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103 Cal.Rptr.2d 447, 1 Cal.
Daily Op. Serv. 722, 2001 Daily Journal D.A.R. 913 HERMOSA BEACH STOP OIL
COALITION et al., Plaintiffs and Appellants, v. CITY OF HERMOSA BEACH et
al., Defendants and Respondents; WINDWARD ASSOCIATES et al., Real Parties in Interest. No. B138557. Court of Appeal, Second
District, Division 3, California. Jan. 24, 2001. SUMMARY After
an oil company entered into a lease agreement with a city for oil and gas
exploration and production on city-owned property, the voters enacted an
initiative reinstating a total ban on oil drilling within the city. The city
continued to perform under its lease with the oil company after enactment of
the proposition, and organizations opposed to the project filed a lawsuit
against the city for declaratory and injunctive relief to require the city to
apply the proposition to the oil company's project. The trial court entered
judgment in favor of the city and the oil company as the real party in
interest. (Superior Court of Los Angeles County, No. BC172546, Kurt W. Lewin,
Judge.) The Court of Appeal reversed the judgment and remanded
the case to the trial court for further proceedings, including a declaration
that the proposition was intended to apply and did apply to the oil drilling
project and that application of the proposition to the project was a valid
exercise of the city's police power and did not constitute an unconstitutional
impairment of contract. The court held that that the oil company did not have
vested rights to continue with the project so as to preclude application of the
proposition reinstating the total ban on oil drilling within the city. The
court further held that the proposition did not constitute an unconstitutional
impairment of a lease agreement between the oil company and the city, since the
proposition was a legitimate exercise of the city's police power, and since the
measure employed reasonable and necessary means to implement its important
public purpose. The initiative was adopted with findings that the ban was necessary
to preserve the environment, as well as to protect the public health, safety,
and welfare of people and property within the city. Moreover, the lease
agreement anticipated regulatory change impacting the project, and since the
legislation was enacted pursuant to the city's reserved police powers,
substantial deference to the legislative judgment made by the voters was
required. In light of the evidence that the dangers posed could not be
mitigated *535 to a level of insignificance, it was reasonable
for the voters to conclude that the health and safety risks associated with the
project required prohibition of all oil drilling and production within the
city. (Opinion by Perluss, J., [FN*] with Klein, P. J., and Kitching,
J., concurring.) FN* Judge of the Los Angeles Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the California
Constitution. COUNSEL Chatten-Brown & Associates, Jan Chatten-Brown,
Douglas P. Carstens; Law Offices of Joseph Di Monda and Joseph Di Monda for
Plaintiffs and Appellants. Richards, Watson & Gershon, Rochelle Brown and
Michael Jenkins for Defendants and Respondents. Bright & Brown, James S. Bright, Maureen J.
Bright, John Quirk and Phillipa L. Altmann for Real Parties in Interest. Bill Lockyer, Attorney General, Richard M. Frank,
Chief Assistant Attorney General, J. Matthew Rodriquez, Assistant Attorney
General, and Tara L. Mueller, Deputy Attorney General, as Amici Curiae on
behalf of the People of the State of California. *540 PERLUSS, J. [FN*] FN* Judge of the Los Angeles Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the California
Constitution. Plaintiffs and appellants Hermosa Beach Stop Oil
Coalition, Heal the Bay, Santa Monica Baykeeper and American Oceans Campaign
(hereafter collectively referred to as Stop Oil) appeal from a judgment after a
bench trial entered in favor of defendants and respondents City of Hermosa
Beach and City Council of the City of Hermosa Beach (the City) and real parties
in interest and respondents Windward Associates and Macpherson Oil Company
(Macpherson). The judgment denied Stop Oil's request for injunctive and
declaratory relief. Macpherson has filed a cross-appeal, asserting additional
grounds to support the trial court's judgment. The essential question presented is whether
reinstatement of a total ban on oil drilling within the City, adopted through
the initiative process in November 1995 (Proposition E), constitutes an
unconstitutional impairment of the 1992 lease agreement between Macpherson and
the City for oil and gas exploration and production on City-owned property. The trial court ruled that application of Proposition
E to the Macpherson oil drilling project would constitute an unconstitutional
impairment of the lease agreement between Macpherson and the City. We reverse. Factual and Procedural
Background 1. Facts. [FN1] a. Authorization of oil
exploration within the City. In 1932 the voters of the City enacted a ban on all
oil and gas operations within the City, declaring such activity to be both
unlawful and a public nuisance. [FN2] (Hermosa Beach Mun. Code, 21-10.) FN1 The factual background of this case, although
extensive, is largely undisputed. The parties submitted a substantial volume of
evidence in written form for the trial court to consider in evaluating the
legal issues presented; no live testimony was taken. The facts summarized in
this opinion are taken from those evidentiary submissions, viewed in the light
most favorable to the respondents in those instances in which there is a
conflict. FN2 Any oil wells then operating or under construction
within the City were exempted from the ban. (Hermosa Beach Mun. Code, 21-10.) In 1984, to generate the funds needed to acquire open
space and parklands within the City, the voters adopted Propositions P and Q,
council-sponsored ballot measures creating exceptions to the ban on oil
exploration and production for two publicly owned sites within the City: the
City Yard Site, a *541 parcel owned by the City and being used as
its maintenance yard; and the School Site, a parcel owned by the local school
district. (Hermosa Beach Mun. Code, 21-10, subds. (a) & (b).) In 1985 the City adopted an ordinance establishing the
Hermosa Beach Oil Code regulating the development and design of oil recovery
projects and establishing a permit system for drilling and oil recovery
operations in the City. (Hermosa Beach Ord. No. 85-803.) The ordinance recited
the City's intent to allow for oil production "in a manner that protects
the health, safety and welfare of the citizens of Hermosa Beach." (Hermosa
Beach Ord. No. 85-803.) Section 21A-2.3 of the code provides, "No person
shall be issued a drilling permit until the same has been approved by the
Building and Safety Director with concurrence by the Planning Director, and
found to be in compliance with all applicable laws, ordinances and
regulations." (Hermosa Beach Mun. Code, 21A.2.3.) b. The lease agreements
between the City and Macpherson. In June 1986 the City published a request for
proposals for oil exploration and production at the two sites. Macpherson Oil
Company, which had in 1976 proposed developing oil resources in the tidelands
of Hermosa Beach and had been a leading force in placing the 1984 ballot
measures before the voters, was the only company to respond to the City's
request. Negotiations ensued between the City and Macpherson
and resulted in an agreement, Oil and Gas Lease No. 1. [FN3] The
initial, 1986 lease with the City involved the City Yard Site and related only
to the on-shore mineral rights acreage owned by the City, referred to as the
"uplands." That lease was amended later in 1986 and again in 1988 and
1991. In January 1992 the parties entered into a second lease, Oil and Gas
Lease No. 2, which superseded the initial lease and its various amendments. Oil
and Gas Lease No. 2, which again involves only the City Yard Site, covers not
only the uplands but also the submerged mineral rights acreage owned by the
City, known as the "tidelands." The 1992 lease remains the operative
agreement between the City and Macpherson. [FN4] FN3 The initial lease agreement was between the City
and real party in interest Windward Associates, a limited partnership, through
its general partner Donald Macpherson. Macpherson Oil Company is the proposed
operator of the lease on the City-owned property. FN4 Initially Macpherson intended to operate two
separate drilling projects at the City Yard Site and the School Site. By 1992,
the proposed project had been modified to concentrate all operations in an
integrated design at the City Yard Site. Under the lease Macpherson obtained the right to
conduct oil and gas operations within the City. The City was obligated to
deliver the City Yard *542 Site to Macpherson for use as a drill
site and to obtain State Lands Commission (SLC) approval to allow drilling for
oil in the tidelands. The lease requires Macpherson to obtain all necessary
permits and regulatory authorizations before proceeding to construct the drill
site and begin drilling, including a conditional use permit (CUP) for the
project from the City and a coastal development permit from the California
Coastal Commission. The proposed oil exploration and production project
was to begin with three exploratory wells, with up to 27 additional wells (30
total) to be drilled if the initial exploration proved successful. The
Macpherson-City lease and the CUP obtained by Macpherson authorized
construction of a 135-foot high oil derrick (equivalent to a 15-story
building), which would operate during the four-and-one-half-year exploratory
and drilling phase of the project. Thereafter, workover rigs up to 110-feet
high could operate on the property up to 90 days a year for 35 years. Project
plans called for construction of a pipeline to transport the crude oil product
to a nearby refinery outside the city limits. c. Macpherson pursues the
regulatory approval process. Between 1986 and 1990 Macpherson developed three
different proposed project descriptions. In addition, in connection with the
SLC application filed by the City on behalf of Macpherson, Macpherson prepared
an environmental impact report (EIR) pursuant to the California Environmental
Quality Act (CEQA). (Pub. Resources Code, 21000 et seq.) The EIR. The first draft of an EIR was circulated for
public review and comment in May 1989. On May 8, 1990 the City certified a
revised EIR and adopted a statement of overriding conditions for the project
pursuant to the requirements of CEQA. At the same time the City approved a
general land use plan and the zoning code amendments needed for Macpherson to
proceed with the project. The CUP. On August 10, 1993, after an extended review
process, the City approved a CUP for the Macpherson project. The CUP contained
140 conditions, requiring submission to and approval by the City of a number of
additional reports, plans and analyses prior to the issuance of any permit for
commencing work. For example, both an oil spill prevention control plan and an
oil drilling contingency plan needed to be approved by the State Division of
Oil and Gas and the City's fire and building and safety departments. In
addition, the CUP specifically required the property to be "developed,
maintained and operated in full compliance with the conditions of this grant
and any law, statute, ordinance or other regulation applicable to any
development or activity on the subject property." *543 An addendum to the EIR was approved by the City at the
same time it approved the CUP. Hermosa Beach Stop Oil Coalition, Santa Monica
Baykeeper and American Oceans Campaign, three of the plaintiffs in this action,
filed a challenge to the adequacy of the EIR and the approval of the CUP by the
City in September 1993. (Hermosa Beach Stop Oil Coalition v. City of Hermosa
Beach (Super. Ct. L.A. County, 1993, No. BS025250).) The trial court initially
determined that the project as proposed violated the size restrictions in the
1984 referendum approving the exception to the oil drilling ban and thus
invalidated the CUP. That decision was reversed by the Court of Appeal in an
unpublished decision in June 1996, and the case returned to the trial court for
further proceedings on CEQA issues. (Hermosa Beach Stop Oil Coalition v. City
of Hermosa Beach (June 24, 1996, B090473).) The lawsuit was finally concluded
in September 1997 when Hermosa Beach Stop Oil Coalition and the other
petitioners abandoned their appeal of the trial court's judgment denying a writ
of mandate on the CEQA issues on the ground that the challenge was untimely. The SLC. Concurrently with the processing of the CUP,
the City and Macpherson jointly proceeded before the SLC to obtain approval for
the project's proposed development of oil reserves in the tidelands, as
required by the 1992 lease. The SLC approved the lease on April 28, 1993. As a
result of another lawsuit initiated by the Hermosa Beach Stop Oil Coalition in
August 1993 (Hermosa Beach Stop Oil Coalition v. State Lands Com. (Super. Ct.
