LNG Development Company, LLC v. Port of Astoria

Filing 89

Findings & Recommendation: Plaintiff's Motion for Partial Summary Judgment 34 establishing that plaintiff has renewed its sublease and that the Port has breached its obligation to LNG by failing to take steps to renew the Master Lease should be Granted. Objections to the Findings and Recommendation are due by 12/3/2009. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If Objections are filed, a response is due within 10 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement. Signed on 11/17/09 by Magistrate Judge John Jelderks. (cib)

IN T H E UNITED STATES DISTRICT C O U R T F O R T H E D I S T R I C T OF O R E G O N

L N G D E V E L O P M E N T C O M P A N Y , LLC, d b a O R E G O N LNG,

) ) Civil No. 09-847-JE ) Plaintiff, ) FINDINGS A N D ) RECOMMENDATION v. ) ) P O R T O F ASTORIA, a n O r e g o n Port; D A N H E S S , ) an individual; L A R R Y P F U N D , an individual; ) WILLIAM H U N S I N G E R , a n i n d i v i d u a l ; ) J A C K BLAND, a n individual; a n d F L O Y D ) HOLCOM, a n individual, ) ) Defendants. )
)

Gregory A . C h a i m o v W i l l i a m D. M i n e r D a v i s W r i g h t T r e m a i n e LLP 1300 S.W. 5th Avenue, Suite 2300 Portland, O R 97201 A t t o r n e y s for P l a i n t i f f FINDINGS A N D R E C O M M E N D A T I O N - 1

Thane W. Tienson Jennifer L. Gates L a n d y e B e n n e t t B l u m s t e i n , LLP 1300 S.W. 5th Avenue, Suite 3500 Portland, O R 97201 A t t o r n e y s for D e f e n d a n t

J E L D E R K S , M a g i s t r a t e Judge: P l a i n t i f f L N G Development Company, LLC (LNG), brings this action against d e f e n d a n t s P o r t o f A s t o r i a (the P o r t ) a n d P o r t C o m m i s s i o n e r s D a n H e s s , Larry P f u n d , W i l l i a m H u n s i n g e r , J a c k B l a n d , a n d F l o y d H o l c o m (the C o m m i s s i o n e r s ) . P l a i n t i f f seeks d e c l a r a t o r y , i n j u n c t i v e , a n d m o n e t a r y r e l i e f b a s e d u p o n d e f e n d a n t s ' r e f u s a l to s e e k r e n e w a l o f the Port's lease o f certain real property from the Oregon Department o f State Lands (DSL). P l a i n t i f f L N G moves for a partial summary j u d g m e n t establishing that i t has renewed a s u b l e a s e b e t w e e n L N G a n d t h e P o r t f o r a thirty-year p e r i o d , a n d t h a t t h e P o r t h a s b r e a c h e d i t s o b l i g a t i o n t o L N G b y f a i l i n g t o r e n e w a M a s t e r L e a s e b e t w e e n t h e P o r t a n d t h e DSL. P l a i n t i f f s m o t i o n s h o u l d b e granted.

BACKGROUND
P l a i n t i f f L N G i s a l i m i t e d l i a b i l i t y c o m p a n y o r g a n i z e d u n d e r t h e l a w s o f Delaware. Its p r i n c i p a l p l a c e o f b u s i n e s s i s i n V a n c o u v e r , W a s h i n g t o n , a n d i t d o e s b u s i n e s s i n O r e g o n as O r e g o n L N G . D e f e n d a n t t h e P o r t is a n O r e g o n P o r t o r g a n i z e d u n d e r t h e l a w s o f O r e g o n . I t i s l o c a t e d i n A s t o r i a , O r e g o n . T h e P o r t is g o v e r n e d b y a B o a r d o f C o m m i s s i o n e r s c o m p r i s e d o f t h e individual defendants.

FINDINGS A N D R E C O M M E N D A T I O N - 2

This action arises from the lease and sublease o f approximately 9 4 acres o f land (the p r e m i s e s ) o w n e d b y t h e S t a t e o f O r e g o n i n C l a t s o p County, Oregon. O n N o v e m b e r 1 , 2 0 0 4 , the State o f O r e g o n , a c t i n g t h r o u g h t h e D S L , l e a s e d t h e p r e m i s e s t o t h e P o r t t h r o u g h a d o c u m e n t e n t i t l e d " U p l a n d L e a s e A g r e e m e n t . " ( I w i l l r e f e r t o t h a t a g r e e m e n t as t h e " M a s t e r Lease Agreement" or as t h e "Master Lease" in this Findings a n d Recommendation.) Article 3.1 o f the Master Lease provides for a n initial lease period o f five years, and Article 3.2 p r o v i d e s t h e P o r t w i t h o p t i o n s t o e x t e n d t h e l e a s e f o r t w o a d d i t i o n a l t h i r t y - y e a r t e r m s , i f i t is a t e n a n t i n g o o d s t a n d i n g a n d " i s n o t i n m a t e r i a l d e f a u l t o f t h e lease" a t t h e t i m e o f t h e renewal. A r t i c l e 1 2 . 2 o f t h e M a s t e r L e a s e A g r e e m e n t p r o v i d e s t h a t , w i t h t h e S t a t e o f O r e g o n ' s w r i t t e n c o n s e n t , t h e P o r t m a y sublease, a n d e x t e n d o r r e n e w t h e s u b l e a s e o f t h e premises. O n N o v e m b e r 5, 2004, the P o r t subleased the premises t o Skipanon Natural Gas, LLC (Skipanon) t h r o u g h a n a g r e e m e n t captioned "Sublease Agreement." S k i p a n o n was a s u b s i d i a r y o f C a l p i n e C o r p o r a t i o n (Calpine). A c t i n g t h r o u g h t h e D S L , t h e S t a t e o f Oregon a p p r o v e d t h e sublease. The Sublease Agreement includes terms very similar to the terms o f the Master Lease Agreement. A s with the M a s t e r Lease, Article 3.1 o f the Sublease provides for an initial term o f five years, and Article 3.2 provides that, as long as i t is i n good standing a n d is not i n m a t e r i a l d e f a u l t u n d e r t h e S u b l e a s e , t h e s u b l e s s e e "shall h a v e a d d i t i o n a l o p t i o n s t o e x t e n d t h e sublease for t w o (2) additional terms o f t h i r t y (30) years each.... " T h e Master Lease and the Sublease i n c l u d e i d e n t i c a l r e n t a l r a t e s a n d identical terms p r o v i d i n g f o r p e r i o d i c r e d e t e r m i n a t i o n o f t h e a n n u a l r e n t p a y a b l e b y t h e P o r t and t h e sublessee. T h e Sublease Agreement requires the sublessee to give the Port written notice that i t is exercising the

