Eminent Domain Law

Remediation Costs Should Not Be Considered in Eminent Domain Valuation

Matter of City of New York v. Mobil Oil Corp.

NYLJ 11/4/04, p. 18, col. 1

AppDiv, Second Dept

(Opinion by Santucci, J.)

In the City of New York's condemnation proceeding, the city appealed from Supreme Court's order excluding evidence relating to the costs of remediating environmental contamination on the condemned land. The Appellate Division affirmed, holding that remediation costs should not be considered in valuing the land, but that funds received by the condemnee should be held in escrow to cover potential liability under the Navigation Law.

In 1997, the City condemned six acres of land in Greenpoint that had previously been used by Mobil as a petroleum storage facility. In 1990, about 50,000 gallons of petroleum had been spilled from one of the petroleum tanks, resulting in contamination. In connection with the condemnation, the city and Mobil exchanged appraisals. Mobil's appraiser set the property's value at $10,300,000, reflecting potential use for “big box” commercial development. The city's appraiser arrived at a figure of $2,600,000, but concluded that the net value would be negative after a setoff for cleanup and excavation costs, which the city's appraiser estimated at $3,704,399. The, in 2000, the city brought a separate action pursuant to section 181(1) of the Navigation Law contending that Mobil was strictly liable for cleanup costs. In the condemnation proceeding itself, Mobil moved to exclude evidence of a claimed reduction in value attributable to a setoff for cleanup costs, contending that such a setoff could expose Mobil to potential double liability if it were then held strictly liable in the action brought pursuant to the Navigation Law. Supreme Court granted the motion, and the city appealed.

In affirming, the Appellate Division emphasized the potential for unfairness if the condemnee's Navigation Law liability were not properly accounted for in the condemnation proceeding. The court concluded that the best way to avoid double liability, while also assuring that the city can collect cleanup costs, is to value the property as if it has been remediated, and then to hold the condemnation proceeds in escrow. On this theory, Supreme Court properly excluded evidence of Remediation costs. At the same time, the Appellate Division noted that in valuing the property as if remediated, Supreme Court should not value it as if were “clean”, because the court would be free to consider the devaluation that would result from any stigma that attaches to property that had previously been contaminated.

COMMENT

A number of courts outside New York have admitted evidence of remediation costs to determine the fair market value of condemned property where there was no prospect for double liability. In State of Tennessee v. Brandon, 898 S.W.2d 224 (Tenn. Ct. App. 1995) the Commissioner of the Department of Transportation appealed the exclusion of the remediation costs it had expended to clean condemned property after the landowner received $85,000 in a state condemnation proceeding. The Court agreed with the Commissioner and ordered that evidence of remediation costs be admitted in a new condemnation proceeding. Since the remediation costs had already been incurred, their admission in a condemnation proceeding would only be used to determine their reasonableness and therefore, there was no potential for double liability. Similarly, there was no prospect of double liability in Redevelopment Agency of the City of Pomona v. Thrifty Oil Co., 4 Cal. App. 4th 469 (Cal. Ct. App. 1992), where the court permitted remediation costs to be introduced as evidence after the City had taken possession of condemned land and spent $182,000 to treat contamination. And in City of Olathe v. Stott, 861 P.2d 1287 (Kan. 1993), the Kansas Supreme Court held that evidence of contamination was admissible in a trial for valuation for the limited purpose of showing the diminished value of the land due to stigma and risk; under the Kansas statute the landowners were not to be held liable for most of the cleanup costs.

Courts that must confront the possibility of double liability have opted to exclude remediation costs from condemnation proceedings, as did the court in Mobil Oil Corp. Thus, in Housing Authority v. Suydam, 177 N.J. 2 (NJ 2002), the New Jersey Supreme Court held that reducing the value of the property to reflect remediation costs would be fundamentally unfair. The New Jersey Spill Act imposed strict liability with very limited defenses, without regard to fault, practically ensuring that the landowner with contamination on his property would be held liable for its remediation. Just as in Mobil Oil Corp., the landowner was susceptible to double liability if evidence of remediation costs were also admitted in the condemnation proceeding to reduce the market value. Therefore, the court excluded remediation costs from the condemnation proceeding, until the extent of the landowner's liability had been established under the New Jersey Spill Act.

The one case in which a court has concluded that evidence of remediation costs would be admissible despite the possibility that the landowner might be subject to double liability, was a case where a recent statute had provided the landowner with a setoff, in any subsequent remediation proceeding, for the reduction in value attributed to remediation cost in a prior condemnation proceeding. Northeast Ct. Economic Alliance, Inc. Et. Al. v. ATC Partnership Et. Al., 256 Conn. 813 (Conn. 2001). Hence, the statute had eliminated the possibility of double liability.