L.A. County, 1993, No. BS024656)), the matter was returned to the SLC in
January 1994 with directions that it specifically determine whether the project
was in the best interests of the state. A second approval from the SLC was
obtained in March 1994. The Coastal Development Permit. In September 1993
Macpherson submitted an application for a coastal development permit to the
California Coastal Commission for the proposed project. That application was
withdrawn in January 1995. A new application for a coastal development permit
was submitted in November 1996. On February 4, 1998 the coastal commission
authorized its staff to issue the coastal development permit once certain
conditions, including approval of a hazard and operability study, had been
satisfied. d. Adoption of Proposition
E. Beginning in April 1994 the Hermosa Beach Stop Oil
Coalition began a campaign to qualify a ballot initiative to end the Macpherson
project and to *544 reinstate the comprehensive prohibition on
oil drilling in the City by deleting from the Municipal Code the two exceptions
from the ban that had been approved in 1984. (Hermosa Beach Mun. Code, 21-10,
subds. (a) & (b).) The measure, Proposition E, appeared on the November
1995 ballot. In addition to deletion of subdivisions (a) and (b)
from section 21-10 of the Hermosa Beach Municipal Code, Proposition E contains
a declaration of intent: "Purpose and Findings. Clean water, pure air, and
a safe environment are vital to maintaining the quality of life in the South
Bay. The People of the City of Hermosa Beach find safety and protection of the
lives of its citizens and the public generally, and protection of persons and
property from the dangers of fire, explosions, pollution, and other hazards,
demand and require that the drilling or operating for the discovery of and/or
production of oil, gas, hydrocarbon, or other related substances be prohibited,
as in this ordinance set forth ...." [FN5] FN5 Proposition E provides: "An Ordinance of the City of Hermosa Beach,
California, Deleting from the Municipal Code Paragraphs (a) and (b) of Section
21-10 Relating to the Two Exceptions to the Citywide Oil Well Drilling
Prohibition Which Are Located at the City Yard Site (6th Street and Valley
Drive) and the Former South School Playground (5th Street and Valley Drive). "The People of the City of Hermosa Beach Do
Ordain as Follows: "Section 1. Purpose and Findings. Clean water,
pure air, and a safe environment are vital to maintaining the quality of life
in the South Bay. The People of the City of Hermosa Beach find the safety and
protection of the lives of its citizens and the public generally, and
protection of persons and property from the dangers of fire, explosions,
pollution, and other hazards, demand and require that the drilling or operating
for the discovery of and/or production of oil, gas, hydrocarbon, or other
related substances be prohibited, as in this ordinance set forth; now,
therefore, "Section 2. Paragraphs (a) and (b) of
Municipal Code Section 21-10, Oil Wells Prohibited, Exceptions are hereby
deleted in their entirety. "Section 3. If any portion of this ordinance
is declared invalid, the remaining portion is to be considered valid. "Section 4. There shall be no modification,
amendment or repeal of any provisions of this initiative except by a vote of
the people." (Official Sample Ballot (Nov. 7, 1995) Proposed
Ordinance-Prop. E.) The "Impartial Analysis of Proposition E" by
the Hermosa Beach City Attorney circulated to all voters explained, "The
effect of this measure, if adopted, would be to amend the Municipal Code to
prohibit oil and gas exploration, drilling and production on these two sites
[the two sites then excepted from the citywide prohibition], and eliminate from
the Code the authority to use these sites as a potential source of oil and gas
revenue for the restricted purposes stated in the Code. [] The City has leased
the City maintenance yard site to a private entity for oil and gas exploration
and production activities which have not yet commenced. All permits necessary *545
for this project have not been issued and have been delayed by pending litigation.
If Proposition E is adopted, the law is not clear exactly how the measure would
affect the project proposed by the lease." The ballot arguments in favor
of and against Proposition E focused on the potential environmental risks and
economic benefits of the Macpherson project on the City Yard Site. Proposition E was approved with 56 percent of the
vote: 2,505 "yes" votes were received; 1,940 "no" votes. Notwithstanding Proposition E's adoption by the
voters, the City continued to perform under its lease with Macpherson based on
its concern that it would face legal exposure if it terminated the lease
agreement. When notified of the City's decision to continue to respect the
lease agreement, Stop Oil commenced this lawsuit in April 1997 for declaratory
and injunctive relief to require the City to apply Proposition E to the
Macpherson project. 2. Proceedings. a. The parties. Hermosa Beach Stop Oil Coalition is an unincorporated
group primarily composed of residents of the City. As discussed in the preceding
section of this opinion, the Hermosa Beach Stop Oil Coalition has been active
in opposing the Macpherson project and was the primary proponent of Proposition
E. The Hermosa Beach Stop Oil Coalition was joined as
plaintiff in this lawsuit by three California not-for-profit organizations
concerned with various aspects of monitoring and protecting the environmental
quality of Santa Monica Bay and its environs: Heal the Bay, Santa Monica
Baykeeper and American Oceans Campaign. Stop Oil named the City as the defendant in its action
for declaratory and injunctive relief, as well as two real parties in interest:
Real party in interest Windward Associates, a limited partnership, is the
lessee of the City Yard Site. Real party in interest Macpherson Oil Company is
the proposed operator of the oil and gas production project on the site. b. The pleadings. Stop Oil's complaint seeks a declaration (and parallel
injunction) that Proposition E applies to the Macpherson project and that as a
result the City may not issue building, well or drilling permits. *546
In its answer the City asserted that Proposition E was
not retroactive and therefore did not apply to the Macpherson project and that
application of Proposition E to the 1992 lease agreement between Macpherson and
the City would constitute an impermissible impairment of contract. Macpherson's
answer also alleges that Proposition E does not apply to the City Yard Site
project and that, were it to be so applied, Proposition E would constitute an
unconstitutional impairment of contract. In addition, Macpherson contends that
Proposition E cannot be applied to the project based on the doctrine of vested
rights and government estoppel. c. The trial court's
tentative decision. Stop Oil, the City and Macpherson each submitted
multiple briefs and presented evidence to the trial court in written form. A
hearing was held on July 23, 1998, at which all parties presented extensive
argument. On November 4, 1998 the trial court announced its
tentative decision denying Stop Oil's request for declaratory and injunctive
relief. The trial court ruled that there was no doubt that Proposition E was
intended to apply to the Macpherson project. It held, however, that application
of Proposition E to the project would be an unconstitutional impairment of
contract. "The voters by initiative may repeal any law
including the limited exceptions to the oil ban. They may not by legislative
fiat extinguish a valid subsisting contract (here the McPherson [sic] lease)
without a demonstration that such total impairment of the contract is
reasonable and justified because it is compelled by real threats to the health,
safety and welfare of the community.... [] ... [] The record fails to
demonstrate a sufficient basis to justify Proposition E's impairment of the
McPherson [sic] lease. The lease contemplates that the permits required under
its provisions be issued or denied upon consideration of the merits attendant
to the activities contemplated. Most of these factors have either been aired, addressed
and adjudicated in favor of the lease in proceedings which have long since
become final, or are addressed in the 140 odd conditions which McPherson [sic]
must satisfy in order to commence drilling. Plaintiffs have not demonstrated
any compelling or valid basis upon which the 'City voters' 'legitimately
exercised their police power for the protection of their heath [sic], safety
and welfare,' not previously determined in favor of the lease in the prior
proceedings." The trial court additionally held that the application
of vesting principles in this case is not significant because the City, not
Macpherson, owns the property. If the lease could be cancelled "without
incurring liability for *547 normal (benefit of the bargain)
damages[,]" Macpherson would be entitled only to an absolute right of
recovery for the amounts it had actually expended under vesting principles. d. The City's decision to
terminate the project and Macpherson's cross-complaint. In January 1998, during the pendency of proceedings in
the trial court and in connection with the hazard analysis required by the
Coastal Commission, the City authorized an independent review and risk
assessment of the project. The Aspen/Bercha Group was hired and ultimately
produced a report that was presented to the City at a public hearing on
September 17, 1998. [FN6] FN6 The final Aspen/Bercha report was not introduced
into evidence in connection with the trial of Stop Oil's request for
declaratory and injunctive relief, although a substantially similar draft
version of the report was submitted to the trial court. At the conclusion of the hearing, based primarily on
the information contained in the Aspen/Bercha report, the city council, by a
vote of three to zero, determined that the dangers to public health and safety
posed by the project were substantial and unacceptable and agreed to terminate
the project. The council adopted findings that the most serious risk presented
by the project would be the escape of a methane gas cloud that, if ignited, could
cause a catastrophe and that, even if operated according to industry standards,
the project posed safety risks that could not be mitigated to an acceptable
degree. The trial court learned of the City's action and
inquired of the parties on October 20, 1998 whether this lawsuit had become
moot. All parties and ultimately the court were in agreement that it had not. Macpherson filed a cross-complaint on December 10,
1998 against the City for breach of contract, alleging that the Aspen/Bercha
report did not demonstrate any previously unknown or undisclosed risk that had
not already been appropriately mitigated or dismissed as not significant. The
City answered, asserting that it was entitled to exercise its discretion to
deny further permits and thus to terminate the project based on the public
safety concerns identified in the report. The cross-complaint has been severed
from the original action, [FN7] which proceeded to judgment. *548
FN7 On March 9, 2000, subsequent to the filing of the
notice of appeal in this matter, the trial court issued a tentative decision on
the cross- complaint, finding that the City's action constituted a breach or
impairment of the lease and concluding that "the sole remedy is an
invalidation of the action causing impairment, which essentially results in a
requirement of specific performance." Macpherson's request pursuant to
Evidence Code sections 452 and 459 that this court take judicial notice of the
March 9, 2000 tentative decision is granted. It appears that this tentative decision
was subsequently adopted as the trial court's statement of decision. Judgment
was entered on the cross-complaint on December 8, 2000. e. The trial court's
judgment, Stop Oil's appeal and the cross-appeal. The trial court's tentative decision became its final
statement of decision. On November 17, 1999 judgment was entered denying Stop
Oil's complaint for injunctive and declaratory relief. Stop Oil has filed a timely appeal. Macpherson has
filed a timely, but unnecessary, cross-appeal asserting two additional grounds
in support of the trial court's decision denying declaratory and injunctive
relief. [FN8] FN8 Macpherson's cross-appeal seeks review of two
adverse rulings by the trial court that, if reversed, would each provide an
alternative basis for affirming the trial court's decision to deny Stop Oil's
request for declaratory and injunctive relief. Both of these grounds for
affirmance are properly urged by Macpherson under Code of Civil Procedure
section 906 without the need for a cross-appeal. (Erikson v. Weiner (1996) 48
Cal.App.4th 1663, 1671 [56 Cal.Rptr.2d 362]; Citizens for Uniform Laws v.
