ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION

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ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION

• EMINENT DOMAIN UPDATE
• 2009

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Valuing and Acquiring Environmentally
Contaminated Properties

• Lenny D. Asaro, Esq.
• Rebekah Czerwionka, Law Clerk and J.D. Candidate
  2010, Chicago-Kent College of Law

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United States ConstitutionFifth Amendment

• nor shall private property be taken for public
  use, without just compensation.

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State of Illinois ConstitutionArticle I, Section
15

• Private property shall not be taken or damaged
  for public use without just compensation as
  provided by law. Such compensation shall be
  determined by a jury as provided by law.

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735 ILCS 30/10-5-60

• Except as to property designated as possessing a
  special use, the fair cash market value of
  property in a proceeding in eminent domain shall
  be the amount of money that a purchaser, willing,
  but not obligated, to buy the property, would pay
  to an owner willing, but not obliged, to sell in
  a voluntary sale.

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Illinois Pattern Jury Instruction (Civil) (IPI)
300.80Just Compensation

• When I use the words Just Compensation for the
  defendants property which will be has been
  taken, I mean the fair cash market value of the
  property at its highest and best use on INSERT
  FILING DATE OF COMPLAINT.

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Illinois Pattern Jury Instruction (Civil) (IPI)
300.81Fair Cash Market Value

• When I use the words fair cash market value I
  mean that price which a willing buyer would pay
  in cash and a willing seller would accept, when
  the buyer is not compelled to buy and the seller
  is not compelled to sell.

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Illinois Pattern Jury Instruction (Civil) (IPI)
300.84Highest and Best Use

• When I use the expression highest and best use
  of property I mean that use which would give the
  property its highest cash market value on INSERT
  FILING DATE OF COMPLAINT. This may be the
  actual use of the property on that date or a use
  to which it was then adaptable and which would be
  anticipated with such reasonable certainty that
  it would enhance the market value on that date.

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735 ILCS 30/10-5-50, formerly known as 735 ILCS
5/7-119, effective January 1, 1998

• Evidence is admissible as to (2) any unsafe,
  unsanitary, substandard, or other illegal
  condition, use, or occupancy of the property,
  including any violation of any environmental law
  or regulation and (4) the reasonable cost of
  causing the property to be placed in a legal
  condition, use, or occupancy, including
  compliance with environmental laws and
  regulations. Such evidence is admissible
  notwithstanding the absence of any official
  action taken to require the correction of
  abatement of the illegal condition, use, or
  occupancy. (Emphasis added)

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(No Transcript)
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Illinois Dept. of Transp. v. Parr, 259 Ill. App.
3d 602 (3rd Dist. 1994)

• Question Whether IDOT may introduce alleged
  environmental remediation costs at eminent domain
  proceedings in determining the fair market value
  of the subject property?
• Answer No.
• Reasons
• Remediation costs, standing alone, have no direct
  bearing on the valuation of condemned property
  and
• Admission of remediation costs would violate due
  process rights of property owners under the
  Illinois Environmental Protection Act.

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Parr

• Facts
• Dennis Betty Parr
• Subject Property abutted the Illinois River at
  412 Southwest Washington Street, Peoria, IL
• Robert H. Michel bridge
• 100,000 in environmental remediation costs
• Complaint
• Motion to dismiss failure to make good faith
  offer of just compensation
• Quick-take motion
• Quick-take hearing
• IDOT valued the subject property at 0 due to
  remediation costs
• Trial court rejected IDOTs allegation of
  environmental hazards and remediation costs
  awarded 40,700 to the Parrs
• IDOT took possession of the subject property
• Illinois Environmental Protection Agency
  investigated and took corrective action
• IDOT and the Agency reached agreement on
  remediation to alleviate contamination
• Parrs motion in limine
• Motion granted
• Certified question for appeal

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735 ILCS 5/7-119, effective July 1, 1982

• Evidence is admissible as to (2) any unsafe,
  unsanitary, substandard or illegal condition, use
  or occupancy or the property and (4) the
  reasonable cost of causing the property to be
  placed in a legal condition, use or occupancy.
  Such evidence is admissible notwithstanding the
  absence of any official action taken to require
  the correction or abatement of such illegal
  condition, use or occupancy.

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Parr

• Legal Analysis
• 735 ILCS 5/7-119, effective July 1, 1982
• Existence of conditions on the property v. the
  costs to provide a remedy for such alleged
  conditions on the property
• Section 7-119 does permit the admission of
  remediation costs where (a) there is proof of an
  underlying illegal condition to justify the costs
  and (b) the property owners procedural due
  process rights pursuant to the IEPA are not
  violated.

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1994 - 1997

• Crickets Chirp, chirp

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735 ILCS 30/10-5-50, formerly known as 735 ILCS
5/7-119, effective January 1, 1998

• Evidence is admissible as to (2) any unsafe,
  unsanitary, substandard, or other illegal
  condition, use, or occupancy of the property,
  including any violation of any environmental law
  or regulation and (4) the reasonable cost of
  causing the property to be placed in a legal
  condition, use, or occupancy, including
  compliance with environmental laws and
  regulations. Such evidence is admissible
  notwithstanding the absence of any official
  action taken to require the correction of
  abatement of the illegal condition, use, or
  occupancy. (Emphasis added)

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What about procedural due process rights under
the IEPA?
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1998 June 12, 2009

• Crickets Chirp, Chirp

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Northeast Ct. Economic Alliance, Inc. v. ATC
Partnership, 776 A.2d 1068 (2001)

• Holding Evidence of environmental contamination
  and remediation costs is relevant to the
  valuation of the real property taken by eminent
  domain.

