When a lead agency finds a project approval to be categorically exempt from CEQA, this determination at the initial step of CEQA’s multi-tiered process necessarily includes an implied finding that no exceptions to the categorical exemption are applicable. A party challenging an agency’s categorical exemption determination on the basis that the “unusual circumstances” exception applies generally has the burden to show both (1) unusual circumstances (i.e., the project has some feature distinguishing it from others in the exempt class, such as size or location), and (2) “a reasonable possibility of a significant effect [on the environment] due to [those] unusual circumstance[s].” (Berkeley Hillside Preservation v. City of Berkeley (2015) 60 Cal.4th 1086, 1105, 1115.)

But how does a court review an “unusual circumstances” challenge to a categorical exemption where the agency has made no express findings on these elements and must thus rely on implied findings to uphold its determination? In a published opinion filed September 18, 2017, the First District Court of Appeal answered this important question in the course of affirming a judgment denying a writ petition that challenged the City of South San Francisco’s (City) conditional-use permit (CUP) for conversion of an office building to a Planned Parenthood medical clinic. Respect Life South San Francisco v. City of South San Francisco (Planned Parenthood Mar Monte, Inc., Real Party In Interest) (1st Dist., Div. 1, 2017) ___ Cal.App.5th ___. While the City’s categorical exemption in this case was upheld based on an implied finding, the opinion’s most important takeaway for local agencies (and project proponents) is that reliance on such a finding presents far more litigation risk than if appropriate express findings are made.

The Project and the City’s Administrative Proceedings and Decision

The challenged CUP authorized conversion of an existing downtown office building to a medical clinic whose anticipated tenant (Planned Parenthood) would provide an array of medical services, potentially including medical abortions. The only physical changes to the building authorized were “interior alterations, minor exterior repairs, and a new sign.” The City’s Planning Commission approved the CUP after a public hearing and determining it fell within several categorical exemptions.

The City Council, after another full hearing featuring testimony and evidence from both clinic opponents and supporters, rejected Respect Life’s administrative appeal asserting “unusual circumstances,” i.e., that ensuing protests of the use would cause significant traffic, parking and health and safety impacts requiring an EIR. The Council found applicable three categorical exemptions: (1) operation of existing facilities (CEQA Guidelines, § 15301); (2) conversion of small structures (§ 15303); and (3) development of urban in-fill (§ 15332). But the Council did not make express findings addressing Respect Life’s arguments that the “unusual circumstances” exception to those exemptions applied.

The Court of Appeal’s Decision and Analysis

In affirming the trial court’s judgment denying Respect Life’s writ petition, the Court of Appeal likewise rejected its arguments that the unusual circumstances exception to those exemptions applied, summarizing its holding as follows: “We conclude that Respect Life has failed to show that the City prejudicially abused its discretion by making an implied determination that the exception was inapplicable. We reach this conclusion because Respect Life has not identified substantial evidence in the record to support a fair argument of a reasonable possibility that the project will have a significant effect on the environment due to unusual circumstances.” (Emph. added.)

Preliminarily, the Court rejected real party Planned Parenthood’s argument that Respect Life lacked standing, observing that “[f]or a party to have standing to petition for a writ of mandate, the party must have a beneficial interest in the litigation.” (Citing Save the Plastic Bag Coalition v. City of Manhattan Beach (2011) 52 Cal.4th 155, 165; Code Civ. Proc., §§ 369.5, 1086.) It held Respect Life met this requirement because it duly alleged in its verified petition (and nothing in the record refuted) that it was an unincorporated association of individuals living in San Mateo County, with a geographic nexus to the project; residing in the project’s vicinity and affected by its environmental impacts; and organized to protect the region’s residents from the project’s environmental impacts and the City’s failure to assess and mitigate them. The Court thus proceeded to reach the merits of Appellant Respect Life’s arguments.

Focusing on the “initial step” in CEQA’s multi-tiered process, i.e., “a preliminary review in order to determine whether CEQA applies to a proposed activity” (quoting Parker Shattuck Neighbors v. Berkeley City Council (2013) 222 Cal.App.4th 768, 776), the Court noted this review stage requires the agency to determine whether the activity is a “project” for CEQA purposes and, if so, whether it falls under an exemption. While statutory exemptions generally admit of no exceptions, categorical exemptions are subject to exceptions set forth in Guidelines § 15300.2 (see id., at § 15061(b)(2)), including the commonly invoked “unusual circumstances” exception at issue in this case, which posits that “[a] categorical exemption shall not be used for an activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.” (§ 15300.2(c).)

Reviewing the administrative record and the agency’s action de novo in the same manner as the trial court, the Court of Appeal observed:

[T]he City’s decision in the initial step of the multi-tiered process that the approval of the conditional-use permit was exempt from CEQA necessarily included an implied determination that the unusual-circumstances exception was inapplicable. The standards governing an entity’s determination of the applicability of the unusual-circumstances exception differ from the standards governing a court’s review of that determination, but both sets of standards are critical here. (Emph. in orig.)

Applying these standards, the Court noted that, first, a party arguing to the agency had the burden to show two elements: (1) unusual circumstances, and (2) a reasonable possibility of significant environmental effect due to those unusual circumstances. Second, a court reviewing the agency’s decision under the applicable abuse of discretion standard must review its finding on the first “essentially factual” element under a deferential “substantial evidence” standard, and its finding on the second element under a non-deferential “fair argument” test, i.e., “whether substantial evidence support[s] the agency’s conclusion as to whether there is a fair argument of a reasonable possibility that the activity will have a significant effect on the environment.” (Quoting Berkeley Hillside, supra, 60 Cal.4th at 1115, internal quotations omitted.)

