Smith v. Kansas Gas Service Co.

• Decision Date: 26 October 2007
• Docket Number: No. 94,602.,94,602.
• Citation: 169 P.3d 1052
• Parties: Loyd SMITH, et al., Individually and as Representatives of Those Persons Similarly Situated, Appellees/Cross-appellants, v. KANSAS GAS SERVICE COMPANY; ONEOK, Inc.; Mid Continent Market Center, Inc.; ONEOK Gas Storage, LLC; ONEOK Gas Storage Holdings, Inc.; ONEOK Gas Transportation, LLC, Appellants/Cross-appellees, and Western Resources, Inc., Appellee/Cross-appellant.
• Court: Kansas Supreme Court

169 P.3d 1052

Loyd SMITH, et al., Individually and as Representatives of Those Persons Similarly Situated, Appellees/Cross-appellants, v. KANSAS GAS SERVICE COMPANY; ONEOK, Inc.; Mid Continent Market Center, Inc.; ONEOK Gas Storage, LLC; ONEOK Gas Storage Holdings, Inc.; ONEOK Gas Transportation, LLC, Appellants/Cross-appellees, and Western Resources, Inc., Appellee/Cross-appellant.

No. 94,602.

Supreme Court of Kansas.

October 26, 2007.

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 briefs for appellants/cross-appellees ONEOK, Inc. and Mid Continent Market Center, Inc.

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 brief for appellees/cross-appellants.

Daniel D. Crabtree, John C. Nettels, Jr., and Angela G. Heppner, of Stinson Morrison Hecker LLP, of Overland Park, were on the brief for appellee/cross-appellant Westar Energy, Inc. (formerly known as Western Resources, Inc.).

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

ONEOK, Inc. (ONEOK) and Mid Continent Market Center, Inc. (MCMC) appeal the judgment in favor of the plaintiffs in a class action lawsuit filed by Reno County real property owners who claimed to have suffered diminished property values as a result of the escape of natural gas from the Yaggy Field gas storage facility. Finding the district court erred in denying defendants' motion for judgment as a matter of law, we reverse.

In Hayes Sight & Sound, Inc. v. ONEOK, Inc., 281 Kan. 1287, 136 P.3d 428 (2006), we reviewed in some detail the events surrounding the January 2001 natural gas incident in Hutchinson, Kansas. For purposes of this appeal, we will provide a brief overview of those events.

The Incident

On January 17, 2001, an explosion occurred in a downtown Hutchinson business, and firemen determined that the ensuing fire appeared to be fueled by natural gas. Geysers of gas and brine appeared at various locations in the city. The next day a mobile home exploded in the Big Chief Mobile Home Park, killing two people. A number of residences and businesses were evacuated.

Consultants converged on the city and eventually the source of the problem was traced to a leak in the casing of a well which was part of the Yaggy underground natural gas storage facility located northwest of Hutchinson. Approximately 143 million cubic feet of gas escaped from the storage facility. Experts opined that the escaped gas migrated underground through a porous geologic formation and rose to the surface in Hutchinson through abandoned brine wells which were not properly plugged.

Ownership and Control of Yaggy Facility

At the time of the incident, MCMC, a subsidiary of ONEOK, operated the Yaggy facility; Kansas Gas Service Company was an incorporated division of ONEOK. Western Resources, Inc. (now Westar) had owned or controlled the facility prior to 1997.

Remedial Action

After the source of the problem was identified, 58 deep drilled vent wells were placed in various locations in the area for the purpose of allowing the gas to escape into the atmosphere. Approximately 15 of those wells actually emitted gas; the remaining wells were dry holes.

Lawsuits

Many of the property and business owners who suffered damages from the incident individually settled or litigated their respective claims. See, e.g., Hayes Sight & Sound, Inc., 281 Kan. 1287, 136 P.3d 428. This lawsuit was filed as a class action against the owners/operators of the Yaggy storage facility. The district court certified the class involved in this appeal, defined as follows: "`All owners of real property in Reno County, Kansas, who have suffered, or will suffer diminished property values as a result of release and/or threatened release of natural gas from the Yaggy facility.'"

A class of Hutchinson business owners claiming business interruption damages was included in the initial petition, and the two class actions were tried together. However, after the initial petition, the court treated the two class actions as separate cases, and the business owners class has a separate appeal pending before this court. See Gilley v. Kansas Gas Service Co., ___ Kan. ____, 169 P.3d 1064, 2007 WL 3119477 (2007). This opinion deals exclusively with the real property owners' class action.

