An appellate court has overturned separate environmental impact reports and project approvals for two Bakersfield shopping centers with Wal-Mart supercenters as anchors. The court ruled that the city must address the potential for the projects to cause urban decay, consider the combined impacts of the two shopping centers, and correlate the projects' air quality impacts to effects on human respiratory health.

The published opinion - the first regarding a Wal-Mart supercenter - appears to be a home run for Wal-Mart opponents, who are making similar arguments in numerous locations.

Attorney Steven Herum, who represented a group of project opponents called Bakersfield Citizens for Local Control, said the court “correctly identifies the fact that Wal-Mart supercenters have unique impacts and that the EIR is going to have to reflect this.”

Attorney Stephen Kostka, author of numerous California Environmental Quality Act practice treatises, called the decision an “atomic bomb.” The Fifth District demanded that an EIR contain an analysis of something that most analysts would call speculative, namely the impact that a Wal-Mart supercenter could have on specific other retailers and business locations, said Kostka, of Bingham McCutchen. How, he asked, do you mitigate the impact of lower prices?

Kostka, who is not involved in the litigation, also questioned how an EIR could correlate a tiny increase in cumulative air pollution to ultimate impacts on human health, as the court required.

Bakersfield City Attorney Virginia Gennaro said city officials were still evaluating the ruling and deciding how to proceed.

“Here in the City of Bakersfield, we don't think urban decay will be a problem,” Gennaro commented. “We are growing at such a rate that it isn't a concern.”

The fact that both shopping centers are partially built complicates the situation. At one site, a Lowe's Home Improvement Warehouse is complete and in business, and at the other location a Kohl's department store has opened. At both locations, Wal-Mart supercenters sit partially complete. A trial court judge earlier halted further construction of the Wal-Mart stores. Four days after the Fifth District issued its ruling, project opponents asked the Fifth District to halt all construction at the two shopping centers until litigation is resolved.

Nearly three years ago, developer Panama 99 Properties LLC filed an application for a 370,000-square-foot shopping center on Panama Lane in southwestern Bakersfield. At the time, the empty site was zoned for low-density residential uses and open space. The new center would feature a Wal-Mart supercenter, Lowe's and a gas station. The proposed supercenter would replace an existing, smaller Wal-Mart 1.4 miles away.

One week later, developer Castle & Cooke Commercial-CA (C&C) filed an application for a 700,000-square-foot shopping center called Gosford Village. Zoned for service industrial uses, the site was 3.6 miles away from the Panama Lane project site. Although the Gosford Village EIR said no tenants had been identified, it was common knowledge the project would have a supercenter, Kohl's, a Sam's Club and numerous other stores and restaurants.

Two separate EIRs were prepared. The Panama Lane EIR identified significant and unavoidable impacts on air quality and noise. The Gosford Village EIR found significant and unavoidable impacts on air quality, both individually and cumulatively. The Bakersfield City Council considered both projects on February 12, 2003. The council certified both EIRs and adopted statements of overriding considerations, with all actions occurring under the City Council's consent calendar. Later in the meeting, the council conducted a public hearing to approve general plan amendments and rezonings for the projects.

Bakersfield Citizens for Local Control (BCLC), a group associated with grocery store labor unions, filed separate lawsuits over the EIRs. In January 2004, Superior Court Judge Kenneth Twisselman ruled the documents inadequate because they did not study the question of whether the two shopping centers, individually or cumulatively, could trigger a series of events leading to urban decay. However, Judge Twisselman left the project entitlements intact and allowed construction to proceed - except for the Wal-Mart supercenters, construction of which Twisselman halted.

The Wal-Mart opponents appealed parts of the decisions in both cases; C&C appealed part of the decision regarding Gosford Village. The Fifth District combined the appeals and then ruled squarely for BCDC.

Wal-Mart opponents and regulatory bodies across the country have pressed the urban decay argument. The BCDC presented a study by San Francisco State University economics Professor C. Daniel Vencill that identified 29 businesses, many of them grocery stores, that were at risk of closing if the projects went forward. Those closures could lead to long-term or permanent vacancies, building deterioration and “then culminate in physical effects associated with blight-light conditions,” Vencill concluded. The opponents also submitted studies and news reports from California and nationally about the effects on a market that is saturated with supersized retailers.

