Opinion ID: 2831421
Heading Depth: 3
Heading Rank: 1

Heading: McKinney’s Data

Text: This is not a case in which the expert failed to offer any basis for her opinion. McKinney identified the factual basis on which she relied to calculate the loss of the ranch’s market value. But the facts on which she relied to calculate the Sheridan site’s loss of 41% of its market value do not actually support her opinion. Likewise, the facts she relied on to calculate the Sebastian 15 site’s loss of 72% of its market value do not actually support that opinion. The view that courts should not look beyond an averment by the expert that the data underlying his or her opinion are the type of data on which experts reasonably rely has long been rejected by this Court and others. Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 713 (Tex. 1997). “The underlying data should be independently evaluated in determining if the opinion itself is reliable,” id., and “[i]t is incumbent on an expert to connect the data relied on and his or her opinion and to show how that data is valid support for the opinion reached.” Whirlpool Corp. v. Camacho, 298 S.W.3d 631, 642 (Tex. 2009).
To find a diminution in the Sheridan site’s value, McKinney relied on: (1) the owner’s original offer to sell the property for $2,200,000, and (2) a subsequent verbal offer to purchase the property for $1,300,000. McKinney treated the owner’s list price as the property’s unimpaired market value and the verbal offer price as the property’s impaired market value, and opined that the site suffered a $900,000 (41%) diminution in value attributable to the nearby contamination. These facts do not support McKinney’s opinion for three reasons. First, the owner’s original asking price does not, alone, tend to establish the property’s market value at the time of listing. Market value is “what a willing buyer under no compulsion to buy will pay to a willing seller under no compulsion to sell.” Cf. French v. Occidental Permian Ltd., — S.W.3d —, — (Tex. June 27, 2014). An original list price is some evidence of what a willing seller will accept, but it is not evidence of what a willing buyer will pay. Sellers may list property at a price above the amount they actually expect to receive or may simply overestimate the property’s true market value. Second, the verbal offer price does not, alone, tend to establish the property’s market value at the time it was made. A verbal offer is some evidence of what a 16 willing buyer will pay, but it is not, alone, evidence of what a willing seller will accept. Cf. French, — S.W.3d at —. Buyers may offer less than the amount they are actually willing to pay, in hopes of acquiring the property for less than it is worth, or they may simply underestimate the value of the property. As a result, the fact that a verbal offer was made on the Sheridan site for less than the original asking price does not tend to prove that it suffered a diminution in market value. Third, the difference between the asking price and the offer price does not tend to establish a loss attributable to the nearby contamination because both the asking price and the verbal offer occurred after the land near the Sheridan site was contaminated. McKinney’s own report indicates that the contamination dates back to at least 1986, while the listing on which McKinney relied for the site’s “unimpaired” value was in 2006. Thus, even if the difference between the original list price and the verbal offer did reflect a diminution in value, the data on which this diminution is based are not temporally connected to the contamination some twenty years earlier. It is possible that the original list price reflected the property’s pre-contamination price, but there is no evidence that indicates that was the case. When the facts support several possible conclusions, only some of which support the expert’s conclusions, the expert must explain to the fact finder why those conclusions are superior based on verifiable evidence, not simply the expert’s opinion. Jelinek, 328 S.W.3d at 536.
McKinney acknowledged that sales of comparable properties are useful only if they result from an arm’s-length transaction, and she did not dispute that the Sebastian sale was a “sweetheart deal” intended to compensate Sebastian for early retirement. The evidence on this issue was uncontroverted. Instead, she argued that the sale could constitute an arm’s length transaction even 17 though it was a sweetheart deal. She testified, “If it was a sweetheart deal on the part of both parties, it was arm’s length.” We disagree. Generally, an arm’s-length transaction is one between two unrelated parties with generally equal bargaining power, each acting in its own interest. See BLACK’S LAW DICTIONARY 103 (10th ed. 2014) (defining “arm’s-length” as “[o]f, relating to, or involving dealings between two parties who are not related or not on close terms and who are presumed to have roughly equal bargaining power; not involving a confidential relationship”); see also TEX. TAX CODE ANN. § 171.1012(m) (“In this section, ‘arm’s length’ means the standard of conduct under which entities that are not related parties and that have substantially equal bargaining power, each acting in its own interest, would negotiate or carry out a particular transaction.”); TEX. OCC. CODE ANN. § 2307.001(1) (“‘Arm’s length transaction’ means the standard of conduct under which two parties having substantially equal bargaining power, each acting in its own interest, would negotiate or carry out a particular transaction.”). Sebastian and International Paper were not entirely unrelated, as they shared an employeremployee (and later, independent contractor) relationship. While an employer and its employee can engage in arm’s-length transactions, there is no evidence that occurred here. To the contrary, the only evidence here is that the two parties were not acting solely in their own interests, but instead mutually intended the transaction to be more beneficial to Sebastian. This kind of “sweetheart deal” is not an arm’s-length transaction. See Cherokee Water Co. v. Gregg Cnty. Appraisal Dist., 801 S.W.2d 872, 874 (Tex. 1990) (“It is uncontroverted that these are not arm’s- length transactions and they have been characterized by the district as ‘sweetheart deals.’”); see also 389 S.W.3d at 604 (Boyce, J., dissenting) (“This testimony demonstrates that McKinney’s opinion is unreliable because she used a sales price produced by a ‘sweetheart deal’ involving the 18 Sebastian site to bolster her inclusion of the Sheridan Superfund site as a comparable sale.”). Thus, the Sebastian site’s 1997 sales price did not, alone, constitute evidence of its fair market value at the time of the sale. As a result, the fact that the Sebastian site sold for 72% less than the price paid for two comparable properties does not tend to prove that it suffered a diminution in market value.