Title: Housing Authority of the City of New Brunswick v. Suydam Investors, L.L.C.et als.
Citation: N/A
Docket Number: a-68-02
State: new-jersey
Issuer: new-jersey Supreme Court
Date: July 10, 2003

The issue before the Court is the extent to which evidence of environmental contamination is admissible at the property valuation stage of a condemnation action. A secondary issue is whether a condemnor is entitled to an order that requires a portion of the estimated fair market value to be held on deposit until final resolution of the environmental claims. Suydam Investors, LLC (Suydam) is the owner of three parcels of land located on George Street and Remsen Avenue in downtown New Brunswick. Housing Authority of the City of New Brunswick (Authority) sought by eminent domain to acquire the Suydam property for a redevelopment project known as the Lower George Street Redevelopment Area in New Brunswick. In March 1999, the Authority, through its developer, retained the firm of Adler Geoscience, Inc. (Adler) to provide environmental engineering services in connection with the redevelopment project. Adler inspected the Suydam property and subsequently prepared a Phase I environmental site assessment. The report revealed that underground gasoline tanks had been maintained on the property; automobile body repair and service businesses that typically used hazardous substances had been conducted on the property; a spill of hazardous substances had occurred on an adjoining site; and the property housed structures that could contain asbestos and lead paint. The Phase I report recommended that further investigation be conducted at the site. In January 2000, without the benefit of the Phase I report and before filing its condemnation action, the Authority offered Suydam $972,000 for the property based on it s expert appraiser s evaluation. The appraiser concluded that the highest and best use of the property would be to demolish the existing improvements and utilize the site as zoned for commercial and residential purposes. He noted that in valuing the property, he did not consider the existence of potentially hazardous material that may or may not be present on the property. Accordingly, the Authority informed Suydam that its offer was contingent on the satisfactory environmental status of the property, as the appraisal did not take into account any environmental problems that could affect fair market value. Suydam made a counter offer of approximately $2,500,000. In response to Suydam s request for environmental studies, the Authority provided a copy of the Phase I report. Following unsuccessful attempts to negotiate a fair value price for the property, the Authority, on March 22, 2000, filed a verified complaint, an order to show cause, and a declaration of taking. The Authority deposited $972,000 in court pursuant to statute. Suydam did not oppose the taking and, in May 2000, the trial court entered a final judgment declaring that the Authority had the power to condemn the property and appointing three commissioners to determine its fair market value. In July 2000, the trial court granted Suydam s unopposed motion to withdraw the $972,000 deposited in court. From October 2000 through March 2001, Adler performed Phase II of its environmental assessment of the Suydam property. The report indicated, among other things, the presence of asbestos, underground storage tanks, and lead-based paint and provided cost estimates for asbestos abatement and storage tank removal. Based on that report, the Authority moved for leave to amend its complaint to allege the presence of environmental contamination affecting the value of the property; to reserve, through a reservation of rights clause, its right to recover environmental cleanup costs; and to stay the commissioners hearing for no longer than one year pending final resolution of all environmental liability and cost issues. Suydam opposed the motion, claiming that the Authority withheld critical information concerning the alleged environmental contamination on its property. Suydam argued that the grant of the Authority s motion would result in an unfair and prejudicial delay in the determination of just compensation for the taking. The trial court granted the Authority s motion for leave to file an amended complaint. The court also granted a six-month stay to enable the Authority to try to complete its environmental investigations and initiate any actions necessary to address all issues relating to environmental liability and remediation costs. The court further ordered that, if the environmental issues were not fully adjudicated within six months, the commissioners are to determine the value of the property as if clean and any litigation regarding the environmental issues would be severed from the condemnation action. The court also ordered that any award exceeding the $972,000 Suydam received as just compensation should be deposited in court pending final resolution of the environmental issues. Suydam appealed. The Appellate Division held that: 1) environmental contamination is relevant to a determination of the fair market value of a condemnee s property; 2) a court may not order a portion of the condemnation award to be held on deposit to satisfy