EIR Consultant Not Held Liable For Developer's Losses

A developer is not entitled to reimbursement or damages from a consultant hired by a local government to complete an environmental impact report, the First District Court of Appeal has ruled.

Even when the consultant fails to complete an EIR in a timely manner, the consultant owes no contractual duty to the developer that paid for the consultant, the court concluded. If a project applicant could sue a government-hired consultant for damages, it "would be likely to compromise the independence and objectivity of environmental consultants" whose chief responsibility under the California Environmental Quality Act (CEQA) is to the public, the court determined.

The lawsuit at hand involves a proposed resort development that appears to have died in the recession. In April 2005, Lake Almanor Associates L.P. submitted an application to Plumas County for the 1,400-acre Walker Ranch project. The developer proposed 1,032 residential units and a golf course, along with retail and resort amenities. Three months later, the county signed a contract with Huffman-Broadway Group to prepare an EIR that would be funded by Lake Almanor Associates.

After Huffman-Broadway missed deadlines, the county sent a notice of termination to the consultant in June 2006. Huffman-Broadway sought more time and in September 2006 delivered a "preliminary working draft EIR." The county deemed the document unacceptable and sent a second notice of termination. Huffman-Broadway then sought payment for its services from the county, which demanded that Lake Almanor Associates pay the bill. The county also hired a second consultant to prepare an EIR and billed the developer for that document, as well.

The developer then sued the consultant in Marin County Superior Court (Huffman-Broadway is based in San Rafael) seeking reimbursement and $50 million in damages for breach of contract, negligence, and negligent interference with prospective economic advantage. Essentially, Lake Almanor Associates argued that its sale of the property to a third party fell through because Huffman-Broadway failed to complete the EIR on time. Superior Court Judge W. Bruce Watson Jr. rejected the developer's claims. A unanimous three-judge panel of the First District Court of Appeal, Division Five, upheld the lower court's ruling.

Lake Almanor Associates argued that the consultant had a contractual obligation to the developer to complete the EIR on time. But the First District said no such obligation existed. The court cited Mission Oaks Ranch, Ltd. v. County of Santa Barbara, (1998), 65 Cal.App.4th 713, in which a court refused to award damages to a developer who sued over what it claimed was an erroneous EIR. In Mission Oaks, the court ruled, "The county, as lead agency on the project, owes its duty to the public to release a proper EIR. The county owes no duty to assuage the desires of a potential developer" (see CP&DR Legal Digest, October 1998).

Lake Almanor Associates argued that Mission Oaks did not apply because that lawsuit was over the content of an EIR, not production of the EIR in the first place. But the court insisted that the principles were the same: The duty of the government agency and the consultant is to the public, not to the developer. Suits seeking $50 million in damages could undermine the necessary independence and objectivity of consultants, the court found.

"The exposure to potential claims of such magnitude, and even much smaller claims, could affect the availability of consultants and the fees they charge. This exposure would create incentives to complete the report that could undermine the analysis of the relevant environmental issues, creating a conflict between the consultant's duty to the public and its financial self-interest," Justice Mark Simons wrote for the court. "[A] direct action against [Huffman-Broadway] is not consistent with CEQA."

The court used similar reasoning to reject the developer's claim that Huffman-Broadway was liable for negligence. "The analysis of the duty issue in Mission Oaks is helpful," Simons wrote. "The court pointed out that the contract for preparation of an EIR was ‘not intended to affect the applicant directly; it was intended to provide the county and public with the information it needed to assess the proposed project pursuant to CEQA.'"

Holding the consultant liable to the developer could create a conflict that "would undermine the Legislature's goal of obtaining accurate EIRs for proposed projects," the court concluded.

The Case:
Lake Almanor Associates L.P. v. Huffman-Broadway Group Inc., No. A122563, 2009 DJDAR 15526. Filed October 30, 2009.
The Lawyers:
For Lake Almanor Associates: William Neasham, Neasham & Kramer, (916) 853-8030.
For Huffman-Broadway Group: George Ziser, Lewis, Brisbois, Bisgaard & Smith, (415) 438-6659.