Lessons Learned for Experts and Advocates

Lessons Learned for Experts and Advocates FEWA Dallas Chapter Dinner January 22, 2015 James E. Smith 713.226.6608 jsmith@porterhedges.com

HUI V. MEL ACRES RANCH Brief Factual Background Ranch alleged releases from HUI s industrial operation to the Ranch s property Ranch sued for permanent property damage Before trial, HUI took measures to stop any ongoing releases

HUI V. MEL ACRES RANCH After taking these measures, HUI s environmental consultants tested the Ranch, and determined that the Ranch had no relevant constituents above state action levels All relevant constituents were below the no action levels published by TCEQ Ranch asserted that its property suffered permanent loss of value due to stigma, even if the constituents were below the state action levels.

PREEMPTION BY STATE LAW? HUI and several industry amici argued that TCEQ s action levels preempt any common law cause of action, including a claim for loss of value due to stigma.

TEXAS SUPREME COURT PUNTS ON STIGMA In its opinion, the Texas Supreme Court stated that it could not decide the issue of state action level preemption for environmental contamination because the Ranch failed to provide legally sufficient evidence of permanent injury due to stigma. Other court s in the same situation have ruled no stigma.

PRACTICAL EFFECT OF THE RULING Plaintiffs will need to have legally sufficient proof of stigma damages, and only then will the Texas Supreme Court consider if Texas recognizes a claim for postremediation stigma in an environmental case.

Excerpt from oral argument ORAL ARGUMENT EXCERPT

HUI V. MEL ACRES RANCH After stating that it could not address the stigma issue, the Court made a lengthy analysis of the Ranch s stigma evidence In its analysis, the Court acknowledged that even if Texas law may allow for recovery for stigma, proof of that stigma may be legally impossible

ANALYSIS OF THE RANCH S EXPERT S TESTIMONY Real estate appraiser sales-comparison approach post remediation stigma lowered the market value by 60%. two comparables the Court noted that, perhaps due to the difficulty in finding comparable sales, neither example was a true sale.

ANALYSIS OF THE RANCH S EXPERT S TESTIMONY One of the examples was the difference between an initial offering price and a counter offer for a transaction that never closed. The other example was the sale of property by a company to its former employee, where the owner denied that the property had ever been contaminated. The owner said that the low price was a sweetheart deal as part of a retirement package. [Good job, Rudy!]

LESSONS FROM THE OPINION Lesson 1-adequately address alternatives The Court noted that the first property was a former Superfund site that may not have been remediated all the way to state action levels, and thus may have had lower value due to ongoing contamination, not just to stigma.

LESSONS FROM THE OPINION The second property may have never been contaminated, and its sales price may have been lowered for reasons other than stigma. In sum, the Ranch failed to identify a single property that was remediated to state action levels and continued to suffer from an ongoing stigma.

LESSONS FROM THE OPINION Ranch s expert claimed that the other properties need not have been comparable, because the expert identified percentage value reductions, not dollar value reductions, due to their stigma. The Court specifically rejected that approach.

LESSONS FROM THE OPINION The sales comparison approach never relies on other sales exactly like the subject property. Must link the final appraised value to these somewhat dissimilar comparison properties.

LESSONS FROM THE OPINION Have a detailed narrative in the appraisal report explaining how the properties are reasonably similar, as a starting point. Set out the differences Provide a logical analysis of the differences Use an accepted methodology to quantify those differences, consistent with the analysis

LESSONS FROM THE EXPERIENCE What I will do next time to win the case at trial, and avoid the appellate courts

LESSONS FROM THE EXPERIENCE Do not assume the trial judge will act the way the Texas Supreme Court wants trial judges to act This judge said he had never granted a Daubert motion to strike an expert. At the informal charge conference, the judge agreed to submit the to the jury the questions as submitted by the plaintiff

LESSONS FROM THE EXPERIENCE During the informal charge conference, the judge Voiced apprehension as to the appropriateness of the questions proposed by the plaintiff Said to the Ranch s lawyer I ll give you what you want, but it ll be your job to keep it.

LESSONS FROM THE EXPERIENCE I should have prepared the case based on the evidence the jury heard, even including evidence that the Texas Supreme Court ruled, unanimously, should not have been admitted and could not have supported a verdict

LESSONS FROM THE EXPERIENCE I should have done a better job anticipating what this judge would submit as questions to the jury. prepared my experts to help the jury answer the questions actually given by the judge to the jury, even the question that seemed clearly contrary to Texas law, at the time

LESSONS FROM THE EXPERIENCE For example, I could have had my real estate expert identify Texas properties that had been subject to a clean closure under the VCP or PST programs Use sales data from these properties to show no ongoing loss of market value Indeed, some properties do not show any ongoing loss even with less than a clean closure

LESSONS FROM THE EXPERIENCE Merely identifying properties that have been closed and that do not have any market value might not meet the requirement to use truly comparable properties, as set out in HUI However, before a judge who never grants Daubert motions, these data will probably come in to rebut opinions that the jury heard in this case.

EXPECT THE UNEXPECTED One week after releasing HUI, the Texas Supreme Court issued Gilbert Wheeler Inc v. Enbridge Pipelines East Texas LP Court stated that whether damage to real property was temporary or permanent was a matter of law, for the judge to decide Contrary to its own statement in Schneider National Carriers, Inc. v. Bates, ten years earlier

TEMPORARY V. PERMANENT In Gilbert Wheeler, Court noted that Texas law had traditionally been that [w]hether the injury [to real property] amounts to total or only partial destruction of value, or whether it be permanent or temporary, as well as the extent of the injury and the resulting amount of damages, are all questions for the determination of the jury under proper instructions. Trinity & S. Ry. Co. v. Schofield, 10 S.W. 575, 577 (Tex. 1889). 27

TEMPORARY V. PERMANENT Gilbert Wheeler went on to say that [j]urors must still decide the frequency, extent, and duration of noxious conditions... [b]ut jurors cannot decide questions such as whether damages can be estimated with reasonable certainty, whether principles of res judicata allow one or a series of suits, or when limitations ought to accrue. Schneider, 147 S.W.3d at 281. Accordingly, we instructed that jurors should determine whether a nuisance works temporary or permanent injury only to the extent there is a dispute regarding what interference has occurred or whether it is likely to continue. " Id. 28

TEMPORARY V. PERMANENT Therefore, Gilbert Wheeler announced that whether an injury is temporary or permanent is a question of law for the court to decide. At the same time, we recognize that questions regarding the facts that underlie the temporary-versus-permanent distinction must be resolved by the jury upon proper request. Said another way, when the facts are disputed and must be resolved to correctly evaluate the nature of the injury, the court, upon proper request, must present the issue to the jury, relying on the definitions we have provided in this opinion. 29

WHAT IS ATRIAL JUDGE TO DO? Ask specific questions regarding the frequency, extent, and duration of noxious conditions? Or, have the jury answer Temporary or Permanent, based on instructions from the judge, even though that answer is supposed to be a matter of law for the judge? 30

MY RECOMMENDATION Be prepared for both possibilities. Try to get the judge to rule on temporary or permanent injury as early as possible Be prepared for this issue to go to the jury, and have all relevant experts prepared to testify as to the position of the client on the issue Have experts prepared to address damages from both perspectives 31