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Borough of Paulsboro v. Essex Chemical Corp.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 13, 2007

BOROUGH OF PAULSBORO, PLAINTIFF-RESPONDENT,
v.
ESSEX CHEMICAL CORPORATION, DEFENDANT-APPELLANT, AND THE PRUDENTIAL INSURANCE COMPANY, AND THE STATE OF NEW JERSEY, DEFENDANTS.

On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, L-699-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 30, 2007

Before Judges Skillman, Lisa and Grall.

This is an eminent domain case. Essex Chemical Corporation (Essex), the property owner, appeals from a judgment for possession and the appointment of condemnation commissioners, see N.J.S.A. 20:3-12(b), which constitutes a final judgment declaring that Paulsboro "duly exercised its right to condemn." See N.J.S.A. 20:3-8 and N.J.S.A. 20:3-2(j). Essex opposed entry of the order in the trial court on the grounds that Paulsboro did not engage in bona fide negotiations prior to filing its complaint, as required in eminent domain proceedings. See N.J.S.A. 20:3-6. Essex makes the same arguments before us.

The property is a sixty-seven-acre riverfront tract, with frontage on the Mantua Creek and the Delaware River. It is a former industrial site, which includes a closed seventeen-acre landfill that is encapsulated and is now in its closure and monitoring status, approved by the Department of Environmental Protection (DEP). The landfill is enclosed by a fence and consists of a large mound on the property, which is otherwise flat. In 2002, Essex entered into a forty-year lease with BP Products North America, Inc. (BP), which allows BP to maintain a solar energy facility on the landfill site in exchange for $100 and the obligation to perform monitoring and maintenance activities of the closed landfill in accordance with DEP requirements.

Paulsboro determined that the area encompassing the property is "in need of redevelopment" pursuant to the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1 to -73. Paulsboro has entered into an agreement with a redeveloper and intends to develop the site as a marine terminal. Essex has not challenged Paulsboro's designation of the property as an area in need of redevelopment, and it has not challenged the redevelopment plan or redevelopment agreement.

Paulsboro engaged the services of Todd and Black, Inc. to perform an appraisal of the property. Utilizing the comparable sales approach to value, the appraiser set the property's value at $1,215,000. Paulsboro offered Essex that amount for acquisition of the property. Paulsboro entered into a separate agreement with BP, by which it agreed to continue the lease for the solar energy facility on the same terms as existed with Essex.

Essex contends that Paulsboro's appraisal and its offer pursuant to that appraisal were not bona fide and did not represent the fair market value of the property because the appraiser did not determine the value of the property "as if remediated." See Hous. Auth. of the City of New Brunswick v. Suydam Investors, L.L.C., 177 N.J. 2, 24 (2003). In particular, Essex presents these arguments on appeal:

POINT I

PAULSBORO'S FAILURE TO PROVIDE A "BONA FIDE" OFFER IS A JURISDICTIONAL DEFECT REQUIRING DISMISSAL OF ITS COMPLAINT.

POINT II

CONTRARY TO SUYDAM, THE TRIAL COURT ERRONEOUSLY CONCLUDED THAT THE BOROUGH'S APPRAISAL, WHICH DEVALUED THE PROPERTY FOR ENVIRONMENTAL REASONS, AMOUNTED TO AN OFFER AT FULL MARKET VALUE.

POINT III

CONTRARY TO KATZ, THE TRIAL COURT ERRONEOUSLY CONCLUDED THAT THE BOROUGH'S APPRAISAL, WHICH FAILED TO ACCOUNT FOR THE $35,000 PER YEAR LEASE, AMOUNTED TO AN OFFER AT FULL MARKET VALUE.

POINT IV

THE UNDISPUTED EVIDENCE ESTABLISHES THAT THE BOROUGH SOUGHT A PROPERTY DONATION AND TO IMPOSE UNCONSTITUTIONAL CONDITIONS, RENDERING ITS NEGOTIATIONS DEFICIENT.