County of Contra Costa (1991) 233 Cal.App.3d 1468, 1472 [285 Cal.Rptr. 456];
see D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 18-19 [112 Cal.Rptr.
786, 520 P.2d 10].) Contentions Stop Oil contends: Proposition E applies to the
Macpherson project; application of Proposition E's ban on oil drilling to the
property leased by Macpherson is authorized by the lease agreement itself; and
Proposition E is a valid exercise of the City's police power that does not
constitute an unconstitutional impairment of the Macpherson lease agreement
with the City. Macpherson contends: it has a vested right to pursue oil
exploration and production at the City Yard Site; and Proposition E
impermissibly interferes with that right. Discussion 1. Standard of review. Whether Proposition E was intended to have retroactive
application and thus applies to the Macpherson project is a question of
statutory interpretation reviewed de novo on this appeal. (Rosasco v.
Commission on Judicial Performance (2000) 82 Cal.App.4th 315, 318 [82
Cal.App.4th 1041a, 98 Cal.Rptr.2d 111]; Quackenbush v. Mission Ins. Co. (1997)
46 Cal.App.4th 458, 466 [54 Cal.Rptr.2d 112].)
Similarly, since there is *549 no competent, conflicting
parol evidence as to the meaning of the lease agreement as it relates to the
issues on this appeal, we independently construe the 1992 agreement between the
City and Macpherson. (Sanchez v. Bally's Total Fitness Corp. (1998) 68
Cal.App.4th 62, 69 [79 Cal.Rptr.2d 902]; Paralift, Inc. v. Superior Court
(1993) 23 Cal.App.4th 748, 754 [29 Cal.Rptr.2d 177]; Winet v. Price (1992) 4
Cal.App.4th 1159, 1166 [6 Cal.Rptr.2d 554].) The ultimate question whether Proposition E constitutes
an unconstitutional impairment of the Macpherson lease agreement with the City
is likewise a question of law subject to independent review. (Board of
Administration v. Wilson (1997) 52 Cal.App.4th 1109, 1129 [61 Cal.Rptr.2d 207];
State of Ohio v. Barron (1997) 52 Cal.App.4th 62, 67 [60 Cal.Rptr.2d 342].) To
the extent disputed "primary" or "historic" facts were
resolved either expressly or impliedly by the trial court in analyzing the
impairment issue, we review those findings under the substantial evidence
standard. (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660 [190 Cal.Rptr.
355, 660 P.2d 813]; see Board of Administration v. Wilson, supra, 52
Cal.App.4th at p. 1129.) Determining whether on the facts found Proposition E
impermissibly impairs Macpherson's rights under the 1992 lease agreement,
including an evaluation of the significance of the facts so found in light of
applicable legal principles, however, remains a question of law. (Ghirardo v.
Antonioli (1994) 8 Cal.4th 791, 800-801 [35 Cal.Rptr.2d 418, 883 P.2d 960];
Board of Administration v. Wilson, supra, 52 Cal.App.4th at p. 1129.) 2. Proposition E applies to
the Macpherson project. The power of the people through the statutory
initiative is coextensive with, not greater than, the power of the Legislature.
(Legislature v. Deukmejian (1983) 34 Cal.3d 658, 675 [194 Cal.Rptr. 781, 669
P.2d 17].) In general, voters may not enact a statute or ordinance that the
legislative authority itself has no power to enact. (Building Industry Assn. v.
City of Camarillo (1986) 41 Cal.3d 810, 821 [226 Cal.Rptr. 81, 718 P.2d 68];
Legislature v. Deukmejian, supra, 34 Cal.3d at p. 675.) Measures adopted by the
voters through the initiative process, moreover, are subject to the ordinary
rules and canons of statutory construction. (Evangelatos v. Superior Court
(1988) 44 Cal.3d 1188, 1212 [246 Cal.Rptr. 629, 753 P.2d 585].) Statutes do not operate retroactively unless there is
a clear indication of intent that they do so. (Western Security Bank v.
Superior Court (1997) 15 Cal.4th 232, 243 [62 Cal.Rptr.2d 243, 933 P.2d 507];
Evangelatos v. Superior Court, supra, 44 Cal.3d at pp. 1208-1209.) Intent with
regard to prospective or retroactive application may be determined from either
the language in the statute itself or, if the extrinsic sources are
sufficiently clear, *550 legislative history. (Western Security
Bank v. Superior Court, supra, 15 Cal.4th at p. 243; Evangelatos v. Superior
Court, supra, 44 Cal.3d at pp. 1209-1210.) In this case the parties disagree not only whether
Proposition E applies to the Macpherson project but also whether enforcement of
Proposition E with respect to the project would even constitute a
"retroactive" application of the law. A statute has retroactive
effect if it substantially changes the legal effect of past events. (20th
Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 281 [32 Cal.Rptr.2d 807,
878 P.2d 566]; Kizer v. Hanna (1989) 48 Cal.3d 1, 7 [255 Cal.Rptr. 412, 767
P.2d 679]; Aktar v. Anderson (1997) 58 Cal.App.4th 1166, 1182 [68 Cal.Rptr.2d
595].) "A statute does not operate 'retrospectively' merely because it is
applied in a case arising from conduct antedating the statute's enactment
[citation], or upsets expectations based on prior law. Rather, the court must
ask whether the new provision attaches new legal consequences to events
completed before its enactment." (Landgraf v. USI Film Products (1994) 511
U.S. 244, 269-270 [114 S.Ct. 1483, 1499, 128 L.Ed.2d 229], fn. omitted, italics
added; Kizer v. Hanna, supra, 48 Cal.3d at p. 7.) Application of Proposition E to prohibit the future
issuance of drilling and building permits to the Macpherson project appears to
be a prospective application of the law only, although one that plainly upsets
expectations grounded in the prior law. We agree with the trial court, however,
that resolution of this issue is unnecessary because the intent that
Proposition E apply to the Macpherson project is unambiguous and unmistakable. [FN9] FN9 The trial court found that "Proposition E, was
conceived, promoted and enacted to preclude oil drilling in the City including
any by McPherson [sic] under its lease." By its express terms Proposition E repealed the two
specific exceptions to the total prohibition on oil drilling in Hermosa Beach,
thus making all such activity in the future a violation of the Hermosa Beach
Municipal Code. Unlike the initial drilling ban adopted in 1932, Proposition E
did not exempt existing projects from its sweep. Without such an exemption, the
City was effectively disabled by Proposition E from issuing to Macpherson the
building or drilling permits necessary for its project. In this context the
language of the proposition can only be interpreted as applying to the
Macpherson project. (See Yoshioka v. Superior Court (1997) 58 Cal.App.4th 972,
980-981 [68 Cal.Rptr.2d 553].) The ballot arguments in support of and opposition to
Proposition E focused on the benefits and risks associated with the Macpherson
project, *551 providing further evidence that the intent of the
voters was for Proposition E to apply to the project. (Evangelatos v. Superior
Court, supra, 44 Cal.3d at p. 1212.) For example, the argument in favor of
Proposition E asserts "the original low-key, 4-6 well concept has exploded
into an enormous industrial eyesore" and "this project would be the
first to violate the integrity of the Santa Monica Bay Sanctuary." The
argument against Proposition E states, "The people pushing Proposition E
want us to turn our backs on a legally binding contract. They want us to reject
the $100 Million that contract will provide Hermosa Beach." The independent analysis by the city attorney that
accompanied the ballot arguments, while expressing some doubt whether
Proposition E could lawfully be enforced so as to stop the Macpherson project,
does not in any way suggest Proposition E is not intended to apply to the
project. To the contrary, if Proposition E were drafted to exclude the proposed
Macpherson project, there would be no reason to opine whether such an
application would be valid. Finally, the intent of the drafters of the
proposition, Stop Oil, plainly was to preclude Macpherson from proceeding with
the project. Absent some basis for determining that the intent of the
electorate was in conflict with the intent of the drafters, evidence of the
drafters' intent is an appropriate tool in interpreting the scope of an
initiative. (Evangelatos v. Superior Court, supra, 44 Cal.3d at p. 1212.) 3. Neither the doctrine of
vested rights nor the concept of government estoppel precludes application of
Proposition E to the Macpherson project. In opposition to Stop Oil's request for declaratory
and injunctive relief, Macpherson asserted in the trial court and again in its
"cross appeal" in this court that it has acquired "vested
rights" to continue with the oil exploration and production project, which
preclude application of Proposition E to the City Yard project. The trial court
properly rejected this claim. "The vested rights doctrine is ' "predicated
upon estoppel of the governing body." ' [Citation.] This is a principle of
equitable estoppel which may be applied against the government where justice
and fairness require it. [Citation.] [] An equitable estoppel requiring the
government to exempt a land use from a subsequently imposed regulation must
include (1) a promise such as that implied by a building permit that the
proposed use will not be *552 prohibited by a class of
restrictions that includes the regulation in question and (2) reasonable
reliance on the promise by the promisee to the promisee's detriment.
