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Rover Pipeline, LLC v. 1.23 Acres of Land

United States District Court, E.D. Michigan, Southern Division

July 6, 2018

ROVER PIPELINE, LLC, Plaintiff,
v.
1.23 ACRES OF LAND, MORE OR LESS, PERMANENT EASEMENT PIPELINE RIGHT-OF-WAY SERVITUDE, et al., Defendants.

         OPINION & ORDER DENYING WITHOUT PREJUDICE PLAINTIFF'S MOTION IN LIMINE TO EXCLUDE EVIDENCE OF CONSUMERS ENERGY PIPELINE EXPLOSION (Dkt. 813); GRANTING PLAINTIFF'S MOTION IN LIMINE TO EXCLUDE EVIDENCE OF ROUTE CHANGES (Dkt. 814); GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION IN LIMINE AS TO WAYNE ESCH (Dkt. 816); DENYING PLAINTIFF'S MOTION IN LIMINE AS TO ERIC GARNDER AND MARK KOENINGER (Dkt. 817); GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION IN LIMINE AS TO WILLIAM LAWRENCE AND ERIC GARDNER (Dkt. 819); GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION IN LIMINE AS TO FRANK TOKAR, JR. AND ERIC GARDNER (Dkt. 820); GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION IN LIMINE TO EXCLUDE EVIDENCE OF PRIOR EASEMENT PURCHASES AND SETTLEMENTS (Dkt. 821); GRANTING DEFENDANTS' MOTION IN LIMINE AS TO MIKE ISRANI AND RICHARD HURIAUX (Dkt. 822); DENYING DEFENDANTS' MOTION IN LIMINE AS TO ANTHONY SANNA (Dkt. 823); DENYING DEFENDANTS' MOTION IN LIMINE AS TO JEFFREY KERN AND DAVID FALKENSTERN AND TO STRIKE SUPPLEMENTAL REPORT (Dkt. 824); AND DENYING WITHOUT PREJUDICE DEFENDANTS' MOTION IN LIMINE TO EXCLUDE PIPELINE IMPACT STUDY (Dkt. 825)

          MARK A. GOLDSMITH UNITED STATES DISTRICT JUDGE

         This matter is before the Court on several motions in limine brought by Plaintiffs (Dkts.813-814, 816-821) and Defendant landowners (Dkts. 822-825). Most of the issues have been fully briefed; for those without full briefing, the time to file has since passed. See E.D. Mich. LR 7.1(e)(2). The Court has dispensed with oral argument, as it will not aid in the decisional process. See E.D. Mich. LR 7.1(f)(2); Fed.R.Civ.P. 78(b). The disposition of each motion will be addressed below and summarized in the conclusion of this opinion and order.

         I. ANALYSIS

         The majority of the motions in limine presently before the Court are those brought pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The Court will thus first address each Daubert motion, followed by a discussion of the remaining motions in limine.

         A. Daubert Motions

         Under Federal Rule of Evidence 702, a “witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion” if the following criteria are met:

(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702.

         Rule 702 places a special obligation on the trial court to be a gatekeeper, ensuring that “any and all scientific testimony or evidence admitted is not only relevant, but reliable.” Daubert, 509 U.S. at 589, 597. In Kumho Tire Company v. Carmichael, 526 U.S. 137 (1999), the Supreme Court clarified that the “gatekeeping obligation” is not limited to “scientific” expert testimony, but applies to all expert testimony. In other words, Rule 702 requires a district court to satisfy itself that the proposed expert testimony will assist the trier of fact, before permitting the trier of fact to assess such testimony. Id. at 148-149. The proponent of the expert must establish admissibility by a preponderance of the evidence. Nelson v. Tenn. Gas Pipeline, Co., 243 F.3d 244, 251 (6th Cir. 2001).

