On April 22, 2008, the City of Los Angeles passed Ordinance No. 179820 and thereby established a city-wide “Green Building Program.”  The program is modeled after the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) building standards.  The program addresses five key areas including: (1) site location; (2) water efficiency; (3) energy and atmosphere; (4) materials and resources; and (5) indoor environmental quality.  The new ordinance amends the Los Angeles Municipal Code (“LAMC”) by adding new Sections 16.10 and 16.11, which will likely have a considerable affect on the type of developments the City will approve.

Overall, the Green Building Program could introduce another layer of entitlement complexity.  Nonetheless, it should also help the City accomplish its stated goal of reducing natural resource use, creating healthier living environments, and combating global climate change.  The new standards for non-residential and high-rise residential projects will be effective on November 1, 2008.  The standards will apply to low-rise residential projects on May 1, 2009.

For more information please contact James Pugh.  James E. Pugh is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's Los Angeles office.

The rule will take effect on June 12, 2008, but it will not apply to applications pending on that date or to applications filed after that date if applying the new rule would be a substantial hardship.

Effect Likely To Vary

In fiscal year 2005, the Corps authorized 20,754 acres of wetland impacts, and required 56,693 acres of compensatory mitigation through wetland restoration, establishment, enhancement, and preservation to offset those unavoidable impacts. From fiscal years 2001 to 2005, the mean annual wetland impacts authorized were 23,000 acres, and the mean annual wetlands compensatory mitigation required was 50,000 acres.  Because the Corps Section 404 program is nationwide and of such a large scale, the effect of the rule will vary considerably both regionally and even within a state depending of the particular circumstance of each area.

Goal of the Rule

The rule is intended to increase the accountability and rigor of the program and to elevate the role of mitigation banks in the mitigation process.  The rule applies the view that is that in many instances providing on-site mitigation adjacent to development in urban areas will provide fewer long term benefits than consolidating mitigation in areas that are more likely to remain undeveloped and rural.  At the same time, it increases the rigor of the planning and processing requirements for on site mitigation and requires that generally mitigation occur within the same watershed as authorized impacts.

The rule is intended to level the playing field between permittee-responsible mitigation, mitigation banks and in-lieu fee mitigation at least in terms of making sure that each of these options provides effective mitigation.  It establishes ecologically-driven performance standards that use the best available science.  The Corps and EPA expect the program will promote better compliance.  Under the rule, the Corps intends to increase compliance visits to ensure more complete compliance with mitigation requirements.  Entities carrying out the mitigation will be required to file more detailed monitoring reports.  This will be a challenge for many consultants who will need to develop the skills and knowledge to produce plans that meet these standards.

Compliance with Section 404(b)(1) Guidelines Maintained

The rule states that it preserves the mitigation sequence requirement under the Section 404(b)(1) guidelines to first avoid, then minimize, then compensate for unavoidable impacts and lost aquatic functions.  It also states that it does not expand the district engineers' existing level of discretion in determining that an applicant has taken all appropriate and practicable steps to first avoid and then minimize impacts to the aquatic ecosystem.  It does not change when mitigation is required, but it does change where and how will be performed. While the rule affirms the continued applicability of the sequencing provisions of the section 404(b)(1) guidelines, it does tilt the playing field away from requiring applicants to provide on-site, in-kind mitigation. The Corps specifically rejected requests to specify that on-site, in-kind mitigation  should be preferred because the failure rates for those kinds of projects was high.  Over time, this tilt will also affect the application of the guidelines and may result in less onsite avoidance.

Mitigation Hierarchy Established

The rule establishes a preference hierarchy for mitigation options as follows:

1. Mitigation bank credits

2. In-lieu fee program credits

3. Permittee-responsible mitigation under a watershed approach

4. On-site and/or in-kind permittee-responsible mitigation

5. Off-site and/or out-of-kind permittee-responsible mitigation

It is not clear how the hierarchy will be administered.  The rule seeks to maintain flexibility, but it also appears to give the districts the ability to select the “environmentally preferable option.”  It seems possible that the Corps could reject an on-site mitigation proposal, for example, on the grounds that purchasing credits is "environmentally preferable."  In terms of the amount of mitigation, the Corps and EPA rejected a request to set a minimum ratio of 1.5 to 1 in favor of retaining a general requirement for no net loss and a requirement to document the need for ratios in excess of 1 to 1.

Potential Benefits And Costs

The Corps and EPA anticipate that that benefits of the rule will be greater predictability, greater transparency, improved mitigation planning and site selection, improved performance of compensatory mitigation projects, and a possible reduction in permitting time especially for projects that can use mitigation banks or in-lieu fees.  It also increases the flexibility of mitigation options, provides for increased public participation and strongly encourages a watershed approach to mitigation so that mitigation will be located in areas that will provide long term benefits.  On the other hand, the cost and complexity of obtaining approval of a mitigation plan and authorization to commence work will greatly increase for projects that cannot use mitigation banks.  The importance of functional assessment is enhanced.  This is a potentially troubling element of the rule as most Corps districts do not have established methodologies for preparing watershed functional assessments and the cost of preparing a functional assessment can be considerable.

Watershed Approach Adopted

The use of a watershed approach in identifying locations for mitigation is a major new element of the rule.  Previously, mitigation developed under the Section 404 program was rarely subject to watershed-based analysis.  In adopting the final rule, the Corps and EPA responded to comments from the regulated community expressing concern that watershed planning would be a source of additional expense and delay to those seeking permits.  The rule clarifies that watershed planning/analysis is to be done by the Corps.  It is not a burden placed on applicants.  For those areas for which a watershed plan is incomplete or unavailable, mitigation and permitting can proceed either through banks or in- lieu fees or under project by project activity.