[Citation.]" (Santa Monica Pines, Ltd. v. Rent Control Board (1984) 35
Cal.3d 858, 866-867 [201 Cal.Rptr. 593, 679 P.2d 27].) Macpherson's vested rights and equitable estoppel
arguments [FN10] conflict with well-established authority holding that
no right to develop vests until all final discretionary permits have been
authorized and significant "hard costs" have been expended in
reliance on those permits-that is, until substantial construction has occurred
in reliance on a building permit. "In California, the developer's right to
complete a project as proposed does not vest until a valid building permit, or
its functional equivalent, has been issued and the developer has performed
substantial work and incurred substantial liabilities in good faith reliance on
the permit. [Citations.]" (Toigo v. Town of Ross, supra, 70 Cal.App.4th at
p. 321; Avco Community Developers, Inc. v. South Coast Regional Com. (1976) 17
Cal.3d 785, 791 [132 Cal.Rptr. 386, 553 P.2d 546]; accord, Consaul v. City of
San Diego (1992) 6 Cal.App.4th 1781, 1801 [8 Cal.Rptr.2d 762] ["the vested
rights doctrine enunciated in Avco has stood the test of time, and may properly
be applied even to modern land use planning devices"].) FN10 "[T]here is no meaningful distinction between
an estoppel claim and a vested right claim where land use is at issue.
[Citations.]" (Toigo v. Town of Ross (1998) 70 Cal.App.4th 309, 321 [82
Cal.Rptr.2d 649].) The record demonstrates that neither required element
for establishing a vested right or estoppel against the government exists. At
the time Proposition E was adopted, Macpherson had not received a coastal
development permit and, in fact, did not even have a permit application pending
before the Coastal Commission. [FN11] In addition, as of November 1995
(and still today) Macpherson had not obtained building or drilling permits from
the City, which it explicitly agreed to obtain [FN12] and which are
necessary for completion of the project. FN11 As discussed previously, Macpherson had submitted
and then withdrawn its initial application for a coastal development permit. FN12 The 1992 lease requires Macpherson to apply for
and obtain "all necessary drilling and well permits from the City of
Hermosa Beach pursuant to the Hermosa Beach Municipal Code." Before those permits could issue, Macpherson was
required by the CUP to submit for approval by the City additional studies and
analyses, including an oil spill prevention control plan, an oil drilling
contingency plan and a supplemental fire hazard analysis. The City thus
retained considerable discretion whether to approve Macpherson's plans and
issue the required *553 permits. (See Friends of Westwood, Inc.
v. City of Los Angeles (1987) 191 Cal.App.3d 259, 272-273 [235 Cal.Rptr. 788]
[pursuant to CEQA, issuance of a building permit would be considered
"discretionary" when application of judgment is required].) In the absence of these permits, Macpherson can claim
no vested right to continue with the project. "Courts have yet to extend
the vested rights or estoppel theory to instances where a developer lacks a
building permit or the functional equivalent, regardless of the property
owner's detrimental reliance on local government actions and regardless of how
many other land use and other preliminary approvals have been granted....
California courts apply this rule most strictly ...." (Toigo v. Town of
Ross, supra, 70 Cal.App.4th at p. 322.) In addition, all of the expenses incurred by
Macpherson prior to passage of Proposition E were "soft costs,"
expenditures for engineers, consultants and lawyers in connection with
obtaining approvals from the SLC and the City. None of those expenses was for
the type of "hard costs" required as a basis for recognizing a vested
right to proceed with development. (Avco Community Developers, Inc. v. South
Coast Regional Com., supra, 17 Cal.3d at p. 793 [work undertaken pursuant to
governmental approvals preparatory to construction of buildings cannot form the
basis of a vested right]; Consaul v. City of San Diego, supra, 6 Cal.App.4th at
p. 1797 [predevelopment expenditures do not establish vested rights].) In sum, with only a conditional use permit (as to
which many conditions remained unfulfilled), no building permit and no
substantial work done to construct the project, Macpherson can claim no vested
right to preclude application of Proposition E to the oil drilling project at
the City Yard Site. Instead, it possessed certain contract-based expectations,
which must be balanced against the voters' exercise of the City's police powers
through passage of Proposition E to determine whether the measure may be
validly applied to terminate the project. 4. Proposition E does not
constitute an unconstitutional impairment of the Macpherson-City lease
agreement. It is now axiomatic that the contract clauses of the
federal and state Constitutions (U.S. Const., art. I, 10; Cal. Const., art. I,
9) are not to be read literally. (Keystone Bituminous Coal Assn. v.
DeBenedictis (1987) 480 U.S. 470, 502 [107 S.Ct. 1232, 1250-1251, 94 L.Ed.2d
472].) Although *554 containing facially absolute language, the
proscription of "any" impairment contained in the contract clauses
must be interpreted to accommodate the inherent police power of the state to
safeguard the vital interests of its residents. (Energy Reserves Group v.
Kansas Power & Light (1983) 459 U.S. 400, 410 [103 S.Ct. 697, 703-704, 74
L.Ed.2d 569] (Energy Reserves); United States Trust Co. v. New Jersey (1977)
431 U.S. 1, 21 [97 S.Ct. 1505, 1517, 52 L.Ed.2d 92] (United States Trust);
Sonoma County Organization of Public Employees v. County of Sonoma (1979) 23
Cal.3d 296, 305 [152 Cal.Rptr. 903, 591 P.2d 1].) "[A] finding that there
has been a technical impairment is merely a preliminary step in resolving the
more difficult question whether that impairment is permitted under the
Constitution. In the instant case, as in Blaisdell [Home Bldg. & Loan Assn.
v. Blaisdell (1934) 290 U.S. 398 [54 S.Ct. 231, 78 L.Ed. 413, 88 A.L.R. 1481]],
we must attempt to reconcile the strictures of the Contract Clause with the
'essential attributes of sovereign power,' [citation], necessarily reserved by
the States to safeguard the welfare of their citizens. [Citation.]"
(United States Trust, supra, 431 U.S. at p. 21 [97 S.Ct. at p. 1517].) A total prohibition of previously authorized conduct,
as would occur with application of Proposition E to the Macpherson project, is
not necessarily unconstitutional. "This Court has long recognized that a
statute does not violate the Contract Clause simply because it has the effect
of restricting, or even barring altogether, the performance of duties created
by contracts entered into prior to its enactment. [Citation.] ... [] ... Thus,
a state prohibition law may be applied to contracts for the sale of beer that were
valid when entered into, [citation], a law barring lotteries may be applied to
lottery tickets that were valid when issued, [citation], and a workmen's
compensation law may be applied to employers and employees operating under
pre-existing contracts of employment that made no provision for work-related
injuries [citation]." (Exxon Corp. v. Eagerton (1983) 462 U.S. 176,
190-191 [103 S.Ct. 2296, 2305-2306, 76 L.Ed.2d 497], fns. omitted.) Appropriate accommodation of these competing
constitutional interests begins with two threshold questions: First, is the
government regulation at issue (Proposition E) a legitimate exercise of the
City's police power? If not, the measure is invalid; and its impact on
Macpherson need not be addressed. (See Interstate Marina Development Co. v.
County of Los Angeles (1984) 155 Cal.App.3d 435, 450 [202 Cal.Rptr. 377] [law
must have a real and substantial relationship to the object sought to be
obtained]; Gray v. Whitmore (1971) 17 Cal.App.3d 1, 22 [94 Cal.Rptr. 904]
[deprivation effected by government action must be result of reasonable
legislation reasonably applied].) *555 Second, will application of Proposition E to the
Macpherson project operate as a substantial impairment of Macpherson's contract
rights? (United States Trust, supra, 431 U.S. at pp. 20-21 [97 S.Ct. at p.
1517]; Barrett v. Dawson (1998) 61 Cal.App.4th 1048, 1054-1055 [71 Cal.Rptr.2d
899].) If there is no substantial impairment, that ends the inquiry. (United
States Trust, supra, 431 U.S. at pp. 20-21 [97 S.Ct. at p. 1517]; Barrett v.
Dawson, supra, 61 Cal.App.4th at pp. 1054-1055.) If there is a substantial
impairment of contract rights, however, we must determine whether the means
chosen to implement the regulation is "of a character appropriate" to
its legitimate public purpose. (United States Trust, supra, 431 U.S. at p. 22
[97 S.Ct. at p. 1518]; Energy Reserves, supra, 459 U.S. at p. 412 [103 S.Ct. at
pp. 704-705]; Barrett v. Dawson, supra, 61 Cal.App.4th at p. 1055.) a. Proposition E is a
legitimate exercise of the City's police power. Enactment of a city ordinance prohibiting exploration
for and production of oil, unless arbitrary, is a valid exercise of the
municipal police power. "It must be deemed to be well settled that the
enactment of an ordinance which limits the owner's property interest in oil
bearing lands located within the city is not of itself an unreasonable means of
accomplishing a legitimate objective within the police power of the city."
(Beverly Oil Co. v. City of Los Angeles (1953) 40 Cal.2d 552, 558 [254 P.2d
865]; accord, Pacific Palisades Assn. v. City of Huntington Beach (1925) 196
Cal. 211, 217 [237 P. 538, 40 A.L.R. 782] [city has "the unquestioned
right to regulate the business of operating oil wells within its city limits,
and to prohibit their operation within delineated areas and districts, if
reason appears for so doing"].) Proposition E was adopted with general findings that
reinstituting the total ban on oil drilling and production in a densely
populated urban area is necessary to preserve the environment, as well as to
protect the public health, safety and welfare of people and property within
Hermosa Beach. It is, therefore, presumptively a justifiable exercise of the
City's police power. (Higgins v. City of Santa Monica (1964) 62 Cal.2d 24, 30
[41 Cal.Rptr. 9, 396 P.2d 41] [upholding constitutionality of ordinance
prohibiting all oil and gas exploration on tidelands]; Hansen Brothers
Enterprises, Inc. v. Board of Supervisors (1996) 12 Cal.4th 533, 550 [48
Cal.Rptr.2d 778, 907 P.2d 1324]; Beverly Oil Co. v. City of Los Angeles, supra,
40 Cal.2d at pp. 558-560.) Indeed, none of the parties disputes the validity of
reinstituting the total ban *556 on oil drilling within Hermosa
Beach, save only for the question whether that ban can be applied to the
Macpherson project. [FN13] FN13 The significance of the public purpose served by a
regulation is also relevant to the court's determination whether the means
chosen to implement it is reasonable. (See Energy Reserves, supra, 459 U.S.
