The California Supreme Court issued a long-awaited ruling regarding categorical exemptions under the California Environmental Quality Act (CEQA) reversing a court of appeal decision that would have sharply curtailed the use of such exemptions and made them easier to challenge.

While the case involves a challenge to the approval of a single home, the decision has broad implications. A wide range of development projects are approved using categorical exemptions designed to address situations involving a low risk of adverse environmental impacts. The Supreme Court’s decision provides critical guidance for local agencies and developers regarding the proper analysis and standard of review to determine if there is an exception to an exemption.

CASE FACTS

Berkeley Hillside Preservation v. City of Berkeley (Supreme Court Case No. S201116, March 2, 2015) [click here to read the case] concerned the City’s 2010 approval of a use permit to demolish and construct a single-family home in the Berkeley Hills.  The proposed home featured a 6,500 square foot residence with a 3,400 square foot, 10-car attached garage on a lot with an approximately 50% slope. The City approved the permit and determined the project was categorically exempt from CEQA under Class 3 and Class 32 exemptions for new construction/conversion of small structures and infill development (14 Cal. Code Regs §§ 15303(a), 15332), as is often the case in private residence projects. It also found that the project would not have any significant effect on the environment due to unusual circumstances.

LOWER COURT RULINGS

A citizen’s group – “Berkeley Hillside Preservation” – contested the project.  Opponents presented information that the proposed home would be among the largest in the City and letters from an engineer who claimed that the proposed project, contrary to the approved plans, would require massive grading and fill causing potential landslide hazards and other adverse impacts. Competing reports rebutted the geotechnical concerns and noted that the opposing engineer misread the project plans.

After the opponents sued, the Alameda County Superior Court upheld the approval, finding there were no “unusual circumstances,” but the court of appeal reversed, concluding that an exception to the exemption applied and directing the City to vacate the appeals and prepare an environmental impact report (EIR).

CEQA’s categorical exemptions (set forth in the CEQA Guidelines) are subject to several exceptions, including if there is a reasonable possibility of a significant effect on the environment due to unusual circumstances.  (14 Cal. Code Regs § 15300.2(c).)  Typically, courts analyzed this exception under two-prongs:  (1) does a project present unusual circumstances, and (2) is there evidence of a reasonable possibility of a significant effect due to the unusual circumstances?  (See e.g., Banker’s Hill, Hillcrest, Park West Community Preservation Group v. City of San Diego, 139 Cal.App.4th 249 (2006).)  However, courts were divided on what standard of review to apply.

By contrast, the court of appeal in Berkeley Hillside found that the fact that a proposed activity may have an effect on the environment is itself an unusual circumstance that triggers the exception and precludes the exemption, thereby requiring additional environmental review.  The court of appeal used the “fair argument” standard of review for an agency’s determination that the exception does not apply, not whether substantial evidence supports the agency’s determination.

KEY ASPECTS OF SUPREME COURT’S DECISION

In reversing the court of appeal, the Supreme Court made several key holdings regarding the unusual circumstances exception and the standard of review agencies must follow when considering it, and what constitutes an abuse of discretion by the agency.

First, it concluded that a potentially significant environmental effect is not itself sufficient to constitute unusual circumstances, but the significant impact on the environment must be due to unusual circumstances. The Supreme Court found that interpreting the statute as the court of appeal did would undercut application of categorical exemptions and make them nearly valueless.

Second, an agency’s determination as to whether or not an impact is due to unusual circumstances is governed by the more deferential “substantial evidence” test, meaning an agency’s factual determination on the issue of unusual circumstances will be upheld if there is any credible evidence supporting it, even in the face of conflicting evidence.  Without unusual circumstances, the exemption will stand and no additional CEQA analysis is required.

However, the less deferential “fair argument” standard applies to an agency’s finding as to whether unusual circumstances give rise to a reasonable possibility that a project will have a significant environmental effect, i.e., if there is any substantial evidence of a fair argument of an impact due to unusual circumstances, the exception may not be used and more rigorous CEQA analysis would be required (such as a mitigated negative declaration or an EIR).  (A concurring opinion by two justices found the majority’s dual standards too complicated and urged that the fair argument standard should be used in determining both unusual circumstances and whether there is the possibility of an impact.)

The Supreme Court gave less guidance on what constitutes “unusual circumstances” but found that the court of appeal erred by concluding that whether a circumstance is unusual is judged relative to the typical circumstances relating to an otherwise typically exempt project as opposed to typical circumstances in a particular neighborhood.  The Supreme Court held that an agency has discretion to only consider conditions in the vicinity of the project.

In a key ruling for the project applicant, the Supreme Court also concluded that the portions of the opposing engineer’s opinion based on construction techniques he claimed were necessary but were not part of the project’s plans were insufficient as a matter of law and do not constitute substantial evidence.  Evidence must relate to the project as actually approved, not unapproved activities opponents assert will be necessary.

The Supreme Court remanded the case to the court of appeal to reconsider its decision in light of its opinion in order to determine whether the City abused its discretion in relying on the exemptions.

TAKEAWAYS

The Supreme Court confirmed that an agency’s determination that there is no exception to a CEQA exemption is a distinct two-prong inquiry.  When relying on categorical exemptions especially for controversial projects, agencies would be wise to make findings as to both whether there are unusual circumstances and whether a reasonable possibility exists that a significant environmental impact will occur due to such circumstances (even though such findings are not expressly required by CEQA).  In addition, agencies and project proponents should ensure that substantial evidence is contained in the record to support such findings.  If substantial evidence supports a finding of no unusual circumstances, the exemption should stand even if an impact is possible.  The Supreme Court essentially found that since categorical exemptions represent classes of projects already found by the Secretary of the Natural Resources Agency to not have environmental impacts, a more deferential standard of review was appropriate.

However, if an agency finds that there are unusual circumstances and substantial evidence supports a fair argument that a significant impact would result, then the agency should prepare a mitigated negative declaration or EIR as appropriate.