Exxon Pipeline Co. v. Zwahr

• Decision Date: 23 May 2002
• Docket Number: No. 01-0168.,01-0168.
• Citation: 88 S.W.3d 623
• Parties: EXXON PIPELINE COMPANY, Petitioner, v. Daniel R. ZWAHR and Sandra K. Zwahr, Respondents.
• Court: Texas Supreme Court

Page 623

88 S.W.3d 623

EXXON PIPELINE COMPANY, Petitioner, v. Daniel R. ZWAHR and Sandra K. Zwahr, Respondents.

No. 01-0168.

Supreme Court of Texas.

Argued January 30, 2002.

Decided May 23, 2002.

Rehearing Overruled June 27, 2002.

COPYRIGHT MATERIAL OMITTED

Joy M. Soloway, Stephen K. Carroll, Julie Tellepsen, Fulbright & Jaworski, Houston, Joseph Patterson, Patterson & Edquist, Angleton, for petitioner.

Richard L. McElya, Angleton, William D. Noel, Houston, for respondent.

Justice HANKINSON delivered the opinion of the Court.

In this case, we determine whether an appraisal expert's opinion regarding the value of land taken by eminent domain satisfies the requirements for admitting expert testimony under the Texas Rules of Evidence. Exxon Pipeline Company condemned a 50-foot-wide pipeline easement on Daniel and Sandra Zwahrs' 49-acre tract of land. The parties disputed Exxon's right to condemn the land, and following the grant of summary judgments confirming that right, tried the case on the value of the land taken. At trial, Exxon objected to the testimony of the Zwahrs' expert, arguing that he impermissibly relied on project enhancement to calculate the land's value and that he improperly determined the property's highest and best use. The trial court admitted the testimony over Exxon's objections, and after receiving the jury's verdict, rendered judgment for the Zwahrs. Exxon argued a number of points on appeal, including that the trial court erred by admitting the testimony of the Zwahrs' expert. The court of appeals concluded that the trial court properly admitted the testimony, but reduced the amount awarded in the judgment on other grounds. 35 S.W.3d 705. We conclude that the Zwahrs' expert impermissibly relied on project enhancement and the trial court therefore abused its discretion in admitting that expert testimony. Because this error is harmful, we reverse the court of appeals' judgment and remand this cause to the trial court for further proceedings.

In 1989, the Zwahrs purchased a 49 — acre tract of land in Fort Bend County for $44,408.43, about $900 per acre, and used the land for cotton farming. At that time, the property's northeast corner was encumbered by a 50 — foot — wide pipeline easement that contained an underground natural-gas pipeline owned by United Gas Pipeline Company. United transferred the easement to Koch Gateway Pipeline Company in 1993. The Koch easement does not affect cotton farming on the property's surface.

In 1995, Exxon petitioned the Fort Bend County Court at Law to condemn a 50-foot-wide strip on the Zwahrs' property for an ethane pipeline. See TEX. NAT. RES. CODE § 111.019; TEX. PROP.CODE § 21.012. The land Exxon sought to condemn has a total surface acreage of 1.01 acre and lies parallel to the existing Koch easement for much of its route, overlapping the Koch easement by approximately 82%. As the parties could not agree on the condemned land's value, court-appointed special commissioners conducted a hearing to determine its fair-market value. See TEX. PROP. CODE §§ 21.014-.015. The commissioners awarded the Zwahrs $2,264.80. The Zwahrs objected to the award and requested a jury trial before the county court. See id. § 21.018. Exxon deposited the full amount in the court registry, and took possession of the easement on October 6, :1995. See id. § 21.021. Exxon then buried an 8%-inch diameter pipeline underneath the 49-acre tract, parallel to and approximately twenty-five feet from the Koch pipeline. Like the Koch easement, the Exxon easement does not affect the Zwahrs' continued use of the surface for farming cotton.

Following the grant of summary judgments confirming Exxon's right to condemn the Zwahrs' land, the case proceeded to trial de novo on the amount due the Zwahrs for the easement taking. The primary controversy concerned the highest and best use of the condemned property. The Zwahrs' expert, Brad Kangieser, maintained that the 1.01-acre easement was a self-contained, separate economic unit, which had a value independent from that of the surface acreage, with a highest and best use as a pipeline easement. Exxon presented two experts who testified that the land's highest and best use was as farmland or rural-residential land and that the 1.01-acre easement was not a separate economic unit.

After valuing the 49-acre tract as a whole, Exxon's experts estimated the market value of the 1.01-acre easement as either $1,727 or $707. Exxon's experts did not provide a separate value for the right to assign the easement because they determined that this right was already included in the easement's fair-market value. The Zwahrs' expert estimated the value of the land taken as $36,077, which included $26,398 for the easement itself and $9,679 for the right to assign the easement. Each expert reduced his estimate by a percentage allocable to the Zwahrs' retained use of the land's surface for farming cotton.

