Ruling complicated use of CEQA's categorical exemptions

Categorical exemptions from environmental review under the California Environmental Quality Act, or CEQA, do not apply to projects involving a reasonable possibility of a significant effect on the environment due to unusual circumstances.

But what exactly is an "unusual circumstance"? Is the potential for a significant effect enough to trigger this exception?

These questions bedeviled appellate courts and lawyers for decades, resulting in a conflicting and confusing body of case law. But no more.

In its March 2 decision in Berkeley Hillside Preservation v. City of Berkeley, S201116, the state Supreme Court put the issue to rest - but did so in a manner that leaves the future viability of categorical exemptions for controversial projects in question.

The case involved a challenge to the city of Berkeley's approval of a permit application to build an approximately 6,500 square-foot house and 3,400 square-foot 10-car garage without conducting full CEQA review of the project. In approving the application, the city relied on two of CEQA's categorical exemptions: (1) a categorical exemption that includes "construction and location of limited numbers of new, small facilities or structures," including "[o]ne single-family residence, or a second dwelling unit in a residential zone" and (2) an exemption which "consists of projects characterized as in-fill development" meeting certain requirements.

The city also determined that no exceptions to CEQA's categorical exemptions applied, including the "unusual circumstances" exception in the CEQA Guidelines. That exception, which is at the heart of this case, provides that "[a] categorical exemption shall not be used for an activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances."

After losing in the trial court, the challengers conceded on appeal that the categorical exemptions relied upon by the city applied to the project, focusing the appellate review on the proper application of the unusual circumstances exception. The 1st District Court of Appeal ruled in favor of the challengers, holding that "once it is determined that a proposed activity may have a significant effect on the environment, a reviewing agency is precluded from applying a categorical exemption to the activity." In the court's view, that a project may have such an effect on the environment is itself an unusual circumstance within the meaning of the unusual circumstances exception. The Court of Appeal also held that the fair argument standard of review applied, rather than the more deferential substantial evidence standard.

The Supreme Court, in an opinion by Justice Ming Chin, disagreed on both counts and fashioned a multi-layered framework for applying CEQA's unusual circumstances exception. The court held that a potentially significant effect is not enough on its own to trigger the unusual circumstances exception:

"The plain language [of the CEQA Guidelines] requires that a potentially significant effect must be 'due to unusual circumstances' for the exception to apply. The requirement of unusual circumstances recognizes and gives effect to the Secretary's general finding that projects in the exempt class typically do not have significant impacts."

Instead, the court adopted a two-part inquiry that CEQA lead agencies and reviewing courts must undertake in evaluating whether the unusual circumstances exception applies. It also crafted a unique bifurcated standard of review applicable to the exception:

Unusual circumstances. In determining whether the unusual circumstances exception applies, the first question is whether the project presents "unusual circumstances." An "unusual circumstance" may be established "by showing that the project has some feature that distinguishes it from others in the exempt class, such as its size or location." A lead agency has the discretion to consider conditions in the vicinity or particular neighborhood of the proposed project when evaluating this issue. Moreover, although "it is not enough for a challenger merely to provide substantial evidence that the project may have a significant effect on the environment," the court noted that "evidence that the project will have a significant effect does tend to prove that some circumstance of the project is unusual."

The inquiry into whether a project presents unusual circumstances is subject to the "substantial evidence" standard, as this is essentially a factual inquiry. A CEQA lead agency must "weigh the evidence and determine 'which way the scales tip,'" with respect to whether unusual circumstances exist. A reviewing court must uphold the agency's determination if there is any substantial evidence supporting its determination.

Significant environmental effects due to unusual circumstances. If "unusual circumstances" are identified, the next question is whether there is a reasonable possibility that the project will have a significant effect on the environment due to those unusual circumstances. Evidence that the project actually will have a significant environmental effect not only goes to whether "unusual circumstances" exist, as discussed above, but the "evidence, if convincing, necessarily also establishes 'a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.'"

This second inquiry is subject to the fair argument standard. Under this standard, a CEQA lead agency determines whether, under the fair argument standard, "there is a reasonable possibility of a significant effect on the environment due to unusual circumstances." A reviewing court evaluates whether the "substantial evidence support[s] the agency's conclusion as to whether the prescribed 'fair argument' could be made." (Internal quotations omitted).

Takeaway

In light of the court's new framework, lead agencies relying on one or more categorical exemptions must focus carefully on how to respond to challenges by project opponents. If a challenger asserts evidence that the project will have one or more significant environmental effects or is otherwise "unusual," the agency must respond with substantial evidence to the contrary, if its use of the exemption(s) is to survive a legal challenge. Often, this will require agencies to conduct the same level of environmental review that would be required if it proceeded with full CEQA review via an initial study. In such cases, use of an exemption will have little to no benefit for the agency or the project applicant.

For controversial projects, Berkeley Hillside will likely make reliance on a categorical exemption difficult, time-consuming and costly, and will increase the risk of a legal challenge. However, if the agency backs up its decision with substantial evidence, the probability of success for such a challenge will be relatively low. Whether such a project proceeds via an exemption will therefore likely depend on the willingness of the agency and the applicant to expend the time and resources necessary to build the case for use of the exemption, and to defeat a post-approval challenge in court.