In an opinion filed July 16, and belatedly ordered published on August 9, 2018, the First District Court of Appeal (Division 5) affirmed the trial court’s judgment setting aside the City of Fremont’s approvals of a mixed residential/retail project (“Project”) and related Mitigated Negative Declaration (“MND”), and ordering preparation of an EIR based on the Project’s potentially significant aesthetic and traffic impacts on the Niles historical district.  Protect Niles v. City of Fremont (Doug Rich, et al., Real Parties in Interest) (2018) ____ Cal.App.5th ____.  The opinion is a good reminder of the legal vulnerability of any species of negative declaration under CEQA’s applicable “fair argument” standard of review.  It also provides guidance in the areas of mootness; analysis of aesthetic, historical resources, traffic level of service (“LOS”), and traffic safety impacts; the operation of traffic thresholds of significance; and the nature of substantial evidence sufficient to support a “fair argument,” both generally and in the unique “historical district” context presented by this particular case.

Context And Factual/Legal Background

As the Court of Appeal repeatedly emphasized, context is key in analyzing potential environmental impacts under CEQA, and that is particularly true in the highly subjective area of “aesthetic” impacts.  Here, the six-acre Project site lies entirely within the City of Fremont’s officially designated Niles Historic Overlay District (the “Niles HOD” or “Niles historical district”), and abuts the district’s commercial core.  That critical environmental setting drove much of the Court’s legal analysis.

The City has designated certain areas of Niles as Niles HOD and adopted design guidelines and regulations for commercial properties in the district’s core area; the district has a distinctive character featuring historic buildings and diverse architectural styles along its 7-block main street and surrounding neighborhood, and its streets are lined with “large, unusual trees.”  The Niles HOD Guidelines seek to preserve the district’s unique characteristics and “small town character,” and the City’s Historical Architectural Review Board (“HARB”) is charged with reviewing and advising the planning commission and city council on the exterior features of proposed developments toward that end.

The Project And City’s Environmental Review Process

The Project proposed 85 residential townhomes and other mixed residential/retail development and a new street connecting to Niles Boulevard on the site, which was vacant except for building foundations, debris, and some trees that remained after a 2008 fire destroyed the historic office building formerly located there.  City staff proposed an MND which found the Project would have no, or less than significant, impacts in all studied areas, including (as relevant to the opinion) “aesthetics, light and glare” and “transportation/traffic” impacts.  Staff found the Project would be visually compatible and consistent with the vision of the HOD Guidelines, and would (with a single mitigation measure assuring adequate sight distance at the proposed new intersection) also have no significant adverse traffic impacts.

This assessment differed dramatically from that of the HARB, which voted 4-1 against recommending the Project, after finding it incompatible with existing Niles HOD development in terms of density, siting, massing, scale, size, materials, textures, and colors.  Notwithstanding the HARB’s findings, neighboring citizens’ continued objections on the same grounds, and the developer’s apparent unwillingness to significantly modify the Project to address these concerns, the planning commission voted 6-0 to recommend approval, and the city council approved the Project and adopted the MND by 3-2 vote.  Illustrating that compatibility often lies in the “eye of the beholder,” the council majority found the project functionally and aesthetically compatible with the Niles HOD’s styles, materials, colors and significant features; regarding traffic, it required the applicant to “work with” City’s Public Works Department to include a left-turn pocket lane at the new intersection – if the right-of-way was adequate to accommodate one.  The only required CEQA mitigation measure was the adequate sight distance requirement, and the approved Project still included 98 residential units.

The Trial Court Litigation

The trial court granted Protect Niles’ writ petition, finding substantial evidence supported a “fair argument” of significant aesthetic and traffic impacts.  It found HARB members’ opinions of the Project’s incompatibility with the Niles HOD’s aesthetic character were tantamount to expert testimony in that area.  It also credited fact-based public commentary and observations as showing potentially significant traffic impacts, and observed that the Initial Study itself confirmed a Project-caused change in traffic LOS from E to F, which adverse impact was not rendered insignificant under CEQA or “trumped” by City’s adopted threshold of significance to that effect.

