Oil producers hope to revive their suit over drilling settlement

Oil producers who petitioned the California Supreme Court on Wednesday to overturn an anti-SLAPP case on due process grounds said they were illegally shut out of a settlement between the city of Los Angeles and environmental nonprofits over drilling in low-income areas, even though a judge allowed them to be intervenors.

The California Independent Petroleum Association, which comprises about 500 crude oil and natural gas producers including ExxonMobil and Chevron Corp., alleged its due process rights were violated as a result of a back-door settlement between the city and nonprofits that instituted new regulations over drilling applications.

The nonprofits -- the Center for Biological Diversity, the Youth for Environmental Justice and the South Central Youth Leadership Coalition -- sued the city in 2015 claiming it green-lighted drilling in low-income parts of the city and exposed communities to health risks. A cross-complaint by the oil association said the city locked oil producers out of settlement negotiations that hiked drilling fee applications from $90,000 to as much as $157,000.

The petition argues the appellate court's ruling allows government actors engaging in secret settlements to hide behind the SLAPP statute, which is used to stop lawsuits intended to chill speech.

The petition was filed by Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher LLP and Jeffrey Dintzer of Alston & Bird LLP.

"There is a pattern here where the settlement process is being used in a way to jeopardize the rights of parties not represented in litigation. We need to bring a stop to that," said Boutrous.

Maya Golden-Krasner, deputy director of the Center for Biological Diversity's Climate Law Institute, said the oil industry was doubling down on blocking plaintiffs' efforts to stop drilling disparities in the city.

"These young people have already been dragged through a burdensome and drawn-out legal battle for trying to protect their communities from this dirty industry. The petroleum association's case was unequivocally dismissed as a SLAPP suit by the appellate court, so expecting California Supreme Court review is absurd," said Golden-Krasner in a statement.

The oil association's petition also references the Jones v. City of Los Angeles matter, another case alleging claims of settlement misconduct by the city attorney's office. In that case, participating attorneys in a water and power ratepayer case said they were blocked out of a sue-and-settle matter that has given rise to accusations of collusion. Gibson Dunn, which is defending a related lawsuit brought by the city, has been seeking to open up the settlement on account of fraud.

"Indeed, it appears to be an increasingly common (but disturbing) practice of the city attorney's office to use the litigation settlement process to shield the city's decision making from public scrutiny," the petition states.

Disputes in the litigation have centered around whether the regulatory changes regarding drilling applications, known as the city's Z Memorandum 133, were tied to the settlement, and whether the association is making a legitimate due process claim.

In response to the association's claim as an intervenor, the nonprofits filed an anti-SLAPP motion, which was shot down by the trial court but overturned in February by the 2nd District Court of Appeal. In its ruling, the appellate court said the association's complaint could not withstand anti-SLAPP scrutiny because its claim was based on the protected litigation conduct and not the memorandum itself. Youth for Environmental Justice v. City of Los Angeles, B282822 (Cal. App. 2nd Dist. Feb. 15, 2019).

"As for the city, the mere fact that Memorandum 133 may and likely will burden CIPA members' future oil operations does not establish a protected property interest to claim a due process violation. Rather, memorandum 133 seeks to guide discretionary decisions that the Los Angeles Municipal Code empowers the city to make, and the memorandum does not injure any protected property rights of CIPA members," ruled the appellate court.

The city did not return a request for comment. Both the city and nonprofits have contended the settlement was lawful and didn't raise fees. They've argued the memo respects existing drilling applications, but applies to future ones.

The petition also states the city stipulated that the memo was changed due to the settlement, a fact the association said went ignored by the appellate court.

"All of the parties stipulated that "[t]he City instituted [ZA 133], which changed the city's policy with respect to the city's review and processing of oil and gas drilling approvals, as part of and pursuant to the settlement agreement between itself and the [Environmental Groups]," according to the petition.