In San Diegans for Open Government v. City of San Diego (2018) 31 Cal.App.5th 349, the Fourth District Court of Appeal affirmed a judgment rejecting CEQA arguments and other challenges to an amended lease agreement between the City of San Diego and Symphony Asset Pool XVI, LLC for the historic Belmont Park amusement park.

In 1987, the City of San Diego entered into a lease and development plan to revitalize the historic amusement park in the city’s Mission Beach area. Under the agreement, Symphony’s predecessor in interest was authorized to demolish and renovate certain existing facilities, and to construct various new facilities including restaurants, shops, and other visitor-serving commercial uses. The original lease agreement was for a 50-year term, but also included a right of first refusal to enter into a new agreement on terms determined by the city.

In response to the 1987 lease, the city’s electorate passed Proposition G to restrict future commercial development in Mission Beach. Under Prop. G, future development is restricted to park and recreational uses, and the preservation of historical amusement park facilities. Prop. G also includes an exemption for projects that had obtained vested rights as of the effective date of the measure. In 1988, the city council passed an ordinance providing that the 1987 lease and development plan provided a vested right under Prop. G and the use and redevelopment of Belmont Park could continue as planned.

In 2012, Real Party in Interest Symphony took over the 1987 lease. In 2015, the city council authorized the mayor to enter into an amended and restated lease with Symphony for the use and operation of Belmont Park. The basis for the amended lease was in part to support the approximately $18 million Symphony had invested improving the property since taking over. Among other things, the lease required Symphony to pay rent for its use of the property. The lease also gave Symphony the opportunity to extend the lease beyond the original 50-year term. If Symphony completes ongoing improvements and planned improvements, makes additional capital improvements, and pays the city a lump sum payment, the amended lease may be extended up to 50 years.

At the time the amended lease was approved, the city council also adopted a resolution finding that the amended lease agreement was categorically exempt from CEQA under the existing facilities exemption in CEQA Guidelines section 15301.

Following the adoption of the amended lease, San Diegans for Open Government (SDOG) filed a lawsuit challenging the amended lease on three grounds. First, the complaint alleged that the amended lease violated Prop. G by authorizing new uses in excess of the vested rights conferred under the 1987 lease. Second, the complaint alleged that the city violated CEQA because it improperly concluded the amended lease was exempt from environmental review. Third, the complaint alleged that the approval of the amended lease violated a provision of the city charter which required certain agreements lasting more than five years to be adopted by ordinance after a public hearing.

With regard to the first claim, SDOG argued that (1) the amended lease allows new uses that were not authorized under the 1987 lease, and (2) the 1987 lease provided a vested right only for the original 50-year term. The court rejected these arguments, holding that the amended lease did not violate Prop. G., relying primarily on the language of the 1987 lease. First, the court noted that the original lease included a long list of specifically authorized uses. According to the court, all of the uses SDOG argued were not authorized were encompassed within the original permissible uses. Next, the court held that the extension did not violate Prop. G because the 1987 lease contemplated the possibility of extension, and neither Prop. G nor the city’s ordinance finding a vested right contained any time limit on the rights vested.

The second issue was whether the city violated CEQA by incorrectly determining that the amended lease was exempt from environmental review under the existing facilities exemption. CEQA Guidelines section 15301 provides an exemption from environmental review for the “operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of use beyond that existing at the time of the lead agency’s determination.” SDOG argued that the amended lease contemplates improvements including construction of a new restaurant and bar, food court venues, and a new arcade, and thus did not qualify as involving negligible or no expansion of the existing use.

The court rejected SDOG’s argument and found that the construction activities the appellants referenced, including the new restaurant, food court venues, and arcade, were all projects that had already been completed at the time the amended lease was entered and, accordingly, were existing facilities. The parties acknowledged in the lease that Symphony had already expended $18 million to improve and upgrade the property, and those improvements were listed in an exhibit to the agreement. The court added that while the amended lease did contemplate Symphony would invest an additional $5.9 million in the pool facility in the future, SDOG did not argue those activities were outside the scope of the exemption. Moreover, the court added, those activities involved only refurbishment of existing facilities and not new construction, thus, they fall squarely within the existing facilities exemption.

In addition to arguing that the amended lease did not qualify for the existing facilities exemption, SDOG argued that the unusual circumstances exception in CEQA Guidelines section 15003.2, subdivision (c) applied in this case. Under that section, “[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.” Furthermore, the court explained, “it is not alone enough that there is a reasonable possibility the project will have a significant environmental effect, instead . . . there must be a reasonable possibility that the activity will have a significant effect on the environment due to the unusual circumstances.” (Quoting Berkeley Hillside Preservation v. City of Berkeley (2015) 60 Cal.4th 1086, 1097-98.)

Here, SDOG argued that the existence of the voter-passed Proposition G constituted an unusual circumstance because the voters had used the initiative power to declare a distinct interest in minimizing the environmental impacts of development in Mission Beach. SDOG also argued that there is a fair argument the project will result in severe traffic and noise impacts. SDOG cited a statement by a Symphony representative that the project would generate an additional $100 million in revenue over the term of the lease, which SDOG argued could only occur with significantly more visitors and therefore more traffic and other resulting impacts. The court rejected SDOG arguments, finding its argument that impacts would occur to be based on speculation. Furthermore, SDOG failed to establish how the increased traffic or noise would be due to the unusual circumstances that it cited, i.e., the existence of Proposition G. In sum, the court held that the city properly determined the amended lease was exempt from CEQA review under the existing facilities exemption and that the unusual circumstance exception did not apply.

The final issue in the case was whether the approval of the amended lease violated a provision of the city charter. The provision at issue consisted of two sentences. The first sentence referred to the city incurring “indebtedness or liability.” The second sentence more broadly stated “no contract” lasting for a period of more than five years may be authorized except by ordinance after notice and a public hearing. The issue was whether the first sentence limited the second, or if the second sentence was independent. While the court found the language of the provision was ambiguous, rules of statutory interpretation provide that the city’s interpretation of its own charter is entitled to deference unless shown to be clearly erroneous. The city’s longstanding interpretation of the provision was that it applied solely to agreements requiring the city to expend funds. The court found this interpretation to be reasonable and consistent with the legislative history, and held that the city did not violate the charter by approving the amended lease by resolution.

– Collin McCarthy