Where a watershed plan is developed using available information, however, the Corps and EPA expect that will provide strategic site selection to improve or maintain watershed functions.  A watershed plan can consider the type of mitigation, its landscape position, and other factors to provide desired functions.  The application of the watershed approach bears careful monitoring especially because the rule does not clearly define at what scale watershed planning should take place.

Recognition of Mitigation Elements

An important new aspect of the rules is that it recognizes that mitigation may be accomplished at multiple sites.  For example, an applicant could provide part of the mitigation on-site where mitigation measures will be needed to maintain water quality or store water for flood and provide stream protection and provide mitigation for other habitat functions could be accomplished off-site.  In fact, mitigation for wildlife habitat is listed as an example of an off-site mitigation element.  The rule also formally recognizes that mitigation can include elements such as preservation of wetlands, inclusion of riparian areas, and buffers where those activities contribute to providing needed functions.

New Standards for Approval of Mitigation Banks

The rule establishes requirements for each of the categories of mitigation.  For mitigation banks, the rule requires the banker to develop a prospectus that provides information on the bank—where it is located, why the site is appropriate, why the mitigation will succeed, what the service area will be, and how credits will be allocated.  Establishment of the bank is subject to a public notice and comment process, and review by an interagency team (IRT) under a process that includes opportunities and deadlines for other agencies to comment on the proposed bank.  The rule also provides a process to resolve disputes, if needed, by IRT members.  This dispute resolution process is similar to the existing process for elevating permit decisions under the Section 404(q) memorandum of understanding.  An approved bank must have an approved instrument, approved mitigation plans with credit release schedules, ledgers for all credit transactions and Corps approval to release credits.  Mitigation banks are subject to suspension or termination if the planned mitigation does not meet the required performance standards.  One advantage to permittees of the mitigation bank option or the in-lieu option is that responsibility to provide compensatory mitigation is transferred to the sponsor when the permittee secures credits.

New Timelines for Mitigation Bank Approval

The rule provides for formal timeframes that govern the process for  approving mitigation banks.  They are likely intended to reduce the time needed for approval as compared to the prior procedures under which the time for approval of mitigation banks could take many years.  However, the rule allows exceptions to these timeframes made if a bank proposal requires Section 7 consultation or a full NEPA review.  As a practical matter, the timeframes cannot be enforced since the rule provides no penalty if the process extends beyond the identified timeframes.  The specified time period is 225 days for Federal review without dispute resolution.  This time excludes time for the actions the sponsor is required to complete.  The entire process would take approximately 285 days, if the sponsor provides draft instrument within 30 days, and final instrument within 30 days.  The time would be extended to 320 days for Federal review if the dispute resolution process is used (380 days total, assuming 30-day submittals for draft and final instruments).

In-Lieu Fees Are Retained

One of the key issues to be resolved by the rule was the treatment of in- lieu mitigation where fees could be paid to an entity to be used for mitigation.  In-lieu mitigation (“ILF”) has been a somewhat loosely administered mitigation option.  Many of the in-lieu plans did not have the mitigation lined up in advance and there was some suggestion that the in-lieu programs might be abolished.  Instead, the Corps and the EPA added new requirements for in-lieu fee programs making them more like mitigation banks.

Under the rule, only non-profits or governments will be allowed to maintain in-lieu programs. The ILF must have a compensation planning framework required to identify, plan, and implement ILF projects; support the watershed approach; and justify advance credits.  Advance credits are a limited number of credits that can be sold before ILF projects are established and meet performance standards.  ILF funds collected for compensation may only be used for compensation projects minus a small percentage for overhead.  Credit costs must include all costs to implement projects, including financial assurances and long-term management.  Individual ledgers will track credit production by each in-lieu fee project.  As with mitigation banks, they will transfer liability to ILF up front with enforcement against the ILF.

Grandfathering of Banks and In-Lieu Funds

In an important concession to existing banks and in-lieu fee arrangements, previously approved mitigation banks and those approved within 90 days of publication of final rule are grandfathered.  They can continue to operate under their existing terms, unless there are substantive changes (e.g., adding or expanding sites).  In-lieu fee program instruments, previously approved instruments, and those approved within 90 days of publication of final rule, can continue to operate under their existing terms for two years after the effective date, unless the district engineer approves an extension of up to three additional years.

Requirements for Permittee Mitigation Increased

The rule continues to allow permittee-responsible mitigation, but substantially upgrades the requirements for these and creates formal regulatory standards for the first time.  Most of the requirements in the rule were previously found in informal guidance issued by each Corps district.  One of the biggest upgrades is a requirement to formalize to have the mitigation lands be placed under a conservation instrument or otherwise set aside in perpetuity and to ensure that financial assurances are in place to manage the mitigation site in perpetuity.  While these requirements were often imposed (at least in California), they were by no means universal.

Under the permittee-responsible mitigation, site selection may be based on a watershed approach, or, if a watershed plan is not in place, it may be based on either on-site/in-kind mitigation, off-site/in-kind mitigation, or off-site/out-of-kind mitigation.  In all instances, the permittee must provide a draft mitigation plan that identifies the mitigation objective, site selection information, the site protection instrument to be used (e.g., conservation easement), baseline information (for both the impact site and mitigation project site), an explanation of how the project will mitigate for lost functions and values, a work plan (specifications and work descriptions), a maintenance plan (ensuring continued viability), ecologically based performance standards, monitoring requirements, a long-term management plan (post-monitoring management), provisions for adaptive management plan (addressing unforeseen changes), and financial assurances (to ensure high level of confidence of successful completion).  The level of information must be commensurate with the scope and scale of the impacts.  Perhaps most importantly, the rule provides that the Corps must approve the mitigation plan before impacts may occur.  This places a premium on early identification of mitigation sites and emphasizes the benefits of mitigating at a pre-approved bank.