FINDINGS AND RECOMMENDAn O N - 3

option to extend the sublease period at least 180 days before the expiration o f the current s u b l e a s e period. C a l p i n e a n d S k i p a n o n filed f o r b a n k r u p t c y p r o t e c t i o n i n N e w Y o r k i n 2 0 0 6 , a n d t h e S u b l e a s e w a s a s s i g n e d t o p l a i n t i f f L N G i n b a n k r u p t c y p r o c e e d i n g s o n D e c e m b e r 29, 2006. On that day, Leucadia National Corporation, which owns 80.1 % o f LNG, entered into an agreement w i t h t h e P o r t g u a r a n t e e i n g t i m e l y p a y m e n t o f all taxes a n d r e n t d u e o n the premises u n d e r t h e t e r m o f t h e Sublease A g r e e m e n t t h r o u g h N o v e m b e r 4 , 2 0 0 9 , a n d the P o r t w i t h d r e w its o b j e c t i o n t o t h e S u b l e a s e assignment. I n its O r d e r a u t h o r i z i n g a s s i g n m e n t o f t h e S u b l e a s e A g r e e m e n t to p l a i n t i f f L N G , t h e b a n k r u p t c y c o u r t f o u n d t h a t " n o d e f a u l t s ( m o n e t a r y or otherwise) e x i s t u n d e r t h e S u b l e a s e , a n d . . . t h e r e a r e n o m o n e t a r y o r n o n - m o n e t a r y d e f a u l t s u n d e r t h e S u b l e a s e t h a t a r e r e q u i r e d to b e cured." O n April 24, 2009, p l a i n t i f f L N G gave timely notice t o the P o r t that it was exercising its option to extend the sublease for a n additional thirty-year term. T h e P o r t has n o t exercised its option to extend the Master Lease with the State o f Oregon for an additional thirty-year term, and the original term o f t h a t lease expired o n October 3 1 , 2 0 0 9 . Instead, o n August 18, 2 0 0 9 , the d e f e n d a n t C o m m i s s i o n e r s v o t e d t o e x t e n d t h e f i r s t t e r m o f t h e M a s t e r L e a s e f o r a t w o - y e a r p e r i o d , u n t i l O c t o b e r 3 1 , 2011. O n A u g u s t 2 4 , 2 0 0 9 , t h e P o r t a n d t h e D S L e x e c u t e d an amendment o f the M a s t e r Lease extending the initial term o f that lease until October 31, 2 0 1 1 . T h e M a s t e r L e a s e A m e n d m e n t e x p l i c i t l y p r e s e r v e d t h e P o r t ' s o p t i o n t o r e n e w the M a s t e r L e a s e for t w o a d d i t i o n a l t h i r t y - y e a r periods. Defendants acknowledge that, o n April 24, 2009, w h e n p l a i n t i f f L N G exercised its option to extend t h e Sublease Agreement, "and thereafter, II L N G II w a s i n good standing as r e q u i r e d b y t h e Lease." T h e y assert, h o w e v e r , t h a t , t h o u g h t h e y h a v e m a d e "reasonable

FINDINGS A N D R E C O M M E N D A n O N - 4

inquiry," they do n o t k n o w whether p l a i n t i f f L N G was i n "material default" o f the lease "because t h e i s s u e o f w h e t h e r o r n o t t h e p l a i n t i f f w a s i n m a t e r i a l d e f a u l t c a n n o t b e d e t e r m i n e d w i t h r e a s o n a b l e inquiry." A t a P o r t m e e t i n g c o n d u c t e d o n January 20, 2009, P o r t E x e c u t i v e D i r e c t o r Jack Crider s t a t e d t h a t p l a i n t i f f L N G h a d m e t its lease r e q u i r e m e n t s , a n d t h a t any i s s u e s concerning those requirements were II m inor." The P o r t has never issued p l a i n t i f f LNG a n o t i c e o f d e f a u l t , w h i c h i s r e q u i r e d u n d e r A r t i c l e 13.2 o f t h e S u b l e a s e A g r e e m e n t b e f o r e i t may pursue any remedy under the terms o f that agreement. T h e P o r t has not issued any notice o f termination, o r notice to cure any default under the Sublease Agreement. After p l a i n t i f f LNG exercised the option to extend the Sublease, the Port issued L N G a n invoice for t h e rent, a n d c a s h e d t h e r e n t c h e c k t h a t L N G tendered. D e f e n d a n t s a s s e r t t h a t t h e i n i t i a l l e a s e p e r i o d is n o w f o r a s e v e n - y e a r , r a t h e r t h a n f i v e - y e a r p e r i o d , a n d t h a t t h e P o r t i s n o t r e q u i r e d t o e x e r c i s e i t s o p t i o n t o r e n e w the M a s t e r lease for a thirty-year period a t this time. P l a i n t i f f contends that the agreement between the S t a t e a n d t h e P o r t t o e x t e n d t h e M a s t e r L e a s e f o r a t w o - y e a r p e r i o d d o e s n o t a l t e r the P o r t ' s o b l i g a t i o n t o r e n e w i t s M a s t e r L e a s e w i t h t h e D S L for a n a d d i t i o n a l t h i r t y - y e a r period, f o l l o w i n g p l a i n t i f f s e x e r c i s e o f t h e o p t i o n to e x t e n d t h e S u b l e a s e A g r e e m e n t . Article 5.1 o f the Master Lease and Article 5.1 o f the Sublease Agreement specify "approved uses" for t h e premises. Article 5.1 in the Master Lease provides that t h e premises " s h a l l b e i m p r o v e d , u s e d a n d m a i n t a i n e d b y [ t h e Port] f o r t h e c o n s t r u c t i o n a n d d e v e l o p m e n t " o f a n 18-hole " G o l f C o u r s e a n d M a r i n e I n d u s t r i a l F a c i l i t i e s and f o r n o o t h e r purpose." Article 5.1 o f the Sublease Agreement specifies II construction and development o f the Marine Industrial Facilities" as an "approved use,1I and does not mention a g o l f course.

FINDINGS A N D R E C O M M E N D A n O N - 5

Article 5.2 o f the M a s t e r Lease and Article 5.2 o f t h e Sublease Agreement provide that, w i t h i n t w o y e a r s o f t h e c o m m e n c e m e n t o f t h e s e a g r e e m e n t s , t h e P o r t a n d t h e sublessee will develop a n d s u b m i t t o t h e State o f O r e g o n f o r its a p p r o v a l a M a s t e r D e v e l o p m e n t P l a n governing c o n s t r u c t i o n a n d d e v e l o p m e n t " o f t h e G o l f C o u r s e a n d M a r i n e Industrial Facilities" o n the p r e m i s e s . W i t h t h e e x p r e s s p r i o r c o n s e n t o f t h e S t a t e o f O r e g o n a n d t h e P o r t , t h e p r o p e r t y was rezoned to 1-2 (Heavy Industrial) and A - I (Aquatic Development) in 2006. Calpine a n d t h e P o r t submitted a M a s t e r D e v e l o p m e n t P l a n t o t h e D S L i n November, 2006. T h e P l a n s t a t e d t h a t , as a r e s u l t o f r e z o n i n g t o a l l o w t h e p r e m i s e s t o b e u s e d " f o r marine-industrial purposes such as a n LNG terminal," i t would n o t b e possible to construct an 18-hole g o l f c o u r s e o n t h e p r e m i s e s . T h e P l a n d i d n o t p r o v i d e f o r a n I 8 - h o l e g o l f course, b u t s h o w e d a 9 - h o l e g o l f c o u r s e o n l a n d a d j a c e n t t o t h e premises. I n a l e t t e r d a t e d D e c e m b e r 2 0 , 2 0 0 6 , t h e D S L i n f o r m e d R o n L a r s e n , w h o was t h e n t h e Port's D i r e c t o r o f O p e r a t i o n s , t h a t D S L h a d r e v i e w e d the p r o p o s e d M a s t e r D e v e l o p m e n t P l a n ( M D P ) , a n d r e c o g n i z e d t h a t c u r r e n t z o n i n g w o u l d " o n l y a l l o w c e r t a i n M a r i n e I n d u s t r i a l uses o n t h e site a n d t h a t a m i x e d - u s e d e v e l o p m e n t o n t h e p r o p e r t y w i l l n o t b e a l l o w e d . I I T h e l e t t e r further stated that the D S L had "granted preliminary approval o f t h e MDP because o f the c o n c e p t u a l n a t u r e o f t h e p r o p o s e d d e v e l o p m e n t a r e a , the u n c e r t a i n t y o f t h e a c t u a l c o n s t r u c t i o n plans, a n d a d d i t i o n a l u s e s c o n t e m p l a t e d b y t h e M D P . . . . " I t a d d e d t h a t the DSL would e x p e c t t h e P o r t to finalize a Master Development Plan w h e n land use approvals were obtained, and recognized t h a t further development and engineering plans would be s u b m i t t e d p u r s u a n t t o A r t i c l e s e v e n o f t h e M a s t e r Lease.

