By Leslie Walker

On October 30, 2008, the California Supreme Court decided  Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116 (“Save Tara”) finding that CEQA was triggered by early agreements between a city and developer, even when the agreements were expressly conditioned upon later CEQA compliance. This case will act as an impediment to many forms of agreements in the areas of redevelopment, affordable housing, and infrastructure which frequently require long-term cooperation of private developers and public agencies.

Save Tara involved a development agreement between the City of West Hollywood (“City”) and Laurel Place, a nonprofit corporation proposing to develop a 35-unit housing project for low-income seniors on City-owned property designated as a cultural resource. The first agreement, signed on May 3, 2004, (“May 3 Agreement”) provided that upon satisfaction of the conditions of the agreement, the City would convey the property to Laurel Place and provide it with a loan, and Laurel Place would construct the housing units. One of the conditions precedent was that, “all applicable requirement of CEQA… [would be] satisfied, as reasonably determined by the city manager.” The city manager had the right however, to waive the conditions. 

Save Tara, a neighborhood group, filed a lawsuit alleging that the City violated CEQA by failing to prepare an environmental impact report (“EIR”) prior to approving the May 3 Agreement. On August 9, 2004, three weeks after the suit was filed, the City and Laurel Place executed a revised agreement under which the city manager no longer had the authority to waive the CEQA requirements (“August 9 Agreement.”)

The superior court denied Save Tara’s petition, finding that the EIR was not required before approving the May 3 Agreement because it was expressly conditioned on CEQA compliance. During the pendency of the litigation, the City completed and certified a final EIR for the project. The Court of Appeal, Second Appellate District, reversed and remanded. Upon request of the City, the Supreme Court granted review.

Mootness

The first issue before the Supreme Court was whether the City’s 2006 approval of a final EIR (unchallenged) rendered Save Tara’s claim as moot. The Court found that the preparation and certification of the EIR did not render the appeal moot because no irreversible physical or legal change had occurred. The Court could still grant the relief sought by Save Tara, which was an order setting aside the City’s approvals.

Project Approval

The Court next considered whether the City’s approval of the May 3 Agreement, conditioned upon later CEQA compliance, constituted an approval for CEQA purposes. Approval, for CEQA purposes, means the decision by a public agency which “commits the agency to a definite course of action in regard to a project intended to be carried out by any person.” (CEQA Guidelines, § 15352, subd. (a).) The operative question for the Court was when does an agency’s favoring of, or assistance to, a project ripen into a commitment to a definite course of action?

The City and Laurel Place argued that an agency commits to a definite course of action if it agrees to be legally bound to take that course of action. Because the May 3 Agreement contained the CEQA compliance condition, they argued, the Agreement does not commit the agency to a definite course of action. Save Tara on the other hand argued that a condition postponing environmental review until after an agreement on the project would then render the EIR requirement a “dead letter.” The Court adopted a middle ground:

A CEQA compliance condition can be a legitimate ingredient in a preliminary public-private agreement for exploration of a proposed project, but if the agreement, viewed in light of all the surrounding circumstances commits the public agency as a practical matter to the project, the simple insertion of a CEQA compliance condition will not save the agreement from being considered an approval requiring prior environmental review.

Stand Tall and Concerned McCloud Distinguished

The Court rejected the City and Laurel Place’s reliance on two Third District Court of Appeal cases supporting the contention that an agreement contingent on completion of an EIR does not commit the agency to a definite course of action and thus is not an approval for CEQA purposes: Stand Tall on Principles v. Shasta Union High School (1991) 235 Cal.App.3d 772 (“Stand Tall”) and Concerned McCloud Citizens v. McCloud Community Services District (2007) 147 Cal.App.4th 181 (“Concerned McCloud.”).

In Stand Tall, the Court of Appeal, Third Appellate District found that a school board’s passage of resolutions authorizing the district administration to make an offer to purchase property contingent upon completion of an EIR “[did] not commit the District to a definite course of action since they [were] expressly made contingent on CEQA compliance.” The Save Tara Court distinguished this case as falling within the CEQA Guidelines section 15004(b)(2)(a) exception that “agencies may designate a preferred site for CEQA review and may enter into land acquisition agreements when the agency has conditioned the agency’s future use of the site on CEQA compliance,” an exception which the Court cautioned should not swallow the rule.

