A Very Detailed Agreement In The Process Of Negotiating A Development Project May Not Constitute An Approval For CEQA Environmental Review Purposes

By Glen C. Hansen

In Cedar Fair, L.P. v. City of Santa Clara (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 506, the Court of Appeal for the Sixth Appellate District held that, when a city and its redevelopment agency entered into a long and detailed “term sheet” for the development of a professional football stadium development project, the public agencies did not “approve” the project for purposes of environmental review under the California Environmental Quality Act, because the term sheet did not commit the public agencies to a definite course of action with respect to the development of the stadium or effectively rule out any mitigation measure or alternative.

The City of Santa Clara and the City's Redevelopment Agency(collectively, “City”) approved a “Stadium Term Sheet” that set forth the basic terms of a proposed transaction to develop a stadium  located in the City that would be the home field of the San Francisco 49ers NFL franchise. The property where the stadium was to be located was leased and used by Cedar Fair, the owner and operator of the Great America amusement park. Cedar Fair alleged that the term sheet approvals had to be set aside because no environmental impact report (“EIR”) had been prepared pursuant to the California Environmental Quality Act (“CEQA”) prior to the governmental approvals of the term sheet. The trial court held that preparation of an EIR was not required because approval of the term sheet did not constitute approval of a project under CEQA. The trial court sustained a demurrer to Cedar Fair’s petition for writ of mandate and entered judgment for the City. The Court of Appeal affirmed.

In deciding whether an EIR was required in the Cedar Fair case, the Court of Appeal looked to the seminal decision by the California Supreme Court in Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116. Under the standard established in Save Tara, the key question in this case was “whether the term sheet, ‘viewed in light of all the surrounding circumstances,’ ‘as a practical matter,’ committed the City or the Redevelopment Agency ‘to the project as a whole or to any particular features, so as to effectively preclude any alternatives or mitigation measures that CEQA would otherwise require to be considered, including the alternative of not going forward with the project.’” Here, that standard was not met. 

Cedar Fair argued that, as a practical matter, the City had committed itself to the proposed stadium project in light of the term sheet's high level of detail, the subsequent statements made by City representatives, and the large amount of money already invested by the City’s redevelopment agency in the process of reaching an eventual final agreement. The Court of Appeal rejected that argument for several reasons.

First, the court acknowledged that the term sheet was extremely detailed and the parties preliminarily agreed to numerous terms concerning the proposed stadium project. However, that did not constitute the requisite “approval” under CEQA. The court pointed out that the Supreme Court in Save Tara rejected the idea that “once a private project had been described in sufficient detail, any public-private agreement related to the project would require CEQA review.”

Second, the court found that the term sheet expressly bound the parties to only continue negotiating in good faith and did not make the terms binding or even conditionally binding.  By its very language, the term sheet “memorialize[d] the preliminary terms”; mandated that the parties use the term sheet as the “general framework” for “good faith negotiations”;  stated that the City “retain the absolute sole discretion” to make decisions under CEQA, including deciding “not to proceed with the Stadium project”; provided that the term sheet created “[n]o legal obligations” “unless and until the parties have negotiated, executed and delivered mutually acceptable agreements based upon information produced from the CEQA environmental review process”; made clear the parties' intent to not “create any binding contractual obligations” with respect to the development of the stadium or to commit any party to “a particular course of action”; and recognized that a no project alternative was still available. Thus, the commitment to continue negotiations pursuant to the term sheet in Cedar Fair is unlike the commitment in Save Tara, where the City of West Hollywood contractually bound itself to sell land for private development conditioned upon CEQA compliance, or RiverWatch v. Olivenhain Municipal Water Dist. (2009) 170 Cal.App.4th 1186, where the water district contractually bound itself to deliver water for 60 years. 

Third, even though substantial sums may have been spent on consultants due to the magnitude and complexity of the stadium project being negotiated, and even though such sums suggested that the City was “politically dedicated to the goal of developing a NFL stadium,” those expenditures did not establish any legal commitment to any feature of the project that effectively foreclosed meaningful environmental review.  

Fourth, the court rejected petitioner’s arguments regarding the subsequent statements by City representatives and staff regarding the binding nature of the term sheet. Those statements contracted the language in the term sheet, because the term sheet “cannot be reasonably construed as creating any contractual commitment on the part of [City] to conditionally approve or undertake any aspect or feature of the stadium project.”

In summary, the Cedar Fair court held that the allegations of the petition and the judicially noticed documents “do not demonstrate that the term sheet, in light of surrounding circumstances alleged, committed respondents, as a practical matter, to a definite course of action with respect to development of a stadium and effectively ruled out any mitigation measure or alternative, including the alternative of not going forward with the project.  As a consequence, the petition failed to state facts sufficient to show that approvals of the term sheet constituted an “approval” of the stadium project within the meaning of CEQA.”

Glen C. Hansen is an attorney at Abbott & Kindermann, LLP.  For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

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