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NJ Appellate Court Limits Reach of Suydam Rule in Condemnation Cases

In the bellwether case of Housing Authority of the City of New Brunswick v. Suydam Investors, L.L.C., 177 N.J. 2 (2003), the New Jersey Supreme Court crafted a Solomon-like rule when it came to valuating environmentally impacted properties in eminent domain proceedings. The “Suydam” rule, as it has come to be known, essentially states that (1) contaminated property should be valued as if it were remediated, and (2) that a hearing should be held to determine the reasonable costs of remediating the property. The remediation costs are then held by the court in escrow until the remediation is completed and an environmental cleanup cost recovery action is filed by the condemning party.

The issue brought raised in the recently decided case of Borough of Paulsboro v. Essex Chem. Corp., 2012 N.J. Super. LEXIS 119 (2012), was whether the Suydam rule applied on a property which contained a former landfill that was closed with the approval of the New Jersey Department of Environmental Protection (“NJDEP”). The Appellate Division held that the Suydam rule only applied in cases where a condemnee was subject to liability under New Jersey’s environmental statutes, such as the New Jersey Spill Compensation and Control Act. In this particular case, since the NJDEP approved the closure of the landfill, the condemnee (Essex Chemical Corporation, a wholly-owned subsidiary of the Dow Chemical Company) had no further liability. Therefore, the condemnor (the Borough of Paulsboro) was not entitled to an escrow of the condemned funds.

The Borough of Paulsboro argued that it needed to remediate the property to remove the landfill, and that this would cost nearly $60 million. However, the Appellate Division found that the removal of the landfill was not necessitated by any environmental statute and, in fact, the property was valued by both sides as one with an unusable area where the former landfill is located. Implicit in this decision is the idea that a condemnor’s development costs for an environmentally impaired site cannot be borne by the condemnee.

The attorneys at Lieberman & Blecher have represented many clients in Suydam rule hearings and have successfully argued that construction costs necessitated by a condemnor’s planned use of a site cannot be passed to the condemnee and cloaked with veil of remediation costs. The Appellate Division’s latest decision supports what our litigator’s have long believed to be most protective of condemnee rights.

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