Town Looks Gift Horse in Mouth – Gets Bitten

by: John H. Buonocore, Jr.
15 Apr 2020

NJSEA v. Kearny

Keegan Landfill

A recent Appellate Division decision affirmed a trial judge’s award of  just compensation concerning the taking by a State agency of a municipal landfill in Kearny.  The award matched the amount of the condemning agency’s appraisal, and both the trial and appellate court’s rejected entirely the municipal property owner’s theory of value.  The case illustrates some object procedural and substantive valuation lessons and the difficulties in proving the “upside” of an unremediated landfill.   A copy of the recent appellate opinion is available here.

The property in question, the Keegan Landfill, lies within the Meadowlands, and includes 104 acres owned by the municipality.  The majority of the disposal activity at the site had occurred during the 1960s and 70s. The landfill was not properly remediated, and contamination regularly discharged into the adjacent freshwater marsh, resulting in underground fires.

In 2005, the New Jersey Meadowlands Commission (“NJMC”) and the municipality agreed to a plan whereby NJMC would lease and temporarily re-open and remediate the landfill, which would generate “tipping fees” to fund NJMC’s remediation. NJMC also agreed to install recreational improvements and return the landfill property to Kearny for use as parks and recreational sites at the end of the lease term, all at no cost to the town. Additionally, NJMC would provide a funded escrow account for Kearny to use post-closure.  It was anticipated that the landfill would close by 2013, but the following year, the New Jersey Sports and Exposition Authority (“NJSEA”)(NJMC’s successor) determined that it was in the public interest to extend the operating life of the landfill.  In 2015 NJDEP advised the parties that absent a new lease or extension, the landfill operation would be required to close by 2016.  The Town was unwilling to extend the lease and,  in February 2016,  attempted to terminate the NJSEA’s lease and operations.  In response,  NJSEA commenced eminent domain procedures, offering  to acquire the property for $1,818,000, the amount of its appraisal, which was not accepted, and then filing  its condemnation complaint to ensure continued operation of the landfill.

Kearny objected to the taking, inter alia, on the bases: (1)  that NJSEA’s offer disregarded its contractual obligation to pay Kearny some $3 million for recreational facilities at the end of the lease, and (2) and that NJSEA did not “turn square corners” by choosing to use its powers of eminent domain instead of honoring its pre-existing contractual obligations.  In 2017 the Appellate Division sustained the trial court’s rejection of the town’s defenses and entry of judgment confirming the power of NJSEA to take the property.  N.J. Sports & Exposition Auth. v. Town of Kearny, A-5152-15, unpublished (App. Div. November 20, 2017).

NJSEA’s appraisal of $1.818 million was premised upon a highest and best use of the subject property for passive recreation.  Kearny’s valuation was premised upon continued use of the municipal property as a landfill and the income achievable from that use for a period of years.  Critically, the Town’s appraisal assumed that a prospective purchaser would assemble Kearny’s property with the portion of the landfill already owned by NJSEA and continue the landfill operation, and concluded that  the value of the entire assembled Keegan Landfill was  $23,430,000.

Prior to trial, NJSEA served expert reports rebutting the Kearny’s highest and best use contentions and nineteen days later, Kearny for the first time made an unsuccessful request for a jury trial, as opposed to the normal practice of  filing its jury demand at the inception of the case or with its notice of appeal from the award of the condemnation commissioners.  The case went to trial in October 2018 and the trial judge, sitting as the fact finder, rejected the Town’s valuation entirely.   While the sole  issue at trial was the value of Kearny’s property alone on the date of valuation, the Town’s appraiser apparently allocated the total value of the entire landfill which was  assumed assembled or operated in conjunction with NJSEA.

Whether used in conjunction with the NJSEA property or alone, the Town assumed all the burdens of proving a “reasonable probability” case dependent upon satisfaction of the four tests for highest and best use, i.e., that the use was 1) legally permissible, 2) physically possible, 3) financially feasible, and 4) maximally productive.  As the opinion makes plain, this was going be a difficult proposition to prove.

The trial court found no evidence of a single sale of a public landfill to a private entity, and also found no reason to assume a hypothetical buyer would be permitted to concurrently use the separate parcels.    The trial court also found that a landfill could not be operated solely on the Kearny portion as that would require too many significant alterations.  The court accepted NJSEA’s appraiser’s testimony that the property was best suited for passive recreation.

On appeal, the appellate tribunal recognized that trial court fact findings will not be disturbed unless the court is convinced that those findings and conclusions are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.  The appellate court affirmed the trial court’s judgment.

This opinion speaks to the difficulties presented in valuation of a special purpose properties and the legal and factual hurdles confronting the proponent of a use requiring a demonstration of the reasonable probability of overcoming those hurdles (here, permits, approvals, assemblage, financial feasibility and physical constraints). While this type of valuation can be submitted and proven, care must be exercised by the appraiser in assuring that the appraisal report is not premised on speculation, or a net opinion.  Another lesson is that, once upon a time, Kearny anticipated a cost-free clean-up of its landfill property, creation of parks and recreation for the benefit of its residents on a remediated landfill.  The town rejected efforts to extend the life of the landfill intended to defray the costs of remediation, and ended up with a check for $1.818 million but lost of control of the site to NJSEA.  The opinion does not discuss what liability, if any, NJSEA sought or will seek to impose upon Kearny for the cost of environmental remediation of the property.