Owner's Opinion On His Property’s Value Not Admissible Absent Personal Knowledge, Expertise, Or Relevance

Victim property owner's testimony about property’s reduced value due to the defendant’s nuisance was inadmissible despite rule permitting property owner testimony on property value because owner lacked personal knowledge or expertise; here owner's testimony was inadmissible hearsay and was not relevant, in Cunningham v. Masterwear Corp., 569 F.3d 673 (7th Cir. June 23, 2009) (No. 08-1924)

In previous blog entries, we have noted the generally accepted interpretation of FRE 701 that lay witnesses can provide opinion evidence to establish the value of property assets or losses that the witness owns. For example, last year in “Distinguishing Lay And Expert Opinion On Valuation Of Company Assets,” the Federal Evidence Blog cited to a Seventh Circuit case noting that the distinction between lay and expert testimony in valuing company assets turns on whether the witness has personal knowledge of the assets involved or specialized knowledge in the industry. Compania Administradora de Recuperacion de Activos Administradora de Fondos de Inversion Sociedad Anonima v. Titan Intern., Inc., 533 F.3d 555 (7th Cir. July 10, 2008) (No. 07-1996).

The Seventh Circuit recently weighed in again on the issue of a property owner’s ability under the Federal Rules of Evidence to offer an opinion on the value of his property. In Cunningham v. Masterwear Corp., the circuit generally reviewed the factors that could be used to assess the admissibility of a property owner’s testimony. The circuit found in Cunningham that the proffered owner testimony failed on a number of grounds – namely, lack of personal knowledge, lack of expertise, that the owner was acting as a conduit for inadmissible hearsay, and that the owner’s opinion was not particularly relevant.

In the case, plaintiff Cunningham filed a diversity common law nuisance suit. The plaintiff alleged that his photo studio had been contaminated by chemicals used by defendant Masterwear, a dry-cleaning business located in the building next store to the plaintiff’s studio. After receiving an EPA report that “warned them that their building contained perchloroethylene (PCE) vapors” that could “‘pose a health concern over the long term,’” the plaintiffs moved from the building and sold it. They sought compensation for “the depressed price at which they were forced to sell the property because of the [PCE] contamination” which they alleged was a result of the defendant’s “improper storage of chemicals” for their dry-cleaning operation. The district court granted summary judgment for the defendants on this claim, after excluding testimony by the plaintiff regarding the loss of value of the property due to the contamination. Cunningham, 569 F.3d at 674.

The Seventh Circuit affirmed the exclusion of the owner’s testimony about the loss of his property’s value. As explained by the circuit, the essence of the plaintiff’s testimony was that:

“the value of the property had fallen from $135,000 to $105,000 (the price at which it was sold) as a result of its contamination by PCE; that $135,000 was the appraised value of the building in 1999 and was the price at which he and his wife listed it for sale when they moved out; that when no offers materialized, their real estate agent explained that prospective buyers were concerned about the building's being contaminated; that he had convinced the Cunninghams to lower the list price to $115,000; and that after receiving two low offers they had finally sold the property, after it had been on the market for more than a year, for $105,000. The judge excluded all this testimony.”
Cunningham, 569 F.3d at 675.

The circuit noted that although the case was brought in diversity, the applicable evidence standard is provided by the Federal Rules of Evidence rather than by state rules of evidence. Nonetheless, regardless of whether state evidentiary rules (Indiana) were applied, or the FRE, the result would be the same because “the federal rules, like Indiana's rules, have been interpreted to permit a property owner to testify about the value of his property.” They allowed property owner testimony on property value “either as a matter within his personal knowledge, or, if he is an expert on property values, as an expert witness - which Cunningham however was not.” Cunningham, 569 F.3d at 676 (citations omitted).

The circuit considered several bases for excluding the plaintiff’s testimony on the value of his property:

  • Hearsay: Much the plaintiff’s testimony concerned a statement by the “real estate agent … that prospective buyers were concerned about the building's being contaminated” as the reason that it brought a low price. This testimony was properly excluded because “[w]hat the owner is not allowed to do is merely repeat another person's valuation.” This was simply hearsay. Cunningham, 569 F.3d at 676 (citing United States v. 68.94 Acres of Land, More or Less, Situate in Kent County, State of Delaware, 918 F.2d 389, 398 (3rd Cir. 1990))
  • Personal Knowledge: The testimony was not within the plaintiff’s personal knowledge. The plaintiff, other than being told by the agent, had no personal knowledge of “what prospective buyers told the real estate agent.” Cunningham, 569 F.3d at 676.
  • Relevance: While not identifying it explicitly as a relevance problem, the circuit noted that the testimony could be excluded because the plaintiff’s opinion as to the dimunition of his property’s value was not “a responsible opinion about the cause of a change in the value of his property. Even if he knew its value at time x and at time x + y, he had no basis for testifying to what caused its value to fall. That would depend, at a minimum, on whether the prices of comparable properties had fallen by a comparable amount.” In essence, the circuit was suggesting that the plaintiff’s opinion evidence did not logically make a fact of consequence – the reduction of the property’s value – any more or less likely, because it was not logical calculation. As the circuit noted, a lot of factors must be considered in determining the cause for the value of property: “It does seem highly likely that the discovery of contamination would make the market value of a building fall, though this is not certain because real estate prices might be rising-in fact the plaintiffs sold the building during the housing bubble of the early 2000s whose later bursting plunged the economy into its present doldrums. Sold it, as we know, for $105,000, but they had bought it back in 1992 for only $50,000.” Cunningham, 569 F.3d at 676.

On this last point, the circuit noted the lack of logic in the conclusion the plaintiff sought to draw from his evidence. Essentially, the circuit concluded that the proffered evidence was not relevant because “[t]he critical question is how much they could have sold the building for had it not been for the contamination.” Absent this focus, the evidence seemed speculative: “Suppose that during the period in which the value of the plaintiffs' property fell by 22 percent (from $135,000 to $105,000), it would have fallen by 12 percent had there been no contamination; then only a 10 percent change in the value of the property would be attributable to the contamination. The plaintiffs needed evidence by a real estate agent or real estate appraiser to establish the effect of the contamination on the value of their property. They did not attempt to present any such evidence.” Cunningham, 569 F.3d at 676.

Federal Rules of Evidence