CASINO REINVESTMENT DEVELOPMENT AUTHORITY,
v.
JAMES H. TELLER, SR., and MARY E. TELLER, husband and wife; ANCHOR SAVINGS
AND LOAN ASSOCIATION; BENEFICIAL SAVINGS BANK; SECURITY SAVINGS AND LOAN ASSOCIATION; QUANDA MITCHELL
PRICE; NATIONAL COMMUNITY BANK OF NEW JERSEY; NATIONAL WESTMINSTER BANK NJ T/A FIRST
JERSEY NATIONAL BANK SOUTH; ACTION SAVINGS BANK S.L.A.; LANETTA WAYS; POMONA OIL COMPANY;
BENEFICIAL NEW JERSEY, INC.; STATE OF NEW JERSEY; ATLANTIC CITY ELECTRIC COMPANY EMPLOYEE
FEDERAL CREDIT UNION; CAPE ATLANTIC MRI; CELLULAR PHONE OF NEW JERSEY; BRIAN THOMAS,
TRUSTEE; ATLANTIC CITY MUNICIPAL UTILITIES AUTHORITY; AND ATLANTIC CITY SEWERAGE COMPANY,
Defendants,
and
CITY OF ATLANTIC CITY,
Defendant-Respondent.
__________________________________
Argued on February 6, 2006 - Decided
Before Judges Lintner, Parrillo and Gilroy.
On appeal from the Superior Court of New Jersey, Law Division, Atlantic County,
Docket No. ATL-L-2384-00.
Renee A. Rubino, argued the cause for appellant (Scarinci & Hollenbeck, LLC, attorneys;
Renee A. Rubino, of counsel and on the brief).
Kimberly O'Brien-Baldwin, Assistant City Solicitor, argued the cause for respondent City of Atlantic
City (Beverly Graham Foy, City Solicitor, attorney; Marcia Allen Phillips, Assistant City Solicitor,
on the brief).
The opinion of the court was delivered by
GILROY, J.S.C. (temporarily assigned).
This is a condemnation action. Plaintiff, Casino Reinvestment Development Authority (CRDA), appeals from
the order of the Law Division entered on February 22, 2005, denying its
motion to vacate an order of August 27, 2004, granting defendant, City of
Atlantic City's (City), motion to withdraw funds previously deposited into court by CRDA
on filing of a declaration of taking during the pendency of the condemnation
proceeding. The issue presented is whether in the case of environmentally contaminated property,
a municipal tax lien attaches to funds held in court for the purpose
of paying remediation costs of the condemnor. Because we conclude that remediation costs
are a transactional part of the calculation of the value of the property,
and that creditors' interests transfer from the res to the surplus on deposit
after recoupment of remediation costs by the condemnor, we reverse and remand.
We briefly state the procedural history and uncontested facts. CRDA, a financing and
investment agency established pursuant to N.J.S.A. 5:12-153 to -183, is authorized to exercise
the right of eminent domain within the City. N.J.S.A. 5:12-161p. On July 14,
2000, CRDA filed a verified complaint seeking to acquire a fee interest in
property located at 615 North Carolina Avenue, Atlantic City (the "Property"), as part
of the North Carolina Avenue Widening Project. Count Two of the complaint sought
a declaration that "defendants, James H. Teller, Sr., and Mary E. Teller [owners
of the Property] are legally responsible to CRDA for all reasonable and necessary
costs that may arise from or relate to remediation of any discharge of
a hazardous substance existing on the Property as of the date of the
filing of this Complaint." The complaint stated that the Property was appraised at
$55,200, as if "unaffected by adverse environmental conditions," and the "estimated cost of
cleaning the adverse environmental conditions is approximately $130,000[] to $200,000[]."
