The Challenge of Addressing Environmental Stigma Claims

The often uncertain nature of environmental stigma claims has resulted in diverse and often confusing jurisprudence. Stigma damage claims seek recovery of damages to the reputation of the realty.  Stigma damages represent the market’s perception of the decrease in property value caused by an injury to the property.

In the typical diminution of property value claim, the general rule is that a property owner may seek recovery of diminution of property value or the cost of remediation, but not both.  However, in certain circumstances, claimants contend, there is an “additional” diminution of value due to a public health concern about the subject property or contamination on adjacent property for which recovery is sought.  This is the subset of diminution of property value claims where claimants argue that damages should be awarded on account of stigma.

Stigma claims raise conundrums for the courts.  On the one hand, courts desire to make a distressed plaintiff whole.  On the other hand, courts want to award only those damages that are proven with reasonable certainty.  Industry groups argue that stigma damages should not be permitted because they subject industry to the whim of any landowner able to obtain speculative testimony about the future economic impact of a temporary condition – even a condition that  a regulatory agency considers satisfactorily addressed.  These arguments take on even greater poignancy where the claimant’s property has not been physically impacted and the purported stigma is claimed to derive from mere proximity to a contaminated parcel.

On August 22, 2014, the Texas Supreme Court issued a thoughtful decision examining a number of these issues in Houston Unlimited, Inc.Metal Processing v. Mel Acres Ranch (No. 13-0084). The court performed a painstaking analysis of the opinions of the claimant’s diminution of property value expert, and rejected her methodology and conclusions across the board. As a result of finding the evidence supporting the property diminution claim insufficient, the court declined to take up the stigma issue.  Nevertheless, its discussion of stigma claim jurisprudence is noteworthy.

The Texas Supreme Court observed that American courts and commentators struggle with the issue of whether and when to allow recovery for stigma damages.  Most jurisdictions agree that plaintiffs must experience some physical injury to their property before they may recover stigma damages.  Although courts are divided on whether the injury must be shown to be permanent, defendants have expressed concern that a landowner should not be compensated when the loss is based primarily on public perceptions, which can change over time.

Equally problematic are cases in which the plaintiff’s property has not been contaminated or even threatened with contamination.  Some courts have awarded stigma damages to property owners who could demonstrate that their proximity to a landfill where hazardous wastes were dumped, for example, resulted in a loss of their home’s property value.  There is concern among commercial landowners that the possibility of property owners collecting damages in the absence of any direct physical impact to their homes could increase the number of claimants in mass tort property damage suits.

In reversing the Court of Appeals, the Texas Supreme Court observed that the struggle over whether to even allow recovery of stigma damages arises primarily from the conflicting goals of fully compensating the plaintiff for an injury while only awarding those damages that can be proven with a reasonable certainty.  The court observed that even when it is legally possible to recover stigma damages, it is often legally impossible to prove them.  This is because evidence based on conjecture, guess, or speculation is inadequate to prove stigma damages, not only as to the amount of the loss of value, but also as to the portion of the loss caused by the defendant’s conduct.

Based upon the rigor to which the high court subjected the claimant’s diminution of property value claims, Texas trial courts now are on notice that any diminution of property value, whether or not stigma is alleged, must be supported by strong evidentiary proof and reliable expert testimony.