FINDINGS A N D R E C O M M E N D A n O N - 6

Plaintiff L N G submitted another Master Development P l a n i n March, 2008. This Plan also indicated that a nine-hole g o l f course could be constructed o n land adjacent to the p r e m i s e s . N o t h i n g i n t h e r e c o r d i n d i c a t e s t h a t t h e P o r t o b j e c t e d to o r c r i t i c i z e d t h a t P l a n .

P L A I N T I F F ' S CLAIMS
P l a i n t i f f L N G b r i n g s five c l a i m s . T h e f i r s t c l a i m , a s s e r t e d o n l y a g a i n s t t h e P o r t , alleges that the P o r t h a s breached the Sublease Agreement by failing to timely exercise its option to renew the Master Lease, and by taking the position that i t is not required to renew that lease after p l a i n t i f f LNG has exercised its option to renew the Sublease. This claim alleges t h a t t h e P o r t " h a s n o o b j e c t i v e l y r e a s o n a b l e b a s i s f o r r e f u s i n g t o renew" t h e M a s t e r Lease, and requests a "decree o f specific performance requiring the Port t o exercise its option to r e n e w u n d e r t h e M a s t e r L e a s e i n o r d e r f o r t h e P o r t t o m e e t i t s o b l i g a t i o n s u n d e r t h e Sublease a n d t h e i n t e n t o f t h e parties." T h e s e c o n d c l a i m , a l s o b r o u g h t only against t h e P o r t , a l l e g e s t h a t t h e P o r t h a s b r e a c h e d a n i m p l i e d c o v e n a n t o f g o o d f a i t h a n d f a i r d e a l i n g b y r e f u s i n g to r e n e w t h e M a s t e r Lease. P l a i n t i f f L N G seeks recovery o f monetary damages and attorney fees o n this claim. T h e t h i r d c l a i m , w h i c h i s a l s o b r o u g h t o n l y a g a i n s t t h e P o r t , r e i t e r a t e s the a l l e g a t i o n s o f the first claim, and alleges t h e right to recover monetary damages a n d attorney fees. T h e f o u r t h c l a i m , w h i c h i s b r o u g h t o n l y a g a i n s t the P o r t , r e i t e r a t e s t h e p r e c e d i n g allegations, and asserts that p l a i n t i f f LNG "is entitled to a declaratory j u d g m e n t that the Port is o b l i g a t e d u n d e r t h e S u b l e a s e t o e x e r c i s e i t s o p t i o n t o r e n e w t h e M a s t e r L e a s e . " T h e f i f t h c l a i m i s b r o u g h t a g a i n s t a l l d e f e n d a n t s . T h i s c l a i m r e i t e r a t e s the a l l e g a t i o n s s e t o u t i n the p r e c e d i n g c l a i m s , a n d a s s e r t s e n t i t l e m e n t t o a d e c l a r a t o r y j u d g m e n t r e q u i r i n g

FINDINGS AND RECOMMENDATION - 7

the individual defendants to "vote for the Port to exercise its o p t i o n t o renew the Master Lease w i t h DSL."

STANDARDS F O R E V A L U A T I N G M O T I O N S F O R S U M M A R Y J U D G M E N T
F e d e r a l R u l e o f C i v i l P r o c e d u r e 5 6 (c) a u t h o r i z e s s u m m a r y j u d g m e n t i f n o g e n u i n e i s s u e e x i s t s r e g a r d i n g a n y m a t e r i a l f a c t a n d t h e m o v i n g p a r t y i s e n t i t l e d t o j u d g m e n t as a matter o f law. T h e moving party must s h o w the absence o f a n issue o f material fact. Celotex Com. v. Catrett, 477 U.S. 317, 325 (1986). The moving party m a y discharge this burden by showing that there is an absence o f evidence to support t h e nonmoving party's case. rd. W h e n t h e m o v i n g p a r t y s h o w s t h e a b s e n c e o f a n i s s u e o f m a t e r i a l fact, t h e n o n m o v i n g p a r t y must go beyond the pleadings a n d s h o w that there is a genuine issue for trial. rd. at 324. The substantive l a w governing a claim or defense determines whether a fact is material. T.W. Elec. Serv.. Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Reasonable doubts concerning the existence o f a factual issue should be resolved against the moving party. rd. at 630·31. The evidence o f the nonmoving party is to be
believed~

and all justifiable inferences are to be drawn in t h e nonmoving party's favor.
Inc.~

Anderson v. Liberty Lobby.

477 U.S. 2 4 2 , 2 5 5 (1985). N o genuine issue for trial exists,

however, w h e r e t h e r e c o r d a s a w h o l e c o u l d n o t l e a d the t r i e r o f f a c t t o t m d f o r t h e nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio C o m . , 475 U.S. 574, 587 (1986).

