CA Supreme Court Requires “Unusual Circumstances” for Otherwise Categorically Exempt Projects to be Subject to CEQA

In a highly anticipated decision, Berkeley Hillside Preservation v. City of Berkeley (S201116, filed March 2, 2015), the California Supreme Court resolved years of uncertainty by holding that a project’s purported environmental effects must be “due to unusual circumstances” before an environmental impact report can be required under Guidelines section 15300.2(c). The Court also resolved another long-standing divide among Courts of Appeal, holding that an agency’s findings as to unusual circumstances are subject to the substantial evidence standard.

Under the California Environmental Quality Act (“CEQA”), an environmental impact report must be prepared for a project which may have a significant effect on the environment. CEQA and its Guidelines set out 1) classes of projects that are exempt from environmental review (so-called “categorical exemptions”) and 2) exceptions to these exemptions. One of the most common exceptions – the “unusual circumstances exception” – holds that a categorical exemption will not apply where “there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.” Until today, California courts have been divided as to whether this exception requires a separate finding of “unusual circumstances” and if so, what the appropriate standard of review is for this exception.

In resolving these questions today, the California Supreme Court held that (1) the exception requires a separate finding that the potentially significant effect be “due to unusual circumstances” in order for it to apply and (2) the substantial evidence standard applies to an agency’s finding as to whether there are unusual circumstances.

Berkeley Hillside stems from a proposed project to build a two-story, 6,478 square foot single-family home in Berkeley, California. The City determined that the Project was categorically exempt from CEQA, and that there were no unusual circumstances taking the project out of the exemption. In overturning the City’s decision, the Court of Appeal held that once an agency determines that a project may have significant effects on the environment, the project could not be categorically exempt from environmental review – even if the project itself presented no unusual circumstances. The Court of Appeal concluded that “the fact that proposed activity may have an effect on the environment is itself an unusual circumstance”, requiring environmental review.

In reversing the Court of Appeal, the California Supreme Court reasoned that the Court of Appeals’ reading of the unusual circumstances exception would give no meaning to language “due to unusual circumstances” and that, under the Court of Appeals’ decision, categorical exemptions would have little effect. The Supreme Court further reasoned that various provisions of CEQA, when read together, indicate that the Legislature intended to establish categorical exemptions by statute. Finally, the Supreme Court reasoned that whether a particular project presents unusual circumstances is essentially a factual inquiry and so a reviewing court should apply the deferential substantial evidence standard.

Three other aspects of Berkeley Hillside are worth noting. First, the Court held the fair argument standard applies to the agency’s finding as to whether the unusual circumstances give rise to a reasonable possibility that the activity will have a significant effect on the environment. The Court also held that in determining whether the environmental effects of a project are unusual, local agencies have discretion to consider conditions in the vicinity of the project. Lastly, the Court reaffirmed that a finding of environmental impacts must be based on the project as actually approved and may not be based on unapproved activities that opponents assert will be necessary, because the project as approved, cannot be built.

Thus, the Court reversed the Court of Appeal decision and remanded the case to the Court of Appeal for further proceedings.

Justice Goodwin Liu filed a separate, concurring opinion. Amrit Kulkarni and Julia Bond of Meyers Nave represented the real parties in interest in this case, Mitchell D. Kapor and Freada Kapor-Klein. For more information about this case and CEQA, please contact Amrit Kulkarni at (213) 626-2906 or akulkarni@meyersnave.com or Julia Bond at (213) 626.2906 or jbond@meyersnave.com.