POINT V

THERE IS NO PUBLIC PURPOSE FOR TAKING THE CLOSED LANDFILL.

POINT VI

THE TRIAL COURT ERRONEOUSLY FAILED TO ORDER DISCOVERY AS AN ALTERNATIVE TO APPOINTING CONDEMNATION COMMISSIONERS.

We reject these arguments and affirm.

The Eminent Domain Act requirement that the condemning authority make a fair market value offer in accordance with an approved appraisal as a prerequisite to filing a condemnation complaint, see N.J.S.A. 20:3-6, is intended "to encourage public entities to acquire property without litigation . . . thereby saving both the public and the condemnee the expense and delay of court action . . . ." County of Morris v. Weiner, 222 N.J. Super. 560, 565 (App. Div.), certif. denied, 111 N.J. 573 (1988); see also Borough of Rockaway v. Donofrio, 186 N.J. Super. 344 (App. Div. 1982) (providing historical commentary on the Eminent Domain Act of 1971, specifically on the provisions reflected in N.J.S.A. 20:3-6). Compliance with the pre-litigation requirements of the statute is jurisdictional, and failure of the condemnor to comply will result in dismissal of the condemnation complaint. Casino Reinvestment Dev. Auth. v. Katz, 334 N.J. Super. 473, 480-81 (Law Div. 2000). A one-price offer can be sufficient to satisfy the statutory requirement of bona fide negotiations. State, by Comm'r of Transp. v. Carroll, 123 N.J. 308, 317-18 (1991). Such an offer can satisfy the objective of preventing the condemning authority from making a low offer to gain a bargaining advantage, so long as the offer constitutes a genuine determination of fair market value. Id. at 318.

No one disputes these basic principles. Their application in the context of an environmentally contaminated site, however, raises further issues. In that context, contamination or potential contamination is not a value issue in the condemnation proceeding. Suydam, supra, 177 N.J. at 24. Contamination issues should be reserved for a separate cost-recovery action. Ibid. Thus, "where property is contaminated, the condemnor should appraise as if remediated and deposit that amount into a trust-escrow account in court. In addition, the condemnor should reserve its right to initiate a separate action to recover remediation costs." Ibid.

Essex initially argues that Paulsboro's appraisal report, on its face, devalued the property for environmental reasons, thus violating the Suydam rule. Essex points out that the appraiser commented on the diminished utility of the site because of the encapsulated mound encumbered by a forty-year lease and utilized one comparable sale of a property that contained a closed landfill. Paulsboro contends that discussion of the landfill in the appraisal report was descriptive and factual, but did not enter into the valuation process, and that seven comparable sales were utilized and, with appropriate adjustments to all of them (including the one that contained a closed landfill), a fair per acre value of $18,000 was derived, which, in turn, was applied to the entire sixty-seven-acre tract, not only the fifty unencumbered and readily usable acres, to arrive at the fair market value.

In his report, the appraiser discussed the BP lease:

As we consider the mound and capped contaminated area of the subject property, we recognize for all purposes this portion of the property lacks meaningful utility. The overall utility is diminished even more by the fact that there is a lease with a term of 40 years beginning May 20, 2002. . . . As we consider these factors, this 67.5-acre parcel really has a utility for just over 50 acres, which could be characterized as usable area. Again, however, we have made our adjustments based on the overall parcel.

The appraiser applied the $18,000 per acre price to the entire tract, not merely the so-called usable portion. In his conclusion, the appraiser stated:

As discussed, one of the greatest factors affecting the valuation of the subject property is the fact that only approximately 50 acres of the total parcel can be considered to have full utility. This is due to the long-term lease situation with regards to the landfill area of the property. Therefore, considering all factors and recognizing [the] general level of the market, we have estimated a value for the subject property, as of our date of valuation June 24, 2005, of $1,215,000. [Emphasis added.]

