Real Estate Expert Witness Evaluates Property Damage Claims

Case: Cook v. Rockwell Int’l Corp., 580 F. Supp. 2d 1071 (D. Colo. 2006)

Background: This class action lawsuit presented claims for trespass and nuisance against the former operators of the Rocky Flats Nuclear Weapons Plant (“Rocky Flats”) near Denver. The named Plaintiffs represented a class of individuals and businesses that owned property in the “Class Area” adjoining the plant site as of June 7, 1989. Plaintiffs sought damages for the diminished value of Class members’ properties as a result of Defendants’ alleged trespass and nuisance.

Expert Witness: Wayne L. Hunsperger was Plaintiffs’ primary property damages expert. He was a certified real estate appraiser and property consultant with more than thirty years of experience in valuing and appraising real property. He was the president of Hunsperger & Weston, a Colorado-based real estate appraisal and consulting firm, and held the highest designation (MAI) from the Appraisal Institute, the leading association of professional real estate appraisers.

Mr. Hunsperger had particular knowledge and experience regarding the effect of hazardous materials on the value of real property and the valuation of environmentally impaired properties. He had written and taught extensively on these subjects for many years and had performed valuations of Superfund sites in Colorado and numerous other area-wide analyses of property affected by toxic waste sites. Mr. Hunsperger’s clients for this and other appraisal work have included the United States Department of Justice, the U.S. Environmental Protection Agency (EPA), the United States Army, the cities of Denver, Colorado Springs, and Aurora, and major banks and businesses. He has also qualified and testified as an expert witness on property valuation issues in federal and state courts.

In this action, Mr. Hunsperger and his firm conducted an analysis of real property in the Class Area to determine if Class property values had been impacted by Rocky Flats and, if so, to what extent. The analysis incorporated five different, multi-disciplinary approaches to these questions: real estate market research; review of analogous case studies; analysis of market sales data and information; multiple regression analysis; and review of public opinion surveys.

Based on consideration of all five approaches, Mr. Hunsperger concluded that Rocky Flats had diminished the value of property in the Class Area, and estimated the amount of this diminution in value, in 1995 dollars, at $ 169 million for residential properties and $ 21 million for vacant land.

Daubert Challenge: Defendants argued that Mr. Hunsperger’s proffered expert testimony was inadmissible because each of the five approaches utilized by Mr. Hunsperger were deficient under Rule 702 for one or more reasons, and that these deficiencies alone or in combination required that his testimony be excluded.

Conclusion:

The Court went through each of the five approaches Mr. Hunsperger used and analyzed whether they met the standards set forth in Daubert.

Real estate market research

In this portion of his study, Mr. Hunsperger conducted field research regarding the property market in the area around Rocky Flats, including the Class Area. This research consisted of interviews with a host of market participants, including representatives from eight municipalities, two counties, the State of Colorado, various quasi-public entities, residential lenders, mortgage insurers, real estate appraisers, realtors, builders and individual property owners, and review of documents relating to governmental land use policies and risks posed by Rocky Flats. The purpose of this research was to allow Mr. Hunsperger to form a qualitative opinion about the impact of Rocky Flats on the Class Area property market and values and to inform and support his other work in analyzing this impact.

The Court believed that there was no question that this type of field research was widely and properly used by real estate professionals in assessing the impact of environmental disamenities on property values. The Court noted that Mr. Hunsperger was qualified by his training, knowledge and experience to engage in this kind of research, and that the results of Mr. Hunsperger’s research regarding the market’s perception of Rocky Flats and its impact on area property values would assist the jury.

Analogous case study

In this portion of his study, Mr. Hunsperger collected information regarding thirteen area-wide property studies, including academic, government-funded and litigation-related analyses, that examined the impact on neighboring properties of more than thirty sites posing contamination or other environmental concerns. Mr. Hunsperger analyzed these studies and conducted follow-up interviews with most of their authors. His purposes in doing so were to identify appropriate methodologies for assessing the property effects of environmental problems, to examine the effects of environmental problems in other settings, to consider how the real estate market reacts to actual or perceived risk, to study how that reaction translates into an effect on property values and then to apply the results of this analysis to Rocky Flats and the neighboring Class Area.

Defendants’ primary challenge to Mr. Hunsperger’s case study method was that it was not a valid or reliable property valuation methodology. Plaintiffs, however, presented ample evidence that this method had been recognized and endorsed by the Appraisal Institute and other authorities in the property valuation field for situations in which large numbers of properties are affected by an environmental risk or stigma. This showed that the method was reliable in the eyes of the Court.

Market sales analysis

In this part of his study, Mr. Hunsperger considered market sales data and information to assess the possible impact of Rocky Flats on the price of single-family housing and vacant land in the Class Area.

Defendants argued none of Mr. Hunsperger’s conclusions or analysis were admissible under Rule 702. Specifically, Defendants asserted Mr. Hunsperger’s analysis of residential sales data and relative rates of appreciation was irrelevant and that both his residential property and vacant land analyses were unreliable.

The Court did not find merit to the Defendants’ arguments. The Court beleived that Mr. Hunsperger’s market sales analysis of residential sales was relevant because it supported his opinion that residential property had been diminished in value due to Rocky Flats, and that this would assist the jury in deciding this issue more generally.

As to the reliability of this study, the Court found that there was no question that the analysis of sales data was a sound and accepted method for addressing real estate valuation issues, and that Mr. Hunsperger’s method for calculating the relative rates of appreciation was also sound.

Multiple regression analysis

In this approach, Mr. Hunsperger considered and applied the results of Plaintiffs’ geologist expert’s multiple regression analysis.

The Defendants argued that Mr. Hunsperger was not a qualified expert in regression analysis and therefore could not incorporate it into his own report. However, the Court found that contrary to Defendants’ suggestion, there was no requirement that Mr. Hunsperger also be qualified as an expert in regression analysis in order to incorporate the results of this analysis in his own work. Mr. Hunsperger’s application of the geologist’s results was also straightforward and capable of being tested.

Review of public opinion surveys

In this final approach to assessing the effect of Rocky Flats on area property values, Mr. Hunsperger reviewed the results of three public opinion surveys prepared for the City of Broomfield, City of Arvada and Rocky Flats Community Relations Department, that measured the public’s perceptions of Rocky Flats and its effects on neighboring areas.

Although Defendants sought to exclude all of Mr. Hunsperger’s testimony regarding public relations opinion survey approach, they only challenged Mr. Hunsperger’s use of the responses to the housing scenario/discount questions in a social scientists’ survey to generate an estimate of damages to residential properties in the Class Area. Defendants’ arguments focused on the reliability of this approach in estimating diminution in property value.

The Court had already found over that the social scientist’s survey was sufficiently reliable under survey research criteria to be admissible. Defendants argued Mr. Hunsperger’s use of the survey results was nonetheless unreliable and inadmissible because the social scientists testified they did not design the survey specifically to estimate diminution in property value. The Court disagreed though because the social scientists also testified that they knew when they designed the survey that Mr. Hunsperger intended to use its results in his valuation work, that Mr. Hunsperger consulted with them about how he planned to use the survey results for this purpose, and that they agreed then and as of the date of their 1999 affidavits that Mr. Hunsperger’s use of the survey results to estimate diminution in value was logical and reasonable.

After reviewing the challenges to all 5 steps that Mr. Hunsperge used in producing his opinion, the Court found that Mr. Hunsperger was unquestionably qualified to testify as proposed and that his analysis was reliable within the meaning of Rule 702 and would assist the jury in determining damages.