In a published opinion filed January 31, 2018, the Fifth District Court of Appeal affirmed the trial Court’s judgment issuing a writ of mandate voiding the California State Air Resources Board’s (“CARB”) 2014 amendments to its 2008 Truck and Bus Regulation and its related environmental review documents, which were the functional equivalent of a negative declaration under CARB’s certified regulatory program. John R. Lawson Rock & Oil, Inc. v. State Air Resources Board (2018) 20 Cal.App.5th 77. The 2008 regulations required retrofitting and upgrading of large diesel vehicles to the equivalent of 2010 or newer model engines to reduce emissions of diesel particulate matter (PM), nitrogen oxides (NOx), and greenhouse gases (GHGs).

To assist small fleets (three or fewer trucks) that were under a January 1, 2014 deadline transition into compliance, CARB’s staff proposed modified regulations and issued an interim advisory allowing small fleet owners regulatory flexibility. In essence, if such small fleet owners met relevant criteria showing good faith efforts toward compliance, CARB would forego enforcement actions for an additional six-month period (until July 1, 2014) while it was considering modifications to the Truck and Bus Regulation that would extend its relevant compliance deadlines and make it less stringent. CARB ultimately adopted the modifications in late December 2014, finding that while they would cause a temporary, near-term delay in some emission reduction benefits, this change in timing would not increase emissions over existing environmental conditions and there were therefore no significant adverse air quality effects requiring mitigation.

The trial court granted the writ petition of an interest group and a fleet operator that had incurred substantial expense complying with the stricter regulations, finding that CARB (1) improperly and prematurely approved regulatory amendments before completing environmental review; (2) adopted an incorrect baseline for measuring impacts; (3) should have prepared the functional equivalent of an EIR; and (4) violated the Administrative Procedure Act (APA) by conducting a deficient economic impact analysis.

The Court of Appeal affirmed, but on narrower grounds than the trial court. Key takeaways from the Court’s CEQA analysis include:

