In In re Custom Distribution Services, Inc., property owner Custom Distribution Services, Inc. ("CDS") filed an adversary proceeding in the Bankruptcy Court against the Tax Assessor of the City of Perth Amboy (the "City") to have the valuation of its real property reduced and to recoup the amount previously overpaid in property taxes. The property at issue was contaminated with metals such as lead, arsenic and mercury, as well as by volatile organic compounds in both the soil and groundwater. The property was designated as a Superfund site by the EPA and was listed on the National Priorities List and NJDEP's Comprehensive Site List. CDS contended that under New Jersey law, the valuation of its property must be reduced to account for future environmental cleanup costs, as well as the stigma factor associated with contaminated property.
The Court agreed with CDS that the "true value" of the property must take into account the environmental cleanup costs to be incurred over time. Consequently, the Court allowed the taking of a straight annual deduction over a ten-year term (the period which the parties stipulated it would take to complete remediation of the property) equaling the total projected cost of remediation stipulated to by the parties. In so allowing, the Court relied on guidance set forth by the New Jersey Supreme Court in Inman Associates, Inc. v. Borough of Carlstadt, in which the Court stated: "[t]oday's investment in the cost of neglected cure might prudently be spread out ... over a number of years. Certainly this would be more realistic than the suggestion [that] the full cost of cure be deducted annually from value."
Based on the magnitude of contamination at the property, the site's designation as a Superfund site and its listing on both the federal and state hazardous site lists, the Bankruptcy Court also agreed with CDS that the site will suffer from an environmental stigma which will diminish its value. In order to quantify the value of this stigma, CDS presented the Court with a market analysis of comparable properties which showed an average "55% reduction in value for environmentally-contaminated sites." The City did not set forth any analysis to quantify stigma, but, rather, it argued that "the concept is too ephemeral to quantify." Based on the severity of the contamination at the site, the Court agreed to the 20% reduction sought by CDS, finding that this reduction was not only reasonable but also "somewhat conservative."
This case is significant because of its validation of the concept of environmental stigma, which is useful not only in the context of property tax appeals but also to support a claim of diminution in value as a measure of damages in environmental cost recovery litigation.