On September 15, 2000, Judge Winkelstein entered an "order for payment into court,
for the vesting of title, and for possession." The order provided:
The [$55,200] being deposited with the Clerk of the Superior Court represents the
fair market value of the [P]roperty as if unaffected by contamination as estimated
by CRDA. The estimated cost of cleaning the contamination on the [P]roperty is
$130,000.00 to $200,000.00. The estimated fair market value of the [P]roperty is therefore
$1.00.
The order further provided that "[t]he full amount deposited by CRDA shall remain
on deposit until a final resolution of Count Two of the Verified Complaint."
On October 10, 2000, CRDA filed a Declaration of Taking, and on October
12, 2000, it deposited $55,200 into court. On March 1, 2001, a Report
of Commissioners was filed, determining that the fair market value of the Property
was $55,200. No appeal was taken from the Report of Commissioners.
On August 2, 2004, the City filed a motion to withdraw $39,098.75 from
the funds in court contending that "as of October 5, 2000, the date
of taking, there was due to . . . the City . .
. the sum of $39,098.75 for unpaid liens and interest on [the Property]."
CRDA was not noticed on the motion. Because the motion was unopposed, on
August 27, 2004, a second Law Division judge entered an order granting the
City's motion, leaving a balance on deposit of $16,101.25. Having completed the environmental
cleanup with remediation costs totaling $257,834.56, CRDA filed a motion to withdraw the
original deposit of $55,200, together with interest accrued thereon, on October 27, 2004.
Learning of the City's withdrawal, CRDA filed a motion to vacate the order
of August 27, 2004, authorizing the City's withdrawal of funds, and to compel
redeposit of the funds into court. Both of the motions were carried to
February 18, 2005. After oral argument, the motion judge, concluding that "municipal tax
liens take priority over the CRDA's cleanup costs of the contaminated property," denied
the motion to vacate the order of August 27, 2004, and to compel
the City to redeposit funds into court, and directed that CRDA "shall be
permitted to withdraw the balance of the funds remaining in the Trust Fund."
A confirmatory order was entered on February 22, 2005.
On appeal, CRDA argues that the motion judge erred "addressing this matter as
an issue of lien priority on the funds in court . . .
because, in the special case of contaminated property, the funds in court are
not money to which the condemnee is necessarily entitled." CRDA contends that when
the "condemning authority deposits the full 'as if remediated' value of the property
into court . . . no one expects that the condemnee will receive
the entire amount . . . [because] under this approach[,] a 'portion of
the award sufficient to cover cleanup costs is escrowed or held in trust
until the exact amount of cleanup costs are determined.'" (quoting Housing Auth. of
City of New Brunswick v. Suydam Investors, LLC,
177 N.J. 2, 25 (2003)
(Suydam)). The City counters that it has a first priority tax lien on
the Property (and therefore on the monies on deposit) which is superior to
CRDA's claim to cleanup costs.
CRDAs motion to vacate, which sought entry of an order compelling redeposit of
funds and granting the previously filed motion to withdraw, requested reconsideration of the
matter on its merits. Accordingly, the motion is "characterizable as a motion to
alter or amend" the prior order under Rule 4:49-2. Pressler, Current N.J. Court
Rules, comment on R. 4:49-2 (2006). Reconsideration under Rule 4:49-2 is a matter
within the sound discretion of the court and is to be exercised "for
good cause shown and in the service of the ultimate goal of substantial
justice." Johnson v. Cyklop Strapping Corp.,
220 N.J. Super. 250, 264 (App. Div.
1987), certif. denied,
110 N.J. 196 (1988). This court may only disturb the
decision below if it finds error which is "clearly capable of producing an
unjust result." R. 2:10-2. However, the trial court's interpretation of the law is
afforded no special deference, and this court's review of the legal issues is
de novo. Manalapan Realty, L.P. v. Tp. Comm. of Manalapan,
140 N.J. 366,
378 (1995).
