Background

A long time ago, in a legal galaxy far, far away, Emperor Reagan signed the California Environmental Quality Act (“CEQA”) into law. For many years, the “dark forces” that had wrought the adverse environmental impacts giving rise to CEQA – land developers and the public agencies granting their approvals – labored under its ever-expanding yoke. Many litigation battles were fought, and many won by the heroic Jedi of the environmental plaintiffs’ bar and their NGO clients, firmly establishing the preeminence and vast reach of CEQA’s seemingly beneficent empire into the far-flung corners of the legal universe. CEQA’s “force” was such that no project with the potential to effect a physical change in the environment, unless granted legislative or magisterial exemption, escaped its watchful eye and mitigating powers.

Over time, developers, agencies and their legal counsel grew familiar and comfortable with CEQA. They began to accept and even anticipate its requirements, with many developers routinely “pre-mitigating” their proposed projects to achieve compliance and avoid (or attempt to avoid) dreaded CEQA litigation battles, which were bloody, costly and could last for years, imperiling the very viability of the development. While battles naturally were still fought at the ill-defined outermost reaches of its empire, most important issues became well settled; a period of relative peace and prosperity ensued under CEQA’s reign. All in all, CEQA-reviewed approved developments were vastly improved, and were in far greater harmony with the environment than those developed in the dark ages preceding CEQA.

But this period of relative balance and harmony did not last. Over time, fueled by the rise and unrest of the NIMBYs and NOPEs, CEQA was weaponized and its powers increasingly used for stopping development entirely rather than making it environmentally superior. Much needed affordable housing and commercial projects for the empire’s inhabitants were sued and thwarted due to alleged significant aesthetic and cultural impacts, noise, traffic inconveniences, and cumulative impacts of infinite variety conjured by the plaintiff bar’s diabolically clever Jedi. Every significant development project now needed not only to factor into its timelines and budget CEQA compliance, but also CEQA litigation. A dark time of great cynicism began, and CEQA’s weaponization continued to the point where plaintiffs no longer even pretended to fight for the environment, but hired Sith Lords who brazenly extorted developers for economic gain, demanding project labor agreements or simply the payment of money to lay down their litigation lightsabers.

Courts took some actions to limit and curb CEQA abuses, but their powers were limited. Emperor Schwarzenegger did what he could, as did Emperor Brown – who declared reform of CEQA to be “the Lord’s work” – but still the Imperial Senate (California’s democrat-controlled legislature) refused to act. Absent meaningful legislative reform, the task of reform fell largely to courts, and some frustrated developers began to fight CEQA litigation abuses with novel litigation of their own, now brought under the Supreme Law of the land in United States courts . . . .

The Developer Strikes Back

Last month I wrote about recently filed federal RICO litigation brought by Hollywood hotel developers against defendants who allegedly used and abused CEQA solely to extort monetary settlements. (“CEQA Meets RICO: True Stories of Extortion and Litigation Abuse in Tinseltown,” posted July 12, 2019.) Subsequently, another similar federal court case, also filed in the Central District of California, came to my attention. In that litigation, an order partially granting and mostly denying motions to dismiss was filed on August 7, 2019. Icon at Panorama, LLC v. Southwest Regional Council of Carpenters, et al., U.S. Dist. Ct. (C.D. Cal.) Case No. 2:19-cv-00181-CBM (MRW). In the Icon litigation, the plaintiff developer of a large, mixed-use project (Icon) sued labor union defendants who allegedly engaged in a “pattern and practice” of making bad faith CEQA challenges and filing meritless CEQA litigation to attempt to leverage exclusive union labor agreements with Icon and other developers. As recited in the background section of the court’s order:

Icon alleges that it submitted plans to develop a multi-use complex in Panorama City in 2016. The plans for the $150 million project purportedly included 632 residential units, a 17-acre public park, and thousands of feet of retail. Icon alleges that . . . two union organizations and several individual members of those unions [(“the Unions”)], vehemently opposed the project. The Unions purportedly submitted false challenges under the California Environmental Quality Act (CEQA) to the local planning commission. The Unions then purportedly agreed to withdraw their CEQA challenges if Icon would agree to only use union labor on the project. Thus, the complaint alleges the challenges were made in bad faith to pressure Icon to use only union labor on the project. The CEQA challenges were subsequently denied and the project was unanimously approved by the City Council. The LA City Planning Commission President purportedly publicly admonished Defendants and stated that they “weaponized” CEQA with their challenges that were “patently false.” However, in October 2018, the Unions filed a writ of mandamus in Superior Court under the CEQA statute. The complaint further alleges that this is a pattern and practice of conduct. The Unions allegedly repeated this use of false CEQA challenges to delay projects and pressure developers into agreeing to only use union labor throughout Los Angeles county. The complaint alleges that the Unions use the same two environmental firms (codefendants, Smith and SWAPE) and “templates” to file identical CEQA challenges in each of these cases. These firms are allegedly complicit in the scheme as they are willing to submit false CEQA reports for improper purposes.

