In a published opinion filed October 21, 2021, the First District Court of Appeal affirmed the trial court’s order finding the real party developers of a UC Berkeley campus development project – undertaken for the University’s benefit, and in which it had a strong vested interest – were necessary parties, but were not indispensable parties to a CEQA action challenging the project EIR under the factors of the Code of Civil Procedure (“CCP”) § 389(b). While the action was thus properly dismissed as against those real parties upon their demurrers due to plaintiff’s failure to join them within CEQA’s 30-day limitations period, it was not required to be dismissed in its entirety and could continue to final adjudication among the remaining parties. Save Berkeley’s Neighborhoods v. The Regents of the University of California (Collegiate Housing Foundation, American Campus Communities, et al, Real Parties in Interest) (2021) _____ Cal.App.5th _____.
The Court’s opinion teaches a valuable lesson in CEQA litigation. It explains, clarifies and provides useful guidance on the relationship between Public Resources Code § 21167.6.5(a), which provides that parties identified in a project NOD or NOE must be named as real parties in interest in a CEQA action, and CCP § 389, which provides (1) that necessary parties shall be joined in an action (§389(a)), and (2) then sets forth factors for determining when necessary parties that cannot be joined will be deemed indispensable such that the action cannot proceed in their absence. (§ 389(b).) The gist of this key lesson, taught anew in this case and elaborated further below, is that all real parties in CEQA actions under Public Resources Code § 21167.6.5(a) are also necessary parties under CCP § 389(a), but are not necessarily indispensable parties under CCP § 389(b).
The University’s Project And FSEIR And The Trial Court Litigation
The UC Regents approved a project to develop new academic, residential, and parking buildings on the Berkeley campus and certified a Final Supplemental EIR (SEIR) in connection with the project. The project entailed demolition of an existing parking structure and construction of a new parking structure with apartments above it, and an adjacent academic building. Following project approval, the Regents filed a notice of determination (NOD) on May 17, 2019, identifying American Campus Communities, American Campus Communities Services, Inc., American Campus Communities Partnership, L.P. (jointly “ACC”), and Collegiate Housing Foundation (“CHF”) (jointly “Appellants”) as the parties undertaking the project; ACC is the developer and CHF the ground lessee/borrower for the project’s housing component.
Plaintiff Save Berkeley’s Neighborhoods (“SBN”) filed a writ petition challenging the project and SEIR, on June 13, 2019, that named the Regents and UC’s president and chancellor as respondents; it filed a substantively identical petition on September 18, 2019, and subsequently a first amendment thereto – both well outside CEQA’s 30-day limitations period triggered by the NOD filing – adding ACC and CHF as real parties in interest. ACC and CHF demurred on statute of limitations grounds, asserting that Public Resources Code § 21167.6.5(a) required their joinder as real parties within the limitations period, that they were necessary and indispensable parties, and that since the defect of untimely joinder could not be cured the demurrer should be sustained without leave and the entire action dismissed.
The trial court agreed in part, sustaining the demurrers without leave, but did not dismiss the entire action. Instead, after determining ACC and CHF were necessary parties under Public Resources Code § 21167.6.5 that SBN had failed to timely name or serve in its action, it went on to apply the factors of CCP § 389(b) to determine whether they were also indispensable parties in whose absence the action should not proceed. After finding the Regents, ACC and CHF “were closely aligned because ACC and CHF were ‘undertaking the project for the University’s own use and benefit[,]’” and noting that SBN would have no remedy if the case were dismissed, and that “ACC and CHF were parties in a related case challenging the same SEIR and thus unlikely to be subject to a harmful settlement[,]” the trial court found they were not indispensable parties and thus dismissed them, but not the entire case. ACC and CHF timely appealed the demurrer order, and SBN cross-appealed, contending the order was nonappealable and that it had timely joined ACC and CHF within the limitations period.
The Court of Appeal’s Opinion
The Court of Appeal affirmed the demurrer order, rejecting both the appeal and the cross-appeal. Preliminarily, it rejected SBN’s argument that the demurrer order was an unappealable interlocutory order because the Regents had also raised the same indispensable parties issue and remained a party to the action. What is often referred to as the “one final judgment rule” provides that there is generally one final appealable judgment in a case which disposes of all issues between all parties, and that interim or “interlocutory” orders leading up to that judgment are not immediately appealable and can only be reviewed upon appeal from the final judgment. A well-recognized exception to what the Court termed the “final judgment rule” is that a judgment disposing of all issues as to one party in a multi-party action is appealable, even if issues remain as to other parties, and the exception “applies even if some of the legal issues related to the dismissed parties are identical to those remaining in the action among other parties.” (Citing Tinsley v. Palo Alto Unified School Dist. (1979) 91 Cal.App.3d 871, 880-881.) The Court held SBN’s arguments to the contrary relied on inapposite authority; because “the trial court’s order sustaining CHF’s and ACC’s demurrers disposed of all issues between them and SBN, . . . CHF’s and ACC’s appeal [did] not violate the final judgment rule.”
