Commercial Litigation and Arbitration

Rule 37(c)(1) Sanctions — Two-Page Expert Report Properly Excluded for Failure to Set forth All Opinions — Report “Sufficiently Sparse” as to Fail to Satisfy 702/Daubert

U.S. ex rel. Tennessee Valley Auth. v. 1.72 Acres of Land in Tennessee, 2016 U.S. App. LEXIS 8287 (6th Cir. May 5, 2016):

This is an appeal by the landowner, Karl Thomas, from an award made by the district court in a condemnation action brought by the Tennessee Valley Authority  [**2]  ("TVA") under the TVA Act of 1933, 16 U.S.C. § 831 et seq. In the condemnation proceeding, the TVA acquired a permanent easement running along a boundary of 34 acres of land in Coffee County, Tennessee. The issue of just compensation was tried before a jury. Following the close of testimony, the TVA moved for judgment as a matter of law based on its valuation of the condemned land. The trial judge granted the TVA's motion, concluding that the landowner had failed [*2]  to meet his burden of proof in showing any higher value for the land taken. The landowner now appeals the district court's judgment, and we AFFIRM.


Factual Background

Thomas is an entrepreneur who owns four hotels throughout the country. He purchased a 34-acre parcel of land in 2013 for $160,000 with the intention of developing a first-tier hotel. Most of the property is zoned A-1, or agricultural-residential; a smaller portion is zoned C-1, or rural center district. The property is located adjacent to and is visible from Interstate 24, which runs between Nashville and Chattanooga, Tennessee. The property has always been used for agriculture. Indeed, since purchasing the property, Thomas executed a three-year farm lease agreement with two local farmers, grew crops, and also certified to the county assessor that he was "presently using [the property] as agricultural land." (App.R. 56, Application for Greenbelt Assessment.)

Since purchasing the property, Thomas had been in discussions with the TVA regarding its plans to construct a power line on a portion of the property running alongside Interstate 24. However, neither party could come to an agreement over how the power line [*3]  would be built, where it would be located, or the price for the easement.


a. Inadmissibility Under Rule 702

The starting point in this analysis is Rule 702, which governs the use of expert testimony. That rule provides:

   A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (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.

 [**7]  Fed. R. Evid. 702.

The rule, which was amended in 2000, reflects the Supreme Court's decisions in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), and Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999). See Fed. R. Evid. 702 advisory comm. note, 2000 amend. ("In Daubert the Court charged trial [*11]  judges with the responsibility of acting as gatekeepers to exclude unreliable expert testimony, and the Court in Kumho clarified that this gatekeeper function applies to all expert testimony, not just testimony based in science.").

Under Rule 702, "a proposed expert's opinion is admissible, at the discretion of the trial court, if the opinion satisfies three requirements. First, the witness must be qualified by 'knowledge, skill, experience, training, or education.' Second, the testimony must be relevant, meaning that it 'will assist the trier of fact to understand the evidence or to determine a fact in issue.' Third, the testimony must be reliable." In re Scrap Metal Antitrust Litigation, 527 F.3d 517, 528-29 (6th Cir. 2008) (quoting Fed. R. Evid. 702). The party offering the expert's testimony has the burden to prove by a preponderance of the evidence that the expert is qualified. Sigler v. Am. Honda Motor Co., 532 F.3d 469, 478 (6th Cir. 2008). We have also stated that "rejection of expert testimony is the exception, rather than the rule." In re Scrap Metal, 527 F.3d at 530 (internal quotation marks omitted). Accordingly, "Rule 702 should be broadly interpreted on the basis of whether the use of expert testimony will assist the trier of fact." Morales v. Am. Honda Motor Co., Inc., 151 F.3d 500, 516 (6th Cir. 1998) (citation and internal quotation marks omitted).

