In Creed-21 v. City of Wildomar et al., the California Court of Appeal, Fourth Appellate District, upheld a lower court's dismissal of a California Environmental Quality Act (CEQA) case filed by a plaintiff's attorney who engaged in repeated discovery abuse.
Wal-Mart argued that Creed-21 had no standing because it was merely a shell corporation formed by the Briggs Law Corp. to reap the rewards of a financial settlement or attorneys' fees award.
On appeal, the Court of Appeal upheld the terminating sanction. While the holding in this case is a rather routine affirmation of a lower court's authority to issue terminating sanctions, the decision suggests that some California judges are re-examining standing requirements in the context of CEQA, with an eye toward reining in plaintiff's attorneys motivated by their own financial interests.
The California Environmental Quality Act (CEQA) has a history of abuse by petitioners motivated by non-environmental interests. Any party can file a CEQA lawsuit for non-environmental reasons, including commercial actors seeking to derail a competing project, labor unions seeking project labor agreements and "bounty hunter" attorneys who file cases on behalf of nonprofit shell corporations with the hope of lining their own pockets with the proceeds of financial settlements or attorneys' fees.
According to independent investigative news organization inewsource.org, San Diego attorney Cory Briggs, of the Briggs Law Corp., has filed actions on behalf of 30 charitable nonprofits, most of which he helped create. "Briggs' cousin, along with his wife, sit on the boards of 10 of them," said the inewsource article. "Yet according to state and federal filings, the majority of the nonprofits don't exist outside of court. Instead, they serve as vehicles for lawsuits." The voiceofsandiego.org explains that "[t]hese lawsuits all tend to follow a formula: A local City Council approves a big-box development[.] A nonprofit with a watchdoggy name sues, with Briggs as its attorney. The developer settles the case and pays Briggs for his trouble. It's often unclear who is against the project other than Briggs himself." Although Briggs has used this tactic to successfully challenge several projects under CEQA, a recent case out of California's Fourth District Court of Appeal suggests that this business model may be subject to increased judicial scrutiny.
In Creed-21 v. City of Wildomar et al., 2017 WL 6484032, an opinion published on Dec. 19, 2017, the Court of Appeal upheld a lower court's dismissal of a CEQA case filed by Briggs to challenge an environmental impact report (EIR) and related approvals for a Wal-Mart retail project. The Court of Appeal held that terminating sanctions were proper because the petitioner failed to timely comply with discovery requests regarding its legal standing to sue.
In a petition to the lower court, Briggs alleged that the plaintiff, Creed-21, was a nonprofit, social advocacy organization with at least one member who lived in or near the City of Wildomar and thus had standing to challenge the Wal-Mart EIR. Wal-Mart, however, claimed that Creed-21 lacked standing to sue because it was merely a shell corporation that shared its business address with Briggs, had no assets and no employees, and was comprised of just two members, neither of whom lived in Wildomar. Further, in prior lawsuits in which money was awarded to Creed-21, the money had been given to Briggs. Accordingly, Wal-Mart sought to depose a member of Creed-21 in order to gather evidence supporting its claim that Creed-21 was acting as a front for Briggs and had no independent interest in the case.
Following Creed-21's refusal to appear at the requested deposition, Wal-Mart filed a motion to compel the deposition. Creed-21 opposed Wal-Mart's motion to compel, arguing that Wal-Mart was not permitted to conduct discovery in the context of a CEQA challenge because such cases are limited to evidence contained in the administrative record. Creed-21 further argued that there was no further issue as to standing because its petition properly alleged that members of Creed-21 lived in or near Wildomar and, therefore, discovery was inappropriate.
The lower court agreed with Wal-Mart that discovery was proper to address issues of standing and ordered Creed-21 to produce its person most qualified (PMQ) for deposition within 10 days. Shortly thereafter, Creed-21 asked the lower court to reconsider its order on the motion to compel, which the court denied. The lower court also ordered Creed-21 to produce the PMQ for a deposition on or before Feb. 8, 2016. Not satisfied, Creed-21 went to the Court of Appeal seeking a writ of mandate vacating the lower court's discovery order. The Court of Appeal was not persuaded by Creed-21's claim that discovery was not proper in the context of a CEQA proceeding, and thus denied Creed-21's writ petition.
The lower court's Feb. 8 deadline came and went without Creed-21 producing its PMQ for deposition. As a result, on Feb. 22, 2016, Wal-Mart filed its opposition brief without the opportunity to first conduct the deposition. In its opposition brief, Wal-Mart repeated its claims that Creed-21 was nothing more than the "alter ego" of Briggs and argued that it would be inequitable for Creed-21 to maintain its case after failing to comply with the lower court's discovery order. On March 7, 2016, Creed-21 filed its reply brief, which alleged that Creed-21 "was not a sham corporation set up only for attorney fees." Two days later, Wal-Mart filed a motion seeking monetary sanctions for Creed-21's violation of discovery order, the imposition of an issue sanction establishing that Creed-21 lacked standing to bring the action, and attorneys' fees in the amount of $13,455. The trial court heard the motion and found that Creed-21 had made "a calculated attempt to delay and avoid a deposition." The trial court concluded that Wal-Mart should not be forced to choose between completing the deposition and delaying a hearing on the merits, and felt it was clear that further monetary sanctions alone would be insufficient. Rather, the court imposed the issue sanction, finding that Creed-21 lacked standing and effectively terminating the case.
Court of Appeal Decision
On review, the Court of Appeal upheld the terminating sanction, holding that the lower court acted within its authority to impose sanctions when a party fails to obey a court order compelling discovery or otherwise engages in misconduct that is a misuse of the discovery process. In its published opinion, the Court of Appeal described the lengthy process by which Wal-Mart repeatedly sought, and Creed-21 repeatedly refused, discovery on the issue of standing despite court orders demanding that Creed-21 produce the PMQ for deposition.
In explaining its decision to affirm the lower court's judgment, the appellate court noted that Creed-21 had clearly engaged in "discovery abuses" and that its "eleventh hour attempt to avoid the dismissal of the action does not render the trial court's decision to dismiss the action an abuse of discretion."
Takeaways and Considerations
The Court of Appeal's holding in this case is a rather routine affirmation of a lower court's authority to issue terminating sanctions when appropriate, but the case is noteworthy in light of the judiciary's historically liberal application of standing requirements in the context of CEQA challenges. As observed by the same court in Rialto Citizens for Responsible Government v. City of Rialto (2012) 208 Cal.App.4th 899, 915, "strict rules of standing that might be appropriate in other contexts have no application where broad and long-term environmental effects are involved." Thus, in CEQA cases, reviewing courts routinely find adequate standing on the basis of court filings that, for example, merely assert that the plaintiff has an interest as a citizen in having the laws executed and the lead agency's statutory duties enforced. This case suggests a shift and that some California judges are re-examining standing requirements with an eye toward reining in plaintiff's attorneys who would clog the judicial system with CEQA litigation motivated by the attorneys' personal financial interest rather than the public interest.