Real Estate, Land Use and Environmental Law Blog

Homeowner Associations and Members Not Necessarily Bound By Arbitration Provisions in CC&Rs or in Related Purchase Agreement Where Developer is Initial Declarant

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 10 Aug 2010 17:36:57 +0000

Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC, No. D055422 (4th Dist. July 30, 2010)

By Michael Wilmar and Aaron Kleven

Homeowners and homeowner associations are not necessarily bound by arbitration provisions in a declaration of covenants, conditions and restrictions, or in a related purchase agreement, where the developer is the initial and only declarant. That is the implication of a July 30th ruling of the Fourth District of the California Court of Appeal. In Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC, a homeowner association brought a construction defect suit on behalf of itself and its members for damage to common areas. The developer of the condominium project attempted to block the suit, claiming the plaintiff was bound to an arbitration provision recorded in the project CC&R's. It argued the provision committed the Association to resolve all construction disputes through arbitration and waived the Association’s right to a jury trial. The purchase and sale agreements signed by the individual condominium owners also contained a jury waiver and a provision compelling owners to comply with the arbitration provision in the CC&R's. But the court concluded that the provision in the CC&R’s did not constitute an agreement sufficient to wave the Association's constitutional right to a jury trial. And it found the corresponding provision in the purchase and sale agreement unconscionable and unenforceable against the individual owners.

The problem with the arbitration provision in the CC&R’s was that the Association had no meaningful opportunity to agree to it. This arises from the way most homeowner associations are created. The developer (Pinnacle) drafted the CC&R's, including the arbitration provision, before the formation of the homeowner association. The Association then “[sprung] [sic] into existence” when the developer recorded the declaration. Pinnacle signed the CC&R's in its capacity as the Association's creator and initial declarant. The effect was that the CC&Rs were in effect before the Association had begun to function as a genuinely independent entity. Neither it not any of its members (other than the developer) ever had the opportunity to agree (or not agree) to waive their rights. As the court explained:

Based on the application of fundamental contract formation principles, we fail to see how the Association could have agreed to waive its constitutional right to a jury trial because, for all intents and purposes, Pinnacle was the only party to the "agreement," and there was no independent homeowner's association when Pinnacle recorded the CC&R's.

The court noted the absence of any express or implied conduct on the part of the Association indicating acceptance of the agreement. It found that the Association had no choice in the matter, and ruled that such a transaction could not form the basis of a binding agreement.

The decision marked a departure from the court's previous decision in Villa Milano Homeowners Ass'n v. Il Davorge, 84 Cal.App.4th 819 (2000), in which it had found the CC&R's to be a binding contract between a developer and a homeowner association. The court declined to follow that portion of the Villa Milano decision, calling it "poorly reasoned" and noting that the Villa Milano court was aware of the lack of an analytical framework for addressing "why the homeowners association, which makes no purchase, is also bound contractually." The Pinnacle court relied instead on its decision in Treo @ Kettner Homeowners Ass’n v. Superior Court, 166 Cal.App.4th 1055 (2008), in which it also declined to follow Villa Milano. In Treo, the court concluded that a provision in the CC&R’s making all disputes between a developer and a homeowner association subject to judicial reference was not a written contract, and hence insufficient to waive a constitutional right like trial by jury. The Treo court, explaining the lack of meaningful consent, noted the exhaustive length of most CC&R’s; that they are often written long before units are purchased; that they cannot be modified by the association; and that they are not signed by the parties. While the Pinnacle developer tried to distinguish Treo because it involved only judicial reference, the court found the general principal of voluntary consent between parties to be equally applicable to arbitration.

The developer also advanced an argument that the Association should be bound to the contract as a third party beneficiary, referencing Motorsport Engineering, Inc. v Maserati SPA, 316 F.3d 26 (1st Cir. 2002), in which a non-party to a contract was able to enforce it. But the court rejected this, noting that the case supported a third party beneficiary seeking enforcement of a contract but not a party to the contract seeking enforcement against a third party. In other words, the Association, as a third party beneficiary, might have the right to enforce the contract against the developer, but the developer, as a party to the contract, would not have that same right against the Association.

But the court clarified that this does not mean a developer cannot place an arbitration provision in CC&R’s. What made this provision unenforceable was the fact that it could not be modified by the Association or a homeowner without the written consent of the developer. As a viable alternative, the court suggested a provision that would let an association and its members decide via the amendment process whether to ratify a binding arbitration provision. It also suggested that a provision that went into effect automatically if an association failed to amend would be acceptable. The court stressed the “knowing and voluntary agreement” of all parties. Without this the right to a jury trial could not be waived.

The court also found the jury waiver in the purchase and sale agreement, and its reference to the arbitration provisions of the CC&R's unconscionable. Thus, even if it had decided that the Association was bound by the CC&R’s, individual owners would not be. The purchase and sale agreement contained a jury waiver, which the court noted was not emboldened or capitalized. It also included a clause whereby the owner agrees to "comply with Article XVIII of the [CC&R's] with respect to the dispute referenced therein." This clause was emboldened and capitalized, but contained no reference to arbitration, the subject of Article XVIII. Nor did it explain the types of disputes for which the owners had waived their right to a jury. To discover this information, the owner would have to read the CC&R's, which the developer had recorded but did not provide.

The court, relying on Chan v. Drexel Burnham Lambert, Inc., 178 Cal.App.3d 632 (1986) and King v. Larsen Realty, Inc., 121 Cal.App.3d 349 (1981), ruled that to provide for arbitration in a secondary document, an agreement must make a clear and specific reference to that document, and the contracting parties must know or have easy access to the terms of that document. The court did not view simply recording the documents as sufficient to satisfy these requirements. Without easy access the court found there would be a high degree of surprise because the purchaser had no easy way of finding out what rights are being waved.

The court also found the provisions unconscionable because they were presented on a take-it-or-leave-it basis at the end of a lengthy legal document. This, combined with their not being modifiable without the developers consent, meant the purchaser had no opportunity to negotiate the provision.

In addition, the court found the provision unfairly one-sided. It noted that the kinds of construction disputes subject to arbitration by the provision are the type most likely to be brought by an individual owner against the developer. It pointed out that numerous courts have found arbitration agreements unconscionable if they apply only to the types of claims likely to be brought by the weaker party, but exempt types of claims likely to be brought by the stronger party.

Judge O’Rourke wrote a brief dissent, adhering to the reasoning of Villa Milano, which essentially found that individual owners have constructive notice of the CC&R’s, and reasoned that they should not be permitted to use the Association as a “shell to avoid the application of the arbitration clause.” Judge O’Rourke also found no evidence of unconscionability, viewing the written consent clause as a simple application of California contract law, which states a contract cannot be modified without the consent of all parties.

The effect of this decision seems to be that developers cannot bind a homeowner association or an individual homeowner to an arbitration provision without giving them an opportunity to agree to it as an independent party. Drafting a binding arbitration agreement into the CC&R’s upon creation of the homeowner association may not guarantee the association is bound to that agreement. Furthermore, presenting the arbitration provision to individual purchasers on a take-it-or-leave-it basis might not form the basis of a binding contract. The court noted the fact that a jury trial is a constitutional right. It is unclear whether this ruling applies to provisions affecting rights that are not protected by the constitution.

Authored By:

Michael B. Wilmar
(415) 774-3242
MWilmar@sheppardmullin.com

and

Aaron Kleven
(415) 774-3282
AKleven@sheppardmullin.com

Three-Year Statute Of Limitations Applies To Inverse Condemnation Action

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 10 Aug 2010 00:00:13 +0000

William Bookout v. State of California ex rel. Department of Transportation, 2d Civil No. B214906 (2nd Dist., June 28, 2010).

By Michael Wilmar and Alex Merritt

In William Bookout v. State of California ex rel. Department of Transportation, the Second District Court of Appeal provided important guidance on whether an inverse condemnation action is subject to a three-year or five-year statute of limitations, and whether annual flooding constitutes a continuous or permanent nuisance.

In 2000, William Bookout purchased land in San Luis Obispo County and opened a nursery. The nursery flooded annually due to problems with a drainage system that carried rainwater from Bookout's parcel under a railroad track and then to a retaining pond on a neighboring parcel. In 2006, Bookout filed a complaint against five defendants who he alleged had contributed to the flooding: San Luis Obispo County, Caltrans, the Oceano Community Services District, the Pismo Oceano Vegetable Exchange, and the Union Pacific Railroad. His complaint stated claims of inverse condemnation, nuisance, trespass, and negligence. Bookout's theory of how the five defendants had caused the flooding was complex and not of central importance on appeal. But in short, he alleged that the Railroad and the Exchange had failed to properly maintain the parts of the drainage system that lay on their property, and that the government entities had worsened the flooding in various ways.

The Exchange settled, but the other four defendants proceeded to trial. The trial was bifurcated, so that one court heard the inverse condemnation claims and a second heard the tort claims. The first trial court granted a nonsuit on the inverse condemnation claims. It determined that Bookout's cause of action had accrued sometime prior to the middle of 2002, and therefore his 2006 complaint was barred by a three-year statute of limitations. Furthermore, the court found that Bookout had failed to carry his burden of proof on causation as to all the defendants except the Railroad. However, the court also found that the Railroad was not properly subject to an action for inverse condemnation because it was not a public entity.

The second court heard the tort claims and granted the defendants' motion for judgment on the pleadings. The court took judicial notice of the first court's ruling, and under the doctrine of collateral estoppel, found that Bookout had failed to prove causation as to all the defendants except the Railroad. The court then granted judgment on the pleadings in favor of the Railroad on the basis that all the remaining causes of action against it were barred by a three-year statute of limitations.

On appeal to the Second District, Bookout argued that both trial courts had erred. He raised a number of legal arguments, but his key contention was that both courts had applied the wrong statute of limitations.

Inverse Condemnation Claims

As to the inverse condemnation claims, Bookout argued that the trial court had improperly applied a three-year statute of limitations when it should have applied a five-year statute of limitations. The trial court had applied Code of Civil Procedure section 338(j), which sets a three-year limitations period for an "action to recover for physical damage to private property" under the takings clause of the California Constitution. Bookout argued that the court should have applied Code of Civil Procedure sections 318 and 319, which set a five-year limitations period for an action for adverse possession.

In evaluating Bookout's argument, the Second District noted that "courts have applied the five-year statute where a public entity has physically entered and exercised dominion and control over some portion of the plaintiff's property." In contrast, courts have applied the three-year statute of limitations where the plaintiff's property was merely damaged. The court reasoned that the flooding did not trigger the five-year statute because "no public entity physically entered Bookout's land or maintained possession and control over any portion of it." Assuming the defendants were responsible for the flooding, they were merely damaging Bookout's nursery. Therefore, the Second District held that the trial court had properly applied the three-year statute of limitations.

