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Recent California Supreme Court Decision Shakes Up Analysis of Modified Projects Under CEQA

November 7, 2016

The California Supreme Court’s most recent California Environmental Quality Act decision has produced a flurry of debate among commentators. Friends of the College of San Mateo Gardens v. San Mateo County Community College District, __ Cal. 5th __, S214061 (September 19, 2016), conclusively resolved the question it was expected to answer — how to tell the difference between a new project and a modified project, and who decides. In the process, however, the Court threw an unexpected wrench in the law on modified projects initially approved by negative declaration. The Court’s indirect language and seemingly contrary policy arguments tempt a conclusion that it must not have meant what it said. Yet the Court’s instructions likely extend considerably farther than most commentators have recognized. As a result, San Mateo Gardens appears to strengthen the protections afforded to projects initially approved by environmental impact report, while weakening the protections afforded to projects initially approved by negative declaration.

CEQA background

In California, both public development projects and private development projects subject to discretionary public approval must comply with the California Environmental Quality Act[1] (CEQA). Whenever a new project “may have a significant effect on the environment,” even after mitigation, this “little NEPA” statute requires the primary public agency involved to prepare an environmental impact report (EIR) before it can approve the project.[2] An EIR provides a detailed and often time-consuming analysis of all of the potentially significant environmental impacts of a project, as well as of potential project alternatives. If a project will not have a significant impact on the environment, however, a less searching disclosure document known as a negative declaration can be prepared instead of an EIR.

CEQA strongly favors the more robust disclosure requirements of an EIR for a new project.[3] Specifically, an EIR must be prepared so long as some substantial evidence exists in the record to support a “fair argument” that a significant impact may result.[4] The state or local agency is generally not entitled to deference in this determination.[5]

However, once an EIR for a given project already exists, the presumption shifts in favor of agency discretion in dealing with project modifications. Under CEQA’s subsequent review provision, PRC § 21166, and the implementing CEQA Guidelines provision, § 15162, the agency cannot require a subsequent or supplemental EIR unless it determines that a proposed modification requires major revisions to the initial EIR due to new or substantially more severe significant impacts.[6] If new or increased impacts do not meet the § 15162 significance standard, the agency must prepare a subsequent negative declaration. If modifications involve no new or increased impacts, the agency may instead prepare an addendum or no further documentation at all. The agency’s decision as to the appropriate form of subsequent review must be upheld so long as it is supported by some “substantial evidence.”

Prior to the Court’s decision in San Mateo Gardens, the prevailing interpretation of § 15162 afforded the same “substantial evidence” deference to agencies’ subsequent review determinations based on a previously approved negative declaration as based on a previously certified EIR.[7] The appellate courts were split, however, with regard to the issue of whether a so-called modification might sometimes, in reality, be a brand new project that required an entirely new CEQA document separate from any prior CEQA review.

Appellate court split

In 2006, in Save Our Neighborhood v. Lishman,[8] a California court of appeal concluded for the first time that subsequent review issues were subject to a threshold determination by the court as to whether the project was actually new. Lishman reasoned that PRC § 21166 and Guidelines § 15162 commit discretion to the agency only with regard to a project that already exists. Thus, if a project is actually new, the agency should not be able to take advantage of the provisions’ deferential review standard. Lishman decided that its threshold question must be decided based on the “totality of the circumstances.” The court ruled that the project before it was actually new, in part because the project developer had changed and the modified proposal did not use any of the same drawings as the original.

The following year, Mani Brothers Real Estate Group v. City of Los Angeles[9] strongly criticized Lishman’s analysis. Mani Brothers argued that the Lishman test impermissibly imposed a new substantive requirement outside the scope of CEQA. The court was particularly concerned with Lishman’s consideration of changes that were unrelated to environmental impacts. It also disapproved of Lishman’s departure from the prevailing practice of giving substantial evidence deference to the agency.

No other court adopted the Lishman test until San Mateo Gardens.