The jury awarded the Zwahrs $30,000 as the fair-market value of the easement and $10,000 as the fair-market value of Exxon's right to assign the easement. Kangieser's testimony is the only testimony that tends to support this verdict. After deducting the $2264.80 Exxon had previously deposited into the court registry, the trial court rendered judgment awarding the Zwahrs $37,735.20.

Exxon appealed, arguing that the trial court erred by: (1) admitting Kangieser's testimony on the value of the land; (2) charging the jury with a question requiring two separate damages findings instead of one broad-form question; (3) improperly instructing the jury on the correct measure of damages; and (4) denying Exxon's post-verdict challenges to the legal and factual sufficiency of the evidence. The court of appeals, with one justice dissenting, concluded that the trial court improperly submitted a separate damages question on the right to assign the easement. 35 S.W.3d at 713. Accordingly, the court of appeals reduced the trial court's judgment by the $10,000 amount awarded for the assignment right and remanded to the trial court to recalculate interest and render judgment in accord with its opinion. Id. at 716.

In all other respects, however, the court of appeals affirmed the trial court's judgment, concluding that the trial court did not abuse its discretion in admitting Kangieser's testimony or in refusing to include Exxon's requested instruction on damages, and that there was legally and factually sufficient evidence to uphold the jury's verdict. Id. In determining that the trial court did not abuse its discretion in admitting Kangieser's testimony, the court of appeals reasoned that the evidence supported his testimony that the property's highest and best use was as a pipeline easement. Id. at 710-11. The court also concluded that his highest-and-best-use opinion was based on the existing Koch easement and was, therefore, neither speculative nor predicated on impermissible project enhancement. Id. at 711-12.

On petition for review, Exxon argues that the trial court improperly admitted Kangieser's testimony concerning the value to the Zwahrs of the land taken by Exxon and that the trial court erred by refusing Exxon's proposed jury instruction on damages.¹ Because we conclude that the trial court improperly admitted Kangieser's testimony, we need not reach the jury-instruction issue.

We begin by reviewing the standard for valuing a pipeline easement in a condemnation proceeding. Compensation for land taken by eminent domain is measured by the fair-market value of the land at the time of the taking. City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 183 (Tex.2001); Heddin v. Delhi Gas Pipeline Co., 522 S.W.2d 886, 888 (Tex. 1975); Fuller v. State, 461 S.W.2d 595, 598 (Tex.1970). The general rule for determining fair-market value is the before-and-after rule, which requires measuring the difference in the value of the land immediately before and immediately after the taking. Callejo v. Brazos Elec. Power Coop., Inc., 755 S.W.2d 73, 76 (Tex.1988); City of Pearland v. Alexander, 483 S.W.2d 244, 247 (Tex.1972). When, as here, only part of the land is taken for an easement, a partial taking occurs. Westgate, Ltd. v. State, 843 S.W.2d 448, 456 (Tex.1992). In this situation, the before-and-after rule still applies, but compensation is measured by the market value of the part taken plus any diminution in value to the remainder of the land. Id.; State v. Meyer, 403 S.W.2d 366, 371 (Tex.1966); City of Austin v. Cannizzo, 153 Tex. 324, 267 S.W.2d 808, 812 (1954). Because the Zwahrs do not allege any damage to the remainder of their 49-acre tract as a result of the Exxon easement, only the market value of the 1.01-acre taken is at issue in this case.

In determining market value, the project-enhancement rule provides that the factfinder may not consider any enhancement to the value of the landowner's property that results from the taking itself. City of Fort Worth v. Corbin, 504 S.W.2d 828, 830 (Tex.1974); Fuller, 461 S.W.2d at 598. This is because the objective of the judicial process in the condemnation context is to make the landowner whole. See TEX. CONST. art. 1, § 17 (guaranteeing adequate compensation to landowners whose property is condemned); Corbin, 504 S.W.2d at 831. To compensate a landowner for value attributable to the condemnation project itself, however, would place the landowner in a better position than he would have enjoyed had there been no condemnation. Corbin, 504 S.W.2d at 831. The project-enhancement rule is subject to narrow exceptions that do not apply here. See Fuller, 461 S.W.2d at 598.

On the other hand, the factfinder may consider the highest and best use to which the land taken can be adapted. Bauer v. Lavaca-Navidad River Auth., 704 S.W.2d 107, 109 (Tex.App.-Corpus Christi 1985, writ ref'd n.r.e.). The existing use of the land, in this case, cotton farming, is its presumed highest and best use, but the landowner can rebut this...