Recently, a Third Circuit panel said a U.S. District Court judge abused his discretion in admitting the testimony of the landowners' expert, who significantly devalued property based on the supposed "stigma" of the property being located near a natural gas pipeline.1
There, UGI Sunbury, LLC (UGI), a company that builds natural gas pipelines under the authorization of the Natural Gas Act, had condemned easements for the construction of a natural gas pipeline. The issue of damages accounting for the diminution in value to the property due to the condemnation was before the District Court.
In a bench trial before a Judge in the United States District
Court for the Middle District of Pennsylvania, the landowners
employed an expert who opined that the value of the property had
been severely decreased by the pipeline based on his "damaged
goods theory." The expert devised the theory based on his
experience working as a sales representative in his
grandfather's appliance shop when he was in high school and
college. He observed that "the obvious appraisal question is,
[d]id my grandfather get more, the same or less for the
'scratch and dent' models than the undamaged models and
items?" While the expert testified that a purchaser of the
property would discount the price due to the stigma of the pipeline
and the "damaged goods" aspect of the property, he
offered no hard evidence in the form of paired sales to support his
contention. Beyond that, he pointed to the impact on property
values from the 1979 Three Mile Island nuclear accident and the
1989 Exxon Valdez oil spill in Alaska. However, these comparisons
failed to demonstrate any actual, irremediable harm because the
expert presented no quantifiable data to explain or clarify his
assumptions.
Nonetheless, the District Court found that the expert's
testimony was admissible and accepted that some type of stigma
existed (although it reduced the amount of stigma damages testified
to by the expert).
On appeal, the Third Circuit vacated the District Court's
decisions and remanded the matters for new valuation proceedings,
criticizing the District Court's acceptance of the expert's
speculative testimony. First, the Third Circuit confirmed that the
gatekeeping function of the trial judge and the standards of Rule
702 apply in both bench trials and jury trials. Second, the Third
Circuit detailed how the expert's testimony lacked the
requisite reliability and fit for admissibility. The expert's
testimony was bound only to speculation and conjecture, not good
science or other "good grounds." It explained that the
"speculative and subjective nature of this testimony...severs
the necessary relationship to 'methods which have established
to be reliable.'" Thus, the expert's testimony on
damages did not "fit" the proceedings or have the
"requisite nexus to the fair market value of the property at
issue." Because the expert's testimony failed to meet the
mandatory requirements for admissibility under the Federal Rules of
Evidence, the District Court's admission of the testimony was
deemed detrimental to UGI and new trials on compensation owned to
the landowners will follow.
Footnote
1. Buchanan Ingersoll & Rooney attorneys Stanley Yorsz, Victoria Kush and Brian Clark were involved in the case, submitting an amicus brief on behalf of The Marcellus Shale Coalition in support of UGI's appeal. Stanley Yorsz and Victoria Kush also have extensive experience in eminent domain cases and related valuation proceedings, including having successfully argued cases before Pennsylvania appellate courts involving alleged stigma damages in gas pipeline easement condemnations. See Smith v. National Fuel Gas Supply Corp., 189 A.3d 1159 (Pa. Commw. Ct. 2018), cert. denied, 199 A.3d 861 (Pa. 2018).
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