The Appellate Division recently issued an opinion which has the potential to significantly impact the redevelopment of brownfields in the State of New Jersey. In summary, the opinion identifies a limitation on the Suydam methodology which is followed in the condemnation of environmentally contaminated property. Typically, when environmentally contaminated land is condemned, the property is valued as if remediated and the funds are then paid into court. The condemnor may later pursue these funds in cost recovery for reimbursement of the cleanup costs. This methodology was established in 2003 by the New Jersey Supreme Court in its consideration of New Brunswick v. Suydam Investors, LLC, 77 N.J. 2 (2003). In Borough of Paulsboro v. Essex Chemical Corp., A-5248-10T4, the Appellate Division decided that this methodology need not be applied when the condemned property consists of or is part of a closed landfill. However, the reach of the opinion may be beyond landfills.

In Paulsboro, the Borough of Paulsboro (“Paulsboro”) condemned a 67 acre tract of land which was owned by Essex Chemical Company (“Essex”). Seventeen of the 67 acres contained a closed landfill, having previously served as a disposal location for gypsum. The condemnee had already closed the landfill with formal approval from the New Jersey Department of Environmental Protection (the “Department”). As a condition of the Department’s approval, Essex was required to perform ongoing monitoring and maintenance activities at the site. These responsibilities were subsequently assigned by Essex to BP Products North America, Inc. (“BP”) under a Lease Agreement whereby BP would construct a solar energy facility upon the property. The Lease Agreement also provided that it would automatically terminate should the property be condemned.

In the condemnation by Paulsboro, the property was valued at $1,215,000 which reflected the fair market value of the property “as if remediated, including the landfill.” Paulsboro filed a declaration of taking and paid $1,215,000 into court. Essex promptly filed a motion to withdraw the funds and Paulsboro filed a cross motion to escrow the funds for the remediation of the landfill. Paulsboro’s motion was denied and the funds were released to Essex. Upon the conclusion of the valuation trial, the court determined that the property was worth $1,518,750 since each of the 67 acres, including the 17 acres comprising the closed landfill, was worth approximately $22,500.

Paulsboro appealed the court’s decision, not based on the fair market value determination but rather, on the failure of the court to follow the Suydam methodology. Specifically, Paulsboro argued that since the property had been valued as if remediated, the funds that were paid into court should have been escrowed for the cost of cleaning up the landfill. The Appellate Division disagreed finding that since the landfill had already been closed with the Department’s approval, no cleanup was necessary and thus, funds were not required to be escrowed.

The Appellate Division reasoned that the pre-requisite to following the Suydam methodology is “the reality of a condemnee’s liability for the costs of remediation under the Spill Act and like statutory initiatives.” If a site has already been cleaned up, then the condemnee has no additional liability. In the case of Paulsboro, Essex had already closed the landfill with the Department’s approval and even though Essex had a continuing obligation to monitor and maintain the property, it did not have any additional obligation to remediate, hence, the condemnor would not have to perform any additional remedial activities. In other words, the closure of the landfill with the Department’s formal approval was tantamount to the remediation of the landfill; removal of the landfill or any other cleanup was unnecessary. In dicta, the Appellate Division readily acknowledged that the property would have a higher fair market value if the landfill were removed, however, removal of the landfill was not required. Therefore, any removal of the landfill would be at the condemnor’s election.

The reach of this decision is likely beyond landfills. One might extrapolate that it is applicable to the condemnation of any remediated site with continuing monitoring obligations, such as those which have been capped or have utilized other engineering and institutional controls. In those instances, if the condemnee has no realistic liability to conduct additional remedial activities, funds will not be required to be escrowed for the cleanup costs. Any additional remedial activities conducted at the site would be not only at the condemnor’s election, but also at the condemnor’s cost.

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