Cleaning up condemnation proceedings: legislative and judicial solutions to the dilemma of admitting contamination evidence.

ABSTRACT: State courts have adopted different approaches to valuing contaminated properties for purposes of awarding just compensation in eminent domain proceedings. Of the states that have adjudicated this issue, the majority have held that evidence of contamination is admissible under the principle that market value is the best measure of just compensation and contamination is relevant to market value. A minority exclude contamination evidence to avoid penalizing the condemnee for contamination twice: once in the form of a reduced compensation award and again when the condemnee is held liable for remediation costs in a cost-recovery proceeding. A few states have adopted a third alternative, the trust-escrow approach, which omits evidence of contamination during the condemnation proceeding and holds the award in escrow pending the resolution of a cost-recovery action. Ideally, courts and legislatures should fashion a remedy that protects the condemnee from double liability and protects the condemnor from paying an unreasonably high price for the property. This Note suggests that the best solution to this problem is a statutory fix specifying that contamination evidence is admissible in condemnation proceedings and that any reduction in value due to contamination will offset future cleanup liability. In the absence of a legislative fix, however, this Note concludes that the trust--escrow approach is the best judicial solution because it strikes the most equitable balance between the interests of the condemnor and condemnee.

 
  I. INTRODUCTION 
 II. TRADITIONAL PRINCIPLES OF EMINENT DOMAIN AND JUST 
     COMPENSATION 
     A. EMINENT DOMAIN 
        1. The Process and Use of Condemnation 
        2. Public-Use Doctrine and Contaminated Properties 
     B. DEFINING "JUST COMPENSATION" 
        1. Comparable-Sales Method 
        2. Capitalization-of-Income Method 
        3. Other Methods of Valuing Property 
III. JUST COMPENSATION FOR CONTAMINATED PROPERTIES 
     A. THE NATURE OF THE DIFFICULTY IN APPLYING TRADITIONAL 
        PRINCIPLES OF "JUST COMPENSATION" 
        1. Difficulty in Measuring Fair Market Value 
        2. Potential for "Double Liability" in Cost-Recovery 
           Proceedings 
     B. THE SPLIT IN AUTHORITY AMONG THE STATES 
        1. Majority Rule: Admitting Evidence of Contamination 
        2. Minority Rule: Omitting Evidence of Contamination 
           a. Avoiding Double Liability 
           b. Protecting Due-Process Rights 
           c. Upholding the Independent Nature of Eminent Domain 
              and Environmental Law 
           d. Avoiding Complications and Delay in Condemnation 
        3. A Possible Compromise: The Trust-Escrow Approach 
 IV. RECOMMENDED LEGISLATIVE AND JUDICIAL SOLUTIONS 
     A. THE BEST LEGISLATIVE SOLUTION: ADMISSION WITH SET-OFF 
        1. The Admission with Set-Off Approach and Modern 
           Brownfield Development Practices 
        2. Uncertainty in Cost-Recovery 
        3. Mechanisms for Offsetting Cleanup Liability 
     B. THE BEST JUDICIAL SOLUTION: OMISSION WITH TRUST-ESCROW 
  V. POTENTIAL FOR SUPREME COURT REVIEW 
 VI. CONCLUSION 

I. INTRODUCTION

The Windham Mills Technology Center in Northeast Connecticut is comprised of renovated factory buildings that once housed The American Thread Company, the largest cotton mill in the world during the early twentieth century. (1) The mill finally closed its doors in 1985 after many years of steady decline, leaving behind the dilapidated relics of a once-thriving factory and the stain of hazardous chemicals that had seeped into the soil over its years of operation. (2) In an effort to revive the local economy, which had crumbled along with the mill, the city condemned the property and conveyed it to the Windham Mills Development Corporation. (3) Before the Corporation could adapt the site for commercial use, however, it required extensive environmental remediation. (4) This became a major issue in determining how to value the property in the condemnation trial. (5) The presence of contamination complicated the process of determining what constituted just compensation for the owner of the property. (6)

Traditionally, just compensation for the exercise of eminent domain is some measure of market value for the property. (7) In the case of contaminated properties, market value is complicated by the costs of cleaning up the property for the intended use and the possibility of subsequent cost-recovery actions against the condemnee. Finding just compensation for contaminated properties presents the decisionmaker(8) with two undesirable alternatives: admit evidence of contamination to reduce the condemnation award at the risk of imposing double liability for cleanup costs, (9) or withhold the evidence of contamination and compensate the landowner as if the property were remediated at the risk of overcompensating the landowner at the expense of taxpayers.

The Connecticut Supreme Court addressed this issue when evaluating just compensation for the landowner in the condemnation of The American Thread Company's dilapidated cotton mill. In Northeast Ct. Economic Alliance, Inc. v. ATC Partnership, (11) the court held that contamination evidence must be admitted, thereby reducing the compensation awarded to the landowner. (12) The Connecticut approach falls in line with the majority of states that have considered this issue. (13) However, many state courts and legislatures are split between this approach and its alternatives, and there is a substantial body of authority defending or disparaging each alternative. (14)

The divide in authority is likely to grow as courts see an increasing number of contaminated properties subjected to eminent domain proceedings, in part because the growing national interest in urban renewal has created a greater demand for the redevelopment of stagnant, often contaminated, urban properties. Many of these properties are relics of the industrial age and exist today only as scars on city landscapes. Entrepreneurs are taking advantage of the opportunities to redevelop these properties into uses that are profitable and beneficial for the public. (15) The Windham Mills Technology Center development on the former site of the American Thread Company is just one example of an industrial relic being transformed into modern use. (16)