400, 412 [103 S.Ct. 697, 704-705].) b. The Macpherson-City
lease agreement anticipates regulatory change impacting the project. Macpherson concedes, as it must, that it would have no
basis for asserting that Proposition E unconstitutionally impairs its contract
rights if the lease agreement explicitly provided that the City could prohibit
all oil drilling in the future, including at the City Yard Site. (See Energy
Reserves, supra, 459 U.S. at p. 411 [103 S.Ct. at p. 704] ["state
regulation that restricts a party to gains it reasonably expected from the
contract does not necessarily constitute a substantial impairment"].)
Macpherson also concedes that "the City expressly reserved its right to
exercise its police power in the express language of the Oil and Gas
Lease." In describing this aspect of the lease agreement as
"routine" and "generic," Macpherson incorrectly trivializes
a highly relevant statement of the parties' expectations. (See El Paso v.
Simmons (1965) 379 U.S. 497, 515 [85 S.Ct. 577, 587, 13 L.Ed.2d 446]; see
generally Tribe, American Constitutional Law (2d ed. 1988) 9-9, p. 617 [at
stake is not only what parties in fact expect but also what they are entitled
to expect].) The 1992 lease, like its predecessor, specifically
provides that "[t]he Lessee shall comply with all laws, rules and
regulations of the United States, of the State of California and its political
subdivisions, and of the City of Hermosa Beach applicable to the Lessee's
operations ...." The Macpherson-City lease additionally requires
Macpherson to apply for and obtain "all necessary drilling and well
permits from the City of Hermosa Beach pursuant to the Hermosa Beach Municipal
Code." The Hermosa Beach Oil Code, adopted in 1985 prior to
the first Macpherson-City lease, both requires a drilling permit and conditions
issuance of a permit on a finding that the proposed permit is "in
compliance with all applicable laws, ordinances and regulations." (Hermosa
Beach Mun. Code, 21A.2.3.) By its express mandate that Macpherson obtain a
drilling permit, the lease thus incorporates this further command that the
Macpherson project operate in compliance with then existing law. (See Marina
Plaza v. California Coastal Zone Conservation Com. (1977) 73 Cal.App.3d 311,
324 [140 Cal.Rptr. 725] [interpreting similar language to require compliance
with both existing and future law affecting development of Marina Del Rey].) In
*557 addition, one of the conditions of the CUP issued in 1993,
to which Macpherson agreed, was that "[t]he subject property shall be
developed, maintained and operated in full compliance with the conditions of
this grant and any law, statute, ordinance or other regulation applicable to
any development or activity on the subject property." The significance of these lease provisions and the
related aspects of the Municipal Code and the CUP must also be viewed against
the backdrop of pervasive governmental regulation to which the oil exploration
industry has in the past been subjected (including, most particularly, by the
City itself). "In determining the extent of the impairment, we are to
consider whether the industry the complaining party has entered has been
regulated in the past. [Citation.]" (Energy Reserves, supra, 459 U.S. 400,
411 [103 S.Ct. 697, 704].) As this division observed in upholding a rent
control ordinance in Interstate Marina Development Co. v. County of Los
Angeles, supra, 155 Cal.App.3d at page 447, "it is not as if the
governmental entity has entered a field it had never before sought to
regulate." Such past governmental regulation of business is
"[a]nother factor indicating the reasonableness of the measure."
(Ibid.) In stark contrast to the parties' explicit and
repeated recognition of the City's authority to regulate the project in the
future, Macpherson could have, but did not, negotiated for protection from the
adverse situation it now confronts. [FN14] First, Macpherson failed to
bargain for a lease provision imposing on the City the risk of a
performance-defeating change in the law. "With the trend toward greater
governmental regulation ... parties are increasingly aware of such risks, and a
party may undertake a duty that is not discharged by such supervening
governmental actions .... Such an agreement is usually interpreted as one to
pay damages if performance is prevented ...." (Rest.2d Contracts, 264,
com. a, p. 331, italics added.) "Contracts like this are especially
appropriate in the world of regulated industries, where the risk that legal
change will prevent the bargained-for performance is always lurking in the
shadows." (United States v. Winstar Corp. (1996) 518 U.S. 839, 869 [116
S.Ct. 2432, 2452, 135 L.Ed.2d 964] (lead opn. of Souter, J.) [holding United
States liable in damages for breach of contract based on congressional change
to regulatory capital requirements for thrifts].) "The answer to the
Government's contention that the State cannot barter away certain elements of
its sovereign power is that a contract to adjust the risk of subsequent
legislative change does not strip the Government of its legislative
sovereignty." (Id. at p. 889 [116 S.Ct. at p. 2462], fn. omitted.) *558
FN14 Macpherson does assert it would not have entered
into the lease agreement had it understood the City intended to reserve the
ability to terminate the project through future regulation (as opposed,
presumably, merely to modifying it). Second, after the lease agreement was completed,
Macpherson could have protected itself from subsequent regulatory changes by
insisting that the City enter into a development agreement pursuant to
Government Code section 65864 et seq. Such agreements, which a city may enter
with "any person having a legal or equitable interest in real property for
the development of the property" (Gov. Code, 65865, subd. (a)), are
intended "to encourage multiphase developments by reducing the risk of
subsequent regulatory changes." (National Parks & Conservation Assn.
v. County of Riverside (1996) 42 Cal.App.4th 1505, 1521 [50 Cal.Rptr.2d 339].)
The development agreement may include conditions and requirements for
subsequent discretionary acts, but "shall not prevent development of the
land for the uses and to the density or intensity of development set forth in
the agreement." (Gov. Code, 65865.2.) The agreement, in effect,
"allows 'a builder to acquire by contract the equivalent of a vested right
at an early stage of the project.' [Citation.]" (Citizens for Responsible
Government v. City of Albany (1997) 56 Cal.App.4th 1199, 1213 [66 Cal.Rptr.2d
102].) Of course, it is likely that the City would have
demanded additional consideration from Macpherson for either a risk-adjustment
provision in the lease agreement or a separate development agreement. Having at
least implicitly decided to forego such protection against future regulatory
change, Macpherson must accept the consequences of its judgment to do so. As discussed previously, Macpherson also did not
proceed far enough with the proposed project to acquire vested rights that
would permit it to continue with oil exploration and production notwithstanding
Proposition E's change in the law. Taken together, these factors could well justify a
conclusion that Proposition E did not effect any substantial impairment of the
Macpherson-City lease. (See Energy Reserves, supra, 459 U.S. at p. 416 [103
S.Ct. at p. 707], fn. omitted ["[T]he contracts expressly recognize the
existence of extensive regulation by providing that any contractual terms are
subject to relevant present and future state and federal law. This latter
provision could be interpreted to incorporate all future state price
regulation, and thus dispose of the Contract Clause claim"]; Interstate
Marina Development Co. v. County of Los Angeles, supra, 155 Cal.App.3d at p.
448 [general lease provision making lessees subject at all times to ordinances
of the County "arguably" authorizes adoption by county of rent
control law subsequent to entry into lease agreement as simple matter of
contract interpretation].) At the very least, they strongly support upholding
the reasonableness, and thus the validity, of Proposition E. (155 Cal.App.3d at
p. 447.) *559 c. The appropriate level of
deference for review of the government's exercise of its "reserved
police powers." i. United States Trust and
the application of the reserved powers doctrine to public contracts. The foundation for modern contract clause
jurisprudence is United States Trust, supra, 431 U.S. 1, a 1977 United States
Supreme Court decision that, for the first time in nearly 40 years, overturned
a state law as violating the contract clause. [FN15] In United States
Trust the Court invalidated the repeal of a bistate statutory covenant that
limited the ability of the Port Authority of New York and New Jersey to
subsidize rail passenger transportation from revenues and reserves pledged as
security for consolidated bonds issued by the port authority, holding this
retroactive alteration of the contract rights of state bondholders to be an
impermissible impairment of contract. "[T]he Contract Clause limits
otherwise legitimate exercises of state legislative authority, and the
existence of an important public interest is not always sufficient to overcome
that limitation.... [] ... [] ... Legislation adjusting the rights and
responsibilities of contracting parties must be upon reasonable conditions and
of a character appropriate to the public purpose justifying it adoption.
[Citation.]" United States Trust, supra, 431 U.S. at pp. 21-22 [97 S.Ct.
at pp. 1517-1518].) FN15 Our Supreme Court and the various Courts of Appeal
do not differentiate between the federal and state contract clauses in their
analysis; and the opinions draw primarily from United States Supreme Court
cases. (See, e.g., Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 826-831
[258 Cal.Rptr. 161, 771 P.2d 1247]; Sonoma County Organization of Public
Employees v. County of Sonoma, supra, 23 Cal.3d at pp. 307-309; Barrett v.