Bookout argued that even if three years was the correct limitations period, his claim was not barred. To make this argument, Bookout advanced a "date of stabilization" theory. Under this theory, which finds support in Pierpont Inn v. State of California, 70 Cal.2d 282 (1969), where damages incident to a public improvement are continuous and repeated, the limitations period does not run until conditions have stabilized. Bookout argued that the flooding conditions were changing and unstable, and therefore that the limitations period had not yet started. The Second District rejected Bookout's argument, deferring to the trial court's finding that the flooding had been "relatively consistent and static" for several years before he bought the property.

In determining when the limitations period began to run, the trial court had relied in part on a questionnaire that Bookout submitted to the County in 2002 describing the flooding at his nursery. Bookout objected to the admission of the questionnaire because the County had not provided a copy to Booker at the time of discovery. The trial court admitted the questionnaire after finding that the County had not acted in bad faith and that Booker should have been aware of the questionnaire because he himself prepared it. The Second District found that the trial court's decision to admit the questionnaire was not an abuse of discretion. Moreover, the court found that even if the questionnaire had been excluded, Bookout was unlikely to have obtained a more favorable result because there was other evidence that documented Bookout's knowledge of the flooding as of 2002.

Tort Claims

As to the tort actions, Bookout contended on appeal that the flooding was a continuous nuisance and trespass, and therefore that the limitations period should restart every time flooding occurred. The trial court had found that the three-year limitations period ran only once beginning in 2002 and had expired by the time Bookout filed his complaint in 2006.

Under California law, a party harmed by a continuous nuisance or trespass can bring successive actions, even if an action based on the first instance of the harm would be time-barred. In contrast, when a party is harmed by a permanent nuisance or trespass, the limitations period runs only once from the time when the nuisance or trespass began. The distinction between continuous and permanent is that a continuous nuisance may be discontinued at any time, while a permanent nuisance persists indefinitely.

The Second District disagreed with Bookout that the flooding was a continuous nuisance. The court noted that there was "nothing to suggest the pipe [responsible for the flooding] is temporary or might be modified at any time." Because the flooding could not be freely discontinued or abated, the court found that that it did not qualify as a continuous nuisance. Instead, the court decided that the flooding was a permanent nuisance. It noted that previous cases had found permanent nuisances where "solid structures" were causing the harm. The court noted that the pipe and associated drainage system were solid structures, and that further supported its conclusion that the flooding was a permanent nuisance. Because the nuisance was permanent, the Second District held that the trial court had properly analyzed the limitations period and barred Bookout's tort claims.

Authored By:

Michael B. Wilmar
(415) 774-3242
MWilmar@sheppardmullin.com

and

Alex Merritt
(415) 774-3174
AMerritt@sheppardmullin.com

Coastal Commission's No Substantial Issue Determination Will Be Upheld Even If Project Technically Not Consistent With LCP

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 05 Aug 2010 23:23:32 +0000

Hines v. California Coastal Commission, No. A125254 (1st Dist. June 17, 2010)

By Michael Wilmar and Alex Merritt

In Hines v. California Coastal Commission, the First District Court of Appeal upheld the Coastal Commission’s determination that an appeal raised no substantial issue under the California Coastal Act, and went so far as to state in dicta that even if a development were technically inconsistent with a Local Coastal Program ("LCP"), the Commission could still reject an appeal of the approval of that development as not presenting a substantial issue.

The case arose when Steven and Carol Star sought a coastal permit to build a house within the Sonoma County coastal zone. The Stars sited the proposed project within 100 feet of a riparian area. However, under the Sonoma County LCP, permanent structures must ordinarily be set back at least 100 feet from riparian vegetation. Therefore, the Stars also applied for a use permit to allow a reduced riparian setback of 50 feet. The County approved both the coastal permit and the use permit.

The Stars' neighbors, Brian and Jane Hines, appealed the County's decision to the California Coastal Commission. The Coastal Commission declined to hear the appeal after finding that it presented "no substantial issue" under the California Coastal Act.

The Hineses then filed a petition for administrative mandate, challenging the County's approvals and the Coastal Commission's refusal to hear the appeal. The trial court denied the petition, and the Hineses appealed, arguing that the County and the Coastal Commission had abused their discretion.

County did not abuse its discretion in approving the project

The Hineses first argued that the County abused its discretion in approving the Stars' project. At issue was an LCP policy to "[p]rohibit construction of permanent structures within riparian areas as defined, or 100 feet from the lowest line of riparian vegetation, whichever is greater . . . ." The Hineses argued that this policy forbid the Stars from constructing their house within 100 feet of the riparian area, and that the County abused its discretion when it approved the reduced setback.

The court rejected the Hineses' argument. First, the court noted that the LCP stated on its face that the policies were only recommendations. Second, the court noted that a certified Administrative Manual, which implemented and interpreted the LCP, expressly allowed a reduced riparian buffer when the applicant could demonstrate that a 100-foot buffer was unnecessary to protect riparian resources. The County found that the Stars had showed a 100-foot buffer to be unnecessary, and that their project satisfied the criteria in the Administrative Manual for a reduced buffer.

The Hineses made arguments that the buffer exception did not apply to Stars' project, but the court rejected them as illogical and contrary to the plain text of the Administrative Manual. The Hineses also cited to authority that purportedly forbid construction of homes within 100 feet of riparian areas, but the court quickly distinguished the authority and found it inapplicable to the Stars' project. After rejecting all the Hineses' arguments, the Court concluded that the County had not abused its discretion in approving the project and allowing a reduced riparian buffer.

Coastal Commission did not abuse its discretion in refusing to hear appeal

Next the opinion considered whether the Coastal Commission was required to hear the Hineses' appeal. The County's approval was appealable to the Coastal Commission. However, Public Resources Code section 30625(b) allows the Coastal Commission to avoid hearing an appeal if it determines "that no substantial issue exists with respect to the grounds on which an appeal has been filed . . . ." The Coastal Commission determined that the Hineses' appeal did not raise a substantial issue and refused to hear it. The Hineses argued that their appeal did raise a substantial issue and that the Coastal Commission had erred by refusing to hear it.

The First District began its analysis by defining "substantial issue" and setting forth the applicable standard of review. Quoting Alberstone v. California Coastal Commission, 169 Cal.App.4th 859 (2008), the court observed that under Coastal Commission regulations, "[a] substantial issue is defined as one that presents a 'significant question' as to conformity with the certified local coastal program."

The court, also relying on Albertstone, decided that it should review the Coastal Commission's determination for an abuse of discretion; that it should "grant broad deference" to the Coastal Commission's interpretation of the LCP and Coastal Act; and that it should depart from a Coastal Commission interpretation only if it was "clearly erroneous."

Guided by these principles, the court found that the Coastal Commission had properly refused to hear the appeal. The Coastal Commission made its "no substantial issue" determination by applying five factors that it had used in determining whether previous appeals presented a substantial issue: (1) the degree of factual and legal support for the local government's decision that the development is consistent with the LCP and Coastal Act; (2) the extent and scope of the development; (3) the significance of the coastal resources affected by the decision; (4) the precedential value of the local government's decision; and (5) whether the appeal raises only local issues, or those of regional or statewide significance.

In analyzing the first factor, the Coastal Commission determined that the County had a "high degree of factual and legal support for its decision" that the development was consistent with the LCP. The Coastal Commission staff had analyzed the Stars' project under the LCP and determined that the County had correctly found it consistent with LCP policies. Based on this analysis, the Coastal Commission determined that the appeal, on that ground alone, did not present a "significant question" as to the project's conformity with the LCP, and therefore, that the appeal did not raise a substantial issue. The court, giving broad deference to the Coastal Commission's interpretation of the LCP, approved this determination.

However, the Coastal Commission also argued that even if the project did not technically conform to the LCP, the appeal still failed to raise a substantial issue because of the other four factors. Applying the remaining factors to the Hineses' appeal, Coastal Commission staff had found that the Stars' project was limited in scope and extent; the project did not threaten significant coastal resources; the determination would not have precedential effect; and the appeal raised a purely local issue, and implicated no regional or statewide concerns. Based on these findings, the Coastal Commission had concluded that the appeal raised no substantial issues even if the project did technically violate an LCP policy. The court accepted the Coastal Commission's argument, and concluded, in dicta, that the Commission’s application of these factors further supported its "no substantial issue" determination.

No CEQA Review Required

The Hineses also argued that the County and the Coastal Commission violated CEQA because they approved the project without considering mitigation measures and alternatives. The Hineses acknowledged that single-family residential projects are categorically exempt from CEQA. But they argued that CEQA review was nevertheless warranted because the approval would open the door to similar projects, causing cumulative impacts to riparian habitat.

The court first noted that CEQA did not apply to the Coastal Commission's "no substantial issue" determination because it did not constitute a project approval for purposes of CEQA. Furthermore, even if the determination had been a project approval, the court noted that the Coastal Commission had no jurisdiction to conduct CEQA review; it was limited to reviewing compliance with the Coastal Act and LCP.

As to the County approvals, the court ruled that the CEQA challenge was barred because the Hineses raised their CEQA argument for the first time on appeal and had failed to exhaust their administrative remedies. Moreover, the court noted that that the Hineses' argument was entirely speculative, and that it would have rejected the CEQA argument even if the Hineses had exhausted their administrative remedies.

Authored By:

Michael B. Wilmar
(415) 774-3242
MWilmar@sheppardmullin.com

and

Alex Merritt
(415) 774-3174
AMerritt@sheppardmullin.com

Under CERCLA, "Owner" Means Owner When Cleanup Costs Are Incurred, Not When Reimbursement Is Sought

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 04 Aug 2010 23:37:05 +0000

California Dep't of Toxic Substances Control v. Hearthside Residential Corp., No. 09-55389 (9th Cir. July 22, 2010)

By Betsy McDaniel and Adam Bailey

On July 22, the Ninth Circuit Court of Appeals held that under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA," commonly referred to as the "Superfund" law), the owner of a contaminated site when cleanup costs are incurred is the "current owner" for liability purposes. The decision will provide clarity to state agencies or other entities that engage in the remediation of contaminated lands. In the event that a landowner refuses to accept responsibility for cleanup, the entity that performed the cleanup can easily determine whom to sue for repayment.

This case arose when the Hearthside Residential Corporation purchased a tract of wetlands in Huntington Beach, California. When Hearthside purchased the land, it was aware that the tract was contaminated with polychlorinated biphenyls ("PCBs"), a toxic chemical regulated under CERCLA. The tract was adjacent to several residential parcels owned by other entities, and the California Department of Toxic Substances Control ("DTSC") alleged that PCBs had migrated from Hearthside's tract to the residential parcels, contaminating them as well. Hearthside agreed to remediate its own tract of land, but refused to clean the PCBs from the residential parcels. Despite its assertion that Hearthside bore responsibility for cleanup, DTSC employed a third party to remediate the residential sites.

