Newport Beach officials failed to adequately review a large proposed development on the coastal Banning Ranch oil field before approving it, the California Supreme Court ruled Thursday.
The unanimous decision, written by Justice Carol A. Corrigan, was another blow for the developers whose project was rejected last year by the California Coastal Commission.
Sam Singer, a spokesman for the companies involved, said the ruling would delay the project by a year or two but would not kill it.
"Newport Banning Ranch is not going away," said Singer, who represents Aera Energy, Cherokee Investment Partners and Brooks Street, a real estate firm.
He called the ruling "a dramatic change in how coastal projects will have to be analyzed in the future" and defended Newport Beach's review as thorough.
The 401-acre Banning Ranch is one of the largest parcels of undeveloped coastal property in Southern California. Developers want to build hundreds of houses, a hotel and shops on the property, which is now pockmarked by drilling equipment and hundreds of abandoned wells from decades of oil extraction.
The ruling stemmed from a lawsuit by the Banning Ranch Conservancy, a group that wants to buy the property and keep it as open space. An appellate court in Orange County sided with Newport Beach, and the conservancy appealed the decision to the state Supreme Court.
Justices decided Thursday that Newport Beach "suppressed" information about environmentally sensitive habitat on the property.
Protection of such habitat is a core element of the California Coastal Act, but the city's review did not consider the habitat despite "ample evidence" of its existence at the site, the court said.
"The public was deprived of a full understanding of the environmental issues raised by the Banning Ranch project proposal," Corrigan wrote.
The failure to discuss the legal requirements for dealing with such habitat and the likely impacts the project would have on it "was neither insubstantial nor merely technical," the ruling stated.
"The omission resulted in inadequate evaluation of project alternatives and mitigation measures," Corrigan wrote.
John G. McClendon, an attorney for the conservancy, said the ruling returned the law to what it had been before an "activist" appeals court sided with the developers. He called the decision a "huge loss" for the project.
McClendon also questioned whether the developers could proceed with a lawsuit they filed against the Coastal Commission, which denied the project a construction permit in September. The case, which is pending in Orange County Superior Court, seeks $490 million in damages.
"That lawsuit just evaporated with this ruling," McClendon said. "They don't have an approved project so nobody has taken anything from them, and they are back at Square One."
Steve Ray, the conservancy's executive director, said he hopes the developers will walk away when they realize how little of the property can be developed. The Coastal Commission staff has said only about 20 acres of the tract is suitable for development.
"They got the gut punch from the Coastal Commission. Now they got the right hook from the Supreme Court," Ray said.
Newport Beach City Manager Dave Kiff defended the city's review, noting that the environmental impact report was more than 600 pages and contained a detailed analysis of issues involving wetlands, protected species and critical habitat.
He said the city doesn't know the developer's plans at this point, but any future action by the city would be "conducted at an open and public meeting with ample opportunities for public participation."
Deborah Sivas, a Stanford University professor of environmental law, said the decision affirmed standing legal doctrine. "This court is not stepping out," she said. "It's in the mainstream."
Sivas added that the Banning Ranch decision signaled that the Supreme Court "is going to be pretty sympathetic in interpreting" requirements under the California Environmental Quality Act, the state's key environmental law.
Oil companies have long wanted to develop Banning Ranch, which has expansive views of the Pacific Ocean. Part of the land lies within the boundaries of Newport Beach.
In 2012, the city approved the construction of 1,375 homes, a 75-room resort hotel and a retail complex atop the bluff portion of the parcel.
But the proposal ran into roadblocks at the Coastal Commission after the agency's scientists concluded that despite the history of oil production, the land provided valuable and rare wildlife habitat that deserved protection under the Coastal Act.
In response, the development team eliminated hundreds of homes, reduced the footprint of the retail complex and increased the size of a nature preserve that would be open to the public.
Nevertheless, the commission staff continued to argue that the development was far too big and environmentally destructive.
5:30 p.m.: This article was updated with additional information.
12:40 p.m.: This article was updated with response from the Banning Ranch Conservancy.