Turning to the merits, the Court noted there was no dispute that appellants were necessary parties pursuant to Public Resources Code § 21167.6.5(a), so the issue boiled down to whether they were indispensable parties. If they were, then the entire action must be dismissed; if they weren’t, the action could proceed among the other parties. In affirming the trial court’s order finding the latter, the Court of Appeal’s opinion made a number of key points including the following:
- The legislative history of Public Resources Code § 21167.6.5(a) and its key 2011 amendments showed that the Legislature sought to address and eliminate the ambiguity in the undefined statutory phrase “any recipient of an approval” in order to clarify the persons who must be named as real parties in interest in CEQA actions. It did so through amendments providing that lead agencies must identify the real parties in interest who must be named in any CEQA action in their filed NODs.
- Contrary to appellants’ arguments, the legislature did not intend dismissal as a mandatory and automatic sanction for petitioners’ failing to name the real parties identified by lead agencies in their NODs. Nothing in the statute so provides, and the statute uses the word “shall” only to require that any CEQA action filed name the identified real parties and that they be served within the limitations period, meaning that failure to do so excludes the omitted or late-served real parties from the action. The key question in such cases becomes whether the action against the lead agency must be dismissed due to the failure to timely join the necessary parties, and to answer that question courts must apply the “equitable balancing test” under CCP § 389(b)’s factors. While Public Resources Code § 21167.6.5(d) does provide that dismissal under CCP § 389(b) is inappropriate for a petitioner’s failure to name parties not identified as real parties in interest in the lead agency’s NOD, it does not provide for the converse proposition, i.e., that dismissal is mandatory for failure to name and join identified real parties.
- The 2011 statutory amendments to Public Resources Code § 21167.6.5 relieved courts of the burden of conducting analysis to identify the “recipient(s) of an approval” who would be the real party (or parties) in CEQA cases, which analysis often involved numerous issues and sub-questions. But such analysis went only to the threshold necessary party issue, not the separate, distinct, and subsequent indispensable party issue that must be analyzed by courts under CCP § 389(b). The 2011 statutory amendments clarified who will constitute a real party, and hence a necessary party, at the first stage of the process to provide a “bright line rule” regarding who must be named and served, but did not “alter the second step, i.e., evaluating whether the real party in interest was indispensable to the action” such that the action could not proceed in the party’s absence. Nothing in the legislative history reflects any intent to alter or eliminate CCP § 389(b)’s equitable balancing test for determination by the courts of whether necessary real parties are also indispensable. Accordingly, the Court held there is no statutory presumption of indispensability of real parties under the 2011 legislation.
- Simply stated, the rule is this: real parties in interest under Public Resources Code § 21167.6.5(a) are automatically considered necessary parties for purposes of CCP § 389(a), but to determine whether those parties are also indispensable, a court must engage in CCP § 389(b)’s equitable balancing test. Under the latter provision, if a necessary party cannot be joined – such as where a statute of limitations has expired precluding the party’s joinder – a court must “determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person thus being regarded as indispensable.” Under the statute, “[t]he factors to be considered by the court include: (1) to what extent a judgment rendered in the person’s absence might be prejudicial to him or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person’s absence will be adequate; (4) whether the plaintiff or cross-complainant will have an adequate remedy if the action is dismissed for nonjoinder.” (Quoting CCP § 389(b).) Case law has held the factors are not set forth in hierarchical order and that no factor is determinative or necessarily more important than the others, but that potential prejudice to the unjoined person is of “critical importance.”
- A trial court’s order regarding whether to dismiss an action for failure to join an indispensable party is thus a discretionary decision that is reviewed under an “abuse of discretion” standard of review; the trial “court weighs ‘factors of practical realities and other considerations.’” (Citing and quoting City of San Diego v. San Diego City Employees’ Retirement System (2010) 186 Cal.App.4th 69, 84.)
- In affirming the trial court’s demurrer order under CCP § 389(b) in the case before it, the Court of Appeal thus reviewed its analysis of the determination of the CCP § 389(b) factors for abuse of discretion. The Court observed that “the record reflects a strong unity of interest between the Regents and appellants” such that while their “motivations may differ, both the Regents and appellants have similar interests in having the project proceed in a timely manner.” The additional academic space was “critical” to the “ongoing success and sustainability” of the Goldman School of Public Policy (GSPP), “one of the University’s leading programs[.]” Additional housing was also “a high priority” for the Regents since rising housing costs negatively impact “the university’s recruitment and the ‘campus community.’” Further, “appellants’ role in developing, building, managing, and operating the project” did not “create a distinct economic interest.” While ACC would operate and manage the housing component, the Regents would operate and manage the parking and academic buildings and regain ownership once the debt was repaid, and no evidence supported appellants’ claim that heightened cost from additional mitigation or delay would solely impact them.