Hearthside had purchased the contaminated property in 1999. In 2002, DTSC and Hearthside agreed that Hearthside would clean its tract, but disagreed about the residential property. DTSC paid for the residential sites' remediation that took place between July 2002 and October 2003. Hearthside finished cleaning its tract in December 2005, DTSC certified it clean, and Hearthside sold it that same month. In October 2006, DTSC brought a complaint against Hearthside seeking to recover the costs of the residential site remediation. Hearthside disputed liability, claiming that "owner and operator" status was determined when the suit was filed—ten months after it had sold the land—not when it owned the property three years prior, when the costs to remediate were incurred.

This is an important issue for landowners like Hearthside, since current owners are by definition responsible parties under CERCLA (see 42 U.S.C. § 9607(a)(1)), and the law imposes strict liability on current owners of contaminated sites. Accordingly, if Hearthside were found to be the owner of the site, it would bear responsibility for cleanup costs associated with the contamination of its own and any other land to which the contaminants had migrated. Though it could sue previous owners or polluters for contribution towards payment for remediation, it would be saddled with the need to do so (and the costs in money and time associated with such suits). For these reasons, Hearthside sought to avoid definition as a current owner, which would allow it to escape liability.

Hearthside was not successful. The district court granted partial summary judgment to DTSC, determining that Hearthside was the owner of the tract for CERCLA liability purposes because it was the owner when response costs were incurred. The court certified its finding for immediate appeal, and the Ninth Circuit reviewed the decision on this interlocutory basis. The Ninth Circuit agreed with the lower court and affirmed its judgment, employing statutory construction to bolster its reasoning in the absence of substantive precedent.

Seeing that the statutory language of CERCLA provided no guidance in this area, the court gave three reasons for its finding that owners at the time when response costs are incurred are rightfully considered the "owners" responsible for remediation. First, the court found that defining owners as "owners-at-cleanup" best meshed with statute of limitations contained in CERCLA, which starts running when a remediation action begins. Since the statute of limitations is intended to give defendants "the protections of predictability and promptness" (quoting United States v. Hagege, 437 F.3d 943, 955 (9th Cir. 2006)), the court reasoned that it only made sense to apply it to the site's owner when the statute began to run. In so doing, the statute would apply to the party with the evidence to defend against a claim, which is also the party most in need of the statute's protections. The court noted that finding the opposite would allow the owners of remediated sites to quickly sell them before the CERCLA statute of limitations began to run—subjecting a later owner with no information about the contamination to liability. Such a finding, according to the court, would be an "unwise and untoward result."

Second, the court considered the purposes of CERCLA, particularly its fundamental goal of encouraging timely cleanup of hazardous waste sites. The court found that Hearthside's position provided every incentive to a landowner to delay remediation until it could sell the land and transfer CERCLA liability. Accordingly, the court ruled that any delay an owner might manufacture to give it more time to sell the land contravened the purpose of CERCLA. Noting that Hearthside's argument did just that, the court rejected it in favor of DTSC's position that owners-at-cleanup are owners for CERCLA purposes.

Lastly, the court noted that another important purpose of CERCLA is to encourage early settlement between responsible parties and environmental regulators in order to shift energies away from litigation and towards the most expeditious remediation possible. CERCLA's idea that owners and regulators should agree to "fix it before the courts get involved" fundamentally undermined Hearthside's position that a lawsuit had to be filed before one can determine the responsible owner. The court also reasoned that it is preferable that the owners during cleanup be liable because that gives those parties the ability to influence the manner of—and, to some degree, the costs incurred from—remediation. CERCLA seeks to include the owners in the technical aspects of cleanup planning, and the court held that determining ownership at the time cleanup starts best serves that goal.

The court rejected Hearthside's arguments that ascertaining the date at which cleanup starts would be difficult, and that using the date of lawsuit would be clearer. It found that the above reasons outweighed the possibility of hard-to-determine cleanup start dates, and noted that courts already resolve questions surrounding relevant cleanup dates in many CERCLA actions. It held that Hearthside was indeed the owner of the contaminated tract which DTSC alleged produced the pollution under the residential parcels, and remanded the case to the district court to determine if, and to what degree, Hearthside would be responsible for those parcels' remediation.

In the absence of other precedent, the Ninth Circuit's ruling represents the first holding that owners of contaminated sites when the government or other entities incur costs related to those sites' remediation will be considered current owners for CERCLA purposes, and will thus be "responsible parties" from whom the remediating agencies can recover costs. In light of the decision, site owners now face strong incentives to work directly with environmental agencies to cleanup the sites they own, or to remediate other lands affected by pollution originating from their property. Unless other facts about the ownership or the source of pollution are in question, property owners should expect state agencies to press them for cooperation and contributions when remediating sites polluted by chemicals migrating from their property. The issue of responsibility for costs is now much clearer.

Authored By:

Betsy McDaniel
(415) 774-2946
BMcDaniel@sheppardmullin.com

and

Adam Bailey
(415) 774-2992
ABailey@sheppardmullin.com

California Endangered Species Act Prohibits State Agencies From Taking Threatened and Endangered Species Without Permit Authority

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 15 Jul 2010 22:31:27 +0000

Kern County Water Agency v. Watershed Enforcers, No. A117715 (1st Dist. June 17, 2010)

By Keith Garner and Alex Merritt

Last month the California Court of Appeal for the First District held that the California Endangered Species Act ("CESA") prohibits a state agency from taking threatened or endangered species without proper permit authority. In reaching this conclusion, the court resolved an interesting question of statutory construction, finding that a state agency is a "person" for purposes of CESA. The decision also indicates that courts will construe CESA liberally to promote the Legislature's goal of conserving threatened and endangered species.

Kern County Water Agency v. Watershed Enforcers concerned the Harvey O. Banks Pumping Plant, a facility that diverts water from the Sacramento River Delta as part of the State Water Project. In connection with its operations, the Banks Pumping Plant entrains and kills significant numbers of fish, including winter-run chinook salmon, spring-run chinook salmon, and delta smelt. California lists all three fish as threatened or endangered species.

Watershed Enforcers, a nonprofit environmental group, petitioned for a writ of mandate to compel the Department of Water Resources, which runs the Banks Pumping Plant, to stop taking the threatened and endangered fish without permit authority. Kern County Water Agency, San Luis & Delta Mendota Water Authority, and Westlands Water District intervened. The trial court ruled for Watershed Enforcers and issued the writ. DWR and the water agencies appealed.

While the appeal was pending, DWR complied with the writ by obtaining the necessary permits. After DWR had complied with the writ and abandoned its appeal, the case became moot, but the water agencies continued to pursue their appeal. In deciding whether to reach the merits of the appeal, the First District noted that courts have "inherent discretion to consider a moot issue if it raises a matter of general public interest that is likely to recur." The court found that Watershed Enforcers presented such an issue, and therefore decided to consider the merits of the appeal.

The appeal concerned CESA Section 2080, which prohibits the taking of threatened and endangered species. In relevant part, Section 2080 provides that "[n]o person shall . . . take . . . any species . . . that the [Fish and Game Commission] determines to be an endangered or threatened species." The water agencies argued that DWR, a state agency, was not a "person" within the meaning of Section 2080. They further argued that because Section 2080 did not apply, DWR was not prohibited from taking the threatened and endangered fish, and did not need to obtain permits. The court of appeal took the case to decide whether a state agency is a "person" within the meaning of Section 2080.

The crux of the water agencies' argument was that a state agency does not come within the general statutory definition of "person" in Section 67 of the California Fish and Game Code. Section 67 defines "person" as "any natural person or any partnership, corporation, limited liability company, trust, or other type of association." The water agencies argued that a state agency was not any of the enumerated entities and therefore not a "person." The court agreed "that the literal textual meaning of this definition would seem to exclude state agencies." Nevertheless, the court went on to decide that a state agency was a "person" within the meaning of CESA Section 2080.

In deciding that a state agency was a "person" under CESA, the court pointed to broad qualifying language in the "General Definitions" chapter of the Fish and Game Code. That chapter provides that the specific definitions will govern the construction of the code, "[u]nless the provisions or the context otherwise requires . . . ." The court stated that this language "allows an alteration, and a legally permissible expansion of the specific statutory definition" in appropriate circumstances. The court then decided that the context and policies of CESA require an expanded definition of "person" that includes state agencies.

The court reviewed CESA and found that several sections expressly applied to state agencies. In particular, the court examined CESA Section 2081, which provides a mechanism for exempting state agencies from the takings prohibition in Section 2080. The court found that "it is illogical to expressly exempt an entity from a prohibition that did not apply to it in the first place. Therefore, section 2080 must apply to public entities or the exemption for public agencies in section 2081 is rendered surplusage . . . ." Similarly, the court noted that CESA Sections 2053 and 2055 contemplated that state agencies would be subject to CESA. In the context of these provisions, the court found that the "statutory language, taken as a whole . . . strongly supports the conclusion that the Legislature intended state agencies to be 'persons' under section 2080."

In addition, the court noted that the California Department of Fish and Game—the agency responsible for implementing CESA—had construed "person" to include state agencies. The court did not expressly defer to the Department's interpretation, but it cited several examples of Department regulations that treated state agencies as subject to CESA.

Throughout the opinion, the court invoked principles of statutory construction to support its conclusion. It noted that courts must construe statutes to comport with legislative intent and further general statutory purposes. In this case, the court noted that the "laws providing for the conservation of natural resources such as CESA are of great remedial and public importance and thus should be construed liberally." (internal punctuation and citations omitted). Furthermore, the court noted that "interpreting section 2080 to exclude state agencies would lead to the unreasonable result that major actors, whose operations result in the taking of endangered and threatened species, would be exempt from the general take prohibition."

Watershed Enforcers cited three cases, in which courts assumed that state agencies were subject to the takings prohibition of CESA. The court stated that these cases were not authoritative because they had not expressly considered the statutory construction issue. But the cases prompted the court to ask the following:

"[I]n the context of preservation of endangered and threatened species, would it be logical for the Legislature to exempt government agencies from the CESA taking prohibition, when those agencies operate large enterprises (dams, pumping stations, irrigation systems, etc.) while covering individual hunters and fishermen and business associations, which would generally take species in fewer numbers and in narrower scope? From a logical policy perspective, we think not. This perhaps helps explain why three published decisions have assumed section 2080 applies to public agencies, why the agencies did not challenge the application in those cases, why DWR did not challenge it in the present case, and why CESA existed for over two decades before anyone raised this issue."

