Third District Court of Appeal Holds “Fair Argument” Standard of Review Applies to Determine Whether there is a Reasonable Possibility of Significant Effect to Trigger the Unusual Circumstances Exception to a CEQA Categorical Exemption

October 19th, 2012

By: Thomas Law Group



In a showing of solidarity with the First District Court of Appeal in its recent ruling in the Berkeley Hillside Preservation v. City of Berkeley (2012) 203 Cal.App.4th 656 case (currently pending review by the Supreme Court), the Third District Court of Appeal slapped the hand of the El Dorado Irrigation District (EID) for increasing water supplies to the Shingle Springs Rancheria (Rancheria) area for development of the Red Hawk Casino without first conducting CEQA review.  On October 4, 2012, the court in Voices for Rural Living v. El Dorado Irrigation District (2012) Cal.App. LEXIS 1046, upheld the trial court’s decision to void EID’s approval of an agreement to provide the Shingle Springs Band of Miwok Indians (Tribe) significantly more water than it had previously provided under the terms of an annexation agreement because EID erred in concluding the agreement was exempt from CEQA.  The appellate court upheld the trial court’s finding that unusual circumstances triggered an exception to the small projects categorical exemption under CEQA, which EID had relied upon.

In the early 1980’s, EID provided water to the Tribe for residents living on the Rancheria property at out-of-district rates.  In 1987, EID and the Tribe entered into an annexation agreement which brought the Tribe’s property into EID’s service area.  The agreement was subject to approval by the El Dorado County Local Agency Formation Commission (LAFCO), which approved the agreement with some conditions.  Specifically, LAFCO authorized EID to supply water to the Tribe’s property for residential uses to serve no more than a community of 40 residential lots.  Many years later, following the Tribe’s decision to build Red Hawk Casino, EID entered into an agreement with the Tribe to provide more water than authorized under the annexation agreement.

EID determined that the water agreement was exempt from CEQA under the categorical exemption for small construction projects because the only necessary physical project improvements would be relocating an existing three-inch water meter and installing a short section of pipeline linking the meter to an existing water main.  EID made this determination even though it would be providing significantly more water to the Tribe than it previously had.  EID also determined that the agreement was not subject to the LAFCO conditions of approval limiting the amount of water it could provide to the Tribe because those annexation conditions were unconstitutional, and on that basis, approved the agreement. Petitioner, Voices for Rural Living, filed a petition for writ of mandate to vacate EID’s approval of the agreement, arguing the project was not exempt under CEQA’s small projects categorical exemption and that EID failed to comply with the LAFCO conditions of approval.

The appellate court used a two prong test to determine if the project triggered the unusual circumstances exception to the categorical exemptions. First, the court asked whether the project “presents unusual circumstances” and second “whether there is a reasonable possibility of a significant effect on the environment due to the unusual circumstances.”  The court acknowledged a split of authority regarding the correct standard of review to apply to the second question of the test.  In Banker’s Hill, et al. v. City of San Diego (1996) 139 Cal.App.4th 249, the court applied the fair argument standard.  However, in Association for Protection etc. Values v. City of Ukiah (1991) 2Cal.App.4th 720, the court used the substantial evidence standard. After weighing the evidence, the court was persuaded that a fair argument standard applies.  Applying that standard, the court determined that the unusual circumstance of a substantial change in demand for municipal services was evidence on which a fair argument could be made that the project may have a significant effect on the environment.  The project’s scope – providing an amount equal to 216 additional residences – “obviously is a fact that distinguishes [it] from the type of projects contemplated by the exemption.”

The appellate court, however, overturned the trial court’s ruling that directed EID to prepare an environmental impact report (EIR), finding that this ruling was in excess of the trial court’s authority. The appellate court held that the trial court, having found that the project was not exempt from CEQA, should have instead simply ordered EID to comply with CEQA; “[h]ow an agency complies with CEQA is a matter first left to the agency’s discretion.”  This holding is in contrast to the Berkeley Hillside decision, which ordered the property owner to prepare an EIR.

As to Petitioner’s argument regarding violation of the LAFCO conditions to the annexation agreement, the court held that “EID had no authority to adjudicate the conditions’ constitutionality or disregard their application to the proposed agreement.”  The court noted that the Legislature has vested LAFCOs “with the sole and exclusive authority to approve annexations of territory into special districts. This authority includes the power to impose conditions of approval on an annexation.”  California law makes these conditions enforceable and a public agency “has no discretion to disregard them.”

Key Point:

Until the Supreme Court issues its ruling in the Berkeley Hillside case, applicants and lead agencies should proceed with caution when relying on a categorical exemption.  Under Berkeley Hillside and this most recent ruling from the Third District, proceeding under a categorical exemption would be subject to the less deferential “fair argument” standard of review.  Under that standard, if a project challenger can present evidence to support a “fair argument” that the project may result in significant environmental impacts, then the “unusual circumstances” exception applies and use of a CEQA exemption is improper.

Written By: Tina Thomas and Michele Tong
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For questions relating to this blog post or any other California land use, environmental and/or planning issues contact Thomas Law Group at (916) 287-9292.

The information presented in this article should not be construed to be formal legal advice by Thomas Law Group, nor the formation of a lawyer/client relationship. Readers are encouraged to seek independent counsel for advice regarding their individual legal issues.