During a hearing, the justices considered whether the city had obeyed environmental law when it approved the large commercial and housing development in 2012.
The California Coastal Commission rejected a scaled-down version of that plan in September, but the developer can present another proposal later this year.
If the state
The justices did not state how they were leaning, but their questions indicated that they found the city's environmental review wanting.
Chief Justice Tani Cantil-Sakauye noted that she could not understand the city's maps in the environmental impact report that showed the locations of sensitive habitat. She asked whether local governments were required to provide information in a way that the public can decipher.
The chief justice also suggested that Newport Beach had been "penny-wise but pound-foolish" in approving the project before fully analyzing the potential environmental impact.
Among the questions the court must answer is whether Newport Beach adequately consulted the Coastal Commission in doing its environmental review. The law requires cities to "work with" the panel but does not specify exactly what must be done.
The justices appeared concerned about how to fashion a ruling that would give adequate guidance to all cities.
"The question we are facing … is how to write a rule that shows what 'work with' means going forward," Justice Mariano-Florentino Cuéllar said.
Attorney Whitman F. Manley, representing Newport Beach, told the court that records showed the city had at least one meeting with Coastal Commission staff members and that both sides also consulted at the development site.
"It may be work with a lowercase 'w,' but it is work," Manley said.
He argued that the city had fully complied with the law but knew at the time that the Coastal Commission had the final word in designating environmentally sensitive habitat on the property.
Some of the justices suggested the city may have shirked its duties by deciding the commission could work out the details later.
"How do you draw the line where it is appropriate for a city to say, 'We are going to punt to somebody else,' and where that is not appropriate?" Cuellar asked.
The Banning Ranch Conservancy, a group that wants to buy the property for open space, challenged Newport Beach's approval of the project. An appeals court in Orange County sided with the city, and the conservancy appealed the decision to the California Supreme Court.
The city originally approved a plan to build 1,375 homes, a 75-room hotel and a commercial zone on about 95 acres of the 401-acre coastal property.
The developer then asked the Coastal Commission for a permit to build a smaller project — including 895 homes, the hotel, a 20-bed hostel and 45,100 square feet of retail space on 62 acres.
After the commission rejected that proposal, the developer sued the agency and asked for compensation of at least $490 million.
Most of the property has been used for oil drilling for decades. The developer has argued that the public will benefit from the project because the vast majority of the land will be preserved as open space.
The court has 90 days to decide the case.