Against the backdrop of another severe drought, water supply and impact issues continue to be points of contention for water agencies, water users, conservation groups, and the state.  And, of course, litigation over water is not limited to water rights and usage, but extends to related environmental review under CEQA.  On September 22, 2021, the Third District Court of Appeal issued a published opinion in Central Delta Water Agency v. Department of Water Resources (2021) __ Cal.App.5th __, disposing of several consolidated cases and analyzing operation of the state’s massive State Water Project (SWP) through a CEQA lens.  While the case does not break any new legal ground, it applies well-recognized CEQA principles to a lengthy and complex fact pattern involving multiple rounds of lengthy litigation, settlement, and EIR preparation.

Background:  Litigation 25 Years in the Making

As noted, the case involves three consolidated appeals against the Department of Water Resources (“DWR”) relating to 1990s era changes to the operation of the SWP and Central Valley Water Project, which together comprise California’s primary plumbing system; the opinion affirmed the judgments in favor of DWR in each case.  As background, the SWP by itself delivers water to about 25 million residents and 750,000 acres of farmland on an annual basis.  The SWP is operated by DWR, which delivers water to regional and local distributors known as “contractors” via long term contracts.  Those contracts include “Table A,” showing maximum amounts of available water depending on conditions; Article 18, which addresses how water shortages will be dealt with; and Article 21, which addresses short-term water surpluses.

Historically, a variety of factors, including demand in excess of Table A amounts and failure to complete all anticipated SWP facilities, led to DWR being unable to deliver all of the water promised in Table A amounts to the contractors.  This problem was exacerbated by drought in the early 1990s, which led to reduced water deliveries under Article 18 while contractors were still obligated to make substantial payments to DWR.

This situation gave rise to disputes between DWR and SWP contractors, which led to mediation in 1994.  That mediation culminated in an agreement and amendments to the long term contracts.  (Because the mediation had taken place in Monterey, the relevant contractual documents were known as the “Monterey Agreement” and “Monterey Amendment.”)  The Monterey Amendment also set up the transfer of a groundwater bank in Kern County, the Kern Water Bank, from DWR to local Kern County agencies, including the Kern County Water Agency, via the “KFE Transfer Agreement.”

Two SWP contractors prepared an EIR for the Monterey Agreement, which DWR certified in 1995.  Several plaintiffs sued over the adequacy of the Monterey Agreement EIR, including the Planning and Conservation League.  That litigation culminated in Planning & Conservation League v. Department of Water Resources (2000) 83 Cal.App.4th 892, in which the court of appeal held that the Monterey Agreement EIR was invalid because it had not been prepared by DWR as the lead agency, and because it did not address Article 18 as the no project alternative.  The court also held that the reverse validation challenge to the Monterey Agreement and KFE Transfer Agreement was not defective for failure to name and serve indispensable parties.

That decision set the stage for yet more settlement discussions between the parties, which gave rise to an agreement for DWR to prepare another EIR as lead agency and for the Kern Water Bank Authority to retain title to the Kern Water Bank.  The new EIR was known as the “Monterey Plus EIR” because it included the Monterey Amendment, KFE Transfer Agreement, and terms of the new settlement agreement.

DWR released the draft Monterey Plus EIR in 2007.  The EIR analyzed four no-project alternatives, three of which analyzed impacts without the Monterey Amendment, and the fourth of which analyzed impacts from the amendment absent the terms of the new settlement agreement.  DWR certified the new EIR on February 1, 2010.

The Monterey Plus EIR sparked three new lawsuits.  Central Delta Water Agency sued under CEQA, claiming that the EIR did not adequately describe the project or its impacts, did not properly analyze alternatives and mitigation measures, did not adequately respond to comments, was not circulated properly, that DWR’s findings were not supported by substantial evidence, and that DWR did not provide a proper notice of determination.  Center for Biological Diversity (“CBD”) and other petitioners sued for additional CEQA violations and to have the Kern Water Bank returned to DWR.  Finally, two Kern County water districts also sued under CEQA on the basis that the Monterey Plus EIR did not properly analyze whether the Kern Water Bank adversely affected nearby groundwater wells and water banks.

The trial court issued a writ on the CEQA claims in 2014, holding that the Monterey Plus EIR had not adequately analyzed the impact of the Kern Water Bank on future groundwater and water quality issues.  DWR prepared a revised EIR in conformity with the court’s ruling, issuing a draft Revised EIR in April 2016 that analyzed impacts from the Kern Water Bank’s operations.  DWR certified the Revised EIR in September of 2016 and filed a return to the 2014 writ.  This triggered the filing of a new petition, which was decided along with challenges to the return.  In 2017 the trial court rejected these challenges, discharging the 2014 writ and denying the new petition.  The consolidated appeals resulted.

The Court Of Appeal’s Instant Decision

CEQA Claims

Perhaps unsurprisingly, this lengthy procedural history was not the end of the parties’ disputes.  The 2016 Revised EIR gave rise to yet another round of litigation entailing three separate lawsuits against DWR.

In one of these challenges, the Central Delta Water Agency (“Central Delta”) argued that the Monterey Plus EIR improperly assumed the operation of the SWP under the effects of contract amendments and a settlement agreement whose effects the EIR was intended to analyze.  Framed challenge to the “project decision,” this claim essentially argued DWR could not lawfully assume continued operation of the SWP under the contract modifications and settlement, and that the contracts at issue had to be considered invalid until the completion of CEQA review.  However, the trial court noted that the circumstances of the case were unusual in that the Monterey Plus EIR was the result of a settlement agreement to analyze contractual modifications already agreed upon.  While conceding this was “a less than ideal way to conduct CEQA review,” the trial court had upheld DWR’s analysis.  The Court of Appeal affirmed, noting that under Public Resources Code § 21168.9 the trial court had the discretion to leave the contracts in place while CEQA review was undertaken; under “the unique procedural and factual circumstances surrounding the litigation,” the Court found the trial court’s reasoning to be sound and affirmed on this ground.

