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In County of Mono v. City of Los Angeles (2022) 81 Cal.App.5th 657, the First District Court of Appeal held that a reduction in water deliveries by the City of Los Angeles (City) to lessees in Mono County (County) was not a new CEQA project, but was within the scope of existing leases.

In 2010, the City approved a set of leases (2010 Leases), substantively identical to prior leases, relating to land the City owned in Mono County, finding the leases to be exempt from CEQA as ongoing operation of existing facilities. With respect to water rights, the 2010 Leases stated that the City’s rights were paramount to those of the lessees, and that the availability of water to the lessees would be determined solely by the City, dependent upon the City’s needs and ability to secure water elsewhere.

In 2018, the City proposed new leases (Proposed Dry Leases). The Proposed Dry Leases contained language stating that the City would no longer furnish any irrigation water, with limited exceptions. While the Proposed Dry Leases were undergoing environmental evaluation, the City informed the lessees that, due to ongoing drought, the City would only provide a reduced amount of water to the lessees in 2018 under the existing 2010 Leases. The City issued a notice of preparation that it would prepare an EIR for the Proposed Dry Leases. Before completion of the EIR the County filed suit, arguing that the City had essentially already implemented the Proposed Dry Leases by reducing water supply, before completing CEQA review. The trial court agreed, finding that the City had committed to a project without completing CEQA review in 2018, and the City appealed.

On appeal, the Court first considered an evidentiary issue. The City had submitted a declaration showing that the City had provided additional water to the lessees, in line with what the City had historically provided under the 2010 leases, in both 2019 and 2020. The trial court partially excluded the declaration, which was submitted only after it had issued its tentative ruling, finding it to be irrelevant to the merits of the case, but relying on it in crafting its remedy. The Court of Appeal found the declaration to be relevant to the merits, but untimely submitted. It would have upheld its full exclusion due to untimeliness, but because the County had an opportunity to respond to the declaration and the trial court relied on it in crafting a remedy, the Court held the timeliness concern to likely be insignificant, and therefore considered the declaration in its consideration of the merits.

On the merits, the Court framed the issue as whether the 2018 water allocation was itself the whole of an action, or was a part of a larger action: either the 2010 Leases or the Proposed Dry Leases. It concluded that the 2018 allocation was a part of the 2010 Leases. The Court noted that the plain language of the 2010 Leases allowed the City to do precisely what the County alleged – curtail lessees’ water deliveries in order to provide more water to Los Angeles residents. The County argued that, were this the case, the City would have prepared an EIR for the 2010 Leases, and not approved them under an exemption. The Court found this argument to be entirely speculative. It noted that its ruling did not foreclose breach of contract actions by the lessees, who were not parties to this case, and accepted, based on a concession by the City, that the 2010 Leases included some provision of water subject to availability, and that the City could not entirely cease such deliveries under them. But this did not affect its conclusion that the 2018 allocation was within the scope of the 2010 Leases for purposes of CEQA.

The County also argued that the City’s mere ability to reduce water deliveries could not itself excuse CEQA compliance, citing case law holding that maximum permitted operational levels cannot be used as a baseline for CEQA review. But the Court noted that the baseline case law involved the measurement of a project’s impacts. Applied here, the Court agreed that environmental review of the Proposed Dry Leases was required to use actual deliveries as its baseline, not what the City was legally permitted to deliver. But the case also confirmed that an ongoing project may exercise its existing rights without the need for further analysis.

The Court also surveyed the City’s historical distributions, concluding that the 2018 distribution level was not a remarkable departure from previous practice. The declaration partially excluded by the trial court confirmed this as well, as it showed delivery of substantially more water in 2019 and 2020 than 2018, refuting the County’s claim that the City had adopted a new low- or zero-water delivery policy.

The County also argued that the timing of the 2018 allocation, shortly after lessees’ objections to the Proposed Dry Leases, showed that the 2018 allocation was implementation of the Proposed Dry Leases. But the Court found the sequence of events to support its conclusion that the allocation was within the scope of the 2010 Leases. It acknowledged that the City’s notice of preparation might be an admission that the Proposed Dry Leases were a new project, but this did not indicate that the 2018 allocation was a part of that project. As such, the Court found insufficient evidence that the 2018 allocation was subterfuge to implement the Proposed Dry Leases.

In light of its conclusions, the Court held that the County was challenging a project approved by the City in 2010, and therefore that its 2018 petition was untimely. Had the County wanted to raise a CEQA challenge to the City’s ability to reduce water allocations, the County should have raised the argument when the City approved of the leases reserving to them the ability to do that. Further, the Court found that the fact that the 2010 Leases were approved under an exemption made no difference with regard to the County’s limited window to challenge those leases back in 2010. The Court opined that even if the City’s approval of the 2010 Leases did not give the County notice of the City’s authority to curtail water deliveries under the leases, markedly reduced water deliveries in subsequent years should have provided such notice. As such, the time for the County to challenge the approval of the 2010 leases, and any environmental impacts that could occur under these leases, was time-barred.

Key Point:

  • A decision to exercise existing rights within the scope of an ongoing project is not a new project under CEQA.