- In distinguishing the cases relied on by appellants, the Court noted that in those cases the lead agencies were neither owners nor developers of the projects, and essentially had no meaningful involvement beyond the initial approvals. Here, by contrast, “the Regents are not so removed” and they “pursued the project and continued to have a vested interest in its success.” In addition to the project being for the university’s benefit, “the Regents will be involved in the management and operation of two-thirds of the new buildings . . . and . . . obtain ownership of the project upon repayment of the project debt.” Further, appellants cited no record evidence that “they invested resources . . . that would be uniquely harmed” and did not timely submit any contractual documents showing that their interests were not aligned with those of the Regents. The Court also noted that SBN would lack an adequate remedy if the action were dismissed for nonjoinder since the limitations period had run. The Court summarized its holding in stating: “Based on the facts presented and the record before this court, we cannot say that the trial court abused its discretion in concluding appellants are not indispensable parties to the litigation pursuant to CCP section 389(b).”
- In the concluding part of its opinion, the Court rejected SBN’s argument that the NOD failed to adequately describe the project and thus did not trigger CEQA’s 30-day statute of limitations period under Public Resources Code § 21167(c), or the 20-day limitations period (for service) under § 21167.6.5(a). The NOD was not materially defective for failing to mention in its project description that the SEIR analyzed the environmental impacts of student enrollment increases because no record evidence suggested that student population reassessment was a material aspect of the project – and, in fact, the SEIR stated (and was criticized by SBN for stating) that increased enrollment is not part of the project. While the SEIR considered past growth to create a “campus headcount baseline” against which to assess project impacts, nothing in CEQA or the CEQA Guidelines requires lead agencies to describe their baseline or EIR analyses in the NOD. Any alleged error was not prejudicial since SBN timely filed a petition challenging the adequacy of the SEIR’s analysis of student enrollment increases, and thus nothing in the NOD project description interfered with SBN’s ability to make an informed decision whether to pursue legal action or to bring a timely challenge; moreover, SBN’s failure to timely name and serve appellants was unrelated to any alleged error in the NOD’s project description.
Conclusion and Implications
While this case doesn’t really break new legal ground, except perhaps in explicitly clarifying that Public Resources Code § 21167.6.5(a) carries no statutory presumption of indispensability for necessary real parties, it does helpfully reinforce existing legal principles and highlight a number of rules in this area with which CEQA litigators should be familiar.
One important lesson is a practical one: while real parties named in NODs are necessary parties to CEQA actions, and will have a personal defense requiring their dismissal if not timely joined, such a dismissal will often have little real strategic or practical value if they cannot also establish their status as indispensable parties without whom the case cannot proceed at all; indeed, setting aside cost savings from being removed as a party to litigation, such a scenario may be of negative utility since the dismissed real parties will ultimately be effectively bound by the final judgment (or settlement) in a case whose outcome they will have lost the ability to influence as directly participating parties. So, in short, (1) be careful what you ask for, and (2) “shoot to kill” with any demurrer.
Further, CEQA litigators should be cognizant that, as a practical matter, untimely joined real parties seeking to establish indispensable party status – and thus dismissal of the entire action that seeks to negatively impact their interests – must persuade the trial court that their interests will be uniquely and materially prejudiced without their participation as parties in the case. Relevant practical considerations bearing on this critical prejudice issue include whether their interests are closely aligned with the remaining respondents/real parties, and whether those parties are incentivized to and able to adequately protect their interests; whether their interests are distinct, different and potentially conflicting with the remaining parties’ interests in material ways, such that their interests will not be adequately asserted or protected should the action continue in their absence; whether the parties’ differing interests would likely lead to different litigation strategies being pursued or arguments made if all parties remained in the case; whether protective measures in the judgment or relief would be able to address and lessen the prejudice; and whether a judgment entered in their absence (which is, after all, not supposed to bind non-parties) will be adequate or subject to collateral attack. All of these factors require the late-joined real parties seeking dismissal to present persuasive evidence on factual and equitable issues entrusted by law (through the applicable “abuse of discretion” standard of review) to the trial court’s sound discretion.
In this case, there was found to be no sharp distinction between lead agency, landowner, and developer parties. The trial court determined that the Regents – as landowner, developer, operator, and the party for whose benefit the project was being pursued and undertaken – had essentially the same interests as (or possibly greater interests than) the dismissed real parties in defending the challenged project approvals and CEQA review, and could and would thus adequately represent and protect those interests in their absence. While it appears the Regents and the dismissed real parties belatedly attempted to argue that the contract between them gave rise to differing and conflicting economic interests and incentives with regard to the project, the Court found that they failed to argue the point with specificity. Further, the trial court (and thus the Court of Appeal) refused even to consider the contract because it was untimely submitted only after the trial court had already issued its tentative ruling on the demurrers.
While the facts and party roles in this case differ from the typical land use project scenario involving a private project requiring local agency approvals and permits, in which the differing and potentially conflicting interests of the permitting jurisdiction, the developer, and the landowner are more distinct and pronounced, the case serves as an excellent lesson to counsel for late-joined necessary real parties with a statute of limitations defense to be sure to adduce and cite to evidence to support their arguments to the trial court that they are also indispensable parties under the CCP § 389(b) factors. Wherever the trial court comes down on this critical – and potentially outcome determinative – issue, its decision made after analyzing the relevant factors will be entitled to substantial deference on review.