The California Courts of Appeal have issued two decisions that may limit the availability of off-site mitigation for impacts to wetlands, endangered species and other biological resources.

The U.S. Army Corps of Engineers, the California Department of Fish and Game and other resource agencies desire landowners to avoid impacts to wetlands and endangered species. Where impacts to such resources cannot practicably be avoided, however, the Resource Agencies will issue permits in exchange for the preservation or creation of substitute resources in other locations.

In many cases, a landowner's ability to secure a wetlands or endangered species permit depends entirely upon his or her ability to provide off-site mitigation. Moreover, off-site mitigation typically serves as the basis for the creation of mitigation banks, habitat conservation plans (HCPs) and other tools for regulatory streamlining.

The new decisions -- decided under the California Environmental Quality Act (CEQA) and the California Coastal Act -- may strengthen the current legal and regulatory bias for avoidance and limit the circumstances under which off-site mitigation may be used.

In San Bernardino Audubon Society v. Metropolitan Water District, the Court of Appeal found that the Metropolitan Water District and Riverside County improperly relied upon a mitigated negative declaration when they approved an HCP covering a 5,000-acre area within the county. The court concluded that CEQA required the preparation of an environmental impact report because Audubon had made a "fair argument" that the HCP would not fully mitigate the impacts of development. The Court was particularly troubled by the fact that the HCP created a "mitigation bank" that could be used by third parties to mitigate the impacts of development anywhere within Riverside County.

In Bolsa Chica Land Trust v. Superior Court, the Court held that the California Coastal Act does not permit off-site mitigation of environmentally sensitive habitat areas ("ESHAs") identified in local coastal programs ("LCPs"). In the Bolsa Chica case, this meant that developers were required to avoid impacts to a degraded, non-native eucalyptus grove, rather than replace it with new raptor habitat consisting of nesting poles, native trees and other native vegetation in a nearby area. The decision also prevented the fill of certain wetlands in exchange for compensatory mitigation even if it would improve the overall habitat quality of the area.

Environmental groups throughout California are now filing lawsuits against mitigation banks and HCPs because they facilitate development activities. The San Bernardino Audubon and Bolsa Chica cases send a signal that such regulatory tools, and in fact any form of off-site mitigation for impact on natural resources, may be subject to a heightened degree of scrutiny under CEQA and other laws.

Because of the generality of this memorandum, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.