Before applying these standards, we describe in more detail the proposed testimony at issue. [*12]  Wilson's proposed testimony concerned the feasibility of constructing a hotel on the property. In his two-page expert report, Wilson stated that he has "worked with [Thomas] for over 6 years on the development, acquisition, renovation and operations of 4 hotels." (R. 47-1 at 182.) Wilson then explained that Thomas planned to develop a "limited service hotel" on the property due, at least in part, to the property's visibility from Interstate 24. Id. But according to Wilson, Thomas' plans were adversely affected by the TVA's construction of an above-ground power line across the property. As to how the power line would affect the feasibility of developing a hotel, Wilson stated:

    [**8]  The above ground Transmission[] lines as detailed in the December 2012 Final Environmental Assessment prepared by the TVA will materially and negatively impact the development, financing and ongoing operations of any first tier limited service hotel.

These types of power lines create both a visual and psychological barrier to guests thinking about staying at a hotel. The concern for safety of "how close is too close" for one's family can make it easy to just keep driving until the next exit . . . If the TVA had [*13]  chosen to put the power lines underground, then the transmission lines would not have a negative effect on the development of a limited service hotel on the Property.

(Id. at 182-83.)

That was the extent of Wilson's report. The district court excluded Wilson's testimony for two main reasons. First, the court found that the proposed testimony provided no basis for the jury to conclude that there was any reasonable probability that the property could be rezoned for commercial purposes, or that there was a market for a hotel. Second, the court found that the proposed testimony offered no assessment of the property's before and after value.

We have consistently held that in condemnation cases, "speculative and remote possibilities cannot become a guide for the ascertainment of value," especially when the creation of such a potential use would require a substantial investment of capital. United States v. 1,291.83 Acres of Land, 411 F.2d 1081, 1084 (6th Cir. 1969). A landowner in the position of Thomas "must show that a market [for the proposed use] in fact existed on the date of taking or would be reasonably likely to exist in the near future. That is, the mere physical adaptability of the property is insufficient to discharge the burden of proving the existence [*14]  of a market." Id. at 1085. Accordingly, where the landowner's expert testimony amounts to "mere guess or speculation," the trial court should exclude the testimony. United States v. L.E. Cooke Co., 991 F.2d 336, 342 (6th Cir. 1993).

We considered an analogous issue of whether the landowner's expert testimony amounted to speculation in United States v. 47.3096 Acres of Land, 583 F.2d 270 (6th Cir. 1978). In that case, the government appealed from an adverse jury verdict awarding the landowner $77,000 for the taking of 47.3096 acres from a 76.7588 acre tract of farmland. Id. at 271. The sole question on appeal was whether the trial court properly admitted the testimony of the  [**9]  landowner's expert witness, who estimated the value of the property based on its hypothetical worth as a residential subdivision. Id. The expert witness testified that at the time of condemnation, the landowner's property could have been divided up into several residential lots of varying sizes. Id. Using comparable area sales, the expert witness testified as to what each lot would have sold for. Id. The trial court denied the government's motion to strike that testimony. Id.

On appeal, we reversed the trial court's judgment and remanded for a new trial. Id. at 272-73. We found that the expert's testimony as to what each lot would have sold for was purely speculative [*15]  and not based upon anything tangible. Id. at 272. For example, the expert's testimony "offered no evidence that the property was 'needed or likely to be needed in the reasonably near future' for residential subdivision." Id. (quoting Olson v. United States, 292 U.S. 246, 255 (1934)). Nor did the testimony offer any evidence "of any current demand or potential for subdivisions in the neighborhood," or any evidence that the landowner "had a plan to subdivide" the property. Id. (citation and internal quotations omitted). Thus, the expert's testimony should not have been admitted because what he testified to was not "fairly shown to be reasonably probable." Id. (citation and internal quotations omitted).

Based on the case law, we find no abuse of discretion in the district court's exclusion of Wilson's proposed testimony. Like the testimony admitted in 47.3096 Acres of Land, Wilson's proposed testimony was purely speculative and not based upon any actually observed data. His expert report did not present any supporting evidence to show that the existence of above-ground power lines on the property renders the development of a hotel financially unfeasible. As the district court correctly noted, Wilson's expert report did not offer evidence showing [*16]  the market demand for a hotel, nor did it provide any analysis as to whether or not Thomas' proposed development was even feasible. Wilson simply stated that hotel guests would be turned off by the aesthetic impact of a power line.

