Extracted from Law360
In December, the California Supreme Court agreed to hear a case that could significantly affect the way in which project applicants who need a state environmental or land use permit do business.
Lynch v. California Coastal Commission (No. S221980) raises an issue that most project proponents have faced at one time or another: Can an applicant bring a lawsuit challenging unwanted permit conditions while simultaneously proceeding with (what is almost always) a time- and finance-sensitive project?
One California Court of Appeal panel said “no,” concluding that the decision to proceed with a project constitutes waiver of the right to challenge any aspect of the authorizing permit — even if the applicant has exhausted all administrative remedies and filed a timely and valid claim. In so doing, the lower court put project proponents in a dilemma: either (1) challenge the permit’s conditions while putting the project on hold — in many cases, for several years — until litigation is complete; or (2) swallow all the terms and conditions of the permit, and build.
Lynch: Of Seawalls and Stairways
Lynch originated in the coastal city of Encinitas, California (San Diego County). After storms destroyed the seawall that protected their adjacent bluff-top homes, two families applied to the California Coastal Commission for a new, state-of-the-art wall designed to last 75 years. The Coastal Commission is the state agency responsible for permitting any and all development along the coast. The families also sought to rebuild the shared stairway connecting their homes to the beach below.
The commission approved the permit with two conditions. First, the permit would expire in 20 years, after which the families would have to return to the agency for permission to either keep the seawall or remove it. The commission justified the expiration date on the need to preserve its “future shoreline planning options,” so that if “legislative change” and “judicial determinations” in the future allowed the commission to ban seawalls outright, it could force the families to remove their protection.
Second, the commission conditioned the seawall permit on the families’ agreement to forgo rebuilding their private stairway. The commission pointed to local policies purporting to phase out private stairways (but allowing public ones).
During the permitting process, the families vehemently objected to the two conditions. They argued that the commission could not — consistent with its governing statute and federal constitutional principles — put an expiration date on their right to protect their homes. They also argued that the Commission had no power to prohibit repair of a structure destroyed by natural disaster. The commission approved the permit with the conditions, over the families’ objections, and the families filed a timely suit in San Diego Superior Court.
While the families’ lawsuit challenging the commission’s conditions was pending, they moved to obtain a building permit allowing them to begin building the approved seawall. As a condition of issuing the building permit, the commission demanded that the families first sign and record deed restrictions recognizing the permit conditions they were challenging in court. Desperate to install the seawall before further bluff erosion put their homes and lives at risk, the families signed and recorded the deeds. The commission then issued the building permit allowing the families to start work.
In the meantime, the lawsuit challenging the 20-year expiration date and the ban on the families’ private stairway proceeded. The commission asked the superior court to dismiss the case, on the grounds that the families’ decision to proceed with the permitted project (the seawall) constituted waiver of its right to challenge any of the permit’s conditions. The families countered that they had filed a timely and valid claim challenging the conditions, after exhausting all their administrative remedies, and that they were therefore entitled to their day in court. The superior court agreed with the families and, ruling on the merits, struck down the commission’s conditions.
The Court of Appeal’s Break From Existing Precedents
In a 2-1 decision, the Court of Appeal reversed the superior court’s judgment. The majority opinion held that the families waived their right to challenge the 20-year expiration date on the seawall and the stairway denial by “voluntarily agree[ing] to the conditions” when they built the wall. The majority concluded that, by accepting the permit’s benefits, the families necessarily accepted the permit’s burdens — and therefore waived their right to challenge the conditions. Although unnecessary to its decision, the majority went on to uphold the commission’s seawall-expiration condition and stairway denial.
The court’s holding with respect to waiver is unprecedented. For decades, California courts have struggled with the question of whether, and under what circumstances, project proponents may challenge the conditions in a permit and simultaneously proceed with the authorized project. The Legislatures resolved the question with respect to locally approved permits. Generally, California’s Mitigation Fee Act allows a project proponent to sue over permit conditions, while proceeding with a project, if the proponent provides adequate assurances to the permit agency that he can satisfy those conditions (should he lose the challenge).
While the Mitigation Fee Act does not address challenges to permits approved by state agencies, California’s common law provides some guidance. Courts have consistently held that a landowner or his successor is barred from challenging a permit condition “if he has acquiesced therein by either specifically agreeing to the condition or failing to challenge its validity, and accepted the benefits afforded by the permit.” In other words, the evidence must establish that the project proponent has accepted both the benefits and the burdens of a permit before that permit can legally bind him and his successors.
In October, a California Court of Appeal reaffirmed this well-established principle. In SDS Family Trust v. California Coastal Commission, the Coastal Commission sought to bind a family to a decade-old permit that purported to condition a family’s minor home-remodel work on its dedication of a mile-long public-access easement along the shoreline of its property.
In a published decision, the Court of Appeal sided with the family. Because it had accepted none of the permit’s benefits or burdens, the SDS family was not bound by it and had the right to challenge the easement exaction as unconstitutional. Ultimately, the Court of Appeal struck down the exaction, because it bore no relationship to the impacts of the family’s remodel work.
The Court of Appeal decision in Lynch breaks from SDS and other precedents by minting a new rule. Even if a project applicant does everything that is legally required to preserve a court challenge, the applicant additionally must forgo commencing the permitted project. In most cases, this new requirement translates into costly — and, ultimately, unbearable — delays. The upshot is that many applicants faced will choose to swallow the unlawful conditions and proceed with his project.
Conclusion: The Stakes for Project Proponents and State Agencies
The California Supreme Court’s decision to grant review in this case means that the Court of Appeal’s decision is depublished and can no longer be cited as authority. What the high court ultimately decides is anyone’s guess, but the stakes are high, for both project proponents and state agencies. There are at least two possible outcomes.
First, the Supreme Court may side with the Court of Appeal and hold that project proponents do face a dilemma: forgo any challenge to permit conditions or delay the project for years. This rule would be a boon to state agencies, as most project proponents would simply swallow unlawfully conditioned permits to avoid any delay to their projects. Such a rule could have the unintended consequence of encouraging the aggressive conditioning of permits by state agencies, which would leverage an applicant’s (often desperate) need for a permit in order to impose unlawful and even unconstitutional demands they know will never be challenged in a court of law.
Second, the Supreme Court may hold that project proponents have the right to simultaneously challenge permit conditions and proceed with their projects. Such a rule might seem to unduly benefit applicants, but on close examination, it does not. After all, challenging a permit condition is both risky and costly to the project applicant, a fact that would help deter all but the most meritorious of claims. Moreover, as representatives of the people they represent, the state and their agencies have an interest in ensuring that individuals — including landowners and developers — have full access to the courts for the redress of their grievances. Agencies should welcome a rule that upholds that right.