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The Polanco Redevelopment Act (Health & Safety Code � � 33459 et seq), which was enacted by the California Legislature in 1990, established redevelopment agencies with authority to remediate contaminated properties within their jurisdictions. The purpose of the statute was to provide public entities and buyers of property in redevelopment areas with liability immunity and to encourage private investment. While the act has revitalized some urban areas, it also has created serious legal and financial risks to property owners. The Polanco Act grants a redevelopment agency broad powers to require a property owner to remediate contamination on the property in order to conform with local redevelopment plans, which the agency itself establishes. With perfunctory oversight from other regulatory agencies, a redevelopment agency can require a property owner to remediate the property or it can conduct the remediation itself, with or without acquiring the property through eminent domain. Unlike the cost recovery requirements of the federal Comprehensive Environmental Response, Compensation and Liability Act 42 U.S.C. 9601 et seq. (“CERCLA”), the redevelopment agency does not have to comply with the National Contingency Plan (“NCP”) to recover its cleanup costs. This exemption strips a property owner of the ability to limit remediation expenditures (as allowed by CERCLA) to those necessary to address “an actual and real threat to human health and the environment,” and allows the redevelopment agency to recover costs unavailable under CERCLA. Under the Polanco Act, a property owner faces the prospect of expending substantial resources in negotiating and conducting the remediation of the property, paying for the redevelopment agency’s cleanup costs and having the property taken through eminent domain proceedings at less than fair market value. The Health & Safety Code grants a redevelopment agency significant powers to achieve its goal, with the authority for doing so presumed by law to be valid. H&S Code � � 33103, 33122. The H&S Code requires the agency to prepare redevelopment plans for impacted areas, which must include schedules for development, types of development and boundary descriptions. H&S Code � � 33330-33352. Although the redevelopment agency’s charge is to revitalize “blighted areas which constitute either physical, social or economic liabilities, requiring development in the interest of the health, safety and general welfare,” project areas may include contiguous and non-contiguous areas as well as property and structures not detrimental to public health, safety or welfare. H&S Code � � 33030, 33320.1, 33320.2, and 33321. As such, the agency’s powers can reach beyond the physical boundaries of designated project areas to affect properties, which it alone deems “necessary” for effective redevelopment. H&S Code � 33320.2. The Polanco Act provides that a redevelopment agency may take “any actions” deemed necessary to remedy a “release” of hazardous substances on property within a redevelopment area. H&S Code � 33459.1(a)(1). An agency can require the property owner to remediate the property according to a remediation plan the agency deems acceptable, conduct the remediation itself and/or acquire the property by eminent domain. H&S Code � 33459.1. Like CERCLA, the Polanco Act incorporates a broad definition of “release” and adopts CERCLA’s joint and several liability, strict liability and retroactive liability provisions. More importantly, the state statute does not require that an “imminent and substantial endangerment” to public health or welfare exist before beginning the cleanup or abatement. H&S Code � 25320; 42 U.S.C. � � 9604, 9606. Remedial plan and schedule: Within 60 days of receiving notice from the redevelopment agency, a property owner must submit a remediation plan. H&S Code � 33459.1(b)(2). The property owner’s timely submission of an acceptable remediation plan will in large part determine the scope, timing and cost of remediation. The remediation plan may also affect the fair market value of the property if the agency later seeks to condemn the property through eminent domain and remediate the property itself. In approving a remediation plan, the redevelopment agency will determine whether the plan is consistent with the NCP for “similar releases, situations or events.” � � � As a practical matter, the agency’s determination whether a particular remediation plan is consistent with the NCP will be difficult to challenge because the agency also determines the future land uses in the project area. H&S Code � � 33330-33352; 40 CFR � � 300, et seq.; Land Use in the CERCLA Remedy Selection Process (OSWER Directive No. 9355.7-04). Not surprisingly, future land use can have a significant impact on cleanup levels, which in turn affect costs and valuation. For instance, if an agency plans residential use for a contaminated property, the cleanup levels will be far more stringent than those for property intended for commercial or industrial use. Likewise, a daycare center or school may require the remediation of contamination to nondetectable levels while a warehouse or light manufacturing facility may require remediation to only risk-based levels, allowing higher levels of contaminants to remain