15 September 2014
In a recent decision involving damages for environmental contamination, the Texas Supreme Court reversed a jury award because the plaintiff failed to meet the high standard for establishing loss of market value, and the even higher standard for “stigma” damages associated with environmental contamination of real property in the absence of a sale of the underlying property. The decision in Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch1 highlights the impropriety of permitting stigma damages when a plaintiff fails to ground expert testimony regarding damages on established and clear principles.
This case involved chemical contamination on a cattle ranch caused by Houston Unlimited, a neighboring metal processing facility. The Texas Commission on Environmental Quality (“TCEQ”) confirmed the contamination, and the ranch owner then filed suit seeking damages for loss of market value. At trial, the ranch owner’s expert testified that because of the stigma resulting from the TCEQ action, the value of the plaintiff’s property had declined—although the ranch had not undergone a sale. The jury found Houston Unlimited liable and awarded the ranch owner approximately $350,000 in damages. Despite a dissent criticizing the damages testimony of the ranch owner’s expert, the Texas Court of Appeals affirmed.2
On cert to the Texas Supreme Court, the parties debated whether stigma damages are available in environmental-contamination cases. The court ultimately failed to reach that issue, but it highlighted the daunting standard of proof required for such recovery by stating that while it may be “legally possible to recover stigma damages, it is often legally impossible to prove them.”
In focusing on the legal sufficiency of the ranch owner’s evidence of damages, the Texas Supreme Court found the evidence in the record inadequate to prove that the contamination diminished the fair market value of the property. While the court did not categorically reject the expert’s “percentage-reduction-in-value” approach, it found that the “manner in which” the expert “used the approach here is fatally flawed.” The court identified three specific flaws: (i) unreliable data, (ii) unsupported assumptions and (iii) analytical gaps.
The court found that “the facts on which [the expert] relied” for her calculations “do not actually support her” opinions. For example, regarding one of the “comparable properties,” the expert used the listing price, rather than the market price, as the “high value” and an offer price as the “low value,” both of which occurred after the contamination. The court found that the data were “not temporally connected to the contamination” and held that “[w]hen the facts support several possible conclusions, only some of which support the expert’s conclusions, the expert must explain to the fact finder why those conclusions are superior based on verifiable evidence, not simply the expert’s opinion.”
While noting that when competing “evidence conflicts, it is the province of the jury to determine which evidence to credit,” the court asserted that “if the record contains no evidence supporting an expert’s material factual assumptions, or if such assumptions are contrary to conclusively proven facts, opinion testimony founded on those assumptions is not competent evidence.”
In this case, the ranch owner’s expert based her opinion on the assumption that the “diminutions she found for [the comparable properties] were 100 percent attributable to contamination that occurred.” Accepting arguendo that diminution occurred, the court noted that the expert “did not attempt to establish that the contamination caused some or all of the diminution in market value that she found, nor did she attempt to rule out other plausible causes.” The court held that “[t]his kind of material assumption, entirely lacking evidentiary support, renders expert testimony unreliable and incompetent to support a judgment” and further emphasized that the plaintiff had neither offered evidence showing that all of the diminution in value was attributable to stigma nor attempted to apportion the diminution among possible causes.
Finally, the court noted that a verdict may not rest on expert testimony “if there is simply too great an analytical gap between” the relied upon “data and the opinion proffered.” In this case, the expert failed to account for differences between the property at issue and the comparable properties. For example, the expert did not address how the types of contamination on the various properties were similar or different. In rejecting the expert’s testimony because of such gaps, the court explained that the foundation of the approach used is that “the appraised property is compared to comparable properties, which justifies an assumption of comparable values, and then adjusted for differences between the properties.”
The Texas Supreme Court concluded that the damages expert’s “reliance on insufficient data and unsupported assumptions and the analytical gaps in her analysis render her opinion conclusory and without evidentiary value.” Because there was no other legally sufficient damages evidence, the court reversed the order awarding damages and the plaintiff recovered nothing.
Counsel defending against claims for stigma damages can use Houston Unlimited to illustrate the uncertainty of whether such damages are available in Texas and, even assuming that they are, to illustrate the high evidentiary standard that must be met to recover such damages. Even outside of stigma damages, this case provides useful precedent to defend against more traditional claims for loss of market value.
Note that the Texas Supreme Court did not take issue with the fact that the defendant did not object to the plaintiff’s expert testimony at trial. In examining the probative value of the expert’s testimony, the court explained that “the evidentiary value of expert testimony is derived from its basis, not from the mere fact that the expert said it.” Nonetheless, prudence dictates objecting to and highlighting flaws at an available opportunity to create a supportive record for review.
1 No. 13-0084 (Tex. S. Ct. Aug. 22, 2014).
2 389 S.W.3d 583 (Tex. App. 14th Dist. 2012).