A three-judge panel of the state Court of Appeals closely questioned attorneys Monday during a hearing over whether an agreement to build a new sports arena in Sodo violated state environmental laws.

Judge Kenneth Grosse keyed in on all the steps under way to prepare for a new $490 million arena at the Sodo site — including city design review, street vacation and building permits — even though a required environmental review hasn’t been completed.

Referring to the Memorandum of Understanding (MOU) reached among investor Chris Hansen, the city of Seattle and King County, Grosse suggested that the agreement had all the signs of “a decision having been made.”

His questioning echoed the arguments brought by attorneys for the International Longshore and Warehouse Union, Local 19, who are appealing a lower-court decision in February that the detailed agreement didn’t violate environmental law because it cannot be finalized until the analysis of the Sodo site and two alternative sites at Seattle Center is completed.

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Jeff Weber, assistant Seattle city attorney, told the judges that none of the actions already taken to prepare the Sodo site limit government officials’ choice of an alternative location or their ability to withhold final approval. He told the judges that the MOU establishes a process that includes a state environmental review and is not itself “an action” that would trigger an earlier assessment of environmental impacts.

“The city and county get to make a decision about where the proposed arena will go. They have full discretion to reject the site,” Weber told the judges.

Hansen has spent more than $60 million to purchase almost 8 acres just south of Safeco Field in the city’s stadium district. The city is currently preparing the draft environmental report and expects to release a draft in mid-August.

While the lawsuit turns on a legal interpretation of state environmental law and when an environmental review should be conducted, the judges seemed interested in real-world considerations.

Judge Mary Kay Becker observed that the city and county weren’t going to build a sports arena until Chris Hansen stepped forward with a proposal for the Sodo site.

“Let’s think about where to put it? That’s not political reality. They weren’t going to do it without a private investor,” she said.

The union’s attorney, Peter Goldman, argued that the city and county had “no patience” for a neutral environmental review process that would examine sites throughout the region. He told the court that the agreement limited meaningful consideration of other locations that might have fewer environmental impacts.

The deal to build the new arena with up to $200 million in public financing appeared on a fast track until Hansen’s bid to purchase the Sacramento Kings and relocate the team to Seattle was rejected by the NBA Board of Governors in May. The city and Hansen also were negotiating improvements to Key­Arena, where a professional basketball team and a hockey team could play while the new arena was constructed. Without any team, those plans are now on hold.

The longshore workers lost in February when Superior Court Judge Douglass North ruled that the agreement with Hansen specified that the city and county couldn’t give final approval to the Sodo arena or authorize public funding until an environmental-impact assessment had been completed.

About a dozen longshore union members attended Monday’s 30-minute hearing at the Division I Court of Appeals in downtown Seattle. The longshore workers say the proposed Sodo location for the arena — just a block from a major port terminal — would increase traffic congestion and threaten their jobs and those of others in Sodo industrial and manufacturing trades.

The appellate court accepted an expedited review of the case and could issue a ruling in a matter of weeks rather than months, Goldman said.

Lynn Thompson: lthompson@seattletimes.com or 206-464-8305. On Twitter @lthompsontimes