In an opinion filed November 15, and later ordered published on December 14, 2021, the Sixth District Court of Appeal reaffirmed the basic CEQA principle that required environmental review and analysis must precede project approval, and it applied that principle to invalidate the California Coastal Commission’s (Commission) approval of a Coastal Development Permit (CDP) for a residential subdivision project in Monterey County. Friends, Artists and Neighbors of Elkhorn Slough v. California Coastal Commission (Heritage/Western Communities, Ltd., et al., Real Parties in Interest) (2021) ___ Cal.App.5th ___. While the dispositive rule is a simple one, the case’s more complex facts and procedural history make it interesting – and somewhat disturbing – on a number of levels.

The Project and the Commission’s Actions and Findings on the CDP

Real Party Heritage obtained a CDP from Monterey County for a mixed-use subdivision project and the County prepared an EIR analyzing impacts and alternatives. Petitioner and Appellant FANS appealed the CDP to the Commission, which took jurisdiction and whose staff recommended denial – despite Heritage’s project modifications to reduce residential units, eliminate the project’s commercial space, and dedicate park and other public facilities – based on perceived inconsistencies with the County’s Local Coastal Program (LCP) involving potentially significant adverse impacts to water supply and environmental sensitive habitat areas (ESHA).

The staff report recommended denial based on water supply impacts alone, since staff interpreted the LCP’s policies as imposing a moratorium on all development-­regardless of its net water impacts– so long as the underlying groundwater basin is in overdraft. Significantly, staff further noted that even if the project were consistent with the LCP regarding water supply, additional analysis and information including potential mitigating modifications and alternatives relating to project impacts on oak woodlands/ESHA, water quality, visual resources/community character, agricultural areas, and traffic would be required before the project could be approved. In light of its disapproval recommendation, the staff report deemed such additional environmental analysis “unwarranted,” generally found the project would have significant adverse environmental effects requiring denial, and essentially concluded that denial of the project did not require CEQA review to be completed.

Had the Commission followed its staff’s recommendation, the story would have ended there. But at the Coastal Commission’s November 8, 2017 de novo hearing on the project, the Commission rejected staff’s recommendation and ultimately voted 7-5 to approve the CDP. The Commission’s staff thereafter prepared an August 2018 staff report containing revised findings in support of the approval, concluding that lack of adequate water supply was no longer an issue (due to the Commission’s differing interpretation of the LCP’s water policies) and that other LCP policies (related to affordable housing and “community goods”) supported approval. Per the Court of Appeal, the 2018 staff report also contained new environmental analyses of the project’s impacts on oak woodland, water quality, visual resources/community character, and traffic; new environmental analysis regarding LCP consistency; and new environmental analysis regarding project components, alternatives, mitigation measures, and conditions.

At a September 13, 2018 public hearing to consider the proposed revised findings to support the November 8, 2017 CDP approval, the Commission adopted them, as further modified – and “beefed up” – by real party Heritage, with the eligible voting commissioners essentially stating that the revised findings reflected their “thought process” on the date of approval.

The Writ Litigation and Trial Court Decision

In petitioner FANS’s December 7, 2017 writ litigation challenging the CDP approval – filed nearly 91/2 months before the Commission finally adopted its written findings supporting approval – it asserted Coastal Act, CEQA and planning and zoning violations. The trial court dismissed Monterey County on demurrer (on the ground that its approval and related actions were superseded by the Commission’s decision after its de novo review), and denied the writ. The trial court disagreed with FANS’s contention that the Commission violated CEQA by approving the project without environmental review and before making findings, and it found that the 2017 staff report contained sufficient environmental analysis of the project’s impacts, and that the Commission’s change of direction was not based on new and different evidence in that report, but on a different view of how the LCP policies should be interpreted and applied to the project. The trial court also rejected FANS’s argument that the Commission’s 2018 revised findings were improper post-hoc rationalizations; it found that those findings were consistent with the Commissioners’ statements at the 2017 de novo hearing and that the Commission’s procedure in adopting post-approval hearing findings was authorized by its regulations.

The Court of Appeal’s Decision

In reversing on FANS’s appeal of the judgment, the Court of Appeal saw things quite differently. After reciting the standard of review in a CCP § 1094.5 action, and discussing general legal principles governing CEQA review under the Commission’s certified regulatory program, the Court examined in detail the Commission’s procedures for de novo review of CDP applications. These include the requirement for a written staff report from the Executive Director describing the project; addressing significant fact questions, applicable Coastal Act policies, and related legal issues; containing public comments and a copy or summary of the EIR as it relates to issues of concern to the Commission; and containing staff’s recommendation.

