California Appellate Court Holds That an Agreement to Supply Water to a Project Constitutes Responsible Agency "Approval" of a Project Under the California Environmental Quality Act

On January 9, 2009, the California Court of Appeal, Fourth Appellate District, filed its decision in Riverwatch v. Olivenhain Municipal Water District, et al., D052237 (OMWD) providing additional guidance and interpretation of the definition of a “project,” the definition of a “responsible agency,” and the point at which agency “approval” of a project occurs under the California Environmental Quality Act (CEQA). At issue in OMWD was whether OMWD’s approval of an agreement to supply recycled water to a proposed landfill project being considered by a separate lead agency constituted a project, whether OMWD was a responsible agency with respect to the proposed landfill project, and whether OMWD’s approval of the agreement to supply recycled water constituted approval of the landfill project. The court held that the activities set forth in the agreement to supply recycled water constituted part of the landfill project and that its approval of the water supply agreement constituted its approval as a responsible agency of the underlying landfill project.

Background
In 2004, the County of San Diego, Department of Environmental Health (DEH) approved a landfill project after it had previously certified an Environmental Impact Report (EIR) for the project. Ruling on a petition for writ of mandate filed by Riverwatch, a trial court subsequently concluded that the EIR failed to include a discussion of potentially adverse environmental impacts that could result from the need to truck water to the landfill site and thus granted the writ petition.

Subsequent to the trial court’s order setting aside the certification of the EIR for the landfill project, OMWD approved an agreement with Gregory Canyon Ltd. (GCL), the project applicant for the landfill project, to provide up to 244,000 gallons of recycled water per day for use at the landfill for up to 60 years (Agreement). The Agreement provided that GCL would install new facilities necessary to fill the water delivery trucks. The Agreement also provided that GCL, rather than the OMWD, was solely responsible for complying with any necessary requirements of CEQA for its use of the recycled water supply.

Subsequent to the Agreement, DEH issued a revised partial draft EIR for the landfill project. The EIR had been revised to comply with the trial court’s order and included a discussion of impacts related to the proposed use of the recycled water from OMWD. Riverwatch filed a petition for writ of mandate alleging that OMWD failed to comply with the requirements of CEQA when it approved the Agreement. The trial court denied the petition concluding that execution of the Agreement did not constitute approval of a project under CEQA based on the CEQA compliance condition contained in the Agreement.

“Project”
The court first addressed the issue of whether OMWD’s approval of the water supply agreement constituted a project within the meaning of California Public Resources Code Section 21065. The court held that the activity of trucking recycled water from OMWD to the landfill site, as provided for in the Agreement, was part of the landfill project for purposes of CEQA and that such activity would result in physical changes to the environment.

“Responsible Agency”
The court next discussed whether OMWD was a responsible agency under CEQA for purposes of the landfill project. The court held that a “‘responsible agency’ is not limited to those public agencies that approve, or issue a permit for, an entire project (e.g., the entire [l]andfill project), but also includes those agencies that carry out or approve part of a proposed project subject to CEQA.” Thus, the court concluded that OMWD was a responsible agency because it approved part of the landfill project.

Project “Approval”
As to the issue of whether OMWD’s approval of the Agreement constituted an “approval” of a project under CEQA, the court first outlined existing law, including the California Supreme Court’s recent decision in Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116, which held that a CEQA compliance condition did not necessarily eliminate the need to prepare and consider an EIR before approving a development agreement.

“Approval” is a “decision by a public agency which commits the agency to a definite course of action in regard to a project intended to be carried out by any person,” and with private projects “occurs upon the earliest commitment to issue …of a discretionary contract … .” CEQA Guidelines, § 15352, subds. (a), (b). The court concluded that OMWD’s approval of the Agreement constituted an “approval” of part of the landfill project within the meaning of CEQA and its guidelines, as interpreted by Save Tara because 1) the agreement committed it to a definite course of action since the Agreement set forth specific details regarding its 60-year obligation to supply recycled water and the construction required to allow that delivery, and 2) OMWD clearly committed itself to that course of action by approving the Agreement.

The court found the existence of the CEQA compliance condition contained in the water supply agreement to be immaterial because the language of the provision did not provide for OMWD’s retention of “complete discretion under CEQA (as responsible agency) to consider [the] final EIR certified by DEH and [subsequent] approv[al] or diapprov[al] [of] its part of the [l]andfill project … .” Rather, the CEQA compliance condition provided that it was GCL’s sole responsibility to comply with CEQA and failed to provide that OMWD, as the responsible agency, was responsible for complying with CEQA or that OMWD’s final approval of the water supply agreement was subject to its broad discretion to approve or disapprove the Agreement or to require mitigation or alternatives after it considered the final EIR certified by DEH regarding the landfill project.

The court also noted that even if the Agreement had contained a provision that provided for OMWD’s retention of full discretion as a responsible agency under CEQA to consider the final EIR certified by DEH, that condition alone would not necessarily have precluded OMWD’s approval of the Agreement from constituting an approval of the landfill project. In accordance with Save Tara, the court looked to the surrounding circumstances and concluded that OMWD never acknowledged its duties as a responsible agency before approving the Agreement. The court thus concluded that OMWD “committed itself to the [landfill] project … so as to effectively preclude any alternatives or mitigation measures that CEQA would otherwise require to be considered, including the alternative of not going forward with the project.”

The court accordingly set aside the Agreement because OMWD did not comply with its CEQA duty to consider a final EIR or negative declaration prepared and certified by a lead agency and reach its own conclusions on whether and how to approve the project involved.

Implications of OMWD
OMWD provides the first appellate court application of the guidelines set forth in Save Tara for determining when agency approval of a project occurs under CEQA. While Save Tara had set forth general guidelines for determining the proper timing for environmental review, it left open for determination on a case-by-case basis when agency approval actually occurs. While OMWD bases its conclusion that the CEQA compliance condition in the water supply agreement was immaterial to the issue of whether approval of the landfill project had occurred since it did not provide for retention of discretion on the part of OMWD, it nonetheless stated that even if it had retained such discretion, OMWD had committed itself to the landfill project so as to essentially preclude later meaningful environmental review. In this case, the court relied on the minutes of the board of directors meeting at which approval of the water supply agreement occurred. The court noted that the minutes never mentioned any consideration of the EIR prepared by DEH and determined that the Agreement set forth with specificity the details of the project.

Perhaps more importantly, under OMWD, any agency that is party to an agreement to provide a source of water supply to a project is potentially a responsible agency for that project. In OMWD, the Agreement between OMWD and GCL arose from the need to demonstrate an available water supply for the landfill project. The need to demonstrate an available water supply for a project will often require project applicants to obtain written agreements with a water supplier, and now in approving those agreements, water suppliers must carefully consider whether they are responsible agencies and whether their approval of such an agreement constitutes an approval of the underlying project under CEQA. Both project applicants and water supply agencies should carefully consider whether CEQA approval of the water supply side of the project is necessary and draft language in the water supply agreement carefully and accordingly.

View a PDF of the OMWD decision: http://www.foley.com/files/OMWDDecision.pdf.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information to our clients and colleagues. If you have any questions about this alert or would like to discuss these topics further, please contact your Foley attorney or the following individuals:

S. Wayne Rosenbaum
San Diego, California
619.685.6413
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Heidi K. Vonblum
San Diego, California
619.685.4637
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