Introducing Evidence of Contamination and Offsetting Cost of Remediation in Determining Fair Market Value for Eminent Domain Awards: A Review of Interrelationship between Environmental and Acquisition Law

Abstract

The issue is whether evidence of contamination is admissible and remediation costs may be offset in determining fair market value in eminent domain proceedings. The answer will depend on an analysis of methods of valuation and local acquisition statutes; economic impact of environmental regulation; effectiveness of attempts to resolve issues of environmental liability in the context of eminent domain proceedings; preclusive or nonpreclusive effect of the determination of value on future liability for environmental remediation; and use of the property. To understand these issues, an acquiring agency should view an eminent domain proceeding from the clear vantage point of a potential defendant or plaintiff in an environmental case. How these questions can be decided consistently with both local acquisition law and the other bodies of state and federal environmental law is the subject of a variety of recent court decisions. The theme that arises from the cases is that it appears fair to discount the valuation of property if the owner's procedural rights are satisfied, including determinations as to liability and third-party actions. Nevertheless, once payment is discounted, it is critical that the transferee does not have to pay twice for the same remediation but should be liable under the environmental laws for new or newly discovered contamination. A partial indemnification may be appropriate. In addition, issues regarding just compensation may be raised when an acquiring agency not only values a compensation award at zero but also seeks compensation for remediation costs that exceed the value of the property. Alternatives should be explored for escrowing the remediation costs, inviting the owner to clean up the property now or indemnifying the owner to the extent of the discount against future liability. One solution will not fit all cases, but these and other alternatives will make owners and states more thoughtful when property is acquired and better able to plan for the uncertainties that can arise in environmental liability.