LEGISLATIVE UPDATE; LITIGATING CONTAMINATION ISSUES AS A PART OF CONDEMNATIONS
By: Alan T. Ackerman
In April, 1992 the Michigan State House appointed a Citizens Advisory to present findings and recommendations on State environmental policies. In 1993, the Advisory Group published findings and recommendations and proposed a procedure by which the effects of contamination were to be considered as part of the valuation process of property taken for public use.
Prior to the 1993 proposed amendments to Act 87, when property is condemned the condemnor does not know whether it is to include the cleanup costs or value loss as part of the condemnation proceeding or to seek cleanup costs in a separate action.
When there is to be a deduction for contaminant cleanup, the condemnor needs to determine if the amount should be based upon a dollar-for-dollar analysis, whether the deduction should be greater when there is a “stigma” caused by contamination, or to deduct a smaller amount if there is uncertainty as to whether cleanup will be required.
In order to encourage urban redevelopment while at the same time safeguard the public health and the environment, legislation is needed so that the effects of contamination on properties being condemned within our major urban areas will be handled in a responsible, fair and expeditious fashion.
In an attempt to create balanced legislation, the Michigan House of Representatives was required to review a number of conflicting public policies in order to provide for a bill acceptable to condemnors, the Department of Natural Resources, environmental interests, and property owners. The property owner losing property for public use should be given the utmost protection of the courts. At the same time, prevailing public sentiment requires strong protection of the public from the dangers of contamination in the community.
The first concern in drafting such legislation is the requirement that the property owner should be placed in the same position as if the condemnation had not occurred.
A second concern is to determine a way to consolidate the condemnation action with determinations of liability with respect to the contamination in order to avoid multiple actions.
Public policy also provides that the condemnor needing property should present a showing of public use. At the same time, although there is no burden in the valuation process on either the owner or the government, there is an implied burden that the property owner should go forward with its claim of just compensation. This gives rise to the question of whether the burden should be on the government or the property owner to either separate or merge an environmental contamination claim with the condemnation claim.
Generally, judicial policy favors single actions to determine a final result of all disputed issues between parties. However, if contamination may have been created by multiple adjacent landowners or prior owners, the determination of liability as a part of the condemnation action may be better handled in a separate action between the potentially responsible parties.
Conflicting with the potential for separate actions is the consideration required in the condemnation valuation process that the owner should be provided the opportunity to have a certainty of the determination of market value as part of a single proceeding.
HOUSE BILL 4719
House Bill 4719 was passed by the House on June 22, 1993. Soon to be passed in the Senate and signed by the Governor, the Bill will amend the Michigan Uniform Condemnation Procedures Act by providing a specific procedure for governmental agencies and owners to follow as part of the valuation process. Numerous amendments were made from the first draft of the Act through the outstanding leadership of Committee Chairman, Thomas Alley, and Committee Members Tracy Yokich and John Freeman. The author of this article and David Fink in his representative capacity as an active attorney for governments participated in the presentation of a rational approach to the problems.
FEATURES OF H.B. 4719
H.B. 4719 amends only portions of the Uniform Condemnation Procedures Act. The Uniform Condemnation Procedures Act is the procedural act which all governmental agencies must follow to take property. The Act continues to require the government to prepare an appraisal report prior to initiating negotiations and a condemnation. With or without H.B. 4719, the offer must be based upon an opinion of value. However, as amended, the Uniform Condemnation Procedures Act will provide that the agency specifically either reserve or waive its right to bring a federal or state cost recovery action against the property owner when contamination is an issue. Further, the amended Act will require the agency to either include the effect of the contamination in the valuation process or specifically exclude such effect as part of the offer.
If the agency reserves its right to bring a separate state or federal cost recovery claim, the property owner may request the court to merge or consolidate the cost recovery action with the condemnation valuation proceeding if it is able to fulfill one of a number of available criteria. These are four ways the owner can require the government to merge the cases: if the parties agree that separate cost recovery claim rights are waived, if the property is a single-family residence, if the property is agricultural, or if the owner is the only identified potentially responsible party for the contamination and the costs of remediation do not exceed the agency’s appraised value of the property.
