Opinion ID: 1855224
Heading Depth: 1
Heading Rank: 5

Heading: Reduction of Value of Real Estate by Cost of Cleanup.

Text: The County offered evidence of the value of Aladdin's land and buildings through the testimony of expert real estate appraisers. The appraisers testified as to the fair market value of the property at the time of taking. They assumed the property was environmentally clean or uncontaminated. It was their opinion that, if the property was contaminated, the value of the property would be reduced by the cost of cleanup, on a dollar-for-dollar basis, or more. In addition, the County called a geologist who was employed by a company offering environmental services. He had reviewed the environmental reports indicating the presence of groundwater contamination in part of the block in which the Aladdin property is located. He testified there were two areas of contamination and four different types of contamination with varying concentration levels. He estimated the cost of cleanup of the block would be $561,000 and that, based on the percentage of land owned by Aladdin in the block, Aladdin's portion of the estimated cleanup cost would be $406,560. He did not determine who caused the contamination. The Commission was advised that, after receiving the environmental reports on the block containing the Aladdin property, the County contacted the Iowa Department of Natural Resources (DNR). The DNR advised the County: There is no reason why we cannot proceed with the condemnation of the building site and there is no reason why we cannot use the property for the purpose of building the jail. The County argues the Commission lawfully considered evidence of contamination and cost of cleanup in its award of damages. It claimed it had a right to introduce estimated costs of cleanup in order to establish the fair market value of a parcel of contaminated real estate. The County argues the Commission did not act illegally when it condemned and took into account the estimated cost of cleaning up the contamination on its property but in fact acted in a reasonable manner in determining the effect such contamination would have on the fair market value of the property. Aladdin argues the deduction of $135,000 for remedial cost was illegal because (1) evidence of contamination and remedial cost is procedurally inappropriate, (2) the administrative remedies must be exhausted before a reduction is allowed, (3) if the deduction is allowed, Aladdin could still be required to pay for cleanup cost, (4) the deduction for cleanup cost is premature because the DNR may require only that the property owner monitor the condition, (5) allowance of the deduction is unfair to the property owner because the award would not make the owner whole, and (6) the allowance of the deduction would deny equal protection to the owner because other property secured by the County from the same block was not required to pay the remedial costs. In the supplemental report, the Commission stated it awarded $425,000 for real estate ($245,000 for land and $180,000 for buildings), $235,415 for immovable fixtures, and $51,065 for moving and relocating expense. From the total award of $711,480, the Commission deducted $135,000 (Aladdin's share of environmental cleanup cost), for a net award of $576,480. The district court invalidated the award because the Commission reduced the value of the land by the estimated cost of cleanup. The court reasoned that [q]uestions of contamination are relevant to land value. However, those questions should be addressed in an agency proceeding and the results used to influence the compensation given a landowner in an eminent domain proceeding. We agree the Commission's deduction of estimated cleanup cost deprives Aladdin of just compensation. The compensation awarded in an eminent domain proceeding becomes a substitute for the property taken. Before condemnation, the property owner holds the property at a certain fair market value, and the landowner, if the land is contaminated, has possible legal liabilities for the contamination. However, before a landowner is held responsible for cleanup cost in Iowa, an action must be brought by the DNR, Iowa Code §§ 455B.381-.399, or by a citizen, id. § 455B.111. To hold a property owner responsible for cleanup cost, the DNR or citizen must prove the owner generated the contamination. Id. § 455B.186; see also Blue Chip Enters. v. Iowa Dep't of Natural Resources, 528 N.W.2d 619, 627 (Iowa 1995). If this procedure is not followed and the value of the property condemned is reduced by the estimated cost of cleanup, the landowner will not receive just compensation because the award will be less than full value. In addition, the property owner will still have the same legal liability for cleanup cost as before. The DNR is the state agency that prevents, abates, or controls water pollution and controls the exposure of citizens to hazardous conditions. Iowa Code §§ 455B.172(1), 455B.382. There is no evidence that the DNR determined that water pollution or hazardous conditions existed on the Aladdin property or that it or any other governmental body had incurred cleanup cost. Although a person having control over a hazardous substance is strictly liable for reasonable cleanup cost incurred, the liability for cleanup costs is imposed only upon the person who caused the hazardous condition. Id. § 455B.392(1)(a). This limitation also applies to administrative sanctions specified in section 455B.175. Blue Chip Enters., 528 N.W.2d at 623. Chapter 455B provides the proper procedure for the recovery of environmental remediation costs. If such cleanup costs are admissible and considered by a compensation commission without the procedural safeguards in chapter 455B, the procedural due process rights of the property owner are violated. A