         1. Wayne Esch

         The first Daubert motion brought by Rover concerns Wayne Esch, a realtor based in Washtenaw County, Michigan. Esch was retained by Defendants to assess the effect of the Rover pipeline on the following property tracts: (i) MI-WA-006.000 and MI-WA-009.500 (owned by Barry Kenyon/BVK Holdings, LLC); (ii) MI-WA-052.000 (owned by Jean and Matthew Little, Trustees of the Little Trust (“Little Trust”)); (iii) MI-WA-058.000 (owned by William and Karen Zimmer); (iv) MI-WA-059.000 and MI-WA-059.500 (owned by L&B Schaible, LLC); and (v) MI-WA-064.000-T (owned by Cynthia and William Kemner).[1] Esch ultimately concluded that the Rover pipeline “will have a severe and negative impact on the marketability of the properties in the future, ” to the tune of a 25% decrease in value for each property. Esch Decl., Ex. 1 to Defs. Mot., ¶ 10 (Dkt. 816-2). Esch also opined that the location of the properties made them ideal for residential subdivision development, but the presence of the pipeline “will have a substantial negative impact on their ability to be developed.” Ex. D to Esch Decl. at PageID.9613. Rover argues that Defendants have failed to satisfy any of the requirements set forth in Rule 702. The Court will address each requirement in turn.

         Rover argues that while Esch has experience as a realtor, he does not have any relevant experience with properties encumbered by pipelines or large properties sold for potential development as residential subdivisions. It notes Esch's assertion that a pipeline on the subject properties would cause a 25% loss in value cited to only one previous experience where one of his buyers insisted on a discount because of a pipeline. Rover notes the Sixth Circuit's holding in Berry v. City of Detroit, 25 F.3d 1342, 1351 (6th Cir. 1994), that “[t]he issue with regard to expert testimony is not the qualifications of a witness in the abstract, but whether those qualifications provide a foundation for a witness to answer a specific question.” Defendants argue that Esch's “experience and specialized knowledge as a successful realtor” in the Washtenaw County market qualify him as an expert under Rule 702. They note that he has been in the top five percent of realtors in Washtenaw County by annual sales each of the past ten years. See Ex. D to Esch Decl. at PageID.9614.

         Esch's experience as a longtime realtor in Washtenaw County satisfies the first requirement under Rule 702. While Esch could only name one specific transaction where a buyer demanded a price decrease due to an oil pipeline, he noted that he had dealt with several other instances of encumbrances, including electrical lines. He also has been working for over fifteen years in Washtenaw County, where each of the properties at issue is located. Putting aside the methods used to come to his conclusion, his credentials qualify him to testify regarding the effect a pipeline would have on the resale value of property in the county.

         Despite his experience, Esch did not base his conclusion regarding the property values on sufficient facts or data, or reliable principles and methods. While the Court in Daubert set forth factors to consider when determining whether an expert's methods are reliable, including whether the methods have been tested, subject to peer review, and generally accepted in the scientific community, the “factors utilized in Daubert may be of limited utility in the context of non-scientific expert testimony.” First Tennessee Bank Nat. Ass'n v. Barreto, 268 F.3d 319, 334 (6th Cir. 2001). “In some cases (even cases involving non-scientific expert testimony), the factors may be pertinent, while in other cases ‘the relevant reliability concerns may focus upon personal knowledge or experience.'” Id. at 335 (quoting Kumho Tire, 526 U.S. at 150). “[W]hether Daubert's specific factors are, or are not, reasonable measures of reliability in a particular case is a matter that the law grants the trial judge broad latitude to determine.” Id. (quoting Kumho Tire, 526 U.S. at 153).

         Defendants argue that Esch should be permitted to testify based solely on his past experience, because his testimony is only being offered to “educate the jury as to the condition of the real estate market where these properties are located.” Def. Resp. at 7. Esch's report does begin by discussing the nature of the Washtenaw County market, noting that “[m]any environmental conscience [sic] Buyers refuse to live close to gas pipelines, others will consider purchasing only if the price is adjusted.” Ex. D to Esch. Decl. at PageID.9610. However, he then gets into much more detail regarding the effect of the Rover pipeline on the subject properties. Esch stated in his report and at his deposition that the highest and best use for each of the properties is to convert them into residential subdivisions, and that the presence of the Rover pipeline will cause this land to decrease in value by 25%. In coming to the precise conclusion in his report that the subject properties will lose a quarter of their value, Esch relies solely “upon my real estate experience in Washtenaw County.” Id.

