PRIVATE LAND USE SETTLEMENTS: The potential fallout when a private side settlement agreement fails to settle your legal woes.

In 2010, the County of San Benito granted a conditional use permit for a solar project to the Panoche Valley Solar, LLC.  The project was a 3,200 acre, 399-megawatt solar electric generation facility involving up to 4 million solar panels in the Panoche Valley, a semiarid open space and range land west of Interstate 5 in San Benito County.  The approved project would have become one of the largest solar farms in the world and could have powered over 100,000 homes.  The project would have given the County $5.4 million in sales tax from the purchase of the solar panels.  In August 2011, the San Benito County Superior Court denied a legal challenge under the California Environmental Quality Act and the Williamson Act.  The trial court’s judgment was affirmed by the Court of Appeal (Save Panoche Valley v. San Benito County (2013) 217 Cal.App.4th 503.)

In 2014, the project applicant sought to modify the conditional use permit.  The revised project was for a 2,506-acre, 247-megawatt solar generation facility, including an additional 24,176 acres for habitat conservation (which is more than the original project.)  The County expected to receive approximately $2.5 million in sales tax revenue from that revised project.  The County approved a revised use permit and certified the Final Supplemental Environmental Impact Report (SEIR) in 2015.  The SEIR addressed the project’s impact and mitigation measures for the certain animal and plant species, including the San Joaquin kit fox, giant kangaroo rat, and blunt-nosed leopard lizard, and numerous bird species.  However, the Sierra Club and Santa Clara Valley Audubon Society again filed a writ of mandate action and challenged the Final SEIR. The trial court rejected that challenge as well.  This year, in an unpublished opinion, the Court of Appeal for the Sixth District affirmed the trial court’s judgment.  (Sierra Club v. County of San Benito (March 22, 2017, case no. H042915), unreported decision, 2017 Cal.App.Unpub.LEXIS 1987.)

The project construction already began in the Fall of 2016 and is scheduled to be completed in 2018.  But those two fully litigated lawsuits, and that ongoing construction, are not the end of the story.

In a special public hearing about the project’s statute before the County Board of Supervisors on April 18, 2017 (less than a month after they prevailed on the second appeal), one Supervisor asked if the rumor that the project was being downsized was true.  An official of ConEdison Development, the company that acquired the project admitted that the office of Governor Brown wanted to reduce the size of the project.  However, the ConEdison official also stated:  “We have all of our permits for the project signed and we are building 100 percent of the Panoche Valley Solar project at this time.”  That led one County resident to exclaim to the Board of Supervisors: “…the rat people went to the governor to cut the project in half. If you guys take that sitting down you’re idiots because it affects every project in this county.”

But the rumor proved true.  In July 2017, ConEdison reached an agreement with Sierra Club, Santa Clara Valley Audubon Society, Defenders of Wildlife and the California State Department of Fish and Wildlife that dramatically reduced the project to 130 megawatts, about 1/3 the size of the original project.  According to a ConEdison official, the company signed the agreement because, even though the environmental groups had repeatedly lost in court, they purportedly still had cases they could appeal that could have slowed or killed the project.  The environmental groups are hailing the agreement as a “win-win.”  A Sierra Club spokesperson stated:  “As we work toward lowering carbon pollution, it’s critical that new clean energy development is not done at the expense of endangered animals and their habitat.”

The agreement essentially shifts 100-117 megawatts of the Panoche Valley project to another ConEdison solar project that is proposed for Imperial County in Southern California.  Not surprisingly, the environmental groups have indicated that they will not oppose that other project.  The Sierra Club announced: “Initially, 247 MW of solar generation was planned for development in the Panoche Valley, but now approximately 100 MW is instead proposed for development at a site in Imperial County, California. Development at the Imperial County site will have less impact on threatened and endangered species and their habitat. The relocation of that portion of the project is subject to approval by Southern California Edison (SCE) and the California Public Utilities Commission (CPUC). The settlement will also resolve several legal challenges commenced against the project by the Environmental Groups.”

The County Board of Supervisors, which approved the original and then the modified project, and which was the prevailing party in both lawsuits, was never included in those settlement talks or made a party to that agreement.  The Supervisors are furious because the County will lose out on millions of dollars in taxes that they were promised by the project developer.  According to the County’s clerk-auditor-recorder, the County will not be receiving any sales tax from the project now because ConEdison had purchased the panels in a way that made San Francisco the recipient of the sales tax rather than San Benito County. One Supervisor said:  “I can barely speak because I’m so angry.  This would have generated much-needed revenue. All you have to do is drive down there and see the conditions of our roads. We have minimal amounts of public safety. This was going to be a big thing, but the rug was pulled out from under us. And it was all done in secret.”  Another Supervisor exclaimed:  “[the developer] basically raped and pillaged us.”

The County is now considering filing a lawsuit against ConEdison, on the grounds that the company violated the project’s original 2010 development agreement with the county.  An official with PV2 Energy, the company that owned the project from 2011 to 2015, and then sold the project to ConEdison, said:  “By diverting half of the project’s value to a different project outside the county, ConEdison is clearly violating their commitments to the county and to PV2 Energy.” As to the sale tax issue, a ConEdison official said:  “We’re looking into that.  We understand we have obligations under the development agreement. We’re going to live up to them.” In short, there are still unresolved legal issues, even as the project is being built.

So here is an interesting legal question:  If the new settlement agreement constitutes a breach of the original development agreement, could the State of California be liable to the County of San Benito for the torts of intentional interference with contractual relations or intentional interference with prospective economic advantage?  The Director of DFW appears to concede such involvement:  “Con Edison Development’s leadership and the environmental groups deserve a lot of credit for opening a dialogue with the Department and asking whether it was better to negotiate and collaborate than litigate.”

This cautionary tale is not over yet.

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

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, Inc., 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.