Port of Oakland Facing $123 Million Lawsuit 

A marine terminal operator co-owned by Goldman Sachs is alleging damages because the port gave another company a lucrative privatization contract.

A major port terminal operator, Stevedoring Services of America, is pushing forward with a lawsuit against the Port of Oakland that could ultimately cost the public agency $123 million or force it to hand over control of public property to a corporation in which Goldman Sachs owns a major stake. Late last year, an administrative law judge with the Federal Maritime Commission denied the port's request to dismiss the suit. And the case has garnered little attention from the media and public, even though the judge has already made important rulings that have recast the relationship between the port and the City of Oakland.

The origins of the suit stem back to 2009 when the port approved a major privatization contract with another marine terminal operator, Ports America. Unlike previous contracts with companies that operate the various berths at the port where ships are loaded and unloaded, the Ports America agreement was precedent-setting; it allowed Ports America to effectively own Berths 20 through 25, which are on public property in West Oakland. Under the concession's terms, Ports America may make its own infrastructure investments, is exempt from some state environmental laws, and may keep a larger share of profits generated at the port than other companies. The Ports America contract lasts fifty years, much longer than most port leases, which top out at ten to fifteen years.

SSA contends that the Port of Oakland, because of the lease it awarded to Ports America, is violating the Shipping Act of 1984, a federal law designed to ensure maritime companies are treated fairly in an industry otherwise dominated by global monopolies and powerful cartels.

The Ports America concession at the Port of Oakland, worth about $700 million, is among the first of what has become a growing trend in privatizing US port infrastructure. Ports America, owned by New York-based private equity group Highstar Capital, is only one player in this industry. Other investors seeking concessions include investment banks like Goldman Sachs Infrastructure Partners, a subsidiary of the Wall Street giant. Goldman Sachs also owns 49 percent of SSA and therefore has much to gain if SSA's suit succeeds. Further complicating matters is the fact that Goldman Sachs employees acted as advisers to Highstar Capital and Ports America in the Port of Oakland deal that is at the center of SSA's case.

Anne Van Praagh, a Morgan Stanley vice president, described the essence of the new concession agreements, like the one Ports America has in Oakland, in a recent presentation to the American Association of Port Authorities. Under what Van Praagh characterized as the "traditional model" of public US ports, "economic development goals often drive financing and investment decisions." But under the "emerging model" of long-term concessions, "government gives up control" to private entities, and "market discipline is imposed."

SSA leases what has been the busiest container terminal at the port — the Oakland International Container Terminal — but the company alleges in its suit that Ports America's concession gives it an advantage that will ultimately cost SSA $123 million in lost business. Under the Shipping Act of 1984, most ports may not "give any undue or unreasonable preference or advantage ... to any person." Persons by legal definition include global corporations like SSA.

The Port of Oakland sought to dismiss SSA's lawsuit on the grounds that it is a state agency, and that under the Eleventh Amendment of the US Constitution, states and their agencies cannot be sued in federal court. California Attorney General Kamala Harris even supplied the court with an amicus brief supporting Oakland's contention that the port is an agency of the state government. The Federal Maritime Commission ruled in December, however, that the Port of Oakland is in fact a "department of the City of Oakland." The ruling also recast the legal definition of the Port of Oakland in ways that may affect other aspects of its relationship to the city, the port and city's finances, and the port's economic development mission.

Most importantly, the ruling opened up a can of worms for the port and other municipal ports that have moved to privatize part or all of their infrastructure and operations under similar concessions agreements. Now the port's lawyers must argue against the actual substance of the claims alleging a violation of the Shipping Act, and it may prove difficult. Ports America's concession does, in fact, give the company considerable financial and operational advantages over its rivals. These types of long-term monopolistic deals between public ports and investor-backed stevedoring companies expose ports to legal liabilities under the Shipping Act, a federal law whose origins date back to 1916.

The Port of Oakland declined to comment for this article because it addresses ongoing litigation. SSA did not respond to requests for comment.

Goldman Sachs, Highstar Capital, and other financial corporations that own major stakes in marine terminal operators have competed and teamed up in bidding wars and lawsuits over the control of US and international port infrastructure in recent years. In 2009, Goldman Sachs went up against the Carlyle Group private equity fund and CenterPoint, a company owned by the California Public Employees Retirement System and Menlo Park-based private equity group GI Partners, to take control of the Port of Virginia's multiple terminals and railyards. While their bids were all rejected, the Port of Virginia reopened bidding this summer after receiving an unsolicited offer from the Danish corporation APM Terminals. APM Terminals was actually the tenant at Berths 20 to 24 at the Port of Oakland until it was displaced by Ports America under the controversial concession.

SSA's case against the Port of Oakland is currently in the evidence-collection process and it could be several more years before the Federal Maritime Commission makes a decision.

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