The New York Court of Appeals Breaks Down Barriers To Entry Into Brownfield Cleanup Program

On February 18, 2010, the Court of Appeals issued an important decision for real estate owners and developers in New York State. The Court, in a unanimous opinion, interpreted the definition of “brownfield site” under the New York State Brownfield Cleanup Program (“BCP”) statute, and, based on this definition, held that the New York State Department of Environmental Conservation (“DEC”) abused its discretion in denying acceptance of two parcels of real property located in Monroe County into the BCP. This decision should make it easier for applications to be accepted into the BCP.

The petitioner, Lighthouse Pointe Properties Associates, LLC (“Lighthouse”), had plans to redevelop two parcels of land into a $250 million mixed-use waterfront development to include condominiums, townhouses, a marina, restaurants, retail stores and a hotel. One of the parcels is located within the footprint of a former city landfill that accepted residential waste, construction debris and sewage sludge. The other parcel contains industrial waste, construction debris, sewage sludge and residential refuse as fill material. In 2006, Lighthouse applied to DEC for acceptance into the BCP for both parcels. DEC concluded that neither site was a brownfield site within the meaning of the BCP statute and denied the applications. The BCP defines a “brownfield site” as “any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a contaminant.” N.Y. Envt’l Conserv. Law (“ECL”) § 27-1405, subd. 2. The BCP allows DEC to reject any application that it determines does not meet the definition of a brownfield site. ECL § 27-1407, subd. 8(a). The BCP provides significant incentives to real estate owners and developers in the forms of a liability release and covenant not to sue from the State as well as brownfield redevelopment tax credits.

In 2007, Lighthouse sued DEC seeking to annul DEC’s determination denying the BCP applications. Lighthouse supported its claims with evidence showing the extent of the contamination at the two sites, as well as affidavits that maintained that no one would finance the project without DEC’s approval of the remediation and a release of liability. The Supreme Court held that DEC improperly rejected Lighthouse’s applications and ordered DEC to accept Lighthouse immediately into the BCP. DEC appealed and the Appellate Division reversed and dismissed the petition. This decision was reversed by the Court of Appeals, thereby reinstating the decision of the Supreme Court.

The Court held that because the meaning of the definition of “brownfield site” is one of pure statutory interpretation, it did not have to defer to the agency’s application of the term. The Court concluded that “real property qualifies as a ‘brownfield site’ for purposes of acceptance into the BCP so long as the presence or potential presence of a contaminant within its boundaries makes redevelopment or reusemore complex, involved, or difficult in some way.” The Court stated, “[t]his low eligibility threshold is consistent with the statute’s legislative history.” The Court agreed with Lighthouse that the properties met the definition of a brownfield site because the properties were concededly contaminated with multiple contaminants, some of which exceeded accepted levels, and there was undisputed evidence that the presence of contaminants complicated redevelopment. First, the Monroe County Department of Health refused to sign off any development of the Inland site unless DEC approved the remediation plan. Second, without a release of liability from DEC, there could be no assurance that DEC would not change its view in the future regarding the adequacy of a cleanup that was not supervised by it at this time.

Importantly, the Court’s decision reinforces the broad definition of a “brownfield site,” and holds that a number of factors contribute to the complication of the redevelopment of property because of the presence of contamination, including an inability to get financing or local approvals. The decision is likely to have a considerable impact on the number and types of properties that will be accepted into the BCP in the future.