the condemnor s environmental claims because that would constitute an interdicted prejudgment attachment; 3) the Authority did not breach its duty to engage in bona fide negotiations; and 4) the doctrines of waiver and judicial estoppel did not preclude the Authority from asserting that environmental contamination adversely affected the fair market value of the Suydam property. The Supreme Court granted certification. HELD: Contaminated property that is the subject of condemnation is to be valued as if it has been remediated and the condemnor should reserve the right to maintain a separate cost-recovery action to obtain remediation/cleanup costs. The value of the condemnation award should be deposited in a trust-escrow account with the court and the condemnor may seek an order requiring a portion of that award to be set aside to satisfy the condemnee s clean-up and transfer obligations. 1. The Eminent Domain Act, the federal and State Constitutions, and environmental laws such as the Spill Act and CERCLA all come into play when a property to be condemned is or may be environmentally contaminated. Here, it is the interplay between the Eminent Domain Act and the Spill Act that is at the forefront. Under the Eminent Domain Act, private property shall not be taken for public use without just compensation, which is the fair market value of the property at the time of the taking. Under the Spill Act, governmental entities that acquire property by eminent domain have immunity from costs associated with the cleanup and removal of hazardous substances that either began or occurred prior to the transfer of title or were acquired for redevelopment purposes. (Pp. 13-22) 2. Jurisdictions throughout the nation are divided over the issue of whether evidence of contamination should be a consideration in assessing the fair market value of property in a condemnation proceeding. The pivotal concern is the reality of a condemnee s liability under the Spill Act and similar statutes. When property is devalued for contamination in condemnation, landowners/condemnees first receive discounted compensation in the condemnation proceeding and then must pay for the full cleanup costs, thereby suffering a double-take. The condemnor, on the other hand, receives a windfall by obtaining the property in a remediated state at the condemnee s cost while paying a discounted price due to the contamination. This is fundamentally unfair. Thus, valuing the property as if remediated assures just compensation insofar as it relates to the highest and best use. (Pp. 22-27) 3. The treatment of these disparate issues in their appropriate forums is an important factor. Property valuation is something with which commissioners are experienced. Thus, omitting the complications of contamination from the valuation process advances the speed and efficiency of eminent domain proceedings. Addressing the environmental issues in the cost-recovery proceeding makes the most sense because that proceeding allows third-party claims against insurers, title companies, and prior owners, none of whom have a place in a condemnation proceeding. More importantly, the Spill Act defenses are available in the cost-recovery process, not in a condemnation proceeding. Thus, where property is contaminated, the condemnor should appraise the property as if remediated and deposit that amount into a trust-escrow account with the court. In addition, the condemnor should reserve its right to initiate a separate action to recover remediation costs. (Pp. 27-30) 4. Because the Court holds that the condemnation valuation scheme excludes evidence of contamination, and that the property should be valued as if remediated, placing a limit on what the condemnee may withdraw does not constitute prejudgment attachment. The trust-escrow approach is a well-established methodology that has received widespread recognition. Thus, withholding a portion of the condemnation award sufficient to cover cleanup costs is not an attachment and there is no unfairness to the condemnee. (Pp. 30-33) 5. There is no factual basis for finding that the Authority s conduct violated its obligation to engage in good faith negotiations. (Pp. 33-34) Judgment of the Appellate Division is AFFIRMED IN PART and REVERSED IN PART insofar as it declared that evidence of contamination is admissible in valuing condemned property and interdicted the trust-escrow approach. The matter is REMANDED to the trial court for application of the valuation methodology established herein. CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, VERNIERO, LaVECCHIA, and ZAZZALI join in JUSTICE LONG S opinion. JUSTICE ALBIN did not participate. SUPREME COURT OF NEW JERSEY A-68/ 69 September Term 2002 THE HOUSING AUTHORITY OF THE CITY OF NEW BRUNSWICK, Acting as Redevelopment Agency, Plaintiff-Respondent and Cross-Appellant, v. SUYDAM INVESTORS, L.L.C., Defendant-Appellant and Cross-Respondent, and TINTON FALLS STATE BANK, THE CITY OF NEW BRUNSWICK, a municipal corporation, GTL INVESTMENTS, L.P., AMERICAN BANKERS LIFE ASSURANCE COMPANY OF FLORIDA, JOHN DOES 1-10, PUBLIC SERVICE ELECTRIC &amp; GAS COMPANY and JOHN DOES, 11-20, Defendants. Argued April 29, 2003 Decided July 10, 2003 On certification to the Superior Court, Appellate Division, whose opinion is reported at 355 N.J. Super. 