Dawson, supra, 61 Cal.App.4th at p. 1056.) In revitalizing the contract clause as a limitation on
state legislative authority, the Supreme Court drew two crucial distinctions
that bear heavily on the proper analysis of the constitutionality of a state or
local law. First, the Court differentiated between the object of the
legislation: Laws affecting existing contractual relationships between private
parties, as opposed to laws affecting obligations of the state itself, are to
be reviewed with great deference to the legislature's judgment as to the
necessity and reasonableness of a particular measure. (United States Trust,
supra, 431 U.S. at pp. 22-23 [97 S.Ct. at pp. 1517-1518].) Second, and of
paramount significance for the case at bar, the Supreme Court confirmed the
continued viability of the "reserved-powers doctrine" and sharply
distinguished between impairment of a state's own financial obligation through
exercise of the taxing and spending powers, on the one hand, and abridgment of
rights in a contract to which the state may be a party as a result of the
state's exercise of its police *560 powers (for example, for
health or safety reasons), on the other hand. (Id. at pp. 23-25 [97 S.Ct. at
pp. 1518-1519].) "It is often stated that 'the legislature cannot
bargain away the police power of a State.' [Citation.] This doctrine requires a
determination of the State's power to create irrevocable contract rights in the
first place, rather than an inquiry into the purpose or reasonableness of the
subsequent impairment. In short, the Contract Clause does not require a State
to adhere to a contract that surrenders an essential attribute of its
sovereignty. [] In deciding whether a State's contract was invalid ab initio
under the reserved-powers doctrine, earlier decisions relied on distinctions
among the various powers of the State. Thus, the police power and the power of
eminent domain were among those that could not be 'contracted away,' but the
State could bind itself in the future exercise of the taxing and spending
powers. Such formalistic distinctions perhaps cannot be dispositive, but they
contain an important element of truth." (United States Trust, supra, 431
U.S. at pp. 23-24 [97 S.Ct. at p. 1518], fns. omitted, italics added.) After observing that the bonds at issue were plainly
state financial obligations and that repeal of the security provisions
protecting the bondholders was an exercise of the state's financial powers,
rather than its reserved police powers, the Court illustrated the difference
between the two situations: "The instant case involves a financial
obligation and thus as a threshold matter may not be said automatically to fall
within the reserved powers that cannot be contracted away. Not every security
provision, however, is necessarily financial. For example, a revenue bond might
be secured by the State's promise to continue operating the facility in
question; yet such a promise surely could not validly be construed to bind the
State never to close the facility for health or safety reasons." (United
States Trust, supra, 431 U.S. at pp. 24-25 [97 S.Ct. at p. 1519], fn. omitted,
italics added.) Only after it concluded that the impairment of the
bondholder's financial rights did not involve an exercise of the state's core
governmental power to protect the health or safety of its citizens did the
Supreme Court articulate the oft-quoted standard for evaluating the
constitutionality of a measure impacting a public contract: "The Contract
Clause is not an absolute bar to subsequent modification of a State's own
financial obligations. As with laws impairing the obligations of private
contracts, an impairment may be constitutional if it is reasonable and necessary
to serve an important public purpose. In applying this standard, however,
complete deference to a legislative assessment of reasonableness and necessity
is not appropriate because the State's self-interest is at stake. A
governmental entity can always find a *561 use for extra money,
especially when taxes do not have to be raised. If a State could reduce its
financial obligations whenever it wanted to spend the money for what it
regarded as an important public purpose, the Contract Clause would provide no protection
at all." (United States Trust, supra, 431 U.S. at pp. 25-26 [97 S.Ct. at
p. 1519], fn. omitted.) [FN16] FN16 This standard of review for legislation impairing a
state's own financial obligations articulated in United States Trust has been
likened to the "intermediate" level of scrutiny in modern sex
discrimination cases. (Gunther, Constitutional Law (12th ed. 1991) p. 484, fn.
2.) Following United States Trust, therefore, a court
reviewing a contract clause challenge involving a public contract must consider
what powers the state has invoked in adopting the legislation-that is, the
nature of the statutory impairment. If the legislation has been enacted
pursuant to the state's reserved police powers, rather than its taxing and
spending powers, traditional standards of deference to the legislature's
judgment in economic and social matters must be observed. (See United States
Trust, supra, 431 U.S. at pp. 24-25 [97 S.Ct. at pp. 1518-1519]; see generally
Note, Takings Law and the Contract Clause: A Takings Law Approach to
Legislative Modifications of Public Contracts (1984) 36 Stan. L.Rev. 1447,
1455-1456.) ii. Stone v. Mississippi,
Beer Company v. Massachusetts and the relevant California decisions. United States Trust's distinction between the deference
to be accorded state laws impacting its own financial obligations and those
affecting private contracts has been noted in subsequent Supreme Court cases
involving private contracts. (E.g., Keystone Bituminous Coal Assn. v.
DeBenedictis, supra, 480 U.S. at pp. 505-506 & fn. 33 [107 S.Ct. at p.
1252]; Exxon Corp. v. Eagerton, supra, 462 U.S. at p. 192 & fn. 13 [103
S.Ct. at p. 2306]; Energy Reserves, supra, 459 U.S. at pp. 412-413 & fn. 14
[103 S.Ct. at pp. 704-705].) [FN17] The court has not directly considered
a public contract case involving legislation adopted pursuant to the state's
police powers since 1977, and thus has had no occasion to focus again on the
distinction between the state's exercise of its spending and taxing powers and
an exercise of its core governmental authority. In United States v. Winstar
Corp., supra, 518 U.S. at page 888 [116 S.Ct. at page 2461] (lead opn. of
Souter, J.), however, the court did explicitly refer to United States Trust's
analysis of the reserved powers doctrine and once again confirmed that
doctrine's "limitation on the scope of the Contract Clause." *562
FN17 It has been suggested that these more recent
decisions, all of which have upheld the challenged state legislation, presage
at least a partial return to greater deference by the Supreme Court. (Gunther
& Sullivan, Constitutional Law (13th ed. 1997) pp. 514-515; Tribe, American
Constitutional Law, supra, 9-11, p. 623.) Substantial deference to the legislative judgment of
reasonableness and necessity for laws enacted pursuant to the state's reserved
powers, recognized in United States Trust, is a continuation of the Supreme
Court's historic approach to contract clause cases involving public contracts.
For example, in Stone v. Mississippi (1879) 101 U.S. 814 [25 L.Ed. 1079], the
Supreme Court permitted prosecution of a state-chartered corporation for
conducting a lottery in violation of state law even though the company's
charter, issued before the law was enacted, expressly authorized that activity.
In reaching its conclusion, the court made the identical distinction found in
United States Trust between a public contract impacted by a state's exercise of
its police powers and one involving use of its revenue and spending powers. The
court first noted that the law at issue was an appropriate exercise of the
state's police powers: "When the government is untrammeled by any claim of
vested rights or chartered privileges, no one has ever supposed that lotteries
could not lawfully be suppressed ...." (Id. at p. 818 [25 L.Ed. at p.
1080].) The court then dismissed the corporation's claim that its corporate
charter was a contract with the state that was impermissibly impaired by the
law banning lotteries, holding that "[t]he contracts which the
Constitution protects are those that relate to property rights, not
governmental." (Id. at p. 820 [25 L.Ed. at pp. 1080-1081].) "We have
held ... that this clause [the contract clause] protected a corporation in its
charter exemptions from taxation.... [] But the power of governing is a trust
committed by the people to the government, no part of which can be granted
away.... They may create corporations, and give them, so to speak, a limited
citizenship; but as citizens, limited in their privileges, or otherwise, these
creatures of the government creation are subject to such rules and regulations
as may from time to time be ordained and established for the preservation of
health and morality." (Ibid. [25 L.Ed. at p. 1080].) Similarly, in Beer Company v. Massachusetts (1877) 97
U.S. 25 [24 L.Ed. 989], the Supreme Court upheld Massachusetts's right to enact
a law prohibiting the manufacture and sale of liquor in the state
notwithstanding its prior grant of a charter entitling plaintiff to manufacture
and sell malt liquors. "[A]lthough [the right to manufacture and sell malt
liquor] was thus granted in the most unqualified form, it cannot be construed
as conferring any greater or more sacred right than any citizen had to
manufacture malt liquor; nor as exempting the corporation from any control
therein to which a citizen would be subject, if the interests of the community
should require it. If the public safety or the public morals require the
discontinuance of any manufacture or traffic, the hand of the legislature
cannot be stayed from providing for its discontinuance, by any incidental
inconvenience which individuals or corporations may suffer. All rights are held
subject to the *563 police power of the State." (Id. at p.
32 [24 L.Ed. at pp. 991-992], italics added.) Both Stone and Beer Company were cited in 1983 by a
unanimous Supreme Court in Exxon Corp. v. Eagerton as examples of general
regulatory measures that withstood contract clause challenges notwithstanding
that contract rights were "impaired, or even destroyed, as a result."
(Exxon Corp. v. Eagerton, supra, 462 U.S. at pp. 190-191 [103 S.Ct. at pp.
2305-2306]; see United States v. Winstar Corp., supra, 518 U.S. at p. 888 [116
S.Ct. at p. 2461] [citing Stone v. Mississippi as "classic example"
of reserved powers doctrine's limitation on the scope of the contract clause].) California courts have likewise long recognized the
reserve powers doctrine as a limit on the protection afforded public contracts
by the contracts clause. In Laurel Hill Cemetery v. City and County of San Francisco
(1907) 152 Cal. 464 [93 P. 70], the California Supreme Court denied a
constitutional challenge brought by a cemetery association to an ordinance
prohibiting interments within San Francisco's city limits. The association
argued, in part, that the land it owned had been granted to it by the city and
county for the express purpose of operating a cemetery and that the government
was therefore precluded from enforcing the ordinance against it. (Id. at p.
475.) The court rejected this argument: "Even if the city and county had
made an express contract granting to the plaintiff the right to make interments
in this ground in perpetuity, such contract would have no force as against a
future exercise by the legislative branch of the government of its police power.
[Citation.] This power cannot be bargained or contracted away, and all rights
and property are held subject to it. [Citations.]" (Ibid.) In Teachers Management & Inv. Corp. v. City of
Santa Cruz (1976) 64 Cal.App.3d 438 [134 Cal.Rptr. 523], the court used similar
reserved-powers reasoning to reject an effort to enjoin enforcement of a
measure prohibiting the City of Santa Cruz from owning, leasing, maintaining or
operating a convention center on certain real property in the city. Plaintiffs
argued that the ordinance impermissibly impaired contracts they had entered
with the city and with the owner of the property for development of the site.
The court disagreed, holding that "the people of Santa Cruz were not
powerless to act through the initiative to change a policy of their city.
[Citation.] The existence of binding agreements cannot prevent a public entity
from abandoning or rescinding its plans to proceed with a public works project,
although the change in policy may result in the entity's being liable for
breach of contract. [Citation.]" (Id. at p. 448.) The distinction for contract clause purposes between
the exercise of the state's taxing and spending powers and its core
governmental authority is *564 also inherent in this division's
analysis of the County of Los Angeles's rent control ordinance in Interstate
Marina Development Co. v. County of Los Angeles, supra, 155 Cal.App.3d 435.
Although the opinion fully considered the important public purpose served by
the rental control law before concluding that the ordinance was both reasonable
and necessary (id. at pp. 446-448), citing to United States Trust the court
also emphasized that the law furthered "a broad legitimate purpose that is
within the police power" (id. at p. 448) and was not simply a device by
which the county could avoid its financial obligations. "The state cannot
use the police power to avoid meeting its financial obligations. [Citation.]
