The Massachusetts Supreme Judicial Court has ruled a state law that protects waterways does not exempt the proposed NorthPoint project in Cambridge.

In a significant setback for the developers of a proposed 5.2 million-square-foot project in East Cambridge, the state’s highest court has ruled that the project is not exempt from a state law that protects waterways.

The ruling by the Massachusetts Supreme Judicial Court could affect future development in coastal areas of the state, according to those familiar with the decision.

The court found that the state Department of Environmental Protection should not have exempted NorthPoint – a proposed complex of about 2,700 residential units and 20 buildings on 48 acres straddling Cambridge and Somerville – from a state law known as Chapter 91. Chapter 91 is designed to protect the public’s interest in waterways and regulates activities in inland and coastal areas.

“This decision raises a new hurdle for [the developers] and how they’re going to cross it is a tough question,” said R.J. Lyman, a partner at Goodwin Procter LLP who specializes in real estate and environmental issues and is not involved in the case. “This is a step backward and how many more steps they’re going to have to take to be able to move forward with this plan or a modified plan is something that they’re surely thinking of right now.”

At issue in the case is 13 acres of filled tidelands that are part of the site. DEP decided four years ago that the project was exempt from Chapter 91 because the 13 acres in question are landlocked. The department based its decision on regulations the agency adopted 16 years ago that exempts landlocked tidelands from Chapter 91.

But the court found that the agency’s regulation was unlawful and that DEP had no authority to enact it, according to Thomas B. Bracken, a Boston attorney who represented the plaintiffs in the case. Bracken said the project has been sent back to DEP to hold a public hearing and determine what public amenities the developer must provide before the agency issues a license.

“The court said any change in use of the filled tidelands that were once licensed by the state must obtain a new license from DEP,” said Bracken. “The court has remanded the case to DEP to hold public hearings and make determinations as required under the law, and the specific determination they have to make is that this project will serve a valid public purpose. The court doesn’t define that public purpose. That’s a determination that has to be made by department.”

But Lyman said the decision leaves the NorthPoint developer – Jones Lang LaSalle – with several options, including formulating a revised site plan or going through a “fairly elaborate process” to get relief. The developers also could seek an exemption from the state Legislature, according to Lyman, who once served as assistant environmental secretary and Massachusetts Environmental Policy Act [MEPA] director.

“We can’t comment on any of this right now,” Steve Steinberg, director of marketing for Jones Lang LaSalle, told Banker & Tradesman last week.

C. Dylan Sanders, an attorney with DLA Piper – which represents the developers – said he also could not comment.

“We’re still just reviewing the decision,” said DEP spokesman Ed Coletta. “The case was remanded back to DEP for further review, and to move forward with it we’re going to be determining how to address that.”

Unresolved Issues

Construction of the first phase of NorthPoint – two residential buildings with a total of 338 condominiums – started in 2005. One of the buildings, featuring 99 units, is scheduled to open in the spring.

The second phase, which broke ground last fall, will create 1.8 million square feet of mixed-use space including a hotel, offices, shops and restaurants.

“It looks like a win for us but in many ways our issues were not handled,” said Steve Kaiser, a member of the Association of Cambridge Neighborhoods, one of the plaintiffs in the case.

Kaiser said the court didn’t address ownership of the 13 acres of tidelands on the property and what public benefits or amenities the developer should provide – including open space and public community space.

The plaintiffs argue that the developer has eliminated a 5.5-acre park in the middle of the property the firm promised to create. Bracken said the park disappeared when the developer installed a series of water collection storage basins.

“Once you put basins and fences around them, it doesn’t leave you with much of a usable park,” Bracken said.

John Moot, a plaintiff and president of the Association of Cambridge Neighborhoods, said the park was not an extra benefit the developer offered to provide because, under city zoning, developers of such large-scale projects must set aside a certain percentage for open space.

“I think it’s inadequate for the number of people that they’re trying to put in there,” Moot said. “You have to compensate the citizens of Massachusetts for the taking of these 13 acres.”

Moot and other Cambridge residents also are concerned about the relocation of the Lechmere MBTA station. NorthPoint developers are planning a new $70 million station on the 48-acre site to replace the old Lechmere station.

While the new station will be convenient for NorthPoint residents, said Moot, it will be a huge inconvenience for other commuters who will have to cross the McGrath-O’Brien Highway to get to it.

Both Moot and Kaiser said the developer also must address drainage issues on the site.

Bracken said if DEP holds a hearing, it will give the public a chance to express its concerns and work out an agreement on the amenities the developers should offer.

“I think what will happen is that there will be an agreement between the DEP and developer and the plaintiff as to what benefits will be provided in the project,” he said.

But Kaiser said he is seeing signs that the developers will try to bypass that process and seek the Legislature’s exemption.

“What I would like to see is legislation that clears up the ownership of those 13 acres and also provides for a definition of the boundary between Cambridge and Somerville,” said Kaiser. “I’ve been an advocate for getting a good solid public legislative solution and I’d be willing to work with the developers.”

If the developers go before the Legislature for an exemption, the situation could become complicated. That’s because at least two influential state leaders were at one point involved with the development, according to those familiar with the project.

Secretary of Housing and Economic Development Daniel O’Connell was a principal with Spaulding & Slye Colliers, which since has been absorbed by Jones Lang LaSalle. In addition, Gregory Bialecki, who was recently appointed to reduce permitting time in the state, was a chief legal adviser to the developers.

“Greg was very prominent in all of the arguments,” said Kaiser.

Lyman, of Goodwin Procter, said the SJC decision could have implications for future development in some areas along the Charles and Mystic rivers.

The ruling, however, notes that the Back Bay and South Boston – two notable filled and landlocked tidelands – are unaffected by the ruling because of earlier decisions made by state lawmakers.

“The Legislature expressly relinquished public rights in those filled tidelands when it authorized the filling and sale of the Back Bay tidelands in 1852, and authorized the filling and sale of the South Boston tidelands in various acts and resolves between 1862 and 1875,” Justice Margaret H. Marshall wrote in the SJC decision.