Facts

The San Mateo County Community College District had originally approved a campus-wide plan for demolishing certain buildings and renovating others. It had issued a mitigated negative declaration for this entire project. Later, the District decided to demolish one of the building complexes originally slated for renovation, while renovating two others originally slated for demolition, and issued an addendum to the original negative declaration.[10] Plaintiffs challenged the addendum, and successfully persuaded the trial court and then the court of appeal that the so-called modification was plainly a new project as a matter of law, governed by the Lishman test.[11]

The California Supreme Court granted review to resolve the appellate court split.

Triggering the subsequent review provisions

The Supreme Court reversed, faulting the appeals court both for taking the new-or-modified decision away from the agency, and for failing to apply a statutorily grounded standard to this inquiry.

In a unanimous opinion authored by the Court’s newest Jerry Brown appointee, Justice Kruger, the Court acknowledged the reality that projects must often be modified after the publication of a final environmental review document. “Like all things in life,” the Court allowed, “project plans are subject to change.”[12] In particular, the opinion highlighted the idea that a change in a project should not occasion a re-evaluation of environmental concerns already laid to rest in a previous analysis. The Court strongly endorsed CEQA policies emphasizing finality and efficiency.

In line with this spirit, the Court rejected plaintiffs’ argument that the courts have jurisdiction over a purely legal threshold question of whether “a project” already exists. The Court found plaintiffs’ interpretation implausible given the lack of any statutory or regulatory standard by which a court might identify “a project.” However, the Court did find that a threshold decision implicitly rests with the lead agency regarding whether an original environmental document retains “some relevance” to the ongoing decisionmaking process. It considered this a factual question rather than a legal one, and found that it was therefore subject to substantial evidence review. However, the Court opined that this relevance determination would make little practical difference, since subsequent EIRs and initial EIRs are “subject to the same general procedural and substantive requirements.”[13]

Modified projects initially approved by negative declaration, distinguished

The Court then considered whether the subsequent review framework should apply differently to a project initially approved by negative (or mitigated negative) declaration.

The Court began by rejecting plaintiffs’ argument that Guidelines § 15162 is actually invalid to the extent that it applies to negative declarations because PRC § 21166 refers only to EIRs. The Court first reasoned that PRC § 21166 was written before the advent of negative declarations, and therefore could not have meant to imply exclusivity by referring only to EIRs. Then the Court somewhat contrarily reasoned that the fact that PRC § 21166 was left unchanged, while other CEQA statutory provisions were in fact updated to refer to negative declarations, was unimportant, because the other updates had all bolstered the finality of negative declarations. Rather than finding it noteworthy that the legislature treated PRC § 21166 differently, the Court found it appropriate to expand PRC § 21166 to comport with a perceived broader purpose.[14]

But the Court appeared to backtrack on its endorsement of negative declaration finality later on in the decision. Specifically, plaintiffs had argued that § 15162 cannot be authorized by CEQA because it creates a loophole: If the possibility of significant environmental impacts is introduced in the initial stage, the lead agency must prepare an EIR so long as a fair argument can be made based on substantial evidence that a significant impact may result. However, if the possibility of significant environmental impacts is introduced after an initial negative declaration (however hollow), the agency is free to choose whether to prepare a subsequent or supplemental EIR so long as the agency makes a determination supported by substantial evidence regarding whether a significant impact will result.[15] Plaintiffs’ loophole theory appears to have been based on Benton v. Board of Supervisors,[16] which first determined that substantial evidence review should apply regardless of whether the initial CEQA document was an EIR or a negative declaration.