In light of all these considerations, the court concluded that "given the context and policies of CESA, including the policy of species preservation made expressly applicable to state agencies, as well as the statutory language expressly referring to state agencies, that a state agency is a 'person' within the meaning of Section 2080." The court rejected all the water agencies' authority to contrary, finding it inapplicable or unpersuasive.

The Watershed Enforcers decision makes clear that the take provisions of CESA apply to state agencies. It also underscores the point that courts will interpret CESA broadly to advance the statute's goal of protecting threatened and endangered species.

Authored By:

Keith Garner
(415) 774-2991
KGarner@sheppardmullin.com

County Approval of Conditional Siting Agreement Not A Project Approval Under CEQA

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 15 Jul 2010 20:09:18 +0000

City of Santee v. County of San Diego, No. D055310 (4th Dist. June 7, 2010)

By Michael Wilmar and Alex Merritt

Last month the California Court of Appeal for the Fourth District provided important guidance on the issue of when approval of an agreement affecting a development constitutes approval of a “project” that requires review under the California Environmental Quality Act ("CEQA"). In City of Santee v. County of San Diego, the Fourth District held that a siting agreement between the County of San Diego and the California Department of Corrections and Rehabilitation ("DCR") for a state prison facility did not commit the County to a definite course of action, and therefore did not constitute a project approval requiring CEQA review. The court reached this conclusion after noting that the agreement did not preclude any alternatives or mitigation measures, and that implementation of the agreement was contingent on a number of factors, including future environmental review.

The case arose when the County and DCR entered into a siting agreement under the Public Safety and Offender Rehabilitation Services Act of 2007 for a DCR reentry facility, which is a facility that prepare inmates to transition into society. Under the siting agreement, the County agreed to identify up to three sites within its boundaries that DCR could potentially use for a reentry facility. If DCR selected a site proposed by the County, it agreed to give the County preferential access to $100 million for use in financing County jail projects. Importantly, the siting agreement provided that if DCR selected a County-owned site, then the County would be obligated to convey that property to DCR. The agreement also made eventual construction of the reentry facility contingent on environmental review under CEQA. After entering the agreement, the County identified two potential sites for the reentry facility, one owned by the County and one owned by the state.

The City of Santee filed a petition for writ of mandate. It alleged that the siting agreement was a project requiring review under CEQA because it committed the County to a definite course of action. The County, joined by DCR, filed a demurrer. The trial court sustained the demurrer without leave to amend, and Santee appealed.

On appeal, Santee argued that the County had committed itself to the reentry facility by agreeing to convey land to DCR. Santee further argued that by committing itself to the reentry facility, the County had also committed itself to the expansion of a County jail located within Santee city limits. The details of Santee's second argument were unclear from the opinion, but the County had apparently made plans to expand its jail in Santee. Santee argued that by committing a County-owned site to the state reentry facility, the County had eliminated a potential alternative to expanding the jail. In Santee's view, by eliminating an alternative to the expansion, the County had effectively committed itself to the expansion.

The legal dispute hinged on whether approval of the siting agreement required CEQA review. Under CEQA, a public agency must prepare an environmental impact report whenever it proposes to approve or carry out a project that may have a significant effect on the environment. A public agency "approves" a project when it makes a decision that commits it to a definite course of action. In Santee, if the siting agreement committed the County to a definite course of action, then it was a project approval within the meaning of CEQA, and the County was required to conduct environmental review before entering into the agreement.

In deciding whether the siting agreement constituted a project approval that triggered CEQA review, the court had to navigate the precedent set by two recent cases. In the first case, Save Tara v. City of West Hollywood, 45 Cal.4th 116 (2008), the California Supreme Court considered whether a development agreement between a city and low-income housing developer constituted a project approval requiring environmental review under CEQA. The court noted that "[c]hoosing the precise time for CEQA compliance involves a balance of competing factors," and it declined to announce a bright-line test for determining whether a development agreement is a project approval for purposes of CEQA. Instead, it set forth the general principle that courts should examine the terms of the development agreement and the surrounding circumstances "to determine whether, as a practical mater, the agency has committed itself to the project as a whole or to any particular features, so as to effectively preclude any alternative or mitigation measures that CEQA would otherwise require to be considered, including the alternative of not going forward with the project . . . . If, as a practical matter, the agency has foreclosed any meaningful options to going forward with the project, then for purposes of CEQA the agency has 'approved' the project."

Applying this principle, the supreme court decided that the development agreement, although conditional, committed the city to a definite course of action, and therefore required CEQA review. The court cited the following factors as evidence of commitment: (1) the agreement provided the developers with $450,000 in financing, which was not contingent on CEQA review, and which the developer would not have repaid if the city disapproved the project; (2) city officials publicly announced their intention to have the project built; (3) the city took steps to relocate the tenants who lived in the existing building on the proposed project site; and (4) in the initial development agreement (later revised), the city council effectively delegated its authority over CEQA review to the city manager.

In the second case, Sustainable Transportation Advocates of Santa Barbara v. Santa Barbara County Assn., 179 Cal.App.4th 113 (2009), a court of appeal applied the principles of Save Tara to a financing plan adopted by a local transportation agency. The financing plan identified local transportation projects which the agency planned to finance with new tax revenues. Applying Save Tara, the court found that the plan was not a commitment to any of the proposed projects because the projects were described in general terms, their construction was conditioned on securing additional financing, the list of proposed projects was subject to amendment, and all the projects were subject to future CEQA review. In short, any proposed project may have been "modified or not implemented depending upon a number of factors, including CEQA environmental review."

Against the backdrop of these two opinions, the Santee court had to decide whether the siting agreement committed the County to a project and thus required CEQA review. After reviewing the facts, the court decided that the contested siting agreement did not commit either the County or DCR to either the state reentry facility or to the expansion of the County jail. In the court's view, nothing in the siting agreement or the surrounding circumstances committed the agencies to any particular sites, or foreclosed consideration of any alternatives or mitigation measures.

With regard to site selection, the court decided that the agreement did not select any particular location for the reentry facility. The court acknowledged that if DCR selected a County-owned site, then the County would be obligated to convey it to DCR. Nonetheless, the court found this arrangement conditional on two grounds. First, it depended on DCR selecting one of the proposed sites, and second, it depended on the proposed site being owned by the County.

In addition, the court rejected the purported connection between the reentry facility and the expansion of the County jail in Santee. It noted that the siting agreement did not expressly mention the expansion, and it found that the site proposed for the reentry facility had "only the most tangential and entirely conditional impact on the . . . expansion."

The court also found the financial and environmental aspects of the siting agreement to be indefinite. First, the financing preference DCR offered to the County was not guaranteed—it was contingent on DCR selecting one of the County's proposed sites. Second, because the site selection was conditional, nothing in the siting agreement foreclosed consideration of alternatives to any project or mitigation measures for those projects.

Given the conditional nature of the siting agreement, the court found that it failed to describe a project that could be subject to any meaningful CEQA analysis. The court stated that "the face of the agreement places it squarely in the realm of preliminary agreements needed to explore and formulate projects and for which CEQA review would be entirely premature."

In conclusion, Santee is an important decision because it applies the principles set forth in Save Tara to a siting agreement, and reaffirms that agreements which do not commit agencies to a definite course of action are not project approvals for purposes of CEQA. It also provides helpful guidance to developers and municipalities wrangling with the difficult problem of deciding when in the development process to initiate CEQA review.

Authored By:

Michael B. Wilmar
(415) 774-3242
MWilmar@sheppardmullin.com

and

Alex Merritt
(415) 774-3174
AMerritt@sheppardmullin.com

Supreme Court Says Florida's Beach Preservation Activities Did Not Infringe Shoreline Property Rights; Justices Scrap Over Role Of Courts In Property Takings

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 22 Jun 2010 19:53:51 +0000

Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection, et al., 560 U. S. _(June 17, 2010)

By Michael Wilmar & Aaron Kleven

On June 17, 2010, the Supreme Court unanimously ruled that the State of Florida did not infringe on private property interests by engaging in a beach preservation effort. But though the participating justices agreed on the decision (Justice Stevens did not participate), they disagreed sharply on a point of constitutional law underlying the complaint.

The decision in Stop the Beach Renourishment, Inc v. Florida Department of Environmental Protection et al., revolved around Florida shoreline property owners' title to land above the mean high water line, which establishes the seaward border of shoreline property in Florida. The complaint arose from a Florida statutory program to restore eroded beaches. The Department of Environmental Protection added material to extend the beach and created a plan to continue replenishing the material in order to preserve the beach. The State of Florida contended that under Florida statutory and common law, the acquisition of title by shoreline owners to what are called accretions applies only when the mean high water line gradually recedes naturally over time. If it recedes suddenly, an event known as an avulsion, then the property line remains at the previous mean high water line. The newly exposed upland seaward of this line continues to belong to the State. When this happens, shoreline or "littoral" property owners do not acquire title either to the newly created upland or to subsequent accretions to the newly created upland.

Under the Florida statute authorizing the restoration, the man-made “avulsions” created by beach replenishment were treated the same as their natural counterparts. As with natural avulsions, the property line stayed at the previous mean high water line. The State thus contended that it owned the newly exposed upland that lay between the seaward border of the private property and the new mean high water line. The State further contended that, as a further consequence, the littoral property owners also did not obtain title to the accretions to the upland created as a result of the avulsion.

A group of property owners objected. In their view, title to accretions was part of their property interest in the land, and Florida's action amounted to an unconstitutional taking. The property owners argued the case to the Florida Supreme Court. When the Florida high court ruled against them, they brought the case before the U.S. Supreme Court, and argued that the actions of the Florida Court constituted a "judicial taking."

Ultimately, the Supreme Court concluded that there could be no taking unless the petitioner could show that, before the Florida Supreme Court’s decision, littoral property owners had rights to further accretions and contact with the water under Florida law that were superior to the State’s right to fill in its submerged land. The Court determined that the Florida court’s decision was consistent with background principles of the State’s property law, and therefore the necessary showing could not be made in this case.

Nevertheless, the circumstances of the case engendered a lively debate between the plurality and the other justices over the issue of whether there could be a “judicial taking” under the Court’s takings jurisprudence. Takings — when the government seizes private property, either by literally taking it for public use, or by acting to destroy part of its value — are a well established concept in property law, but the legislative branch is usually the culprit. The idea that judicial action might also amount to a taking is somewhat novel. But a plurality of the Court, led by Justice Scalia, saw merit in the concept, and opined that judicial takings do indeed exist.