However, that is not the situation we are faced with here. The County is not
attempting to repudiate debts it has incurred under a contract. It is using the
power to achieve the legitimate purpose of promoting the welfare of its
people." (Ibid.) iii. Macpherson concedes
that Proposition E is an exercise of the City's reserved powers. Macpherson acknowledges, as it must, the case law
delineating the reserved powers doctrine and agrees that the City expressly
retained in the language of the lease agreement itself the right to exercise
its police powers in the future, including adoption and enforcement of new laws
regulating oil drilling. Macpherson, however, attempts to dismiss the
significance of this concession by imposing a cramped and wholly unsupportable
interpretation on the Supreme Court's discussion of the reserved powers
doctrine in United States Trust. Focusing on only a portion of the language used,
Macpherson correctly observes that the Supreme Court stated the "initial
inquiry concerns the ability of the State to enter into an agreement that
limits its power to act in the future.... [T]he Contract Clause does not
require a State to adhere to a contract that surrenders an essential attribute
of its sovereignty." (United States Trust, supra, 431 U.S. at p. 23 [97
S.Ct. at p. 1518].) From this language Macpherson makes the peculiar argument
that the only significance of the reserved powers doctrine is that it, in
essence, requires language in all public contracts (elsewhere described by
Macpherson as "generic") expressly acknowledging that the private
contracting party may be subject to laws or regulations adopted in the future.
If no such provision exists, the contract is void; if the contract contains the
requisite statement, the reserved powers doctrine plays no further role in
analyzing the validity of the government regulation under the contract clause.
According to Macpherson, because its lease with the City does not purport to
restrict the City from exercising its police power, "the reserved powers
doctrine does not operate *565 to diminish the standard
constitutional protections afforded private citizens when those private
citizens enter into a contract with the government." The reserved powers doctrine is neither so simplistic
nor so mechanical. As discussed above, the "initial inquiry" to which
the court refers in United States Trust concerns the nature of the governmental
power being exercised, not whether the contract does or does not contain
specific language that acknowledges the possibility of future regulation. [FN18]
If the legislation at issue falls within the ambit of traditional police
powers, further inquiry into the purpose or reasonable of the legislation is
circumscribed. (United States Trust, supra, 431 U.S. at p. 23 [97 S.Ct. at p.
1518].) If, on the other hand, the government is exercising revenue or spending
powers, "complete deference to a legislative assessment of reasonableness
and necessity is not appropriate ...." (Id. at p. 26 [97 S.Ct. at p.
1519].) FN18 Whether or not a public contract contains language
expressly reserving the government's right to exercise its police powers, the
significance of the reserved powers doctrine is precisely that the government
always retains the right to do so. (E.g., United States Trust, supra, 431 U.S.
at p. 25 [97 S.Ct. at p. 1519]; Beer Company v. Massachusetts, supra, 97 U.S. at
pp. 31-32 [25 L.Ed. at pp. 991-992].) Like the legislation banning lotteries and prohibiting
the manufacture and sale of liquor at issue in Stone and Beer Company and the
hypothetical closure of the port facility for health or safety reasons
considered in United States Trust (United States Trust, supra, 431 U.S. at p.
25 [97 S.Ct. at p. 1519]), Proposition E's reinstatement of the ban on oil
drilling and production in Hermosa Beach is an exercise by the voters of
Hermosa Beach of traditional police powers. As was true of the County in
Interstate Marina Development Co. v. County of Los Angeles, supra, 155
Cal.App.3d 435, the City "is not attempting to repudiate debts it has
incurred under a contract. It is using the power to achieve the legitimate purpose
of promoting the welfare of its people." (Id. at p. 448.) d. Proposition E uses
reasonable and necessary means for implementing its important public purpose. Proposition E was adopted pursuant to the City's
police power to protect the public health and safety of the residents of
Hermosa Beach. Pursuant to the authority discussed in the preceding sections of
this opinion, in determining whether application of the measure to the
Macpherson project impermissibly impairs Macpherson's contract rights, we properly
show substantial deference to the legislative judgment made by the voters that
restoration of the complete ban on oil drilling and exploration is necessary
and reasonable. (United States Trust, supra, 431 U.S. at pp. 23-24 [97 S.Ct. at
pp. 1518- 1519].) *566 i. Significant health and
safety concerns support application of Proposition E to the Macpherson project. A substantial body of evidence was introduced in the
trial court concerning the health and safety risks of the project proposed by
Macpherson for the City Yard Site. That evidence, much of which was also
presented to the SLC, the Coastal Commission and the City itself, is more than
sufficient to uphold the validity of Proposition E. The EIR certified by the City acknowledges numerous
adverse impacts from the proposed project: noise; air pollution from dust,
exploratory drilling and production operations; odors; degradation of visual
resources and aesthetics; and increases in traffic. With respect to safety
issues, the EIR stated, "Several potential public safety and health
hazards can be associated with oil drilling and production activities. Among
these are accidents resulting from geologic hazards, pranks and trespassing,
blowouts, truck traffic, gas leaks, fires and explosions, and spills or ruptures." As supplemented through 1993 when the City issued the
CUP, the EIR concluded that the project created safety concerns that could not
be fully resolved but that nonetheless presented an acceptable level of risk.
"The proposed project will increase the potential and severity of an
accident occurring on-site. The hazard footprint radius will extend into
adjacent residential and industrial land use. The safety measures included and
required for the project will reduce the level of risk, although the risk will
not be completely mitigated." [FN19] (Italics added.) FN19 As to gas hazards, the EIR explained that "[a]
certain volume of methane gas is normally produced along with the oil.... The
production tank vapors are expected to be primarily comprised of methane gas
with smaller quantities of low molecular weight hydrocarbons (ethane, propane
and butane) and possibly trace quantities of hydrogen sulfide gas. The latter,
if allowed to vent directly to the atmosphere, could create a fire hazard and
odor nuisance impact. By collecting, treating and consuming or selling these
production tank vapors, along with the primary well head gas, no significant
odor or safety problems will exist." Not satisfied with the EIR's analysis of the risk
associated with the gas hazards at the project, the Coastal Commission imposed
new mitigation requirements in 1998 following an independent review by
consultant Arthur D. Little, Inc., working under the direction of the
commission's staff. In its January 1998 findings, the Coastal Commission
explained, "Commission staff did not believe the applicant had fully
analyzed the potential worst-case accidental release of hydrogen sulfide that
might occur. In addition, some nearby wells have historically produced
significant amounts of hydrogen sulfide. [The Arthur D. Little report]
determined that hydrogen sulfide, an *567 acutely toxic gas,
could be encountered during drilling and/or production and could pose a
significant safety risk to offsite populations." [FN20] As a
result, the commission required that wells producing more than 40 parts per
million (ppm) of the gas be re-completed to avoid the gas or be permanently
shut in. The commission further required that Macpherson not attempt to treat
hydrogen sulfide gas and that Macpherson maintain a perimeter detection and
alarm system. The Arthur D. Little report and the Coastal Commission both
ultimately concluded that the risk from hydrogen sulfide levels would be
minimal if the mitigation measures, including those first required in 1998,
were successful in maintaining levels at no more than 40 ppm. FN20 According to the Arthur D. Little report,
"Hydrogen sulfide is lethal within a few breaths at concentrations of
1,000 parts per million (ppm), and kills within 1/2-hour at concentrations of
300 ppm. Injuries may occur at lower concentrations and occupational safety
standards are triggered at 10 ppm." The Arthur D. Little report also found a significant
risk of fire and explosion hazard. "[P]otential fire and explosion hazards
associated with the proposed project, especially given the location in close
proximity to residential areas, would still be classified as a significant
impact based on the generally accepted risk criteria used by the
applicant." The report recommended a further, detailed hazard and
operability study. The coastal commission's approval of the development permit
was conditioned on the preparation of such a study, which was to be submitted
for approval to the commission's executive director. As discussed above, in connection with the hazard
analysis required by the Coastal Commission, the City authorized an independent
review and risk assessment of the project by the Aspen/Bercha Group. The
Aspen/Bercha report projected as "ultimate risk expectations" over
the 35-year life of the project: "31 leaks, 2 major releases, and 1
rupture within the process segment"; "[r]esulting offsite hazards
including 2 jet fires, and a 4% likelihood of an offsite flash fire with
potential for casualties"; and a "1 in 7000 chance of 1 of [sic] more
fatalities, 1 in 30,000 of 10 or more, and a 1 in 700 chance of 1 or more
serious injuries of members of the public." As to the ultimate acceptability of the risks that
would be created, the Aspen/Bercha report recognized that weighing those risks
against the anticipated financial benefits of the project was ultimately a
political judgment. "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. Yet, because of its setting in a medium-density urban, commercial,
and residential location, it *568 poses risks. These risks have
been quantified and presented, with an explanation of the approximations
implicit in this quantification, and compared to standards and other measuring
sticks that are available. The ultimate decision on the acceptability of the
risks rests with the City of Hermosa Beach." In light of the evidence that the dangers posed cannot
be mitigated to a level of insignificance, the voters' judgment that the health
and safety risks associated with the Macpherson project required prohibition of
all oil drilling and production within Hermosa Beach is reasonable. (See City
of Dublin v. County of Alameda (1993) 14 Cal.App.4th 264, 282 [17 Cal.Rptr.2d
845] ["an initiative measure ordinarily must be deemed to have been
enacted on the basis of any state of facts supporting it that reasonably can be
conceived"]; see also Higgins v. City of Santa Monica, supra, 62 Cal.2d at
p. 30 [upholding constitutionality of ordinance prohibiting all oil and gas
exploration on the Santa Monica tidelands].) The propriety of that
determination is significantly reinforced by Macpherson's repeated
acknowledgement that, until oil drilling permits are actually issued by the
City, operation of the project is subject to all future changes in the law.
(Interstate Marina Development Co. v. County of Los Angeles, supra, 155
Cal.App.3d at p. 447.) ii. The trial court utilized
an erroneous legal standard to evaluate the reasonableness of Proposition E. The trial court's contrary conclusion that Proposition
E impermissibly impairs the Macpherson-City lease agreement is based on two
interrelated rulings, both of which are erroneous. First, the trial court
apparently evaluated the justification for Proposition E under a
"compelling interest" or "strict scrutiny" standard.