The Commission staff’s recommendation must include specific findings, including a statement of facts, analysis, and legal conclusions regarding the project’s conformity to Coastal Act requirements, and also specific findings under Public Resources Code § 21080.5(d)(2)(A) regarding feasible alternatives or mitigation measures to lessen the project’s significant adverse environmental effects, responses to significant environmental points raised during project evaluation pursuant to CEQA, and a recommendation regarding project approval and conditions.

Under the governing regulations, at the conclusion of the Commission’s de novo public hearing, the Executive Director may propose to change the staff recommendation or the Commission may propose to add, delete or modify recommended conditions. The Commission’s vote to grant a CDP application is deemed to include the terms proposed in the project description as modified by the applicant at the hearing, and the staff report’s conditions and findings as modified by staff at the hearing. The Commission on motion may also vote to add, delete, or modify proposed terms, conditions or findings. To facilitate judicial review, the Commission’s CDP application decisions must be accompanied by written conclusions regarding the project’s consistency with the LCP and CEQA, and supporting findings of fact and reasoning. (14 Cal. Code Regs., § 13096; McAllister v. California Coastal Com. (2008) 169 Cal.App.4th 912, 941.)

While an action taken consistent with the staff recommendation is deemed to have been based on and to have adopted the staff report’s reasons, findings and conclusions, as modified at the hearing, if the Commission’s action differs substantially from the staff report’s recommendation, the regulations provide that “the prevailing commissioners shall state the basis for their action in sufficient detail to allow staff to prepare a revised staff report with proposed revised findings that reflect the action of the commission.” (§ 13096(b).)

A public hearing must be held on the revised findings, with the sole topic being whether they reflect the Commission’s action. (§ 13096(c).) The Court of Appeal cited to case law in this regard stating that “revised findings are meant to capture actions, not change them” – i.e., they must reflect the rationale articulated by the Commission and staff at the hearing, and must not constitute “post hoc rationalizations.” (Citing San Diego Navy Broadway Coalition v. California Coastal Com. (2019) 40 Cal.App.5th 563, 577, fn. 8; La Costa Beach Homeowners’ Assn. v. California Coastal Com. (2002) 101 Cal.App.4th 804, 814-815.)

Applying the governing regulations and legal principles to the facts established by the record before it, the Court of Appeal held that the Commission violated CEQA because its environmental review was not complete when it approved Heritage’s CDP on November 8, 2017, and that consequently the CDP approval must be vacated. While exempt from CEQA’s EIR requirement by virtue of its certified regulatory program, per the Court, the Commission was still required to prepare a written report that is the “functional equivalent” of an EIR, which must include discussion of project impacts, alternatives, and mitigation measures, prior to approval of the project. And the Commission was still required to follow CEQA’s “substantive mandate” not to approve projects for which significant environmental impacts have been identified without adopting feasible alternatives or mitigation measures lessening those impacts and making the related CEQA-required findings. Thus, meaningful consideration of alternatives and mitigation measures is required prior to approving a project. Here, the Court of Appeal (unlike the trial court) found that the 2017 staff report did not contain a complete analysis of alternatives or mitigation measures, as required by both CEQA and the Commission’s certified regulatory program, and did not analyze specific conditions necessary for project approval; indeed, the Court of Appeal emphasized that the 2017 staff report itself stated such analysis was “unwarranted” and “moot” because staff was recommending “independently denying the project based on the lack of an adequate water supply.” Nor did any of the commissioners at the November 2017 de novo hearing express any view regarding mitigation measures, alternatives, or conditions of approval.

As the Court of Appeal viewed the matter, only after the November 2017 project approval did Commission staff – for the first time in the 2018 staff report – analyze project components, mitigation measures, and conditions, and address the necessary CEQA findings. Per the Court, CEQA required the Commission to consider all these matters before approving the CDP. While the Commission is authorized to take action substantially different than recommended in a staff report, and can approve a project for which staff recommends denial, the Court emphasized that to properly do so the prevailing commissioners must state at the hearing the basis for their action in sufficient detail to allow staff to prepare a revised report with proposed revised findings reflecting that action. Here, the prevailing commissioners at the 2017 de novo hearing did not express views on mitigation measures, project alternatives or conditions for project approval, and the 2018 revised findings “went beyond the[ir] limited statements about policy concerning water supply and ESHA/oak woodland[.]” Thus, the Court held that the Commission improperly approved a project with potentially significant adverse environmental impacts before conducting a complete analysis of alternatives, mitigation measures, and project conditions, as required by CEQA. It was not until the 2018 staff report that the required analysis was completed, but that analysis should have occurred prior to project approval.

