California Supreme Court Clarifies Application Of The “Unusual Circumstances” Exception To Categorical Exemptions Under CEQA

On March 2, 2015, the California Supreme Court issued its long-awaited opinion in Berkeley Hillside Preservation v. City of Berkeley, which establishes a two-part test for application of the California Environmental Quality Act’s (“CEQA”) unusual circumstances exception to categorical exemptions.  Categorical exemptions exempt certain kinds of projects from CEQA review. 

The California Resources Agency is vested with authority to adopt regulations (i.e., the CEQA Guidelines, 23 CCR § 15000 et seq.) establishing categories of exempt projects.  (Pub. Resources Code § 21084(a).)  Over time, the Resources Agency has adopted dozens of these exemptions, which relieve many common types of public agency actions from the requirements of CEQA.  However, there are six exceptions that can nullify a claimed categorical exemption.  (Guidelines § 15300.2.)  One exception is known as the “unusual circumstances” exception, which states:

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.  (Guidelines § 15300.2(c).)

Cases invoking this exception have percolated through the courts of appeal for years, resulting in inconsistent rulings that left CEQA practitioners grasping for a clear way to apply categorical exemptions in light of this exception.  Berkeley Hillside Preservation sets forth the application and standard of judicial review for this exception.

At issue was construction of a 6,478-square-foot house with an attached 3,394-square–foot ten-car garage (“Project”) for which the City of Berkeley had approved and issued a building permit.  The City relied on two categorical exemptions to avoid CEQA review:  Class 3, which exempts construction of new, small facilities or structures, including one single-family residence, or a second dwelling unit in a residential zone‖(Guidelines § 15303), and Class 32, which exempts certain infill development (Guidelines § 15332).

Project opponents (“Petitioners”) argued that the claimed exemptions did not apply on account of the unusual circumstances exception because the Project’s “unusual size, location, nature and scope will have significant environmental impacts on its surroundings.”  They claimed the house was one of the largest houses in Berkeley and was four times larger than any house nearby.  The Petitioners submitted voluminous evidence and testimony from an architect and geotechnical engineer suggesting the Project would likely have significant environmental impacts.

Petitioners filed a petition for writ of mandate seeking to require CEQA review of the Project.  The superior court denied the petition, finding the administrative record contained substantial evidence to support the City’s invocation of the two categorical exemptions, and finding that the Project did not present any unusual circumstances triggering the exception.  On appeal, the appellate court reversed.  The Court of Appeal found the unusual circumstances exception did apply and that the City could therefore not rely on either categorical exemption because “the fact that the proposed activity may have an effect on the environment is itself an unusual circumstance” that triggers the exception (italics in original).

The Supreme Court’s Berkeley Hillside Preservation opinion reverses the Court of Appeal.  It holds that the mere fact that an exempt CEQA project could have a significant impact on the environment is not enough, by itself, to nullify a categorical exemption.  In reaching that conclusion, the Court reasoned that exempt projects have already been determined to be exempt from CEQA despite possible significant effects, and that to disallow the use of exemptions upon a mere showing of a fair argument that a significant effect could occur would render categorical exemptions useless.  It therefore held that the unusual circumstances exception to categorical exemptions applies only if the possible significant effects occur under unusual circumstances.  To carry out this directive, the Court created a two-part test for application of the unusual circumstances exception with each part having a different standard of judicial review.

The Court explained that for the unusual circumstances exception to apply, a project first must be shown to have unusual circumstances, and second that because of those circumstances there is a reasonable possibility the project may have a significant impact on the environment.  The Court stated that the initial determination of whether a “particular project presents circumstances that are unusual for projects in an exempt class is an essentially factual inquiry,” and “the agency serves as the finder of fact.”  To this determination “a reviewing court should apply [CEQA’s] traditional substantial evidence standard [under Pub. Res. Code § 21168.5],” which requires courts to:  (1) resolve all evidentiary conflicts in the agency’s favor; (2) indulge all legitimate and reasonable inferences to uphold the agency’s finding; and (3) affirm the agency’s finding if there is any substantial evidence to support the finding, even if contradictory evidence exists.  In the unusual case where alleged significant impacts of a project are themselves claimed to be the unusual circumstances (an argument Petitioners made in this case), “an agency must weigh the evidence of environmental effects along with all the other evidence relevant to the unusual circumstances determination, and make a finding of fact,” judicial review of which is also “limited to ascertaining whether they are supported by substantial evidence.”

The Court explained that after an agency has found unusual circumstances exist, “a different approach is appropriate” to determine whether there is a reasonable possibility that the unusual circumstances will produce a significant effect on the environment.  The Court held that if an agency has found unusual circumstances, it should apply the “fair argument” standard to determine whether “there is a reasonable possibility of a significant effect on the environment due to unusual circumstances.”  In applying the “fair argument” standard, “judicial review is limited to determining whether the agency applied the standard in the manner required by law,” a less deferential standard that does not require the court to make all inferences in favor of the agency’s findings or to disregard conflicting evidence in the record. 

In sum, for the unusual circumstances exception in CEQA Guidelines section 15300.2(c) to apply, there must be “findings of both unusual circumstances and a potentially significant effect.”  Accordingly, whenever an agency uses a categorical CEQA exemption, it should ensure that it has sufficient evidence and findings supporting the non-application of the unusual circumstances exception.  While the Court in Berkeley Hillside Preservation created a somewhat complex two-step test to satisfy that burden, the ruling is a victory for local agencies and CEQA practitioners because of the clarity it provides and the limits on the application of the unusual circumstances exception it imposes.


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