530 (2002). James M. Turteltaub argued the cause for appellant and cross-respondent (Carlin &amp; Ward, attorneys; Mr. Turteltaub and William J. Ward, of counsel and on the briefs). Marvin J. Brauth argued the cause for respondent and cross-appellant (Wilentz, Goldman &amp; Spitzer, attorneys; Mr. Brauth and Yvonne Marcuse, of counsel and on the briefs). Maureen Hinchliffe Bonney, Deputy Attorney General, argued the cause for amicus curiae State of New Jersey (Peter C. Harvey, Acting Attorney General of New Jersey, attorney; Patrick DeAlmeida, Deputy Attorney General, of counsel; Ms. Bonney and Dale Laster Lessne, Deputy Attorney General, on the briefs). The opinion of the Court was delivered by LONG, J. Eminent domain is the awesome power of the sovereign to take property for public use without the owner s consent. 1 Nichols on Eminent Domain 1.11, at 1-7 (Sackman ed. 3d ed. 2002). Although that power has been exercised in one form or another since Roman times, 1 Nichols, supra, 1.12, at 1-14 (citing Annals of Tacitus, Bk. I, p. 75), the actual term eminent domain was not coined until 1625 when Hugo Grotius described the power this way: [T]he property of subjects is under the eminent domain of the state, so that the state or he who acts for it may use and even alienate and destroy such property, not only in the case of extreme necessity, in which even private persons have a right over the property of others, but for ends of public utility, to which ends those who founded civil society must be supposed to have intended that private ends should give way. But it is to be added that when this is done the state is bound to make good the loss to those who lose their property. [Id. at 1-15 (citing Hugo Grotius, De Jure Belli et Pacis).] In general, eminent domain springs from two separate legal doctrines. The right of the State to take private property for the public good arises out of the necessity of government, whereas the obligation to make just compensation stands upon the natural rights of the individual guaranteed as a constitutional imperative. 1 Nichols, supra, 1.11, at 1-10 (citing 1 Thayer s Cases on Constitutional Law 953); U.S. Const. amend. V; N.J. Const. art. 1, 20. There is an inherent tension between those notions in every condemnation case. Nowhere is that tension more obvious than at the point at which contaminated property is taken by condemnation. In this appeal, we are called on to address several questions arising out of the intersection of eminent domain and environmental law. Primary among them is the extent to which evidence of environmental contamination is admissible at the valuation stage of a condemnation action to determine the fair market value of the property. A secondary issue is whether a condemnor is entitled to an order that requires a portion of the estimated value to be held on deposit until final resolution of the environmental claims against the condemnee. We hold that contaminated property that is the subject of condemnation is to be valued as if it has been remediated and that the condemnor may seek an order requiring a portion of the award to be set aside to satisfy the condemnee s clean-up and transfer obligations. Now [the Authority] wants to amend the complaint to . . . say [,] notwithstanding what they said before, they believe that . . . the property may be contaminated with asbestos and lead containing paints and that that would detract from the value of the property. So that issue goes to the valuation which is always an issue. And then they reserved the right to go after [Suydam] for clean-up costs on some other areas under the Spill Act[.] . . . . They certainly have the right to come after you under the Spill Act, whether they put it in [the complaint] or not . . . . And the issue of what s on the property is a value issue which is the value before the commissioners to start with. The trial court entered an order that granted the Authority leave to file an amended complaint, and a six-month stay to enable it to attempt to complete its environmental investigations and commence any action that it deems necessary and appropriate to resolve all issues relating to environmental liability and for remediation costs associated with development of the subject property (the Environmental Issues ). The order further provided that [i]f the Environmental Issues have not been fully and finally adjudicated after six (6) months, the commissioners shall determine the value of the subject property as if clean, and litigation as to the Environmental Issues shall be severed from the condemnation and continue as a separate action. In addition, the order provided that if the commissioners award exceeded the $972,000 that Suydam had received as just compensation, the additional amount would be deposited into court pending final resolution of the Environmental Issues. See footnote 2 Suydam appealed. In a published opinion, Housing Auth. of City of New Brunswick v. Suydam Invs., 355 N.J. Super. 