Daily Development for Wednesday, January 21, 2004 
by: Patrick A. Randolph, Jr. 
Elmer F. Pierson Professor of Law 
UMKC School of Law 
Of Counsel: Blackwell Sanders Peper Martin 
Kansas City, Missouri 
dirt@umkc.edu 
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. New 
Jersey Transit Corporation v. Cat in the Hat, LLC, 177 N.J. 29, 826 
A.2d 690 (2003); July 10, 2003. 
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." 
Comment: Does this leave the condemnees between a rock and a hard 
place? They are paid less, due to the presence of these substances, but 
remaining potentially liable for the possibly higher cost of remediation 
as circumstances develop later. Consider, for instance, a LUST (leaking 
underground storage tank). Today, the removal of the tank and clean up 
of surrounding property is $x.xx. But five years from now, after the tank 
has leaked more, or earth or water movement has carried existing 
contamination outside the tank to other areas, the clean up costs may be 
ten times $x.xx. The owner remains liable, if it has been condemned out 
of ownership, it has lost control over the property, and thus has lots the 
ability to control dissemination of existing hazardous substances from 
the property in the future. 
Determination of the condemnation price as the "remediated value" of 
the property, less the estimated cost of remediation, gets one part way 
home, but the accuracy of the estimated remediation cost is dependent 
upon the quality of the environmental survey. 
As a matter of policy, if not Constitutional law, a property owner ought 
to be provided the opportunity for a comprehensive environmental 
evaluation prior to transfer, and be given the ability to develop 
institutional controls (easements and covenants and other rights) to 
restrict release of hazardous substances in the future. If the public agency 
isn't willing to accept these institutional controls, then it should be 
indemnifying the landowner for damages resulting from releases of 
substances that the controls would have prevented. 
Readers are encouraged to respond to or criticize this posting.