         Although the Daubert factors may not be applicable where, as here, the issue involves a non-scientific opinion, the trier of fact needs to be given some basis, other than a generalized reference to experience, when being presented with a statistical conclusion regarding the value of specific properties. See Newell Rubbermaid, Inc. v. Raymond Corp., 676 F.3d 521, 527 (6th Cir. 2012) (“Red flags that caution against certifying an expert include reliance on anecdotal evidence, improper extrapolation, failure to consider other possible causes, lack of testing, and subjectivity.”). Esch conceded that he did not inspect any of the subject properties, compare sales data for properties with and without pipeline easements, review or conduct any studies examining the effect of pipelines on home values, nor did he consider the fact that three of the properties already have pipeline easements, a fact that might well alter his 25% devaluation estimate. When asked what market data he used to arrive at his 25% conclusion, he once again relied on his anecdotal experience of “taking buyers out to look at properties and the market feedback that they give to me based upon that.” Id. at 54.[2] Esch Dep., Ex. 2 to Defs. Mot., at 54, PageID.9629 (Dkt. 816-3).

         While Defendants now try to characterize Esch's testimony as a mere general discussion of the Washtenaw County housing market, this is belied by Esch's own report and testimony, which give a precise percentage of how much the landowners can expect their property to be devalued by the Rover pipeline. The failure to rely on any meaningful data in coming to his conclusion regarding the 25% devaluation of the Kenyon, Little Trust, Zimmer, L&B Schiable, and Kemner properties renders this portion of Esch's opinion unreliable. As a result, this portion of his testimony is excluded.[3] However, based on his experience, the Court will allow him to testify about the market generally, as well as the highest and best use of the property.

         2. Mark Koeninger and Eric Gardner: PIR/Stigma Theory

         Rover next seeks to exclude the opinions of Mark Koeninger, an architect, and Eric Gardner, an appraiser, both of whom were retained by the Kenyon, Little Trust, Zimmer, Schiable, and Kemner landowners. Gardner appraised all six of the properties, and based his appraisals in part on Koeninger's potential impact radius (“PIR”)/stigma theory. This theory relies on the Pipeline and Hazardous Safety Materials Administration's (“PHMSA”) definition of PIR, which it defines as “the radius of a circle within which the potential failure of a pipeline could have significant impact on people or property.” 49 C.F.R. § 192.903. Koeninger estimates that the PIR for the Rover pipeline is 1, 100 feet on each side of the pipeline. According to Koeninger, this potential blast radius causes a stigma which devalues not just the land on which the pipeline is situated, but also the land that is within the PIR, and even the land outside the PIR. Koeninger estimates that the land within the radius is devalued anywhere from 25% to 40%, with the land outside of the PIR losing 10% of its value.

         Defendants now seek what is sometimes referred to as “severance damages, ” which arise where a “partial taking not only deprives the owner of the property that is actually taken but also diminishes the value of the property remaining to the owner.” United States v. 91.90 Acres of Land, Situate in Monroe Cty., Mo., 586 F.2d 79, 86 (8th Cir. 1978). Koeninger and Gardner assert that because of the stigma caused by the pipeline and its PIR, the value of the property remaining to Defendants has diminished. Rover now moves to exclude this opinion, on the grounds that it is not based on sufficient facts or data, is not the product of reliable principles and methods, and even if it was, the principles and methods were not reliably applied to the facts of the case.

         Rover asserts that neither Gardner nor Koeninger relied on sufficient facts or data when conducting the appraisals, or formulating the PIR/stigma theory, respectively. Rover's main point of contention is that while the putative experts reviewed market data to determine the “before take” value of Defendants' land, they did not consult any market data within Washtenaw County to determine the “after take” value of the properties.

