Archives: April 2017

Fifth District Rules CARB Acted in Bad Faith in Selecting Baseline for Analysis of Low Carbon Fuel Standards Regulations

In POET, LLC v. State Air Resources Board (2017) 12 Cal.App.5th 52 (“POET II”), the Fifth District Court of Appeal held that the California Air Resources Board (CARB) failed to comply with the terms of the writ of mandate issued by the same court in POET, LLC v. State Air Resources Board (2013) 218 Cal.App.4th 681 (“POET I”). The court invalidated the trial court’s discharge of the writ, modified the existing writ, and ordered CARB to correct its defective CEQA Environmental Analysis (EA).

Legal and Factual Background
CARB promulgated low carbon fuel standards (LCFS) in 2009 as required by the 2006 California Global Warming Solutions Act (“AB 32”). In promulgating the LCFS, CARB adopted an EA, the regulatory equivalent to an Environmental Impact Report, pursuant to CEQA. Those original regulations and the associated EA were the subject of litigation in POET I, where the Fifth District found that the EA violated CEQA by impermissibly deferring analysis of nitrous oxide (NOx) emissions from biodiesel fuel. The appellate court took the acknowledged “unusual” step of allowing the regulations to remain in effect, pending satisfaction of a writ of mandate (“2014 writ”).

In 2015, in response to the court’s ruling in POET I, CARB produced an updated EA, updated LCFS regulations (2015 regulations), and alternative diesel fuel regulations (ADF regulations). The EA analyzed the project using a 2014 baseline and determined that the regulations would not have significant impacts related to NOx emissions. On the return to the writ, the trial court sided with CARB and discharged the 2014 writ. This appeal followed.

Court’s Analysis
The Court of Appeal applied the abuse of discretion standard to its analysis of whether the lower court’s discharge of the 2014 writ was proper. The court concluded that CARB continued to violate CEQA and the 2014 writ by selecting a 2014 project baseline. The court explained that a normal existing-conditions baseline begins when the project commences and must include all related project activities. In addition, a regulatory scheme is a “project” under CEQA and includes all enactment, implementation, and enforcement activities. Here, the original regulations, 2015 regulations, and ADF regulations were related activities because they concerned the same subject matter, had a shared objective, covered the same geographic area, and were temporally connected.

Thus, by selecting 2014 as the baseline, the court found that the EA failed to consider how the original regulations, which remained in effect during and after POET I, encouraged and increased the use of biodiesel fuel and its effect on NOx emissions. According to the court, selecting such a limited baseline was not even “objectively reasonable” from the point of view of an attorney familiar with CEQA and the Guidelines. In addition, the court found that the flawed CEQA analysis was prejudicial because it deprived the public of a meaningful opportunity to review the effect of the agency’s actions on the environment.

On remand, the court ordered that CARB review its project baseline. While declining to require a specific baseline date, CARB was instructed to select a “normal” baseline consistent with the court’s analysis and in any event, to not select a baseline date of 2010 or after. The court implied that the baseline could even have begun in calendar year 2006, consistent with then-Governor Schwarzenegger’s 2007 mandate to the agency to review fuel emissions.

The parties agreed that the ADF regulations were both severable and independently enforceable from the 2015 regulations. The court found that the 2015 regulations were also severable from the remainder of the LCFS regulations because, though more effective in their entirety, the remaining regulations would be complete and retain utility. Ultimately though, like in POET I, the court concluded that, on balance, suspending the regulations would cause more environmental harm than allowing them to remain.

Thus, the court reversed the order discharging the writ and ordered the superior court to modify the writ to compel CARB to amend its analysis of NOx emissions and freeze the existing regulations as they relate to diesel and its substitutes. In addition, the court ordered the superior court to retain jurisdiction, and to require CARB to “proceed diligently, reasonably and in subjective good faith.” Finally, the court ordered that if CARB fails to proceed in this manner, the superior court shall immediately vacate the portion of the writ preserving the existing regulations, and may impose additional sanctions.