on the property. Under the statute, the agency determines the cleanup levels based upon its redevelopment schedule and future land use plans for the property, the cost of which is borne by the property owner. Remediation, eminent domain and valuation: If a property owner does not submit a timely remediation plan acceptable to the agency, the agency may at its discretion conduct the remediation itself in conjunction with, or in lieu of, a condemnation action to acquire the contaminated property. H&S Code � 33459.1. If the agency chooses to undertake remediation itself, it must submit a remedial action plan to the Department of Toxic Substances Control, Regional Water Quality Control Board or a designated local agency for approval. In practice, obtaining approval from any of these other entities is a formality. These regulatory agencies are charged with the responsibility of protecting the environment and public health, while the redevelopment agency’s purpose is to remediate property to enhance its marketability for development. Under the act, the property owner’s function is to pay for it. Although the agency may choose to remediate a property itself before acquiring it, the liability immunity afforded public entities that acquire contaminated property by eminent domain makes condemnation an attractive option. See, 42 U.S.C. 9607(b)(3); City of Emeryville v. Elementis Pigments, Inc., 2001 WL 964230 (N.D. Cal.). Indeed, a redevelopment agency is expressly empowered to acquire any interest in property by eminent domain. H&S Code � 33391. While a public entity must establish that its acquisition of property by eminent domain is for a public use, acquiring property for redevelopment constitutes a public use as a matter of law. H&S Code � 3037. A redevelopment agency has the authority to condemn non-blighted properties as well. Redevelopment Agency of the City of Chula Vista v. Rados Bros. (2002) 95 Cal.App.4th 309, 318. An owner must be cognizant of the redevelopment agency’s condemnation powers in developing a remediation plan. A property owner is entitled to just compensation for property taken through eminent domain, which has been held to mean “fair market value” and includes attorneys’ fees and costs incurred in defending the condemnation action. Sacramento S. R.R. v. Heilbron (1909) 156 Cal. 408, 409; Locklin v. City of Lafayette (1994) 7 Cal.4th 327, 375; Code Civ. Proc. � 1263.320. The cost of environmental remediation will affect the fair-market valuation, reducing the fair market value by the cost of remediation. Redevelopment Agency of Pomona v. Thrifty Oil Co. (1992) 4 Cal.App.4th 469. Indeed, citing Thrifty Oil Co., a New Jersey appellate court recently held that the majority rule is to admit evidence of contamination in eminent domain cases for purposes of valuation. Housing Authority of the City of New Brunswick v. Sudyam Investors, L.L.C. (2002) 355 N.J.Super. 530, 549-550. To protect one’s investment, a property owner has a mere 60 days to prepare a remediation plan that is both acceptable to the agency and cost-effective so as to protect the fair market valuation of the property. If a redevelopment agency takes any action to remediate or require remediation of a property, the “responsible parties” will be liable for the costs. H&S Code � 33459.4. The elements of a claim for recovery of a redevelopment agency’s costs under the act are: (1) the property is within the project area; (2) there has been a release of a hazardous substance on property within the project area; (3) reimbursement is sought from a responsible party; (4) the agency provided the responsible party with a 60-day notice requesting a remediation plan; (5) the responsible party failed to submit a remediation plan that the agency could approve; (6) the agency’s remediation plan met the approval of the appropriate regulatory oversight agency; and (7) the agency incurred remediation or removal costs necessary to implement the remediation plan. H&S Code � � 33459, 33459.1, and 33459.4. In addition to adopting CERCLA’s liability standards for cost recovery, the Polanco Act incorporates CERCLA’s “innocent landowner” defense. Redevelopment Agency Of The City Of San Diego v. Salvation Army (2002) 103 Cal.App.4th 755, 766; 42 U.S.C � � 9601(35), 9607(b)(3). However, a property owner will have difficulty establishing the innocent landowner defense because redevelopment areas typically are industrial or semi-industrial. This makes it unlikely that a property owner could demonstrate by a preponderance of the evidence that he or she “did not know and had no reason to know” of the hazardous substance on the property. 