In Relevant Group, LLC v. Nourmand (9th Cir. 2024) 116 F.4th 917, the Ninth Circuit Court of Appeals held that the Defendants’ multiple CEQA challenges to Plaintiff’s proposed hotel projects were constitutionally protected under the First Amendment and therefore could not give rise to liability under the federal Racketeer Influenced and Corrupt Organizations Act (RICO).
Background
Beginning in 2015, Plaintiffs proposed four hotel projects in the Hollywood neighborhood in the City of Los Angeles. Defendants opposed the projects during the City’s administrative approval process and in multiple CEQA lawsuits.
In June 2019, after the parties settled two CEQA lawsuits and while a third was underway, Plaintiffs filed a RICO lawsuit, alleging that Defendants had abused the CEQA process to extort Plaintiffs. Defendants filed a motion for summary judgment, which a district court judge initially denied; however, the case was transferred to a new judge, who reversed the prior ruling and granted summary judgment in favor of Defendants. Plaintiffs appealed.
The Ninth Circuit’s Decision
The Ninth Circuit affirmed the summary judgment in favor of Defendants, holding Defendants’ multiple CEQA challenges were constitutionally protected and could not give rise to liability under RICO.
As an initial matter, the court rejected Plaintiffs’ argument that the district court abused its discretion by reconsidering the prior summary judgment ruling. While courts generally may not reconsider prior rulings by the same court in the same case, the court concluded that this case fell under an exception for situations in which the prior ruling was “clearly erroneous” and enforcement would result in a “manifest injustice.”
With respect to the merits, the court held that Defendants’ CEQA lawsuits were protected under the Noerr-Pennington doctrine, which generally protects parties exercising their right to petition from statutory liability. In so holding, the court rejected Plaintiffs’ argument that the Defendants’ CEQA lawsuits fell under the “sham litigation” exception to the Noerr-Pennington doctrine.
The court considered two different tests for the sham litigation exception. The first stems from Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (1993) 508 U.S. 49 (PREI). Under the two-step PREI test, the exception applies when a court first determines that a lawsuit is “objectively baseless,” then determines that the motive behind the lawsuit is improper. The second test, from USS-POSCO Industries v. Contra Costa County Building & Construction Trades Council, AFL-CIO (9th Cir. 1994) 31 F.3d 800 (POSCO), applies where a party files a “series” of lawsuits, without regards to their merits, for an unlawful purpose.
The court held that the two-step PREI test, rather than the POSCO test, applied to Defendants’ CEQA lawsuits. The court concluded that Defendants’ CEQA challenges to four of Plaintiffs’ hotel projects did not constitute a “series” of lawsuits for purposes of applying the POSCO test, explaining that POSCO itself involved twenty-nine lawsuits—a stark difference. The court rejected Plaintiffs’ argument that the CEQA challenges to the four projects were really comprised of twenty separate proceedings that brought them within the scope of POSCO, explaining that Plaintiffs’ proposed framework was inconsistent with the case law and would present “line-drawing” problems for future courts.
Applying the first step of the PREI test, the court concluded that Defendants’ CEQA lawsuits were not objectively baseless. Among other things, the court pointed out that Plaintiffs had settled two of the CEQA lawsuits—and that the terms of those settlements included environmental protections—and that a third CEQA lawsuit resulted in a court order directing the City to further consider one of the project’s environmental impacts. Moreover, the court explained that success in a CEQA lawsuit may come in many forms, and that many CEQA petitioners have a “low threshold” for success. Finally, the court emphasized that the Noerr-Pennington doctrine is intended to prevent any “chilling effect” on the constitutional right to petition; thus, it acknowledged that courts should find that litigation is objectively baseless “only with great reluctance.” Given its conclusion that Defendants’ CEQA lawsuits were not objectively baseless, the court did not reach the second step of the PREI test.
Accordingly, the court determined that Defendants’ CEQA actions were protected under the Noerr-Pennington doctrine and could not result in RICO liability.
– Adam D. Nir