Second District Holds that Failure to Lodge Administrative Record Barred Post-Trial Relief

In The Urban Wildlands Group, Inc. v. City of Los Angeles (2017) 10 Cal.App.5th 993, the Second District Court of Appeal held that the mandatory relief provisions of Code of Civil Procedure section 473, subdivision (b), do not apply where counsel fails to lodge the administrative record in a CEQA proceeding and receives a judgment denying the petition for writ of mandate.

Despite agreeing by stipulation, counsel for the petitioner did not lodge the record with the court prior to trial. After a hearing on the merits of the matter, the trial court ruled that because the petitioner had failed to lodge the administrative record, it could not support its arguments. Subsequently, the petitioner filed a motion for discretionary and mandatory relief pursuant to Code of Civil Procedure section 473, subdivision (b). The trial court denied petitioner’s counsel’s motion for discretionary relief, ruling that counsel’s failure to lodge the administrative record did not rise to the level of excusable neglect. Nevertheless, the lower court granted petitioner mandatory relief, finding that counsel’s error had deprived the petitioner of its day in court.

The appellate court disagreed. The court held that Code of Civil Procedure section 473, subdivision (b), does not apply where, as here, there has been a trial on the merits. Thus, the court found, counsel’s error had not served to deny the petitioner its day in court. Rather, the error resulted in a failure to present sufficient evidence and therefore the mandatory relief provisions were inapplicable. The Court of Appeal reinstated the lower court’s original judgment denying the petition and complaint, and allowed the City of Los Angeles recovery of appellate costs from the petitioner.

Third District Court of Appeal Upholds State Air Resources Board’s AB 32 Cap-and-Trade Program

In a 2-1 opinion, the Third District Court of Appeal upheld the auction-sale component of the cap-and-trade program created by the State Air Resources Board pursuant to the California Global Warming Solutions Act of 2006 (“AB 32”) in California Chamber of Commerce v. State Air Resources Board (2017) 10 Cal.App.5th 604.

As part of its regulations to implement AB 32, the State Air Resources Board created the California Cap on Greenhouse Gas Emissions and Market-Based Compliance Mechanisms, referred to as the ‘cap-and-trade program.’ The program imposes a cap on aggregate greenhouse gas emissions. Covered entities must either reduce their emissions below a threshold point or obtain offset credits or emissions allowances at the Board’s quarterly auctions or in a secondary market. Allowances are tradable, so participants can buy, bank, or sell them. Proceeds from the Board’s auction sales are kept in a fund to further AB 32’s purposes. Plaintiffs California Chamber of Commerce and Morning Star Packing Company filed two separate lawsuits challenging the regulations and the court consolidated the cases. The trial court ruled in favor of the Air Resources Board and both plaintiffs appealed.

The Court of Appeal considered two arguments: (1) whether the auction sales exceed the Legislature’s delegation of authority to the Board, and (2) whether the revenue generated by the auction sales amounts to a tax that violates the two-thirds vote requirement of Proposition 13. With respect to Plaintiffs’ first argument, the court considered whether the auction program is “(1) consistent and not in conflict with the statute and (2) reasonably necessary to effectuate the purpose of the statute.” The court held that by allowing the Board to design regulations that include “distribution of emissions allowances,” the Legislature gave broad discretion to determine how to implement the statute, and the auctioning of allowances does not exceed the scope of the delegation. In addition, the court found that the Legislature later ratified the auction system when it directed how to use the proceeds therefrom.