Remediation Costs Should Not Be Considered in Eminent Domain Valuation

Matter of City of New York v. Mobil Oil Corp.

NYLJ 11/4/04, p. 18, col. 1

AppDiv, Second Dept

(Opinion by Santucci, J.)

In the City of New York's condemnation proceeding, the city appealed from Supreme Court's order excluding evidence relating to the costs of remediating environmental contamination on the condemned land. The Appellate Division affirmed, holding that remediation costs should not be considered in valuing the land, but that funds received by the condemnee should be held in escrow to cover potential liability under the Navigation Law.

In 1997, the City condemned six acres of land in Greenpoint that had previously been used by Mobil as a petroleum storage facility. In 1990, about 50,000 gallons of petroleum had been spilled from one of the petroleum tanks, resulting in contamination. In connection with the condemnation, the city and Mobil exchanged appraisals. Mobil's appraiser set the property's value at $10,300,000, reflecting potential use for “big box” commercial development. The city's appraiser arrived at a figure of $2,600,000, but concluded that the net value would be negative after a setoff for cleanup and excavation costs, which the city's appraiser estimated at $3,704,399. The, in 2000, the city brought a separate action pursuant to section 181(1) of the Navigation Law contending that Mobil was strictly liable for cleanup costs. In the condemnation proceeding itself, Mobil moved to exclude evidence of a claimed reduction in value attributable to a setoff for cleanup costs, contending that such a setoff could expose Mobil to potential double liability if it were then held strictly liable in the action brought pursuant to the Navigation Law. Supreme Court granted the motion, and the city appealed.

In affirming, the Appellate Division emphasized the potential for unfairness if the condemnee's Navigation Law liability were not properly accounted for in the condemnation proceeding. The court concluded that the best way to avoid double liability, while also assuring that the city can collect cleanup costs, is to value the property as if it has been remediated, and then to hold the condemnation proceeds in escrow. On this theory, Supreme Court properly excluded evidence of Remediation costs. At the same time, the Appellate Division noted that in valuing the property as if remediated, Supreme Court should not value it as if were “clean”, because the court would be free to consider the devaluation that would result from any stigma that attaches to property that had previously been contaminated.

COMMENT

A number of courts outside New York have admitted evidence of remediation costs to determine the fair market value of condemned property where there was no prospect for double liability. In State of Tennessee v. Brandon, 898 S.W.2d 224 (Tenn. Ct. App. 1995) the Commissioner of the Department of Transportation appealed the exclusion of the remediation costs it had expended to clean condemned property after the landowner received $85,000 in a state condemnation proceeding. The Court agreed with the Commissioner and ordered that evidence of remediation costs be admitted in a new condemnation proceeding. Since the remediation costs had already been incurred, their admission in a condemnation proceeding would only be used to determine their reasonableness and therefore, there was no potential for double liability. Similarly, there was no prospect of double liability in Redevelopment Agency of the City of Pomona v. Thrifty Oil Co., 4 Cal. App. 4th 469 (Cal. Ct. App. 1992), where the court permitted remediation costs to be introduced as evidence after the City had taken possession of condemned land and spent $182,000 to treat contamination. And in City of Olathe v. Stott, 861 P.2d 1287 (Kan. 1993), the Kansas Supreme Court held that evidence of contamination was admissible in a trial for valuation for the limited purpose of showing the diminished value of the land due to stigma and risk; under the Kansas statute the landowners were not to be held liable for most of the cleanup costs.

Courts that must confront the possibility of double liability have opted to exclude remediation costs from condemnation proceedings, as did the court in Mobil Oil Corp. Thus, in Housing Authority v. Suydam, 177 N.J. 2 (NJ 2002), the New Jersey Supreme Court held that reducing the value of the property to reflect remediation costs would be fundamentally unfair. The New Jersey Spill Act imposed strict liability with very limited defenses, without regard to fault, practically ensuring that the landowner with contamination on his property would be held liable for its remediation. Just as in Mobil Oil Corp., the landowner was susceptible to double liability if evidence of remediation costs were also admitted in the condemnation proceeding to reduce the market value. Therefore, the court excluded remediation costs from the condemnation proceeding, until the extent of the landowner's liability had been established under the New Jersey Spill Act.

The one case in which a court has concluded that evidence of remediation costs would be admissible despite the possibility that the landowner might be subject to double liability, was a case where a recent statute had provided the landowner with a setoff, in any subsequent remediation proceeding, for the reduction in value attributed to remediation cost in a prior condemnation proceeding. Northeast Ct. Economic Alliance, Inc. Et. Al. v. ATC Partnership Et. Al., 256 Conn. 813 (Conn. 2001). Hence, the statute had eliminated the possibility of double liability.