Minnesota SC addresses valuation of contaminated, condemned properties

by Gary Taylor

Moorhead Economic Development Authority v. Anda
(Minnesota Supreme Court, September 2, 2010)

In March 2001 the Moorhead Economic Development Authority (MEDA) exercised its condemnation power to take Roger Anda’s commercial property as part of a redevelopment project. MEDA used the “quick-take” eminent domain procedure allowed in Minnesota law.  Under the quick-take procedure the government entity is allowed to take title and possession of the property prior to the valuation of the property by the condemnation commission (in contrast to the traditional procedure, through which the valuation is set first, then title is transferred).  After taking title to and possession of Anda’s property through the quick-take procedure, MEDA and the property’s developer, Moorhead Holiday Associates (MHA), discovered fuel-oil contaminated soil on Anda’s property and two adjoining properties. Under contractual time pressure to deliver Anda’s property and the adjoining properties to a franchise developer, MHA acted quickly to remediate the contaminated properties. The remediation process for the three properties took approximately one week to complete and cost $1,599,568.

In the condemnation commissioners subsequently awarded Anda $488,750 as compensation for the taking of his property. Both Anda and MEDA appealed the commissioners’ award. MEDA also commenced a separate action against Anda to recover damages for the cost of remediating the contamination discovered on the two adjoining properties, which MEDA alleged was a result of fuel oil leaking from Anda’s property. The parties agreed to consolidate the actions. At trial, the jury found Anda’s property was worth $455,000 “had it not been impaired by fuel oil contamination” and $0 “taking into account the fuel oil contamination.” The jury also found Anda liable for the contamination of the two adjoining parcels in the amount of $474,512. The court then concluded that Anda was not entitled to damages for the taking of his property because the cost of remediating Anda’s property exceeded the property’s fair market value. Both parties appealed.

The issue of valuation of contaminated, condemned property was one of first impression for the Minnesota Supreme Court.  The threshold question the court addressed was the date upon which the property value was to be determined.  The court held that in a quick-take eminent domain proceeding, the date of valuation is the date when title and possession of the condemned property are transferred from the owner to the condemning authority, not the date of valuation by the compensation commission.  The court then found that when the government condemns property that is contaminated at the time of the taking, the property should be valued “as remediated” rather than as contaminated or as “clean” (never contaminated).  This being the case, the actual costs of remediation are not admissible, except to the extent necessary to determine the value of the property “as remediated”-namely, if there is any loss of value to the property due to the stigma of the contamination.  It is appropriate for the condemnation commission to take into account conditions that exist at the time of the taking even if those conditions are discovered subsequent to the taking.  In the context of environmental contamination conditions, the condition can be taken into account only to determine any impact stigma may have on the value of the property.

With these issues clarified, the court determined that Anda was entitled to a new condemnation commission trial because evidence of remediation costs was admitted at his trial and used to determine the amount he was awarded as damages for the taking. A new trial is also necessary because although the jury valued his property both “as clean” and “as contaminated,” the jury did not value the property as remediated. At a new trial, the fact finder can consider the past fuel-oil contamination, but only to determine whether the stigma of that former contamination affects the fair market value of the remediated property.

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