United States: California Supreme Court Issues CEQA Ruling Regarding Categorical Exemptions

Amanda Monchamp and Chelsea Maclean are Partners in the San Francisco office.

The Practical Result of the Court's Decision Is That Categorical Exemptions Remain a Viable Tool to Review Small Projects Across the State

HIGHLIGHTS:

  • The California Supreme Court issued its opinion in Berkeley Hillside Preservation v. City of Berkeley on March 2, 2015, overturning the Court of Appeal and charting a course for the future application of categorical exemptions under the California Environmental Quality Act (CEQA).
  • The court determined that the "unusual circumstance" exception that applies to all categorical exemptions is a two-step inquiry and that both steps must be met to trigger the exception. The court applied the deferential standard of review to one of the steps, thereby preserving the utility of categorical exemptions.
  • The court found that an agency's review of environmental impacts is limited to the proposed project as actually approved – and that agencies need not consider unapproved activities.

The California Supreme Court issued its opinion in Berkeley Hillside Preservation v. City of Berkeley (Case No. S201116), overturning the Court of Appeal and charting a course for the future application of categorical exemptions under the California Environmental Quality Act (CEQA). Issued on March 2, 2015, the majority opinion and Justice Liu's concurrence (which dissents on the key issue) are a harbinger for the remaining record-setting eight CEQA cases pending before the newly comprised Supreme Court.

"Unusual Circumstance" Exception Requires a Two-Step Test

In short, the Supreme Court determined that "unusual circumstance" exception to the categorical exemptions is a two-step inquiry and that both steps must be met to trigger the exception. The court applied the deferential standard of review to one of the steps, thereby preserving the utility of categorical exemptions. However, Justice Liu's concurrence dissented on this point and would have applied the non-deferential standard to both steps. The court declined to decide whether the project at issue – a single-family home – actually qualified for a categorical exemption and remanded the case to the lower courts. The homeowner originally applied for a permit in 2009, the city of Berkeley ("city") approved the project in 2010 and the project has languished in court for five years. This case demonstrates how CEQA litigation can dramatically delay even a single family home, with yet more delays to come.

Courts Will Apply a Two-Step Analysis of the Exceptions to the Categorical Exemptions and Will Afford Deference to Agencies Under Step One

The Berkeley Hillside case involved a broadly worded "exception" that negates any categorical exemption if there is "a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances." (14 Cal. Code Regs. §15300.2(c) emphasis added) The court ruled this exception should be applied using a two-part test and that both prongs are required to trigger the exception. First, the agency must decide if there are unusual circumstances and, importantly, it can look to local conditions to make this determination. Second, an agency is to consider if is there a reasonable possibility of significant effect due to these unusual circumstances.

This leads to the crucial question that hung in the balance in this case: what level of deference will a court afford an agency's consideration of the exception? One would think the courts would trust a governmental agency's review of a small project that falls within state-approved exemptions. Prior case law, however, was all over the map on the appropriate standard of review. Most recent cases simply punted deciding the issue and cautiously applied the least deferential standard when it did not affect the outcome.

The court rightly decided to apply the deferential substantial evidence standard to the first step of whether there are unusual circumstances as it is a fact-based inquiry. However, the court applied the non-deferential fair argument standard to the second step of determining if there is a reasonable possibility of significant effect due to these unusual circumstances.

The reasoning applied by the court for the dual-standard is based on a long accounting of the history of the statute, the CEQA Guidelines and previous case law. Because the court found that both prongs must be met and applied the substantial evidence test to the first step, it negates the argument that all a petitioner needs to show is a mere fair argument of a potential environmental impact. A challenger must first prove there is substantial evidence of unusual circumstances.

However, the concurring opinion, authored by Justice Liu, (joined by Justice Werdergar), would have applied the fair argument standard to both steps of the inquiry. This is the key distinction and key import of the case. The non-deferential "fair argument" standard of review would spur more lawsuits since it offers a high likelihood of success. As a leading petitioner's counsel once argued, meeting the fair argument standard is "as easy as jumping over a garden hose." While the standard is not in fact that low, applying the fair argument standard to exempt projects would be an open invitation that would result in even more long and expensive lawsuits over very small projects, such as single-family homes. In contrast, the deferential substantial evidence standard of review sets a higher bar and should discourage some lawsuits. In crafting a two-part test and applying substantial evidence to the first step, the court preserved the deference that should be afforded to agencies for categorical exemptions.

Additionally, it should be noted that the opinion draws a convoluted and circular line between the two prongs as the majority opinion practically engages in a debate with the concurring opinion. The discussion indicates that while a potentially significant impact is not automatically an unusual circumstance, evidence of a reasonable possibility of a significant impact is a factor an agency can consider in evaluating whether there are unusual circumstances. However, this is the point of the substantial evidence standard – deference is to be afforded to the agency. It is entirely appropriate that the agency governing the land upon which a project is proposed to be built, and is most familiar with the local conditions, is in the best position to make a determination about what is or is not unusual based on any evidence. Thankfully, the court decided to defer to the agency in that regard and hopefully this convoluted piece of the opinion will not bog down future judges applying the decision.

Court Is Clear That Evidence Cannot Be Based on "Unapproved Activities"

In this case, the petitioner's "evidence" that the project would be reasonably likely to cause environmental effects was a geotechnical report that claimed the project could not be built as approved due to the need for additional excavation or "side-hill fill." Both the majority and concurring opinions clearly found that a "finding of environmental impacts must be based on the proposed project as actually approved and may not be based on unapproved activities that opponents assert will be necessary because the project as approved, cannot be built." All the justices agreed that if the project could not be built as approved, the project proponent would have to seek approval of any additional activities. Insofar as the petitioner's geotechnical expert was premised on unapproved activities, the expert's opinion was legally "insufficient" as evidence of a reasonable possibility of significant impacts. This holding helps limit the scope of scenarios, and associated impacts, that must be evaluated under CEQA.

The Court Remanded to Determine Whether Building a Single Family House Is an Unusual Circumstance

Even with agreement among all the justices on the legal insufficiency of the project opponent's expert opinion, the court stopped short of simply deciding the issue of whether the city complied with CEQA. Instead, the court remanded the case for the lower courts to apply its two-part test. This remarkable outcome perhaps signals there was further disagreement among the justices about the proper disposition of this case.

Remand will lead to years of additional CEQA litigation, now almost six years after the applicant sought permits for a single-family home. The practical result is a CEQA review system that is untenable for the vast majority of Californians. People with enough resources to build a home or other small project – but not enough resources for expensive CEQA litigation – will be forced to settle to avoid being held hostage by the time and cost of litigation or to walk away from their plans entirely, which already happens with regularity to small, midsized and large projects. Many believe that California is losing its grasp of the "American Dream," as well as its grasp of electric vehicle manufacturing plants, affordable housing projects, solar projects, among numerous other types and sizes of projects throughout the state.

Prospects for Pending CEQA Cases

The majority opinion included two justices who are not on the current court. This fact does not diminish the legal effect of the decision, but does inject considerable uncertainty into the potential outcome of the eight remaining CEQA cases pending before the court. If Gov. Brown's new appointees who did not participate in this case (Justices Kruger and Cuellar) join the CEQA jurisprudence of his first appointee (Liu, who notably also did not join the majority in Neighbors for Smart Rail), CEQA is pointed towards being less deferential to agencies and therefore easier for petitioners to file and win lawsuits. If that is the case, the urgency to provide some CEQA relief will remain squarely in the California Legislature's lap.

Holland & Knight represented the League of California Cities in amicus briefs in this case. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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