[co-author: Sarah Nagle]
In Relevant Grp., LLC v. Nourmand (9th Cir. Sep. 5, 2024, No. 23-55574) 2024 U.S. App. LEXIS 22559, the Ninth Circuit Court of Appeals narrowed the applicability of Racketeer Influenced and Corrupt Organizations Act (“RICO”) in addressing abuse of CEQA by business competitors. Despite recognizing that the facts suggested the CEQA suits had been brought for an improper purpose, the Ninth Circuit ruled Stephen Nourmand and his associated corporate entities (collectively, “Nourmand”) could not be held liable under RICO.
Background
Relevant Group, LLC (“Relevant”), aimed to develop three hotels in the city of Los Angeles (“City”). However, starting in 2015, Nourmand and his attorneys began challenging Relevant’s projects, opposing the entitlements at all levels and ultimately filing CEQA lawsuits. Notably, Nourmand owns a hotel located in the same neighborhood as Relevant’s projects. Relevant settled lawsuits concerning two of the hotel projects, including as part of the agreement a $5.5 million cash payment to Nourmand, only to have Nourmand immediately challenge Relevant’s third hotel project. Highlighting his noncompetitive motives, Nourmand stated to Relevant, “You know the drill. It’s going to take a check to make this go away.” Pointing to this history, Relevant claimed these actions were designed to obstruct its projects and extort money rather than address genuine environmental concerns.
The Noerr-Pennington Doctrine
The First Amendment’s Petition Clause provides a shield for individuals and entities filing lawsuits, granting immunity from statutory liability for such conduct under the Noerr-Pennington doctrine. However, this immunity is not absolute. It does not protect objectively baseless lawsuits brought for an unlawful purpose, nor does it protect a series of lawsuits brought without regard for the merits of each case—a more lenient standard. With respect to whether conduct constitutes a “series” of lawsuits, prior case law found two cases to be insufficient but twenty-nine to be enough. The District Court here had decided that Nourmand’s four lawsuits, being closer to two than twenty-nine, did not constitute a series.
The Ninth Circuit acknowledged that this “counting exercise” was an “elementary” way of assessing the legal issue, but nonetheless upheld it as “not unreasonable.” Thus, Relevant was forced to meet the more stringent “objectively baseless” standard, known as the sham litigation exception.
The Sham Litigation Exception
The sham litigation exception requires a plaintiff demonstrate two elements are satisfied:
- The lawsuit was objectively baseless.
- The defendant had an unlawful motive in bringing the lawsuit.
The Ninth Circuit focused on the first prong—objective baselessness—and found that two of the lawsuits did not meet this criterion. The Court emphasized that Relevant had settled the first two cases, stating that “settlement indicates a lawsuit is not objectively baseless.” While Relevant argued that the settlements were not due to the merits of the cases but because “a victim facing ruin will do anything to avoid it” the court unfortunately dismissed this argument. The Court viewed the nonmonetary provisions of the settlements, including provisions for noise reduction measures and a height limit on the buildings, as being related to environmental matters. Moreover, the state trial court had in fact identified a limited CEQA violation in the third case, though they granted interlocutory remand to correct it and did not issue the requested writ of mandate.
Because the Court was unpersuaded that the CEQA suits met the sham litigation exception’s first requirement, it did not reach the second element regarding Nourmand’s motives, even though it acknowledged several facts suggesting that the lawsuits were brought for improper purposes.
Ninth Circuit’s View of CEQA Abuse
The opinion sets a high bar for using federal RICO claims to address alleged CEQA abuse. It seems unlikely many will turn to the federal courts for such relief in the future. The Court simply seemed unperturbed by the conduct at issue. At oral argument, Judge Milan Smith, Jr. was quite blunt about the Court’s view of CEQA abuse when addressing Relevant’s attorney.
“With respect, and I do have empathy for your client. I get that. But it’s kind of the way CEQA’s been set up. It’s been used by a lot of people over a lot of time to stop projects they don’t like and many of them have got paid off, et cetera, et cetera. But the fact is that’s the Legislature’s doing.”
The statement is troubling for many CEQA practitioners who had hoped that the court would create a bar to CEQA lawsuits brought for non-environmental purposes. While CEQA has legitimate and essential purposes, funneling cash payoffs to project opponents is not among them. Even those who represent petitioners may well recoil from the idea that our state’s most important environmental law is set up for what the Ninth Circuit described as “alleged extortion and attempted extortion.” Nonetheless, the opinion signals that the federal judiciary is unlikely to provide a remedy for such conduct, but instead looks to the California legislature to resolve these issues.
Seeking Redress at the State Level
The Court’s punt to the state Legislature is repeated in its opinion, which tells Relevant that, “its recourse is to bring this to the attention of the state legislature and the governor, not to try to squash the process altogether in federal court.” While each year brings a new slate of CEQA bills, those that target litigation abuse typically face staunch opposition and rarely survive to become law. CEQA has been the subject of reform discussions for many years, yet reform has been limited and of no assistance to applicants in this respect.
Nevertheless, state courts appear more receptive to addressing potential CEQA abuse. California’s Supreme Court has cautioned that CEQA, “must not be subverted into an instrument for the oppression and delay of social, economic, or recreational development and advancement.” (Citizens of Goleta Valley v. Board of Supervisors (1990) 52 Cal.3d 553, 576.) Recent state appellate decision have allowed malicious prosecutions claims against petitioners and their attorneys in allegedly frivolous CEQA cases, despite facing similar First Amendment hurdles as Relevant’s RICO suit. In Dunning v. Clews (2021) 64 Cal.App.5th 156 and Jenkins v. Brandt-Hawley (2022) 86 Cal.App.5th 135, the courts largely permitted these claims to proceed, suggesting that state courts may provide a viable forum for addressing particularly egregious CEQA abuse.
Key Point
- The standard required to bring a federal RICO lawsuit alleging CEQA abuse is quite difficult to satisfy, and a state court malicious prosecution will likely provide a more receptive forum.
[View source.]