Because the City here made no explicit findings on the exception’s two elements, however, its determination that the unusual-circumstances exception was inapplicable was necessarily implied, meaning that the Court could not “say with certainty whether it found against Respect Life on the first element, the second element, or both.” In such a scenario, the Court reasoned:

… a court’s ability to affirm is constrained. The Court may affirm on the basis of the first element – which, again, asks whether the project presents any unusual circumstances – only if the court assumes that the entity found that there were unusual circumstances and then concludes that the record does not contain substantial evidence of any such circumstances. A court cannot, however, affirm on the basis of the first element by simply concluding that the record contains substantial evidence that there are not unusual circumstances. This is because such an approach fails to address the possibility that the entity thought there were unusual circumstances but concluded, under the second element, that these circumstances did not support a fair argument of a reasonable possibility of a significant environmental effect. [¶] In contrast, a court need not make any assumption about what the entity found to affirm on the basis of the second element – which, again, asks whether there is a reasonable possibility of a significant environmental effect due to any unusual circumstances. This element presupposes the existence of unusual circumstances, and a court applies a non-deferential standard of review in considering it. Under this non-deferential standard, a court must affirm an entity’s implied determination that the unusual-circumstances exception does not apply if it concludes that no substantial evidence in the record supports a fair argument that there is a reasonable possibility the project will have a significant effect on the environment as a result of any purported unusual circumstances the petitioner identifies. (Emph. in orig.)

The court summarized its analysis as follows:

In short, a court cannot affirm an entity’s implied determination that the unusual-circumstances exception is inapplicable simply by concluding that the record contains substantial evidence that the project involves no unusual circumstances. Instead, to affirm such an implied determination, the court must assume that the entity found the project involved unusual circumstances and then conclude that the record contains no substantial evidence to support either (1) a finding that any unusual circumstances exist (for purposes of the first element) or (2) a fair argument of a reasonable possibility that any purported unusual circumstances identified by the petitioner will have a significant effect on the environment (for purposes of the second element).

Applying these standards to the case at bar, the Court held it need not address the first element because even assuming the record contained substantial evidence of unusual circumstances, Respect Life failed to identify any substantial evidence of potential environmental effect that could satisfy the second element. Even assuming the correctness of Respect Life’s arguments that protests would occur as foreseeable indirect or secondary project effects implicating CEQA, the record evidence about such impacts was “minimal, vague, and speculative” and “no evidence was presented to indicate that the total number of protesters would be large[,] … that the protests would be particularly disruptive” or “that any resulting increase in traffic, sidewalk use, noise, or disruptions to businesses would be consequential.” To the contrary, the only record evidence consisted of testimony showing the “protests were likely to be small and manageable,” and Respect Life forfeited parking-related arguments by failing to administratively appeal a parking exception approval by the City’s Parking Place Commission, which thoroughly considered such issues. In any event, the record evidence did not support a fair argument of parking or public safety impacts.

Finally, the Court declined to reach Respect Life’s argument that the City followed incorrect legal advice that a CEQA analysis could not consider impacts resulting from reactions to proposed use; regardless of this issue, Respect Life failed to demonstrate substantial evidence in the record created a fair argument of possible impacts, and “nothing in the record indicates that the City precluded Respect Life or any other party from presenting evidence” in the administrative proceedings. “If anything,” the Court observed, “the record reflects the City’s impressive willingness to permit full, unbridled comment, mostly by opponents of abortion.”

Conclusion And Implications

The First District’s opinion provides important analytical clarity regarding the nature of judicial review of challenges to an agency’s categorical exemption determinations made on the basis of the “unusual circumstances” exemption. Specifically, it lays down clear rules about how the Supreme Court’s Berkeley Hillside standards will be applied by reviewing courts when an agency does not make express findings negating the unusual-circumstances exception and is thus forced to rely on an implied finding in a subsequent judicial challenge. Essentially, courts in this context must analyze the implied finding as if made on the narrowest possible grounds and not assume that the agency found the project presented no unusual circumstances simply because some evidence in the record would support such a factual finding. Rather, a court can uphold the categorical exemption against the unusual circumstances challenge in this context only if (1) it finds the record contains no substantial evidence that could support a finding of unusual circumstances – a determination courts will likely be reluctant to make due to the broad discretion vested in the local agency to determine this “essentially factual” issue – or (2) it assumes the existence of unusual circumstances, but finds the record contains no substantial evidence supporting a fair argument of a reasonable possibility that any purported unusual circumstances identified by the challenger will have a significant environmental effect.

These rules put agencies defending categorical exemption determinations based on an implied finding that no exceptions apply at a distinct litigation disadvantage because their categorical exemptions will be subject to being overturned based on little more than a mere “fair argument” of possible environmental impact being made. This stands in stark contrast to the position of agencies that make an express factual finding that a project presents no unusual circumstances, since courts will defer to and uphold the latter finding if any substantial evidence in the record, contradicted or uncontradicted, supports it.

The opinion thus provides welcome guidance and clarity to courts applying Berkeley Hillside’s somewhat complex two-pronged standard of review in the implied finding context. But the practical lesson for CEQA lead agencies is equally important: be careful to make and support express findings negating claimed exceptions if you want to maximize the legal defensibility of your categorical exemption determinations.