The Decision in Berkeley Hillside: The California Supreme Court Clarifies the Rules for Using Categorical Exemptions Under CEQA

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The California Supreme Court has issued a long-awaited decision that clarifies the rules for using “categorical exemptions” from the requirement to prepare an environmental impact review under the California Environmental Quality Act (CEQA). These exemptions are important because they are frequently used as a quick form of CEQA clearance for a wide array of projects—there are 33 exempt categories that span the spectrum from infrastructure maintenance to smaller toxic contamination clean-ups to approval of a single new home. The court’s decision adds some needed certainty into the CEQA rules governing such exemptions.

The decision, Berkeley Hillside Preservation v. City of Berkeley (Supreme Court Case No. S201116) arose out of a proposal to build a large new home in the Berkeley hills. The city found the project to be exempt from CEQA review under categorical exemptions for the construction of smaller structures and in-fill development projects in cities. As the name implies, categorical exemptions apply to categories of projects that the California Resources Agency has found normally do not have a significant effect on the environment. These categorical exemptions are listed in the CEQA Guidelines, at 14 Code of California Regulations §§15301-15333.

The city also found that the exemptions for the home were not defeated by any significant environmental impacts due to “unusual circumstances.” Given the legal basis for categorical exemptions (that they are categories of projects that do not normally have a significant impact), such exemptions are themselves subject to various exceptions. For example, the exemption cannot be used when the project will cause a significant environmental impact due to some unusual circumstances related to the project. That “significant impacts exception” is often invoked as the basis for arguing that a categorical exemption does not apply, and has been the subject of frequent litigation. The lower courts have been split on whether an agency determination that there is no significant impact defeating the use of the exemption is reviewed by courts under the substantial evidence standard (pursuant to which the agency wins if there is substantial evidence supporting its determination) or the “fair argument” standard (pursuant to which the challenger wins if they have substantial evidence supporting a fair argument of impact).

The Court of Appeal in this case had created substantial uncertainty regarding the use of categorical exemptions by rejecting the City’s determinations, and the Supreme Court has now made the use of categorical exemptions more certain and predictable. The key rulings in the case are as follows:

There Are Two Steps in Determining Whether the “Significant Effects Exception” Defeats the Use of a Categorical Exemption:  In evaluating whether this exception defeats the use of the exemption, the court affirmed that the determination is a two-step process.  First the agency evaluates whether there is an “unusual circumstance” that differentiates the project from the general class of similarly situated projects.  Second, the agency considers whether that unusual circumstance gives rise to a reasonable possibility of a significant environmental impact resulting from the proposed project.  These are two separate legal questions, and it is not sufficient to defeat the use of categorical exemption to show only that there is a significant impact on the environment.  Instead, a party wishing to invoke the unusual circumstances exception must show both that there is an usual circumstance, and that that unusual circumstance results in a potentially significant impact on the environment. 

The Standard for Determining Whether Unusual Circumstances are Present:  The Court held that, when an agency is evaluating whether unusual circumstances are present, and when Courts are reviewing that determination, the question is a factual one, and the lead agency determination should be upheld if supported by substantial evidence.  This holding helps to add certainty to categorical exemption practice. 

The Standard for Determining Whether There is a Significant Impact:  With respect to the second part of the two-step test, the court held that CEQA’s fair argument standard applies.  Thus, once the presence of an unusual circumstance has been established, a categorical exemption may not be used when there is a fair argument, supported by some substantial evidence, that “there is a reasonable possibility of a significant effect on the environment” due to the unusual circumstance. 

A Related Holding on the Historicity of Resources:  One of the arguments in this case was whether the application of the fair argument standard to the second step of the inquiry was consistent with the case law relating to historic resources, particularly Valley Advocates v. City of Fresno (2008) 160 Cal.App.4th 1039.  In that case, the court held that the determination of whether a resource is historic is reviewed under the substantial evidence standard, but once a resource is determined to be historic, the question of impact to a historic resource is a fair argument question.  The Supreme Court stated that its ruling in Berkeley Hillside was consistent with Valley Advocates, and effectively approved the Valley Advocates holdings regarding the legal standards that apply when an agency is determining whether a resource is historic and whether there is a significant impact on the historicity of the resource.

The Propriety of Ordering Preparation of an EIR as the Remedy.  Finally, the Court addressed the propriety of ordering preparation of an EIR as the remedy when the Court finds categorical exemption is not applicable.  Noting that CEQA’s remedy statute indicates a court should not direct a public agency to exercise its discretion in any particular way, the Court indicated that it is appropriate to order preparation of an EIR only when the lead agency would not have any discretion to apply another exemption, or to issue a negative declaration or mitigated negative declaration for the project in question.

Five justices signed the majority opinion, which was authored by Justice Chin, and two justices concurred in the result but disagreed with the ruling regarding the standards of review applicable to the significant effects exception.  The two concurring justices, Liu and Werdegar, would have affirmed the Court of Appeal ruling to the effect that any project which has a significant effect on the environment may not be approved based on a categorical exemption.

This action has been pending before the California Supreme Court since 2012. Practitioners across the state have been anxiously awaiting the final word in order to understand whether categorical exemptions would continue to be a viable option for CEQA compliance or would be effectively devalued by becoming too vulnerable to a legal challenge. The Supreme Court’s opinion is something of a mixed bag for public agencies and project applicants; the holding that whether there is an unusual circumstance is reviewed under the substantial evidence tests adds considerable certainty to categorical exemptions generally.  However, the holding that the fair argument standard applies to the question of whether there is a potentially significant impact makes that part of the question subject to the same unpredictability as applies to negative declarations. Given that the finding of an unusual circumstance is a predicate to reaching the second question of impact, however, the decision overall adds more certainty to the use of categorical exemptions.

Michael Zischke and Andrew Sabey represented homebuilder organizations as amicus curiae in this case

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