In two opinions filed May 10, 2016 (one partially and the other fully published), the Fourth District Court of Appeal rejected a number of CEQA and other challenges to a project proposing to pump 50,000 acre-feet of groundwater per year for a 50-year period from a Mojave Desert aquifer in the County of San Bernardino (“Project”). The Project – proposed by a “public-private partnership” between lead agency Santa Margarita Water District (“SMWG”) and the overlying landowner, Cadiz, Inc. (“Cadiz”) – seeks to beneficially use and prevent the loss of groundwater, some portion of which would otherwise drain to two dry lakes where it would evaporate or become unpotable brine. The fresh water pumped from the aquifer would be conveyed through 43 miles of underground pipeline to the Colorado River Aqueduct, which would then transport it to supply a number of Southern California Water agencies and users.

The first opinion (the published portions of which will be covered in detail in this post) rejected CEQA challenges to a Memorandum of Understanding (MOU) related to the Project brought in an action filed by a business entity that would be harmed by its operation. (The second published opinion, which will be the subject of a subsequent post, upheld the Project EIR and lead agency designation against CEQA challenges brought by a number of environmental groups.)

In Delaware Tetra Technologies, Inc. v. County of San Bernardino (4th Dist., Div. 3, 2016) ___ Cal.App.4th ___, 2016 WL _______ (Case No. G050858), the Court of Appeal rejected a CEQA challenge (and, in the unpublished portion of its opinion, challenges based on County’s local groundwater management ordinance and the common law) to County’s resolution authorizing a memorandum of understanding (MOU) among the County, Cadiz, SMWD, and Fenner Valley Mutual Water Company relating to the Project. The MOU contemplated that development of and compliance with a groundwater management, monitoring and mitigation plan (“Plan”) that was being developed in connection with the Project EIR would satisfy the requirements for an exclusion from the permitting requirements of County’s local groundwater management ordinance, but that the Project would not proceed unless the parties finalized the Plan in the EIR process. The County’s determination that approval of the MOU was not subject to CEQA was challenged by Delaware Tetra, a company that operates brine mining facilities at the dry lakes that produce calcium chloride brine and sodium chloride salt; the Project would significantly and detrimentally affect Delaware Tetra’s business, which relies on the very downgradient flow of groundwater to the dry lakes that the Project would prevent.

The Court upheld County’s finding that authorization of the MOU was not “approval” of a “project” requiring CEQA review. Key principles, holdings, and takeaways from the Court’s opinion include:

  • Whether the MOU constituted a “project” requiring CEQA review is reviewed de novo (citing Fullerton Joint Union High School Dist. v. State Bd. of Education (1982) 32 Cal.3d 779, 794; Parchester Village Neighborhood Council v. City of Richmond (2010) 182 Cal.App.4th 305, 310), while the remaining issues challenging County’s quasi-legislative action are reviewed under an “arbitrary and capricious” standard.
  • Under the principles of Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116 (“Save Tara”) and its progeny, “under the facts of this case, the [MOU] was not a project for purposes of CEQA” and “an EIR was not required for the [MOU] standing alone.”
  • “[A]n agency has no duty of compliance with CEQA unless its actions will constitute (1) “approval” (2) of a “project.”” (Citing Parchester Village, supra, 182 Cal.App.4th at 310-311, internal citations omitted.)
  • “The term “project” refers to the activity which is being approved and which may be subject to several discretionary approvals” and it “does not mean each separate governmental approval.” (Citing 14 Cal. Cal. Code Regs., § 15378(c).)
  • The MOU will not cause a direct or reasonably foreseeable indirect environmental change. It “provides that after the Plan is completed and approved, the County retains full discretion to consider the final EIR and then to approve the Project, disapprove it, or require additional mitigation measures or alternatives.” Thus, under the MOU’s terms, “[a]ny approval of the Cadiz Project itself is expressly conditioned on final CEQA review” and “several steps [following the MOU] must still occur before the Cadiz Project can be approved by the County[.]”
  • Because the MOU “does not commit the County to any activity with direct or indirect impacts on the environment” it was distinguishable from the factual circumstances in Save Tara (numerous city actions showed commitment to definite course of action regarding housing project that as a practical matter foreclosed alternatives or mitigation measures ordinarily part of CEQA process) and RiverWatch v. Olivenhain Municipal Water Dist. (2009) 170 Cal.App.4th 1186 (60-year contract to truck 244,000 gallons of water per day to landfill plus construction of necessary 1,000-foot concrete road and loading pad was “project” requiring CEQA review).
  • The Court held the facts of the case before it were more analogous to those in Cedar Fair, L.P. City of Santa Clara (2011) 194 Cal.App.4th 1150, which also involved a “public-private partnership” and concluded a highly detailed “term sheet setting forth the terms of a transaction to develop a football stadium was not a project requiring environmental review[,]” notwithstanding that “the city’s redevelopment agency had invested a large amount of money in the process of reaching the agreement set forth in the term sheet, and the term sheet had been approved by the city council[,]” because its terms were not binding – even conditionally – and “only bound the parties to negotiate in good faith toward a final agreement.”
  • Per the Court: “[T]he [MOU] does not foreclose alternatives or mitigation measures. It does not commit the County to a particular course of action that will cause an environmental impact. The County retained full discretion over the Project despite its execution of the [MOU]. Therefore, the [MOU] could be executed by the County without conducting a full environmental review.”

The case doesn’t really break new legal ground, but does apply Save Tara’s principles to an interesting factual scenario involving actions of a public-private partnership in connection with a major (and controversial) groundwater mining and export project. The ultimate takeaway may be that County’s special counsel was clearly familiar with the relevant CEQA precedents, and did an excellent job of structuring and drafting the MOU so as to (1) accomplish its purpose (i.e., confirming prior to Project approval that the Project would be excluded from permitting requirements under the County’s local groundwater management ordinance) while (2) retaining enough flexibility and reserving the County’s full discretion to act on the Project in the future so as to avoid any requirement for CEQA review of the MOU standing alone.