In a recent environmental contamination case, a New Jersey federal judge rejected an expert valuation of alleged diminution in value on Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) grounds. In Leese, et al. v. Lockheed Martin Corp., No. 11-5091, 2014 WL 1092406 (D.N.J. March 18, 2014), homeowners sued Lockheed Martin Corp., alleging that environmental contamination attributable to the defendant’s facility in Moorestown, N.J., decreased the value of their properties located across the street.
The plaintiffs’ only evidence of damages was an expert report on the alleged devaluation. The expert opined that the value of each property “if clean” was $600,000 but only $295,000 “as is.” The defendant challenged the expert’s methodologies for his “as is” valuation, and Judge Jerome B. Simand ruled that the plaintiffs’ expert valuation report was unreliable and inadmissible.
The expert used three techniques to arrive at the “as is” valuation: he (1) subtracted from the “if clean” valuation the amount the homeowners would have needed to spend to remediate the contamination; (2) analyzed the sales of four other contaminated properties, estimated a percentage discount attributable to contamination for each sale, and then applied the average discount to the plaintiffs’ properties; and (3) surveyed local realtors for what they expected a home with a subsurface depressurized remediation system in the plaintiffs’ residential development would sell for and applied the average expected discount to the plaintiffs’ properties. The expert then averaged the results of the three methodologies to arrive at a final “as is” valuation.
The court found all three methodologies unreliable because they were all “based in part on arbitrary and unreliable decisions by [the expert] without support in scientific literature or practice.” First, the expert impermissibly relied on the opinion of an individual who was neither disclosed nor qualified as an expert to determine what remedial measures were required. Second, in applying the average percentage discount of the four comparable sales to the plaintiffs’ properties, the expert gave significantly less weight to the sale showing the smallest discount and added an additional 10 percent on top of the weighted average discount, but could not provide any reliable basis for how or why he weighted the discounts or added the additional 10 percent. Third, the expert’s survey only received eight responses, the realtors were not informed of the kind or level of contamination to be considered, and the realtors were asked to consider a property with a subsurface remediation system even though the expert’s report assumed that the plaintiffs did not have such a system.
Further, the expert opined that, due to certain factors, the plaintiffs’ properties suffered twice the average discount expected by the realtors but could not explain why or whether those factors were not already considered by the realtors in their survey responses.
While the court’s rejection of the valuation in Leese was fact-specific, the opinion highlights areas that counsel should focus their attention when evaluating an expert opinion on alleged diminution in value of environmentally contaminated property.