FINDINGS A N D R E C O M M E N D A n O N - 8

DISCUSSION As n o t e d above, p l a i n t i f f seeks a partial summary j u d g m e n t establishing that: 1) it has r e n e w e d i t s S u b l e a s e A g r e e m e n t w i t h t h e P o r t for a p e r i o d o f t h i r t y years; a n d 2) t h e P o r t i s i n b r e a c h o f i t s o b l i g a t i o n u n d e r t h e S u b l e a s e A g r e e m e n t b e c a u s e i t h a s f a i l e d to r e n e w t h e M a s t e r Lease w i t h t h e D S L f o r a t h i r t y - y e a r p e r i o d . I n d e t e n n i n i n g w h e t h e r p l a i n t i f f s m o t i o n for p a r t i a l s u m m a r y j u d g m e n t should b e granted, t h e c o u r t m u s t b e g i n b y e x a m i n i n g t h e " t e x t a n d c o n t e x t " o f t h e S u b l e a s e Agreement. See, ~ M & W Zander v. Scott Co. o f California, 190 Or. App. 2 6 8 , 2 7 2 , 78 P.3d 118 (2003) ( i n interpreting contract, court begins with "text and context" o f agreement; extrinsic evidence is relevant only i f these do not resolve all ambiguities). That agreement sets o u t t h e s u b l e s s e e ' s r i g h t t o r e n e w t h e S u b l e a s e A g r e e m e n t i n clear, e x p r e s s , a n d u n a m b i g u o u s t e n n s w h i c h , i n t h e c o n t e x t o f the r e l a t i o n s h i p b e t w e e n t h e M a s t e r Lease and S u b l e a s e A g r e e m e n t , l e a v e n o d o u b t as t o t h e p a r t i e s ' r i g h t s a n d o b l i g a t i o n s . A r t i c l e 3 . 2 o f t h e S u b l e a s e A g r e e m e n t e x p l i c i t l y p r o v i d e s t h a t , following t h e initial five-year s u b l e a s e p e r i o d , The Tenant shall have additional options t o e x t e n d the Sublease for t w o (2) a d d i t i o n a l t e n u s o f t h i r t y (30) y e a r s each, p r o v i d e d t h a t a t t h e t i m e t h e o p t i o n is exercised, Tenant is a tenant i n good standing a n d is n o t i n material default u n d e r this Sublease. E a c h o p t i o n shall b e e x e r c i s e d b y T e n a n t b y p r o v i d i n g w r i t t e n n o t i c e t o L a n d l o r d n o t l e s s t h a n 180 d a y s p r i o r t o t h e e x p i r a t i o n o f the t h e n c u r r e n t T e r m o f t h i s Sublease. [ E m p h a s i s i n o r i g i n a l . ] U n d e r t h i s a r t i c l e , p l a i n t i f f L N G ' s r i g h t t o r e n e w t h e s u b l e a s e for a n a d d i t i o n a l t h i r t y - y e a r t e n n i s c o n d i t i o n e d o n l y o n i t s s t a t u s as a t e n a n t i n g o o d s t a n d i n g , t h e a b s e n c e o f a material default, and provision o f the required 180 days o f notice before expiration o f the previous lease period. Article 3.2 does n o t condition the sublessee's right to renew on any

FINDINGS A N D R E C O M M E N D A T I O N - 9

other factors. Instead, i t unequivocally provides that L N G shall have options to renew the S u b l e a s e for a d d i t i o n a l thirty-year periods. A r t i c l e 3 . 2 [emphasis a d d e d ] . T h e Sublease A g r e e m e n t d o e s n o t s t a t e , imply, o r s u g g e s t t h a t L N G ' s r i g h t to r e n e w t h e S u b l e a s e i s i n a n y m a n n e r o r to a n y d e g r e e s u b j e c t t o t h e P o r t ' s d i s c r e t i o n , t o t e n n s a n d c o n d i t i o n s t h a t w e r e n o t included in the original Sublease Agreement, o r to any decision t h e P o r t m i g h t later make to renegotiate t h e t e r m s o f its M a s t e r L e a s e w i t h t h e S a t e o f Oregon. U n d e r t h e express t e r m s o f the Sublease Agreement, so l o n g as L N G meets the specified conditions for renewal, it is e n t i t l e d t o r e n e w t h e S u b l e a s e for additional thirty-year p e r i o d s . B e c a u s e p l a i n t i f f L N G has a n a b s o l u t e r i g h t t o r e n e w t h e S u b l e a s e i f i t m e e t s the s p e c i f i e d c o n d i t i o n s , t h e P o r t is c o n t r a c t u a l l y c o m m i t t e d t o t a k e t h e s t e p s n e c e s s a r y t o m a k e the premises available for r e n e w e d thirty-year periods i f L N G is in g o o d standing, is n o t in material b r e a c h o f t h e S u b l e a s e Agreement, and p r o v i d e s t h e r e q u i r e d notice. I f p l a i n t i f f L N G ' s r e n e w a l o f t h e S u b l e a s e d i d n o t a b s o l u t e l y r e q u i r e t h e P o r t to t a k e s t e p s to r e n e w t h e M a s t e r L e a s e f o r t h e s a m e p e r i o d , its o p t i o n t o r e n e w , w h i c h g o e s t o t h e c o r e o f t h e S u b l e a s e Agreement, c o u l d b e w o r t h l e s s , o r w o r s e t h a n w o r t h l e s s i f L N G i n v e s t e d s u b s t a n t i a l sums i n c o n s t r u c t i n g a f a c i l i t y o n l y t o h a v e i t s r e n e w a l denied. T h e p l a i n t e r m s o f t h e S u b l e a s e Agreement would n o t p e r m i t the conclusion t h a t LNG a n d the P o r t intended such a possibility w h e n t h e y n e g o t i a t e d t h e Sublease Agreement. T h e court c a n determine whether the P o r t is obligated t o take the steps necessary to r e n e w t h e M a s t e r L e a s e i f p l a i n t i f f L N G s a t i s f i e s the r e q u i r e m e n t s f o r r e n e w a l u n d e r t h e Sublease A g r e e m e n t b y s i m p l y r e v i e w i n g t h e Sublease Agreement.
See,~,

id.

Nevertheless, I n o t e t h a t t h e c o n t e x t o f t h e relationship b e t w e e n t h e M a s t e r Lease and t h e Sublease A g r e e m e n t , a n d t h e u n d e r s t a n d i n g o f those w h o o r i g i n a l l y negotiated, authorized,

FINDINGS AND RECOMMENDATION - 10

and executed these agreements, also support only the conclusion that p l a i n t i f f L N G has an a b s o l u t e r i g h t to r e n e w t h e S u b l e a s e A g r e e m e n t , a n d t h a t i t s e x e r c i s e o f t h e o p t i o n t o r e n e w for a thirty-year period triggered the Port's obligation to seek renewal o f the Master Lease. T h e M a s t e r L e a s e a n d t h e S u b l e a s e A g r e e m e n t w e r e e x e c u t e d o n l y a f e w d a y s apart, a n d a r e s t r i k i n g l y s i m i l a r . S i m i l a r l y n u m b e r e d a r t i c l e s a d d r e s s s i m i l a r i s s u e s , a n d t h e i n i t i a l lease period, r e n e w a l p e r i o d s , a m o u n t o f t h e r e n t payable, and m e t h o d o f p e r i o d i c a d j u s t m e n t o f the rental rate, are identical. These similarities support only the conclusion that the Master Lease a n d the Sublease Agreement are intended to function i n tandem, w i t h the sublessee's renewal o f a s u b l e a s e p e r i o d t r i g g e r i n g t h e Port's a b s o l u t e o b l i g a t i o n t o s e e k a s i m i l a r renewal o f the Master Lease so t h a t t h e Port has the property available for sublease. This is the only way that the two leases c a n logically co-exist, a n d any other conclusion would be legally a n d practically untenable. T h i s i s h o w t h o s e w h o n e g o t i a t e d , authorized, a n d e x e c u t e d t h e M a s t e r Lease and S u b l e a s e A g r e e m e n t u n d e r s t o o d t h e y w o u l d function: T h e e o f t h e f i v e P o r t C o m m i s s i o n e r s w h o p a r t i c i p a t e d i n t h e u n a n i m o u s d e c i s i o n t o enter i n t o t h e M a s t e r L e a s e a n d Sublease Agreement h a v e s u b m i t t e d d e c l a r a t i o n s s t a t i n g t h e i r u n d e r s t a n d i n g that, i f a sublessee e x t e n d e d the S u b l e a s e w i t h t h e P o r t , t h e P o r t w o u l d s i m i l a r l y e x e r c i s e i t s o p t i o n t o e x t e n d the M a s t e r L e a s e w i t h D S L . R o n L a r s e n , w h o n e g o t i a t e d t h e M a s t e r L e a s e o n b e h a l f o f t h e Port; P e t e r H a n s e n , p l a i n t i f f s C E O , w h o w a s i n v o l v e d i n n e g o t i a t i o n o f t h e S u b l e a s e Agreement; a n d P e t e r G e a r i n , E x e c u t i v e D i r e c t o r o f t h e P o r t w h e n t h e l e a s e s w e r e n e g o t i a t e d ; h a v e all s u b m i t t e d d e c l a r a t i o n s s t a t i n g t h a t t h e y h a d u n d e r s t o o d t h a t , i f a s u b l e s s e e e x e r c i s e d the option to renew the sublease, t h e Port i n t u m would e x t e n d the Master Lease as well.

