California Supreme Court Delivers Long-Awaited Ruling In Berkeley Hillside

March 4, 2015

On Monday, the California Supreme Court issued its much anticipated opinion in Berkeley Hillside Preservation v. City of Berkeley, reversing the Appellate Court’s decision below and providing some clarity on the circumstances under which it is appropriate for public agencies to rely on a “categorical exemption”—rather than undertaking environmental review—when approving projects under the California Environmental Quality Act (“CEQA”). Specifically, the Court addressed one of the “exceptions” to the long-list of categorical exemptions adopted by the California Resources Agency which disqualifies a project from relying on an exemption if there is a “reasonable possibility” that the project will have a significant effect on the environment due to “unusual circumstances.” The City in this case had approved a homeowner’s plan to construct a single family home and found the project exempt from CEQA under Sections 15303 and 15332 of the CEQA Guidelines. Sections 15303 and 15332 set forth categorical exemptions for construction of small structures and urban in-fill projects. In so finding, the City rejected the project opponents’ claim that construction fill would be subject to seismic shaking, an unusual circumstance that, in the opinion of the project proponents, precluded the City from relying on the exemption.  

The Court provided some relief for public agencies and project proponents on the standards of review and scope of the evidence to be considered, but ultimately adopted a “bifurcated approach” to the analysis that may prove perplexing to those seeking to navigate the subtleties of the CEQA Guidelines and the Court’s opinion. Rather than resolving the case at hand, the Court remanded the matter for further proceedings in the trial court.

The Unusual Circumstances Exception and its Tortured Past

While CEQA requires extensive environmental review for many projects with potentially significant environmental effects, CEQA’s “categorical exemptions” enable expedient implementation of hundreds of routine projects each year. The Legislature mandated the creation of these categorical exemptions for “classes of projects that have been determined not to have a significant effect on the environment and that shall be exempt from [CEQA].” (Pub. Resources Code § 21084(a).) Responding to this directive, the California Natural Resources Agency has identified 33 classes of projects that are generally considered not to have potential impacts on the environment and are thus categorically exempt from CEQA. (CEQA Guidelines §§ 15301–15333.) One of those exempts the construction of one single-family residence as within a category of small facilities whose construction would normally not result in significant impacts. (CEQA Guidelines § 15303(a).)

Categorical exemptions do not create a true safe harbor, however, as they are limited by certain regulatory “exceptions,” including the “unusual circumstances exception” at issue in this case. The unusual circumstances exception precludes reliance on categorical exemptions “where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.” (CEQA Guidelines § 15300.2, emphasis added.) California courts of appeal generally applied a two-part test on review of whether the unusual circumstances exception applies. First, courts determine whether any unusual circumstances exist. (Voices for Rural Living v. El Dorado Irrigation Dist. (2012) 209 Cal.App.4th 1096, 1107.) Second, if so, courts determine whether there will be a significant environmental effect due to the unusual circumstances. (Id.) “A negative answer to either question means the exception does not apply.” (Banker’s Hill, Hillcrest, Park West Community Preservation Group v. City of San Diego (2006) 139 Cal.App.4th 249, 278.) This two-step inquiry flows directly from the plain language of CEQA Guidelines section 15300.2.

California courts have applied the relatively deferential substantial evidence standard when reviewing a public agency’s determination that a proposed project falls within a categorically exempt class of activities. (Fairbank v. City of Mill Valley (1999) 75 Cal.App.4th 1243, 1251.) Before the Supreme Court’s ruling on Monday, the case law was less certain regarding the standard of review for an agency’s finding as to whether an exception precludes reliance on categorical exemptions. (Hines v. Coastal Commission (2010) 186 Cal.App.4th 830, 855-856 (noting the split in authority).) Some courts applied the substantial evidence standard, deferring to agency findings supported by substantial evidence. (See, e.g., Fairbank, 75 Cal.App.4th at 1259-1260.) Others applied the far less deferential “fair argument” standard, which enabled project opponents to defeat categorical exemptions by raising a “fair argument” that the project may have significant environmental effects even when the agency is presented with substantial evidence to the contrary. (Voices for Rural Living, 209 Cal.App.4th at 1108.) The fair argument standard is a relatively low threshold, which presumes that an EIR is required if there is a mere possibility of a significant adverse environmental impact. (Laurel Heights Improvement Assn. v. Regents of the University of California (1993) 6 Cal.4th 1112, 1123.)

The Trial And Appellate Courts Split On Berkeley's Approach

Here, homeowners desired to build a 6,478 square-foot, single-family residence on a steep slope in Berkeley, with an attached 10-car garage. The City’s zoning adjustments board held a public hearing and approved a use permit, finding the project exempt under Guidelines sections 15303(a) (an exemption for the construction and location of a single-family residence in urbanized areas) and 15332 (an exemption for in-fill development). Several residents filed an appeal with the city council, arguing that CEQA’s categorical exemptions did not apply because the project’s “unusual size, location, nature and scope will have significant environmental impact on its surroundings.” Not only would the house be one of the largest in the City, argued the challengers, but in order to achieve the home’s elevations as proposed in the plans, massive grading and installation of major retaining walls would be necessary. As a result, the project was likely to have significant environmental impacts during construction. Despite these concerns the Berkeley City Council dismissed the appeal.

