Daily Development for
Wednesday, October 28, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

HAZARDOUS SUBSTANCES; DAMAGES; "STIGMA" DAMAGES: Under New York law, landowners who prove that a neighboring business contaminated their property with hazardous pollutants may be entitled to damages for "stigma" above and beyond the costs of cleaning-up the property.

Scribner v. Summers, 138 F.3d 471 (2nd Cir. 1998).

Defendant's steel treating operation contaminated plaintiffs' property with barium, a hazardous substance. Plaintiffs brought suit under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as well as under state nuisance and trespass laws. The district court granted plaintiffs' claims, but refused to award them permanent damages for their state law claims on the grounds that the CERCLA clean-up would remedy any permanent injury to the property. In a per curiam opinion, the Second Circuit Court of Appeals reversed and remanded the district court decision insofar as it denied permanent damages.

The court held that, while New York law is unsettled on this point, plaintiffs may be able to recover damages for any "stigma" that attaches to the property and depresses its value even though a full clean-up has occurred. The court indicated that it would be inclined to certify the question to the New York Court of Appeals if it were presented on an adequate record. It noted, among other decisions, the New York Court of Appeals decision in Icriscuola v. Power Authority of the State of New York, 621 N.E.2d 1195 (N.Y. 1993), which upheld the notion that landowners abutting a high energy transmission tower might be able to recover for diminution in value due to the "stigma" associated with fear of injury from electromagnetic fields, even though scientific evidence demonstrated that such fears were groundless.

In the current case, the district court had not developed sufficient facts as to whether any "stigma" had occurred. The Second Circuit remanded the case to the district court for further findings on this issue. The court noted it would have "particular interest" in evidence relating to "the feasibility (and progress toward) obtaining a release of liability from the appropriate environmental agency which might . . . 'repair' the stigma."

Comment 1: In Finkelstein v. Department of Transportation, 656 So.2d. 921 (Fla. 1995), the Daily Development for October 10, 1995, the State of Florida was permitted to show that an environmental stigma had depressed the value of property it was condemning even though, prior to condemnation, it had become obligated to clean up the contamination under a state "early warning" program. (The State had not caused the contamination.) The court held that the state could take into account the fact that the value of the land would be depressed in value as a consequence of the environmental problems even if the state had cleaned up the actual contamination. Although the theory, of course, is foursquare in accordance with the arguments of the plaintiffs in the New York case, the forum - a determination of how much a state must pay to condemn contaminated land - is quite different and might have affected the outcome.

Comment 2: As the Second Circuit here accurately points out, the question of whether "stigma" damages can be collected as a consequence of ungrounded fears in the community that lead to depressed value of the property is unsettled generally. This is in part because the New York Court of Appeals foolishly opened Pandora's Box when it recognized the notion that irrational fear of electromagnetic impulses can lead to recoverable damages. The adverse social consequences of granting such damages may outweigh the benefit of compensation in the individual cases in which the damages exist. Perhaps as a consequence of this, the New York courts have withdrawn somewhat from the reach of Icriscuola. See Reiss v. Consolidated Edison Company of New York, 650 N.Y.S.2d 480 (App.Div. 1996).

There is division in the jurisdictions on the issue of electromagnetic field stigma. See, e.g. San Diego Gas & Electric v. Daley, 253 Cal. Rtpr. 144 (Cal. App. 1988) (evidence of adverse psychological impact resulting from fear of eletromagnetic waves from electric transmission lines is admissible to show negative impact on value of land remaining after condemnation of right of way to construct such lines. But compare: San Diego Gas & Electric Co. v. Covalt, 38 Cal. Rptr. 2d 811 (Cal. App. 1995) (The DIRT Daily Development for January 23, 1997) (utility not liable in nuisance or inverse condemnation when it increases electromagnetic emanations from its electric lines unless credible scientific evidence shows that there is indeed increased danger of physical harm.) Also see United States v. 0.59 Acres of Land, 97 C.D.O.S. 2515 (9th Cir. 1997) (various types of nonscientific evidence concerning electromagnetic injury excluded from evidence in tax appraisal case.)

Interestingly, a number of jurisdictions have recognized that irrational fears should not rise to legally significant issues, and thus have banned disclosure of information about occupancy of property by persons having AIDS. On the other hand, as DIRT has discussed before, there are a few cases, including one in New York, in which failure to disclose the reputation of a house as haunted has been the basis for damages. But the question of disclosure of circumstances giving rise to an irrational community fear is arguably a different issue than the question of liability for conducting the activity that the community irrationally fears.

Comment 3: For another case in which it can be argued the court upheld an inverse condemnation claim based upon devaluation of property due to unscientific "stigma" due to activities of a neighbor, see Carter v. City of Porterville, 22 Cal. Rptr. 2d 76 (Cal. App. 1993) (suggests that landowner may have actionable takings claim in if it can show that its property has been reduced in value substantially because of concerns that a dam built on adjacent state land may burst and cause injury to persons or property on plaintiff's land.). Compare, however: Minton v. Craighead County, 800 S.W.2d 707 (Ark. 1990) (County not liable to neighbors when it constructed a jail facility in a residential neighborhood, leading to depressed values because of fear of jailbreaks - State Constitution permitted inverse condemnation for "taking or damaging" of property, but not for diminution in value due to stigma of public project).

In another era, there were cases based upon neighborhing tuberculosis sanitariums that may have raised the same issues. These, again, did not see uniform results.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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