LITIGATION ALERT: PROPERTY OWNER RULE NARROWED: Texas Supreme Court Requires Substantiation of Property Owner Opinions Regarding Market Value

PROPERTY OWNER RULE NARROWED:

Texas Supreme Court Requires Substantiation of Property Owner Opinions Regarding Market Value

January, 2013

Authors:
Mike Logan
Logan Burke

"No man acquires property without acquiring with it a little arithmetic also."  Ralph Waldo Emerson, Representative Men 152 (1850).  This axiom regarding the interrelation of property ownership and valuation was recognized and incorporated into early Texas jurisprudence.  See e.g. Moody v. Castleberry, 151 S.W.2d 960 (Tex. Civ. App.—Texarkana 1941, no writ) (recognizing a prima facie qualification of horse owners to testify as to injured horses market value).  Historically, Texas has allowed property owners to testify as to their opinion of the market value of their property, even if these owners would not be qualified to give opinion testimony as to the value of other property.  This so-called "Property Owner Rule" allows a property owner to testify regarding damages to his property, but his testimony must refer to "market, rather than intrinsic or some other value of the property."  Such a requirement is normally fulfilled by asking the witness "if he is familiar with the market value of his property."  In practice, this has allowed claimants to provide unsubstantiated testimony and market value figures containing intrinsic elements.

The Texas Supreme Court recently narrowed the scope of the Property Owner Rule. In Natural Gas Pipeline Co. of America v. Justiss, the Court considered appellant's argument that because property owner testimony is the functional equivalent of expert testimony, it must be judged by the same requirements.  (Tex. Dec. 14, 2012).  The Court ultimately held that a property owner's testimony on market value cannot be based solely on naked conjecture or speculative factors, such as a landowner's ipse dixit (unsubstantiated assertion) that he is familiar with the market value.  While the Court affirmed the viability of the Property Owner Rule, its ruling narrowed its scope holding that the Rule is now subject to Texas Rule of Evidence 701 and landowners must explain the basis of their opinions of value.  The Court's holding is best understood through an examination of the facts and its analysis of similar rules related to opinion evidence, as discussed below: 

A.            Facts of the Case

Plaintiffs in the underlying matter were comprised of several homeowners (collectively "Justiss") who alleged that noise and odor was emanating from Natural Gas Pipeline Company of America's ("Gas Company") compressor station causing a permanent nuisance.  

In 1992, Gas Company built a compressor station in Lamar County.  Soon thereafter, surrounding property owners complained that the station's noise, odor and lights interfered with the enjoyment of their homes.  In June of 1998, the Texas Commission on Environmental Quality cited the station for a Category 5 odor violation, the most severe citation available, noting overpowering, highly objectionable, and nausea-inducing odors.  Gas Company responded by changing the oil in the station's engines and raising the exhaust stacks.  Two months after citation, Justiss filed suit against Gas Company for permanent nuisance. After trial, a jury found that a permanent nuisance existed, which began just before the lawsuit was filed, and diminished property values.  The jury ultimately awarded $1,242,500.00 for lost property value. 

Gas Company appealed arguing that limitations barred the permanent nuisance claim and insufficient evidence supported the jury's findings. The Texarkana Court of Appeals affirmed and thereafter, review was granted by the Texas Supreme Court.  

B.            The Supreme Court's Holding and Requirements of Opinion Evidence

In cases of permanent nuisance, a landowner may recover as damages the property's lost market value.  This valuation normally requires a calculation of market value with and without the nuisance.  

The Court explained that the Property Owner Rule falls under the purview of Texas Rule of Evidence 701, which allows a lay witness to provide opinion testimony if it is (a) rationally based on the witness's perception and (b) helpful to a clear understanding of the witness's testimony or the determination of a fact in issue.  The Court held that as property owner testimony is the functional equivalent of expert testimony, it must be judged by the same standards and therefore must be substantiated.  Owners may not simply echo the phrase “market value” and state a number to substantiate their diminished value claim.  The Court further noted that even unchallenged testimony must rise to that level as legally sufficient to support a verdict, noting that bare, conclusory and speculative statements do not. None of the homeowners' testimony explained how they arrived at their opinions on change in market value and resultantly, their claims failed to meet the requirements of the Rule.  Recognizing that it was narrowing the scope of the Property Owner Rule and that Justiss may have relied on the previous rule in presenting their evidence of diminution in value, the Court remanded the case for a new trial on liability and damages. 

C.            Conclusion

·                  The Natural Gas Pipeline Co. of America v. Justiss decision narrows the scope of the Property Owner Rule and suggests that landowners may be held to the same standard as experts regarding opinion testimony.

·                  Evidence of price paid for the property, nearby sales, tax valuations, appraisals, online resources, and other measures of valuation germane to market value are prudent sources to consider for eliciting the requisite substantiation moving forward.  

·                  Given that an owner's testimony on valuation may be challenged on cross-examination and/or refuted with independent evidence, it is unclear how beneficial the Property Owner Rule will be for future claimants as the previously utilized practice of simply relying upon an owner's unsupported "familiarity with market value" will no longer be sufficient.   

·                  Despite confirming the viability of the Property Owner Rule, the Supreme Court dealt a firm blow to its scope and and a strict application of this rule may persuade many future claimants to retain traditional valuation experts to opine on market value.

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This Litigation Alert is a summary of recent developments in the law and is provided for informational purposes only.  It is not intended to constitute legal advice or to create an attorney-client relationship.  Readers should obtain legal advice specific to their situation in connection with topics discussed.

Copyright © 2013 Kane Russell Coleman & Logan PC.  All rights reserved.  Unless otherwise indicated, the authors are not certified by the Texas Board of Legal Specialization.

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