CEQA Alert: California Supreme Court Issues Long-Awaited Guidance on the “Unusual Circumstances” Exception to CEQA’s Categorical Exemptions

In its March 2 decision in Berkeley Hillside Preservation v. City of Berkeley (SC Case No. S201116), the California Supreme Court provides critical guidance to CEQA lead agencies and practitioners regarding the proper application of the so-called “unusual circumstances” exception to CEQA’s categorical exemptions. This issue had previously generated a large number of Court of Appeal decisions over the course of several decades, resulting in a conflicting and confusing body of law. The Supreme Court’s decision finally puts the issue to rest.

The case involved a challenge to the City of Berkeley’s approval of a permit application to build a 6,478-square-foot house and 3,394-square-foot, 10-car garage. In approving the application, the City relied on two of CEQA’s categorical exemptions: (1) A “Class 3” Categorical Exemption, which includes “construction and location of limited numbers of new, small facilities or structures,” including “[o]ne single-family residence, or a second dwelling unit in a residential zone” (14 Cal. Code Regs. § 15303); and (2) “Class 32” which “consists of projects characterized as in-fill development” meeting certain requirements specified in the Guidelines (14 Cal. Code Regs. § 15332). The City also determined that the “unusual circumstances exception” in CEQA Guidelines Section 15300.2(c) did not apply. That exception provides that “[a] categorical exemption shall not be used for an activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.”

The Court of Appeal for the First Appellate District disagreed and invalidated the City’s approval. In making this ruling, the Court held that the fact that a proposed activity may have a significant effect on the environment is, in and of itself, an “unusual circumstance” within the meaning of Section 15300.2(c), such that the lead agency may not rely on a categorical exemption for that activity. The Court of Appeal further determined that the standard of review applicable to the determination of whether the “unusual circumstances exception” applies is whether the record contains substantial evidence of a fair argument that the proposed project may have a significant impact on the environment.

The California Supreme Court disagreed with the Court of Appeal on both counts. The Court held that a potentially significant effect is not enough on its own to trigger the “unusual circumstances exception”:

In listing a class of projects as exempt, the Secretary has determined that the environmental changes typically associated with projects in that class are not significant effects within the meaning of CEQA, even though an argument might be made that they are potentially significant. The plain language of Guidelines section 15300.2, subdivision (c), requires that a potentially significant effect must be “due to unusual circumstances” for the exception to apply. The requirement of unusual circumstances recognizes and gives effect to the Secretary’s general finding that projects in the exempt class typically do not have significant impacts.

Furthermore, the Court held that a party challenging a lead agency’s determination that a categorical exemption applies bears the burden of producing evidence supporting the applicability of the “unusual circumstances exception.” Although the Court notes that “to establish the unusual circumstances exception, it is not enough for a challenger merely to provide substantial evidence that the project may have a significant effect on the environment,” it also concludes that “evidence that the project will have a significant effect does tend to prove that some circumstance of the project is unusual” (emphasis in original).

According to the Supreme Court, an “unusual circumstance,” within the meaning of Section 15300.2(c), may be established “without evidence of an environmental effect, by showing that the project has some feature that distinguishes it from others in the exempt class, such as its size or location. In such a case, to render the exception applicable, the party need only show a reasonable possibility of a significant effect due to that unusual circumstance.” Alternatively, an “unusual circumstance” may be established “with evidence that the project will have a significant environmental effect. That evidence, if convincing, necessarily also establishes ‘a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.’”

With respect to the standard of review, the Court held that Public Resources Code Section 21168.5 applies, such that reversal of the City’s permitting action is appropriate only if (a) the City, in finding the proposed project categorically exempt, did not proceed in a manner required by law, or (b) substantial evidence fails to support that finding. Specifically, the Court adopted the following bifurcated approach to the standard of review:

The determination as to whether there are “unusual circumstances” [ ] is reviewed under section 21168.5’s substantial evidence prong. However, an agency’s finding as to whether unusual circumstances give rise to “a reasonable possibility that the activity will have a significant effect on the environment” [ ] is reviewed to determine whether the agency, in applying the fair argument standard, “proceeded in [the] manner required by law.”
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Accordingly, when there are “unusual circumstances,” it is appropriate for agencies to apply the fair argument standard in determining whether “there is a reasonable possibility of a significant effect on the environment due to unusual circumstances.” (Guidelines, §15300.2, subd. (c).)  As to this question, the reviewing court’s function “is to determine whether substantial evidence support[s] the agency’s conclusion as to whether the prescribed ‘fair argument’ could be made.”

The Court remanded to the Court of Appeal to apply the principles summarized above and provided the following additional guidance:  (1) a lead agency has the discretion to consider conditions in the vicinity or particular neighborhood of the proposed project when evaluating whether environmental effects are “unusual or typical”; and (2) a finding of environmental impacts must be based on the proposed project as actually approved and not based on unapproved activities that opponents assert will be necessary because the project, as proposed, cannot be built.

Justice Chin wrote the majority opinion, in which Justices Cantil-Sakauye, Corrigan, Baxter (retired, sitting by assignment), and Boren (sitting by assignment) concurred. Justice Liu penned a concurring opinion, joined by Justice Werdegar, that essentially rejected the majority’s view regarding the proper application of the “unusual circumstances exception.”

-- Don Sobelman and Nicole Martin

For more information, contact Don Sobelman at des@bcltlaw.com or (415) 228-5456, or Nicole Martin at nmm@bcltlaw.com, or (415) 228-5435.