TX Supreme Court Reverses “Stigma Ruling” Contaminated Property Decision and Postpones Definitive Ruling on Availability of Stigma Damages


On August 22, 2014, the Texas Supreme Court issued its long-awaited decision in the case of Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch. While reversing the appellate court that affirmed the jury verdict awarding the plaintiff almost $350,000 in lost market value based on the “stigma” clinging to the land after the contamination subsided, the Court based its decision on its review and rejection of the evidence offered by the plaintiff’s expert witness. Consequently, the Court postponed for another day deciding whether there is a right under Texas law to recover stigma damages.

The plaintiff is the owner of an undeveloped tract of land (155 acres) in Washington County, Texas. It was leased to a rancher who noticed that some of his calves had experienced birth defects and deaths which he attributed to the dumping of waste materials on the neighboring defendant’s land. The defendant, a metals processing facility, conceded that its employees had followed such practices for many years. A complaint was made to the Texas Commission on Environmental Quality (TCEQ), which investigated conditions on both properties and determined that the defendant had violated several TCEQ hazardous waste rules. In addition, the agency found evidence of contamination above TCEQ “action levels” on both properties, issued a compliance order and assessed a fine against Houston Unlimited. The defendant then took corrective actions to bring its facility into compliance. Its consultant concluded there were no ongoing adverse impacts after these actions were taken, but the plaintiff’s consultant disagreed, and concluded there had been a significant diminution in the market value of the plaintiff’s property. A lawsuit was filed, the experts testified on both sides, and the jury ruled in favor of the plaintiff, holding that the defendant was negligent. The Fourteenth Court of Appeals, sitting in Houston, affirmed.

The Texas Supreme Court noted in its opinion that it had never addressed the issue whether stigma damages can be recovered in Texas. In this case, the plaintiff’s expert witness testified that, in her opinion, the plaintiff’s property suffered a loss of market value due to the stigma resulting from fear, risk and negative public perceptions, and that stigma damages continue to exist even after the property has been fully repaired or remediated. However, the Court, after reviewing the evidence and the testimony of the plaintiff’s expert witness, decided that this was not the case to issue a definitive ruling on the availability of stigma damages: “even if Texas law permits recovery of stigma damages, Mel Acres’ evidence was legally insufficient to prove them”. The Court subjected her evidence to an exacting review, and determined that it was not legally competent to support the jury’s verdict, because it was based on unsupported assumptions and analytical gaps. The Court also declined to rule in this case on the evidentiary value of the presence or absence of TCEQ “action levels” which trigger TCEQ cleanup or remediation orders. The Court concluded that a “take nothing” judgment be rendered in favor of the defendant.

The Texas Association of Business, the Texas Chemical Council, the Texas Pipeline Association and the Texas Oil and Gas Association filed amicus briefs on the stigma damages issue.