In a unanimous 29-page opinion authored by Associate Justice Carol Corrigan, and filed on March 30, 2017, the California Supreme Court held the City of Newport Beach’s EIR for a large mixed-use development project proposed on a 400-acre coastal zone site failed to comply with CEQA.  Banning Ranch Conservancy v. City of Newport Beach (Newport Banning Ranch LLC, et al., Real Parties in Interest) (2017) 2 Cal.5th 918.  The EIR improperly failed to identify areas of the site that might qualify as “environmentally sensitive habitat areas” (ESHA) – unique areas receiving special legal protections under the California Coastal Act – and take such areas into consideration in its analysis of project alternatives and mitigation measures.  In light of its reversal of the Court of Appeal’s judgment upholding the EIR and project approvals on CEQA grounds, the high court stated it did not need to reach plaintiff and appellant’s independent claim that the City also violated a general plan “strategy” requiring it to “[w]ork with appropriate state and federal agencies to identify wetlands and habitats to be preserved and/or restored and those on which development will be permitted.”

Relevant Factual, Legal and Procedural Background

The 400-acre Banning Ranch site is largely undeveloped and contains oil field facilities and wildlife habitat.  Located in the City’s planning and zoning “sphere of influence,” it is also within the coastal zone, and hence regulated under the Coastal Act, which requires a Coastal Development Permit (CDP) for development.  City’s general plan contains two alternative goals for the area, specifically, a preferred goal of community open space and an alternative one of development with up to 1,375 residential units, 75,000 square feet of retail, and 75 hotel rooms.  Both alternatives call for consolidating oil operations and restoring wetlands/habitats.

The City does not yet have a local coastal program certified by the California Coastal Commission pursuant to the Coastal Act; while it adopted and obtained certification of a Coastal Land Use Plan (CLUP) (which, notably, excluded the Banning Ranch site) – it has not adopted implementing regulations or procedures for issuing CDPs, and the Coastal Commission therefore continues to exercise CDP permitting authority over development on Banning Ranch under State law.  Notably, City’s CLUP defines ESHA in the same terms as the Coastal Act (Pub. Resources Code, § 30107.5) as:  “Any area in which plant or animal life or their habitats are either rare or especially valuable because of their special nature or role in an ecosystem … which could be easily disturbed or degraded by human activities and developments.”  The CLUP also contains criteria for identifying ESHA and a presumption (rebuttable by “site-specific evidence”) that areas that satisfy those criteria are ESHA.

Underscoring the legal and practical significance and implications of a designation as ESHA, the Coastal Act provides that ESHA “shall be protected against any disruption of habitat values, and only uses dependent on those resources shall be allowed within those areas.”  (§ 30240(a).)  Further development in areas adjacent to ESHA “shall be sited and designed to prevent impacts which would significantly degrade those areas, and shall be compatible with the continuance of those habitat … areas.”  (§ 30240(b).)

Because the City lacked funding to purchase Banning Ranch for its preferred open space alternative, Real Party NBR proposed its development to the maximum levels allowed under the second alternative.  At City’s request, NBR included in its proposal a report on its biological consultant’s extensive field survey work identifying potential ESHA, and the proposal explained that the project was designed to avoid all ESHA as defined by the CLUP except for .08 acres unavoidably impacted by a major access road, which would be mitigated.  A map in the biological report showed potential ESHA throughout the project site.

The City, however, was unsatisfied with NBR’s proposed road network, which proposed omitting a major road segment of “Bluff Road” that the City desired to have built in order to connect its 19th Street to the West Coast Highway.  NBR had omitted that portion of the road network precisely to avoid significantly impacting areas its consultant had advised “would be considered [ESHA]” under both the City’s CLUP and the Coastal Act; it had noted “impacts to ESHA are prohibited [by the] … Act except for certain allowable uses, and the proposed connectors would be problematic to the … Coastal Commission.”

City subsequently retained its own environmental consultant and began preparing the project EIR as lead agency, stating in its NOP that the project included areas that may be defined and regulated under the Coastal Act as ESHA, and explaining that it could not issue CDPs, so that if it approved the project plans NBR would apply to the Commission for a CDP.  Numerous public comments mentioned the need to identify ESHA in the EIR.  Meanwhile, due to a utility contractor’s unpermitted activity clearing vegetation from three areas on the site without a CDP, the Commission investigated, found ESHA had been impacted, and ultimately issued consent orders requiring the City and NBR to restore the damaged sites.