Nomenclature Clarified

The rule also seeks to bring new clarity to the nomenclature used to describe mitigation activities. Compensatory mitigation can be carried out through four methods: the restoration of a previously-existing wetland or other aquatic site, the enhancement of an existing aquatic site’s functions, the establishment (i.e., creation) of a new aquatic site, or the preservation of an existing aquatic site.  The rule also addresses comments on the concepts of “functions,” “services,” and “values” that were in the proposed rule.  The rule noted that the terms “functions,” “services,” and “values” have been used in various documents to describe the attributes of aquatic resources that are being replaced through compensatory mitigation. The proposed rule included definitions for all three terms.  By contrast, the final rule eliminates the term “values” from the final rule because the term “services” is currently being used in the ecological literature to relate to the human benefits that are provided by an ecosystem. The concept of "ecosystem services" provides a more objective measure than “values” of the importance of the functions performed by the ecosystem to human populations.

Mitigation Defended

The rule presents defenses to arguments raised by commenters that the technology and science does not exist for conducting mitigation for certain kinds of resources such as streams.  The Corps and EPA recognized that the science of stream restoration is still evolving and that more research is needed; however, the lack of a fully-developed set of tested hypotheses and techniques does not mean that stream mitigation (particularly via restoration, enhancement and preservation) cannot be successfully performed or that it should not be required where avoidance of impacts is not practicable.  On the other hand, the rule does note that some types of resources are harder to replace than others, and it provides guidance on how to handle those situations.

New Requirements for Individual Permits

The Corps has also made a change to the individual application process.  A new regulation requires an applicant to specify the efforts it has made to avoid impacts and to explain how the project will mitigate for its impacts.  This information must also be included in any public notice the Corps issues for an individual permit.  By contrast, under the prior rule, the public notice could be silent on those issues.  A section 404(b)(1) alternatives analysis or a full mitigation plan is not required either for the application or the public notice.

Conclusion

For permit applications that are far along in the process, the old rule will continue to apply.  For future applications, if a mitigation bank is readily available, the transition should be simple.  For all other projects, the complexity and cost of obtaining mitigation is likely to increase, perhaps exponentially.  The rule will place a premium on planning for mitigation especially for project proponents.  At a program level, the quality and public benefits of mitigation is likely to improve.

For further information contact Robert Uram, Ella Foley Gannon, Keith Garner, Aaron Foxworthy or Brenna Moorhead.  Robert J. Uram is a partner in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.  Ella Foley-Gannon is a Partner in Land Use and Natural Resource Practice Group in the firm's San Francisco Office.  Keith Garner, AICP, is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.  Aaron Foxworthy is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.  Brenna Moorhead, AICP, is an associate in the Real Estate, Land Use and Environmental Practice Group in Sheppard Mullin's San Francisco office.

By S. Keith Garner

The California Court of Appeal for the Fourth District recently held that the five-year statute of limitations in the Code of Civil Procedure (CCP) section 336 for challenges to restrictions on the use of real property applies to a homeowners association's unrecorded rules or guidelines.  The case involved a dispute over the location and height of a fence and gate across a homeowner's driveway.  The homeowners association's CC&Rs, which were recorded, required homeowners to obtain written approval of plans for any improvements, such as fences, from the association's architectural committee before starting construction.  The association's architectural committee also adopted guidelines that imposed setback and height requirements on fences, which were not recorded.  In this case, the homeowner erected the fence and fate in November, 2000, without receiving the architectural committee's approval and in violation of the setback and height restrictions in the unrecorded guidelines.  The association immediately notified the homeowner of the violation, and, over the course of next few years, sporadically attempted to resolve the matter administratively with the homeowner.  After its requests for mediation were rebuffed, the association filed suit against the homeowner more than four years but less than five years after the installation of the gate and fence.  The homeowner argued in part that the action was barred by the four-year statute of limitations in CCP section 337.  The superior court found that the action was timely under CCP section 336(b) and issued an injunction requiring the gate and fence to be lowered or moved outside the setback.

For more information please contact Keith Garner.  Keith Garner, AICP, is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.

By Maria Pracher and Misti Schmidt

The California Court of Appeal for the Second District recently issued the first appellate opinion to apply the four principles delineated by the California Supreme Court in Vineyard Area Citizens for Responsible Growth, Inc. v. City of Rancho Cordova, 40 Cal. 4th 412 ("Vineyard").  These principles govern whether the water services discussion in an Environmental Impact Report ("EIR") sufficiently analyzes the availability of future water supplies.  Santa Clarita Organization for Planning the Environment, et al.,  v. County of Los Angeles, 157 Cal. App. 4th 149, Civil No. B189116 at 9 (November 26, 2007) ("SCOPE").  Briefly, the Vineyard principles are:

2. The water supply analysis for large projects cannot be limited to the first stage of construction or the first few years of the project.  Id. at 431.

3. The availability of the future water supplies identified in the EIR must be likely rather than speculative and the EIR must analyze the factors affecting that likelihood.  Id. at 432.

4. If it is impossible to determine that future water sources will be available, the EIR must discuss alternative water sources and the associated environmental consequences.  Id.

