This material also was published as a bylined article on Globe St. on March 11, 2015.

Developers and agencies seeking to expedite project reviews under the California Environmental Quality Act (CEQA) often chafe under its unique “fair argument” standard of judicial review, which sets a very low bar for challenges to short-form environmental documents. Rejecting attempts by lower courts to extend the fair argument standard, in Berkeley Hillside Preservation v. City of Berkeley, the California Supreme Court held that traditional, agency-deferential review applies when determining whether “unusual circumstances” exist which may preclude reliance on a CEQA exemption. However, any encouragement to developers and agencies was promptly tempered by the second step of the Court’s analysis, holding that the plaintiff-favorable fair argument standard applies when determining whether, in turn, those unusual circumstances may cause significant environmental impacts.

Certain types of projects, such as construction of small structures or minor changes to existing structures, are considered “categorically exempt” from the often time-consuming and expensive process of CEQA review. The reasoning behind these exemptions is that projects in the specified categories are limited in nature and ordinarily do not pose a risk of causing adverse environmental impacts. However, even when projects meet the requirements for a categorical exemption, they may nevertheless be subject to CEQA review if the project would have a significant effect on the environment due to “unusual circumstances,” which constitutes an exception to the exemption.1

California courts have struggled with the standard to apply in “unusual circumstances” cases. Some have applied the “fair argument” standard, under which the exception applies, and the otherwise exempt project becomes subject to CEQA, if the lead agency is presented with evidence raising a “fair argument” that a project may have a significant environmental effect—despite any other evidence to the contrary. In Berkeley Hillside Preservation v. City of Berkeley,2 the California Supreme Court chose to set a different course.

In this case, the project applicant received approval to build what would be one of the largest single-family houses in Berkeley, including a nearly 6,500 square foot residence and a 10-car garage in a steep, wooded canyon. Despite the exceptional size of the house, the City approved the project without CEQA review, finding that the project fell under the Class 3 CEQA categorical exemption for a single family residence3 and the Class 32 CEQA categorical exemption for in-fill development projects.4 Litigation followed.

The Court of Appeal held that the exception to the exemption applied, because there was a reasonable possibility that the project would cause significant impacts due to unusual circumstances. In particular, the Court of Appeal held, first, that the fair argument standard applied to plaintiffs’ evidence of significant impacts and, second, that the possibility of significant impacts from an otherwise exempt category of activity was, in itself, an unusual circumstance voiding the exemption. Thus, the plaintiffs did not need to separately demonstrate that the significant impacts were attributable to some unusual circumstances, independent of the existence of potential impacts.

On appeal, the Supreme Court reversed, holding that the phrase “due to unusual circumstances” in CEQA Guidelines § 15300.2(c) is not surplusage and must be separately demonstrated, in addition to the reasonable possibility of significant impacts. The Court found that to hold otherwise and allow the finding of potentially significant impacts, without more, to negate categorical exemptions would cause the exception to swallow the rule: all of the categorical exemptions—all of which are subject to the exception in § 15300.2(c)—would collapse into the “common sense” CEQA exemption, for actions that have no possibility of causing impacts and so are not subject to CEQA in the first place.

The Court went on to hold that the traditional, agency-deferential substantial evidence test, not the plaintiff-deferential fair argument test, applies to determining whether unusual circumstances in fact exist. In doing so, the Court rejected prior cases extending the fair argument test to determining whether unusual circumstances exist. However, there is a crucial caveat: Once the existence of unusual circumstances is shown by substantial evidence, the fair argument standard applies to determining whether there is a reasonable possibility that the unusual circumstance will produce a significant impact. The Court was unmoved by the respondents’ and the concurring opinion’s objections that this “bifurcated approach” to the determination of unusual circumstances and their potential impacts is unnecessarily cumbersome and defeats the Legislature’s intent in creating categorical exemptions.

The Court also opened another avenue for future CEQA challengers, noting that, if a plaintiff provides substantial evidence (not a fair argument) that a project will have a significant effect, that fact in itself does “tend to prove that some circumstance of the project is unusual.” Categorical exemptions represent categories of activities that in most circumstances do not have significant impacts. Accordingly, if there is evidence that a project in the usually-exempt category nevertheless will have significant impacts, that evidence may be enough to suggest that some unusual circumstance is involved.

More litigation is certain to follow the ruling, which creates a novel, bifurcated standard and substantially alters existing case law on CEQA categorical exemption and exceptions. As for the applicant in this case, it remains to be seen whether, applying the Court’s new test, the large size of the proposed house and its allegedly vulnerable hillside location may be found on remand to constitute unusual circumstances.