The City and the Commission also continued to skirmish over a requested CDP for the City’s adjacent Sunset Ridge Park project, whose contemplated access happened to be a road across Banning Ranch through gnatcatcher-habitat ESHA.  The City refused to meet the Commission’s ESHA-avoidance conditions, and the Commission ultimately denied the CDP and requested that the park and Banning Ranch development be analyzed together due to their contemplated interrelated and shared road infrastructure that would impact ESHA.

When the City circulated the Banning Ranch DEIR in September 2011, it explained that while it could not issue CDPs, it did review projects for general plan, zoning and CLUP consistency before applicants sought CDPs from the Commission.  As the Supreme Court noted, however:  “The draft EIR did not identify potential ESHA or discuss the subject in any substantive detail.  It noted in various places that the project would require a permit from the Commission, which would determine whether Banning Ranch contained ESHA.  The City acknowledged that in doing so, the Commission would take guidance from the CLUP.”

Many DEIR comments complained about the omission of the ESHA analysis; one comment termed the avoidance of any ESHA determination “egregious” because both NBR and the City knew there were ESHA on the Banning Ranch because of the Coastal Commission consent orders.”  Others noted the raw data showed many wetland ESHA existed which were proposed to be permanently impacted, in violation of the Coastal Act.  Coastal Commission staff submitted 15 pages of comments stating that, even though technically inapplicable, City’s CLUP provided “strong guidance” and that the EIR should address whether the proposed development was consistent with both CLUP and Coastal Act policies.  Staff also pointed out that under the Act development must avoid impacts to ESHA and that “non-resource dependent impacts to an ESHA area” are not permitted, stressing:  “[I]t is important that the EIR process incorporate a determination of probable ESHA areas and their required buffers before land use areas and development footprints are established.”  Staff found based on “preliminary analysis” that the Banning Ranch development was inconsistent with the Coastal Act’s ESHA requirement, particularly with regard to its West Coast Highway access road, and urged the evaluation of alternatives to avoid ESHA impacts.

The City’s final EIR “responded to comments but did not change its position on ESHA determinations[,]” stating “no conclusions of ESHA can and will be made by the City at this time as part of the EIR process that would in any way bind the Coastal Commission[.]”  Instead, the City noted it had analyzed the project’s impacts, determined that they could be mitigated, and observed that “a separate analysis will be undertaken by the Coastal Commission in connection with any future [CDP] application or proceeding before the … Commission involving these properties.”  Apart from a general discussion of ESHA and recognition that the Commission’s consent orders had identified ESHA within the area proposed for the Bluff Road, the FEIR did not analyze the Project’s consistency with the Coastal Act’s ESHA policies and protections and the “City disavowed any obligation to further consider ESHA.”

The Supreme Court summarized the City’s basic legal position as to CEQA’s requirements in this context as follows:

It claimed it had “fulfilled its obligation under CEQA to analyze the significant impacts of a project on the physical environment.”  It maintained that ESHA findings were “within the discretion of the Coastal Commission, or a local agency as part of its [local coastal plan] certification process.  While the Draft EIR must identify a project’s impact on the environment, including biological resources such as sensitive species and sensitive native vegetation, it is not required to make a finding pursuant to the Coastal Act.  That would be within the discretion and authority of the Coastal Commission when this Project comes before them.”

While the City responded to comments by taking essentially the same position, it “did not respond directly to [Commission] Staff’s concern about the identification of potential ESHA ‘before land use areas and development footprints are established’” nor did it “respond at all to the suggestion that ESHA and buffer zone delineations be reviewed by commission staff before the EIR was finalized.”  It acknowledged staff recommendations in connection with City’s Sunset Ridge Park project had previously found the proposed arterial access road inconsistent with the Coastal Act, but also stated it would be “infeasible” to eliminate that road because it was a “fundamental goal” of the project, reflected in City’s General Plan Circulation Element and County’s transportation infrastructure plans, and City had accepted Measure M Funds from the County on the condition it would complete the link.

