You all know the movie trope of the good guy setting off an explosion and then coolly turning and (in slow-motion) walking away framed by the blast (so cleverly parodied above)? Well, here’s the judicial equivalent.
In UGI Sunbury LLC v. 1.75 Acres, No. 18-3126 (Feb. 11, 2020), the U.S. Court of Appeals concluded that in a bench trial to determine valuation for the taking of property for a pipeline easement under the Natural Gas Act, an expert who opined on behalf of the property owner that the proximity of a pipeline to the remainder property resulted in “stigma damages,” should not have been allowed to testify about this “damaged goods” theory. The district court abused its “wide discretion” under Federal Rules of Evidence 702 and Daubert by allowing the testimony.
Rather than paraphrase the Third Circuit’s reasons for reaching this conclusion that the expert’s testimony was “speculative and subjective,” we set it out in full here:
Take the reports. They lack any suggestion that the “damaged goods theory” has been subject to peer review or enjoys general acceptance. Nor do they contain any analysis of a known or potential rate of error. Or any standards controlling the theory’s application. Each, instead, comes from Shearer’s anecdotal experience in his grandfather’s appliance shop, where he worked as a sales representative during his high school and college years. There, Shearer “took part in many ‘scratch and dent’ sales” of goods that “had been slightly damaged” but were otherwise “as good as any other equal model that was not affected with any scratch or dent.” (App. at 113; accord App. at 689.) Drawing on this experience, Shearer observes 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?” (App. at 114; accord App. at 689.) He concludes that “the answer is equally obvious. We all learn early on that consumers will automatically discount most if not all items and merchandise that is either damaged in some way or is ‘perceived’ to be damaged in some way.” (App. at 114; accord App. at 689.) All of which may be true. But “it is impossible to test a hypothesis generated by a subjective methodology because the only person capable of testing or falsifying the hypothesis is the creator of the methodology.” In re TMI Litig., 193 F.3d at 703 n.144.
Above all, it is the speculative and subjective nature of this testimony that severs the necessary relationship to “methods which have been established to be reliable.” In re Paoli, 35 F.3d at 742 n.8. Shearer blends his observations on consumer habits in the appliance market with far-flung examples of environmental accidents involving nuclear power and oil transportation. But the two principles—that consumers prefer undented appliances and property values declined near the Three Mile Island catastrophe—meet only by assumption. And it isn’t clear whether the theory rests on analogy to buying preferences generally, or in the real estate market specifically. Nor is it clear that Shearer’s conclusions that property value decreased near Three Mile Island and the Valdez spill trace to consumer perception rather than actual, irremediable harm, because Shearer presented no quantifiable data to explain or clarify his assumptions. But in any case, there is no data supporting the application of Shearer’s theory to the Landowners’ properties.
Slip op. at 16-18.
The court noted the expert testified that this theory is “common sense reasonable.” Slip op. at 18. Yeah, pipelines blow up. Does anyone want them on or near their land? But we can’t simply assume that, and need studies and stuff. Much of the merits and amicus briefing (including our amicus brief) focused on the question of how stigma damages are proven. But the court did not address that issue, instead disposing of the case on foundational issues, concluding that the expert’s testimony was neither “reliable,” nor “fit” (whatever that means). Slip op. at 18-19 & n.5.
The court acknowledged a split with at least one other court of appeals on the issue of whether Daubert‘s requirements are “relaxed” for bench trials. See slip op. at 14-15 & n.4. But the court ultimately concluded that the district court abused its discretion in even considering the testimony, even though it (and not a jury) was the ultimate trier of the facts.
We’re going to crack our evidence manual before we reach any final conclusion about whether the court was right or wrong on the issue. But something about this one just doesn’t feel right, does it?
UGI Sunbury LLC v. 1.75 Acres, No. 18-3126 (3d Cir. Feb. 11, 2020)