This matter proved more divisive for the court than the actual holding in the case. While all the participating justices agreed that the actions of the State of Florida had not constituted a taking, Justice Scalia could not rally a majority around the concept of judicial taking. His lengthy opinion, joined by Chief Justice Roberts, and Justices Thomas and Alito, makes short work of the Florida matter, but goes on to challenge, point by point, the reservations expressed in the two concurring opinions.

The concurrences, one by Justice Kennedy and joined by Justice Sotomayor, and one by Justice Breyer, joined by Justice Ginsberg, reached the same conclusion as the Scalia plurality on the Florida matter, but differed on the need to establish whether there was a need to decide if there is such a thing as a judicial taking.

Justice Kennedy seemed concerned that establishing the concept of judicial taking would do more to validate such behavior than discourage it, since takings are actually allowed under the Constitution, so long as the property owner receives just compensation. And Justice Breyer defended himself against a harsh attack from Scalia that compared his reasoning with the age old question, “How much wood would a woodchuck chuck if a woodchuck could chuck wood?” This comparison arose from Justice Scalia’s incredulous objection to Justice Breyer’s willingness to declare that the Florida Court did not commit a judicial taking, without feeling the need to define what a judicial taking is, or even confirm that such a thing existed. Justice Breyer responded that the Court had a long tradition of settling only the matter at hand while leaving some of the underlying questions for later.

The "Stop the Beach" decision establishes that, under Florida law, the State’s action to restore and replenish its beaches could not constitute a taking under the Fifth Amendment because it did not deprive littoral property owners of accretion rights or any other property rights recognized under background principles of Florida law. As for judicial takings, without a majority on this issue, this question — along with that of how much wood a woodchuck might chuck — is left for another day.

Authored By:

Michael B. Wilmar
(415) 774-3242
MWilmar@sheppardmullin.com

and

Aaron Kleven
(415) 774-3282
AKleven@sheppardmullin.com

9th Circuit Upholds Critical Habitat Designation for Mexican Spotted Owl

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 22 Jun 2010 16:20:22 +0000

Arizona Cattle Growers' Ass'n v. Salazar, No. 08-15810 (9th Cir. June 4, 2010)

By Robert Uram, James Rusk & Alex Merritt

The Ninth Circuit Court of Appeals this month decided two key issues related to the designation of critical habitat for species protected under the Endangered Species Act ("ESA"): (1) what constitutes an "occupied" area for purposes of designating critical habitat; and (2) the proper approach to analyzing the economic impacts of a critical habitat designation. The Ninth Circuit ruled for the Fish & Wildlife Service (“FWS”) on both issues, deferring to the agency's interpretation of "occupied" and approving the agency's use of the "baseline" approach.

The case arose in 2004 when the FWS designated 8.6 million acres of critical habitat for the Mexican spotted owl. The Arizona Cattle Growers' Association ("Arizona Cattle") challenged the validity of that designation. The district court awarded summary judgment to the FWS, and Arizona Cattle appealed on two grounds. First, Arizona Cattle argued that the FWS impermissibly interpreted the term "occupied" so that it could avoid a statutory requirement under the ESA. Second, Arizona Cattle argued that the FWS improperly used the "baseline" approach in evaluating the economic impacts of the critical habitat designation, which excludes impacts that would occur even in the absence of the critical habitat designation.

FWS's Interpretation of "Occupied" Areas

Section 3 of the ESA defines critical habitat for listed species as including "the specific areas within the geographical area occupied by the species, at the time it is listed . . . and . . . specific areas outside the geographical area occupied by the species at the time it is listed . . . upon a determination by the Secretary that such areas are essential for the conservation of the species." Thus, the FWS faces a "more onerous procedure" to designate unoccupied areas as critical habitat—it must first determine that such areas are essential for the conservation of the species.

In designating critical habitat for the Mexican spotted owl, the FWS interpreted "occupied" to include areas that owls used only intermittently—for activities like hunting, dispersal, and migration—but did not permanently inhabit. Arizona Cattle proposed its own interpretation of "occupied," which would have included only those areas that an owl "resides in"—i.e., areas in which owls are continually present.

The court decided that "occupied" does not provide an unambiguous standard for the FWS to apply and that "[d]etermining whether a species uses an area with sufficient regularity that it is 'occupied' is a highly contextual and fact-dependent inquiry." Because such an inquiry is "within the purview of the agency's unique expertise," and because the FWS had previously defined "occupied" in a manner similar to the proposed interpretation in its Endangered Species Consultation Handbook, the court gave deference to the FWS interpretation. The court also found the FWS interpretation consistent with the broad conservation goals of the ESA and the agency's authority to act in the face of uncertainty. In contrast, the court reasoned that the "resides in" interpretation would conflict with that authority and "would make little sense as applied to non-territorial, mobile, or migratory animals—including the owl—for which it may be impossible to fix a determinate area in which the animal 'resides.'"

The court also drew support for its conclusions from its opinion in Gifford Pinchot Task Force v. U.S. Fish & Wildlife Serv., 378 F.3d 1059, 1070 (9th Cir., 2004). In that case, the Ninth Circuit invalidated an FWS regulation that defined "adverse modification" of critical habitat in a way that focused exclusively on the value of the habitat for species survival, while ignoring its value for species recovery. Similarly, the Arizona Cattle court reasoned that the "resides in" interpretation focused too narrowly on owl survival and ignored the broader purposes of the critical habitat designation, which are recovery and conservation.

The court therefore held that "the FWS has authority to designate as 'occupied' areas that the owl uses with sufficient regularity that it is likely to be present during any reasonable span of time." Importantly, however, the FWS does not have boundless discretion in classifying areas of potential habitat as occupied. The court cautioned that the "agency may not determine that areas unused by owls are occupied merely because those areas are suitable for future occupancy." Such an approach would "ignore the ESA's distinction between occupied and unoccupied areas."

After approving the FWS's interpretation of "occupied," the court determined that the FWS had not treated any unoccupied areas as occupied and had not acted arbitrarily and capriciously in designating critical habitat for the owl.

The "Baseline" Approach to Economic Analysis

The Ninth Circuit also had to choose between competing approaches to the economic analysis required for proposed critical habitat designations. The court again ruled for the FWS, approving the agency's "baseline" approach and rejecting the "co-extensive" approach previously endorsed by the Tenth Circuit.

Under the baseline approach, the agency does not consider economic impacts that will occur regardless of the critical habitat designation—for example, the economic impacts that stem from the listing decision itself. In contrast, under the co-extensive approach, the agency considers all economic impacts, even those that would occur in the absence of the critical habitat designation. The difference between the baseline approach and the co-extensive approach is illustrated by an example the court provided in its opinion:

"[S]uppose that the decision to list the owl as endangered resulted in a ban on logging in a particular area, and that designating that area as critical habitat would independently result in the same ban. Because the listing decision would result in the logging ban even if the agency did not designate critical habitat in that area, the baseline approach would not treat the ban as a burden that was imposed by the critical habitat designation."

Arizona Cattle argued that the FWS erred by using the baseline approach instead of the co-extensive approach, and noted that the Tenth Circuit had disapproved the baseline approach in N.M. Cattle Growers Ass'n v. U.S. Fish & Wildlife Serv., 248 F.3d 1277 (10th Cir., 2001). The Ninth Circuit rejected Arizona Cattle's argument and declined to follow N.M. Cattle Growers. The court noted that the Tenth Circuit's opinion was premised on the FWS definition of "adverse modification" that was later invalidated in Gifford Pinchot. Moreover, the court reasoned that the baseline approach was more logical than the co-extensive approach because"[t]he very notion of conducting a cost/benefit analysis is undercut by incorporating in that analysis costs that will exist regardless of the decision made."

Conclusion

Overall, the Cattle Growers opinion reaffirms the principle that the courts should defer to the FWS in its administration of the ESA, as to issues that lie within the agency's unique expertise. It also clears the way for FWS to apply a flexible definition of "occupied" in making future critical habitat designations, which are often the subject of litigation. Finally, the opinion affirms an approach to economic analysis that embraces only those economic effects that are causally related to the critical habitat designation. This approach is consistent with that used in other contexts under federal law, such as the analysis of environmental impacts under the National Environmental Policy Act.

Authored By:

Robert J. Uram
(415) 774-3285
RUram@sheppardmullin.com

and

James Rusk
(415) 774-3232
JRusk@sheppardmullin.com

and

Alex Merritt
(415) 774-3174
AMerritt@sheppardmullin.com

9th Circuit Upholds Corps Permit and Biological Opinion

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 22 Jun 2010 08:59:46 +0000

Butte Environmental Council v. United States Army Corps of Engineers, No. 09-15363 (9th Cir. June 1, 2010)

By Robert Uram, Keith Garner & Brenna Moorhead

In Butte Environmental Council v. United States Army Corps of Engineers, No. 09-15363 (9th Cir. June 1, 2010), the Ninth Circuit Court of Appeals affirmed that it is appropriate for the Corps to consider an applicant’s project purpose, and that an area of a species’ critical habitat can be destroyed without appreciably diminishing the value of the species’ critical habitat overall.

The City of Redding proposed to build an industrial park and conducted an environmental review analyzing the effects of the proposed project, including examining a dozen alternative sites. Both the Corps of Engineers and the EPA commented on the draft environmental review documents. The Corps initially stated that the project did not appear to be the least environmentally damaging practicable alternative ("LEDPA") as required for compliance with Section 404(b)(1) Guidelines because the screening criteria were too restrictive. The EPA made similar comments, urging the City to consider several smaller, disaggregated parcels instead of a single large parcel as a way to minimize impacts. In its supplemental and final environmental review documents, the City clarified the project purpose as the development of a medium to large parcel business park to address the manufacturing and distribution needs of several potential users. It also reduced the project's potential impacts to sensitive natural resources, incorporated on-site preservation, and prepared an off-site compensatory mitigation plan. The Corps accepted the revised statement of project purpose and issued a permit for the revised proposal, concluding that the City had clearly demonstrated that there was no practicable alternative having fewer environmental impacts.

The Butte Environmental Council raised a number of objections centered on the Corps’ compliance with the Section 404(b)(1) Guidelines. The district court held that the Corps rationally concluded that the proposed project was the LEDPA. The Ninth Circuit agreed. First, the court held that the Corps had applied the presumption that alternatives with fewer impacts were available and properly concluded that this presumption had been overcome. Second, the court concluded that the Corps’ initial comments on the project did not render its final decision arbitrary and capricious, but rather indicated that the process worked just as it should have. Third, the Council’s contention that the Corps failed to make an independent determination on the project purpose was rejected. While the Corps initially voiced skepticism over the need for a single large parcel, the City explained that such a parcel was needed to create synergy among the park’s users. And relying on well-established Ninth Circuit case law, the court observed that the Corps has a duty to consider an applicant’s legitimate and genuine purpose. Fourth, the court rejected the Council’s argument, based on First Circuit case law, that the Corps erred in evaluating an alternative based on the cost of acquisition at the time the permit application was filed, rather than the time the City “entered the market,” because the court concluded that the Corps’ decision to reject the alternative was based on other factors. And finally, the court found nothing in the record to suggest that the Corps allowed the City to adopt off-site mitigation measures to relieve it from having to adopt the LEDPA.