In response, the Supreme Court determined that § 15162 does not actually create this “loophole.” This was because, the Court said, the substantial evidence standard encapsulated in § 15162 does not refer to substantial evidence that project modifications will result in significant environmental effects, but rather to substantial evidence that project modifications will require “major revisions” of the initial EIR or negative declaration.[17] The Court then noted that negative declarations are permitted only when “there is no substantial evidence that the project or any of its aspects may cause a significant effect on the environment.”[18] Thus, the Court reasoned, “when a project is initially approved by negative declaration, a ‘major revision’ to the initial negative declaration will necessarily be required if the proposed modification may produce a significant environmental effect that had not previously been studied.”[19] If these potentially significant effects cannot be avoided or mitigated, the Court went on, “then the appropriate environmental document would no longer be a negative declaration at all, but an EIR.”[20]

The Court’s conclusion invites two questions: (1) does the fair argument standard apply when assessing a negative declaration under § 15162? and (2) if so, what then remains of the initial negative declaration, supposedly protected by a “presumption of finality”?

The Court provided several important clues to answer to answer the first question. First, the Court’s interpretation of § 15162 was based on applying the CEQA provision governing initial negative declarations. Initial negative declarations are subject to the fair argument standard. Second, the Court summarized its conclusion with a citation to Friends of “B” Street v. City of Hayward,[21] citing the precise page on which that case explained that the propriety of a negative declaration must be judged by the fair argument standard. Third, the Court notably declined to imply its agreement with Benton’s reasoning that it makes “little sense to set a lower threshold for further environmental review of a project that is determined not to have a significant effect on the environment” in its initial form. This logic from Benton would otherwise have been one of the main counterarguments to reintroducing the fair argument test after an initial negative declaration. Finally, the Court expressly disavowed the reasoning in Benton that no subsequent or supplemental EIR was required because, among other things, substantial evidence supported the agency’s conclusion that “[t]he environmental impacts of the modification were not significant.” Since it is not enough for the agency to have substantial evidence in support, the question of whether “the proposed modification may produce a significant environmental effect” must be one committed to a court’s independent judgment, precisely as under the fair argument test. The fair argument test must apply.

As to the second question of what remains of the presumption of finality if the supplementation standard for a negative declaration is simply fair argument review, the Court made a number of statements that seem difficult to reconcile with a full reintroduction of the fair argument test. In addition to the earlier section of the opinion extolling the importance of finality, the Court took the opportunity in a footnote to agree with Benton that it would be “‘absurd’ to require agencies to restart the entire process of environmental review from scratch each time the agency proposes any change, no matter how minor, simply because the project was previously approved by negative declaration.” The Court also held that Benton was a “correct statement of the law insofar as it recognizes that negative declarations, like EIRs, are entitled to a presumption of finality.” Furthermore, the Court repeatedly referred to the need to address “new, and previously unstudied, potentially significant environmental effects” (emphasis added).

The Court’s apparently contradictory statements might be harmonized if the opinion is interpreted in line with prevailing cases holding that the scope of judicial review under PRC § 21166 and Guidelines § 15162 is limited to the incremental effects of the project modifications.[22] The fair argument test then applies only to those incremental impacts that are attributable to the modifications. To place this in the Court’s new framework, the answer to the § 15162 question — whether the agency has substantial evidence that major revisions to a negative declaration are required — must be yes whenever substantial evidence supports a fair argument that a new or more intense significant effect may result from changes since the negative declaration was adopted.

In other words, the initial negative declaration is final in the sense that it still protects the analysis of impacts that were already implicated by the initial project. And even if the fair argument test applied to the incremental impacts does trigger a subsequent EIR, that EIR may still be able to rely on the initial negative declaration for its analysis of impacts unaffected by the modifications.

This portion of the Court’s opinion could thus be read as a strengthening of CEQA’s general presumption in favor of doing full environmental review. If all an agency has prepared so far is a negative declaration, it is not yet entitled to the shifted presumption that new impacts have already been adequately studied.

Programmatic EIRs

In a final point, the Court addressed plaintiffs’ contention that the District’s original campus-wide plan was really a high-level programmatic analysis, after which any specific project analyses would need to begin by initial study. The Court deferred entirely to the District’s characterization of its own analysis as being a project EIR dealing with “all potential impacts,” not just broad overall impacts, and rejected plaintiffs’ argument outright.[23]

Disposition

The Court remanded the case for further proceedings not inconsistent with its opinion, in which the lower court will have to treat the project as a modified project governed by PRC § 21166 and Guidelines § 15162. As explained above, however, it appears that the lower court will have to apply the fair argument test to the incremental impacts of those modifications.