When faced with conflicting legal precedent and the facts of the Berkeley case, the Alameda County Superior Court and First Appellate District took very different approaches. The Superior Court, the Honorable Frank Roesch presiding, upheld the City’s decision and found that while there was substantial evidence of a fair argument that the Project would cause significant environmental impacts, the Project did not trigger the significant effects exception because the possible impacts were not due to “unusual circumstances.” The First Appellate District reversed, holding that evidence of a potentially significant impact “is itself an unusual circumstance,” which in turn precludes reliance on a categorical exemption. The appellate court’s analysis effectively collapsed the two-step inquiry identified in prior cases and held that categorical exemptions are precluded whenever significant impacts are credibly alleged, regardless of whether those impacts are related to circumstances which are “unusual” for the exempted category.

The California Supreme Court Reverses, Resolving Some Issues And Leaving Others For Future Court Battles

After pending in the California Supreme Court for almost three years, the Court finally issued its ruling on March 2, 2015, reversing the First Appellate District and remanding the matter for further proceedings. In so doing, the Court settled four important questions:

1.     Is the unusual circumstances exception a one- or two-step inquiry? The Court settled this question by unequivocally holding that the inquiry involves two steps. First, an agency must evaluate whether there are any unusual circumstances. Second, the agency must determine whether there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances. According to the Court, the appeals court below “erred by holding that a potentially significant environmental effect itself constitutes an unusual circumstance”—such a construction “would render useless and unnecessary the statutes the Legislature passed to identify and make exempt classes of projects that have no significant environmental effect.” (Slip Op., pp. 16, 20.)

2.     Is evidence of a project’s significant effect a factor in determining whether unusual circumstances are present? While seemingly at odds with the Court’s clear delineation between steps one and two of the inquiry, the Court nevertheless held that a project’s significant environmental effects could evince an unusual circumstance: “[E]vidence that the project will have a significant effect does tend to prove that some circumstance of the project is unusual. An agency presented with such evidence must determine, based on the entire record before it—including contrary evidence regarding significant environmental effects—whether there is an unusual circumstance that justifies removing the project from the exempt class.” (Slip Op., pp. 20-21.)

3.     In assessing whether a particular circumstance is unusual, may the agency look to the local (as opposed to statewide) setting? Here, the Court provided useful guidance that will undoubtedly help agencies evaluate whether unusual circumstances are present by clarifying that local experience is important: “In determining whether the environmental effects of a proposed project are unusual or typical, local agencies have discretion to consider conditions in the vicinity of the proposed project.” (Slip Op., p. 41, emphasis added.) Thus, for example, while a 10,000-square foot home on steep slopes may be unusual for Emeryville where the terrain is relatively flat, it may be typical (and thus not unusual) for the City of Berkeley where steep terrain is common.

4.     What is the standard of review applied to unusual circumstances determinations, substantial evidence or fair argument? Here the Court applied a “bifurcated” approach: the determination as to whether “unusual circumstances” exist is reviewed for “substantial evidence”; whereas, the question of whether the circumstances give rise to a reasonable possibility of a significant environmental effect is reviewed under the “fair argument” standard. (Slip Op., pp. 33-34.) The Court reasoned that this bifurcated approach makes sense because, “when unusual circumstances are established, the Secretary‘s findings as to the typical environmental effects of projects in an exempt category no longer control.” (Slip Op., p. 36.)

It is worth noting that the project opponents in this case had offered certain expert opinions during the administrative process in an effort to preclude the City from relying on the categorical exemption. The Court in its opinion, however, considered the expert’s opinion to be “legally insufficient” because it was based on plan drawings that were never adopted. Consequently, it appears that the City might survive fair argument review even if the trial court reaches that second step of the inquiry on remand.

Lastly, Justice Liu, the first appointee to the Court by Governor Brown, wrote a strident concurring opinion (with Justice Werdegar concurring). In recent history, the California Supreme Court has issued few if any separate or dissenting opinions in CEQA cases and the Court has generally been moderate in its leanings. Justice Liu, however, has shown a penchant for independent and liberal thinking in CEQA cases, with now two independent opinions. (See also Neighbors for Smart Rail v. Exposition Metro Line Construction Authority (2013) 57 Cal.4th 439, 478-481.) Justice Liu would have preferred to apply the fair argument standard to both steps of the inquiry, a view which, if shared, would have all but eliminated the usefulness of categorical exemptions. With two more Brown appointees now on the Court, time will only tell whether the Court’s relatively moderate stance on CEQA issues will persist.  

Conclusion

The California Supreme Court has provided important clarity concerning the number of steps in the inquiry and the standards of review applicable to each. Particularly helpful is the Court’s guidance that local conditions can be considered in determining whether a particular circumstance is unusual. The decision is also perplexing in that it, like the First Appellate District’s opinion, signals that evidence of a significant environmental effect itself must also be considered in determining whether a particular circumstance is unusual (though presumably under the substantial evidence standard). When combined with the “bifurcated approach” and application of the less-deferential fair argument standard of review to the second step in the inquiry, the Court has, perhaps unwittingly, left enough ambiguity to spawn what will undoubtedly be the next chapter in a long and distorted history of the exemptions and their exceptions.

Downey Brand attorneys Christian Marsh and Andrea Clark filed an amicus curiae brief in support of the appeal on behalf of the Association of California Water Agencies.