In its motion to dismiss the complaint for failure to make a bona fide offer of fair market value of the property as if remediated, Essex argued that these provisions in the appraisal report demonstrated that the appraiser did not comply with the Suydam rule. Essex also pointed to reservations and allegations contained in Paulsboro's complaint as further evidence that the appraisal took into account environmental factors resulting in a less than fair market value figure. In paragraph seven of the complaint, Paulsboro reserved the right to seek recovery from Essex of "all costs of remediation and/or clean up of contamination and/or removal of solid waste and/or sanitary landfill closure," and the right to seek administrative and equitable remedies to compel Essex "to remove solid waste or carry out closure of a sanitary landfill if located on the subject Property." In paragraph eight, Paulsboro alleged that it "valued the Property as if remediated or free of contamination and/or solid waste except as noted in the appraisal and subject to Paragraph 7 above." (Emphasis added).

In response to Essex's motion to dismiss the complaint, Paulsboro filed a statement by the appraiser, which was unsigned and uncertified, which stated:

We certify that the value estimated in our appraisal report of October 31, 2005, as of June 24, 2005, assumes there is no contamination. We offer the following comments:

The definitive comment with regard to valuation of the property in terms of contamination is contained in the section entitled "Assumptions and Limiting Conditions." It is specifically the first paragraph on page 8. This paragraph begins, "This appraisal is based on the assumption that there are no environmental problems associated with this site or that an approved negative declaration letter, or letter of non applicability with respect to the subject property, has been or will be issued." This is the definitive statement with regard to the property and also indicates, "This appraisal assumes that the subject property is in full compliance with the ISRA Regulations."

There are no negative adjustments, for contamination in the grid, made part of this analysis. In the description of the property, we have, in discussing t[o]pography, indicated the presence of a large mound or hill covering 17.3 acres, which encapsulates contaminated material.

Those comments are intended as part of the overall description of the property, but do not enter into or contradict the definitive statement on page 8.

The trial judge recognized that the statement was unsigned and uncertified. She nevertheless considered it, presumably as a clarification or addendum to the appraiser's report, for which there is no certification requirement.

The trial judge concluded that while there can be some discussion as to the language of the appraisal and whether the appraiser has been consistent in expressing his view of the property and the appraisal, it is clear that the appraiser is taking the position that, in fact, his work in appraising this parcel was done as if remediated.

Viewing the appraisal report in its entirety, we agree with this conclusion. This is particularly so because the $18,000 per acre value derived from adjusted comparable sales was applied to the entire tract, including the landfill area. The reservations expressed by Paulsboro in its complaint are generally consistent with Suydam and N.J. Transit Corp. v. Cat in the Hat, LLC, 177 N.J. 29 (2003). The extent to which Paulsboro may be able to pursue its reserved rights is not before us and is not part of this condemnation action. Essex fears that Paulsboro will seek to have the landfill removed and the land flattened as "remediation" at Essex's cost out of the condemnation proceeds deposited in court. We do not read the reservation of rights in the complaint as permitting Paulsboro to recover from Essex any costs incurred for removal of the landfill in order to permit a different use of the area it now occupies. The appraisal is based on the assumption that the landfill portion of the property lacks meaningful utility. On June 9, 2003, the DEP issued a No Further Action letter, setting forth its determination that "no further action is necessary for the remediation" of the landfill. We question whether any attempted action by Paulsboro to deconstruct an encapsulated landfill, closed and approved by the DEP and subject to a No Further Action letter, which is in its closure and monitoring stage, would fall within the remediation costs contemplated by Suydam and Cat in the Hat. In essence, this closed landfill has the right to exist on the property.

As far as Paulsboro's allegation in paragraph eight of the complaint that the property was valued as if remediated "except as noted in the appraisal," we take this as poor draftsmanship, which appears to qualify the valuation, but was probably intended to qualify the description of the property as containing potential contamination.