The City argues that the issue is one of priority between two lien
claimants and that it has the right to first satisfaction of its tax
lien. We disagree. A municipal tax lien has "first lien" priority status over
all other liens against property, except subsequent municipal liens. N.J.S.A. 54:5-9; In re
Pryor,
366 N.J. Super. 545, 553 (App. Div.), certif. denied,
181 N.J. 545
(2004); Byram Holding Co. v. Bogren,
2 N.J. Super. 331 (Ch. Div. 1949).
The significance of this "super priority" is underpinned by the fact that "[l]ocal
property taxes are the primary source of revenue for [municipalities] . . .
[and] [e]ach parcel of land in the [municipality] must bear its fair share
of the tax burden." Renaissance Plaza Assocs. v. City of Atlantic City,
18 N.J. Tax 342, 352 (1998). Generally, in a condemnation proceeding, a lien for
unpaid taxes due as of the date of the deposit of funds with
the court attaches to the condemnation award as an interest in the res,
and is payable from such funds. City of Orange v. Wall Day Realty
Co.,
150 N.J. Super. 1, 3 (App. Div. 1977); see also Jersey City
Redevelopment Agency v. Costello,
252 N.J. Super. 247, 259 (App. Div.), certif. denied,
126 N.J. 332 (1991).
Some statutes, like general rules, have exceptions. If the cleanup costs had been
expended from the Spill Fund, the municipal tax lien would become subordinate to
that of the State in "all cases where the administrator of the Spill
Fund is required to clean up a site pursuant to [the Spill Act]."
Kessler v. Tarrats,
194 N.J. Super. 136, 141 (App. Div. 1984). Any expenditures
made by the administrator pursuant to this Act shall constitute a first priority
claim and lien paramount to all claims and liens upon the revenues and
all real and personal property of the discharger, whether or not the discharger
is insolvent." Id. at 142; see also N.J.S.A. 58:10-23.11f(f).
Here, however, CRDA is not asserting a lien under the Spill Compensation and
Control Act (the Spill Act), N.J.S.A. 58:10-23.11 to -23.11z. A Spill Act lien
is only created where the cleanup was performed pursuant to the Spill Act,
and the costs of remediation must first be spent out of the Spill
Compensation Fund before the lien comes into existence. Simon v. Oldmans Tp.,
203 N.J. Super. 365, 373 (Ch. Div. 1985). CRDA concedes that while it undertook
cleanup efforts as contemplated by N.J.S.A. 58:10-23.11g(d)(4), the costs of remediation were not
paid from the Spill Compensation Fund, and thus, it can not assert a
lien against the Property under the Spill Act.
A condemnor, however, may recover remediation costs without the benefit of a lien
under the Spill Act. "[T]he condemnor may seek an order requiring a portion
of the award to be set aside to satisfy the condemnee's clean-up and
transfer obligations." Suydam, supra, 177 N.J. at 7; see also Pressler, Current N.J.
Court Rules, comment on R. 4:73-9 (2006) (stating that on motion for withdrawal
of funds, the condemnor may require that the account maintain "a sufficient amount
to cover estimated environmental remediation costs"). Once the valuation of the property is
complete, "a portion of the award sufficient to cover cleanup costs is escrowed
or held in trust until the exact amount of cleanup costs has been
determined." Suydam, supra, 177 N.J. at 25 (quoting 7A Nichols on Eminent Domain,
§ 13B.03, ¶ 4 (Patrick J. Rohan & Melvin A. Reskin eds., 3d ed. 2002)).
At this point, the owner's liability for the discharge is determined, and a
corresponding percentage of the cost of remediation is disbursed from the trust or
escrow account to the condemnor. Ibid. (citing 7A Nichols, supra, § 13B.03, at ¶ 4).
"[T]he surplus, if any, is paid to the [condemnee]." Ibid. (quoting 7A Nichols,
supra, § 13B.03, at ¶ 4).
As the Court stated, it "would be unfair . . . to value
the property as if remediated and allow the condemnee to withdraw that enhanced
amount without a withholding to secure the transactional costs" spent to remediate and
transfer the property. Suydam, supra, 177 N.J. at 26. "In those circumstances[,] the
condemnee could disappear or dissolve leaving the condemnor without a cleanup remedy."