The Court of Appeal’s Opinion

In its 26-page opinion affirming the trial court’s judgment requiring an EIR before the Project could proceed, the Court of Appeal set forth a number of significant and interesting points and holdings:

  • CEQA is interpreted to afford the fullest possible protection to the environment within its language’s reasonable scope; the EIR is the “heart of CEQA”; and fostering informed self-government through public participation is an essential part of the process. The “low threshold” “fair argument” test requires that an EIR be prepared if there is any substantial evidence in the record, contradicted or not, supporting a “fair argument” that a project may (meaning a “reasonable possibility”) have a significant affect.  The existence of a fair argument is a legal issue; judicial review is de novo with a preference for resolving doubts in favor of environmental review; and relevant personal observations on non-technical subjects (as opposed to argument, speculation, and unsubstantiated opinion) can qualify as substantial evidence supporting a fair argument.  While most CEQA practitioners can probably recite these basic legal principles in their sleep, they do serve to remind project proponents of an important “fact of life” in the CEQA world:  if your project faces intense and dedicated neighborhood opposition, as did the Project here, it will be a daunting task to uphold an MND against legal challenge.
  • The Court rejected Protect Niles’ motion to dismiss the appeal as moot on the ground that the developer had submitted a revised project application on which the City had published a draft EIR in late May 2018, and had thus allegedly “voluntarily complied” with the judgment. It noted the City had voluntarily complied with the directive to prepare an EIR but that the developer – which “was not commanded to take any particular action by the trial court and thus cannot have voluntarily complied with the trial court’s order” – was the appellant, not the City.  Most significantly, however, with regard to the mootness issue, the Court held:  “[The developer] Valley Oak’s alleged submission of a revised Project application is not tantamount to withdrawal of its original Project application or abandonment of its legal position in this appeal that the original application was properly approved by the City without the preparation of an EIR. ….  Moreover, the appeal is not truly “moot.”  Were Valley Oak to prevail in this appeal, the City’s 2015 Project approval would be restored regardless of the status of the revised application and EIR.”
  • The Court’s above-quoted language should prove useful to project proponents appealing adverse judgments in CEQA cases while simultaneously seeking approval of a revised project based on additional CEQA review correcting the perceived CEQA deficiencies found by the trial court. In light of the typically lengthy and uncertain duration of the appellate process, it is not uncommon for developers in this situation to pursue a “two-track” appeal/compliance strategy designed to obtain certainty at the earliest possible time regarding the developer’s ability to develop some version of the proposed project.  Given CEQA’ s complexity and the inherent uncertainty of litigation outcomes, developers are often willing to develop a modified project accompanied by enhanced CEQA review if they are able to obtain expeditious local agency approval and judicial clearance for the same.  But because pursuing a revised project presents its own risks and uncertainties, including the need to obtain political support and the risk that any new approval will itself be litigated, developers are understandably reluctant to abandon a possibly meritorious appeal of the judgment invalidating their original project approvals. Giving up the appeal and starting completely over “from scratch” – as project opponents frequently argue developers must do in this context – would be the “worst of all worlds”: the revised project could be opposed and mired in a fresh round of litigation beginning anew in the trial court, while the developer would have given up a potentially meritorious appeal that might have restored the original approvals.  In such a scenario, project opponents could “kill” many meritorious projects through the sheer delay and expense (including the expense of the developer’s carrying costs) caused by serial lawsuits brought under CEQA.
  • In my view, there is no good reason to force such a “Hobson’s choice” on agencies or developers under the rubric of “mootness.” Notwithstanding the Court’s seeming “hedge” about the City of Fremont not being an appellant, and the developer not being directed by the judgment to do anything specific, those facts should not matter to the mootness analysis.  While physical reality dictates that only one approved project may ultimately be built, nothing in the law of which I am aware prevents a City from approving (and a developer from simultaneously holding) development entitlements to build alternative projects on the same project site.  The Court’s holding regarding this mootness issue, expressed in the language quoted above, provides additional, explicit legal recognition of developers’ ability to pursue the “two-track” CEQA litigation/compliance approach aimed at achieving certainty, through one of those avenues or the other, at the earliest possible time.
