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New Jersey Transit Corporation v. Cat in the Hat, LLC

177 N.J. 29, 826 A.2d 690 (2003)

EMINENT DOMAIN; ENVIRONMENTAL CONTAMINATION—A condemning authority may appraise a contaminated property as if remediated; deposit the entire value in court; and, ask a court to reserve the condemnor’s right to commence a cleanup recovery action.

A public authority began condemnation actions of commercial parking lots near a train station. Prior to instituting its condemnation actions, the agency “retained an environmental testing firm to conduct a Phase I assessment of the subject properties.” Each condemnee received a report “that calculated the estimated cost to remediate the property, to develop it to its highest and best use, and to comply with the New Jersey Department of Environmental Protection (NJDEP) requirements.” Only slight contamination was found, and the agency estimated the cost to remediate each property at $25,000. Verified complaints and declarations of taking were filed. “Each complaint sought a final judgment with an environmental reservation clause pursuant to which [the agency], as a governmental entity condemnor, reserved its right to recover any present or future cleanup costs.” “The condemnees filed answers and objected to the reservation of rights language, requesting that [the public agency] bring all claims in one action. The condemnees also contended that [the public agency] did not conduct proper bona fide negotiations because of its ‘defective environmental reservations’ and ‘illegal environmental claims.’” When the condemnees moved to withdraw the monies deposited in the Court, the public agency sought to withhold $25,000 to cover estimated remediation costs. The lower court analyzed the reservation of rights clause. It thought forever barring “the condemnees from asserting the defenses of res judicata, collateral estoppel, and/or the entire controversy doctrine [went] too far.” It modified the language, “withdrawing the automatic preclusion of these defenses, noting that it [would] be up to the trial court to determine if those doctrines can or cannot be invoked in relation to after-discovery of environmental contamination.” All parties appealed and the Supreme Court heard the matter. It held that “[t]he reservation of rights clause and the preclusion of the defenses of res judicata, collateral estoppel, and entire controversy are proper concomitants of the valuation methodology adopted [under a case decided at the very same time as this case].” “Under the valuation methodology approved [in the companion case], the condemnor appraises the property as if remediated, deposits that amount into a trust-escrow account in court and reserves the right to bring a separate action to recover remediation costs.” The purpose of the valuation scheme is to address concerns over double liability. “The purpose of the reservation of rights clause is to avoid a future entire controversy claim by notifying the trial court that the condemnation suit does not adjudicate the contamination claim, which is reserved for determination in a separate cost-recovery action.” The condemnation claim does not address cleanup action because “[d]ue to the nature of eminent domain, a complete initial investigation prior to condemnation is not possible or practical. Moreover, the Eminent Domain Act does not require the condemnor to conduct an environmental assessment of the property.”

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