         A review of Gardner's reports shows that, in addition to reviewing regional and neighborhood data, he began by comparing each subject property with four to five comparable properties to determine each property's “before take” value. See, e.g., Kemner Appraisal, Ex. 1 to Pl. Mot., at 28, PageID.9745 (Dkt. 817-2). He also toured each property, met with the landowners, and spoke with local officials. He then adjusted this value based on Koeninger's PIR/stigma theory, a theory which Koeninger became familiar with after reviewing a 2002 study of the effects of the Guardian Pipeline in Wisconsin (“the Guardian Pipeline study”), as well as a study in Right of Way magazine, in order to arrive at the “after take” valuation. Id. at 13. A review of Koeninger's deposition indicates that he reviewed some market data - what he refers to as “demographic information” - to get a general sense of the housing market in Washtenaw County. See Koeninger Dep., Ex. 8 to Pl. Mot., at 55, PageID.10134 (Dkt. 817-9). In addition to the Guardian Pipeline Study, he reviewed zoning information and master plans. Id. He also used the county auditor's surveys and records to determine which easements already existed on the subject properties. Id. at 50.

         Rover contends that, instead of relying on the PIR/stigma theory and two studies that supposedly support that theory, Gardner should have compared the subject properties to comparable properties that sold after being encumbered by pipelines in order to determine the “after take” value of the properties. See Rockies Exp. Pipeline LLC v. Hopkins, No. 1:08-CV-00751-RLY, 2012 WL 1622532, at *5 (S.D. Ind. May 9, 2012) (“One would expect that if the presence of an underground natural gas pipeline makes residential development economically non-viable, then some market data would exist to evidence that.”). Rover takes issue with Gardner's and Koeninger's failure to examine sales data along the Rover pipeline to determine whether news of the pipeline had caused properties to depreciate. However, there is authority that holds that “[c]omparable sales are only one method of estimating property values. Other methods may be used ‘where no comparable sales exist.'” Vector Pipeline, L.P. v. 68.55 Acres of Land, 157 F.Supp.2d 949, 956 (N.D. Ill. 2001) (quoting United States v. 99.66 Acres of Land, 970 F.2d 651, 655 (9th Cir. 1992)). Gardner testified that such comparable properties do not exist at this time, because while there are some properties with six to twelve inch pipelines, the Rover pipeline's forty-two inch diameter makes it distinguishable. Gardner Dep., Ex. 9 to Pl. Mot., at 43 (Dkt. 817-10); see also id. (describing the Rover pipeline as a “game changer.”). Gardner instead relied on the PIR and literature on the stigma of pipelines to determine the decrease in value caused by the Rover pipeline.

         Rover insists that comparable sales do exist, noting a study by Integra Realty Resources (“Integra Study”), to which Gardner and Koeninger were privy, which analyzed homes on and off other large pipelines in Ohio, Virginia, New Jersey, Pennsylvania, and Mississippi. The report ultimately concluded that “there is a sales frequency for homes ‘on' a pipeline that is consistent with those ‘off' a pipeline. This indicates that the presence of a pipeline does not inhibit sales.” IRR Report, Ex. 11 to Pl. Mot., PageID. 10303 (Dkt. 817-12). Contrary to Gardner's conclusion, the report also concluded that the “size of the pipeline has no effect on sales price in the study areas.” Id.

         While this report may contradict the PIR/stigma theory, it is well-settled that “[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Clay, 215 F.3d at 669. Gardner was entitled to rely on his experience and the literature he reviewed in order to conclude that the PIR/stigma effect was real. See Vector Pipeline, 157 F.Supp.2d at 957 (“Rule 702 specifically contemplates the admission of testimony by experts whose knowledge is based on experience.”) (internal citation and quotations omitted).