The Council also objected to the Fish & Wildlife Service’s conclusion in the biological opinion that the proposed project would not result in adverse modification of critical habitat. The project would destroy 234.5 acres of critical habitat for vernal pool crustaceans and 242.2 acres of slender Orcutt grass. The Ninth Circuit rejected the Council’s argument that the Service applied the regulatory definition of "adverse modification" invalidated by the Ninth Circuit's decision in Gifford Pinchot Task Force v. U.S. Fish & Wildlife Service. The court noted that the Service expressly stated that it did not rely on the regulatory definition of 50 C.F.R. § 402.02, and there was nothing in the record to suggest otherwise. The Council then argued that the project’s acknowledged destruction of critical habitat conflicted with the Service’s no adverse modification determination, essentially asserting that any destruction of critical habitat would result in adverse modification. The Ninth Circuit rejected this argument, too, finding that “[a]n area of a species’ critical habitat can be destroyed without appreciably diminishing the value of the species’ critical habitat overall.”

Authored By:

Robert J. Uram
(415) 774-3285
RUram@sheppardmullin.com

and

Keith Garner
(415) 774-2991
KGarner@sheppardmullin.com

and

Brenna Moorhead
(415) 774-2972
BMoorhead@sheppardmullin.com

Mitigation Fee Act May Not Require Specific Identification of New Facilities

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 22 Jun 2010 08:15:20 +0000

Home Builders Ass'n of Tulare/Kings Counties v. City of Lemoore, No. 07C0185 (5th Dist. June 9, 2010)

By David Lanferman

On June 9, 2010, a panel of the Court of Appeal for the Fifth Appellate District rejected challenges by a builders association to six out of seven "development fees" recently adopted by the City of Lemoore. The Mitigation Fee Act (Gov. Code §§ 66000 – 66025) requires that a local agency seeking to establish or impose development fees to finance public facilities must "identify" the new public facilities purportedly justifying the fees. Two justices held that the City had satisfied these statutory requirements by adopting a consultant's report that listed examples of the "types" of new facilities that the City may in the future decide to construct to accommodate growth from new developments, but the third justice wrote separately to question whether such lack of specificity complied with the statute.

The City's new "fire protection facilities fee," in contrast, was invalidated because the City's own evidence acknowledged that new development would not add to the burden on the existing fire protection facilities in the service area for which the fee was imposed, and the proposed use of the fee to repay the City's general fund was not a legally valid use of development fees.

The decision also addressed the burden of proof in a facial challenge to the validity of development fees on statutory grounds under the Fee Act. The court distinguished cases historically placing the burden on the agency imposing the development fees, and concluded that there should be separate (but similar) burdens on both the City establishing the fee and on the plaintiff challenging the evidence and analysis purporting to justify the fee.

In a separate concurring opinion, Presiding Justice Ardaiz questioned the proffered justification for the City's new "community recreation facilities fee." His opinion analyzed the language in the Fee Act, and concluded that the statutes require that the public need for new facilities used to justify the imposition of fees, whether a specific new facility or class of facilities, "must be a consequence of or have a direct relationship to the proposed [new] development." (Slip Opn., concurrence, p. 2.) He did not question that the examples of facilities in the class of municipal projects to be funded by this fee (e.g., municipal aquatic center and a naval air museum) may be "desirable or beneficial." (Id.) Justice Ardaiz explained, however, that he had "great difficulty concluding that their desirability or need are a consequence of or have a direct relationship to the proposed project." (Id.) He concluded that the City's type of reasoning "justifies a development fee for almost anything, and I do not glean that type of result from the words of this statute." (Slip Opn., concurrence, p.3.)

Facts

The City of Lemoore adopted ordinances in 2007 establishing thirteen new fees to be imposed on new residential developments in the city, based on a consultant's report. The consultant purported to calculate and justify the new fees by using a methodology he described as "standards-based." As summarized in the opinion, the fee consultant "calculated these fees based on the existing ratio of … facility asset value to population, …" per capita. (Slip Opn., p. 6)

For example, the "community recreational facility impact fee" was based on the City's estimate that it had "invested" $5.4 million in existing facilities in a category described as "community recreation" (such as a civic auditorium, skate park, teen center, golf course, and "the train depot complex"). The fee consultant divided that recreation facility "asset value" by the current population of Lemoore "to arrive a the per capita cost." (Id. at p. 7.) That cost per resident was then multiplied by the number of occupants per unit of each type of anticipated new development to calculate the new community recreation facility fee per unit of new development, expected to yield $3.2 million. The consultant noted that the City did not intend to use the fees to expand the existing facilities or to build new similar facilities, but rather, intended to "expand the range of recreational choices" by constructing new types of recreational facilities, possibly including an aquatic center or a naval aviation museum. (Id.) The consultant did not appear to generate an actual baseline of existing facilities standards (such as park acreage per resident), or levels of service, other than this gross "cost of facilities per resident" factor.

The local home builders association filed a petition for writ of mandate raising facial challenges to seven of the new fee ordinances. The decision indicates that plaintiffs later amended their pleadings, and the court notes at the outset that "all constitutional issues were removed" from the litigation, so that the case proceeded only as to "the City's alleged noncompliance with the Mitigation Fee Act." (Id. at p. 3.) The decision also indicates that members of the panel disagreed as to the scope of the issues presented by the appeal.

The Mitigation Fee Act

The Mitigation Fee Act "embodies a statutory standard against which monetary exactions by local government … are measured." (Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, 865.) Government Code § 66001 details the statutory requirements for agencies establishing fees, including the requirement that, if the fees are to be used to finance public facilities, then "the facilities shall be identified." The Act permits such identification to be provided "in a capital improvement plan, or in applicable general or specific plan requirements," or in other "public documents that identify the facilities for which the fee is charged." The Act also requires the agency to determine "how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed."

The consultant's report apparently included a list generally describing examples of the types of public facilities the City might eventually intend to construct. Plaintiff argued that the Fee Act requires that "the public facilities" to be financed with new fees be specifically identified, and that failure to do so would make it difficult if not impossible to determine how they are "reasonably related" to needs caused by new development. The court, however, concluded that the statute could be interpreted to allow the local agency "to identify the facilities via general plan requirements." (Slip Opn. p. 8, emphasis by the court).

The City's "Standards-Based" Methodology to "Justify" Its Fees

The City's consultant claimed to have used a "standards-based" approach to calculate the new fees. However, the consultant's approach described in the case did not appear to actually derive existing "standards" for public facilities or existing "levels of service" as its baseline, but rather justified the new fees based on the City's valuation of its existing public facilities, or a "dollars invested" standard, on a per capita basis.

Plaintiff questioned this approach as inadequate because it did not demonstrate that continuing public expenditures at the same per capita levels was in fact reasonably necessary to provide the same level of service to accommodate demands created by new development. The approach was faulted for failing to reveal whether the existing facilities are adequate to meet the existing (or future) population needs – except in the case of the fire protection facilities fees, which were admitted to be adequate. The Fee Act does not permit fees to be based on costs of curing existing deficiencies or upgrading existing levels of service, but rather permits "standards-based" fees to be used only to (a) maintain the city's "existing level of service" or (b) to achieve "an adopted level of service that is consistent with the general plan." (Gov.§ 66001(g).) The lead opinion accepted this approach as complying with the Fee Act.

The Invalid Fire Protection Fee

The decision also invalidated a new "fire protection fee" established for a service area where the City's evidence showed that "the facilities and equipment needed to serve future development are already in place." (Slip Opn., p. 18.) The court rejected the City's argument that the new development fees would allow the City to recoup its previous general fund investments in creating those fire facilities for the benefit of new development. Based on that evidence the court concluded that "the new development will not burden the current facilities." (Id.) Accordingly, there was no legal basis for imposing these new development fees in the absence of impact.

The "Burden of Proof" to Demonstrate the Reasonableness of Development Fees

The decision notes that "there have been occasional comments from courts of appeal that the burden of proof in a fee case falls on the local agency" and discussed the 1985 decision in Beaumont Investors v. Beaumont-Cherry Valley Water Dist., 165 Cal.App.3d 227, to that effect. (Slip Opn, p. 6.) The decision attempts to distinguish those cases, and instead concludes that there should be two distinct "burdens" in facial challenges to fee enactments as in this case.

The decision acknowledges that the local agency first has "the burden of producing evidence in support of its determination" that the amount of its fee and "the need for the public facility are reasonably related to the burden created by the development project." However, the decision then states that "this burden of producing evidence" on the agency "is not the equivalent of the burden of proof." Instead, it states that there is a separate second "burden of proof" on a plaintiff challenging an impact fee to show that the evidence or "record before the local agency clearly did not support the underlying determinations" of a reasonable relationship between the fees and the development – "in the absence of a legislative shifting of the burden of proof." (Id.)

Conclusion

As the California Supreme Court has acknowledged, "the Mitigation Fee Act was passed by the Legislature in response to concerns among developers that local agencies were imposing development fees for purposes unrelated to development projects." (Ehrlich v. City of Culver City, supra, 12 Cal.4th at 864.)

The decision in this case appears likely to renew -- and intensify -- such concerns among surviving developers and home builders in California.

Authored By:

David Lanferman
(415) 774-2996
DLanferman@sheppardmullin.com

San Francisco Distinction Between Drugstores and Supermarkets Goes Up in Smoke

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 21 Jun 2010 08:50:26 +0000

Walgreen Co. v. City and County of San Francisco, No. A123891 (June 8, 2010)

By Brenna Moorhead

Walgreen Co. prevailed against the City and County of San Francisco in California court and can proceed with its challenge to San Francisco’s ordinance banning the sale of tobacco products at certain retail establishments that contain a pharmacy. San Francisco defined "pharmacy" as "a retail establishment in which the profession of pharmacy by a [licensed] pharmacist is practiced and where prescription drugs are offered for sale." The prohibition applied to a store as a whole, even if the licensed pharmacy was situated within a larger store selling other merchandise. Thus, the ordinance would have included drugstores, grocery stores, chain stores, supermarkets, and big box stores that contain a pharmacy. However, San Francisco elected to exclude general grocery stores and big box stores.