The Fifth District ruled that the environmental studies' lack of a discussion regarding potential urban/suburban decay violated CEQA.

“[T]he economic and social effects of proposed projects are outside CEQA's purview,” Justice Timothy Buckley wrote for the court. “Yet, if the forecasted economic or social effects of a proposed project directly or indirectly will lead to adverse physical changes in the environment, then CEQA requires disclosure and analysis of these resulting physical impacts.”

“[W]hen there is evidence suggesting that the economic and social effects caused by the proposed shopping center ultimately could result in urban decay or deterioration, then the lead agency is obligated to assess this indirect impact,” Buckley continued. “Many factors are relevant, including the size of the project, the type of retailers and their market areas, and the proximity of other retail shopping opportunities. The lead agency cannot divest itself of its analytical and informational obligations by summarily dismissing the possibility of urban decay or deterioration as a 'social or economic effect' of the project.”

The court said the record contained “a great deal of evidence” regarding potential urban decay. “This evidence cannot be cavalierly dismissed as 'hit pieces' designed to disparage a specific corporation. Studies discussing the experiences of other communities constitute important anecdotal evidence about the way the proposed shopping centers could serve as a catalyst for urban deterioration and decay in the city. The Vencill report is extremely significant and it strongly supports BCLC's position that CEQA requires analysis of urban decay,” the court ruled.

Furthermore, the Fifth District said the city must address the unique nature of giant stores that operate 24 hours a day. “[T]o simply state as did the Gosford EIR that 'no stores have been identified' without disclosing the type of retailers envisioned for the proposed project is not only misleading and inaccurate, but it hints at mendacity,” Buckley wrote.

The court also found that the city should not have considered the project EIRs in isolation. “There is not merit to the position of city and developers that cumulative impacts analysis does not require consideration of both shopping centers because, in each case, the other shopping center is outside the radius of the 'project area' as defined in the EIRs,” Buckley wrote. “Simply put, selection of 'appropriate' geographic areas that just happen to narrowly miss the other large proposed shopping center in every category of impacts despite their overlapping market areas and shared roadways does not constitute the good faith disclosure and analysis that is required by CEQA.”

Regarding air quality, the court found the EIRs did not acknowledge “the well-known connection between reduction in air quality and increases in specific respiratory conditions and illnesses. … The health impacts resulting from the adverse air quality impacts must be identified and analyzed in the new EIRs.”

The court ordered Bakersfield to void certification of the EIRs, the findings of overriding consideration and project approvals. After completing new EIRs, the city “may require completed portions of the projects to be changed or removed,” the court noted.

Kostka, of Bingham McCutchen, said the decision is worrisome because the court relied heavily on BCLC testimony presented at the City Council public hearing. “It [the ruling] not only allows late hits, it rewards them,” Kostka said. “What the case says is that someone can wait until the very, very end of the process, and then pile information and reports on the agency.”

Herum, however, denied that was opponents' strategy. “That was the first and only time the City Council ever looked at the project,” Herum said. “We made the same arguments that we had been making since the scoping session.”

And the Fifth District did not look favorably on the city's CEQA process, saying the city “improperly segmented environmental review from project approval in contravention of [CEQA] Guidelines § 15202, subdivision (b).” The public may raise new environmental objections until the close of a public hearing on project approval, the court determined.

The Case:
Bakersfield Citizens for Local Control v. City of Bakersfield, No. F044943, 04 C.D.O.S. 10918, 2004 DJDAR 14768. Filed December 13, 2004.
The Lawyers:
For BCLC: Steven Herum, Herum, Crabtree & Brown, (209) 472-7700.
For the city: Virginia Gennaro, city attorney, (661) 326-3721.
For Castle & Cooke California: Craig Beardsley, Jones & Beardsley, (661) 664-2900.
For Panama 99 Properties: John Nolan, Gresham, Savage, Nolan & Tilden, (909) 684-2171.