The Court also rejected Heritage’s argument that FANS had failed to exhaust its administrative remedies, holding that, through its September 7, 2018 letter to the Commission objecting to the 2018 staff report, and its opening brief, FANS preserved the dispositive issue, i.e., whether the Commission failed to complete the required environmental review before approving the CDP, which includes the question whether the prevailing commissioners sufficiently stated the basis for their action at the de novo hearing. In light of its dispositive holding and the parties’ positions, the Court found unnecessary and declined to address issues concerning the substantive sufficiency of the 2018 staff report as a functional equivalent document, or the role of the County’s EIR in the process.

Conclusion and Implications

This case has a number of interesting – and, to me, somewhat disturbing and unsettling – aspects. Given the purposes of written findings to bridge the analytic gap between the raw evidence and the agency’s action, and to disclose the agency’s analytic route so as to facilitate judicial review, it seems odd – to say the least – that the findings needed to support an agency’s permit approval could be issued by the agency nearly a year after the approval has been granted, and almost as long after litigation challenging the approval has been filed. While this may well not be the oddest thing about the way the Commission conducts its business, regulatory reform of its findings – and other – procedures certainly bears serious consideration.

Another very practical problem underscored by this case is Commission staff’s ability to effectively sabotage a project it opposes by preparing an incomplete and inadequate staff report. Due to the CEQA deficiencies the Court of Appeal found in the 2017 staff report here – deficiencies of such a nature that they could not be cured merely by commissioners’ hearing comments – staff effectively removed the Commission’s option to disagree with it and approve the project, or at least its ability to do so without further delay and at the same de novo hearing where the project was supposedly being considered for approval. In former President George W. Bush’s parlance, staff is supposed to be an advisor and the Commission is the “decider.” In this case, staff effectively hijacked the CDP approval process by interpreting the applicable LCP’s water and ESHA policies to prohibit the project – and then stating that since it had to be denied for fundamental LCP inconsistency reasons, staff wasn’t going to bother to complete the CEQA analysis that the Court later found would be needed to support project approval. This, of course, left the project approval vulnerable to legal challenge when the Commission disagreed with staff’s LCP policy interpretations, and voted to approve a project that it apparently concluded had substantial affordable housing, environmental justice, and other community benefits.

The proper role and legal status of Monterey County’s certified EIR analyzing the project’s impacts and alternatives and mitigation measures is another loose end, expressly left unaddressed and dangling by the Court of Appeal’s opinion, which simply waived it away by citing to the following snippets of the parties’ positions: “We do not address the issue further, as (1) FANS contends that the commission “did not truly rely on the County’s EIR,” (2) the commission contends that its approval of the permit application was proper “without the County’s EIR,” and (3) Heritage acknowledges that, notwithstanding the existence of the county’s EIR, the commission was required to “reach[ ] its own conclusions on whether and how to approve the project.”” (Slip opn. at pp. 44-45, emph. added by Court.) Even given these litigation positions, and while the interplay between CEQA and the Coastal Act is concededly complex, it remains unclear to me how the Court of Appeal’s summary dismissal of the relevance of the County’s EIR to the issues before it squares with other CEQA rules and precedents. (See, e.g., Banning Ranch Conservancy v. City of Newport Beach, et. al. (2017) 2 Cal.5th 918 [holding EIR prepared for a Coastal Zone project by a lead agency city without a certified LCP was required to address ESHA and Coastal Act consistency issues so as to serve as a useful document for the Commission, which retained CDP permitting authority and whose role was treated by the Court as akin to that of a responsible agency]; my March 31, 2017 post on the Supreme Court’s Banning Ranch Conservancy decision can be found here.) The Commission’s regulations, examined in detail in the opinion, expressly provide for the de novo hearing staff report to include a copy of the project EIR or include a summary of it as it relates to issues of concern to the Commission, and as a matter of law that EIR is also part of the record under CEQA’s exceedingly broad administrative record statute. Surely, and especially if the Commission’s staff had complied with the regulations’ requirements for staff reports, the Commission itself should have been able to sufficiently articulate on the record – by reference to both the EIR and staff report – its reasoning as to environmental impacts, alternatives, mitigation measures, and required findings.

Yet, despite its impressive length, the Court’s opinion here sheds no light on any of these issues, and summarily relegates the County’s certified EIR to oblivion, while seemingly requiring the 2017 staff report alone to bear the entire weight of a “functional equivalent” document – a task which the Court found it insufficient to fulfill.

In sum, like an iceberg, it seems to me that there is a lot more to this case than “meets the eye” from simply reading the Sixth District’s opinion and reasoning. While no one can quarrel with the Court’s basic holding—the well-established principle that CEQA review must precede project approval–the devil lurks in the material details. Many of those details appear to me to have been obscured, omitted or glossed over by the opinion – which gives me pause as to whether the undisputed principle was properly applied in this case.

 

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