United States: California Supreme Court Rejects "New Project" Test In High Profile CEQA Suit

"Enough already!"  Reading between the lines, this is what a seemingly exasperated California Supreme Court appears to be saying in its latest California Environmental Quality Act ("CEQA") decision―Friends of the College of San Mateo Gardens v. San Mateo County Community College District ("College of San Mateo")—issued last week.  The Court unanimously rejected yet another long-running campaign by the CEQA petitioners' bar to convert a predominantly factual question, subject to the relatively deferential "substantial evidence" standard of review, into a predominantly legal question, subject to de novo review by the courts. 

In this instance, the project opponents sought to enlist the California trial courts to more frequently order another round of full-blown environmental review when a project is modified after review and approval.  With Appellate Districts differing about how much deference to accord lead agencies in these situations, the Court held this week that a decision not to conduct a subsequent Environmental Impact Report ("EIR") is evaluated for "substantial evidence"—and not to be assessed by courts de novo for whether the changes result in a "new project," as urged by project opponents.1

The Court also declined to find the CEQA Guidelines' provision for focused environmental review following preparation of a Negative Declaration to be in excess of CEQA. 

Background

College of San Mateo presents a question familiar to project developers and CEQA lead agencies: what further CEQA review, if any, is required when changes are proposed to an approved project?  In this case, a community college district approved modifications to a campus renovation plan for which a Negative Declaration had been prepared.  The district concluded that the changes did not require the preparation of a subsequent or supplemental EIR under Public Resources Code Section 21166 and Guidelines Section 15162; it instead prepared an Addendum pursuant to Guidelines Section 15164. 

Project opponents prevailed before the trial court.  The First District Court of Appeal affirmed, concluding that the modifications to the plan constituted, as a matter of law, a "new project" altogether―rather than a modification to a previously approved project.  As a result, the First District held CEQA's subsequent review provisions inapplicable, so the district would have to prepare a new Initial Study to determine if an EIR was necessary. 

This "new project" test had previously been articulated by the Third District (Save Our Neighborhood v. Lishman, 140 Cal. App. 4th 1288, 1297 (2006)): if a proposed activity is actually a new project, then an EIR must be prepared if there is a "fair argument" that the activity will cause significant environmental impacts.  This test was harshly criticized by the Second District (Mani Bros. Real Estate Grp. v. City of Los Angeles, 153 Cal. App. 4th 1385, 1398 (2007)), and it has been rejected by the majority of Appellate Districts to consider it.  In January 2014, the Supreme Court agreed to review the application of the "new project" test in the College of San Mateo case.

Decision

Questions by the Justices at oral argument and in the Court's order for supplemental briefing led many observers to believe that Guidelines Sections 15162 (extending CEQA's subsequent review provisions to Negative Declarations) and 15164 (addressing the use of an Addendum to an EIR or Negative Declaration) were imperiled.  But instead, the Court issued a unanimous opinion that effectively preserved what most CEQA practitioners understood to be the status quo.  In so doing, the Court provided much-needed clarity and certainty to an important part of CEQA that project opponents and their lawyers have long been working to shape to their advantage. 

Reversing the First District, the Court forcefully rejected the new project test and held that "[w]hen an agency proposes changes to a previously approved project, CEQA does not authorize courts to invalidate the agency's action based solely on their own abstract evaluation of whether the agency's proposal is a new project, rather than a modified version of an old one."  In quite direct language, the Court observed that the approach urged by plaintiffs "would assign to the courts the authority—indeed, the obligation—to determine whether an agency's proposal qualifies as a new project, in the absence of any standards to govern the inquiry."  It essentially said that courts that had applied the new project test failed to articulate and apply a judicially administrable standard in rejecting lead agency determinations to rely on prior environmental documents.  Instead, the "I know it when I see it" standard those courts employed could only, according to the Court, result in "arbitrary" judicial decisions about what constitutes a new project or a modified project.

The Court explained that such arbitrariness could be avoided by recognizing that the central purpose of CEQA is "informational."  Reflecting this central purpose, the Court held:

If the original environmental document retains some informational value despite the proposed changes, then the agency proceeds to decide under CEQA's subsequent review provisions whether project changes will require major revisions to the original environmental document because of the involvement of new, previously unconsidered significant environmental effects.

