Cleaning Up Condemnation Proceedings: Legislative and Judicial Solutions to the Dilemma of Admitting Contamination Evidence

Author:Andrea L. Reed
Position::J. D. Candidate, The University of Iowa College of Law

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 ... (see full summary)

J. D. Candidate, The University of Iowa College of Law, 2008; B.B.A., B.S.S.W., Texas Christian University, 2004. I would like to thank the editors and student writers of the Iowa Law Review for their valuable time and effort on this piece. I would also like to thank my family and my fiancé, Nicolas, for their endless love and support.

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 decisionmaker8 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.10

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.12The 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

In light of the conflicting authority on the question of whether to admit contamination evidence and the importance of this issue in urban revitalization, this Note analyzes the issues involved and concludes that legislatures and courts can best address the dilemma of admitting contamination evidence in different ways. Part II begins this discussion with some background in the traditional principles of eminent domain and just compensation. Part III examines how compensation for contaminated properties is not well-aligned with traditional principles of just compensation and examines the current split in authority regarding the admissibility of contamination and remediation evidence. Part III introduces the double-liability problem, which occurs when a condemnation award to a landowner is reduced due to the presence of contamination and that landowner is subsequently held responsible for cleanup costs in a cost- recovery proceeding. Finally, Part IV suggests possible legislative and judicial solutions to the dilemma of admitting contamination evidence and avoiding the double-liability problem.

Ultimately, this Note concludes that legislative bodies can achieve the best solution through legislation expressly allowing the admission of contamination evidence in a condemnation proceeding and authorizing a set-off in the amount of the reduction in the award due to contamination against future cleanup liability. In the absence of legislative guidance, the best way for courts to handle this issue would be to omit evidence of contamination and hold the award in escrow for a limited period of time to satisfy future cleanup liability.

II. Traditional Principles Of Eminent Domain And Just Compensation

A. Eminent Domain

The power of eminent domain derives from early English common law.17 It is based on the theory that the sovereign ultimately holds title to all land and may call for this title when necessary to serve some greater purpose.18 Eminent domain exists today as the sovereign power to take private property, but it is expressly limited in two ways: the sovereign must take the property for a "public use" and must pay "just compensation" to the landowner.19 These limitations are manifested in the Takings Clause of the Fifth Amendment of the U.S. Constitution: "[N]or shall private property be taken for public use, without just compensation."20 The precise definition of a public use and what constitutes just compensation is a matter of continuing judicial debate. This Note describes these debates in further detail after a brief discussion on the authority to condemn and its usefulness to communities.

1. The Process and Use of Condemnation

Both federal and state governments are sovereign entities that may exercise their power of eminent domain.21 Legislatures may delegate this power to administrative agencies, public and private corporations, and even individuals within their jurisdiction.22 Most often, state governments delegate this authority to local governments, agencies, and public service corporations.23 These entities may, in turn, delegate the power of eminent domain within their discretion, often to private development corporations,24as long as the public-use requirement is met.

Once the authority to condemn is established, the entity exercising this authority is subject to the established condemnation procedure, which varies widely across jurisdictions.25 The procedure may be a purely administrative function, which only becomes a trial when appealed to the applicable judicial system, or it may begin as a judicial process.26 Most states and the federal government have statutes requiring that the condemnor engage in good-faith settlement negotiations with the property owner before initiating condemnation proceedings.27 It is most advantageous for taxpayers if the parties can agree to a reasonable settlement without undergoing litigation costs; but, of course, increased settlements will decrease the body of law available to guide future settlements.28

If settlement negotiations are not successful, many states require the condemnor to provide a bond or another form of security for the proposed amount of compensation before initiating formal condemnation proceedings.29 A local government entity, such as the county treasurer, holds this security for the condemnee.30 The amount of money required to condemn property often leads local governments to secure funding from the state or federal government through programs for the cleanup of contaminated property31 or to delegate the power of eminent domain to private corporations interested in redeveloping the property.

Eminent domain plays an important role as communities struggle to develop strategies to rehabilitate abandoned factories, vacant industrial lots, former petroleum storage sites, and other relics of the industrial age.32 It has been called "'one of the most powerful tools city officials have to rejuvenate their neighborhoods.'"33 The demand to redevelop these properties is likely to increase as the interest in revitalizing urban areas becomes more prominent.34 Recent headlines reveal the growth of this "urbanist movement."35

Additionally, former industrial sites are attractive targets for condemnation because they are usually capable of a more productive use and are not likely to be redeveloped for this use through traditional market forces.36 Condemnation is often the only practical way to redevelop contaminated urban properties, or "brownfields,"37 because the owners of these properties tend to resist redevelopment or sale due to the high cost of cleanup and liability for these costs under the Federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") of 198038 or one of the many state-specific environmental cleanup liability statutes.39

2. Public-Use Doctrine and Contaminated Properties

Condemnation is a useful tool for communities to return contaminated properties to the stream of commerce. Before taking this action, the condemning authority must establish that it is condemning the property for a valid public use.40 Existing jurisprudence has established great deference to state governments in determining whether a public use exists. In fact, the Supreme Court has described the state's power to determine the scope of "public use" as "coterminous with the scope of a sovereign's police power."41

In the case of contaminated properties, a commonly stated public use that enables condemnation...

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