On certification to the Superior Court, Appellate Division, whose opinion is reported at 353 N.J. Super. 364 (2002).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
[NOTE: This is a companion case to Housing Authority of the City of New Brunswick v. Suydam Investors, L.L.C. et als. (A-68/69-02)]
The issue on appeal is whether a trial court may enter an order in an eminent-domain proceeding that preserves a governmental condemnor's ability to bring a separate cost-recovery action against a condemnee for cleanup of contamination and, if so, whether that order also may bar the condemnee from later raising the preclusionary defenses of res judicata, collateral estoppel, and the entire controversy doctrine.
Goldman and Cat in the Hat properties
In April 2000, New Jersey Transit Corporation (NJT) began condemnation actions against Goldman, Popkin, Caputi, Hegedus, and Carom Partnership (Goldman) trading as Best Spot Parking and Cat in the Hat, LLC (Cat in the Hat), trading as Penn Central Parking (collectively condemnees). The subject properties, separately owned, are adjacent commercial parking lots near the Trenton Train Station. NJT sought to acquire the sites as part of its construction of a new light rail transit system between Trenton and Camden. The plans call for NJT to construct a station stop terminus, which will stretch across the two subject properties, any remainder to be put to other uses. At the time of NJT's condemnation actions, both properties operated as commercial automobile parking lots covered by impervious asphalt caps (parking lot surface).
Prior to instituting its condemnation actions, NJT retained an environmental testing firm to conduct a Phase I assessment of the subject properties. The assessment included an investigation of the history, prior uses, and other available information on the site, an examination of relevant environmental records, and limited site inspection. After the site investigation, a Property Acquisition Cost Estimating (PAECE) report was prepared. Each condemnee received the a report that calculated the estimated cost to remediate the property, to develop it to its highest and best use, and to comply with New Jersey Department of Environmental Protection (NJDEP) requirements.
In January and March 2000, NJT informed the condemnees that the PAECE report detected soil contamination on the properties. However, NJT indicated that because of the low concentration of contaminants found, NJDEP would most likely not require further investigation and cleanup or remediation in accordance with NJDEP guidelines. NJT informed the condemnees that NJDEP would likely require placement of a Declaration of Environmental Restriction, commonly known as a Deed Notice, to provide notice to any subsequent owners about the contamination on the properties. NJT's environmental consultant indicated that the easiest and least expensive method to remediate the site was to maintain the parking lot surface to avoid human exposure to any contaminants. NJT estimated the cost of remediation for each property at $25,000, including transactional costs.
NJT filed verified complaints and declarations of taking to acquire the subject properties by eminent domain.
Each complaint sought a final judgment with an environmental reservation clause pursuant to which NJT, as a governmental entity condemnor, reserved its right to recover any present or future cleanup costs. NJT's proposed orders for judgment also included language providing that the NJT could raise hazardous waste claims without being barred by the principles of res judicata, collateral estoppel, and/or the entire controversy doctrine.
In April 2000, the trial court ordered the condemnees to show cause why judgment should not be entered declaring that NJT had properly exercised its powers of eminent domain and appointing three disinterested commissioners to value the property. NJT's orders sought judgment declaring that the reservation of rights made in Paragraphs 7 and 8 of the complaint as to environmental contamination issues existing as of or prior to the date NJT took title and possession, were preserved in accordance with the proposed order for judgment.
NJT deposited $500,000 in court for the Goldman property and $985,000 for the Cat in the Hat property, representing the fair market value as if the properties had been remediated. The condemnees filed answers and objected to the reservation of rights language, requesting that NJT bring all claims in one action. The condemnees also contended that NJT did not conduct proper bona fide negotiations because of its "defective environmental reservations" and "illegal environmental claims." The condemnees later moved to withdraw the monies deposited in court. NJT sought to withhold $25,000 from each condemnation award to cover estimated remediation costs.
The trial court ruled that NJT's environmental reservation provision was valid, but modified the proposed language. The court found that the language in the reservation of rights clause that forever barred the condemnees from asserting the defenses of res judicata, collateral estoppel, and/or the entire controversy doctrine goes too far. The court modified the language, withdrawing the automatic preclusion of these defenses, noting that it will be up to the trial court to determine if those doctrines can or cannot be invoked in relation to after-discovery of environmental contamination. The court entered an order permitting the condemnees to withdraw the amount of just compensation determined by the commissioners, but required each to maintain on deposit in court $25,000 in estimated remediation/transactional costs.
Sandra Eisen was the owner of property in Hudson County acquired by eminent domain by the New Jersey Department of Transportation (NJDOT). The reservation of rights issue raised by NJT in Goldman and Cat in the Hat also was raised in Eisen. However, the trial court permitted in the condemnation judgment a reservation of rights provision identical to the provision in NJT's proposed orders, including the preclusion of res judicata, collateral estoppel and the entire controversy doctrine.
All condemnees appealed and in July 2002, the Appellate Division affirmed in Eisen and reversed in Goldman and Cat in the Hat. According to the Appellate Division, the condemnees' position regarding the preclusionary defenses threatens the immunity conferred by the Legislature on acquiring public entities and runs counter to the legislative intent to impose strict liability under the Spill Act on those who are responsible for environmental contamination.
The Supreme Court granted certification.
HELD: The 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 today in Housing Authority of the City of New Brunswick v. Suydam Investors, LLC.
1. Under the valuation methodology approved today in Housing Authority, 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. That valuation scheme addresses the condemnees 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. Thus, the preclusion of the entire controversy defense follows from the existence of the reservation or rights provision. (Pp. 17-19)
2. Where the property is valued in condemnation as if remediated and the State specifically reserves the right to recover cleanup costs in a separate action, collateral estoppel and res judicata are, by their very nature, inapplicable because the condemnation action did not adjudicate the contamination. Due to the nature of eminent domain, a complete initial environmental 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. All that the Act requires is that the condemnor conveys what is known. (Pp. 19-21)
3. The condemnees' claim that they should be able to argue the reasonableness of the government's initial investigation contravenes the statutory scheme underlying the Spill Act. The Legislature has provided that a governmental condemnor generally is immune from liability for contamination and that the party responsible remains liable even after transfer of the property. Any reasonableness argument would chip away at the ...