[author: Arthur F. Coon]

As the regulated community eagerly awaits completion of briefing at the Supreme Court in the Berkeley Hillside Preservation case, the Courts of Appeal continue to decide CEQA categorical exemption cases – as is their nondiscretionary duty – without the high court’s forthcoming guidance. The most recent such case is the Third District’s published decision in Voices for Rural Living v. El Dorado Irrigation District (Shingle Springs Band of Miwok Indians, RPI) (10/4/12, 3d Dist.) ____ Cal.App.4th ____, No. C064280. The case illustrates application of the unusual circumstances exception to categorical exemptions in a fairly unusual context – a water supply MOU for an already-built and operating Indian casino and hotel in El Dorado County – and offers interesting insights on CEQA exemption and water supply issues, as well as issues involving the nature and authority of LAFCO and special districts in the context of annexation approval conditions.

As factual background, the approval challenged by plaintiff Voices for Rural Living (VRL) was a 2008 Memorandum of Understanding agreement (MOU) between the El Dorado Irrigation District (EID) and the Shingle Springs Band of Miwok Indians (Tribe) to increase water supply to the Tribe’s Rancheria property from 45 equivalent dwelling units (EDUs) to approximately 261 EDUs – an increase that represented approximately 14% of what EID calculated as its entire available, unallocated water supply. EID approved the MOU under CEQA’s Class 3 categorical exemption for new construction or conversion of small structures (14Cal.Code Regs., § 15303) since the existing 3-inch water main could (with some minor physical work) deliver the necessary additional water, and EID found neither the delivery method nor the increased quantity would result in significant environmental impacts.

The Tribe’s 160-acre property had originally been annexed into EID’s service territory in 1989 as a rural residential property, and LAFCO approved the annexation with conditions that the supply be only for residential and accessory uses in an amount not exceeding that needed to serve a 40-lot residential community. A little more than a decade later, around 2001-2002, the National Indian Gaming Commission (NIGC), Bureau of Indian Affairs (BIA) and Caltrans approved a casino and hotel on the Tribe’s property with a new freeway interchange off Highway 50 for access. The 2001 Environmental Assessment (EA) prepared under NEPA by the federal agencies discussed two options for supplying the necessary water to the hotel/casino:  (1) favorably resolve the legal validity of LAFCO’s 1989 conditions (which the Tribe contended were unconstitutional, but had never formally challenged); or (2) truck water in on a daily basis with 25 truck trips per day. Neither the 2001 EA nor the 2002 Caltrans EIR discussed the potential environmental impacts of either option; the hotel/casino was approved and (after litigation) ultimately built, and operated, presumably with its necessary additional water supplied by trucks.

The trial court granted VRL’s petition for writ of mandate and entered judgment invalidating the 2008 MOU on two grounds: (1) the unusual circumstances exception to the Class 3 categorical exemption applied based on a fair argument of significant environmental impacts from the increased water supply; and (2) EID had no authority to disregard and deem unconstitutional LAFCO’s conditions imposed on its 1989 service area annexation. The trial court ordered EID to prepare an EIR.

The Court of Appeal reversed the trial court’s direction to prepare an EIR but otherwise affirmed the judgment. Regarding the partial reversal, the Court properly held the trial court’s order to prepare an EIR “exceeded its authority,” and noted that an EIR or a Mitigated Negative Declaration were both potential options after CEQA compliance, stating that “[h]ow an agency complies with CEQA is a matter first left to the agency’s discretion.”

