Texas appeals court upholds $400,000 judgment to cattle ranch over metal processing plant contamination

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by Charles Miller

Mel Acres Ranch is a cattle ranch in Washington County near Chappel Hill, Texas. Houston Unlimited, Inc. operates a metal-processing facility across Highway 290 from the ranch. A culvert flows downhill from Houston Unlimited’s facility, under the highway, and into a stock tank on Mel Acres’s property.

In late 2007, a number of calves at the ranch were found dead or deformed. Additionally, a Houston Unlimited employee was observed “dumping” the contents of a large drum into the culvert. Mel Acres retained an environmental consultant and his testing of water samples revealed arsenic, chromium, copper, nickel, and zinc exceeding state action levels in the culvert and copper exceeding state action levels in the stock tank.

Mel Acres lodged a complaint with Texas Commission on Environmental Quality. The commission made an unannounced visit to Houston Unlimited’s facility and found it in violation of applicable regulations. The TCEQ ultimately concluded that an unauthorized discharge of industrial hazardous waste had occurred at the Houston Unlimited facility and affected Mel Acres’s property.

Mel Acres sued Houston Unlimited for trespass, nuisance, and negligence. Mel Acres alleged that it suffered permanent damage, measured by loss in market value of the property. A jury found that Houston Unlimited did not create a permanent nuisance on the property or commit trespass. However, the jury found that Houston Unlimited’s negligence proximately caused “the occurrence or injury in question” and assessed $349,312.50 as the difference in market value of the property before and after “the occurrence.” The trial court signed a final judgment awarding Mel Acres $349,312.50 in actual damages, pre-judgment interest of $42,965.45, court costs of $14,711.65, and post-judgment interest. Houston Unlimited appealed.

On appeal, Houston Unlimited argued there was no evidence it had caused any “permanent injury” to the ranch. Houston Unlimited argued it had caused, at most, temporary injury to a large pond, which was alleviated within weeks of its occurrence. The court of appeals held that it did not need to “decide whether Mel Acres proved permanent contamination of the large pond” because “Mel Acres proved permanent damage causing lost market value by virtue of permanent stigma created by even the temporary contamination.” Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch, — S.W.3d (Tex. App.–Houston [14th Dist.] November 15, 2012).

It was undisputed that “lost market value” is the appropriate measure of damages for permanent damage to property. Thus, Mel Acres was allowed to recover for the lost market value that resulted from a stigma remaining after remediation of physical contamination.

As its damages expert, Mel Acres presented the testimony of a licensed real estate appraiser who concluded that there is a permanent stigma attached to Mel Acres’s property because of contamination, which has reduced the market value. The appraiser reached this conclusion by consulting with cattle ranchers, investors, real estate brokers, and financial institutions to ascertain their views regarding properties with environmental stigma and researching comparable properties (other contaminated properties in the area) to determine the percent reduction in market value due to the stigma.

The expert explained that stigma of contamination exists because it would be prudent for Mel Acres to disclose the contamination to any potential buyer to avoid liability, the contamination is documented in TCEQ records, there is a perception of increased “environmental risk” associated with contaminated property, “perception is everything” in real-estate valuation, and based on availability of “a lot” of ranch land in the area, a purchaser has the option to buy property with no stigma rather than property with a stigma.

The court of appeals found the evidence at trial was legally and factually sufficient to support a finding that Mel Acres suffered permanent damage in the form of stigma from temporary contamination, resulting in lost market value. The judgment for Mel Acres was affirmed.

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