In McCloud, also from the Third Appellate District, a district executed an agreement with a commercial spring water bottler for the exclusive right to bottle and sell water from the district’s sources. The agreement was contingent on the district and the bottler completing CEQA review during the contingency period. The court found that the district was not required to complete an EIR before executing the bottling agreement because the agreement was contingent on obtaining all discretionary permits, including CEQA documentation. The Save Tara Court explained that because the agreement in Concerned McCloud lacked details essential to environmental analysis of the project, Concerned McCloud does not establish that a conditional agreement for development never constitutes approval of the development.

Instead, the Supreme Court looked to its own decisions holding that an agency approved a project although further discretionary governmental decisions would be needed before any environmental change could occur. (Muzzy Ranch Co. v. Solano County Airport Land Use Commission (2007) 41 Cal.4th 372, 383; Fullerton Joint Union High School District v. State Bd. of Education (1982) 32 Cal.3d 779, 795; Bozung v. Local Agency Formation Commission (1975) 13 Cal.3d 264, 282) The Court explained that CEQA review may not always be postponed until the last governmental step is taken, because postponing the environmental review may incentivize ignoring environmental concerns. If the CEQA review is completed after bureaucratic and financial momentum builds behind the project prior to the environmental review, it may provide a strong incentive to ignore environmental concerns, rendering the EIR a “post hoc rationalization” of the project.

Facts Demonstrate Commitment

The Court then turned to the facts of the particular case, finding that the City had approved the project and should have completed an EIR prior to approving the Agreement. The court based its decision on statements in the Agreement, the terms of the Agreement, the City’s representations to Housing and Urban Development (“HUD”) and the public, and the fact that the City had begun to relocate the current residents of the property to be developed.

First, the Court explained that the May 3 and August 9 Agreements stated their purpose was to cause the “reuse and redevelopment of the property,” demonstrating, according to the Court, the City’s commitment to the project. Further, the stated intent of the May 3 Agreement was to “facilitate development of the project while allowing further public input on the design of project elements.”

Second, the City agreed in both the May 3 Agreement and August 9 Agreement to initially lend the developer nearly one-half million dollars. This initial loan was not conditioned on CEQA compliance and would not have to be repaid if the project were not approved.

Third, the City left the determination of whether the CEQA requirements had been met to the city manager, leaving the City open to charges that it acted unreasonably.

Fourth, the City did not provide a mechanism to appeal the city manager’s determination. This delegation of the City council’s authority constituted an impermissible attempt to approve the project without CEQA review.

Fifth, the City’s representations in an application to HUD, mayoral announcements, City newsletters, and communications to residents, demonstrated a commitment to the project. For example, the city manager represented to HUD that the City had approved the sale of the property and would commit up to $1 million in financial aid. A City official told residents opposing the project that the City must continue on a path that fulfills the obligation to redevelop the property for senior housing.

Finally, the fact that City had embarked on efforts to relocate current residents of the redevelopment property demonstrated the City’s commitment. The Court concluded: the “City’s willingness to begin [the relocation] process as soon as the conditional development agreement was executed, and to complete it before certifying an EIR and finally approving the project, tends strongly to show that City’s commitment to the 1343 Laurel project was not contingent on review of an EIR.”

Conclusion

The Court agreed with the Court of Appeal, ordering the City to declare its May and August 2004 Agreements void. Unlike the Court of Appeal however, the Supreme Court did not directly order the preparation of a new EIR. The EIR certified in 2006 was presumed, under Public Resources Code section 21167.2, to comply with CEQA unless subsequent or supplemental environmental review is needed.

In sum, the Court gave us the following guiding principles:

• Stand Tall and Concerned McCloud, as precedent, are not automatic safe harbors from CEQA compliance.
• A contract term requiring future CEQA compliance will not automatically convert an agreement which would otherwise be considered an approval, into a CEQA exempt activity.
• Whether an agency action constitutes an approval is still a fact intensive inquiry, which in this case included consideration of the purpose stated in the agreement, the extent to which the agency had taken action to commit to the project, and the public representations made by the agency.

Leslie Walker is an associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.