  • The Court held Protect Nile’s arguments about the Project’s incompatibility with the Niles historic district were properly analyzed as aesthetic impacts, and that their cognizability as CEQA issues did not depend on them being framed as arguments about “land-use policy” violations. Citing statutes, case law, and the CEQA Guidelines, the Court stated:  “Several courts have recognized that a project’s impact on the aesthetic character of a surrounding community is a proper subject of CEQA environmental review.”  After examining relevant case law in some detail, the Court also noted some important limiting factors that have emerged from that case law:  “Courts have cautioned that CEQA aesthetics review should not be used to protect the views of particular persons versus the general public….  Similarly, CEQA aesthetics review should not be used to secure social or economic rather than aesthetic environmental goals.”  (Citations omitted.)
  • In keeping with the theme running throughout its opinion, the Court stated: “Courts also emphasize that context is crucial in determining the appropriateness of CEQA aesthetic review.”  It cited and quoted from Bowman v. City of Berkeley (2004) 122 Cal.App.4th 572, 592, as recognizing the Legislature did not intend to require an EIR “where the sole environmental impact is the aesthetic merit of a building in a highly developed area[,]” that such issues “are primarily the province of local design review, not CEQA,” and that “[t]o rule otherwise would mean that an EIR would be required for every [non-exempt] urban building project … if enough people could be marshalled to complain about how it will look.”  (Citing Bowman, at 592-593.)
  • However, the Court also noted Bowman’s “important caveat” that “there may be situations where … an aesthetic impact like the one alleged here arises in a ‘particularly sensitive’ context [citation] where it could be considered environmentally significant[,]” and observed: “Here, Valley Oak proposes building a 6-acre housing complex within a designated historic district – an area the City itself has recognized as a particularly sensitive context.”  Citing case law emphasizing that “[t]he significance of an environmental impact is … measured in light of the context where it occurs” (San Francisco Beautiful v. City and County of San Francisco (2014) 226 Cal.App.4th 1012, 1026, emph. added, quotations omitted), and noting that the context here involved applying the fair argument standard to an MND, rather than the deferential substantial evidence standard to an EIR, the Court distinguished cases not involving a “‘particularly sensitive’ context” such as “the unusual setting of the Niles HOD, as mapped and officially recognized by the City.”  Per the Court:  “Here, while many of [the] public comments on the Project criticized the aesthetics of the Project independent of its setting, Protect Niles’ litigation argument rests on the Project’s aesthetic impact on the setting, i.e., the Niles HOD.  [¶] In sum, we conclude a project’s visual impact on a surrounding officially-designated historical district is appropriate aesthetic impact review under CEQA.”
  • The Court took care to distinguish the type of CEQA aesthetic impact review involved in the case before it from the CEQA rules applicable to project impacts that physically alter historical resources: “We do not believe this view undermines the separate scheme for CEQA review of environmental impacts on historical resources.  (See Pub. Resources Code, § 21084.1; CEQA Guidelines, § 15064.5(a), (b).)  As noted, those rules focus on direct physical changes to historical resources themselves that materially impair those resources’ historical significance, not a project’s aesthetic impact on its historical setting.  [Citation.]  We do not believe the Legislature intended CEQA review to overlook a project’s aesthetic impact on a historical district where the Legislature expressly provided that CEQA addresses projects’ aesthetic and historic environmental impacts [citation], specified that any objects of historical or aesthetic significance are part of the environment [citation], and intended that CEQA be liberally construed to afford the fullest possible protection to the environment [citation].”
