The California Supreme Court reversed the First District Court of Appeal’s decision that the “unusual circumstances” exception in CEQA Guidelines section 15300.2, subdivision (c), precluded the City of Berkeley’s finding that a single-family residence qualified for a categorical exemption. That section 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 Supreme Court established a two-part test for determining whether the “unusual circumstances” exception applies. Berkeley Hillside Preservation, et al. v. City of Berkeley, et al. (March 2, 2015) __ Cal.4th __, Case No. S201116.

Homeowners in the Berkeley hills applied to demolish their house, and to construct a new, two–floor, 6,478 square-foot house with an attached 3,394 square-foot ten-car garage on a steep lot in a heavily wooded area. The City concluded the proposed project fell within the Class 3 (new construction of small structures) and Class 32 (infill) categorical exemptions. Project opponents hired an engineer who submitted letters stating the grading required would result in unstable conditions and could cause landslides during an earthquake. The homeowners’ engineer submitted a report stating the opponents’ engineer had misread the plans. The City eventually approved the proposed project, relying on the categorical exemptions.

The Court of Appeal concluded that the “unusual circumstances” exception under CEQA Guidelines section 15300.2, subdivision (c), applied. According to the court, if there is a fair argument the project may result a significant impact, then by definition the circumstances are “unusual.” Finding substantial evidence of a fair argument that the proposed residential project may have a significant environmental effect, the court held the proposed project was not categorically exempt. The Court of Appeal ordered the trial court to issue a writ of mandate directing the City to set aside the project approval and its finding of a categorical exemption, and to order preparation of a full EIR. Thereafter, Respondents filed a petition for review in the Supreme Court, which the Court granted on May 23, 2012.

The Supreme Court reversed the Court of Appeal. In the majority opinion, authored by Justice Chin, the Court laid out a two-part test for determining whether the unusual circumstances exception applies. Under the first part of the test, the lead agency must determine whether there are “unusual circumstances,” which the court reviews under the “substantial evidence” standard of review.

Under the second part of the test, if the lead agency determines in the first instance that unusual circumstances exist, the lead agency then considers whether there is a fair argument that the proposed activity may have a significant environmental effect.

In coming to its decision, the Court relied, in part, on the rules governing statutory interpretation requiring that every phrase in a statute (and regulation) be given meaning. The Court turned to the plain text of section 15300.2, subdivision (c), and concluded that the phrase “due to unusual circumstances” has meaning and cannot be read out of the regulation. Thus, the Court of Appeal incorrectly held that a proposed project may have a significant effect on the environment is itself an unusual circumstance rendering the categorical exemption inapplicable.

Justice Liu authored the concurring opinion in which Justice Werdegar joined. The concurring opinion agreed with the Court’s reversal and remand of the appellate court’s decision. Parting ways with the majority, however, Justice Liu disagreed with the Court’s reading of CEQA Guidelines section 15300.2, subdivision (c). The concurring opinion advocated for a one-part test, observing that “‘unusual circumstances’ and ‘significant effects’ have invariably traveled together.” According to the concurring opinion, the phrase “unusual circumstances” in section 15300.2, subdivision (c), “simply describes the nature of a project that, while belonging to a class of projects that typically have no significant environmental effects, nonetheless may have such effects.” Justice Liu thus concluded that the standard of review is limited to whether substantial evidence supports a fair argument that the project will have significant environmental effects.

The majority acknowledged that evidence that the project will have a significant effect does tend to prove that some circumstance of the project is unusual. The majority also explained that in considering the first part of the test, the lead agency has “discretion to consider conditions in the vicinity of the proposed project.” The Court stated that the appellate court had erred in determining that the unusual circumstances inquiry excludes consideration of typical circumstances in a particular neighborhood. Beyond that, though, the Court provided little guidance on the legal test for what constitutes “unusual circumstances.”

The Court also addressed the proper remedy on remand. Relying on Public Resources Code section 21168.9, the Court stated that on remand the Court of Appeal could order preparation of an EIR only if it found that neither of the categorical exemptions applied and if the City lacked discretion to apply another exemption or to issue a negative declaration.

Note: The opinion was modified on May 27, 2015. These changes do not affect the result of the case.