Agencies Must Either First Complete CEQA Review or Retain Discretion to Modify or Cancel Contracts Subject to CEQA Until Environmental Review Is Complete

The Fourth District Court of Appeal (“Court”) recently set aside a water supply agreement between a water district and a developer because the agreement improperly committed the water district to a definite course of action without adequate review under the California Environmental Quality Act (CEQA) in the case Riverwatch et. at. v. Olivenhain Municipal Water District.

The project at issue in this case is a landfill and recycling site in northern San Diego County. Earlier, the trial court held that the original Environmental Impact Report (EIR) for the landfill failed to adequately analyze the water supply needed for the construction and operation of the landfill, including alternatives to the primary source of ground water. Due to this holding, the developer entered into an agreement with the local water district to supply water to the project, conditioned on the lead agency completing revised environmental review of the project. Prior to completion of a revised environmental review, petitioners sued the water district, alleging that the District had violated CEQA by approving the agreement before environmental review was completed for the project.

The Court agreed and held that the agreement violated CEQA. The Court first found that the water supply contract was a part of the landfill project, and that the water district’s authority to approve the water supply contract made the water district a responsible agency. Then the court relied upon an expansive reading of the 2008 case Save Tara v. City of West Hollywood, which held that agreements conditioned upon later CEQA compliance may violate CEQA if, in light of all surrounding circumstances, the agreement commits the agency to a definite course of action, to criticize two aspects of the agreement. First, the agreement did not sufficiently explain that the water district’s performance of the contract was subject to CEQA. Second, although the agreement stated that the developer still had to comply with all requirements pursuant to CEQA, the agreement did not contain language that retained the water district’s “discretion to consider a final EIR and thereafter approve or disprove its part of the landfill project.” Letters between the water district and the developer, which explained that the developer acknowledged and agreed to the requisite certification and completion of an EIR, were also not enough to demonstrate that the water district was not committed to its course of action. Therefore, the Court held that the agreement violated CEQA.

Critically, the court did not address how its decision interplays with the California Supreme Court’s decision in Vineyard Area Citizens for Responsible Growth v. City of Rancho Cordova. Vineyard requires EIRs for large developments to analyze long term water supplies that are sufficient to serve the development and to assess and disclose water supply uncertainties. The question moving forward will be how to adequately analyze water supply under Vineyard without violating the holding of this case and the holding of Save Tara.