Moreover, nowhere in Wilson's statement was there any mention of whether Coffee County would approve a rezoning, variance, or permits for commercial development on this property. Nor was there evidence that such variances had been permitted with respect to similarly zoned parcels in the past. As the district court noted, the property "is currently zoned  [**10]  for agricultural use" and Wilson's statement "provides no basis for the jury to conclude that, absent the transmission lines, there is a reasonable future probability to conclude that Mr. Thomas' property could be rezoned for commercial use and that it could successfully be developed for placement of a tier one, limited use service hotel." (R. 75, District Court's Order, PageID# 477.) Similarly, Wilson had not reviewed or identified any document showing that the development of a hotel was ever permitted in land in Coffee County that is zoned A-1, i.e., agricultural-residential zoning. See, e.g., Rockies Express Pipeline, LLC v. Burtle, 492 F. App'x 666, 670 (7th Cir. 2012) (excluding [*17]  the landowner's proffered expert testimony because the expert "speculated that the highest and best use of the landowners' properties was for commercial or residential use, even though the properties were only zoned and used for agricultural purposes"); United States v. 33.92356 Acres Of Land, 585 F.3d 1, 7-8 (1st Cir. 2009) (excluding the landowner's proffered expert testimony because the expert could not show a reasonable probability that the property would be rezoned).

We find that the district court acted well within its discretion in excluding Wilson's testimony. The support for Wilson's opinion was sufficiently sparse such that the court did not abuse its discretion in holding that the proposed expert testimony did not meet the standards of Rule 702, or the standards for admissibility in the context of condemnation proceedings.

b. Inadmissibility Under Rule 37(c)(1)

The district court also excluded Wilson's testimony because his expert report failed to comply with Rule 26(a)(2)(B), which requires that expert reports be detailed and complete. Therefore, the district court determined, Wilson's report and testimony was prohibited by Federal Rule of Civil Procedure 37(c)(1). Although the TVA raised this argument in its motion to exclude Wilson's testimony, Thomas did not respond to this argument below, nor does [*18]  he address the issue in his brief on appeal. Therefore, Thomas has waived his right to challenge the district court's ruling in this regard. See Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552 (6th Cir. 2008) ("[A]n argument not raised before the district court is waived on appeal to this Court."); Middlebrook v. City of Bartlett, 103 F. App'x 560, 562 (6th Cir. 2004) ("The failure to present an argument in an appellate brief waives appellate review.") (citation omitted).

 [**11]  But even if Thomas had not waived his challenge to this ruling, we would still affirm the district court's decision. Wilson's two-page report did not meet Rule 26(a)(2)(B)(i)'s requirement that an expert report be "a complete statement of all opinions the witness will express and the basis and reasons for them." Fed. R. Civ. P. 26(a)(2)(B)(i). Rule 37(c)(1) states that "[i]f a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed. R. Civ. P. 37(c)(1).

The district court in this case specifically discussed Wilson's failure, in violation of Rule 26(a)(2)(B)(i), to give "a complete statement of all opinions the witness will express and the basis and reasons for them." Wilson provided no support for his opinion that the existence of above-ground power [*19]  lines on the property would "materially and negatively impact the development" of a hotel, or that their very existence would "create both a visual and psychological barrier to guests thinking about staying at a hotel." (R. 47-1 at 182-83.) Without more explanation of how Wilson came to this conclusion, his report does not satisfy the requirements of Rule 26(a).

As we have previously held, "Federal Rule of Civil Procedure 37(c)(1) requires absolute compliance with Rule 26(a), that is, it 'mandates that a trial court punish a party for discovery violations in connection with Rule 26 unless the violation was harmless or is substantially justified.'" Roberts ex rel. Johnson v. Galen of Virginia, Inc., 325 F.3d 776, 782 (6th Cir. 2003) (quoting Vance ex rel. Hammons v. United States, 182 F.3d 920, at *3 (6th Cir. 1999) (table)). Additionally, the burden is on the potentially sanctioned party to show harmlessness. Id.

Because Wilson's expert report did not satisfy Rule 26(a) and Thomas did not meet his burden of showing that the error was justified or harmless, the district court did not abuse its discretion in excluding Wilson's report and testimony. Wilson's testimony was therefore inadmissible under Rule 37(c)(1), and, as discussed above, for failing to meet the requirements of Rule 702.

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