Costs of Remediation in Condemnation

By M. Robert Goldstein & Michael J. Goldstein

October 26, 1994

It has long been held in New York State that the jurisdiction of the condemnation court is limited by statute solely to condemnation proceedings and that a non condemnation action may not be joined to a condemnation action (Culver Contracting Corp. v. Humphrey, 268 N.Y. 26 (1935); Matter of City of New York (Triborough Bridge), 159 Misc. 617, aff’d, 257 App. Div. 940, leave to app den, 282 N.Y. 808). Despite this, the issue of title to the condemned property, as well as priority of liens, is deemed a condemnation issue and is thus to be determined in the condemnation court (In re Jefferson Houses, 306 N.Y. 278 (1954); Hemon v. Comptroller of the State of New York, 197 A.D.2d 807, 603 N.Y.S.2d 78 (3d Dept., 1993); In re Board of Water Supply, 179 A.D. 877, 880, 107 N.Y.S.2d 531 (1917); Schiff v. Gold et al., 176 Misc. 119, 26 N.Y.S.2d 392 (Sup. Ct., West. Co., 1991).

This creates an interesting situation in condemnation proceedings where the property taken is contaminated. What happens where the property owner is not the contaminator or not the sole contaminator and would have a right to seek to recover the costs of remediation or seek contribution for same. That right is triggered by the cleanup of the property, either by him or by the condemnor. But the valuation of the property in condemnation, where the value is reduced based upon cost of remediation, assumedly does not trigger that right. Or suppose he knowingly bought a property which was contaminated and secured a contract from the seller indemnifying him against any cost of remediation. Or worse still, suppose we are dealing with non toxic contamination, an oil or gasoline spill, where, under the Navigation Law, Article 16, only the present owner of the property can sue the party responsible for the cost of remediation. Once the condemnee is out of title, he no longer has that right.

In the normal course of events, in the case of a toxic or hazardous contamination, under pertinent statutes (eg. CERCLA), where remediation is ordered, he has a right to seek a recovery from the actual perpetrator(s) for all or part of the cost. Thus, if he innocently bought a contaminated property and the EPA sued him, he could bring the prior owners into the suit and possibly secure indemnification from the actual culprit(s). But, as the present law stands in condemnation proceedings, if the condemnor seeks what is, in effect, an offset against the value of his property of the cost of remediation, assuming, for this purpose, that it is a valid approach to value (cf. Inmar Associates, Inc. v. Borough of Carlstadt, 112, N.J. 593 (1988)), the condemnee cannot shift the cost of remediation to the party ultimately responsible in that law suit. Having the value of his property reduced by the cost of remediation, he must bring a plenary action to seek to be made whole, where the determination of the condemnation court as to both the condition and the cost of remediation will not bind the party he alleges to be ultimately responsible for remediation costs, but might bind him on the basis of collateral estoppel. In this way, it is entirely possible for the condemnation court to make findings disparate with the findings in the plenary suit, leaving the condemnee not only with the possibility of being unjustly stuck but faced with double litigation costs. Or suppose the condemnation court uses the cost of remediation as the basis for finding a value, but does not make a specific finding as to the cost of remediation, but only the ultimate finding of value. Now what does he do. That also impacts on the condemnee who brought the property based upon a contract of indemnification from his credit worthy buyer. It also provides no basis for relief from the actual contaminator. Worse yet, it might be argued that the impact on market value is totally different from the cost of remediation and then how do you seek contribution and that is to assume the mere reduction in value for a potential remediation will give him that right as opposed to actual remediation, a very large assumption indeed.