property owner has a right to have its liability established in a legal proceeding in which the owner has the opportunity to show that the owner did not cause the water pollution or hazardous condition. If the DNR or a citizen can prove the owner is legally responsible, and cleanup costs are incurred, such costs can be recovered from the owner after the condemnation proceeding has been completed. Iowa Code § 455B.111. This prevents condemnees from having their potential liability adjudicated in an eminent domain proceeding without the chapter 455B safeguards. See Department of Transp. v. Parr, 259 Ill.App.3d 602, 198 Ill.Dec. 557, 561, 633 N.E.2d 19, 23 (1994) (admitting evidence of remediation cost at eminent domain proceeding deprives property owners of their rights and defenses under the Illinois Protection Act). There are also policy considerations supporting the exclusion of evidence of contamination and the cost of cleanup. Admission of such evidence would require the parties to employ environmental experts qualified to testify as to the nature of the contamination, its concentration, and the methods and cost of cleanup. This would force the property owner to incur significant cost to counter the condemnor's expert testimony, which is provided by public funds. The traditional expert testimony as to fair market value based on comparable sales would be unavailable in most instances because of the difficulty in locating comparable contaminated property sales. Properties with contamination are hard to compare because they involve multiple varieties of contamination of varying concentrations and require assorted methods of cleanup. The commission, judge, or jury required to determine just compensation would likely be compelled to speculate as to the damages. The admission of such evidence would spawn more litigation and would cause additional delay and expense, which serves neither judicial economy or finality. In many respects the issue raised in this case is similar to that raised in Henry more than 140 years ago. In Henry, the railroad argued that after condemnation it would have a duty to build one-half of a fence along its right of way; therefore, the commissioners should deduct the cost to build the fence from the damage award. Henry, 2 Iowa (Cole) at 304. We stated: [T]here is no reciprocal relation or obligation between the owner of the right of way and that of the fee, whereby either may compel the other to fence. If this is so, it follows that the building of fence is not necessarily an element to be taken into the minds of the commissioners in assessing damage. And it should therefore be excluded, because it tends to mislead the mind in arriving at just compensation. As soon as it is determined that fence must be paid for, the questions arise, what kind of fence? and who is to keep it in repair? shall it be board, rail or stone fence? shall the owner of the road keep it in repair, or shall the owner of the fee, or shall both share the burden? and so on, to utter confusion. Again: in many instances, fence may not be needed. Id. at 306. In Henry, the court approved the exclusion of evidence as to the cost of a fence because it was not certain that the railroad had a duty to fence one-half of the right of way, the type of fence was undetermined, and the need for the fence was not established. Here, it is not certain that Aladdin has a duty to clean up the contamination, the method and cost of cleanup is uncertain, and the need for cleanup was not established. As in Henry, a compensation commission would be misled in arriving at just compensation if evidence of contamination and cleanup costs were considered. If allowed, the award would be based on speculative information. We are mindful that other jurisdictions have allowed evidence of contamination and the cost of cleanup to be admitted in an eminent domain proceeding. See Redevelopment Agency v. Thrifty Oil Co., 4 Cal. App.4th 469, 5 Cal.Rptr.2d 687, 689 (1992) (remediation issue was properly considered where city took possession of gas station property and spent $182,000 to treat gasoline contamination); Finkelstein v. Department of Transp., 656 So.2d 921, 925 (Fla.1995) (where owner is entitled to reimbursement of remediation costs, the condemned property should be valued as if the contamination cleanup had been completed, but testimony about contamination stigma and its effect on value is allowed); Stafford v. Bryan County Bd. of Educ., 219 Ga.App. 750, 466 S.E.2d 637, 640 (1995) (the general environmental condition of the condemned property was a relevant factor in fairly assessing the market value); City of Olathe v. Stott, 253 Kan. 687, 861 P.2d 1287, 1289 (1993) (Kansas Storage Tank Act does not preempt general statutes regarding eminent domain; thus, evidence of contamination is admissible in an eminent domain proceeding involving a determination of the fair market value of property taken); State v. Brandon, 898 S.W.2d 224, 227 (Tenn.App.1994) (evidence of contamination and cost of reasonable steps to remedy the contamination is admissible and relevant to issue of fair market value). We also recognize that, in the determination of actual value of property for tax assessment purposes under Iowa Code section 441.21, evidence of contamination and estimated cost of cleanup is admissible as a factor that may affect market value. Boekeloo v. Board of Review, 529 N.W.2d 275, 278 (Iowa 1995). By statute, actual value of all property is the fair and reasonable market value. Iowa Code § 441.21(1)(b). Market value is specifically defined. Id. If market value of the property cannot be readily established, other uniform and recognized appraisal methods may be used by the assessor. Id. § 441.21(2). Here, the issue is just compensation, not a determination of market value for tax assessment purposes.