even if we lost, we would be able to ward-off any real fiscal pain by declaring bankruptcy. This is not true. In fact, two years ago the two of us made this same argument to the Honorable John E. Ryan, a retired federal district court judge who had graciously offered his services to mediate a settlement between the City and Macpherson. Judge Ryan, who oversaw Orange County’s bankruptcy in the late 1990’s, said two things that informed our approach to this settlement. First, he told us that ours would be a bankruptcy from a judgment and that that was different from other communities with “cash flow” issues (i.e., Vallejo, Stockton) because there was no precedent for it. And, to drive the point home, the former Navy fighter pilot tapped his copy of the U.S. Bankruptcy Code and looked us dead in the eyes and in his thick Boston Irish accent said, “You might get into bankruptcy but there’s no chance of you getting out of it. It is no trapdoor.” In other words, the City wouldn’t escape a judgment because it was more than we could afford. As the judge who presided over the largest municipal bankruptcy in American history, we trust he would know.

Regarding the coming oil project proposal, it is understandable that residents want conclusive answers about safety, the environment, noise, height, pollution, and the potential upside as well. We await these details as well, and the City Council structured the settlement with an eye towards these concerns. In other words,E&B will be educating us on the full scope of their project proposal, both impacts and benefits, well in advance of making any decision. The project proposal will go through an environmental review process that includes feedback from the community before ultimately being placed on the ballot for a yes or no vote by the residents of Hermosa Beach.

At a minimum, we’re confident E&B will propose a different project than Macpherson did. Why? Because this isn’t 1992. Whatever project E&B finally proposes will have the advantage of 20-years of technology advancements, and E&B’s size and the high price of oil today will allow them to address issues Macpherson couldn’t have.

One last point. Some have said the Council was wrong to even allow the prospect of a vote on oil drilling. “We have already voted it down once,” they say, “and we shouldn’t have to vote again.” Fine. When the measure comes up for a vote your choice is clear. In fact, the settlement was designed to allow folks to disagree. More so, we think this is the way the process is supposed to work; that the voters get to decide the City’s future on major issues. Not the City Council. Not a jury. Not a bankruptcy judge. Voters do. You do. After considering all the facts and circumstances the residents of Hermosa Beach will get to decide.

More than anything, we are ecstatic that the lawsuit is finally over. The threat of hundreds of millions of dollars is gone, and this is the first time for nearly a generation that Hermosa Beach does not face the prospect of financial ruin from the Macpherson lawsuit. Our potential liability of $750 million is capped at $17.5 million. Viewed another way, a $750 million judgment breaks down to a liability of more than $100,000 per parcel. The $17.5 million equates to a liability of $2,500 per parcel. That alone is enough for us to be pleased with the settlement, but our knowledge of the lawsuit makes us even more certain that the City is walking away with a very good deal.