FINDINGS AND RECOMMENDAn O N - 11

No declarations o r affidavits before the court express a contrary understanding o f the e f f e c t o f a s u b l e s s e e ' s e x e r c i s e o f i t s o p t i o n to r e n e w t h e S u b l e a s e A g r e e m e n t . However, b a s e d u p o n t h e t e n n s o f t h e M a s t e r L e a s e a n d t h e S u b l e a s e A g r e e m e n t , e v e n in t h e a b s e n c e o f t h e s e declarations, I w o u l d c o n c l u d e t h a t a sublessee's p r o p e r r e n e w a l o f t h e Sublease r e q u i r e s t h e P o r t to t a k e t h e s t e p s n e c e s s a r y t o r e n e w t h e M a s t e r Lease. I s i m p l y n o t e here t h a t t h e d e c l a r a t i o n s a r e fully c o n s i s t e n t w i t h m y u n d e r s t a n d i n g o f the r e l a t i o n s h i p o f the M a s t e r L e a s e a n d S u b l e a s e A g r e e m e n t , and t h e Port's o b l i g a t i o n s u n d e r t h e S u b l e a s e
Agr~ement.

I will n o w turn to the questions whether p l a i n t i f f has properly renewed the Sublease A g r e e m e n t f o r a p e r i o d o f t h i r t y years, a n d w h e t h e r t h e P o r t h a s b r e a c h e d i t s o b l i g a t i o n b y failing t o s e e k r e n e w a l o f t h e M a s t e r L e a s e f o r a t h i r t y - y e a r p e r i o d .

A. Has p l a i n t i f f L N G properly renewed t h e Sublease Agreement for an additional thirtY-year period?

A s n o t e d a b o v e , t h e S u b l e a s e A g r e e m e n t p r o v i d e s t h a t t h e s u b l e s s e e shall h a v e a d d i t i o n a l o p t i o n s to e x t e n d t h e S u b l e a s e for t w o a d d i t i o n a l t h i r t y - y e a r p e r i o d s i f i t i s i n good standing, i s n o t i n m a t e r i a l d e f a u l t u n d e r t h e S u b l e a s e , a n d p r o v i d e s t h e P o r t w i t h w r i t t e n n o t i c e o f t h e e x t e n s i o n a t l e a s t 180 d a y s b e f o r e t h e t h e n c u r r e n t t e n n o f t h e s u b l e a s e expires. T h e r e c o r d b e f o r e t h e c o u r t e s t a b l i s h e s , a n d d e f e n d a n t s do n o t d i s p u t e , t h a t L N G s a t i s f i e d the f i r s t a n d l a s t o f t h e s e r e q u i r e m e n t s . I n a l e t t e r d a t e d A p r i l 2 4 , 2 0 0 9 , p l a i n t i f f L N G provided the P o r t notice t h a t i t wished t o r e n e w t h e Sublease A g r e e m e n t for an additional thirty-year t e n n , a n d defendants acknowledge b o t h t h a t L N G gave t i m e l y notice, and t h a t i t w a s " i n g o o d s t a n d i n g l l b o t h w h e n i t g a v e n o t i c e " a n d thereafter."

FINDINGS AND RECOMMENDATION - 12

The record likewise supports t h e conclusion that p l a i n t i f f L N G is n o t i n "material b r e a c h " o f a n y p r o v i s i o n o f t h e S u b l e a s e A g r e e m e n t . T h e r e is n o e v i d e n c e t h a t p l a i n t i f f L N G h a s failed t o p e r f o r m a n y o f t h e m a t e r i a l a c t s r e q u i r e d u n d e r t h e S u b l e a s e A g r e e m e n t , o r that the P o r t has e v e r i n f o r m e d L N G t h a t the P o r t c o n s i d e r s it t o b e i n m a t e r i a l b r e a c h o f the S u b l e a s e A g r e e m e n t i n a n y r e s p e c t . N o r h a s the P o r t o t h e r w i s e a c t e d a s i f L N G i s i n " m a t e r i a l d e f a u l t " o f t h e S u b l e a s e A g r e e m e n t : A f t e r L N G g a v e n o t i c e t h a t i t w i s h e d to e x t e n d the S u b l e a s e A g r e e m e n t f o r a n a d d i t i o n a l t h i r t y - y e a r t e r m , t h e P o r t i s s u e d L N G a n invoice f o r t h e a n n u a l r e n t a n d a c c e p t e d a n d c a s h e d L N G ' s c h e c k f o r t h e a m o u n t o f t h e rent w i t h o u t asserting, s u g g e s t i n g o r implying t h a t L N G w a s i n m a t e r i a l d e f a u l t o f t h e Sublease Agreement. T h e P o r t n e v e r t h e l e s s c o n t e n d s t h a t m a t e r i a l i s s u e s o f f a c t e x i s t as t o w h e t h e r p l a i n t i f f LNG is i n material default under the Sublease. I t contends that L N G "may" b e in material breach o f the Sublease Agreement because Skipanon, the assignor o f t h a t agreement, failed to o b t a i n a p p r o v a l o f a M a s t e r D e v e l o p m e n t P l a n t h a t includes a n I S - h o l e g o l f c o u r s e o n the p r e m i s e s , a n d o b t a i n e d a z o n i n g c h a n g e t h a t a l l o w s for c o n s t r u c t i o n a n d o p e r a t i o n o f a n a t u r a l gas i m p o r t a t i o n facility, b u t p r e c l u d e s c o n s t r u c t i o n a n d o p e r a t i o n o f a g o l f c o u r s e o n t h e p r e m i s e s . T h e P o r t a s s e r t s t h a t t h e failure to s u b m i t a M a s t e r D e v e l o p m e n t P l a n t h a t i n c l u d e s a g o l f c o u r s e "could" c o n s t i t u t e a m a t e r i a l b r e a c h o f t h e S u b l e a s e A g r e e m e n t b e c a u s e the M a s t e r L e a s e r e q u i r e s t h a t t h e P l a n i n c l u d e a n I S - h o l e g o l f c o u r s e o n t h e p r e m i s e s , a n d A r t i c l e 5 . 2 o f t h e M a s t e r L e a s e p r o v i d e s t h a t f a i l u r e t o c o m p l y w i t h the t e r m s a n d c o n d i t i o n s o f t h e M a s t e r D e v e l o p m e n t P l a n w i l l b e a m a t e r i a l b e a c h o f t h e lease. T h i s c o n t e n t i o n fails f o r s e v e r a l r e a s o n s . A s p l a i n t i f f L N G c o r r e c t l y n o t e s , t h e S u b l e a s e A g r e e m e n t n e i t h e r i n c l u d e s " g o l f c o u r s e " as a d e f I n e d t e r m , n o r l i s t s a g o l f c o u r s e