(8/7/19 Order re Motion to Dismiss, at 1:20-2:17.)

This type of scenario will no doubt seem familiar to many CEQA litigators, who will also be interested in the fact that the Union defendants failed in their efforts to get Icon’s lawsuit dismissed for failure to state a claim. The district court denied the individual defendants’ motion to dismiss based on the Norris-LaGuardia Act (NLGA), which precludes courts from issuing injunctive relief in cases involving “labor disputes.” (29 U.S.C. § 101.) Per the Court, defendants’ “argument misstates the cause of action, which is premised on the Union’s alleged “pattern and practice of filing repeated sham litigation under the guise of the California Environmental Quality Act” with the goal of excluding nonunion labor from subcontracting on the Icon project. This practice is not a labor dispute under the [NLGA].” (Order, at 5:1-9, citation omitted.)

The district court further held that while the individual labor union members were not liable for money damages, by virtue of provisions of the Labor Management Relations Act (LMRA), injunctive relief would be available against the individual defendants for allegedly taking actions furthering the Unions’ unlawful actions.

Addressing defendants’ motion to dismiss the complaint’s four antitrust causes of action – for monopolization, conspiracy to monopolize, directing “group boycott,” and conspiracy to enter into exclusive dealing arrangement – brought under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act, the court denied the motion, except as to the claim under Section 3 of the Clayton Act, which it found does not apply to the alleged attempted monopolization of labor “services.” In rejecting defendants’ motion to dismiss the antitrust claims brought under the Sherman Act, it found that the Noerr-Pennington doctrine’s protection of actions petitioning the government to redress grievances did not apply to “sham” petitions that are objectively baseless and intended to directly interfere with the business relationships of a competitor. Here, the complaint adequately alleged facts showing “the objective baselessness of the purported sham CEQA petitions” and the “subjective intent to interfere with Icon’s business through CEQA petitions.”

The court further rejected defendants’ attempted invocation of statutory and non-statutory exceptions to antitrust liability to support their motion to dismiss. The statutory exemption requires unions (1) not to combine with non-labor groups, and (2) to act in their legitimate self-interest. But, the allegations here adequately alleged the Unions combined with a non-labor group – environmental firms SWAPE and SEM – and the court also noted that the legitimate interest of encouraging union labor cannot be pursued by “pressing frivolous lawsuits [or] automatically protesting against permits sought by [plaintiff].” (Quoting USS-POSCO Indus. v. Contra Costa Cty. Bldg. & Constr. Trades Council, AFL-CIO (9th Cir. 1994) 31 F.3d 800, 809.)

The nonstatutory exemption shielding collective bargaining agreement and actions from antitrust liability also did not avail the moving defendants. That exception to liability for parties to a collective bargaining agreement restraining trade applies only if (1) the restraint primarily affects the parties to the agreement and no one else, (2) the agreement concerns mandatory subjects of collective bargaining (i.e., wages, hours, conditions of employment), and (3) the agreement results from “bona fide, arm’s length collective bargaining.” The motion to dismiss on this ground failed because the complaint’s “allegations include that the Unions’ demand was made prior to the establishment of any relationship and that the exclusion of all nonunion labor would restrain trade in ways that do not relate to wage or working conditions.”

The court further rejected the Carpenters’ claim that because the two union defendants were not one firm they could not be liable for monopolization under the Sherman Act; there were no allegations the Unions competed in the same market but, rather, the claim was they were attempting (with the other defendants) to monopolize the markets in which each specific Union operated. Under the “rule of reason,” the complaint sufficiently stated monopolization and exclusive dealing claims under the Sherman Act, although (as noted above) not under the Clayton Act. The Unions’ attempted invocation of the NLRA’s “construction industry provision,” exempting agreements between a labor organization and construction industry employer relating to contracting or subcontracting work (29 U.S.C. § 158(e)), also failed as the allegations did not include such an agreement.

Defendants did succeed in getting the court to dismiss Icon’s RICO claims. The complaint failed to sufficiently allege a key element of its two alleged predicate acts – extortion and mail fraud – which is the obtaining of property as a result. Further, the allegations that the Unions filed sham petitions to delay Icon’s 2016 project insufficiently alleged the requisite “pattern of racketeering activity.” Icon must either amend or elect not to by August 21, 2019.

CEQA Reform Awakens?

It will be interesting to see how this litigation further unfolds, whether the developer – assuming it is able to prove its factual allegations – ultimately obtains effective relief, and whether similar suits will be filed by other fed-up developers aggrieved by sham extortionate CEQA claims. Federal litigation by developers seeking a remedy for outrageous abuses of CEQA seems to be a natural outgrowth of the California legislature’s continued failure to meaningfully reform the statute to address such abuses. Whether it succeeds in turning CEQA from the “dark side” is clearly a development that bears watching.