Essex next argues that Paulsboro's appraisal was flawed because it failed to account for the enhanced value of the property occasioned by the BP lease. In support of its motion to dismiss the complaint, Essex submitted the certification of Charles B. Kendall, an employee of Dow Chemical who manages real estate issues for Essex. Kendall stated that in addition to the one-time payment of $100, BP was also required by the lease to perform operation and maintenance activities on the closed landfill. Without further explanation or documentation, Kendall then stated: "Our internal estimates are that the value of the operation and maintenance activities is about $35,000 per year." Essex argues that an income approach to value should have been utilized applying this information, which would have added significant additional value to the property.

Paulsboro contends that when its appraiser performed his work and when Paulsboro made its offer and filed its complaint, Essex had not asserted any value attributable to the BP lease (other than the nominal $100). Further, Paulsboro contends that the conclusory statement of an internal estimate of $35,000 per year is not competent information upon which to conduct an analysis. Finally, Paulsboro adheres to its contention that the comparable sales approach was the correct method of valuation for this vacant property, as opposed to an income producing property for which capitalization of income is typically utilized to determine value.

We are satisfied that the appraiser's failure to inquire about the value of any services rendered by BP and to conduct any further analysis in that regard did not render the appraisal report invalid. We are unpersuaded by Essex's reliance on Weiner and Katz on this point. In Weiner, the condemning authority appraised the defendants' property at $255,000, and offered that amount, disregarding information provided by defendants that the property had recently been under contract for $530,000 and that a $400,000 mortgage had been obtained pursuant to a bank appraisal valuing the property at $535,000. Weiner, supra, 222 N.J. Super. at 563-64. In Katz, the appraiser for the condemning authority utilized hypothetical, rather than actual, rents to determine value, utilizing the capitalization of income approach. Katz, supra, 334 N.J. Super. at 477-79. In those cases, concrete, reliable information existed and was made known to the appraiser but disregarded. That is not the case here, and Paulsboro's appraisal is not rendered deficient on that basis. Of course, as the valuation phase of this case progresses, Essex is free to develop this issue further. If it does, it will be a proper subject of the valuation determination. However, at this stage of the proceedings, we are dealing only with the bona fides of the negotiations as embodied in Paulsboro's one-time offer.

We next address Essex's contention that there is no public purpose for taking the closed landfill. This argument is predicated on the fact that Paulsboro has entered into a separate agreement with BP, by which the lease arrangement for BP's use of the landfill site as a solar energy facility will be continued. Thus, according to Essex, the landfill is not part of the redevelopment plan and there is no public purpose justifying its taking.

Essex, however, acknowledges that it has not contested Paulsboro's designation of the site, including the landfill, as an area in need of redevelopment. Thus, Essex's lack of public purpose argument is not geared to preventing the taking of the landfill, but is directed at the valuation issue. Essex acknowledges that the landfill is included in the redevelopment plan as an optional component of the redevelopment area and that Paulsboro reserves the right at an appropriate time in the future to utilize that site as part of the redevelopment project. Paulsboro contends that in the absence of any contest over the validity of its designation of the area as in need of redevelopment, it is not required to proffer an immediate and specific public use. Generally, the public purpose requirement is satisfied by the need for redevelopment.

According to Essex, because the landfill has no public purpose, Paulsboro's reason for including the landfill in the taking was a device to devalue the property. It argues that the lack of public purpose supports Essex's suggestion that the Borough's usage of the Closed Landfill here is merely the means to the improper end of obtaining the Property for nothing.

Simply put, the point is not whether the landfill was properly designated within the redevelopment area. Rather, viewing what the Borough is obligated to do if it takes Essex's property, the Trial Court should have concluded that the Borough undervalued the Property and did not engage in bona fide negotiations.

We agree with Paulsboro that because Essex has failed to contest the designation of the property as in need of redevelopment, there is no basis upon which to find an absence of a public purpose. And, for the reasons we have stated, Paulsboro's appraisal provided the basis for a bona fide fair market value offer for the property as if remediated, including the landfill. We are therefore unpersuaded that any impropriety existed in including the landfill in the taking as a subterfuge to devalue the property.

Finally, the arguments in Points IV and VI lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.

20070713

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