  • Certificated regulatory programs (like CARB’s) provide for environmental review procedures that are the functional equivalent of CEQA; while agencies under such programs need not prepare initial studies, negative declarations, or EIRs, they remain subject to other CEQA provisions, policies, and legal mandates. Judicial review of the substitute environmental document of an agency for its legislative or quasi-legislative actions is conducted under the same prejudicial abuse of discretion standard normally applied in CEQA actions. Under that familiar standard, claims of procedural error are reviewed de novo while factual challenges invoke review of the challenged finding or determination for substantial evidence support.
  • CEQA’s “timing requirement” codified in Guidelines § 15004(b) requires CEQA and substitute documents be completed and considered prior to project approval, in order to inform decisionmakers before making their decisions and to avoid post hoc rationalizations. Here, in issuing the regulatory advisory and providing “flexibility” to small fleet operators by foregoing enforcement of current regulations prior to their formal modification, CARB improperly approved a project – the modified regulations – for purposes of CEQA before completing the required environmental review. “[A] project is a broad concept under CEQA that asks whether certain entities’ activities “may cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change ….” (Citing Friends of the Sierra Railroad v. Tuolumne Park & Recreation Dist. (2007) 147 Cal.App.4th 643, 653, internal quotes and text omitted.) A project approval occurs upon the agency’s earliest commitment to a definite course of action regarding a project, not when the final or last discretionary approval occurs. Per the Court: “[T]he core issue [is] whether the agency has taken any steps foreclosing alternatives, including that of not going forward, or has otherwise created bureaucratic or financial momentum sufficient to incentivize ignoring environmental concerns.”
  • Applying the above standards and principles, the Court held that CARB’s actions “significantly furthered the proposed regulations in a manner that foreclosed the alternative of not modifying the regulations.” At the point it made the regulatory advisory in late 2013, CARB, “through its staff’s statements, had confirmed it intended to change the current regulations and that it would not prosecute any fleet operator that failed to comply with the 2014 regulations [for several months].” This conduct qualified as approval of the modified regulations under CEQA by putting substantial momentum behind the modifications and wholly precluding any “not going forward” option. The Court rejected CARB’s argument that it was merely exercising its “prosecutional discretion” in this regard as “fundamentally flawed” because the Court was merely enforcing CEQA’s mandates and not curbing lawful agency prosecutional discretion.
  • To the extent the trial court ordered preparation of an EIR, it erred because a writ cannot control lawful discretion retained by the agency regarding how to comply with CEQA; it remained possible that CARB could choose “no project” or issue something similar to a mitigated negative declaration.
  • Contrary to the trial court’s ruling, CARB did not abuse its discretion and violate CEQA in adopting a baseline consisting of actual environmental conditions without regard to expected future pollution reductions based on the existing regulations. Per the Court: “[T]he Board was within its discretion to adopt a baseline calculation that measured the current environment without further reducing figures based on regulations that should have taken effect during the course of the analysis.” It found “strong support” for its conclusion in Communities for a Better Environment v. South Coast Air Quality Management Dist. (2010) 48 Cal.4th 310, which condemned a baseline approach using hypothetical allowable, but not actually realized, physical conditions as illusory and misleading. (Citing id. at 321 [“the impacts of a proposed project are ordinarily to be compared to the actual environmental conditions existing at the time of CEQA analysis, rather than to allowable conditions defined by a plan or regulatory framework”].) The Court held that a baseline assuming full compliance with existing regulatory standards here would be similarly illusory and misleading given the “recognized fact” that many small fleet operators were unable to comply, and the “natural unevenness in implementation and enforcement.” It further observed that: “CEQA is not meant to stand as a barrier to appropriate modifications to environmental regulations, whether they tighten or loosen existing regulations, provided the lead agency properly informs the public of the effects of those modifications and no significant environmental impact will arise.” The Court accordingly held that “substantial evidence supports the Board’s decision to measure current existing conditions without reference to future expected reductions based on existing conditions.”
  • In reaching its baseline conclusions, the Court did not take issue with respondents’ assertion that “existing environmental conditions” include applicable laws and regulations, but noted that that point “does not prove the [methodological] error respondents pursue.” In setting its existing conditions baseline, CARB did take applicable laws and regulations into account “as they had affected the environment at that point in time” and did not improperly “retroactively exclude” them as respondents asserted.
  • Despite its baseline holding, the Court of Appeal nonetheless held that CARB erred in adopting the functional equivalent of a negative declaration because it improperly failed to address a fair argument that the project would have significant adverse short-term environmental impacts in the form of increased NOx, PM, and GHG pollution. Per the Court: “[T]he Board may not rotely apply standards of significance that do not address that potential impact once evidence of the risk has been identified.” The Court stated this presented an issue separate from the baseline determination that CARB should have addressed because evidence in the record supported a fair argument of significant near-term impacts.

In the non-CEQA portion of its opinion, the Court held CARB failed to comply with the APA’s requirement to conduct a sufficient economic impact analysis, which here should have included a discussion of “evidence of impacts to specific segments of business already doing business in California [i.e., compliant businesses like respondents] from benefits to other in-state businesses [i.e., the competing small fleet operators receiving regulatory flexibility and enforcement forbearance],” instead of focusing solely on disadvantages to in-state businesses from out-of-state competition.

It is pretty clear that this “CEQA” lawsuit was more about economic impacts and business competition than about protecting the environment – but, hey, the Supreme Court has made clear that business competitors have standing, too. CARB’s “prosecutorial discretion” argument here seems to have substantial appeal from a common sense perspective under all the circumstances – after all, why would it spend scarce government resources pursuing violators of regs it was about to change? – but the Court gave it short shrift. Ironically, it seems CARB might have fared better on the pre-approval issue had it been less transparent about its enforcement policies. Finally, while the Court’s determination that CARB was required to analyze specific air quality/GHG impacts on a shorter-term basis than it did may have been correct given the specific facts and evidence contained in the record, and the fact that CARB prepared only the equivalent of a negative declaration and not an EIR, it should not be forgotten that lead agencies have substantial discretion in selecting methodologies to conduct technical analyses and to design their own EIRs.

Questions? Please contact Arthur F. Coon of Miller Starr Regalia. Miller Starr Regalia has had a well-established reputation as a leading real estate law firm for more than fifty years. For nearly all that time, the firm also has written Miller & Starr, California Real Estate 4th, a 12-volume treatise on California real estate law. “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state. The firm has expertise in all real property matters, including full-service litigation and dispute resolution services, transactions, acquisitions, dispositions, leasing, financing, common interest development, construction, management, eminent domain and inverse condemnation, title insurance, environmental law and land use. For more information, visit www.msrlegal.com.