Marc Zimet March 22, 2012 at 07:19 PM
Absolutely and positively agree! As a 16-year civil defense attorney, there is no question in my mind that this settlement is exceptionally good for Hermosa Beach. We face, at most, $17.5 million in exposure, where we previously faced potential exposure of $750 million. This the quintessential "no-brainer." If the voters elect to allow E&B to slant drill, so be it. We would not only save $14 million on the settlement, the City and School District would potentially generate additional revenue for years to come. If the voters say "no," so be it also. Hermosa will come up with a way to repay E&B's loan. Either way, the position Hermosa is now in is one of being untethered. While it may impact the City somewhat to repay $17.5 million, the impact of a judgment for several million dollars would have effectively ended our City. I am surprised that anyone questions the wisdom of this settlement. Marc Zimet
Sandi Pfister March 22, 2012 at 07:49 PM
Although I disagreed with this issue being on the ballot so many times in the late '80's and early '90's, I definitely appreciate that our City Council UNANIMOUSLY agreed that the residents - today's residents - are smart enough that, by the time the issue actually gets to the ballot, we will also be well informed. Questions we need to ask include: what does the money for schools get used for? Will there be an offset for that amount from State funding? Is the EOC getting involved? Will it cost money to update our fire/emergency response equipment? And LOTS more. See you at the info forums? Sandi Pfister
Noel Chun March 22, 2012 at 08:37 PM
This is the best possible resolution of the situation. You have done the right thing for the city. Bravo.
Jeff Cohn March 22, 2012 at 08:59 PM
Then why not settle for $30M with Macpherson and just move on? The City of Hb already offered Macpherson $24M and he turned it down? Why did E&B get thrown into the new equation? Turning this into a vote sounds like extortion to me having a Bad vs Worse choice. I am appalled by the lack of transparency, excuses deception, trust and communication. For those unfamiliar with the history and saga of this issue read here before you believe all of this above. http://www.nobpinhb.com
Dave Andrews March 22, 2012 at 09:58 PM
First of all thanks for your civil service and time you have put in it is appreciated whether people agree or not. As this lawsuit has been going on for a very long time I think there should have been many questions answered and or available on a website to the citizens and or anyone that wants to learn more about the issue long before you settled. In this day and age we have technology to at least hear thoughts from the people you represent in the community before you make a choice to decide. 1. Why did you settle at $17.5 million & $3 million? - What was the magic number and why? 2. Did you have a plan in place to pay the $17.5 million or 3 million? - At what price did you have a plan in place to pay the settlement? 3. With the 6th street lot being used for oil drilling it would be lost to the city for use. - What would the city do without this lot for city use? 4. What is the lot worth? - Could we sell it to help cover the 17.5 million? 5. What is it going to cost for extra emergency services personnel, equipment, and training? - Who is paying for it? - Do we have to raise salaries for specific certifications of emergency services? - Continued in next post -
Dave Andrews March 22, 2012 at 09:59 PM
6. The tower is going to be over 100feet tall. It is going to be in the line offsite of many residents. This devalues homes. - Can the city be sued for the devaluation of their home? - The oil wells will cause issues with: - The beautiful views from homes - Air Quality (So much for all of those pretty signs along the strand) - Noise pollution 7. The 2008 Chatsworth train crash happened when the conductor was texting while managing the train. 25 people were killed, 135 were injured with 46 being critical! My friends mother was in this accident. She was seriously injured. There is a cap on the amount of payout for the lawsuit at $200 million. She cannot even get her medical bills paid. - With that said you are saying we would have had to pay $750 million no matter what while a train wreck that killed 25 people and injured 135 others cannot get more than 200 million! 8. What happens if there is an oil leak in the bay? - Is the City of Hermosa Beach on the hook for anything? - How would this devalue not only Hermosa Beach homes but all of the homes in the bay? - Could there be a civil suit? - Continued in next post -
Dave Andrews March 22, 2012 at 10:00 PM
9. There is talk of revenue shares from the oil wells - Can we not pay the money and have the money go towards the 3 million first then take the revenue sharing? - What are the projections of the revenue sharing? - This should have been done long before any settlement happened! - The biggest question is what can the money legally be able to be used for! - There has been many statements that the money cannot actually go towards the school systems. - This is something your lawyers should have advised you of before any settlement happened. The lawsuit has been going on long enough someone should have known and or have an answer. 10. Who is auditing the revenue coming in from the oil? - Do we now have to pay people to manage this and at what cost? 11. What happens if there is a disaster and or someone is killed? - Is the contract null and void immediately? 12. How safe is this type of oil drilling in case of an earthquake or tsunami? - At what size of earthquake or tsunami do we run into an additional disaster? - Continued in next post -
Dave Andrews March 22, 2012 at 10:00 PM
13. The homes they drill under do they get revenue from the drilling? - What happens if their foundation and or other issues appear in years to come from the earth under them moving? 14. Did the city hire a PR agency to do anything involving the oil issue? - If they did hire a PR agency, why did they hire a PR agency? - What is their exact role? - What is the cost of the PR agency? 15. Is the oil company using funds to get the votes to drill in Hermosa? - If so did you know they would put money into the City of Hermosa to promote oil drilling? 16. The two of you are not home owners in Hermosa Beach. You do not directly pay taxes for the homes in Hermosa Beach. - If you owned a home nest to 6th street before the settlement how would you feel? - Would you sell your home? - Why haven't you bought a home in Hermosa Beach?
Dave Andrews March 22, 2012 at 10:00 PM
17. If we vote no to the oil drilling your letter states: "$17.5 million equates to a liability of $2,500 per parcel." - Are you going to bill the citizens this amount if the drilling is not approved? - What if I moved into the area after the lawsuit and was not notified about the lawsuit? Do I still have to pay? - The bigger question is as renters are YOU personally going to pay $2500 towards the liability you have committed to the citizens of Hermosa Beach? 18. What are the solutions to pay $17.5 million? - How much money do we have in the bank? - What assets does Hermosa Beach own? - Can we get a bond from the state of California? - What research have you done to figure out how to pay back any amount let alone the $17.5 million? 19. Now that you have settled the lawsuit what side are you on? I feel that you have drawn a line in the sand and now you should state whether you are for drilling or against drilling. - This is only fair to the citizens of the city. - What are the pro's and con's from each of your perspectives?
Michael Keegan March 22, 2012 at 11:12 PM
I hope residents understand that any oil derived from offf the shore of Hermosa Beach will need to be spent west of mean tide. Thus, it cannot be used on streets and for general fund purposes. We will have a nice Pier.
Dave Andrews March 23, 2012 at 12:08 AM
Hi Michael, So what you are saying is that we cannot use it for schools at all in anyway shape or form. Correct? I have heard this too then I have heard conflicting rumors we could use it for schools. That information should be on a website from the city so anyone anywhere at anytime can get the facts
Dave Andrews March 23, 2012 at 03:22 PM
20. How late can drilling take place? Is it 24/7/365? - How noisy is it? -- I can hear the Redondo Power Plant at 4am release steam that practically shakes my windows. Will we have any noise at all and if so how loud and at what times?
Bob Atkins March 23, 2012 at 06:38 PM
I really don't understand how the royalties that the city earns on any oil revenues are limited to being spent on stuff that is west of mean tide??? What law/agency enforces this absurdity and what can be done to obtain an exception? Royalties should be able to benefit the entire city. That said - if this entire project hadn't been mismanaged by a screwball city council of selfish interests years ago we wouldn't have spent $4M on legal fees and be talking about another $17.5M - instead at the very least our Pier would put Santa Monica's to shame and maybe - just maybe we might have been able to craft a deal where we could have the cheapest gas in town too. Think outside of the box (financially) and maybe this project can benefit all of Hermosa.


More »
Got a question? Something on your mind? Talk to your community, directly.
Note Article
Just a short thought to get the word out quickly about anything in your neighborhood.
Share something with your neighbors.What's on your mind?What's on your mind?Make an announcement, speak your mind, or sell somethingPost something
See more »