         Rover also takes issue with the literature relied on for Gardner's “after take” valuation, first arguing that the study of the stigma caused by the Guardian Pipeline is unreliable because it consisted of a phone survey of individuals selected at random, rather than a survey of only active home buyers. A review of the study reveals that it conducted a thorough, scientific survey of homeowners regarding how the then-forthcoming Guardian pipeline in Wisconsin would affect their home-buying decisions. See Guardian Pipeline Study, Ex. A to Defs. Resp. to Mot. to App. Comm. (Dkt. 689-2). The study began by asking respondents generally whether a pipeline would impact their decision to purchase a home, and then followed up by asking by what percentage the property would have to be reduced for them to make a purchase. Id. at 3-7. While Rover believes the study should have only surveyed those active in the market, this critique does not render the entire study unreliable. Rover does not actually critique the Right of Way magazine article, but instead notes the article's recommendation that appraisers also analyze comparable sales to determine the “after take” value. However, as noted above, Gardner insisted that, in light of the size of the Rover pipeline, there were not comparable sales in Washtenaw County.[4] The Court concludes that Koeninger and Gardner could reasonably rely on both pieces of literature in lieu of comparable sales in order to satisfy Rule 702(b)'s mandate that they rely on sufficient facts and data in formulating their opinions.

         The next issue concerns whether Koeninger's PIR/stigma theory itself is the product of reliable principles and methods. As noted above, “Daubert provided a non-exclusive checklist for trial courts to consult in evaluating the reliability of expert testimony. These factors include: testing, peer review, publication, error rates, the existence and maintenance of standards controlling the technique's operation, and general acceptance in the relevant scientific community.” In re Scrap Metal Antitrust Litig., 527 F.3d 517, 529 (6th Cir. 2008) (internal citation and quotations omitted).

         Rover contends that the PIR/Stigma theory “has failed” when tested, ostensibly referring to the Integra study, and has not been the subject of peer review or publication. However, as noted above, it has found support in the Guardian Pipeline Study, and in the study published in Right of Way Magazine. While Rover notes that a court in the Southern District of Ohio explicitly found that Koeninger's PIR/stigma theory possessed a “fundamental weakness, ” see Rockies Exp. Pipeline, LLC v. 4.895 Acres of Land, More or Less, in Butler Cty., Ohio (Pipeline Right-Of-Way Servitude), No. 2:08-CV-554, 2011 WL 1043493, at *1 (S.D. Ohio Mar. 16, 2011), the court held that the PIR was properly considered and was “an interesting theory that lacks persuasive force under the circumstances of this case.” Id. This lends more support to the argument that the weaknesses in the PIR/stigma theory go towards the theory's weight, not its admissibility.[5]

         Lastly, Rover argues that, even if the PIR/stigma theory is reliable, Gardner and Koeninger did not reliably apply the theory to each tract they evaluated. It argues that the theory was misapplied because the putative experts failed to take into account that three of the properties - those owned by Kemner, Schiable, and Zimmer - were already encumbered with pipelines. As a result, Rover argues, the theory should have led to a diminished “before take” value in light of the preexisting pipelines.

         In Gardner's expert reports on the Kemner, Schiable, and Zimmer properties, he acknowledges that there are existing pipelines on the properties, but concedes that “the size, pressure and contents of the pipe are unknown and therefore not included in this report.” See, e.g., Kemner Appraisal, Ex. 6 to Pl. Mot., at PageID.10080 (Dkt. 817-17). The failure to consider the potential stigma of the existing pipelines on the “before take” value of the Kemner, Schiable, and Zimmer properties allows for the inference that Gardner did not faithfully apply the PIR/stigma theory. Even allowing for their contention that the Rover pipeline is a “game changer” in terms of its size, it stands to reason that under the PIR/stigma theory, the “before take” value of the three pieces of property would at least be marginally depressed by the purportedly smaller preexisting pipelines. The failure to at least consider their impact on the property values makes it appear as though Gardner was attempting to inflate the “before take” value of the properties, so that he could then apply the PIR/stigma theory to the Rover pipeline to maximize Defendants' just compensation.

         Despite this apparent flaw in Gardner's appraisals, the Court holds that it is not grounds for a wholesale exclusion of Koeninger's PIR/stigma theory, or Gardner's application of the theory to his appraisals. As noted above, “[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Clay, 215 F.3d at 669. It is for the trier of fact to determine whether, in light of the apparent disparity in size between the preexisting pipelines and the Rover pipeline, Gardner was correct in choosing not to apply the PIR/stigma theory to determine the ...


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