530 (2002), the Appellate Division held that (1) environmental contamination is relevant to a determination of the fair market value of a condemnee s property, id. at 537; (2) a court may not order a portion of the condemnation award to be held on deposit to satisfy the condemnor s environmental claims because that would constitute an interdicted prejudgment attachment, ibid.; (3) the Authority did not breach its duty to engage in bona fide negotiations under N.J.S.A. 20:3-6 and Rule 4:73-1, id. at 543; and (4) the doctrines of waiver and judicial estoppel did not preclude the Authority from asserting that environmental contamination adversely affected the fair market value of Suydam s property, id. at 544. We granted Suydam s petition for certification and the Authority s cross-petition, 175 N.J. 549 (2003), and accorded amicus status to the State of New Jersey. We now affirm in part and reverse in part. See footnote 3 [N.J.S.A. 20:3-16.] According to the State, [i]n response to a developing body of unreported case law, a governmental condemnor routinely provides, as part of bona fide negotiations, an environmental assessment of a condemnee s property and, if appropriate, testing data regarding the environmental condition of a condemnee s property. See also State, by Comm r of Transp. v. Town of Morristown, 129 N.J. 279, 288 (1992) (remarking that absent court order, as part of pre-litigation bona fide negotiations condemnor is only required to disclose information related to manner of calculating offer made to condemnee). The condemnor may file a declaration of taking contemporaneous with or after the institution of a condemnation action. N.J.S.A. 20:3-17. After that declaration is recorded and served on the condemnee and all occupants of the subject property, the condemnor is entitled to immediate and exclusive possession of and title to the property. N.J.S.A. 20:3-19. Simultaneously with the filing of the declaration of taking, the condemnor shall deposit the amount of [the] estimated compensation with the clerk of the court. N.J.S.A. 20:3-18. A condemnation action involves the issuance of two final judgments by the Superior Court: one declares that the condemnor is duly vested with and has duly exercised its authority to acquire the property being condemned, N.J.S.A. 20:30-8, N.J.S.A. 20:3-2(j), and appoints three commissioners to determine the compensation to be paid by reason of the exercise of such power. N.J.S.A. 20:3-12(b). The other deals exclusively with the valuation of the condemned property. N.J.S.A. 20:3-12(g)-(h). Within four months of a trial court s appointment, the three commissioners, or at least a majority of them, must fix and determine the compensation to be paid by the condemnor to the condemnee. N.J.S.A. 20:3-12(g). The commissioners award becomes a final judgment if it is not objected to within sixty days of its filing. N.J.S.A. 20:3-12(g)-(h). An appeal from the report of the commissioners may be taken by [a]ny party who has appeared at the hearings of the commissioners, either personally or through an attorney, N.J.S.A. 20:3-13(a), by filing a notice of appeal with the deputy clerk of the Superior Court in the county of venue within 20 days after the date of service upon him or her . . . of a copy of the report. R. 4:73-6(a). The appeal shall be a trial de novo . . . without a jury, unless a jury be demanded. N.J.S.A. 20:3-13(b). Following the trial, the amount of the judgment on the appeal, or the amount that has not been previously paid, shall be paid to the parties entitled thereto or paid into court. N.J.S.A. 20:3-13(d). [Senate Budget and Appropriations Committee, Statement to Senate Bill No. 39, Assem. No. 2250.] The Brownfields Act included an amendment to N.J.S.A. 58:10-23.11g-d(4) that broadened the immunity conferred on public entities that acquire real property to include property for redevelopment purposes: Any federal, State, or local governmental entity which acquires ownership of real property through . . . eminent domain, condemnation or any circumstance in which the governmental entity involuntarily acquires title by virtue of its function as sovereign, or where the governmental entity acquires the property by any means for the purpose of promoting the redevelopment of that property, shall not be liable, pursuant to subsection c. of this section or pursuant to common law, to the State or to any other person for any discharge which occurred or began prior to that ownership. [N.J.S.A. 58:10-23.11g-d(4).] The only circumstance under which a governmental entity will not enjoy immunity under the Spill Act is the case in which that entity causes or contributes to the discharge of hazardous substances or acquires ownership of real property by condemnation or eminent domain where the real property is being remediated in a timely manner at the time of the condemnation or eminent domain action. N.J.S.A. 58:10-23.11g-d(4). It is the interplay between the Eminent Domain Act and the Spill Act that underpins our analysis. We see no reason to treat environmental contamination that may affect the development potential of property, and hence its value, any differently than wetlands, steep slopes or any other physical condition on the property. Environmental contamination may adversely affect a property s value by imposing limitations on its use or requiring the expenditure of substantial money to remediate the condition. [Id. at 