In SCOPE, plaintiff environmental organization argued that the EIR at issue insufficiently analyzed the availability of future water supplies for a proposed residential and commercial development in Los Angeles County.  According to plaintiff, the EIR was improperly certified by the County because, under the third Vineyard principle, it relied on a water transfer agreement (the Kern-Castaic transfer) that could be affected by the ongoing litigation over the Monterey Settlement Agreement and because the Monterey Settlement Agreement did not list this transfer agreement as final or permanent.  Thus, plaintiff argued that the Kern-Castaic transfer could not be relied upon in the EIR as a permanent water source.

The court rejected this argument.  Noting that the EIR adequately disclosed the potential for the Monterey Settlement Agreement litigation to affect the Kern-Castaic transfer agreement and discussed the reasons why an adverse outcome in the litigation would not invalidate the transfer agreement.  The court examined the plaintiff's arguments for why the Kern-Castaic transfer agreement could be invalidated by the Monterey Settlement Agreement litigation and rejected those arguments as unsupported by law or facts.  The court found that existing law and contracts support the validity of the Kern-Castaic transfer agreement regardless of the outcome of the Monterey litigation.

The court also rejected plaintiff's claim that a letter from the Department of Water Resources (DWR) referencing the availability of a new model to assess water supply rendered the EIR inadequate.  In its letter, the DWR stated that the  new model may cause only slightly different results and the DWR found the draft EIR adequately discussed state water project reliability and the post-Monterey Agreement conditions.  Thus, the court concluded that this letter did not support plaintiff's claims.  Additionally, the court rejected plaintiff's argument that the EIR was inadequate because it did not discuss the factors the DWR must consider if it is required to prepare a revised Monterey Agreement EIR.  Since the Kern-Castaic agreement was not dependent on the Monterey Agreement, the court determined that such a discussion was not necessary.  In dismissing plaintiff's claim that the EIR could not be certified until the revised EIR for the Monterey Agreement is certified, the court reiterated that the EIR's water supply analysis was not dependent on the outcome of the Monterey Agreement litigation.

Plaintiff also argues that the EIR was improperly certified because, under the fourth Vineyard principle, the EIR should have included a discussion of alternative water sources should the Kern-Castaic transfer fail.  Relying on the language from Vineyard, the court noted that the fourth principle applies only if it is "impossible to confidently determine" whether the water source will be available.  Given its discussion under the third principle above, the court concluded that the certainty of the Kern-Castaic transfer's validity was likely and thus it could be confidently determined that the water supply for the project will be available.  Consequently, no discussion of alternatives sources was necessary.

In sum, the court found that the EIR satisfied the Vineyard principles because the EIR discussed the water supply issue, the record contained substantial evidence demonstrating the likelihood that the water from the Kern-Castaic transfer agreement would be available for the project's near- and long-term needs, the EIR did not improperly defer analysis to later stages, and the EIR did not rely on demonstrably illusory supplies.

For more information, please contact Maria Pracher and Misti Schmidt. Maria Pracher is a partner in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office. Misti Schmidt is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.

By Aaron Foxworthy

The Second Appellate District affirmed a lower court decision that when acting as the issuing agency for a Coastal Development Permit (CDP) application, the California Coastal Commission may designate a portion of the subject property as an Environmentally Sensitive Habitat Area (ESHA) during consideration of the CDP application.  And, the Commission may then reject the CDP application based in part on potential impacts to the newly designated ESHA.  The decision is a cautionary tale for parties seeking to develop – or purchase for development – property in the Coastal Zone, that the Commission retains broad authority to designate ESHAs and restrict development.

In November 2001, Mr. and Mrs. Douda filed a CDP application with the California Coastal Commission to construct a large home with associated garage, pool and spa on their property.  The Commission had previously certified Los Angeles County's land use plan covering the Doudas' property, but not a full LCP.  Therefore, the Commission retained primary regulatory authority over the Doudas' CDP application.  The Commission found that coastal sage scrub and chaparral habitat on the Doudas' property constituted an ESHA.  The Commission then rejected the Doudas' application because impacts associated with the Doudas' proposal would thereafter prejudice the ability of Los Angeles County to prepare an LCP consistent with the ESHA-protection provisions of the Coastal Act.  The Commission also determined that the California Environmental Quality Act required less invasive proposals, and that the Doudas' proposal would impermissibly impact scenic and visual qualities of the surrounding area.

The Doudas challenged the Commission's designation of an ESHA on their property, arguing that under the Coastal Act, the Commission or a local jurisdiction could only designate ESHAs in the context of preparation or certification of an LCP or land use plan.  The Commission, conversely, argued it is obligated to designate and consider impacts to ESHAs and potential ESHAs when acting as the primary regulatory authority for a CDP application, as well as when certifying LCPs.  The court found the Coastal Act did not specifically address whether the Commission could designate ESHAs outside the context of LCP-certification.  Given this uncertainty, the court looked to the purposes of the Coastal Act, which, the court found, included heightened protection for ESHAs.  The court therefore rejected the Doudas' interpretation that the Commission could only designate ESHAs in the context of LCP certification, since it would severely limit the protection of ESHAs or potential ESHAs in other circumstances, such as the current instance.  The court also found it significant that the Coastal Act provides the Commission primary responsibility for the implementation of all provisions of Coastal Act unless "specifically otherwise provided."

Similarly, the court found that potentially conflicting Coastal Act policies, on the one hand favoring protection of ESHAs, and on the other favoring local administration of land use decisions, must be balanced in favor of EHSA protection where, as here, it would be more protective of coastal resources.

The court also rejected the Doudas' assertion that the Commission's ability to designate ESHAs had expired pursuant to the terms of Coastal Act Section 30502.  That section gave the Commission until September 1977 to designate "sensitive coastal resource areas" within the coastal zone that needed heightened protection.  The court did not agree that the definition of "sensitive coastal resource areas" in Section 30502 was synonymous with that of "environmentally sensitive habitat area," and therefore the September 1977 deadline did not apply to ESHA designations.

