Gilley v. Kansas Gas Service Co.

• Decision Date: 26 October 2007
• Docket Number: No. 94,570.,94,570.
• Parties: John Neal GILLEY, et al., Individually and as Representatives of those Persons Similarly Situated, Appellants/Cross-appellees, v. KANSAS GAS SERVICE COMPANY, et al., Appellees/Cross-appellants.
• Court: Kansas Supreme Court

169 P.3d 1064

John Neal GILLEY, et al., Individually and as Representatives of those Persons Similarly Situated, Appellants/Cross-appellees, v. KANSAS GAS SERVICE COMPANY, et al., Appellees/Cross-appellants.

No. 94,570.

Supreme Court of Kansas.

October 26, 2007.

James P. Frickleton, of Bartimus, Frickleton, Robertson & Gorny, P.C., of Leawood, argued the cause, and John F. Edgar and John M. Edgar, of The Edgar Law Firm LLC, of Kansas City, Missouri, Lee Thompson, of Thompson Law Firm, LLC, of Wichita, and Rex A. Sharp, of Gunderson, Sharp & Walke, L.L.P., of Prairie Village, were with him on the briefs for appellants/cross-appellees.

James T. Ferrini, of Clausen Miller P.C., of Chicago, Illinois, argued the cause, and Barbara I. Michaelides, of the same firm, and Charles D. Lee, of Martindell, Swearer & Shaffer, LLP, of Hutchinson, were with him on the brief for appellee/cross-appellants ONEOK, Inc., and Mid Continent Market Center, Inc.

Daniel D. Crabtree and John C. Nettels, Jr., of Stinson Morrison Hecker LLP, of Overland Park, were on the brief for appellee/cross-appellant Westar Energy, Inc.

The opinion of the court was delivered by JOHNSON, J.:

A class of business owners (business class) in Reno County, Kansas, sought damages against ONEOK, Inc. (ONEOK), Mid Continent Market Center, Inc. (MCMC), and Western Resources, Inc. (Westar) for profits lost as a consequence of the defendants' negligence which permitted natural gas to escape from the Yaggy Field gas storage facility in the vicinity of Hutchinson, Kansas. The jury found ONEOK and MCMC at fault but determined that the business class had suffered no damages. The business class appeals the jury's verdict on damages, claiming that the trial court erred in giving a limiting instruction to the jury regarding the testimony of a lay damages witness. Finding no error in the instruction, we affirm.

The business class brief sets forth, in considerable detail, the events leading up to and following the escape of natural gas from defendants' underground storage facility. Much of that recitation is unnecessary for our opinion, and we will refrain from such a chronicle here. See Hayes Sight & Sound, Inc. v. ONEOK, Inc., 281 Kan. 1287, 136 P.3d 428 (2006) (setting forth a detailed factual recitation).

An explosion in downtown Hutchinson on January 17, 2001, and a subsequent explosion the following day in the Big Chief Mobile Home Park, caused property damage and two fatalities, and led to the evacuation of a number of residences and businesses in the vicinity of the explosions. The problem was traced to the escape of natural gas from the Yaggy underground natural gas storage facility located northwest of Hutchinson. The gas migrated underground through a porous geologic formation and rose to the surface in Hutchinson through abandoned brine wells which were not properly plugged. In this lawsuit, the jury found the defendants, ONEOK and MCMC, caused the explosions by being negligent in the ownership, operation, and maintenance of Yaggy facility. Westar, which had been involved in the ownership and control of the Yaggy facility prior to 1997, was found not to be at fault for the natural gas escape.

This lawsuit was filed as a class action, and the district court certified the class, defined as follows:

"All owners of businesses within Reno County as of January 17, 2001, to the present. Excluded from the class are governmental entities, officers, directors, employees, subsidiaries and affiliates of any of the defendants and any judges and justices who preside over this case or any portion thereof."

However, many of the business owners who suffered damages from the incident individually settled or litigated their respective claims and were not part of this class action. See, e.g., Hayes Sight & Sound, Inc., 281 Kan. 1287, 136 P.3d 428.

