Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_12-cv-01811/USCOURTS-cand-3_12-cv-01811-7/pdf.json

Nature of Suit Code: 385
Nature of Suit: Property Damage - Product Liability
Cause of Action: 28:1332 Diversity-Property Damage

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

PHILADELPHIA INDEMNITY INSURANCE 

COMPANY,

 Plaintiff,

 v.

BROAN-NUTONE, L.L.C.; et al.,

 Defendants.

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Case No. 12-cv-01811-SC

ORDER REQUESTING SUPPLEMENTAL 

BRIEFING RE: MOTION TO STRIKE

Now before the Court is Defendants Broan-Nutone, L.L.C. 

("Broan-Nutone") and A.O. Smith, Corporation's ("AO Smith") motion 

to strike Plaintiff Philadelphia Indemnity Insurance Company's

("Philadelphia Indemnity") rebuttal experts. ECF No. 49. In their 

briefs, unfortunately, the parties talk past one another due to a 

latent disagreement about how damages should be measured under 

California law. The Court thus finds it necessary to order 

supplemental briefing.

A short discussion of the background of this case will make 

things a little clearer. In April of 2011, a fire severely damaged 

Case 3:12-cv-01811-SC Document 98 Filed 02/27/15 Page 1 of 6
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United States District Court

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an apartment building, known as Franciscan Towers, in the 

Tenderloin District of San Francisco. Plaintiff Philadelphia 

Indemnity insured the owner of the building and paid a multimillion 

dollar claim to repair the damage. Philadelphia Indemnity alleges 

that the fire was caused because a ventilation fan wired into the 

ceiling of the bathroom of one of the apartments overheated and 

started the fire. The fan that Philadelphia Indemnity suspects 

started the fire was manufactured by Defendant Broan-Nutone.

One of Defendants' initially disclosed experts was Wayne 

Prescott, who produced a report in which he estimated the market 

value of Franciscan Towers before the fire. See ECF No. 65-1 

("Bauman Decl. II") Ex. F ("Prescott Rpt."). In its rebuttal 

disclosure, Plaintiff announced four experts to counter Mr. 

Prescott's opinion. Three of Plaintiff's rebuttal experts --

Trevor Crossley, Nasir Aziz, and Peter Evans -- testify to the 

demolition, repair, and other costs involved in clearing the land 

on which the Franciscan Towers stood. A fourth expert, Stan Tish, 

challenges Mr. Prescott's appraisal methods. Defendants do not 

contest the admissibility of Mr. Tish's competing appraisal, but 

Defendants seek to strike a portion of Mr. Tish's report suggesting 

that the cost of replacing the building should be part of the 

appraisal. The parties dispute whether these experts qualify as 

rebuttal experts.

The problem Defendants identify is this: Mr. Prescott's 

opinion is limited to an estimate of the fair market value of the 

building. Therefore, according to Defendants, rebuttal experts

should be confined to attacking Mr. Prescott's evaluation of the 

building before the fire. Plaintiff's rebuttal experts, however, 

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United States District Court

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testify to other expenses not directly related to the appraisal of 

the building before the fire. Under Defendants' understanding of 

the law, Plaintiff cannot recover damages beyond the fair market 

value of the property before the fire. Understandably, then, 

Defendants see no connection between Plaintiff's rebuttal experts 

and the fair market method of assessing damages.

Plaintiff, however, believes it is entitled to damages above 

and beyond the fair market value of the building. See ECF No. 65 

("Opp'n") at 7-8 ("Mr. Prescott's report is deficient in that it 

fails to address the additional costs that would be incurred should 

a fair market value approach to damages be accepted.") (internal 

citation omitted). Essentially, Plaintiff believes that, under the 

diminution of value method, it is entitled to the fair market value 

of the property before the fire plus demolition and clearing (and 

other related) costs. Accordingly, Plaintiff believes it is fair 

to rebut Mr. Prescott's opinion by showing that he failed to 

account for certain expenses that are validly considered under the 

diminution of value approach to damages. Under this view, 

Plaintiff's experts rebut Mr. Tish's opinion not because they 

believe his opinion to be incorrect, but because they believe it to 

be incomplete. The Court agrees that, if Plaintiff's 

interpretation of the law is correct, such evidence is proper 

rebuttal evidence.