547-48.] On the contrary, to the extent that contamination, unlike wetlands and steep slopes, is subject to cure, it can fairly be argued that it is not an immutable condition of land and that its remediation is more like a transactional cost than a value concept. Because each view has merit, other considerations must come into play in determining how to treat contamination in condemnation. To us, the major issue is the reality of a condemnee s liability under the Spill Act and like statutory initiatives. When property is devalued for contamination in condemnation, landowners first receive discounted compensation in the condemnation proceeding and then are subject to the full cleanup costs, thus suffering what is colloquially denominated as a double-take. Jeffrey Dworin, Comment, Doing a Double Take: Environmental Damage Suits and Eminent Domain, 1 996 Det. C. L. Rev. 687, 689-92 (1996). Under that scheme, the condemnor receives a windfall by ultimately obtaining the property in a remediated state at the condemnee s cost, yet paying a discounted price due to the contamination. Moomaw, supra, 76 Wash. L. Rev. at 1252. We think that is fundamentally unfair. It seems to us that valuing property as if remediated assures just compensation insofar as it relates to the notion of highest and best use. If property is valued as is, its contaminated state will necessarily circumscribe its uses, concomitantly diminishing its fair market value despite the reality that it will likely be subject to cleanup. We likewise view the treatment of disparate issues in appropriate forums as an important weight in the balance. Valuation is a relatively straightforward notion with which condemnation commissioners are familiar and experienced. Omitting the complications of contamination from the valuation process thus advances the speed and efficiency that are the hallmark of eminent domain proceedings. See 4 Nichols, supra, 13.10, at 13-96 (commenting that admission of contamination in condemnation proceeding would spawn more litigation and cause additional delay and expense, which serves neither judicial economy nor finality). Indeed, the difficulty of estimating the value of contaminated property has been noted by other courts and commentators that have recognized that finding a comparable parcel on which to base an estimate of value is problematic because all contamination is different. See Silver Creek Drain Dist., supra, 630 N.W.2d at 354 (commenting that contaminated properties are like snowflakes; no two are alike. ); The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, Advisory Opinion A0-9 (1997 ed.) (noting that use of comparables in analysis of specific situation is highly limited because each environmental problem is as unique as a fingerprint). On the contrary, dealing with environmental issues in the cost-recovery proceeding makes sense. Such a proceeding allows for third-party claims against insurers, title companies, and prior owners, none of whom have a place at the condemnation table. More importantly, the cost-recovery proceeding makes available to the condemnee Spill Act defenses (for example, war, sabotage, Act of God, or a combination thereof, and non-responsibility in-fact) that are not relevant to an Eminent Domain proceeding. Admission of environmental issues into a condemnation trial circumvents those statutory defenses as well as the possible joinder of third parties. That distinction is the basis for the due process considerations cited in the out of state cases that exclude contamination as a value issue in condemnation. All of those reasons underscore the propriety of reserving the contamination issue for the cost-recovery action. See Moomaw, supra, 76 Wash. L. Rev. at 1252 (concluding evidence of contamination should not be admissible to determine just compensation in eminent domain proceeding). We therefore approve that methodology. Henceforth, where property is contaminated, the condemnor should appraise as if remediated and deposit that amount into a trust-escrow account in court. In addition, the condemnor should reserve its right to initiate a separate action to recover remediation costs. Indeed, according to the amicus, prior to this case, it was standard practice for a governmental condemnor to follow that methodology. Accordingly, we reverse the Appellate Division s determination that contamination should be considered as a valuation issue in a condemnation proceeding and remand the case for the application of the valuation methodology to which we have adverted. [Housing Auth., supra, 355 N.J. Super. at 544.] We fully subscribe to those conclusions as well as the Appellate Division s consequent determination that the facts do not warrant application of principles of waiver or judicial estoppel, id. at 544-45, and affirm them as fully supported by the record. NO. A-68/69 SEPTEMBER TERM 2002 ON CERTIFICATION TO Appellate Division, Superior Court THE HOUSING AUTHORITY OF THE CITY OF NEW BRUNSWICK, Acting as Redevelopment Agency, Plaintiff-Respondent and Cross-Appellant, v. SUYDAM INVESTORS, L.L.C., Defendant-Appellant and Cross-Respondent. DECIDED July 10, 2003 Chief Justice Poritz PRESIDING OPINION BY Justice Long CONCURRING OPINION BY DISSENTING OPINION BY