A class of Reno County real property owners was included in the initial petition, and the two class actions were tried together. However, the district court maintained separate case numbers for the two class actions, and we have been presented with separate appeals. See Smith v. Kansas Gas Service Co., ___ Kan. ___, 169 P.3d 1052, 2007 WL 3119489 (2007). This opinion only deals with the business owners' class action.

The business class claimed that the gas incident caused an interruption in business in Reno County and that the class of business owners suffered a loss of revenue due to defendants' negligence. To establish class-wide damages, the business class presented the testimony of John Korschot, an investment banker who specialized in valuing middle market businesses.

Initially, Korschot prepared a report based upon his study of documentation which had been voluntarily provided by business owners. Korschot received information from approximately 50 business owners, but he testified that the information on all but 14 businesses was insufficient for him to calculate the lost revenue resulting from the escaped gas incident. Korschot calculated the total lost sales for those 14 businesses to be $947,499.

Subsequently, Korschot obtained from the State of Kansas a sales tax breakout for the years 2000 and 2001 in the cities of Hutchinson and South Hutchinson. He used that data to compare the total sales for January through August in both years. He selected August as a cut-off date to avoid the adverse impact of the terrorist attack of September 11, 2001. Both the total local sales tax revenues and the total state sales tax revenues were actually higher in the post-incident period of 2001 than for the comparable period in 2000, prior to the explosions. However, Korschot determined that of the approximately 1,706 businesses on the sales tax reports, 826 had experienced decreased sales in the 2001 period. He then calculated the reduction in gross sales for the 826 adversely affected businesses, applied an assumed universal profit percentage to arrive at a lost profits figure, made certain adjustments to that figure, e.g. for gross domestic product trend, and arrived at a total lost profit calculation of $7,698,683.

At the consolidated trial, Kent Brown, the chief financial officer for T & E Oil Company (T & E) testified about his company's experiences with the Hutchinson explosions. ONEOK and MCMC objected to Brown's testimony because he was not a class representative or a class member. The defense requested a limiting instruction if the court were going to overrule the objection, and the following exchange occurred:

"MR. CRABTREE [defense counsel for Western Resources]: I join the objection. And if the Court were to overrule it, we would ask for those limiting instructions previously given in the same situation.

"MR. JOHN M. EDGAR [plaintiffs' counsel]: That's the way the Court's handled it in the past."

The previous limiting instructions were given prior to the testimony of real property owners who were testifying about their experiences with respect to the other class action where the claim was for a diminution in property values resulting from marketplace fear or stigma. As here, those real property witnesses were not class representatives. The trial judge had advised the jury that the witnesses would testify about their own respective experience with their own property and such testimony was not to be considered "as either common or typical of Reno County residential landowners."

With respect to the business owners' lay witness, the district court advised the jury:

"THE COURT: Mr. Brown-ladies and gentlemen of the jury, he's not a member of the class, and so his testimony is limited to-just like we did the other witnesses, lay witnesses who testified last week.

"MR. FRICKLETON [plaintiffs' counsel]: Your Honor, he's not a class representative. He is a member of the class.

"THE COURT: He's a member of the class but not a class representative."

Brown testified that T & E was a petroleum marketer and also owned 19 convenience stores in Reno County at the time of the explosions. One of the convenience stores, Pantry Plus No. 6, was near the Big Chief Mobile Home Park, site of the fatal explosion. That particular store was closed for 9 days. After the explosions, the sales at Pantry Plus No. 6 were down, initially by 60-70%, and sales never recovered to the level the store experienced prior to explosions. Brown attributed a 25% reduction in sales to the Yaggy gas incident, albeit he did not assign a dollar value to that estimate. Approximately 2 years after the explosions, T & E sold all but three of its Reno County stores to the company that operates Kwik Shop convenience stores. Pantry Plus No. 6 was one of the unsold stores, albeit the inventory of Pantry Plus No. 6 was included in the sale to Kwik Shop. In conjunction with the sale, T & E closed the unsold stores, including Pantry Plus No. 6, in February 2003. Thereafter, T & E was unsuccessful in its efforts to sell or lease...