ASSEMBLYMEMBER TED LIEU
53RD ASSEMBLY DISTRICT
For Immediate Release: April 29, 2008
Contact: Ashlie Simpson
Phone: (916) 319-2053

Key Panel Approves Lieu Bill to Protect Cities

(Sacramento, CA) – Today, the Assembly Judiciary Committee approved a measure by Assemblymember Ted Lieu (D-Torrance) that would protect cities and counties against devastating lawsuits.  AB 2780 would eliminate lost profits as a measure of damages in lawsuits against a local government if a contract is nullified by an act of the voters. 

“First and foremost, local governments have a responsibility to respect and uphold the will of the people,” stated Assemblymember Lieu. “If, by a vote of its citizens, the city or county’s actions are overturned, the city should be protected from outrageous and potentially damaging claims of lost profit.”

This bill comes as a result of a decades-long legal battle waged against the City of Hermosa Beach, which has a potential outcome of bankrupting the city coffers.  A contract between the city and an oil company for drilling rights was overturned by a ballot initiative, leaving the city on the hook for breach of contract.  An additional claim was made by the oil company that the city also owed lost profits from the past 25 years of the oil company not being able to drill.  The subsequent ruling from an appellate court sided with the oil company and Hermosa Beach is potentially at a loss for $500 million.

Damages for lost profits are extraordinarily difficult to predict at the time of contract formation and may expose the municipal entity to the risk of very high, potentially ruinous damages awards.  AB 2780 would prohibit lawsuits from seeking these types of damages if the contract or action is prohibited by a vote of the citizens.  This bill would not prohibit companies from filing for breach of contract.  It would simply insulate municipalities from extraordinary liability.

 “This bill is a balanced compromise, intended to ensure cities can conduct business without fear of extraordinary reprisal or ruinous litigation that will bankrupt cities,” said Assemblymember Lieu. 

This bill is supported by the cities of Hermosa Beach, Carson, Gardena, Hawthorne, Hesperia, Lawndale, Lomita, Manhattan Beach, Torrance and Rancho Palos Verdes.  It will be heard on the Assembly Floor in the coming weeks.