42 U.S.C � � 9601(35), 9607(b). Moreover, while CERCLA’s cost recovery provisions require consistency with the NCP, such consistency is not an element of cost recovery under the Polanco Act. Redevelopment Agency of City of San Diego v. Salvation Army, supra, 103 Cal.App.4th at 764; but see City of Emeryville v. Elementis Pigments, Inc., supra, 2001 WL 964230 at footnote 11, which states in dictum that a defendant in a cost recovery action under the act “will bear the burden of proving that the city’s cleanup was inconsistent with the NCP”). Accordingly, unlike CERCLA, a redevelopment agency’s recovery, under Salvation Army, is not limited to those costs incurred in addressing “an actual and real threat to human health or the environment.” Therefore, once a remediation plan is deemed consistent with the NCP, which is determined, de facto, by the redevelopment agency’s plans, a property owner cannot later raise inconsistency with the NCP as a defense. The Salvation Army decision — the first published California opinion construing the act — provides a stark example of the legal and financial risks the statute poses to property owners. The case revolved around a redevelopment agency’s action against the Salvation Army to condemn its property and recover remediation costs when the Salvation Army failed to respond to notices to submit a remediation plan. Eventually, the parties settled the eminent domain action, stipulating to just compensation of $550,000, which included an offset of $260,000 for the costs of environmental remediation. The Salvation Army also stipulated that the $550,000 included total compensation for all claims the Salvation Army made or could have made during the eminent domain action, including attorneys’ fees and costs. It was a costly mistake for the Salvation Army. After taking possession of the property, the redevelopment agency submitted an amended remediation plan, which was accepted by the local Department of Environmental Health. However, as is often the case, the remedial costs exceeded the projected costs (in this instance by $170,893), which the court required the property owner to pay. The trial court and court of appeal rejected the Salvation Army’s argument that the original and amended remediation plans were inconsistent with the NCP. The court of appeal further found that consistency with the NCP was not a prerequisite to cost recovery under the act. The court also held that the Salvation Army was a “responsible party” under the Polanco Act because it owned the property at the time the agency’s action was filed. Further, the court rejected the Salvation Army’s claim for attorneys fees and costs as just compensation for defending the eminent domain action, stating that the Salvation Army “waived its claim of entitlement to such fees” in the stipulation and failed to timely file its claim. In the end, the Salvation Army not only lost its property, which was devalued for remediation costs, but also incurred additional and substantial remediation costs after the redevelopment agency took possession of its property. In addition to paying the agency’s legal fees and costs, the Salvation Army ended up with compensation of only approximately $340,000, significantly less than the property’s fair market value. The scenario presented in Salvation Army is instructive on two important points. First, the Salvation Army’s biggest mistake was its failure to respond to the agency’s notices to submit a remediation plan. When confronted with a 60-day notice to submit a remediation plan, a property owner must promptly respond. Upon receipt of a notice, a property owner should, in conjunction with legal, technical and financial advisors, immediately begin developing a remediation plan. If necessary, the owner should seek an extension of time to respond. Failure to respond to a 60-day notice allows a redevelopment agency to call all the shots. Second, in its stipulation with the redevelopment agency, the Salvation Army, failed to reserve its rights to seek just compensation for attorneys fees and costs and failed to cap the remediation costs recoverable by the agency. In settling an eminent domain action with a redevelopment agency, a property owner’s counsel must negotiate the remediation costs applicable to any offset to the fair market value of the property as well as remediation costs recoverable after the agency takes possession of the property. Ideally, the eminent domain and cost recovery action should be part of a global settlement of all potential environmental claims between a property owner and a redevelopment agency. The Polanco Act is a powerful tool for redevelopment agencies seeking to remediate contaminated property. The statute also poses substantial legal and financial risk to property owners. The manner in which a redevelopment agency utilizes its powers under the Polanco Act is contingent on the property owner’s proposed remediation plan, which is only acceptable if it meets the agency’s own redevelopment plans. Striking a balance between a remediation plan that is acceptable to the agency and cost effective will be difficult given that the agency determines both the future land uses and, with limited oversight, what constitutes an acceptable remediation plan. As demonstrated by the result in the Salvation Army decision, an owner who fails to submit an acceptable remediation plan faces loss of the property, which will be devalued for remediation costs, and must pay for remediation, which need not be consistent with the NCP or address an actual threat. When faced with such legal and financial risks and the corresponding loss of property, a property owner must act quickly to develop a comprehensive response that protects his or her legal and financial interests. Earl L. Hagstr�m is a partner in the environmental and toxic tort department at San Francisco’s Sedgwick, Detert, Moran & Arnold. Gary A. Sloboda is an associate at the firm.

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