The Court explained that the continuing relevance of the original document is a predominantly factual question for the lead agency to decide, subject to judicial review for substantial evidence.  Setting the tone for judicial review of those determinations, the Court, not so subtly, noted its expectation that "occasions when a court finds no substantial evidence to support an agency's decision to proceed under CEQA's subsequent review provisions will be rare, and rightly so."

Crucially, the Court declined the plaintiffs' invitation to hold that the substantial evidence standard applied differently depending on whether the initial environmental document was a Negative Declaration or an EIR.  Rather, according to the Court, the reviewing court must focus on whether the change in the project may produce a new or incremental environmental effect that had not been previously studied, such that "major modifications" to the prior environmental document—whether an EIR or a Negative Declaration—are required. 

If, as a result of this "first step," the reviewing court finds substantial evidence supports the lead agency's decision to use the prior environmental document, it moves on to "step two."  At this step, the reviewing court must assess whether "substantial evidence" exists to support the lead agency's conclusion that "project changes will not require 'major revisions' to its initial environmental document, such that no subsequent or supplemental EIR is required."  Some commentators have opined that the Court was, at the very least, ambiguous as to whether and how the substantial evidence standard applies when the initial environmental document is a Negative Declaration.  However, the uncertainty created by such an uncharitable gloss on the Court's writing about CEQA minutiae at the frontiers of the environmental review scheme would be inconsistent with the Court's call for greater finality and predictability under the statute and Guidelines.

In explicating this framework for the application and judicial review of CEQA's subsequent review provisions, the Court upheld Section 15162 as appropriately extending Section 21166's general prohibition of subsequent review to Negative Declarations.  The Court emphasized the "presumption of finality" owed to an adopted Negative Declaration—no less than a certified EIR.  As a practical matter, the Court reasoned that if the modifications to a project would create potentially significant environmental impacts that cannot be avoided or mitigated and were not previously considered, the preparation of an EIR should follow, regardless of the original form of the CEQA document. 

Importantly, the Court expressly declined to rule on whether the Community College District abused its discretion, or whether CEQA Guidelines Sections 15162 through 15164 "improperly authorize lead agencies to approve certain proposed project modifications through the use of addenda without public comment," as these issues were outside the scope of the questions considered by the Court of Appeal and as to which the Court granted review.  The Court remanded the case back to the First Appellate District "for further proceedings consistent with this opinion." 

Practical Implications

Because of statements made by some of the Justices during oral argument and through its call for supplemental briefing, some feared the Court was entertaining radically reducing the deference courts are required to accord a lead agency's decision not to prepare an EIR for subsequent environmental review.  But in its published opinion, the Court focused primarily on the question it originally certified.  In rejecting the arbitrary "new project" test, College of San Mateo directs California courts to give considerable deference to agency decisions on subsequent environmental review issues. 

Agencies and project proponents can breathe a sigh of relief that the State's high court did not venture down a path that threatened to undo commonly used CEQA procedures to avoid redundant and wasteful environmental review.  But further developments on related issues should be monitored closely, especially considering the Court's indication that open questions remain regarding the validity of using Addenda to evaluate proposed project modifications.

Conclusion

California's high court has taken up a surge of CEQA cases over the last few years, apparently animated, at least in part, by its awareness of the California Legislature's paralysis when it comes to passing even the most basic CEQA reform measures.  That the Legislature has continued to be frozen throughout 2016 when it comes to CEQA reform—even with regard to measures to aid the construction of affordable housing—only buttresses our view that the Court is reaching out to clean up the mess California's lower courts have created at the prompting of CEQA plaintiffs.  By giving the back of its hand to a "test" entailing an "I know it when I see it" standard doomed to produce arbitrary rulings, the Court's decision in this case is certainly consistent with such an effort. 

Clarifying how the lower courts are to interpret and apply CEQA and its Guidelines, and vindicating CEQA's concern for finality, especially where environmental review has already been performed, may help move the needle a bit on California's housing crisis, but only the Legislature can take the actions necessary to meaningfully alleviate the use of CEQA as "an instrument for oppression and delay."

Footnote

1 Case No. S214061.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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