By Andrea Woodhouse Staff Writer

Article Launched: 04/04/2008 01:05:26 AM PDT

Proposed state legislation could get Hermosa Beach off the hook for paying potentially bankrupting damages to a jilted oil company suing for breach of contract.

Assemblyman Ted Lieu, D-El Segundo, introduced a bill Thursday that would relieve public entities of any liability for lost company profits when a contract is broken following a valid, voter-approved initiative.

Hermosa Beach is entangled in a protracted lawsuit centered on whether it broke its oil drilling lease agreement with Macpherson Oil in 1998, about six years after voters approved a ballot initiative banning present and future drilling projects in town.

Macpherson is asking for $500 million in damages and lost profits, a price tag that Hermosa city leaders have long said would bankrupt the small city.

"I thought it doesn't seem fair that a company could bankrupt a city, especially when the city didn't have full control of what happened," Lieu said.

Hermosa Beach is awaiting word on a writ seeking an appeal to a recent Los Angeles Superior Court ruling that the city broke its contract with Macpherson and is liable for damages.

Should the courts decide not to reconsider the ruling, the bifurcated case will head into a damages phase, during which Mayor Michael Keegan estimated the city would probably spend $1 million.

"I think it's a good piece of legislation," he said. "It would save a lot of time and money on speculative projects like oil drilling - you wouldn't have to go to trial."

Under AB 2780, Macpherson could still recover legal fees and other money expended during litigation, Lieu said.

While the bill was clearly tailor-made for Hermosa Beach's plight, Lieu believes it could benefit other municipalities as well.

"Actually, it does help Hermosa, but you can imagine situations in the future as voters get upset about oil drilling, or by any number of other things," he said. "This protects the city. A city can't stop a voter initiative."

But Jim Bright, the attorney representing Macpherson Oil, believes the legislation would drive up the price of government contracts by helping cities like Hermosa Beach break promises.

"This is an ill-conceived piece of legislation designed to address the mistakes the city of Hermosa Beach has made," he said, "and the price we would all be paying is the cost of doing business with the government is going to go up greatly."

The bill will be heard in committee in the next several weeks, Lieu said.