When the court requires the agency to proceed with the contamination issue as part of a condemnation action, the agency may provide an amended offer which considers the effect of the contamination on the value of the property.
The Michigan Constitution requires payment of just compensation at the time property is surrendered. Where the government is allowed to bring a separate state or federal cost recovery claim, it may reserve out of the condemnation proceeds amounts necessary to secure funding for cleanup H.B. 4719 provides that the agency may withhold such funds as necessary to remediate the property by presentation of an affidavit and environmental report to the court showing the amount necessary to remediate the property. If the parties cannot agree on the likely costs of remediation, the court is empowered to determine how much money should reasonably be withheld.
The court may also order the release of withheld funds upon a showing that one of a number of factors is fulfilled. Among the factors which may trigger the release are that the requirements for remediation have changed, the need for remediation is not required to the extent of the funds held on deposit, the remediation procedure was not initiated within two years of the surrender of possession, the costs actually expended are less than the estimated costs, or a court issues an order adjudicating remediation responsibility.
The intent of the Act amendments is to provide a procedure affording some sense of certainty of how contamination is to be dealt with in a condemnation setting. To show the uncertainty under the current law, the following example is given. The trigger date for the statute of limitations under both the federal and state cleanup acts is the date the cleanup project is completed. Although property was taken in 1986 and 1987 for the Chrysler condemnation, the statute of limitations has not run for cost recovery actions because the cleanup was not completed until 1992. Further, many owners in the Chrysler action were lead to believe that the valuation process included the contamination of the property itself.
It should be noted that the Act is not intended to be the final determination of the amount of Just Compensation to be paid. Rather, the Act is intended to protect the government by securing funds that the government may believe are necessary to clean up the property while at the same time providing the owner with a prompt and expeditious method of obtaining, at a minimum, what all parties recognize as owing absent the potential for a cleanup
PRACTICAL DIFFICULTIES OF THE ACT
Public policy strongly supports the cleaning up of our environment. However, this principal should not be utilized to infringe upon the constitutional rights of property owners that they be made whole when property is taken for a public purpose. The provisions of Act 4719 offer an opportunity to resolve a process whereby the government can ascertain how to pay just compensation in many, if not most, circumstances. However, several issues remain without regard to the intent of the Act to be fair to all parties.
First, the intent of the Act is that the government should pay no more money than is necessary to clean up the property for its highest and best use. Certainly the need to clean up the property for a continued industrial use may be much less expensive than the pristine requirements of residential uses. If a property would have retained its industrial function in a normal market transaction and is valued as industrial, certainly the owner should not be penalized by being required to expend funds necessary for a more expensive cleanup than is necessary for the government’s desired public use.
Second, the provisions of the Act may subordinate an owner’s right to a single transaction determination of value in the form of a market sale to the public’s desire to condemn for a public use which may include the transfer of the property to a third party. Under both the Michigan Environmental Response Act and the Federal CERCLA provisions, governmental agencies may seek remediation costs from the owner even if the condemnor has settled such disputes with the owner. Also, third parties who purchased the property from the governmental agency, only to learn of the contamination at a later date, may seek the cleanup costs for the property despite the governmental agency’s previous reduction in value as part of the condemnation proceeding.
Third, in the marketplace a willing buyer and willing seller have the right to apportion the risk and liability between themselves for costs necessary to clean up contamination on the property. In many condemnation proceedings under Act 4719, the cleanup costs may be deducted on a dollar-for-dollar basis if the remediation will be initiated immediately. However, in many instances, parties recognize that either regulations may change or the technology for the remediation may change prior to the actual cleaning up of the contamination. Such considerations may create a discount in the value of the property or the cost of remediation.
Michigan courts have often stated that an owner whose property is being taken for public use must be given utmost protection of the courts. At the same time, prevailing public sentiment and numerous legislative enactments require strong protection of the public from the dangers of contaminated property. To some extent, these policies conflict when a contaminated property is condemned for public use. H.B. 4719 is a rational attempt to reconcile these policies within the constitutional framework of the government’s taking power.