FEIR Certification, Project Approval, And Litigation In The Lower Courts

The City certified the FEIR in July 2012, and approved NBR’s master development plan, a development agreement and necessary zoning changes.  Plaintiff BRC sued.  The trial court rejected its CEQA claim on the ground that CEQA does not require an EIR to include ESHA determinations, but granted a writ finding City failed to comply with its general plan obligations.  The Court of Appeal affirmed on the CEQA issue, concluding “CEQA does not require the City to prognosticate as to the likelihood of ESHA determinations and [CDP] approval[,]” but reversed the grant of relief, holding the general plan did not require the City to work with the Commission before project approval.

The Supreme Court’s Decision

In reversing the Count of Appeal and holding BRC is entitled to relief on its CEQA claim, the Supreme Court found no need to reach the general plan issues.  Key points and holdings from the Supreme Court’s decision include:

  • “Whether an EIR has omitted essential information is a procedural question subject to de novo review” and “the principal issue [here] is whether the Banning Ranch EIR was required to identify potential ESHA and analyze the impacts of the project on those areas.”
  • “[The City] claims it was sufficient for the Banning Ranch EIR to analyze the impacts of the NBR project, including those on sensitive habitat areas, without accounting for potential ESHA. Essentially, the City claims it was entitled to ignore the fact that Banning Ranch is in the coastal zone.  The City’s position is untenable.”
  • CEQA’s fundamental policies require: integrating CEQA’s requirements with other legally required planning and environmental review procedures so as to have them run concurrently to the maximum extent feasible (Pub. Resources Code, § 21003(a); Guidelines, § 15080); integrating CEQA review with related federal, state and local environmental review and consultation requirements (Guidelines, §§ 15124(d)(1)(c), 15006(i)); and consulting with responsible agencies before and during EIR preparation “so that the document will meet the needs of all the agencies which will use it.“  (Guidelines, § 15006(g).)  Per the Court:  “[T]he City ignored its obligation to integrate CEQA review with the requirements of the Coastal Act, and gave little consideration to the Coastal Commission’s needs.”
  • Further, per the Court, failure to observe these fundamental policies adversely affected the core functions an EIR is supposed to perform: “The Guidelines specifically call for consideration of related regulatory regimes, like the Coastal Act, when discussing project alternatives” and factors relevant to the necessary analysis of the “feasibility” of the alternatives considered include “regulatory limitations [and] jurisdictional boundaries” as well as consideration of “regionally significant impacts” such as those in the coastal zone context. (Citing Guidelines, § 15126.6(a),(f)(1).)  “[T]he regulatory limitations imposed by the Coastal Act’s ESHA provisions should have been central to the Banning Ranch EIR’s analysis of feasible alternatives[,]” the evaluation of which is “[t]he core of an EIR.”  (Citing  Citizens of Goleta Valley v. Board of Supervisors (1990) 52 Cal.3d 553, 564.)
  • While a “rule of reason” governs the scope of reasonably feasible alternatives to be discussed in an EIR, “the City’s EIR omitted any analysis of the Coastal Act’s ESHA requirements[,]” and failed to “discuss which areas might qualify as ESHA, or [even] consider impacts on the two ESHA delineated in the Coastal Commission’s consent orders. As a result, the EIR did not meaningfully address feasible alternatives or mitigation measures.”
  • The Court found the City’s and its amici’s justifications for deferring ESHA analysis to the Commission’s CDP process – i.e., that “lead agencies are not required to make legal determinations within the province of another agency” and that such EIR determinations “might be subject to de novo review” – to be unpersuasive. “[A] lead agency is not required to make a “legal” ESHA determination in an EIR.  Rather, it must discuss potential ESHA and their ramifications for mitigation measures and alternatives when there is credible evidence that ESHA might be present on a project site.  A reviewing court considers only the sufficiency of the discussion.”  (In a footnote, the Court noted that it “expressed no view [on the legal question] as to whether ESHA impacts must be avoided, as opposed to mitigated.”)
  • The Court also rejected the City’s arguments that identification of potential ESHA would be merely speculative, observing that the record belied this contention since: (1) the consent order’s identification of ESHA was not speculative; (2) City knew NBR’s biological consultant had identified potential ESHA in numerous other areas; (3) City’s own CLUP (which it routinely applied to other projects) provided guidelines to identify ESHA; and (4) City was offered Coastal Commission staff assistance, all providing it with “ample bases for an informal discussion of the … project’s potential ESHA impacts.”  It stressed that precision is not required in order for analysis to be required, and that some degree of forecasting is involved in drafting an EIR:  “Here the City did not use its best efforts to investigate and disclose what it discovered about ESHA on Banning Ranch.”
  • In addition to holding deferral of ESHA analysis to the CDP phase would be inconsistent with the integrated and comprehensive review a lead agency is required to undertake in an EIR, the Supreme Court found it had no support in the case law, and that the opposite was true.
  • The Court also rejected City’s argument that identifying potential ESHA in an EIR would somehow bind the City “to accept the ESHA designations and related measures proposed by commission staff.” It pointed to well-established law that an EIR is an informational document, that the lead agency may disagree with the opinions of other agencies, and that disagreement among experts does not make an EIR invalid (although the EIR should summarize the main points of expert disagreement).  (Citing North Coast Rivers Alliance v. Marin Municipal Water Dist. Bd. of Directors (2013) 216 Cal.App.4th 614, 642-643; California Native Plant Society v. City of Rancho Cordova (2009) 172 Cal.App.4th 603, 625-626; Guidelines, § 15151.)
  • Finally, the Court noted that its legal holdings coincided with the need for CEQA review to meaningfully address the practical realities of coastal zone development: “The City did provide a detailed biological analysis of project impacts, which may have been adequate were Banning Ranch not in the coastal zone.  But, however technically accurate the City’s analysis might otherwise be, it fell short by failing to account for the Coastal Act’s ESHA protections….  [¶] We note that the City’s handling of the Banning Ranch EIR not only conflicted with its CEQA obligations, but also ignored the practical reality that the project must ultimately pass muster under the Coastal Act.”