Second, the trial court disregarded health and safety information that had been
presented in prior administrative and judicial proceedings. "The record
fails to demonstrate a sufficient basis to justify Proposition E's impairment
of the McPherson [sic] lease. The lease contemplates that the permits required
under its provisions be issued or denied upon consideration of the merits
attendant to the activities contemplated. Most of these factors have either
been aired, addressed and adjudicated in favor of the lease in proceedings
which have long since become final, or are addressed in the 140 odd conditions
which McPherson [sic] must satisfy in order to commence drilling. Plaintiffs
have not demonstrated any compelling or valid basis upon which the 'City
voters' 'legitimately exercised their police power for the protection of their
hea[l]th, safety and welfare,' not previously determined in favor of the lease
in the prior proceedings. I[t] seems quite clear that Proposition E was passed
precisely because the opposition there failed." *569 With respect to the standard of review, as discussed
at some length above, because Proposition E is a legitimate exercise of the
City's reserved, police powers, rather than an exercise of its revenue and
spending powers, the legislative judgment of reasonableness and necessity made
by the voters must be accorded the deference traditionally shown by courts to
social and economic legislation. (United States Trust, supra, 431 U.S. at pp.
23-24 [97 S.Ct. at pp. 1518-1519].) Even were we to evaluate Proposition E
under a less deferential standard of review, however, there would be no warrant
for utilizing the "strict scrutiny" standard advocated by Macpherson
and employed by the trial court that virtually ensures legislation will be
invalidated. Analyzing and applying the United States Supreme
Court's decision in United States Trust, our Supreme Court in Sonoma County
Organization of Public Employees v. County of Sonoma, supra, 23 Cal.3d 296, a
case involving an attempt to limit public employees' contractual right to wage
increases, explained that the contract clause was not an absolute bar to
subsequent modification of a state's financial obligations. (Id. at p. 308.) In
determining whether such a modification is justified, the court reiterated the
language of United States Trust that "complete deference to a legislative
assessment of reasonableness and necessity is not required because the
government's self-interest is at stake." (Ibid.) The absence of
"complete deference," however, is a far cry from the complete absence
of deference advocated by Macpherson. Rather, as articulated in Sonoma County
Organization of Public Employees, what is required is a "careful
examination" of the nature and purpose of the legislation. [FN21]
(Id. at p. 309; accord, Allied Structural Steel Co. *570 v.
Spannaus (1978) 438 U.S. 234, 245 [98 S.Ct. 2716, 2722-2723, 57 L.Ed.2d 727].) [FN22] FN21 We recognize that another division of this
district in United Firefighters of Los Angeles City v. City of Los Angeles
(1989) 210 Cal.App.3d 1095 [259 Cal.Rptr. 65], indicated that, to be upheld,
legislative impairment of a public contract "requires a 'compelling state
interest,' as well as necessity." (Id. at p. 1111.) The local charter
amendment at issue in that case, however, attempted to limit public employees'
pension rights, and thus involved the exercise of revenue and spending powers,
not police powers. (Id. at p. 1102; see Sonoma County Organization of Public
Employees v. County of Sonoma, supra, 23 Cal.3d at p. 308.) Moreover, the
United States Supreme Court decision cited in the United Firefighters opinion as
mandating application of a "compelling interest" standard neither
employs "strict scrutiny" or "compelling state interest"
language nor otherwise supports use of that most demanding standard of review.
Instead, that case, like the California Supreme Court opinion in Sonoma County
Organization of Public Employees, speaks only of "a careful
examination," "[e]valuating with particular scrutiny" and a
"more stringent examination under the Contract Clause than would [be used
for] laws regulating contractual relationships between private parties."
(Allied Structural Steel Co. v. Spannaus, supra, 438 U.S. at pp. 244, 245 &
fn. 15 [98 S.Ct. at p. 2722].) FN22 In applying what it termed "strict
scrutiny" to the justification proffered for impairment of a governmental
funding obligation, the court of appeal in Board of Administration v. Wilson,
supra, 52 Cal.App.4th 1109 expressly limited its holding to "the public
pension field." (Id. at p. 1155.) With respect to the evidence to be considered in
evaluating the reasonableness of Proposition E, neither the trial court nor
Macpherson offers any support for the view that voter adoption of an initiative
measure must be based on "new" facts and cannot be justified by
information previously presented to an administrative agency or to city
officials. We decline to adopt and apply such a rule in this case for several
reasons. First, the Coastal Commission's consideration of the
project's potential impact on the environment, including the Arthur D. Little
report's evaluation of the shortcomings in the EIR's risk analysis, occurred
after passage of Proposition E. While the commission ultimately concluded, for
example, that the risk from hydrogen sulfide levels would be acceptable if the
mitigation measures it imposed in 1998 were successful, when Proposition E was
adopted those additional measures were not part of the proposed project. The
"after- the-fact evidence" that the EIR understated the gas hazards
from the proposed project is properly considered in assessing the constitutionality
of Proposition E. (City of Dublin v. County of Alameda, supra, 14 Cal.App.4th
at p. 282 ["even if a school board or city council were not permitted to
rely on after-the-fact evidence to defend its fee ordinance, the trial court's
imposition of such a limitation on the initiative measure here is contrary to
law"].) Second, the purpose for which information about the
project was considered by the SLC in approving the tidelands lease is far
narrower than the holistic evaluation appropriate for a legislature or the
voters in exercising their right to adopt general land use policies for their
community. (See Higgins v. City of Santa Monica, supra, 62 Cal.2d at p. 30;
Building Industry Assn. v. City of Camarillo, supra, 41 Cal.3d at pp. 823-824.)
The SLC concluded that "leasing of the Hermosa Beach tide and submerged
lands for the production of oil and gas will be in the best interests of the
State," based on its findings that additional domestic oil resources may
be produced; the project will provide economic benefits both to the City and to
the economy of Southern California; no oil platforms will be in the ocean, and
no wells or production facilities will be on the beach; and the visual and
noise impacts *571 would be minimal. Significantly, the SLC did
not (nor was it required to) consider safety issues relating to the project. [FN23] FN23 Macpherson quotes a December 3, 1997 letter from
the chief of the mineral resources management division of the SLC to the staff
of the Coastal Commission to support its assertion that the SLC considered the
public health hazards associated with elevated hydrogen sulfide concentrations.
That letter, however, does not refer to any evaluations done by the SLC in
connection with its 1994 approval of the Macpherson-City lease, but to
discussions and analyses apparently conducted in 1997, approximately two years
after passage of Proposition E. Third, when issuing the CUP the City clearly expressed
its developing concern about the safety of the project and required Macpherson
to prepare additional studies for approval by city officials, specifically
including oil spill and blowout prevention plans, as well as a "fire
analysis." Rather than resolving the issue of the acceptability of the
risks created by the project, the CUP process is properly viewed as simply
deferring that issue for determination at a future time-a determination that
was then made by the voters through passage of Proposition E. Finally, even had state agencies and the City
previously balanced the overall desirability of the project and the risks to
health and safety associated with oil and gas production and determined to
allow the project to go forward, those prior decisions should not, and do not,
preclude the voters of Hermosa Beach from revisiting that question and
implicitly striking a different balance. (Teachers Management & Inv. Corp.
v. City of Santa Cruz, supra, 64 Cal.App.3d at p. 448 ["[T]he people of
Santa Cruz were not powerless to act through the initiative to change a policy
of their city.... The existence of binding agreements cannot prevent a public
entity from abandoning or rescinding its plans to proceed with a public works
project ..."]; City of Dublin v. County of Alameda, supra, 14 Cal.App.4th
at p. 282.) Careful examination of Proposition E in light of the
full record before the trial court amply demonstrates that the measure employs
reasonable and necessary means to implement its important public purpose.
Accordingly, we conclude that application of Proposition E to the Macpherson oil
drilling project does not constitute an unconstitutional impairment of the
lease agreement between Macpherson and the City. 5. This appeal presents no
issue of breach of contract. Each of the parties devotes a portion of its briefs to
the question whether Macpherson may have a viable claim for breach of contract
against the City if, as we hold, Proposition E can validly be applied to
terminate the project. That question involves several, potentially difficult
issues of contract interpretation, including the scope and meaning of the
parties' agreement *572 authorizing the City to "temporarily
suspend" any aspect of the project "whenever the City finds that the
operation, unless suspended, would pose an immediate and serious threat to
life, health, property or natural resources," as well as Macpherson's
agreement to "comply with all laws, rules and regulations ... of the City
of Hermosa Beach applicable to the Lessee's operations." (See generally
Teachers Management & Inv. Corp. v. City of Santa Cruz, supra, 64
Cal.App.3d at p. 448 ["The existence of binding agreements cannot prevent
a public entity from abandoning or rescinding its plans to proceed with a
public works project, although the change in policy may result in the entity's
being liable for breach of contract"]; Lavine v. Jessup (1958) 161
Cal.App.2d 59, 68 [326 P.2d 238] ["The right of a public body to rescind
its action and abandon improvement proceedings without other liability than
that flowing from a breach of contract has been recognized in various cases
..."].) Issues relating to the defense of impossibility are
also implicated. (See Civ. Code, 1511, subd. 1 [performance excused when
prevented by the operation of law]; Baird v. Wendt Enterprises, Inc. (1967) 248
Cal.App.2d 52, 55 [56 Cal.Rptr. 118] ["there is no liability for breach of
a contract whose performance has been made impossible by operation of
law"]; but see Rest.2d Contracts, 261, p. 313 [defense is traditionally
unavailable where the barrier to performance arises from the act of the party
seeking discharge].) These matters are not before us on this appeal, [FN24]
and we decline to speculate on their proper resolution. FN24 As discussed above, Macpherson filed a
cross-complaint for breach of contract against the City in the underlying
action in December 1998, which was severed from the proceedings on Stop Oil's
complaint for declaratory and injunctive relief. Disposition The judgment is reversed. The case is remanded to the
trial court for further proceedings consistent with this opinion, including a
declaration that Proposition E was intended to and does apply to the Macpherson
project and that application of Proposition E to the Macpherson project is a
valid exercise of the City's police power that does not constitute an unconstitutional
impairment of contract. Stop Oil is to recover its costs on appeal. Klein, P. J., and Kitching, J., concurred. *573
Cal.App.2.Dist.,2001. HERMOSA BEACH STOP OIL COALITION et al., Plaintiffs
and Appellants, v. CITY OF HERMOSA BEACH et al., Defendants and Respondents;
WINDWARD ASSOCIATES et al., Real Parties in Interest. END OF DOCUMENT CERTIFIED FOR PUBLICATION |