Housing Auth. v. Suydam Investors

• Decision Date: 10 July 2003
• Citation: 826 A.2d 673,177 N.J. 2
• Parties: 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 & Gas Company and John Does, 11-20, Defendants.
• Court: New Jersey Supreme Court

826 A.2d 673

177 N.J. 2

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 & Gas Company and John Does, 11-20, Defendants.

Supreme Court of New Jersey.

Argued April 29, 2003.

Decided July 10, 2003.

James M. Turteltaub, Florham Park, argued the cause for appellant and cross-respondent (Carlin & 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 & Spitzer, attorneys; Mr. Brauth and Yvonne Marcuse, Woodbridge, 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.

I

Defendant Suydam Investors, LLC (Suydam) is the owner of three parcels of land located on George Street and Remsen Avenue in downtown New Brunswick. Plaintiff Housing Authority of the City of New Brunswick (Authority) sought to acquire Suydam's property for a redevelopment project as part of the "Lower George Street Redevelopment Area" in New Brunswick. The parcels at issue can be described as follows: Fifteen (15) Remsen Avenue is the site of a 2.5 story dwelling that houses two residential apartments and a detached three-car garage. Two hundred forty-four to two hundred forty-six (244-246) George Street is the site of a one-story building that houses four commercial retail units. Two hundred fifty-two to two hundred fifty-four (252-254) George Street is the site of a three-story building that houses two commercial units and eight residential apartments. The Authority intends to construct approximately sixty-one residential rental units and associated commercial units on the property.

In March 1999, the Authority, through its developer, The Community Builders, Inc. (Developer), retained the firm of Adler Geoscience, Inc. (Adler) to provide environmental engineering services in connection with the redevelopment project. Adler inspected the property and subsequently prepared a Phase I environmental site assessment.¹ The Phase I report revealed that underground gasoline tanks had been maintained on the property; automobile body repair and services businesses that typically use 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-based paint. The Phase I report recommended that "further investigation be conducted at the site." Apparently Adler sent the Phase I report to the Developer but not to the Authority.

In January 2000, without that report and before filing its condemnation action, the Authority offered Suydam $972,000 for the property based on an expert appraiser's valuation. In order to comply with its statutory requirement the Authority had invited Suydam to accompany the appraiser, Jerome T. Gall, during his inspection of the property but Suydam did not do so. Gall employed a sales comparison approach and a capitalized income approach in valuing the property. Gall concluded that the highest and best use of the properties would be to demolish the existing improvements and utilize the site as zoned for commercial and residential purposes. It was Gall's opinion that the land value exceeded the total value of the property in its existing use and that the present use of the property was an interim use. He stated that, in valuing the property, he did not consider "the existence of potentially hazardous material used in the construction or maintenance of the building, such as the presence of toxic waste, which 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 does not take into account any environmental problems that could affect value."

Suydam made a counter offer of approximately $2,500,000. Suydam also requested the Authority to provide "any environmental studies which may have been performed by [the Authority] or any parties working in conjunction with or on behalf of [the Authority] with regard to the [subject] property[.]" In response, although the Authority for some reason indicated that it had "neither obtained nor authorized any other appraisals, opinions of value, or environmental studies of the subject property" except the appraisal performed by Jerome Gall, it provided Suydam with a copy of the Phase I report which by that time, it had obtained.

After several unsuccessful attempts to negotiate an agreement regarding the property's value, the Authority filed a verified complaint, an order to show cause, and a declaration of taking on March 22, 2000. The complaint did not allege that the property was contaminated but stated:

17. Plaintiff's offer of $972,000 is based upon the assumption that the Property is not subject to any matters not of record, including any assessment, cleanup requirement, penalty or reversion of title that may be imposed pursuant to any environmental statute, regulation, ordinance or other applicable environmental law.

In conjunction with the declaration of taking, the Authority deposited $972,000 in court pursuant to N.J.S.A. 20:3-18. Suydam did not oppose the taking, and in May 2000, the trial court entered a final judgment (1) declaring that the Authority had the power to condemn the subject property and (2) 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 that the Authority had deposited into court.

From October 2000 through March 2001, Adler conducted Phase II of its environmental assessment of Suydam's property. Because of "impermeable subsurface conditions (i.e., fractured shale bedrock)," Adler was unable to conduct a complete assessment. Adler nevertheless tested those portions of the property that were accessible and amenable to soil sampling and submitted a summary report. The Phase II 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. It also recommended that the impermeable areas be fully investigated during construction but after demolition of the existing buildings on the property.

Thereafter, the Authority moved for leave to amend its complaint for the purposes of (1) alleging the presence of environmental contamination including asbestos and lead paint, as a factor affecting the value of the property, (2) reserving its right to recover environmental cleanup costs, and (3) staying the commissioners' hearing "for a period of no more than one year, pending final resolution of all environmental liability and cost issues[.]" The Authority's reservation of rights clause provided:

19. Plaintiff reserves any and all rights it

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