In its third amended petition, the real property class alleged negligence, strict liability, res ipsa loquitur, nuisance, and trespass as a result of the Yaggy natural gas escape. Claiming the class members had lost the quiet enjoyment of their property and suffered economic harm and damage with respect to property values, the petition sought compensatory damages, injunctive relief, and punitive damages.

All of the defendants, ONEOK, MCMC, and Western Resources, filed a joint motion for summary judgment, arguing that plaintiffs could not: (1) establish an actual entry onto their properties for the trespass claim; (2) establish that they suffered some type of injury for the negligence, res ipsa loquitur, and strict liability claims; (3) establish a substantial and unreasonable interference with the use of their properties for the nuisance claim; and, therefore, (4) plaintiffs could not recover diminution of value of land due to marketplace stigma without physical injury or intrusion upon the properties at issue. The district court denied the motion, opining that genuine issues of material fact existed, such as whether there was a physical intrusion of gas upon or under the plaintiffs' properties.

Subsequently, the plaintiff class dismissed its trespass claim, and the court opined that strict liability was inapplicable. Ultimately, the action proceeded to trial on the theories of negligence and nuisance with the plaintiff class seeking actual damages of $81,810,000, plus punitive damages and attorney fees.

At the trial, the named representatives of the class did not testify. However, other Reno County residential real property owners testified. Some related their personal experience in trying to sell their homes after the incident. Others described their reactions to having a vent well drilled on their property. At the defendants' request and over the plaintiffs' objection, the district court instructed the jury that the property owners' testimony would be about their own personal experience with their own property and was not to be considered "as either common or typical of Reno County residential landowners."

At the core of the plaintiffs' case was the testimony of their expert, Dr. Robert Simons, who was retained to perform a mass appraisal on the Reno County real property affected by the gas escape to determine class-wide damages. At trial, Dr. Simons limited his opinion to those land tracts situated within 1/4 mile of a deep drilled vent well (DDV). That area encompassed approximately 5,000 property owners.

Dr. Simons performed calculations on three bases: a housing trends study, a contingent evaluation survey, and a hedonic regression analysis. He then averaged the result of the three bases to obtain his ultimate damage determination.

The housing trends study compared the post-incident property values in Reno County with those of surrounding counties. Dr. Simons based the contingent evaluation survey upon responses to hypothetical questions posed in a poll of area residents. A hedonic regression analysis identifies the components affecting the value of a residence, such as the age and size of the building and the property's proximity to schools and parks, and then assigns a value to each component. Here, Dr. Simons opined that the component of a residence's proximity to a DDV effected a 5% loss in value for those residences within 1/4 mile.

At the close of the plaintiffs' case, ONEOK and MCMC moved for judgment as a matter of law, arguing, inter alia, that the plaintiffs' claim of diminished value was unsupported by evidence of class-wide physical injury and that plaintiffs had failed to establish the required elements of the negligence and nuisance claims. The district court summarily denied the motion.

After a 16-day trial, the jury was instructed to determine whether any defendant was at fault by way of negligence or nuisance, to assign a percentage of fault to each defendant, to determine the total damages sustained by the plaintiff class, and to determine whether any defendant acted in a willful or wanton manner. The jury awarded 5 million dollars in damages, assigning 80% of the fault to ONEOK, 20% to MCMC, and 0% to Western Resources. The jury found that none of the defendants acted in a willful or wanton manner, precluding punitive damages. After adding attorney fees, the district court entered judgment against ONEOK for $6,154,797.42 and against MCMC for $1,538,699.36.

ONEOK and MCMC timely appealed the verdict, including the denial of their summary judgment and judgment as a matter of law motions. The real property class cross-appealed, complaining of the amount of the verdict. Western Resources also filed a prophylactic cross-appeal in the event judgment in its favor was disturbed on appeal. The case was transferred to this court on the parties' motions pursuant to K.S.A. 20-3017. This court granted a joint motion to dismiss Western Resources' cross-appeal as moot, given that none of the parties sought to disturb its favorable judgment.

APPEAL ISSUES

The statement of issues in appellants' brief confines this appeal to a consideration of the district court's denial of their motion for summary judgment and their motions for judgment as a matter of law. The brief declares...