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On March 2, 2015, the California Supreme Court issued its decision in Berkeley Hillside Preservation v. City of Berkeley.  The Supreme Court ruled that the “substantial evidence” test applies to an agency’s determination whether “unusual circumstances” exist in the context of the exception to a categorically exempt project under the California Environmental Quality Act (CEQA).  The Court also held that the less deferential “fair argument” standard applies to an agency’s determination of whether any unusual circumstances identified by an agency raise the possibility of a significant impact to the environment.

Background

The Berkeley Hillside case arose from the City’s of Berkeley’s issuance of a permit for the construction of a 6,500 square-foot home and adjoining 3,400 square-foot garage on a lot in the Berkeley hills.  During project review, the City initially determined that the project was categorically exempt from CEQA under the Class 3 and 32 exemptions contained in the CEQA Guidelines at sections 15303(a) and 15332.  The City also determined that the “unusual circumstances” exception to categorical exemptions did not apply in this case.  The “unusual circumstances” exception, at Guidelines section 15300.2, reads “[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.”

Plaintiff, Berkeley Hillside Preservation (BHP) claimed that the project was not exempt because the proposed project’s unusual size, location, nature and scope would have a significant environmental impact.  BHP also claimed that the geotechnical analysis was incomplete and the necessary additional construction would result in significant impacts to the environment.  The City had evidence in the record from its technical experts indicating that the project was suitable for the site.  Ultimately, the City approved the project as designed and filed a notice of exemption citing Sections 15303(a) and 15332.

BHP filed suit challenging the project on CEQA grounds.  The City prevailed at the trial court.  BHP appealed and the Court of Appeal held that the unusual circumstances exception precluded the City from relying on the exemptions because the fact that the project may have an effect on the environment is itself an unusual circumstance that triggers the exception.  The Court of Appeal also held that the standard for determining whether the exception does not apply is whether the record contains evidence of a reasonable possibility of a significant effect on the environment.  In doing so, the Court of Appeal endorsed the less-deferential “fair argument” standard for this latter inquiry, rather than the “substantial evidence” test.

Supreme Court Decision

The California Supreme Court addressed the issues of whether the “unusual circumstances” exception to the application of categorical exemptions under CEQA is subject to the “substantial evidence” or “fair argument” standard when considering whether such circumstances exist, and in determining whether such circumstances might cause a significant environmental impact.

On the first issue, the Supreme Court held that the Court of Appeal erred and that the “substantial evidence” test applies when determining whether such unusual circumstances exist.  The Court reasoned that allowing the exception to preclude use of an exemption where there is the possibility of a potential effect on the environment would defeat the Legislature’s intent that there be categories of projects that have been determined not to have a significant effect on the environment.  The Supreme Court noted that plaintiffs sought to read the “unusual circumstances” language out of the exemption, and the Court held that was inappropriate.  Thus, an agency’s determination regarding the existence of “unusual circumstances” will be upheld by a court if there is substantial evidence in the record supporting such a determination, regardless of whether the evidence is contradicted or uncontradicted.

As to whether there is a “reasonable possibility” that an unusual circumstance will produce a significant effect on the environment, the Supreme Court concluded that a different approach is appropriate.  The Court held that the fair argument standard is intended to guide determination of whether a project has a significant effect on the environment.  The Court reasoned that once unusual circumstances are established, the findings as to the typical effects of projects in an exempt category no longer control, and because there has been no prior review of the unusual circumstances, an agency must evaluate such effects under the fair argument standard.  Thus, a categorical exemption may not be used when there is a “fair argument” that the project may have significant environmental effects, even when the agency is presented with substantial evidence to the contrary.

The Supreme Court remanded the case to the Court of Appeal for application of the two-part test set forth in this decision.

Conclusion

Berkeley Hillside provides needed clarity on the question of the standards that apply to the unusual circumstances exception to application of CEQA categorical exemptions.  The Supreme Court determined that agencies receive deference in determining whether unusual circumstances exist, and will be judged by the substantial evidence standard in such cases.  Once there is a determination that unusual circumstances exist, an agency will be held to the less deferential “fair argument” standard, which mandates CEQA review if there is evidence supporting the possibility of a significant effect on the environment.

For further information on this issue, please contact Aaron Ferguson ataferguson@somachlaw.com.

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