Walgreens challenged this distinction on state and federal constitutional grounds, claiming violation of the equal protection clauses of the California and United States constitutions. The parties agreed that Walgreens and all other retail establishments containing licensed pharmacies are similarly situated for purposes of the challenged ordinance. The parties agreed also that rational basis review governed the equal protection claims. On this basis, the court considered whether a rational basis existed for exempting general grocery stores and big box stores that contain licensed pharmacies from the ban.

Rational basis review is deferential, “invest[ing] legislation involving such differential treatment with a presumption of constitutionality.” Typically legislation survives such review, because the opponent is unable to “negative every conceivable basis” of support. In this instance, the court found that San Francisco’s arguments lacked merit and, on remand, likely would not survive rational basis review.

San Francisco’s principal premise for the ordinance was that: "Through the sale of tobacco products, pharmacies convey tacit approval of the purchase and use of tobacco products. This approval sends a mixed message to consumers who generally patronize pharmacies for health care services." San Francisco argued that the objectives of discouraging smoking and avoiding the suggestion that a health purveyor approves of cigarette smoking provide a rational justification for the distinction drawn by the ordinance. Drugstores are more likely to convey the tacit message that smoking is not harmful than a store that sells primarily food items. In essence, it is the supposed strength of the perception that justifies the distinction. However, San Francisco was unable to explain why stores which derived sales revenues primarily from prescription drugs would imply greater approval of smoking. The court did not find this a rational basis for the distinction.

The court found no greater merit in San Francisco’s other arguments. San Francisco argued that the distinction was appropriate to limit the greater exposure to cigarettes of sick people, who are more likely to go to Walgreens. San Francisco argued also that supermarkets are endangered species in the city and therefore the exemption was required to discourage supermarkets from leaving town. The court noted that this argument appeared nowhere in the record and appeared to be a post hoc rationalization of the exemption.

Accordingly, the court found that Walgreens adequately stated in its complaint causes of action for violation of the equal protection provisions of the United States and California constitutions. However it declined to resolve the question as to whether San Francisco had violated the equal protection clauses. Nor did it determine whether the appropriate remedy for a violation would be "to preclude enforcement of the entire ordinance" or to invalidate only the exception. It remanded the case back to the trial court to consider these questions.

Walgreens sought also to have the ordinance invalidated based on failure of San Francisco's Office of Economic Analysis to prepare a report on the economic impact of the legislation in violation of a voter-enacted proposition. The court affirmed the trial court's sustaining of the demurrer on violation of the proposition without leave to amend and addressed this cause of action in an unpublished portion of its opinion.

Authored By:

Brenna Moorhead
(415) 774-2972
BMoorhead@sheppardmullin.com

General And Special Benefits Of Special Assessments Must Be Separated And Quantified

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 21 Jun 2010 08:45:51 +0000

Beutz v. County of Riverside, No. RIC457351 (4th Dist. May 26, 2010)

By David Lanferman & Michael Cato

In Beutz v. County of Riverside, No. RIC457351 (4th Dist. May 26, 2010), the California Court of Appeal held that a special assessment imposed by the County of Riverside was invalid because the engineer's report commissioned by the County failed to separate and quantify the general and special benefits to be realized from the public parks that were the subject of the special assessment district. By failing to both separate and quantify the general and special benefits, the agency failed to satisfy its two-part constitutional burden.

Article XIII D imposes certain procedural and substantive limits on an agency's power to impose special assessments. As described by the Court of Appeal, "the substantive limitations are twofold: (1) an assessment can be imposed only for a 'special benefit' conferred on the real property assessed, and (2) the assessment must be in proportion to, and not greater than, the special benefit conferred on the property assessed." Beutz, p. 5 (citing Cal. Const. art. XIII D, § 4, subd. (a)). These "special benefit" and "proportionality" requirements are interrelated. "The proportionality requirement ensures that the aggregate assessment imposed on all parcels is distributed among all assessed parcels in proportion to the special benefits conferred on each parcel." Beutz, p. 7.

To satisfy the requirement under Article XIII D that special assessments be limited to the special benefits conferred upon each assessed parcel, an agency forming a special assessment district must both (a) separate the general and special benefits to be realized by a public improvement project and (b) quantify each in relation to each other. Other recent decisions have emphasized the significance of these requirements and have invalidated assessments where the agency's evidence fails to meet these burdens. (E.g., Silicon Valley Taxpayers' Ass'n v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431; Bonander v. Town of Tiburon (2009) 180 Cal.App.4th 1057.)

The special assessment district at issue in Beutz was formed in 2006 to pay for the annual landscaping and maintenance costs of four public parks located in the community of Wildomar. The assessment was levied on all single-family residential units in the community, and all of the anticipated annual landscaping and maintenance costs were included in the assessment. In the engineer's report prepared to support the assessment, the engineer stated that landscape maintenance in the parks would confer "direct and special benefits, which will enhance all properties within the Landscape Maintenance District." Beutz, p. 14. The report acknowledged that the general public may also benefit from parks, but stated that the benefits to the general public would be offset by certain unreimbursed costs incurred by the County, including debt paid off when the County acquired the parks, and the cost of refurbishing the parks in accordance with the County's park and recreation master plan.

Steven Beutz, an owner of residential property in Wildomar, challenged the assessment on the basis that it violated Article III D. Both parties moved for summary judgment, and the trial court entered judgment in favor of the County, finding that the County had satisfied the special benefit and proportionality requirements. The trial court noted that the costs incurred by the County to acquire and refurbish the parks and pay for recreational activities were probably sufficient to "substantially outweigh the cost to the people who will actually use the parks". Beutz, p. 7.

The Court of Appeal reversed the trial court's judgment, holding that the engineer's report was not sufficient to satisfy the special benefit and proportionality requirements, and that summary judgment should have been entered in favor of Beutz. The Court focused on the fact that the report failed to analyze or present any evidence regarding the "quantity or extent to which the general public may reasonably be expected to use or benefit from the parks in relation to the quantity or extent to which occupants of Wildomar residential properties, either in the aggregate or individually, may use or benefit from the parks." Beutz, p. 24. Had the report included such analysis or evidence, there may have been sufficient basis to conclude that the assessment on each parcel was proportional to and no greater than the special benefits of the landscaping. Instead, the report's deficiencies rendered the assessment unconstitutional.

The appellate court also held that the burden of proof was on the County to demonstrate that its assessment satisfied the special benefit and proportionality requirements. The court held that these were constitutional questions, subject to the appellate court's independent judgment or de novo review. The court rejected the County's contention that the legislative determinations of elected County officials as to scope of the project and how much special benefit should be funded by assessments were entitled to deference and substantial evidence review. Instead, the court concluded "no deference is owed to any of the County's determinations in issue" on the appeal.

Authored By:

David P. Lanferman
(415) 774-2996
DLanferman@sheppardmullin.com

and

Michael Cato
(858) 720-8939
MCato@sheppardmullin.com

EPA Proposes 'Veto' of Section 404 Permit for Mountaintop Removal Coal Mining Project in West Virginia

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 30 Apr 2010 22:22:23 +0000

By James Rusk

The U.S. Environmental Protection Agency ("EPA") has proposed to rescind the Clean Water Act ("CWA") section 404 permit for a controversial mountaintop removal coal mining project in West Virginia, more than three years after the U.S. Army Corps of Engineers ("Corps") issued the permit. It would be a rare application of the EPA's "veto" authority to a previously issued permit. When viewed in combination with other pending actions by the EPA, the proposed action appears to signal a decision by the agency to take a more assertive stance toward regulation of mountaintop removal mining operations generally.

CWA section 404(c) allows the EPA to prohibit or restrict discharges of dredged or fill material to waters of the United States if it finds that the discharge would have unacceptable adverse impacts on municipal water supplies, shellfish beds and fishery areas, wildlife, or recreational areas. 33 U.S.C. § 1344(c). The EPA issued a Proposed Determination ("PD") on April 2, 2010, finding that the Spruce No. 1 Surface Mine in Logan County, West Virginia could have unacceptable adverse impacts to wildlife and fisheries as currently permitted. 75 Fed. Reg. 16788 (April 2, 2010). The PD requests public comments by June 1, 2010. After the close of the comment period, the EPA must decide whether to prohibit any further discharges to waters of the United States from the project; allow the project to go forward under a modified permit with more environmentally protective conditions; or allow the current permit to stand. If it decides to prohibit or restrict discharges from the project, the EPA will issue a Recommended Determination and a Final Determination that detail its findings.

In total, the EPA has exercised its section 404(c) veto authority only twelve times since 1972, and it has rescinded or modified a previously issued permit only once. The agency's Spruce Mine action has triggered a storm of protest from elected officials in West Virginia and from the state's members in the U.S. Congress, as well as a federal lawsuit by the mine's current owner, the Mingo Logan Coal Company.

Background

The Corps issued a section 404 permit for the Spruce No. 1 Surface Mine on January 22, 2007, after preparing an Environmental Impact Statement ("EIS") for the project. The Corps and the EPA, in partnership with other federal and state agencies, also prepared a programmatic EIS in 2005 for mountaintop mining in Appalachia. The Spruce Mine permit authorizes direct impacts to more than 39,000 linear feet of streams, mostly ephemeral or intermittent "headwaters" streams. The impacts are associated with the fill of six valleys with spoils, or "overburden," from the destruction of adjacent mountaintops during the mining process. The permitted discharges represent a reduction from the 57,755 linear feet of stream fill originally proposed in 1998. The Corps actually approved that proposal under a nationwide permit, but a federal court enjoined the authorization and the project proponent then applied for an individual permit.

The project has been involved in litigation brought by the Ohio Valley Environmental Coalition since January 2007, but the mine operator and the plaintiffs reached an agreement in early 2007 that allows operation of a limited portion of the project and fill of one valley, consistent with the permit terms. In explaining its unusual decision to revisit the permit, the EPA cited the fact that most of the permitted discharges have not occurred due to the pending litigation (which has now been stayed pending the outcome of the EPA's process). The EPA also stated that new information has become available since issuance of the permit that suggests project impacts may be greater than previously anticipated.

The EPA's Proposed Determination

According to the PD, the previous analysis of impacts from the Spruce Mine project did not adequately consider the potential for downstream impacts to water quality and aquatic life uses. New information, including recent research by the EPA, suggests that the project is likely to cause increased conductivity and elevated levels of pollutants in downstream waters. In addition, the project would destroy headwater streams that contain a "high richness and abundance of macroinvertebrate wildlife" (e.g., mayflies, stoneflies) and perform important ecosystem functions that are important to downstream waters and the fish and wildlife that live in those waters. The EPA also does not believe the analysis of the project accurately described and quantified the stream resources that would be impacted or that it adequately considered the cumulative impacts of 11 other mining projects that are either proposed or already authorized but not yet built. Finally, the EPA is concerned that the mitigation proposed for the project may not fully replace lost functions and does not provide for sufficient monitoring and adaptive management.