FINDINGS AND RECOMMENDATION - 13

as an approved use i n Article 5.1. The definition o f a g o l f course, a n d specification o f development o f a n 18-hole g o l f course as a n "approved use" appears i n t h e Master Lease, to which p l a i n t i f f L N G is n o t a party. Article 5.1 o f the Sublease Agreement provides that the p r e m i s e s shall b e " i m p r o v e d , u s e d and maintained" b y t h e s u b l e s s e e " f o r t h e c o n s t r u c t i o n a n d development o f the Marine Industrial Facilities." Article 5.2 provides that the Port and the sublessee w i l l d e v e l o p a n d s u b m i t f o r t h e State's a p p r o v a l a M a s t e r D e v e l o p m e n t P l a n t h a t w i l l g o v e r n t h o s e p a r t i e s ' " c o n s t r u c t i o n a n d d e v e l o p m e n t o f t h e G o l f C o u r s e a n d Marine I n d u s t r i a l F a c i l i t i e s o n t h e Land." T h i s A r t i c l e f u r t h e r p r o v i d e s t h a t t h i s p l a n "will p r o v i d e for the b e s t use o f the Land and ensure that sufficient land is available to t h e Marine I n d u s t r i a l F a c i l i t i e s t o a l l o w i t t o m e e t all i t s p e r m i t r e q u i r e m e n t s . " These p r o v i s i o n s s u p p o r t t h e conclusion t h a t c o n s t r u c t i o n o f a g o l f course was not a m a t e r i a l r e q u i r e m e n t u n d e r t h e S u b l e a s e Agreement. T h e P o r t ' s c o n d u c t t h r o u g h o u t t h e course o f its r e l a t i o n s h i p w i t h S k i p a n o n and p l a i n t i f f L N G i n d i c a t e s t h a t t h i s h a s b e e n t h e Portis understanding as well. A s noted above, both the P o r t a n d the D S L gave prior express a p p r o v a l to S k i p a n o n ' s a p p l i c a t i o n f o r a z o n i n g c h a n g e t h a t p r e c l u d e s c o n s t r u c t i o n o f a n 1 8 - h o l e g o l f c o u r s e o n t h e p r e m i s e s . The P o r t d i d n o t o b j e c t t o s u b m i s s i o n o f a M a s t e r D e v e l o p m e n t P l a n i n N o v e m b e r , 2 0 0 6 , t h a t e n v i s i o n e d c o n s t r u c t i o n o f a 9 - h o l e g o l f course o n l a n d a d j a c e n t to t h e p r e m i s e s , a n d t h e S t a t e g a v e p r e l i m i n a r y a p p r o v a l t o t h a t p l a n , w h i c h explicitly stated t h a t t h e premises h a d been rezoned i n a manner t h a t w o u l d n o t a l l o w c o n s t r u c t i o n o f a n 1 8 - h o l e g o l f c o u r s e . T h e P o r t d i d n o t c r i t i c i z e o r o b j e c t to a m o r e d e t a i l e d M a s t e r D e v e l o p m e n t P l a n t h a t p l a i n t i f f L N G submitted in M a r c h , 2008, w h i c h likewise d i d n o t e n v i s i o n c o n s t r u c t i o n o f a g o l f c o u r s e o n t h e premises.

FINDINGS AND RECOMMENDATION - 14

This record will n o t support the conclusion that p l a i n t i f f LNG's failure to provide for c o n s t r u c t i o n o f a g o l f c o u r s e o n t h e p r e m i s e s c o n s t i t u t e d a b r e a c h o f t h e S u b l e a s e Agreement. H o w e v e r , e v e n i f t h a t A g r e e m e n t r e q u i r e d L N G t o i n c l u d e p l a n s f o r a g o l f c o u r s e o n the property, b y a g r e e i n g t o a z o n i n g c h a n g e t h a t p r e c l u d e d c o n s t r u c t i o n o f t h e g o l f course, f a i l i n g t o o b j e c t to t h e o r i g i n a l o r a n y r e v i s e d M a s t e r D e v e l o p m e n t P l a n t h a t d i d n o t p r o v i d e for a g o l f course o n the premises, and failing to issue Oregon L N G any Notice o f Default, N o t i c e o f T e r m i n a t i o n , o r N o t i c e o f C u r e , t h e P o r t h a s w a i v e d a n y a l l e g e d b r e a c h w i t h regard t o a g o l f course. S i g n i f i c a n t l y , u n d e r A r t i c l e 5 . 2 o f t h e S u b l e a s e A g r e e m e n t , t h e s u b l e s s e e a n d the P o r t a r e j o i n t l y r e s p o n s i b l e f o r d e v e l o p i n g a n d s u b m i t t i n g a M a s t e r D e v e l o p m e n t Plan. T h e r e f o r e , i f L N G o r i t s p r e d e c e s s o r i n i n t e r e s t b r e a c h e d t h e S u b l e a s e A g r e e m e n t b y f a i l i n g to p r o v i d e f o r c o n s t r u c t i o n o f a g o l f c o u r s e i n t h e M a s t e r D e v e l o p m e n t P l a n , i t w a s a b r e a c h i n w h i c h t h e P o r t participated, a n d o f w h i c h i t c a n n o t n o w complain. T h e r e c o r d b e f o r e t h e c o u r t s u p p o r t s only t h e c o n c l u s i o n t h a t p l a i n t i f f L N G has s a t i s f i e d t h e r e q u i r e m e n t s f o r e x t e n s i o n o f t h e S u b l e a s e A g r e e m e n t f o r a t h i r t y - y e a r period.

B. Has the P o r t breached the Sublease Agreement by failing to renew the Master Lease with the D S L ? T h e P o r t a s s e r t s t h a t i t i s u n d e r n o o b l i g a t i o n t o s e e k a t h i r t y - y e a r e x t e n s i o n o f the M a s t e r L e a s e a t t h i s t i m e b e c a u s e t h e M a s t e r L e a s e h a s b e e n e x t e n d e d for a t w o - y e a r period.
I t f u r t h e r a r g u e s t h a t t h e r e is n o o b l i g a t i o n t o e x t e n d t h e S u b l e a s e A g r e e m e n t a t t h i s t i m e

because tithe initial five-year Lease periods contained i n the Lease a n d Sublease essentially were based u p o n a mutual mistake o f f a c t " as to the time needed to secure the permits r e q u i r e d f o r c o n s t r u c t i o n a n d o p e r a t i o n o f a n a t u r a l g a s i m p o r t a t i o n f a c i l i t y , a n d b e c a u s e i t is n o t c e r t a i n t h a t L N G w i l l m a k e r e n t p a y m e n t s f o r t h i r t y y e a r s i f t h e l e a s e is e x t e n d e d a n d
FINDINGS AND RECOMMENDATION - 15