  • The Court discussed at some length the “substantial evidence” that it held “clearly supported a fair argument that the Project would have an adverse aesthetic impact on the Niles HOD.” Such evidence included opinions of the HARB commissioners and Niles residents that the Project’s height, density, massing and architectural style were inconsistent with the Niles HOD and its “small town feeling.”  Thus, “opinion differed sharply as to the Project’s aesthetic compatibility with the historic district.”  While the Court “recognize[d] that aesthetic judgments are inherently subjective[,]” it also noted that “[p]ersonal observations on these nontechnical issues can constitute substantial evidence” and that “the comments about incompatibility were not solely based on vague notions of beauty or personal preference, but were grounded in inconsistencies with the prevailing building heights and architectural styles of the Niles HOD neighborhood and commercial core.”
  • Rejecting the developer’s “categorical” argument that any “upgrade[ ] from a dilapidated vacant lot to attractively landscaped new construction” could not plausibly have an adverse aesthetic effect on its surroundings, the Court again emphasized that “context” matters and that “[t]he Project site is at a recognized “gateway” to the Nile HOD, it abuts the commercial core and extends the commercial strip, and it lies entirely within the historical district.”
  • The Court rejected the developer’s argument that the HARB’s mere differing conclusion could not alone constitute a fair argument of significant adverse impact. Protect Niles did not simply rely on the HARB’s vote, but on its members’ collective “fact-based” opinions about the Project’s incompatibility with the Niles HOD.  The Court’s conclusion in this regard did not undermine the Council’s ultimate authority to make the final decision on environmental impacts because the issue was simply whether an EIR needed to be prepared prior to that decision.  Per the Court:  “We … recognize that because aesthetics is an inherently subjective assessment the City could well act within its discretion if, after preparation of an EIR, it concludes the Project will have no significant aesthetic impact on the historical district.  Our role here, however, is not to anticipate whether an ultimate evaluation by the City, one way or another, might be supported by substantial evidence.  Our function is to ensure the CEQA environmental review process serves its purpose of facilitating informed decisionmaking with public participation on environmental issues.”
  • The Court also held that the “fact-based comments [made by residents, City officials or staff, and professional consultants expressing concerns about traffic impacts caused by the proposed New Street/Niles intersection] constituted substantial evidence supporting a fair argument that the Project will have significant adverse traffic impacts.” Such potential impacts included traffic safety hazards from excessive queueing and limited visibility at and near the new intersection, excessive added congestion, and a drop from LOS E to LOS F at the Niles/Mission intersection.  Per the Court:  “Residents’ [fact-based] personal observations of traffic conditions where they live and commute may constitute substantial evidence even if they contradict the conclusions of a professional traffic study.”  Moreover, the traffic study at issue acknowledged Project-caused deterioration of an existing “unacceptable” LOS E at the Niles/Mission intersection, albeit not beyond City’s predetermined thresholds of significance.  The Court disagreed, however, with the developer’s position that such thresholds precluded a fair argument of potentially significant adverse traffic impacts requiring an EIR, observing that:  “Thresholds of significance may not be applied “in a way that forecloses the consideration of any other substantial evidence showing there may be a significant effect.””  (Citing Communities for a Better Environment v. California Resources Agency (2002) 103 Cal.App.4th 98, 114.)  Here, the Court found that “[t]he fact-based comments of residents and City staff and officials supported a fair argument that unusual circumstances in Niles might render the thresholds inadequate to capture the impacts of congestion on Niles Boulevard extending from the Niles/Mission intersection well into the Niles HOD commercial core.”

Because of its inherent subjectivity, aesthetics review under CEQA can be frustrating for practitioners seeking “bright line” rules.  Other than underscoring the practical need to do an EIR rather than an MND where there is dedicated opposition to a project, the biggest legal takeaways from this case may be that officially designated historical districts are particularly sensitive environmental settings for purposes of CEQA analysis, and that a project located in such districts may have significant aesthetic impacts on the setting even without physically altering any historic building, structure or object.  The opinion also contains language that should prove helpful for litigators representing agencies and developers pursuing the “two-track” CEQA litigation appeal/revised-project compliance approach who are faced with the argument that taking such an approach “moots” their appeal of the original judgment.

 

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.