Berkeley Hillside Preservation v. City of Berkeley (2015) ___ Cal.4th ___, Case No. S201116

This week the California Supreme Court issued its long-awaited decision in the Berkeley Hillside case, which considered whether the City of Berkeley properly exempted a large single-family home on a hillside lot from CEQA review. The court’s lengthy opinion announced a new two-part test for the “unusual circumstances exception” to CEQA exemptions and the applicable standards of review. In doing so, the court not only reversed the First District Court of Appeal, but also resolved several other conflicting interpretations of the unusual circumstances exception. The case is important for agencies and developers because the new test will apply generally to categorical exemptions, and as discussed below, it suggests a strategy for defending against potential challenges to exemptions.

Summary of New Two-Part Test for “Unusual Circumstances” Exception to CEQA Exemptions

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The case stemmed from Berkeley’s approval of a 6,500-square-foot house and 10-car garage on a steep hillside lot. The city determined that the project was exempt from CEQA under the categorical exemptions for small projects and in-fill development. A neighborhood group challenged the approval and the exemption determination, arguing that the size of the house and the lot characteristics were unusual circumstances triggering the need for environmental review. The challenge was based on CEQA’s “unusual circumstances exception,” which makes categorical exemptions inapplicable where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.” CEQA Guidelines Section 15300.2(c).

The trial court rejected the challenge, upholding the city’s exemption determination. The First District reversed, agreeing with the neighborhood group that the unusual circumstances exception applied. Notably, in a split with other cases, the First District found that the possibility of a significant environmental impact was itself an unusual circumstance that could trigger the exception. The court rejected this interpretation. Applying basic principles of statutory construction, it found that the First District impermissibly read “due to unusual circumstances” out of the exception. The court instead adopted a new two-part test focusing separately on (1) unusual circumstances and (2) the possibility of an environmental impact. It reversed and remanded to the lower courts for application of the new test.

Under the new test, at the first step, the agency must decide whether an unusual circumstance exists. A court will review this decision under the “substantial evidence” standard, which is deferential to the agency. If there is an unusual circumstance, then the second step requires the agency to determine whether there is a reasonable possibility it will cause a significant environmental impact. A court will review this second determination under the less deferential “fair argument” standard, which is favorable to project opponents.

The court dismissed concerns that the new test, with separate standards of review at each step, would be “too complicated and cumbersome” for agencies and lower courts to apply. That may prove overly optimistic, as the new test seems destined to spawn further litigation over its proper application. In the meantime, agencies and developers should carefully document their categorical exemptions, focusing in particular on putting evidence in the record that will help show that unusual circumstances do not exist. Given the deferential standard of review at the first step, this will provide the best opportunity to protect against potential legal challenges.