The California Supreme Court has issued its long-awaited decision in Berkeley Hillside Preservation v. City of Berkeley, No. S201116 (March 2, 2015). The Court’s decision clears up some of the ambiguity that surrounded the standard of review for challenges to CEQA exemptions under the unusual circumstances exception. In doing so, the Court rejected the controversial approach taken by the court of appeal and instead opted for a middle ground, balancing the interest in giving effect to the legislatively-mandated exemptions against CEQA’s overarching goal of ensuring review of significant environmental effects.

Background

The project at issue was a large house to be built in the City of Berkeley. The city granted a use permit and found the project exempt from CEQA under the Class 3 (construction and location of limited numbers of new, small facilities or structures) and Class 32 (in-fill development) exemptions. The city also determined that none of the exceptions to the categorical exemptions in CEQA Guideline 15300.2 were triggered, including the exception for a “significant effect on the environment due to unusual circumstances.” An organization sued, alleging, among other things, that the exemptions were barred by the unusual circumstances exception.

In a controversial decision, the court of appeal overturned the City’s exemption determination, holding that the possibility that a proposed activity might have a significant effect on the environment “is itself an unusual circumstance,” barring reliance on a categorical exemption.

A Potentially Significant Environmental Effect Alone Is Not Sufficient to Trigger the Unusual Circumstances Exception.

Recognizing that the court of appeal’s ruling would have undermined use of categorical exemptions, contrary to the Legislature’s intent, the California Supreme Court reversed. Considering the statutory text, the overall regulatory scheme, and the legislative purpose of exemptions, the Court held that a party bringing a challenge under the unusual circumstances exception must establish both 1) that there are unusual circumstances that justify removing the project from the exempt class; and 2) that there is a reasonable possibility of significant environmental impacts due to those unusual circumstances.

Traditionally, a party invoking the exception under this standard would establish an unusual circumstance by showing that the project has some feature that distinguishes it from others in the exempt class, such as its size or location. In such a case, to render the exception applicable, the party need only show a reasonable possibility of a significant effect due to unusual circumstances. Alternatively, a party may establish an unusual circumstance with evidence that the project will have a significant environmental effect. That evidence, the Court stated, “if convincing necessarily also establishes a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.”

Nevertheless, the two prongs of the Court’s standard (establishing an unusual circumstance and a reasonable possibility of a significant environmental impact due to unusual circumstances) are distinct and governed by separate standards of review.

Two Standards of Review

The Court held that two different standards would apply to review. The agency’s determination whether there are “unusual circumstances” is reviewed under the more deferential substantial evidence standard. Whether a particular project presents circumstances that are unusual for projects in an exempt class is an essentially factual inquiry. Consequently, reviewing courts, after resolving all evidentiary conflicts in the agency’s favor and indulging in all legitimate and reasonable inferences to uphold the agency’s finding, must affirm that finding if there is any substantial evidence, contradicted or contradicted, to support it.

A different approach applies to the question whether there is a reasonable possibility that an unusual circumstance will produce a significant effect on the environment. The Court reasoned that due to the close textual similarities between Pub. Res. Code section 21151 (describing the EIR requirement for local agencies) and the language of the unusual circumstances exception, the less deferential “fair argument” standard used in No Oil v. City of Angeles was appropriate. Accordingly, where there are unusual circumstances, agencies must apply the fair argument standard in determining whether the record shows a reasonable possibility of a significant effect on the environment. The reviewing court’s function is to determine whether the project opponent submitted substantial evidence supporting a fair argument that a significant effect may occur.

The new standard created by the Supreme Court is not a total victory for local agencies and project proponents. The Court’s standard charts a middle ground in two important respects: First, the standard requires that “unusual circumstances” be established, but allows evidence of significant environmental impacts to help demonstrate the existence of unusual circumstances. Second, the Court’s approach applies two separate standards of review to different element of the inquiry—the more deferential substantial evidence standard to the agency’s determination whether there are unusual circumstances and the less deferential “fair argument” standard to whether there is a reasonable possibility of significant environmental effects.

It remains to be seen how this standard will play out and whether it will create new difficulties, but the Supreme Court has declined the invitation to undermine many of the most commonly used CEQA categorical exemptions.