The Doudas next argued that under the statutory scheme of the Coastal Act, local jurisdictions retained exclusive authority over the content of land use plans and LCPs, which authority the Commission had impermissibly infringed upon by designating the Doudas' property as an ESHA.  The court disagreed, finding that while the Commission could not interfere, for example, with the local jurisdiction's choice between two uses that equally conform to the policies of the Coastal Act, local jurisdictions could not use the Act's preference for local decisionmaking to circumvent requirements of the Act, such as protection of ESHAs or potential ESHAs.  The Doudas argued the practical affect of the court's interpretation was to allow the Commission to hold local jurisdictions hostage by refusing to certify a land use plan or LCP until the local government agreed to designations dictated by Commission.  The court was not deaf to this argument, but noted that it could not change the statutory scheme, and the court believed this situation would not be common because ESHAs or potential ESHAs represented a small portion of the coastal zone.

Regarding the existence of the certified Los Angeles County land use plan that had not designated any ESHA on the Doudas' property, the court cautioned that the Commission could not simply ignore the plan.  Rather, the court stated that the Commission should consider the contents of certified land use plans when making CDP decisions.  And, if the Commission deems it necessary to deny a CDP application that is consistent with a certified land use plan, it should do so only when necessary to achieve the basic goals of the Coastal Act, and with a "good reason for ignoring the plan, such as a significant change of circumstances."  In this instance, the presence of a previously undesignated ESHA on the Doudas' property met the court's standard.

Lastly, the Doudas challenged the Commission's authority to regulate scenic and visual resources in inland portions of the coastal zone (the Doudas' property is four-and-a-half miles from the coastline).  The Coastal Act requires protection of scenic and visual resources of coastal areas, but does not define the term "coastal areas."  The Doudas argued that "coastal areas" were those "areas on or along the ocean," and the Commission's authority to regulate of scenic and visual resources should be limited to such areas.  The court rejected this argument, holding that the court's directive under the Act is to construe the provisions of the Act broadly to achieve its preservation purposes and objectives.  The court therefore upheld the Commission's authority to regulate impacts scenic and visual resources up to the boundaries of the coastal zone, and not a smaller subset of property "on or along the ocean."  The court reasoned that this interpretation, unlike the Doudas', would prevent "constant" litigation over whether certain properties were or were not "on or along the ocean."

The Douda decision is distinguishable from the recent Security National Guaranty decision, which found the Commission could not designate an ESHA on the applicant's property because the local jurisdiction's certified LCP had not designated it as an ESHA, and did not provide a mechanism for future designation of ESHAs through administrative action.  Given the framework of the LCP, the SNG court found the Commission's attempt to designate an ESHA was tantamount to an ad hoc amendment of the LCP, which was prohibited by the provisions of the Coastal Act.  In Douda, however, no LCP had been certified, and although the Commission-certified land use plan covering the Doudas' property did not designate that property as an ESHA, it did allow for the future identification of additional ESHAs through biotic review or other means.

Regarding the designation of ESHA and resulting regulation of development, it appears the lessons of this series of cases are: (1) the Commission retains broad authority to designate and regulate impacts to ESHAs absent prohibitive provisions in a certified LCP ; (2) to avoid the uncertainty of potential future ESHA designations within their boundaries, local jurisdictions should seek certified LCPs whenever possible; and (3) the regulated community should work with local jurisdictions to craft LCPs that permit future ESHA designations only by amendment to the LCP, rather than through administrative procedures.

For more information please contact Aaron Foxworthy.  Aaron Foxworthy is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.

By Bry Martin

The First Appellate District held that the California Coastal Commission does not have the authority to designate property an "environmentally sensitive habitat area" (ESHA) where a certified Local Coastal Program (LCP) is in place, and the LCP has neither designated the property as an ESHA, nor contains language anticipating later designation of the property as an ESHA through administrative action.  The decision stands to protect developers and local governments by recognizing the LCP as a bulwark against the uncertainty created by potential ESHA determinations rendered by the Coastal Commission in the appeals process.

The court first looked past Coastal Commission's argument that the developer had not exhausted its remedies.  The Coastal Commission had argued that there was no "final" decision on how much, if anything, the developer could build, and therefore the court should not review the claim.  The court believed this argument missed the point entirely; the Coastal Commission had made a "final" decision regarding the ESHA designation.

The court then turned to the Coastal Act and the scope of review powers granted to the Coastal Commission after a local coastal program had been certified.  Citing to the Coastal Act, the court confirmed that the LCP stands as the standard of review in Coastal Commission appeals, and that the developer was "entitled to have its development proposal judged by the standards of the certified LCP in effect at the time of its application."  By designating the project site an ESHA "the Commission imposed additional standards not found in Sand City's LCP."  Such a designation would constitute an "amendment" to the LCP, which is a power reserved to local governments.  The court pointed to a specific provision in the City's LCP, which had expressly stated there were no ESHAs in the area seaward of Highway 1 where the project was located.  In pointing to this provision, the court underlined a critical distinction: the language of the LCP at issue in the case had left no room to argue that future ESHA determinations over the property were left outstanding.

