United States: The Amorphous "Unusual Circumstances" Exception To CEQA's Categorical Exemption Strikes Again

The recent Voices for Rural Living v. El Dorado Irrigation District case from the California Court of Appeal's Third District applied the "unusual circumstances" exception to overturn a categorical exemption used to approve a water supply memorandum of understanding (MOU) for an existing Native American casino. As is typically the case, the court's application of the "unusual circumstances" exception was highly fact-specific. This case demonstrates yet another way that potential plaintiffs may use the always amorphous "unusual circumstances" exception to attack a categorical exemption. The case also touches on the proper standard of review and annexation issues.

Factually, the El Dorado Irrigation District (EID) entered into an MOU to provide water to a casino located on tribal land held by the Shingle Springs Band of Miwok Indians (the Tribe). EID determined that the project was exempt from environmental review under CEQA because it fell under a Class 3 categorical exemption for small projects. The MOU increased water supply for the Tribe's land from 45 equivalent dwelling units (EDUs) to 261 EDUs, which represented a significant increase in allotted water and was approximately 14% of EID's unallocated water supply. EID further determined the MOU was not subject to annexation conditions imposed by the El Dorado County Local Agency Formation Commission (LAFCO) limiting the amount of water it could provide because EID determined that those conditions were unconstitutional. In part, EID based that determination on legal analysis provided to the Tribe from the Office of the Solicitor for the federal Department of the Interior, which proclaimed that conditions imposed by LAFCO that regulate land use rather than water delivery are likely preempted by federal law because they conflict with the federally prescribed use of the land. As discussed below, reliance on that advice was misplaced.

Procedurally, the plaintiff, Voices for Rural Living (VRL), filed suit to vacate EID's approval of the MOU arguing that the categorical exemption did not apply due to the unusual circumstances surrounding the water supply issue. Further, VRL asserted that EID exceeded its authority by ignoring the LAFCO conditions. The trial court granted VRL's petition for writ of mandate and invalidated the MOU because: (a) the unusual circumstances exception to Class 3 categorical exemption applied based on a fair argument of significant environmental effects from the increased water supply; and (b) EID had no authority to ignore LAFCO's conditions imposed on the service area that covered the Tribe's land. The trial court ordered EID to prepare an EIR. Both parties appealed. The Court of Appeal reversed the trial court's direction regarding the EIR, but otherwise affirmed the judgment.

Regarding the categorical exemption issue, the Court of Appeal concluded that the MOU "project" (i.e., increased water supply and limited improvements to the water infrastructure system) constituted "unusual circumstances." Although the water infrastructure improvements were minor, there was a nearly a five-fold increase in water supply associated with the project. In the court's words, "[t]he sheer amount of water to be conveyed under the MOU obviously is a fact that distinguishes the project from the type of projects contemplated by the Class 3 categorical exemption." The court's holding indicates that when assessing whether the unusual circumstances exception to a categorical exemption applies, one should consider not only the project's possible environmental effects, but also whether the particular project's circumstances differ from the general circumstances associated with a particular categorical exemption.

The Court of Appeal further noted that a fair argument standard should apply when determining whether the exception to a categorical exemption applies. Courts have split between two standards of review in determining whether an unusual circumstances exception applies; the "fair argument" standard and the "substantial evidence" standard. The fair argument standard requires the agency or court to inquire whether there is substantial evidence in the record on which a fair argument can be made that the project may have significant environmental effects. In contrast, the substantial evidence standard is more deferential to the agency and asks whether substantial evidence exists to support the agency's decision that the project will not have significant environmental impacts. Here, the Court of Appeal applied the fair argument standard. In doing so, it found that VRL had made a fair argument – supported by the record – that the MOU project may have an adverse effect on EID water supply and ability to provide water services to its customer base. Thus, the Court of Appeal directed EID to go back and perform adequate CEQA review, which in this case would mean preparing an initial study to determine whether further CEQA review was required.

With respect to the LAFCO issues, the Court of Appeal upheld the trial court's ruling that EID had exceeded its authority in determining that the LAFCO conditions were unconstitutional. It noted that approval of annexation conditions are quasi-legislative determinations. Thus, public agencies (such as EID) charged with complying with those conditions have no authority to disregard the conditions. The Court of Appeal reasoned that the Legislature vested LAFCO with the exclusive authority to approve annexations of territory into special districts. That authority includes the power to impose conditions of approval that are enforceable against any public agency serving that district. It follows that EID was charged to enforce or comply with the conditions and had no discretion to disregard them. Therefore, when EID approved the MOU, the LAFCO conditions were binding and EID could not at that time disregard the conditions on the grounds that they were unconstitutional. Accordingly, the Court of Appeal pointed out that, as an irrigation district, EID's powers are limited to those vested in it by constitution or statute, and do not include the fundamentally judicial authority to determine the validity of annexation conditions imposed by LAFCO.

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