Take the instance of the property contaminated by an oil or gasoline spill on adjacent property which found its way into the water table and has migrated onto the condemned property. Under New York State law only the present owner of the property may bring suit to recover the cost of remediation. But once the property is condemned he no longer is the owner and the condemnor is the sole party which holds that right. What happens then when the condemnor seeks an offset from the value of the property by reason of the cost of remediation and succeeds. What happens if it succeeds but does not remediate or does not remediate to the extent claimed. What about his loss of a right to bring suit against a prior owner who may have been responsible for the spill while finding the value of his property has been penalized by the cost of remediation and he has been denied any remedy by reason of the condemnation. If, indeed, New York Courts will hold to their long standing position of the limited jurisdiction of the condemnation court and the cost of remediation can be sought to be collected by the condemnor in the guise of a deduction from the value of the property, we are looking at the potential for very obvious injustices. Other states have other answers. In New Jersey the whole issue of property contamination, cost of remediation and fixing of liability can be tried together with the condemnation proceedings. We have seen it happen in connection with the Newport City Development condemnation proceeding. At least one Appellate Court in the State of Illinois has found a different answer where, similar to the situation in New York, its statute provides that the condemnation court’s jurisdiction is limited to the condemnation proceeding itself.

In Department of Transportation of the State of Illinois v. Parr, 633 N.E.2d 19 (App. Ct., 3d Dist., 1994), the lower court refused to permit in evidence the alleged costs of an environmental cleanup of the property. In that case the IDOT had sought to value the property “at zero due to the alleged presence of environmental hazards on the property and the costs of removing the hazards”. The case was appealed with a certified question. As the Court stated; “we are called upon to determine whether environmental remediation costs are admissible in eminent domain proceedings to determine the fair market value of the subject property.” The Court agreed with the trial court and ruled environmental clean up costs were not admissible in a condemnation proceeding. Some of the language of the Court is of interest.

“We also find that even if environmental remediation costs were admissible under section 7-119 (Eminent Domain Act), such admission would violate the procedural due process rights of the owners of condemned property. We determine that the Costs’ admission in a condemnation proceeding without the procedural safeguards provided in the Environmental Protection Act would permit the IDOT to circumvent the procedures established by the Legislature and the Environmental Protection Agency for recovering environment remediation costs. _ _ _ Upon receiving information that an alleged violation of the act (Environmental Protection Act) and its regulations has occurred, the agency may investigate and file a complaint against the offender with the Board (Pollution Control Board). _ _ _ The Board has the authority to hear such complaints. At such a hearing, the complainant bears the burden of proving that a violation of the Act or its regulations has occurred or may occur and the respondent has caused the violation, _ _ _ a respondent may file third party actions against other parties who may be responsible for environmental contamination _ _ _.

” _ _ _ Due process also requires that orderly proceedings must advance according to established rules which do not violate fundamental rights. Under the Act, IDOT is legally entitled to commence an enforcement action to recover environmental remediation costs yet nothing in the record indicates that IDOT has commenced an enforcement action. Consequently, permitting IDOT to admit evidence of remediation costs in an eminent domain proceeding would effectively allow IDOT to recover these costs without adhering to the procedures established to provide that remedy. We cannot allow IDOT to achieve such a result.

“As stated previously, property owners against whom remediation costs are sought have a right to require proof of the existence of a violation. They also have a right to bring third-party actions against prior owners of the property and require such other parties to pay remediation costs if the proper tribunal finds them to be responsible. The Eminent Domain Act by itself neither allows for third party actions nor addresses potential liability under the Environmental Protection Act. The only established procedures for addressing violations of the Environmental Protection Act and providing remedies for such violations are found in the act itself and the case law giving construction to the Act. For the reasons given, we conclude that the admission of remediation costs at an eminent domain proceeding violates the rights of property owners to have their potential liability properly adjudicated in a proceeding under the act with the attendant procedural safeguards.” (emphasis in original).

We suggest that this decision is substantially applicable here in New York. We believe, for the reasons given by the Illinois Court, that in view of the limited jurisdiction of New York Courts that to, in effect, recover the costs of remediation by deducting them from the value of the property in a condemnation proceeding violates the due process rights of a condemnee.

Reprinted with permission from the October 26, 1994 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.