Consultants examining 189 acres targeted for redevelopment in Palmyra found the largest property owner's site in disarray.

The Fillit Corp. site, they wrote in a report last year, was covered with ground-up vegetation, mounds of mulch and topsoil, a dilapidated office trailer, inoperable vehicles, and piles of junk abutting Pennsauken Creek.

Also, it and nearby properties were the subject of ongoing investigations into contamination from a long-closed landfill, while its soil samples had elevated levels of pesticides, arsenic, and other chemicals, according to borough records.

Now Palmyra is fighting a legal challenge from Fillit over the borough's designation of the area as in need of redevelopment - a lawsuit that has thrown another obstacle before a major South Jersey project already scaled back because of the economy.

Fillit's 104 acres, and the redevelopment zone that encompasses that land, have long been at the heart of plans to build a revitalized gateway to Burlington County from Philadelphia.

Once a sand- and gravel-mining operation, the land is mostly used as a recycling facility where vegetation waste is turned into products such as mulch and wood chips, according to court records. The site is part of a state-designated Brownfields Development Area, where an environmental contractor is conducting an investigation that will lead to environmental-remediation and reuse plans.

The area has been used for deposition of dredge spoil from the Delaware River, an airport, and a munitions testing area.

Palmyra designated the zone, at the foot of the Tacony-Palmyra Bridge, as in need of redevelopment in 2002. Delays caused by failed negotiations and a state Supreme Court decision that raised redevelopment-designation standards led the borough to repeat the process and ultimately reapprove the designation in January.

A municipality that takes certain steps under New Jersey law to designate an area as blighted, and hence in need of redevelopment, may take the property by eminent domain.

The borough held lengthy public hearings in which its consultants and officials described blight, crime, underuse, and apparent environmental contamination on the 189 acres, which are south of Route 73 and home to small businesses, a weekend flea market, and vacant land.

Fillit representatives didn't show up - it is unclear why - though others did to protest.

In January, Connecticut company National RE/Sources signed a $563 million deal with the borough to build a 200,000-square-foot expo center and convention center, a 176-unit condominium tower, a marina with 150 slips, two hotels, and townhouses, among other redevelopment.

In its lawsuit, Fillit contends the borough's redevelopment designation is invalid. In finding Fillit's property qualified, Palmyra cited an obsolete layout and uses detrimental to public health and safety.

Borough consultant Susan Gruel said at last year's public hearing that Fillit had large stockpiles of excavated soil that could be contaminated, and that there was a potential for contaminating the nearby creek and sensitive tidal marsh.

More broadly, Gruel noted that the site had been developed over the years in a piecemeal way, with small, nonconforming lots and diverse owners, separated by Route 73 from the rest of the two-square-mile borough.

There is no question the site is contaminated, according to the state Department of Environmental Protection. An environmental firm hired by Palmyra is investigating the overall redevelopment zone as part of the brownfield remediation process, which has been delayed by complications from the discovery of unexploded ordnance that remained after the Army tested munitions there in the 1940s.

But Fillit has argued in court papers that although the borough's redevelopment designation seems predicated on suspected contamination, there is insufficient information on the subject because the brownfield consultants are not close to finishing their investigation.

Anthony Valenti, Fillit's attorney, declined to comment.

Since the suit was filed in February, the parties have submitted a bundle of paperwork to state Superior Court in Mount Holly and are set to talk this week about legal discovery.

An official for National RE/Sources, which is not a defendant in the suit, said Fillit appeared less concerned with stopping the development than with receiving a fair price that covered the environmental cleanup costs for which it could be held responsible. Valenti has been receptive to negotiations, said the official, Erik J. Rucker, director of government relations, adding that the issue could be resolved in as few as 90 days.

National RE/Sources continues to negotiate with other landowners in the redevelopment area.

Fillit's real concern is it doesn't want to give its property away "and owe money, and the lawsuit makes everybody come to the table and makes everybody sit down and discuss it," Rucker said. "We don't want it to be tied up, they want to sell it, so there's got to be somewhere in the middle we can reach."

Contact staff writer Maya Rao