With respect to Plaintiffs’ second argument, the court found that the auction sales do not equate to a tax. Proposition 13 requires that any change in a State tax must be passed by a two-thirds vote of each house of the Legislature. Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal.4th 866 is the leading authority on application of Prop 13, but contrary to the ruling of the lower court, the Court of Appeal found the test from that case was inapplicable here. According to the court, Sinclair Paint did not hold that it applies to any “revenue generating measure.” Instead, Sinclair Paint sets forth rules to evaluate purported regulatory fees to determine whether they are taxes subject to Proposition 13. The Board’s cap-and-trade regulations do not purport to impose a regulatory fee, but instead call for the auction of allowances, which the court explained is an entirely different system. Thus, the Court of Appeal found, Sinclair Paint did not apply.

Because Sinclair Paint did not apply, the court looked to the general test for whether something is a “tax” subject to Proposition 13. The court explained that the hallmarks of a tax are: (1) it is compulsory, and (2) the payor receives nothing of particular value for payment. The court found that, regardless of the fact that the cap-and-trade program may increase the cost of doing business in California, the purchase of allowances through the Board’s auction is voluntary; businesses must simply make the judgment whether it is more beneficial to the company to make the purchase required by the program than to reduce emissions. In addition, the court emphasized that no entity has a vested right to pollute. Once purchased, the allowances are valuable, tradable commodities, conferring on the holder the privilege to pollute the air. Thus, the court found that participation in the auction system is voluntary and the purchaser receives a specific thing of value, so the auction system does not impose a tax.

Justice Hull concurred with the majority’s analysis of the first question, but disagreed with the second part of the opinion. In a lengthy dissent, Justice Hull argued that the cap-and-trade program is a tax because: (1) the purchase of auction credits by certain businesses is not voluntary, (2) the auction credits do not confer property rights, and (3) the use of the auction proceeds must be considered for determining whether a State exaction is a tax. Thus, Justice Hull concluded that the program is a “tax” of sorts, and because it was not passed by a 2/3 vote of the State Legislature, it violates Proposition 13.

Sixth District Rules County of Santa Cruz Did Not Engage in Piecemeal Review of Zoning Ordinances and Upholds Negative Declaration

In Aptos Council v. County of Santa Cruz (2017) 10 Cal.App.5th 266, the Sixth District held that the County of Santa Cruz did not engage in piecemeal review when it separately adopted three different zoning ordinances. The court also upheld the negative declaration for an ordinance increasing the height and density of hotels.

The County planning department undertook an effort to overhaul various County code sections, including those dealing with zoning. As part of this effort, the following occurred: (1) in March 2013, the County considered an addendum to a negative declaration prior to adopting an ordinance that authorized administrative approval of minor exceptions to zoning site standards; (2) in September 2013, the planning department circulated a negative declaration finding that an ordinance increasing the height and density for hotels (the “Hotel Ordinance”) would not have a significant effect on the environment; and (3) in October 2013, the planning department prepared a notice of exemption for an amendment modifying the County’s sign ordinance (the “Sign Ordinance”). The Board adopted the Hotel Ordinance and the Sign Ordinance in 2014.

Petitioner argued that the three ordinances in question constituted a single project and the County’s actions amounted to piecemealing in violation of CEQA. The court disagreed. The court found that reforming certain zoning regulations—such as altering density requirements for hotels—was not a reasonably foreseeable consequence of the other regulatory reforms challenged. Because each ordinance operated independently and could be implemented separately, they were not considered a single project. While the ordinances all served the same stated objective of “modernizing the County code,” the court held that this was not the type of tangible objective that forms the basis of a single CEQA project.

The court also upheld the negative declaration for the Hotel Ordinance, finding that the County did not need to consider potential future development because it was too speculative to be reasonably foreseeable. Evidence in the record supported the argument that the County intended to stimulate development when it passed the ordinance, but the court found that still did not demonstrate that such development was reasonably foreseeable. Additionally, the initial study disclosed that the Hotel Ordinance would allow higher density and taller hotels but that the effects of future development were speculative until a specific development was proposed. And, the initial study explained that such development projects would be subject to their own CEQA review. Moreover, the court found that petitioner failed to meet its burden to show a fair argument that significant environmental effects may result from the ordinance.