Environmental Contamination is a Factor in Eminent Domain Valuation

This case served two important environmental policy purposes by establishing that environmental contamination could be considered in the fair market valuation of property taken by the government under eminent domain. This provides an incentive to all property owners and purchasers to limit environmental contamination on their own property and to test for it when purchasing property, and also ensures that there are more funds available for governments to conduct pollution remediation activities after condemnation.

In 1994, the Silver Creek Drain District wanted to build a storm-water retention pond on Extrusions Division, Inc.’s Grand Rapids property. The Drain District decided to acquire rights to the property using eminent domain, a power given to the government by the Michigan Constitution to take private property for the public use in exchange for just compensation. The trial court considered the fact that the property was contaminated when determining the property’s fair market value for the purposes of just compensation. The Supreme Court agreed that the Constitution permitted the trial court to take contamination into account when determining the fair market value of a property to be taken through eminent domain.

Extrusions Division, Inc. owned an 8-acre parcel of land in Grand Rapids. In 1992, Extrusions Division applied to the city for a permit to construct a warehouse on the parcel. The city denied the permit and notified Extrusions Division that the Silver Creek Drain District had identified the parcel as its desired location for the construction of a “storm water retention pond.”

In 1994, the Silver Creek Drain District filed a condemnation action under the Uniform Condemnation Procedures Act (UCPA), which would allow the Drain District to take the property if it paid Extrusions Division fair compensation for it. The trial court determined that the parcel was an environmentally contaminated site that would cost about $237,768 to clean up. Therefore, although the market value of the parcel was $278,800, its net fair market value was $41,032 if the court took the cost of cleaning up the contamination into account.

The Court of Appeals reversed in part, holding that the UCPA did not permit the trial court to consider whether the property was contaminated in determining its fair market value. Instead, the contamination could only be considered in separate proceedings to determine how much Extrusions Division might have to pay the Drain District for remediation costs after the property was transferred.

Can a court consider the cost of cleaning up environmental contamination when determining the fair market value of a property to be taken under eminent domain?

The Court (Justice Taylor, joined by Justices Corrigan, Young, and Markman) held that it is appropriate for courts to consider environmental contamination when determining the fair market value of a property to be taken under eminent domain. The Court reached this decision by analyzing the meaning of “just compensation” in the Michigan Constitution and determining that it includes all factors relevant to market value. In this case, contamination affected the parcel’s fair market value, because any reasonable purchaser of Extrusions Division’s property would have insisted on a minimal clean-up in order to make the property useable, and Extrusions Division’s profit would have been reduced by the amount it would have to pay for this clean-up.

Justice Cavanagh, joined by Justice Kelly, agreed with the result reached by the Court. However, he thought that the case could have been resolved under the Uniform Compensation Procedures Act alone, so there was no need for the Court to look to the Michigan Constitution to resolve the case. He cited the general principle that courts should avoid discussing constitutional issues that are not necessary to resolving a case.

Justice Weaver concurred in part and dissented in part. She too thought the Court had reached the correct result in this case, but she thought that the Court had incorrectly implied that the Michigan Constitution requires courts to take contamination into account in every eminent domain case. Instead, she thought that judges and juries should be allowed to determine whether contamination was a relevant factor based on the facts of each particular case.