Thus, Security National Guaranty is distinguishable from two recent decisions from the Second District Court of Appeal, LT-WR, L.L.C. v. California Coastal Commission (2007) 152 Cal.App.4th 770 and Douda v. California Coastal Commission (February 6, 2008, B188210) ___ Cal.App.4th ___.  In these cases, the court allowed the Commission to designate portions of the properties as ESHAs, despite the presence of a Commission-certified land use plan (one necessary part of an LCP) that did not designate any ESHAs on the properties.  The courts allowed the Commission to proceed because there was no certified LCP covering the properties that barred future designation of ESHAs, and the certified land use plan for the properties provided for the additional designation of ESHAs in unspecified areas through a biotic review process or other means.

It appears the lessons of this series of cases are: (1) the Commission retains broad authority to designate and regulate impacts to ESHAs, limited only through certified LCPs; (2) to avoid the uncertainty of potential future ESHA designations within their boundaries, local jurisdictions should seek certified LCPs whenever possible; and (3) the regulated community should work with local jurisdictions to craft LCPs that permit future ESHA designation only by amendment to the LCP, rather than through administrative procedures.

For more information please contact Bry Martin.  Bry Martin is an associate in the San Diego office of Sheppard, Mullin, Richter & Hampton, LLP.  He is a member of the Real Estate, Land Use and Natural Resources, and Environmental Practice Groups.

Prompt payment laws can pose significant risk to owners and contractors.  In S&S Cummins Corp. v. West Bay Builders, Inc. 2008 Cal. App. LEXIS 160, *, a public works general contractor was stung under Public Contract Code section 7107 for delaying retention payments to an electrical subcontractor.

Although the owner paid the general contractor its full retention, the general contractor did not pay the subcontractor its share.  Under Public Contract Code section 7107(d), a subcontractor must be paid its share of retention within seven days from the time the general contractor receives all or any portion of the retention proceeds from a public agency.  And under section 7107(e), a general contractor may withhold from a subcontractor up to 150% of its portion of retention, but only if a bona fide dispute exists between the subcontractor and the general contractor.

Here, the general contractor argued that the subcontractor delayed the project, which in turn caused the general contractor to incur liquidated damages and additional overhead costs.  The jury found that the subcontractor did not delay the project and that the general contractor did not have a good faith justification for withholding the retention.  The trial court awarded $131,000 in unpaid retention plus $114,000 in prompt payment charges to the subcontractor.  The general contractor appealed.

On appeal, one issue was whether the trial court properly calculated statutory prompt payment charges.  Public Contract Code section 7107(f) states that where retention payments are not timely made, "the owner or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due."   The subcontractor argued that the trial court erred by finding that the 2 percent per month charge was not applied on a compounded basis.  The subcontractor also argued that the 2 percent per month charge did not stop accruing upon entry of judgment.

The Court noted that whether prompt payment charges were compounded was an issue of first impression.  Based on its review of the statutory language and analogous case law, the Court held that section 7107(f) did not provide that the 2 percent charge was compounded.  Thus, section 7107(f) authorizes a 2 percent charge only for the improperly withheld amount rather than that amount plus any accrued but unpaid charges.  The Court reasoned that any other reading of the statute would produce "harsh and absurd" results.  For example, the general contractor here would have had to pay an additional $56,000 in compounded interest.

As to the second issue on appeal, the Court held that the 2 percent charge did not continue to accrue after entry of judgment.  Instead, the Court held that the "charge" defined in section 7107(f) was assessed in the same manner as interest.  And, under the California Constitution, interest is capped at a rate of 10 percent per annum after entry of judgment.  (Cal. Const., art. XV. § 1.)

For further information please contact James Higgins.  James Higgins is an associate in the Construction, Environmental, Real Estate and Land Use Litigation Practice Group in the firm's San Francisco office.

In California and most states, a contractor can get some security to assure that it will be paid for its work on a project. An unpaid contractor on a private project can go to the county recorder and record a mechanic's lien against the property to which it provided labor, service, materials or equipment. The mechanic's lien makes the property security for the debt owed to the contractor. Then, if the project owner still does not pay, the contractor can file a complaint requesting that a court enter judgment and order a foreclosure sale of the property so that the debt can be paid from the sale proceeds.

Contractors may have other sources of security, such as a stop notice or a payment bond. Each of these remedies has strict claim and notice deadlines as well. But a stop notice can be of little use if the owner already has expended all construction funds, and many private projects do not have payment bonds.

A contractor in this situation still may have another option: an attachment lien. In California, if someone owes money under a contract, the creditor is entitled to obtain an attachment lien on the debtor's assets to secure the payment. (California Code of Civil Procedure §§481.010, et seq.) The time period for filing a complaint is two years on a verbal contract and four years on a written contract. A complaint, or lawsuit, must be filed in order to seek a writ of attachment. The process for obtaining one is more involved than recording a mechanic's lien. It requires a written court application and, typically, a hearing. If the court determines that the claim for payment probably is valid, it will issue an order that allows the creditor to have the sheriff levy on the lien against the debtor's assets, thereby freezing enough of them to secure the claim. If the matter is urgent, such as when the debtor is insolvent or is likely to hide or destroy its assets, courts can issue attachment orders with very little notice to the debtor. In those situations, an unpaid contractor sometimes can get security for payment in as little as 24 hours.

In some respects, attachment is even more useful than a mechanic's lien. While a mechanic's lien only secures the debt against the real property on which the contractor worked, an attachment lien can be levied against virtually all types of property. Thus, with certain exceptions, an unpaid contractor can attach a debtor's bank accounts, equipment, inventory and stock as well as real property. The method of levy depends on the type of asset targeted. Bank accounts can be frozen or turned over to the sheriff. Certain physical property can be confiscated and held by the sheriff. A county's title records reflect a recorded attachment lien as a claim against title to real property, just like a mechanic's lien.