LNG fails to obtain the necessary permits for the facility. The Port also contends that e x t e n s i o n i s n o t r e q u i r e d n o w b e c a u s e o f a "criminal i n v e s t i g a t i o n b y t h e O r e g o n D e p a r t m e n t o f J u s t i c e c o n c e r n i n g the c i r c u m s t a n c e s u n d e r w h i c h f o n n e r P o r t o f A s t o r i a Executive Director P e t e r Gearin entered into the Lease and Sublease w h i c h are the subject o f this lawsuit." I t asserts t h a t i t would b e "irresponsible to exercise a 3D-year option o n the leased parcel w i t h o u t k n o w i n g i f t h e r e w a s c r i m i n a l o r f r a u d u l e n t m i s c o n d u c t involved w i t h the leases' negotiation a n d execution. 11 The Port argues that its agreement w i t h the DSL to e x t e n d t h e M a s t e r L e a s e for a n a d d i t i o n a l t w o - y e a r p e r i o d n e g a t e s a n y r i g h t o r ability t h a t L N G o t h e r w i s e h a d to e f f e c t a r e n e w a l o f t h e S u b l e a s e f o r a t h i r t y - y e a r p e r i o d . a s s e r t i n g t h a t the Master Lease is a n "independent contractual agreement between t h e P o r t and DSL" which d o e s n o t a l l o w a s u b t e n a n t l i k e L N G t o " c o m p e l t h e P o r t as L a n d l o r d t o s i m u l t a n e o u s l y exercise its 3D-year renewal option i n order to benefit a Subtenant." Finally, the Port contends that extension o f the lease is not required n o w because the State's consent is r e q u i r e d for r e n e w a l o f t h e S u b l e a s e A g r e e m e n t .

1. Effect o f two-year extension o f the Master Lease T h e P o r t c o r r e c t l y n o t e s t h a t i t has e x t e n d e d i t s M a s t e r L e a s e w i t h t h e State o f Oregon for a t w o - y e a r p e r i o d . H o w e v e r . i t s a s s e r t i o n t h a t t h i s e x t e n s i o n a l t e r e d i t s o b l i g a t i o n s u n d e r the Sublease Agreement is not persuasive. because p l a i n t i f f L N G was not a party to any revision o f t h e Master Lease. a n d amendment o f the Master Lease did n o t amend the terms o f the Sublease Agreement. T h e S u b l e a s e Agreement clearly a n d u n a m b i g u o u s l y provides that t h e s u b l e s s e e s h a l l h a v e a d d i t i o n a l o p t i o n s to e x t e n d t h e S u b l e a s e f o r t h i r t y - y e a r p e r i o d s . N o t h i n g i n t h e S u b l e a s e A g r e e m e n t states o r implies t h a t t h e P o r t c a n e x t i n g u i s h o r d i m i n i s h

FINDINGS AND RECOMMENDATION - 16

a s u b l e s s e e ' s r i g h t t o e x t e n d t h e S u b l e a s e for t h i r t y - y e a r p e r i o d s b y n e g o t i a t i n g a c h a n g e i n the Master Lease. Under the plain terms o f the Sublease Agreement, the P o r t is committed to extend the Sublease Agreement i f the sublessee so chooses. This obligation also requires the P o r t t o t a k e t h e n e c e s s a r y s t e p s t o e x e r c i s e i t s o w n o p t i o n t o e x t e n d t h e M a s t e r Lease, T h e Port's n e g o t i a t i o n o f a m o d i f i c a t i o n o f t h e M a s t e r Lease w i t h t h e S t a t e c a n n o t m o d i f y t h e t e r m s o f its a g r e e m e n t w i t h a s u b l e s s e e w i t h o u t t h e s u b l e s s e e ' s a c q u i e s c e n c e . L N G ' s rights arise p u r s u a n t t o t h e t e r m s o f t h e S u b l e a s e A g r e e m e n t , a n d d e f e n d a n t s c a n n o t r e d u c e t h o s e r i g h t s b y n e g o t i a t i n g a l t e r a t i o n s o f a n a g r e e m e n t to w h i c h L N G i s n o t a party. B e c a u s e p l a i n t i f f L N G was i n c o m p l i a n c e w i t h t h e terms o f t h e Sublease Agreement, t h e timely e x e r c i s e o f i t s o p t i o n t o r e n e w for a n a d d i t i o n a l thirty-year p e r i o d t r i g g e r e d t h e Port's obligation to take the steps required to renew its Master Lease with the State o f Oregon.

2. Effect o f requirement that State o f Oregon ap,prove extensions o f sublease A r t i c l e 1 2 . 2 ( b ) o f t h e M a s t e r Lease p r o v i d e s that, w i t h t h e S t a t e ' s p r i o r w r i t t e n consent, t h e P o r t m a y e x t e n d o r r e n e w a sublease o f the premises. A p p a r e n t l y b a s e d upon this provision, defendants assert that p l a i n t i f f LNG has identified "no act o f the Port . . . that h a s d e p r i v e d t h e p l a i n t i f f o f t h e b e n e f i t o f i t s o w n i n d e p e n d e n t 3 0 - y e a r r e n e w a l option," a n d c o n t e n d t h a t " [ t ] h e d e c i s i o n a s t o w h e t h e r t o c o n s e n t to t h a t 3 0 - y e a r r e n e w a l r e s t s e n t i r e l y w i t h DSL, w h i c h n o w m u s t d e t e r m i n e w h e t h e r o r n o t t o c o n s e n t t o t h e r e n e w a l . " T h e s e a s s e r t i o n s fail, b e c a u s e t h e y m i s c h a r a c t e r i z e t h e p a r t i e s ' o b l i g a t i o n s u n d e r t h e l e a s e s a n d i g n o r e t h e b a s i s o f L N G ' s c l a i m s i n t h i s action. P l a i n t i f f L N G d i d n o t b r i n g t h i s a c t i o n t o c o m p e l t h e State, t h r o u g h D S L , t o e x t e n d t h e Sublease. I n s t e a d , i t b r o u g h t t h e a c t i o n i n o r d e r t o c o m p e l t h e P o r t t o s e e k r e n e w a l o f t h e M a s t e r L e a s e a n d t h e S t a t e ' s c o n s e n t to t h e P o r t ' s

FINDINGS AND RECOMMENDAn O N - 17

extension o f t h e sublease. I n failing to seek extension o f the Master Lease for a thirty-year p e r i o d , t h e P o r t i s d e p r i v i n g L N G o f t h e b e n e f i t o f i t s r e n e w a l o f t h e s u b l e a s e for a thirty-year period as well. T h e P o r t has sought only a two-year extension, which i t cannot seriously contend is either provided for under the t e n n s o f the Sublease Agreement or o f equivalent v a l u e t o t h e t h i r t y - y e a r e x t e n s i o n p r o v i d e d for i n t h a t a g r e e m e n t . T h e S u b l e a s e A g r e e m e n t provides L N G the unilateral option to renew the sublease for a thirty-year period. I f LNG timely exercises that option, which i t has, is a tenant i n good standing, which i t is, and is not i n material default, which i t is not, the P o r t is required to take steps to r e n e w the Master Lease.

