A state appellate court has ruled that a city and its redevelopment agency's approval of a term sheet for the development of a professional football stadium was not a "project approval" that required review under the California Environmental Quality Act

Although the term sheet was detailed, and substantial sums had been spent on consultants leading up to that agreement, it did not commit the city to a definite course of action, the Sixth District Court of Appeal ruled.

At issue was a term sheet approved in June 2009 by the City of Santa Clara and the city's Redevelopment Agency (collectively, "the city"). It set forth the basic provisions of a proposed transaction to develop a stadium that would be the home field of the San Francisco 49ers National Football League franchise. The terms included the stadium location, size, financing and operations (see CP&DR Deals, April 2008). The property for the proposed stadium is currently a parking lot leased to Cedar Fair, the owner and operator of Great America amusement park.

Cedar Fair argued 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. A Santa Clara County Superior Court judge held that preparation of an EIR was not required because approval of the term sheet did not constitute approval of a project under CEQA. A unanimous three-judge panel of the Sixth District Court of Appeal affirmed the decision in favor of the city.

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 (see CP&DR Legal Digest, December 2008). 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,'" Justice Franklin Elia wrote, citing Save Tara. In the Santa Clara situation, that standard was not met.

Cedar Fair argued that, as a practical matter, the city had in fact committed itself to the proposed stadium project in light of the 39-page term sheet's high level of detail, subsequent statements made by city representatives in support of the stadium, and the large amount of money already invested by the 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 that the parties preliminarily agreed to numerous provisions concerning the proposed stadium project. However, the court found that mere detail 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 only to 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[ed] 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.

"The commitment to continue negotiations pursuant to the term sheet 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," Elia wrote. 

Third, even though substantial sums were spent on consultants because of the magnitude and complexity of the 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, the court ruled.

Fourth, the court rejected Cedar Fair's arguments regarding the subsequent statements by city councilmembers and city staff members regarding the binding nature of the term sheet. Those statements contradicted the language in the term sheet, because the term sheet "cannot be reasonably construed as creating any contractual commitment on the part of [the city] to conditionally approve or undertake any aspect or feature of the stadium project," the court ruled.

In summary, the Sixth District 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."

Still, Elia acknowledged, "The modern phenomenon of �public-private partnerships' for development makes the time of �approval' under CEQA more difficult to ascertain since a local agency may be a vocal and vigorous advocate of a proposed project as well as an approving agency. But �an agency does not commit itself to a project simply by being a proponent or advocate of the project.'"

Santa Clara did approve an EIR for the stadium project last year. Cedar Fair has filed a separate lawsuit challenging the validity of that document. 

The Case:

Cedar Fair, L.P. v. City of Santa Clara, No. H035619, 2011 Cal.App.LEXIS 506. Filed April 6, 2011. Ordered published April 28, 2011.

The Lawyers:

For Cedar Fair: Sean A. Cottle and John A. Hickey, Hoge, Fenton, Jones & Appel, 408.287.9501.

For the City: Karen M. Tiedemann and Juliet E. Cox, Goldfarb & Lipman, 510.836.6336.