Conclusion

San Mateo Gardens eliminates the concern that changes to a project might make the project ineligible for subsequent or supplemental CEQA review simply by virtue of the changes themselves, irrespective of their effect on environmental impacts. Following this decision, it is very unlikely that plaintiffs will be able to successfully assert a challenge to the use of PRC § 21166 or Guidelines § 15162 on the grounds that a so-called modified project is actually a new project. Once an agency has prepared an EIR, it receives substantial evidence deference regarding the extent to which any new proposal is already covered by that EIR.

However, while an agency that has prepared a negative declaration receives deference regarding whether PRC § 21166 and Guidelines § 15162 apply, that deference does not extend to whether its initial analysis adequately covered any new or exacerbated impacts. Instead, in San Mateo Gardens’ surprise twist, the fair argument test appears to apply to any impacts attributable to a project’s incremental modifications.

Ultimately, San Mateo Gardens strengthens the incentives to prepare an EIR in the first instance. It resolves the previous appellate court split in favor of deferring to an agency’s decision that an earlier EIR is still relevant in the face of project changes. And it also distinguishes EIRs from negative declarations by ascribing greater deference to EIRs when determining whether the impacts of a project change were already adequately analyzed. Agencies and project developers will do well to keep these advantages in mind when they begin the CEQA process for a new project.

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[1] California Public Resources Code (“PRC”) § 21000 et seq.

[2] PRC § 21151.

[3] See Sierra Club v. Cty. of Sonoma, 6 Cal. App. 4th 1307, 1316 (1992).

[4] No Oil, Inc. v. City of Los Angeles, 13 Cal. 3d 68, 75 (1974), supplemented, 13 Cal. 3d 486 (1975); Friends of “B” St. v. City of Hayward, 106 Cal. App. 3d 988, 1002 (1980).

[5] Stanislaus Audubon Soc’y, Inc. v. Cty. of Stanislaus, 33 Cal. App. 4th 144, 151 (1995), as modified (Mar. 16, 1995) (quoting Quail Botanical Gardens Found., Inc. v. City of Encinitas, 29 Cal. App. 4th 1597, 1603 (1994), as modified on denial of reh’g (Nov. 29, 1994)).

[6] Bowman v. City of Petaluma, 185 Cal. App. 3d 1065, 1075 (1986).

[7] See Benton v. Board of Supervisors, 226 Cal. App. 3d 1467, 1480 (1991).

[8] 140 Cal. App. 4th 1288 (2006).

[9] 153 Cal. App. 4th 1385 (2007).

[10] See San Mateo Gardens, S214061, slip op. at 5–7.

[11] Friends of the Coll. of San Mateo Gardens v. San Mateo Cnty. Cmty. Coll. Dist., No. A135892 (Cal. Ct. App. Sept. 26, 2013).

[12] San Mateo Gardens, S214061, slip op. at 4.

[13] Id. at 10–16.

[14] Id. at 16–21.

[15] See id. at 21–22.

[16] 226 Cal. App. 3d 1467, 1481–82 (1991).

[17] Id. at 22.

[18] Guidelines § 15063 (emphasis added by Court).

[19] San Mateo Gardens, S214061, slip op. at 23.

[20] Id. at 22–24.

[21] 106 Cal. App. 3d 988, 1002 (1980).

[22] See American Canyon Community United for Responsible Growth v. City of Am. Canyon, 145 Cal. App. 4th 1062, 1073 (2006); Temecula Band of Luiseño Mission Indians v. Rancho Cal. Water Dist., 43 Cal. App. 4th 425, 437 (1996).

[23] San Mateo Gardens, S214061, slip op. at 25–27.

 

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