3. T h e m u t u a l m i s t a k e a r g u m e n t D e f e n d a n t s h a v e s u b m i t t e d P o r t C o m m i s s i o n e r D a n i e l H e s s ' s d e c l a r a t i o n t h a t "we a l l assumed that i n t w o to three years" Calpine would obtain the necessary permits to construct a p l a n t o n t h e p r e m i s e s . T h e y h a v e a l s o s u b m i t t e d a c o p y o f a n e - m a i l i n w h i c h f o n n e r Port E x e c u t i v e D i r e c t o r G e a r i n s t a t e d t h a t a C a l p i n e r e p r e s e n t a t i v e h a d i n d i c a t e d t h a t obtaining t h e r e q u i r e d p e r m i t s was "likely t o b e a t w o t o three-year process." D e f e n d a n t s contend t h a t a " m u t u a l m i s t a k e " as t o t i m e r e q u i r e d t o o b t a i n p e n n i t s e x c u s e s t h e P o r t f r o m s e e k i n g a thirty-year renewal o f the Master Lease now. They contend that, because the p e n n i t s were not secured during the initial five-year lease period, i f the Port n o w exercised its thirty-year option, "it would be obligated to pay DSL the full 30 years o f U p l a n d Lease payments w i t h o u t a n y c o r r e s p o n d i n g g u a r a n t e e d s o u r c e o f r e v e n u e " i f p l a i n t i f f f a i l s to s e c u r e t h e necessary permits.

FINDINGS AND RECOMMENDATION - 18

lbis argument fails. Though defendants have presented evidence supporting the c o n c l u s i o n t h a t C o m m i s s i o n e r H e s s w a s m i s t a k e n as t o t h e t i m e n e e d e d t o o b t a i n p e r m i t s , they h a v e n o t p r o d u c e d e v i d e n c e supporting t h e c o n c l u s i o n t h a t t h e o t h e r defendants were likewise mistaken, o r provided persuasive support for their assertion t h a t a mistake as to the time required for obtaining permits excuses the P o r t from performing its contractual o b l i g a t i o n t o s e e k r e n e w a l o f t h e M a s t e r L e a s e . E v e n i f t h e p a r t i e s w e r e m i s t a k e n as t o t h e t i m e n e e d e d t o o b t a i n p e r m i t s ( w h i c h t h e r e c o r d before t h e c o u r t does n o t establish), defendants have n o t demonstrated this mistake was t h e type o f "mutual mistake" that so f u n d a m e n t a l l y u n d e r m i n e d t h e a g r e e m e n t as t o r e l i e v e t h e P o r t o f i t s c o n t r a c t u a l o b l i g a t i o n s .

I f t h e t i m i n g o f t h e p e r m i t p r o c e s s w a s a s i g n i f i c a n t i s s u e t o t h e P o r t , i t c o u l d h a v e negotiated
contractual terms to address t h a t matter. I t did not. A "mutual mistake" renders a contract voidable only i f a mistake "is so fundamental that i t frustrates t h e purpose o f the contract." In re: Woods, 207 Or. App. 452, 463, 142 P.3d 1072 (2006) (citing Lesher v. Strid, 165 Or. App. 3 4 , 4 2 , 9 1 6 P.2d 988 (2000)). Even i f the r e c o r d b e f o r e t h e c o u r t i n c l u d e d e v i d e n c e f r o m w h i c h a r e a s o n a b l e t r i e r o f fact c o u l d c o n c l u d e t h a t t h e p a r t i e s u n d e r e s t i m a t e d t h e t i m e n e e d e d t o o b t a i n p e r m i t s , s u c h a mistake would not so "fundamentally frustrate t h e purpose o f t h e contract" a n d either invalidate the S u b l e a s e A g r e e m e n t o r p e r m i t t h e P o r t to i g n o r e t h e p r o v i s i o n o f t h a t a g r e e m e n t a l l o w i n g a s u b l e s s e e t o r e n e w t h e S u b l e a s e f o r a t h i r t y - y e a r p e r i o d i f c e r t a i n r e q u i r e m e n t s a r e satisfied.

4. Absence o f thirty-year payment guarantee D e f e n d a n t s ' c o n t e n t i o n t h a t t h e P o r t is n o t r e q u i r e d t o s e e k r e n e w a l o f t h e M a s t e r Lease because there i s n o guarantee that its sublessee will make the required payments for

FINDINGS AND RECOMMENDAn O N - 19

thirty years likewise fails. This argument is speculative, a n d ignores the fact that concerns that a sublessee m i g h t fail to perform could have been addressed w h e n the Sublease Agreement was negotiated. There is simply no basis for concluding that, because defendants n o w r a i s e a c o n c e r n t h a t t h e P o r t d i d n o t r a i s e earlier, t h e P o r t i s n o t o b l i g a t e d t o p e r f o r m a c c o r d i n g to t h e t e r m s o f t h e S u b l e a s e A g r e e m e n t .

5. DOJ's investigation o f former P o r t Executive Director Gearin S i n c e the t i m e t h a t d e f e n d a n t s r a i s e d c o n c e r n s a b o u t t h e O r e g o n D e p a r t m e n t o f J u s t i c e ' s ( D O J ' s ) i n v e s t i g a t i o n o f f o r m e r P o r t E x e c u t i v e D i r e c t o r G e a r in's c o n d u c t during negotiations o f the Master Lease and Sublease Agreement, the D O J has concluded its i n v e s t i g a t i o n . T h e D O J h a s c o n c l u d e d t h a t , w h i l e s e r v i n g as t h e E x e c u t i v e D i r e c t o r o f t h e Port, Gearin committed official misconduct b y securing w o r k at Calpine for his then g i r l f r i e n d a n d n o w wife. T h i s c o n c l u s i o n d o e s n o t s u p p o r t d e f e n d a n t s ' c o n t e n t i o n t h a t i t is n o t o b l i g a t e d t o extend the Master Lease a t this time. There is no evidence that impropriety o n the part o f the former P o r t E x e c u t i v e D i r e c t o r i n any w a y a f f e c t e d t h e P o r t ' s n e g o t i a t i o n o f t h e l e a s e s i n q u e s t i o n , t h a t t h e P o r t C o m m i s s i o n e r s w h o u n a n i m o u s l y v o t e d to a p p r o v e t h e l e a s e s w e r e m i s i n f o r m e d o r m i s l e a d a s t o t h e m a t e r i a l t e r m s o f t h e l e a s e s , o r t h a t e x e c u t i o n o f t h e leases was i n any manner affected b y deceit o r fraud o n the part o f Gearin o r anyone else. In the absence o f such evidence, the DOJ's investigation provides no basis for t h e P o r t to avoid its clear contractual obligations.

FINDINGS A N D R E C O M M E N D A n O N - 2 0

CONCLUSION

Plaintiffs motion for a partial summary judgment establishing that plaintiff has renewed its sublease and that the Port has breached its obligation to LNG by failing to take steps to renew the Master Lease should be granted.

SCHEDULING O R D E R

The Findings and Recommendation will be referred to a district judge. Objections, ifany, are due December 3, 2009. I f n o objections are filed, the Findings and Recommendation will go under advisement on that date.
I f objections are filed, a response is due within 10 days after being served with a copy

o f the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement. DATED this 17tlt day o f November, 2009.

U.S. Magistrate Judge

FINDINGS AND RECOMMENDA n O N - 21