Summary and Implications

While its specific context is limited, the lessons learned and guidance gleaned from the Supreme Court’s decision are certainly valuable ones for lead agencies and developers navigating the land use and environmental review processes in California’s coastal zone.  Lead agencies may not omit or defer analysis of a project’s impacts on potential ESHA simply because the Coastal Commission has ultimate permitting jurisdiction or the final say as to whether specific areas actually constitute ESHA.  Rather, CEQA requires EIRs to take a comprehensive view and coordinate their analysis with the planning and environmental review processes of other responsible agencies; even though prepared by a local lead agency, they must take into account regionally significant impacts (which, by definition, include coastal zone impacts) and serve as a useful document for those other responsible agencies.

The legal and practical consequences of the existence of ESHA are enormous, and will impact the feasibility of proposed mitigation measures and alternatives – the “core” of an EIR – and hence greatly influence and shape the project’s physical footprint.  The Coastal Act says ESHA must be avoided (and entirely, per the Commission’s staff) by development, and that development adjacent to ESHA must buffer and mitigate its impacts; while the Supreme Court stopped short of deciding whether commercial development can ever legally occur in ESHA, a major theme of its analysis is that the Coastal Act’s protection of ESHA is so strong that omission of analysis of potential ESHA in a coastal zone project EIR renders the document inadequate.

The bottom line on ESHA is that coastal zone project EIRs are inadequate as informative documents under CEQA if they ignore and don’t discuss evidence of impacts on potential ESHA – it is not just a “legal label” that doesn’t matter or analysis of which can be deferred until a later Coastal Commission CDP process. Whether or not it has a certified Local Coastal Program or possesses direct local CDP permitting authority, a lead agency city or county in the coastal zone will have to make a good faith effort to identify and analyze a project’s impacts on potential ESHA, and discuss feasible mitigation measures and alternatives to address those impacts, during the CEQA process.

A lingering larger question is whether and how the Court’s holding in this regard might be applied or extended in currently foreseeable ways in other contexts where different responsible agencies (e.g., a regional water board, air district, CDFW, BCDC, State Lands Commissions, etc.) play some role in the overall approval process; the answer to that question remains to be seen.

 

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