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Court Rules Not Every Party in a Contract Is ‘Necessary' For a Lawsuit

The Third District Court of Appeal has allowed a California Environmental Quality Act suit to proceed even though the plaintiffs did not name every entity involved in the proposed project. The court held that the lawsuit over the environmental impact report for a water transfer in San Joaquin County named defendants that have an economic interest in the project "and can be expected to argue vigorously in favor of the adequacy of the EIR." The court overturned a trial court judge's decision to throw out the lawsuit for failing to name as defendants the agencies that would purchase the water. In April 1997, Oakdale Irrigation District, South San Joaquin Irrigation District and Stockton East Water District entered into an agreement with the City of Stockton, Lincoln Village Maintenance District, Colonial Heights Maintenance District and Central San Joaquin Water Conservation District. The agreement called for the two irrigation districts to sell between 8,000 and 30,000 acre-feet of water to the city and two maintenance districts via facilities owned by Stockton East. The amount would vary annually depending on inflow to New Melones Reservoir in the Sierra Nevada foothills. The irrigation districts served as the "lead agency" for CEQA purposes, and they adopted an EIR in July 1999. Four organizations — Deltakeeper, San Joaquin Audubon Society, California Sportfishing Protection Alliance and the Sierra Club — filed a lawsuit claiming that the EIR failed to address adequately the impacts of the water transfer project. The lawsuit named the two irrigation districts and Stockton East Water District as defendants. In December of that year, the defendants argued that the lawsuit did not name necessary and indispensable parties — the city, and the two maintenance districts that would receive the water. The defendants also said it was too late under CEQA for those entities to be sued, and, thus, the lawsuit should be dismissed. San Joaquin County Superior Court Judge Bobby McNatt agreed and dismissed the lawsuit. On appeal, the case turned on the interpretation of a "necessary party" and an "indispensable party" under Code of Civil Procedure § 389. A unanimous three-judge panel of the Third District ruled that the unnamed agencies were neither necessary nor indispensable, and the court reinstated the lawsuit. As for necessary parties, the issues were whether the defendants could receive full relief, whether any of the parties faced the possibility of inconsistent liabilities, and whether the unnamed parties would be able to protect their interests. The court held that the irrigation districts and Stockton East could receive full relief because resolution of the adequacy of the EIR would settle the question, and the statute of limitations barred further litigation. The court also held that no agency would face inconsistent liability because the April 1997 agreement allowed any of the agencies to back out if the EIR was held inadequate. The court spent most of its time addressing the final question of whether the irrigation districts and Stockton East could protect all the agencies' interests. The court said yes. "Plaintiffs timely named as defendants three parties to the agreement, all of whom have a strong interest in upholding the EIR so as to obtain the benefits of the agreement. A party's ability to protect its interest is not impaired or impeded as a practical matter where a joined party has the same interest in the litigation," Justice Coleman Blease wrote for the court. Furthermore, Blease noted, under a separate agreement among Stockton East, the city and the two maintenance districts, all of the agencies have a vote in how to defend lawsuits, and that vote is binding on all parties. "By this means the non-joined parties have the right to participate in and control the CEQA litigation through a collective decision which binds a named party to the action," Blease wrote. As for the question of indispensable parties, the court agreed with the defendants that in most cases all parties to a contract would be considered indispensable for litigation purposes, but not in every case, including this one, the court held. "[T]he rights asserted in this litigation are independent of the contractual rights to water established in the agreement," Blease wrote. The court further held that the city and two maintenance districts were not indispensable because "they would have been limited at trial to the same legal arguments presented by the lead agencies and Stockton East, that the lead agency's certification of the EIR was supported by substantial evidence." Finally, the court ruled that upholding the trial court's decision would violate the spirit of CEQA. "Were we to find city, Lincoln Village and Colonial Heights to be indispensable parties, the adequacy of the EIR would escape scrutiny. Such a harsh result is unnecessary where other parties have a unity of interest in the CEQA litigation," Blease wrote. The Case: Deltakeeper v. Oakdale Irrigation District, No. C035745, 01 CDOS 10703, 2001 DJDAR 13323. Filed December 26, 2001. The Lawyers: For Deltakeeper: Rose Zoia, Brandt-Hawley & Zoia, (707) 938-3908. For OID: Tim O'Laughlin, O'Laughlin & Paris, (530) 899-9755. For Stockton East Water District: Jeanne Zolezzi, Herum, Crabtree, Dyer Zolezzi & Terpstra, (209) 472-7700.