So, if the unpaid contractor has a direct contract with the owner, it can levy its attachment lien against the same real property on which it otherwise would record its mechanic's lien. Note that contractors not under direct contract with the owner cannot use the attachment lien against the owner's property. Their contract typically would be with another debtor, such as the general contractor, and so their attachment would be levied against the general contractor's assets.

The attachment remedy also has an additional feature that allows a debtor with a court order recognizing its right to an attachment to take discovery directly from the defendant/debtor about the location and value of attachable assets. Such discovery can be done pre-judgment while such inquiries normally are not allowed until and unless a judgment is entered after trial.

While this discussion has focused on California law, the interconnection between mechanic's liens and attachment liens and the concepts discussed above have utility in all 50 states. Each of the 50 states has laws concerning mechanic's liens, although some refer to them as construction liens. All of the states have procedural requirements dealing with entitlement, notice and time limits, but the particulars vary from state to state.

Similarly, attachment liens are available in every state. Some states expand their availability beyond what California provides by allowing attachment liens for any money claim, regardless of whether there was a contract between the parties (e.g., Illinois). Some states allow attachments liens on claims for delivery of property, as opposed to only nonpayment of money (e.g., Kansas, Iowa). And several states impose a requirement that before any attachment lien is granted, there must be a showing of a certain urgency because the defendant might move assets to hide them from eventual judgment. In general, however, all states provide processes for pre-judgment attachment, so the interconnection with mechanic's liens exists across the country.

If you have any questions about Attachment Liens, Mechanic's Liens, or other payment remedies, contact Scott Hennigh at Sheppard Mullin Richter & Hampton LLP, shennigh@sheppardmullin.com, or 415-774-3279. The author previously posted this article on constructionweblinks.com.

On January 28, 2008, the U.S. Army Corps of Engineers modified the procedures for coordinating review of jurisdictional delineations involving significant nexus determinations with the EPA.  Significant nexus determinations are required under the Corps and EPA's joint Rapanos Guidance to determine whether the following aquatic features are jurisdictional under Section 404 of the Clean Water Act:  non-navigable tributaries that are not relatively permanent; wetlands adjacent to non-navigable tributaries that are not relatively permanent; and wetlands adjacent to but that do not directly abut a relatively permanent non-navigable tributary.

The revised procedures replace the temporary process described in the agencies' joint memorandum that accompanied the Rapanos Guidance on June 5, 2007.  The revised procedures do not apply to jurisdictional delineations involving isolated waters, which are subject to the 21-day review period described in the agencies' joint memorandum of June 5, 2007.

For more information please contact Keith Garner.  Keith Garner, AICP, is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm's San Francisco office.

By Bry Martin

In a victory for public participation advocacy groups and a defeat to efforts to increase efficiency in the planning and development process, the California Court of Appeals for the Third District struck down Sierra County’s “streamlined zoning process,” which had permitted the county to provide notice of a legislative public hearing on a zoning ordinance or zoning ordinance amendment before the legislative body received a planning commission recommendation.  The court held that, under California Government Code sections 65854, 65856, 65090, and 65094, the local agency must give notice of the legislative body’s public hearing on a zoning ordinance or zoning ordinance amendment only after the planning commission has submitted its recommendation to the legislative body, and the public notice must contain the planning commission’s recommendation.

The court first dismissed the county’s argument that there was no “actual controversy” between the parties and therefore declaratory relief could not be granted. As the county declared its intention to continue the “streamlined zoning process” as a lawful procedure, and the plaintiff believed such a procedure to violate California Government Code section 65856 and 65090, the court ruled that this disagreement itself constituted an “actual controversy.”

California Government Code section 65856 provides that the legislative body of a local agency must hold a public hearing when it receives a recommendation of the planning commission, and that the notice of public hearing is governed by section 65090.  Section 65090 provides for the publication of notice in a “newspaper of general circulation within the jurisdiction of the local agency which is conducting the proceeding at least 10 days prior to the hearing. . .”and that notice “shall include the information specified in section 65094.”  In turn, section 65094 requires such notice to include, among other things, “a general explanation of the matter to be considered. . .”

County argued that the Code was “plain and unambiguous” in its absence of language tying the notice timing requirement to the planning commission’s recommendation and that the legislature could have easily included such an express requirement, but had evidently chosen not to do so.  The court observed, however, that the Code’s silence on the timing of the notice, in fact, raised an ambiguity, because of the requirement that the notice include “a general explanation of the matter to be considered. . .”

The court determined the scope of the “general explanation of the matter to be considered” from the legislative purpose of the statute provided in California Government Code section 65033 that “the public be afforded the opportunity to respond to clearly defined alternative objectives, policies, and actions.”  According to the court, this need to provide “clearly defined alternative objectives, policies, and actions” in the notice, necessitated an inclusion in the notice of the planning commission’s recommendation. The court reasoned that “[i]f notice could be given before the planning commission made its recommendation and, therefore, without inclusion of what that recommendation was, the purpose behind the notice provision would be ill-served, as the notice would not inform the public to what ‘clearly defined alternative objectives, policies, and actions’ they would be responding.” The court found that the timing of public notice corresponds to the substantive requirements of giving notice; if the purpose of the public notice requirement is to give the public a chance to respond to the alternatives that will be before the legislative body, then the court argued the notice must contain the planning commission’s recommendation and, therefore, cannot be circulated until the planning commission makes a recommendation.

In short, the holding of the court, in ruling on the timing of notice for the legislative body’s public hearing considering zoning ordinances and amendments to zoning ordinances, created two requirements: (1) the notice of a public hearing must contain the planning commission’s recommendation, and, consequently, (2) the notice of a public hearing must be given after the planning commission makes a recommendation.