This argument related to the next one the Court addressed, i.e., that the Monterey Plus EIR had improperly failed to analyze a “no project” alternative under which the contractual amendments were not operative.  The trial court had held that because the project’s primary objective was the negotiated compromise of claims relating to the prior operation of the SWP, a “no project” alternative would, by definition, fail to meet this objective.  Still, DWR analyzed no fewer than four (4) “no project” alternatives, two of which implemented one of the contested contractual provisions, one which eliminated it, and one of which implemented the entire suite of contract amendments.  Central Delta claimed that the analysis was deficient because it failed to take into account another complementary provision, but the trial court and Court of Appeal disagreed, noting this was a matter of differing contract interpretations.  And while the EIR should have included the elimination of the complementary contract provision (which should have been analyzed under a no project alternative), that omission was not prejudicial because DWR conducted an analysis of that scenario in response to comments prior to EIR certification, thereby satisfying CEQA’s public disclosure mandate.

Finally, Central Delta argued that the trial court’s limited writ directing further environmental review with respect to the Kern Water Bank, but leaving the approved contract modifications and settlements in place, was erroneous.  The Court of Appeal affirmed the trial court’s rejection of this argument as well, holding that under Public Resources Code § 21168.9(a), the trial court had the discretion to leave project approvals in place during the pendency of a return to the writ.  The Court’s endorsement of use of a limited writ remedy is consistent with what the authors consider to be the well-reasoned majority view on this issue, but in tension with the Fifth District’s contrary view, as recently expressed in Sierra Club v. County of Fresno (2020) 57 Cal.App.5th 979, blogged about here.

Also at issue were CEQA claims made by the Center for Food Safety.  The first of these was another procedural argument to the effect that an earlier appeal in a challenge to the Monterey Plus EIR stayed Food Safety’s challenge to the Revised EIR as both challenges involved similar or overlapping claims.  Because the two cases wound up being consolidated, the Court of Appeal ruled this challenge moot.

Food Safety also challenged the Revised EIR on the grounds that it did not adequately analyze the impact of the Kern Water Bank on the conversion from annual crops (i.e., those planted and harvested yearly, such as cotton or alfalfa) to permanent crops (those planted once and then harvested annually when ripe, such as fruit and nuts).  Food Safety argued that such a conversion “hardened” water demand, because permanent crops, by definition, cannot be fallow during drought years.  However, the trial court noted, and the Court of Appeal agreed, that such “hardening” is not an environmental impact under CEQA, that this phenomenon was occurring with or without the project, and that substantial evidence supported the conclusion that this trend did not result in any significant impact from SWP contractors requesting more water than they otherwise would have.

Timeliness of Attorneys’ Fees Claim

Experienced CEQA litigators well know that a successful writ petition will almost invariably be followed by a motion for attorneys’ fees under Code of Civil Procedure section 1021.5.  Such was the case in this litigation, as petitioner CBD filed a motion for fees under the statute after prevailing in the trial court.  The trial court denied that motion as untimely and the Court of Appeal affirmed.

Rule 3.1702(b)(1) of the California Rules of Court requires a CCP § 1021.5 fee motion to be brought within the time period for filing a notice of appeal under rules 8.104 and 8.108.  While CBD had prevailed under its CEQA claim, the trial court ruled, and the Court of Appeal affirmed, that CBD’s action was a reverse validation action which triggered the 30 day appeal period provided by the validation statute (Code Civ. Proc., § 870(b)), and that CBD’s motion made outside that period was therefore untimely.  Appellate practitioners should take note that where a validation action or other claim with a statutorily-reduced time to appeal is joined with other causes of action, the shortened appellate period will control, even as to a fee motion based on a separate claim.

Another interesting aspect of this issue is raised only by implication.  In the factual background portion of its opinion, the Court mentions that CBD entered into a stipulation with DWR extending the time to file the fee motion.  However, it also mentions that the stipulation did not include the real parties in interest.  The result implies that the stipulation was ineffective absent the consent of the real parties to the extension; this issue is analogous to the statute of limitations tolling issue recently addressed by the First District in Save Lafayette Trees v. East Bay Regional Park Dist. (2021) 66 Cal.App.5th 251 (and blogged on here).

Other Claims And Issues

The Central Delta decision also touches on a host of issues that are related to, but independent of, the CEQA claims.  For instance, the court analyzed the timing of a reverse validation action, holding that the subsequent settlement agreements ratified rather than replaced the original contract modifications, making any subsequent reverse validation action untimely given that the contracts were approved in the 1990s.  Similarly, the Kern Water Bank parties argued that Central Delta’s arguments were barred by res judicata because of an earlier lawsuit involving the CVP and SWP approvals; the Court of Appeal rejected that argument and held that the necessary privity with the prior litigation’s plaintiff was lacking because that plaintiff had abandoned its position as a public interest representative by failing to contest the discharge of the writ in the prior litigation.

Conclusion and Implications

Central Delta is complex in its procedural history, yet relatively straightforward in its CEQA implications.  The issues it deals with are fact-dependent and nuanced, and are worth scrutiny for agencies and practitioners grappling with complex multi-party CEQA litigation and/or CEQA review that unfolds in multiple iterations over time due to ongoing litigation.  Given the critical and contentious nature of water supply and related CEQA review issues in California, more litigation in this area is inevitable.

 

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 fifty years.  For nearly all that time, the firm also has written Miller & Starr, California Real Estate 3d, 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, construction, management, title insurance, environmental law, and redevelopment and land use.  For more information, visit www.msrlegal.com.