There is a divide between what a property is worth in the real world versus what the court will allow a jury to hear as fair market value. For example, Wisconsin courts generally prohibit condemnation appraisers from using an appraisal method commonly used in the business world, the Income Approach, to get fair market value. Even though the Income Approach might reflect the real-world price, it’s not allowed in court to prove that property’s fair market value.
Highlighting this tension between how you get a price in the business world and fair market value is a recent Texas pipeline case. In Enbridge G & P (East Texas) LP v. Samford, the Texas Court of Appeals addressed the testimony about the real world value of a pipeline. No. 12-13-00307-CV (Tex. App. July 31, 2015).
Enbridge sought to install a gas pipeline over three parcels owned by the plaintiff-landowners. To do so, Enbridge acquired a 50’ permanent easement for the pipeline itself and a 25’ temporary limited easement for incidental construction. The litigation focused on the amount compensation Enbridge owed the landowners for these easements.
At trial, both Enbridge and the landowners had appraisers testify to the easements’ fair market values. The landowners also called two other experts to testify about the pipeline easements’ values. One of these experts testified to “what a gas pipeline is worth.” He explained that according to his background – he had been a county attorney and had experience negotiating sales of pipeline easements – the pipeline easement was really worth $850 per-rod (16’6”) to the gas industry. Indeed, the court of appeals acknowledged that this practice was “common in pipeline easement negotiations.” He contrasted his view with the traditional appraisal approach. The traditional appraisal approach, he suggested, determines fair market value of an easement but does not reflect the amount pipeline companies would pay for the easement outside of condemnation. Importantly here, the expert’s $850 per rod value included all damages to the property: the value of the part taken by the pipeline, the cost of the temporary easement, and compensation for any harms to the “remainder” property outside of the easement.
Enbridge objected to the expert’s testimony. The trial court was unmoved and permitted the expert to testify. The jury returned a verdict compensating landowners according to the expert’s on the per-rod value of the pipeline. Nevertheless, the jury also compensated the landowners for damages to the outside the easement. Thus, the jury double-counted damages: The expert’s per-rod value already compensated damages to the remainder and the jury awarded separate compensation for damage to the remainder.
Enbridge appealed the trial court’s decision to allow the landowners’ expert to testify. Enbridge argued that the expert’s per-rod method did not follow the set rules for determining just compensation. Those rules, Enbridge explained, required that compensation be based on the change to the property’s fair market value. The expert’s per-rod method didn’t calculate fair market value of the landowners’ land. Thus, Enbridge argued, the expert’s per-rod method was an “improper...measure of damages.” Appellant’s Br. at 4. It was the jury’s use of the per-rod value led to an improper verdict. Id.
The court of appeals agreed with Enbridge. The problem with the per-rod method, the court wrote, is that the method did not separate the compensation for the pipeline easement itself from the compensation for damages to the remainder of the property. The method was inappropriate to present to a jury tasked with determining just compensation.
The court of appeals pointed to precedent. In an earlier Texas case, the court warned against confusing the damage for the taking and the damage to the remainder. State v. Carpenter, 126 Tex. 604, 89 S.W.2d 194 (1936). To avoid such confusion, the Carpenter court declared that juries must be asked, first, to determine the value of the part taken and, second, to calculate the damage of the taking to the remainder of the property. Carpenter, 89 S.W.2d at 197.
To the court of appeals in the present case, it was clear that the jury combined compensation for the easement based on the per-rod method with the additional damages to the remainder. Thus, Enbridge was right – the expert’s methods led to improper double damages. The trial court should have excluded the expert’s per-rod testimony.
The case serves as a reminder that getting to just compensation in an eminent domain case requires an in-depth knowledge of the field’s intricacies. What may be an industry standard – like pricing pipeline easements per-rod – may not always be an acceptable method in court. These rules may be complex and counter-intuitive. That’s why it’s important to call on an attorney with specialized skills in eminent domain.