First District Court of Appeal Finds That Courts Must Use a Balancing Test to Determine Whether Real Parties in Interest are Indispensable Parties, and That a Lead Agency is Not Required to Describe the EIR Analyses in the Notice of Determination

November 29th, 2021

By: Dustin Peterson

In Save Berkeley’s Neighborhoods v. Regents of the University of California (2021) 70 Cal.App.5th 705, the First District Court of Appeal affirmed the trial court’s decision to allow an action to proceed where a necessary real party in interest (RPI) was not timely joined to the action. The Court also found that, in multiparty actions, a judgment disposing of all the issues as to one party is appealable even where the dismissed parties’ legal issues are identical to those remaining in the action. Lastly, the Court held that lead agencies are not required to describe their EIR analyses in a notice of determination (NOD).

In 2019, the Regents of the University of California Berkeley (Regents) approved a new development for additional academic space and campus housing (Project), certified a final supplemental environmental impact report (SEIR), and filed a NOD. In the NOD, Regents identified the developers, American Campus Communities and its associated entities (jointly, ACC), and the ground lessee and borrower, Collegiate Housing Foundation (CHF) (jointly, Appellant RPIs), as parties undertaking the project.

Save Berkeley’s Neighborhoods (SBN) filed a timely petition on the grounds that the Regents’ approval violated CEQA, but they failed to name Appellant RPIs in their petition. Months later, SBN sought to add Appellant RPIs as required under Public Resources Code section 21167.6.5, subdivision (a). Appellant RPIs demurred asserting SBN failed to name them in a timely manner. The trial court sustained the demurrers without leave to amend, such that the Appellant RPIs were dismissed, but declined to dismiss the entire lawsuit, concluding that Appellant RPIs were not indispensable parties under the equitable balancing test established under Code of Civil Procedure section 389, subdivision (b) (CCP section 389(b)).

Under CCP section 389(b), if a necessary party cannot be joined, a court shall determine whether in equity and good conscience the action should proceed among the parties before it or be dismissed (i.e., determine whether the necessary party is also an indispensable party). In the trial court’s opinion, (1) the Regents and Appellant RPIs were closely aligned because ACC and CHF were undertaking the Project for the University’s use and benefit, and (2) Appellant RPIs were unlikely to be subject to a harmful settlement if they were dismissed because, unlike SBN who would have no way to challenge the SEIR if dismissal were to occur, ACC and CHF were parties in a related case challenging the same SEIR. Accordingly, the trial court determined that the action could proceed and dismissed Appellant RPIs. Appellant RPIs timely appealed and SBN filed a cross-appeal.

Appealability of an Interlocutory Order

As a threshold issue, SBN argued that the appeal must be dismissed because it arose from an interlocutory order and the issue as to whether Appellant RPIs were indispensable remained in the underlying action raised by the Regents. The Court disagreed, stating that in multiparty actions, a judgment disposing of all the issues as to one party is appealable even if issues remain as to other parties. Further, this exception to the final judgment rule applies even if some of the legal issues related to the dismissed parties are identical to those remaining in the action among other parties.

Necessary and Indispensable Parties under CEQA

Appellant RPIs argued that they were necessary and indispensable parties under CEQA and that the entire action should be dismissed under Public Resources Code sections 21108 and 21167.6.5 rather than CCP section 389(b).

Before being amended in 2012, Public Resources Code section 21167.6.5(a) required “any recipient of approval” to be served no later than 20 days following the service of petition. This phrase was not defined by statute, forcing courts to engage in a complicated two-step analysis – first, determining who constituted an RPI, and then deciding whether they were also indispensable under CCP section 389 (b)’s balancing test.

Appellant RPIs maintained that the Legislature sought to provide finality and certainty as to who was required to be joined as a real party in interest when section 21167.6.5.(a) was amended to require parties to file and serve real parties in interest within a limitations period. The Court disagreed, finding that legislative history indicated the Legislature amended the section to clarify the first step of the process—i.e., who constituted a real party in interest—and not change the balancing test as to whether the real party in interest was indispensable to the action. The Court noted that while failure to name a real party in interest can be grounds for dismissal, the amendment did not mandate it, and, moreover, the Legislature’s intent was not to limit or increase the dismissal of important and meritorious CEQA cases.

CCP Section 389 (b)’s Equitable Balancing Test

Appellant RPIs contended that the trial court abused its discretion by not dismissing the action for failure to join an indispensable party because (1) delays could significantly impact their financial interests, and (2) any judgment would fail to reflect their unique interests apart from those of the Regents. The Court disagreed on both points.

The Court first noted that under CEQA, real parties in interest are considered necessary parties. The test for determining a court’s ability to protect an absent party’s interest is whether all of the parties’ interests are sufficiently aligned that the absent party’s rights will not be affected or impaired by the proceeding. Because the Appellant RPIs’ role in developing and managing the project was closely aligned with the Regents’ own vested interest in its success (and because Appellant RPIs failed to cite evidence that they had invested resources in the project that would be uniquely harmed), the Court found that the trial court did not abuse its discretion in concluding Appellant RPIs were not indispensable parties. Further, the Court noted that SBN would not have an adequate remedy if the action was dismissed for nonjoinder, as the statute of limitations had run. Holding to the contrary would undermine CEQA’s foremost principle that CEQA be interpreted to afford the fullest possible protection to the environment within the reasonable scope of the statutory language.

SBN’s Cross-Appeal

On cross-appeal, SBN argued that the trial court erroneously granted the Appellant RPIs’ demurrer because the Project NOD (which triggers a shortened limitations period) was defective for failing to adequately describe the Project.

The Court noted that a NOD’s adequacy is governed by the substantial compliance doctrine, and the limitation period to file a petition will not begin to run if the NOD is substantively defective by failure to properly describe the lead agency’s actions. SBN argued that the NOD was substantively defective because it failed to mention the SEIR’s analysis of environmental impacts of student enrollment increases. The Court disagreed. The record reflected that the Project was proposed in response to current lack of resources, not to promote future growth in the student body. Moreover, the Court also noted that it knew of no CEQA provision that required lead agencies to describe their EIR analyses in a NOD. Rather, a sufficient NOD must state the agency’s determination of “whether the project will, or will not, have a significant effect on the environment.” (Pub. Resources Code, § 21152 (a).) Further, because SBN specifically challenged the adequacy of the SEIR’s evaluation of student enrollment issues, the Court held that any alleged error in the NOD’s project description did not interfere with SBN’s ability to make an informed decision on whether to pursue legal action or to bring a timely challenge.

Key Points:

  • In multiparty actions, an exception to the final judgment rule may apply, even if some legal issues related to the dismissed parties are identical to those remaining in the action.
  • Failing to name a real party in interest in a petition can be grounds for dismissal but the law does not mandate dismissal. Courts retain discretion to determine whether parties are indispensable.
  • A Notice of Determination (i.e., an NOD) does not require lead agencies to describe their baseline or EIR analyses. Rather, a sufficient Notice of Determination must state whether the agency has determined that the project at issue will or will not have a significant impact on the environment.

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