The PD suggests that the project could incorporate additional avoidance and minimization measures, including "side hill fills," "back to back fills," and other techniques to reduce valley fills. It also proposes constructing the project in phases and allowing monitoring data from each phase to inform decisions regarding the remainder of the project. Those decisions could include adaptive management for mitigation efforts, as well as decisions regarding whether and how to proceed with subsequent phases of construction.

Veto Action Just Part of Controversy Over Mountaintop Removal Mining

The proposed veto comes at the same time as other EPA actions concerning surface coal mining in Appalachia. On April 1, the EPA issued draft guidance regarding federal review of surface coal mining operations under the CWA and other federal statutes. The EPA also has released a draft study analyzing the effects of mountaintop removal coal mining operations on stream systems in the Appalachian coalfields. According to an EPA press release, the report finds a growing body of evidence that mountaintop removal coal mining is destroying Appalachian forests and dangerously polluting vital headwater streams.

Meanwhile, Mingo Logan has challenged the EPA's proposed veto action in court. Mingo Logan filed a complaint in the federal district court for the District of Columbia on April 2, alleging that the EPA is engaging in an "unlawful effort to revoke Mingo Logan's Clean Water Act permit." According to the complaint, CWA section 404(c) only authorizes the EPA to veto a permit before it is issued. Notwithstanding the allegations in the complaint, it is questionable whether the EPA's issuance of the PD constitutes "final agency action" for purposes of review under the Administrative Procedure Act, or whether the controversy is ripe for judicial review.

In addition to the Spruce Mine action, the EPA also has initiated a 404(c) action regarding the proposed Big Branch Surface Mine in Pike County, Kentucky. It has not yet issued a PD for that project.

Authored By:

James Rusk
(415) 774-3232
JRusk@sheppardmullin.com

Notice Of Exemption Triggers A 35-Day Statute Of Limitations Under CEQA Despite Flaws in Underlying Approval

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 30 Apr 2010 22:07:47 +0000

Stockton Citizens for Sensible Planning v. City of Stockton _____ Cal. ___ (April 1, 2010, No. S159690)

By Phillip Tate

On April 1, 2010, the California Supreme Court unanimously ruled that flaws in the decision making process underlying a facially valid and properly filed Notice of Exemption ("NOE") do not prevent the NOE from triggering a 35-day statute of limitations period for challenging the agency's determination under the California Environmental Quality Act ("CEQA"). The decision ended a lawsuit challenging the approval of a Wal-Mart Supercenter in Stockton, California (the "City"). In overturning the lower courts, the Supreme Court held that when an NOE minimally complies with CEQA, it is sufficient to trigger the 35-day statute of limitations under CEQA. and a plaintiff can not argue the merits of the underlying approval as a means of circumventing the statute of limitations.

In 1989, the City had approved a plan for the development of the 1,239 acre A.G. Spanos Park tract in northwest Stockton, whereby the entire tract would be developed with a mix of residential, commercial, open-space and recreational uses. The A.G. Spanos Park tract is bisected by Interstate 5, forming the 586-acre Spanos Park East and the 653-acre Spanos Park West. Spanos Park West was intended to contain to broad components: a commercial component and a medium to high density residential component that would contain 2,983 of the 7,460 residential units planned for the entire tract.

In 2001, after Spanos Park East was nearly completely built out and Spanos Park West had been graded for residential construction, the market conditions changed, which led A.G. Spanos Construction Company (“Spanos”), the developer, to propose changes to the plan for Spanos Park West. Under Spanos’ proposal for revisions, the 138-acre area designated as the Villages at Spanos Park West (the “Villages”) and originally planned as medium to high density residential, would be rezoned for single-family residential and developed with low to medium density housing. The A.G. Spanos Business Park (the “Business Park”) would be rezoned to mixed-use, allowing it to be developed with a mix of high-density residential, business, professional and retail uses, as set forth in a master development plan (“MDP”).

An MDP was prepared for the Business Park and approved in January, 2002 after a second supplemental EIR was prepared. The MDP prepared for the Business Park stated its intention of being the primary land use document that establishes the course of development for a flexible planned mixed use project. Having the ability to respond to changing market conditions was a recurrent theme throughout the document, and the MDP provided ranges of uses for specific sites within the Business Park. Four of the parcels – 17, 17a, 18 and 19 – comprising approximately 48 acres were designated as primarily for multifamily residential development. Retail space of up to 225,000 square feet of was listed as an optional use for parcels 17a, 18 and 19.

Once the MDP was adopted, a project that was inconsistent with the MDP could only be approved if the City’s planning commission (“CPC”) issued a conditional use permit (“CUP”). However, under the MDP, the Design Review Board (“DRB”) and Director of Planning (“Director”) were required to approve any project that was consistent with the MDP’s criteria, goals and purposes. A project approval by the Director could be appealed to the CPC within 10 days.

In the fall of 2003, Wal-Mart Stores, Inc. (“Wal-Mart”) submitted a proposal and plans to the DRB to build a 207,000 square foot retail store on parcels 17 and 17a of the Business Park (the “Project”). In October, 2003, the DRB advised the Director that the Project is consistent with the MDP. On December 15, 2003, the Director wrote to Wal-Mart’s representatives stating that the Project is in substantial compliance with the MDP. On February 5, 2004, Wal Mart’s counsel wrote to the Director asking him to confirm that his December 15, 2003 letter constituted the decision required under the MDP and that the appeal period had expired. The Director initialed the letter and returned it to counsel. On February 17, 2004, the City filed an NOE for the Project with the County Clerk. The NOE did not mention that the Project was a Wal-Mart Supercenter. Wal-Mart applied for a CUP to allow the sale of alcohol on February 24, 2004.

The plaintiffs filed a verified petition for a writ of mandate on July 22, 2004, almost four months after the 35-day statute of limitations triggered by the NOE had expired. The plaintiffs’ primary cause of action was that the City and Wal-Mart had violated CEQA by proceeding with the Project without preparing a new EIR, and that staff had erred in concluding that the Project was consistent with the MDP. The City and the real parties in interest demurred to the CEQA claims and moved to strike on the basis that the suit was untimely, as it was not filed within 35-days of the posting of the NOE. The trial court rejected the statute of limitations defense on the basis that the NOE only starts the running of a shortened 35 day statute of limitations under CEQA if the NOE gave notice that the City had approved a project it deemed exempt from CEQA. The trial court ruled that the Director’s determination was defective as an approval and, therefore, could not support the NOE. As such, the trial court concluded that the plaintiffs’ had a six-month statue of limitations and that the suit was therefore filed timely. That determination was affirmed at the appellate level in a split decision.

The California Supreme Court overturned the Court of Appeals, stating that the plaintiffs and the Court of Appeals had confused the timeliness of the lawsuit with the merits. The court pointed to Norgart v. Upjohn Co., which held that a statute of limitations “‘necessarily fix[es]’ a ‘definite period[] of time’ [citation], and hence operates conclusively across-the-board. It does so with respect to all causes of action, both those that do not have merit and also those that do. That it may bar meritorious causes of action as well as unmeritorious ones in the ‘price of orderly and timely processing of litigation’ [citation] — a price that may be high, but one that nevertheless must be paid.” Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 410. The court used the principles established in Norgart as the basis for holding that a facially valid and properly filed NOE stating that a public agency has approved a project under a CEQA exemption, automatically triggers a 35-day statute of limitations for CEQA challenges to the approval process, regardless of if the approval referenced in the NOE was defective or not.

Authored By:

Phillip M. Tate
(213)617-5575
PTate@sheppardmullin.com

Supercenters Do Not Automatically Trigger Requirement To Study Urban Decay Effects In An EIR

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 30 Apr 2010 21:25:16 +0000

Patricia Melom v. City of Madera, __ Cal. App. __ (March, 24, 2010, No. MCV037258)

By Phillip Tate

Retail "supercenters" do not automatically trigger the need to study urban decay effects in an environmental impact report ("EIR"). Rather, the project or the change in the project should be the focus of the inquiry as to whether additional study is needed, and not the type of retail store.

In Patricia Melom v. City of Madera, Case No. MCV037268 (Ct.App. March, 24, 2010), Melom argued that the City of Madera (the "City") had violated the California Environmental Quality Act ("CEQA") by approving a development agreement for a retail shopping center project without preparing a subsequent or supplemental EIR after the largest retail space on the site plan grew significantly in square footage from what was originally studied in the EIR. The City had originally certified an EIR for the proposed retail center with approximately 795,000 square feet of gross floor area in November 2006. The conceptual site plan in the EIR showed the shopping center being divided into approximately 30 retail spaces, the largest of which was 125,000 square feet. The developer submitted a refined site plan in March, 2007 that showed a reconfiguration of the retail spaces within the shopping center. While the square footage for the entire shopping center remained unchanged at approximately 795,000 square feet, the largest retail space grew to approximately 198,484 square feet and was designated as a Target Supercenter.

After the Director of the Community Development Department approved the site plan administratively, an Addendum to the EIR was prepared stating that there were no substantial changes to the project which would require major revisions to the EIR. The City Planning Commission approved the Addendum and the development agreement in July 2007 and the City Council followed suit on August 1, 2007. Melom subsequently filed suit.

The trial court dismissed Melom's suit, finding that the City did not violate CEQA. Melom appealed, claiming that Bakersfield Citizens for Local Control v. City of Bakersfield (2004) 124 Cal.App.4th 1184 (Bakersfield) and American Canyon Community United for Responsible Growth v. City of American Canyon (2006) 145 Cal.App.4th 1062 (American Canyon) both require a government entity to prepare an EIR addressing “potential urban decay effects” whenever a governmental entity approves a project that includes a so-called “supercenter."

The Court of Appeal disagreed, stating that while Bakersfield and American Canyon both used the word “supercenter” as a generic term, neither case defined the word, nor is it defined in any statute or CEQA Guideline. The court went on to explain that the test under CEQA is whether an agency proposes or intends to carry out or approve a project that would have a significant effect on the environment, not whether a store is classified as a "supercenter" or not. When there is a change to such a project, the question then becomes whether those changes would require a major revision of a previous EIR due to the involvement of new significant environmental effects or a substantial increase in the severity of previously identified significant effects. The court clarified that it is the project or the change in the project that is the focus of the inquiry; not whether the project or change in the project is of a certain type (i.e., a supercenter). As such, the court held that the inclusion of a supercenter does not automatically trigger the need to examine the urban decay effects in an EIR.

Authored By:

Phillip M. Tate
(213)617-5575
PTate@sheppardmullin.com