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United States District Court

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Defendants' understanding of the law has some support. The 

California Supreme Court has suggested that damages in a tort suit 

like this one are capped at the value of the property prior to the 

injury:

If the cost of repairing the injury by removing the 

debris . . . and otherwise restoring the premises to 

their original condition, amounts to less than the value 

of the property prior to the injury, such cost is the 

proper measure of damages; and if the cost of restoration 

will exceed such value, then the value of the property is 

the proper measure.

Green v. Gen. Petroleum Corp., 205 Cal. 328 (Cal. 1928). Much more 

recently, the California Court of Appeal has concurred:

For tortious injury to real property, the general rule is 

that the plaintiff may recover the lesser of (1) the 

diminution in the property's fair market value, as 

measured immediately before and immediately after the 

damage; or (2) the cost to repair the damage and restore 

the property to its pretrespass condition, plus the value 

of any lost use. The practical effect of this rule is to 

limit damages to property to the fair market value of the 

property prior to the damage.

Kelly v. CB & I Constructors, Inc., 179 Cal. App. 4th 442, 450

(Cal. Ct. App. 2009). In Green, at least, the California Supreme 

Court explicitly discussed removal of debris as part of the repair 

cost method of measuring damages and not as an element of the 

diminution of value method.

That said, California courts have, on occasion, recognized 

damages in excess of the fair market value of the property damaged 

by a tort. Most typically, this occurs when the plaintiff has a 

personal reason to restore the property to its former condition 

(even though doing so is not economical). This is called the 

"personal reason exception," and it is permitted only so long as 

the restoration costs are reasonable in light of the actual damage 

sustained. See id. at 450-51 (explaining personal reason exception 

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United States District Court

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and collecting cases). One federal court has generalized this 

approach, suggesting that damages beyond fair market value may be 

assessed even the personal reason exception is not invoked. United 

States v. Sierra Pac. Indus., No. CIV S-09-2445 KJM, 2012 WL 

1898945, at *3-4 (E.D. Cal. May 23, 2012). Most of the cases cited 

in support of that proposition, however, dealt with fires on 

national forest land that had unique properties and could not be 

sold. See id. As far as the Court is aware, Plaintiff is neither 

invoking the personal reason exception nor suggesting that the 

property that was damaged was national forest land.1 However, the 

Sierra Pacific court did hold that "whether or not capping damages 

at the market value of the land, assuming such a value can be

determined, would compensate plaintiff for all the detriment 

proximately caused by the [fire] is a question of fact for the 

jury." Id. at *3.

Plaintiff uses an example of a car wreck in its opposition 

brief. See Opp'n at 6-7. That example suggests that Plaintiff is 

arguing that California law typically permits assessment of damages 

in tort cases involving injury to property that exceed the fair 

market value of the property prior to the tort. If that is the 

case, Plaintiff should say so, and should explain why the Court's 

reading of Green and Kelly is wrong.

The Court views the issue this way: If, as a matter of law, 

 

1 Mr. Tish's report indicates that the fact that the Franciscan 

Towers were subsidized affordable housing makes the property value 

difficult to assess. See ECF No. 51 ("Mijanovic Decl.") Ex. G 

("Tish Rpt.") § 5.1. However, Plaintiff does not argue that 

affordable housing properties are governed by special damages 

rules, nor is the Court aware of any California cases suggesting 

that they might be.

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United States District Court

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Plaintiff is not entitled to damages beyond the fair market value 

of the property before the fire, then Plaintiff's rebuttal experts 

cannot be said to contradict or rebut Mr. Prescott's opinion. 

However, if Plaintiff is entitled to damages beyond the fair market 

value of the property before the fire, then the rebuttal experts 

may be proper. Whether Plaintiff's potential damages are so 

limited, however, is given short shrift in the parties' briefs.

Accordingly, the Court finds it necessary to order 

supplemental briefing on this issue. Within ten (10) days of the 

signature date of this Order, Plaintiff shall submit a supplemental 

brief to the Court addressing the following issues:

1. The legal theory under which Plaintiff asserts it is entitled 

to damages beyond the fair market value of the property, 

despite the general limitation established in Green and Kelly;

2. The California law that supports Plaintiff's theory; and

3. Why the additional damages estimated by each of the four 

challenged rebuttal experts are permissible under that theory.

Defendants may file a response to Plaintiff's supplemental brief of 

no more than ten (10) pages within seven (7) days of Plaintiff's 

filing.

IT IS SO ORDERED.

Dated: February 27, 2015

UNITED STATES DISTRICT JUDGE

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