See footnote 1
Ibid.
Suydam is instructive in resolving the issue before us. In Suydam, the Court
discussed priority as between the condemnor's right to recover remediation costs and the
condemnee's right to just compensation. Suydam determined the order of priority between creditors
to take from the condemnor's just compensation award based on the priority of
their liens against the real property. The Court held that remediation costs are
set-aside, are not an interest in the res, and "do not belong to
the condemnee." Id. at 26.
We hold that where a municipality seeks to satisfy a municipal tax lien
from funds deposited into court representing the fair market value of the property
in a condemnation proceeding as if unaffected by adverse environmental conditions, the tax
lien may only be satisfied from any surplus funds on deposit after the
condemnor recoups the costs expended in the cleanup of the property. Cleanup and
remediation costs are transactional costs attendant to the condemnation proceeding. Ibid.; Cat In
The Hat, supra note 2, 177 N.J. at 34, 37, 42. It is
not that these costs take "priority" over other claims, but that they are
part of the condemnation proceeding for which the condemnor is entitled to be
satisfied before the proceeding is properly concluded.
In a condemnation proceeding, the contaminated property "is to be valued as if
it has been remediated." Suydam, supra, 177 N.J. at 7. "[E]vidence of contamination
[should be] excluded from the eminent domain valuation," to ensure that the valuation
represents "the full value of the property if it were uncontaminated." Id. at
25. The condemnor deposits the fair market value sum into court, and performs
the cleanup of the contamination on the property. Subsequently, either 1) at the
time of the taking, or 2) on a motion to withdraw, the trial
court should order that the estimated cleanup and other transaction costs be retained
in the trust account. Id. at 7; Cat In The Hat, supra note
2, 177 N.J. at 37. On distribution, the estimated cleanup costs remain separate;
and the balance represents the monetary equivalent of the owners interests in the
property, against which municipal tax liens have first priority,
See footnote 2
other creditors take next,
and the condemnee receives any surplus.
Here, the Property was valued in 2000, at $55,200, which was determined to
be the "market value . . . as if unaffected by adverse environmental
conditions." The verified complaint states that the estimated cost of cleansing the Property
of the environmental conditions would run between $130,000 and $200,000, and the actual
cleanup costs totaled $257,834.56. Considering the public policy promoting financial investment in the
City pursuant to the Casino Reinvestment Development Authority Act, N.J.S.A. 5:12-153 to -183;
the purpose of the Spill Act; and that the City ultimately benefits from
CRDA's cleanup, we determine that CRDA should not be left without a remedy
to recoup its cleanup cost. Suydam, supra, 177 N.J. at 26. Since CRDA's
remediation costs must be paid before other interests in the property are satisfied,
and the sum on deposit is insufficient to cover the cleanup costs, we
conclude that CRDA is entitled to the entire sum of $55,200.
Accordingly, we reverse the order of February 22, 2005; and remand to the
trial court for entry of an order directing the City to redeposit the
funds into court, and granting CRDA's motion to withdraw the original deposit, together
with interest accrued thereon.
Footnote: 1
We note that a condemnor has an alternate recourse other than the trust
escrow approach to recover cleanup costs. Costs that are incurred as a result
of cleanup and removal of hazardous substances may be recovered in a subsequent,
separate contribution proceeding against the dischargers of those substances. N.J.S.A. 58:10-23.11f(a)(3); Suydam, supra,
177 N.J. at 18; see also N.J. Transit v. Cat In The Hat,
LLC, 177 N.J. 29, 32 (2003) (Cat In The Hat) (holding valid a
clause reserving the right to pursue cost-recovery action against condemnee for cleanup costs).
Footnote: 2
Unless it is found subordinate to a lien of the State for
recoupment of environmental contamination cleanup costs under the Spill Act. N.J.S.A. 58:10-23.11f(f).
A-3808-04T5