For more information please contact Bry Martin.  Bry Martin is an associate in the San Diego office of Sheppard, Mullin, Richter & Hampton, LLP.  He is a member of the Real Estate, Land Use and Natural Resources, and Environmental Practice Groups.

By Olivier Theard

December and January were pivotal months in the continuing struggle over implementation of California's stringent automobile greenhouse gas regulations.  California has tried for some time to impose its limits, adopted as regulations under AB 1493, which would require a 30% reduction in vehicle emissions by 2016, with phased cuts starting in model year 2009.  California's push to cut vehicle emissions is a major component of its mandate under the Global Warming Solutions Act, which requires a reduction in greenhouse gas emissions to 1990 levels by 2020.  However, recent developments at the federal level have undermined California's efforts.  After a whirlwind of court decisions and passage of a federal energy bill, the EPA denied California a waiver under the Clean Air Act that would allow California to implement its laws.  California has sued to reverse the decision.

In December, California scored the first victory in the battle over its greenhouse gas regulations when a federal District Court in Fresno rejected automakers' claims that the regulations were preempted by federal gas mileage standards, promulgated under the Energy Policy and Conservation Act (EPCA).  Central Valley Chrysler-Jeep, Inc. et al. v. James Goldstone, California Air Resources Board, (Dec. 11, 2007, CV F 04-6663).  District Judge Anthony Ishii's ruling was guided by the U.S. Supreme Court's recent decision in Massachusetts v. E.P.A., 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007), which held the EPA had the statutory authority under the Clean Air Act to regulate emissions of greenhouse gasses from new automobiles.  Id. at 127 S.Ct. at 1462, 167 L.Ed.2d at 277.  In particular, the U.S. Supreme Court in Massachusetts briefly discussed and rejected an argument by defendant EPA that it could not regulate greenhouse gases because such regulations could conflict with federal gas mileage standards:

EPA finally argues that it cannot regulate carbon dioxide emissions from motor vehicles because doing so would require it to tighten mileage standards, a job (according to the EPA) that Congress has assigned to DOT.  ... But that DOT sets mileage standards in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public's "health" and "welfare," .... a statutory obligation wholly independent of DOT's mandate to promote energy efficiency.  ... The two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.  Massachusetts v. E.P.A., 127 S.Ct. at 1461-1462; 167 L.Ed.2d at 276.

The District Court held that Massachusetts established the broad authority of the EPA to regulate greenhouse gas emissions to protect the public health and welfare, "independent of the effect such regulation may have on fuel efficiency."  The District Court then concluded that the California regulations – if they were granted a Clean Air Act waiver by the EPA – should be considered no differently than EPA-promulgated regulations.  The court held that California's regulations would be neither precluded nor preempted by EPCA gas mileage standards.  The District Court also rejected the argument that California's regulations were preempted by foreign policy because they undermined the federal Executive Branch's efforts to "speak with one voice" in negotiating greenhouse gas agreements with foreign nations.

Based on this decision, it appeared as though California, which had long sought, and even sued for, a Clean Air Act waiver, would finally be granted the waiver and be allowed to implement its law.  But, only one week later, the tide turned.

Round Two: EPA Denies California's Request For a Waiver, Citing Federal Energy Bill

Just one week after what seemed like a major victory for California, President Bush on December 19 signed a new energy bill which, among other things, mandated gas mileage of 35 miles per gallon in new automobiles by 2020.  Though federal law results in a higher miles-per-gallon average, the law is not as aggressive as California's and does not achieve emissions cuts as quickly or comprehensively.

On the same day, with the President's signature on the energy bill barely dry, the EPA issued a decision denying California a Clean Air Act waiver to impose its regulations, contending that the newly-enacted federal energy bill was a better approach for combating global warming.  Explaining the EPA's decision, EPA administrator Stephen L. Johnson wrote Gov. Arnold Schwarzenegger that the Energy Independence and Security Act of 2007 was a more effective solution.  "I strongly support this national approach to this national challenge which establishes an aggressive standard of 35 miles per gallon for all 50 states, as opposed to 33.8 miles per gallon in California and a patchwork of other states."

Johnson also wrote that under the Clean Air Act, California must have a "need to meet compelling and extraordinary conditions" in order to qualify for a waiver, and that because greenhouse gas emissions were an international phenomenon, California's regulations did not qualify for a waiver.

EPA's decision was unprecedented in that California has previously applied for and been granted more than 40 such waivers by the EPA, and had never been denied a waiver.  The EPA's denial of a Clean Air Act waiver for the AB 1493 regulations affects not just California, but also prevents implementation of similar greenhouse gas emissions laws in more than a dozen other states.

Round 3: California Files a New Lawsuit Seeking to Overturn EPA's Denial of a Waiver

On Jan. 2, California made good on its promise to sue the EPA over its decision, filing a petition for review in the Ninth Circuit Court of Appeals.  State officials contend the EPA had no legal or technical justification for denying a Clean Air Act waiver for California regulations implementing AB 1493.

California officials have also challenged the EPA's contention that California did not have a "need to meet compelling and extraordinary conditions," a necessary condition to the granting of a Clean Air Act waiver.  According to California Attorney General Jerry Brown, global warming threatens the state's Sierra snow pack, which provides one-third of California's drinking water.  In addition, Brown noted that California has approximately 1,000 miles of coastline and levees that could be affected by rising sea levels.

Though the final outcome of this battle is uncertain, one thing appears clear:  California will not stop fighting.

For more information please contact Olivier F. Theard. Olivier Theard is an associate in the Business Trial Practice Group and the Environmental and Construction Practice Group in the firm's Los Angeles office.