In affirming the rest of the judgment, the Court of Appeal made the following salient points:

  • The Court recognized the current “split of authority” on the standard of review for the second part of the two-part unusual circumstances test, and applied the “less deferential” fair argument standard, reasoning as follows: “When CEQA requires an agency to determine whether substantial evidence shows a reasonable possibility that the project will have a significant effect on the environment, as opposed to asking the agency to weigh the evidence and come to its own conclusion, the agency and reviewing courts are to apply the fair argument standard.”
  • The first part of the exception – whether the project involves “unusual circumstances” – is reviewed de novo as an issue of law; further, in determining this issue, the courts “do not look only to the project’s possible environmental effects.” Rather, they look to whether the particular project’s circumstances “differ from the general circumstances of the project covered by a particular categorical exemption ….”
  • Since “[a] small construction project would not normally require an additional 216 EDUs of water delivery or its own freeway interchange[,]” the Court had little trouble concluding that, despite requiring only slight physical modifications of the water meter and pipeline, approval and implementation of the MOU “involves an unusual circumstance.”
  • Turning to the exception’s second question, the Court observed it “review[s] the record as a whole to determine whether it contains any substantial, credible evidence on which a fair argument can be made that a reasonable possibility of a significant effect on the environment exists due to the project’s unusual circumstances.” It framed this issue as: “Is there substantial evidence of a reasonable possibility that increasing the delivery of EID water to the Rancheria from 45 EDUs to 261 EDUs may have a significant effect on the environment?”
  • The Court found, on the limited record before it, that VRL had made a fair argument, supported by substantial evidence, “that the project may have an adverse effect on EID’s water supply and its ability to provide service, particularly during a drought, and its ability to satisfy certain minimum stream flow requirements [recently imposed by the FERC as to the American River’s South Fork below Kyburz] which are designed for environmental protection purposes.” For example, the record failed to reflect that EID considered at all either (1) additional potential water shortages during drought years due to climate change, or (2) the effect of the FERC’s in-stream flow requirements on its supply of unallocated water.
  • VRL failed to exhaust its administrative remedies on the issue whether the cumulative impact exception constituted an additional ground for affirming the judgment; VRL’s generalized comments, regarding growth-inducing impacts, that approval of the project would “redirect water from other uses and thus involve offsite [environmental] impacts” were insufficient. Such comments “did not put EID on notice” that VRL was challenging the exemption determination on cumulative impact grounds: “A level of specificity beyond such generalized comments of VRL’s is required to exhaust administrative remedies.”
  • On the LAFCO issue, the Court held: “EID exceeded its jurisdiction by approving the MOU in violation of the LAFCO conditions.” It reasoned the “Legislature has vested LAFCO with the sole and exclusive authority to approve annexations of territory into special districts” which “includes the power to impose conditions of approval” that “are enforceable against any public agency designated in the condition (Citing Gov. Code, §§ 56100, 56375(a)(1), 56886, 56122.) As such approvals and conditions are “quasi-legislative determinations,” public agencies charged to enforce or comply with them have “no discretion to disregard them.” Accordingly, “at the time EID approved the MOU, the LAFCO conditions were binding upon it, and EID had no discretion to disregard them” on the grounds that they were unconstitutional and void ab initio, or otherwise. As an irrigation district, EID’s powers are limited to those vested in it by constitution or statute, and do not include the essentially judicial authority to determine the validity of – or the discretion not to comply with – LAFCO-imposed annexation conditions.

The Court of Appeal’s opinion, in the context of the limited record before it which indicated EID had completely failed to consider highly relevant information and potential water supply and environmental impacts, probably would have reached the same conclusion whether it had applied the “fair argument” test or the “substantial evidence” test to EID’s determination on the second prong of the unusual circumstances test. In reaffirming that the determination whether a project’s “general circumstances” are “unusual” is an issue of law, the Court underscored that how trial and appellate courts subjectively view the “circumstances” of various projects will be a major determinant of whether the exception will be applied in particular cases.

Questions? Please contact Arthur F. Coon of Miller Starr Regalia. Miller Starr Regalia has had a well-established reputation as a leading real estate law firm for over forty-five years. For nearly all that time, the firm also has written Miller & Starr, California Real Estate 3d, a 12-volume treatise on California real estate law. “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state. The firm has expertise in all real property matters, including full-service litigation and dispute resolution services, transactions, acquisitions, dispositions, leasing, construction, management, title insurance, environmental law, and redevelopment and land use. For more information, visit www.msrlegal.com.