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ATC Partnership, Inc.

• Facts
• Windham, CT
• 40 acres
• Previously used as a textile mill
• Release of hazardous waste
• Prior owner agreed to remediate hazardous waste
  discharge
• No manufacturing activity occurred while the
  condemnee owned the property
• Environement Site Assessments
• presence of asbestos containing materials and the
  conditions of these materials
• presence of lead-containing materials, like lead
  paint and conditions of those materials and
• soil contamination by PCBs and petroleum
  substances
• Condemnor offered 1
• Filing of complaint/statement of compensation
• Review of complaint

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ATC Partnership, Inc.

• 8-132 required the report of the referee in
  the condemnation proceeding to take into account
  any evidence relevant to the fair market value of
  the property, including evidence of environmental
  condition and required environmental remediation
• 735 ILCS 5/7-119

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What elements of value affecting price would an
owner or prospective purchaser reasonably
consider?

• Environmental contamination
• Remediation costs

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Split of Authority

• Majority of jurisdictions have concluded that
  such evidence is admissible
• Two approaches that favor inclusion of evidence
  of environmental contamination and remediation
  costs
• 1st Approach As a factor affecting the fair
  market value of the property, evidence of
  environmental contamination and remediation costs
  is admissible.
• 2nd Approach If there is a sufficient factual
  predicate upon which to conclude that the
  contamination affected market value.
• Supreme Court of Connecticut adopts the 1st
  Approach
• Refusing to follow either approach is likely to
  result in a fictional property value, which is
  inconsistent with the principles by which just
  compensation is calculated.

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Factors Making Property Less Attractive to
Prospective Buyers

• Remediation costs
• Potential liability under various environmental
  statutory schemes
• Potential litigation brought by members of the
  public for damages
• Stigma even after full remediation
• Higher financing costs
• Increased regulation

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Fact or Fiction?

• Parcel A
• No environmental contamination
• Market value of 5M

• Parcel B
• Environmental contamination
• Remediation cost of 2M
• Market value as clean of 5M

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ATC Partnership, Inc.

• The Court rejected the notion that the issue of
  fault overcomes the issue of the condition of the
  property and the value of the property based on
  that condition.
• The Court was not persuaded by Parr.
• The issue of fault is not an issue in a
  condemnation proceeding.

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Housing Authority of the City of New Brunswick v.
Suydam Investors, LLC, 177 N.J. 2 (2003)

• Holding
• Contaminated property is to be valued as if it
  has been remediated and
• Condemnor may then seek an order requiring a
  portion of the award to be set aside to satisfy
  the condemnees clean-up and transfer obligations

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Suydam Investors, LLC

• Facts
• Three parcels of land in downtown New Brunswick
• Residential and commercial
• Phase I Report
• USTs
• Automobile body repair and service business
• Spill of hazardous substances on adjoining
  property
• Asbestos and lead-based paint
• Condemnors appraisal in support of the offer
  no consideration of potentially hazardous
  material
• Filing of condemnation action
• Phase II Report

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Suydam Investors, LLC

• Law
• Where property to be condemned is or may be
  environmentally unsound, other laws come into
  play.
• Federal and State Statutes impose liability on
  present and past owners for discharge of
  hazardous substances. See Comprehensive
  Environmental Response, Compensation, and
  Liability Act, 42 U.S.C.A. 9601 to 9675
  (CERCLA) New Jersey Spill Compensation and
  Control Act (Spill Act) Industrial Recovery Act.
  

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Interplay

• Eminent Domain Act
• Federal and State Statutes that impose liability
  on present and past owners for discharge of
  hazardous substances.

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Split of Authority

• At the heart of the decisions that admit such
  evidence is the notion that environmental
  contamination is a property characteristic that
  necessarily affects value.
• The cases that exclude the evidence view the
  issue as the problem of potential double
  liability, the involuntary nature of condemnation
  and due process concerns.

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The Major Issue Fundamental Fairness

• The reality of condemnees liability under the
  Spill Act and like statutory initiatives
• Double-take discounted just compensation full
  cleanup costs windfall for condemnor

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The Solution

• Eminent Domain Proceeding
• Cost-recovery Proceeding
• Withhold portion of just compensation until final
  determination of cost-recovery proceeding

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Condemnees Theory of Valuation

• Highest and Best Use different from current use

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Highest and Best Use Analysis

• Physically possible
• Legally permissible
• Financially feasible
• Maximally productive

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Comparable Sales Analysis

• Real property rights conveyed
• Financing terms
• Conditions of sale
• Expenditures made immediately after purchase
• Market conditions (time)
• Location
• Physical characteristics
• Economic characteristics
• Use (zoning)
• Non-realty components of value

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• Environmental law or regulation
• Environmental Site Assessment
• Assessment shows violation
• Cost to remediate

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ChallengesEnvironmental Site Assessment

• Pre-filing
• Post-filing

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ChallengesCost of remediation

• Pre-filing
• Post-filing

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Parr v. Section 10-5-50, effective January 1, 1998

• Score
• Owners 1
• Condemnors 1
• Springfield Odds
• The smart money is on Parr and Suydam