By: William Warmke

Caffe Ribs, Inc. v. State reviews a trial court’s discretion in applying the project-influence rule to exclude evidence concerning the government’s role in delaying a condemned property’s environmental cleanup prior to a taking.[1]

In 1995, Caffe Ribs, Inc. (“Caffe”) purchased a condemned property from Paul Revere Variable Annuity Insurance Company (“Revere”).[2] At that time, Revere was evaluating the environmental condition of the property with the previous owner, Weatherford U.S., Inc. (“Weatherford”), and they discovered that the property was contaminated.[3] Caffe and Revere agreed that Revere would continue its evaluation of the property’s environmental condition after closing and would take such action as it deemed necessary to remediate the contamination.[4]

By February 2000, Revere and Weatherford had identified the source of the contamination and placed the property into the Texas Commission on Environmental Quality’s (“TCEQ’s”) Voluntary Cleanup Program.[5] After the condemned property entered the Voluntary Cleanup Program, Revere and Weatherford began remediation and removed part of the contaminated area.[6] The TCEQ, however, wasn’t satisfied and requested that Revere and Weatherford do more to treat the contamination.[7]

In January 2003, Texas notified Caffe that it intended to condemn the property, or at least part of it, in connection with the State’s project to expand Interstate 10, but this knowledge did not impact Revere’s and Weatherford’s attempts to decontaminate the property.[8] By December 2003, Revere and Weatherford believed that the contamination had been fully delineated, and they filed a report with the TCEQ outlining the extent of the contamination.[9] TCEQ responded by requiring that at least four additional groundwater monitoring wells be installed to more fully delineate the contamination.[10] Revere and Weatherford, however, were not able to comply with the TCEQ’s request due to the State’s impending condemnation for the interstate project.[11]

As part of the State’s conversion of Caffe’s property, the State requested all existing groundwater monitoring wells on the property be plugged and abandoned, and any new wells be installed after construction was complete.[12] Revere and Weatherford filed a new report to TCEQ that reflected these facts, and they included their proposals for fully remediating the property’s contamination.[13] The TCEQ again rejected their proposals based on its prior unsatisfied request for at least four additional groundwater monitoring wells.[14]

The State began condemnation proceedings against Caffe.[15] At trial, the State argued that the property’s market value was significantly affected by potential environmental liability and remediation costs, but the State successfully excluded Caffe’s proffered evidence that Revere and Weatherford were responsible for such liability and costs.[16] The court of appeals concluded that the exclusion was harmful and remanded the case for a new trial, and this case deals with the second trial.[17] In the second trial, the State filed a pre-trial motion to exclude all testimony concerning its role in delaying the property’s remediation on the grounds that such testimony was required to be excluded under the “project influence” rule, and the trial court agreed.[18] The jury entered a value for the property, and Caffe appealed the jury’s verdict, asserting that the trial court committed reversible error by excluding evidence concerning the State’s role in delaying the property’s remediation.[19] The court of appeals affirmed the trial court’s ruling.[20]

The Texas Supreme Court began its analysis by reviewing the trial court’s exclusion of evidence under the abuse of discretion standard,[21] and then the court examined the “Project-Influence Rule,” which provides that any change in property value that results from the government manifesting a definite purpose to take property as part of a governmental project must be excluded from an award of adequate compensation.[22] According to the Court, the purpose of the “Project-Influence Rule” is to ensure that the condemnee is made whole, not placed in either a better or worse position than he or she would have enjoyed had there been no condemnation.[23] Because of this, the Texas Supreme Court reversed and remanded, holding that the trial court abused its discretion in excluding evidence concerning the State’s role in delaying the condemned property’s environmental cleanup, which went directly to the property’s market value, and that the court of appeals erred in affirming the exclusion.[24]

The decision in this case is a win for all property owners in Texas. The Court’s decision means that if the government chooses to condemn a property, but plays a role in affecting the property’s value, then that information can no longer be excluded under the “Project-Influence Rule.”  The Court interpreted the “Project-Influence Rule” correctly, and now the rule will be applied much more narrowly in similar condemnation cases. This decision allows for the government to be held accountable for their actions, and it minimizes the possibility for abuse that would unjustly deprive property owners of the rightful value of their properties.

[1] See Caffe Ribs, Inc. v. State, No. 14-0193, 2016 WL 1267677, at *1 (Tex. Apr. 1, 2016).

[2] See Id. at 2.

[3] See Id.

[4] See Id.

[5] See Id.

[6] See Id.

[7] See Id. at 3.

[8] See Id.

[9] See Id.

[10] See Id.

[11] See Id.

[12] See Id.

[13] See Id.

[14] See Id. at 4.

[15] See Id.

[16] See Id.

[17] See Id.

[18] See Id. at 5.

[19] See Id. at 7.

[20] See Id.

[21] See Id. at 8; See also Interstate Northborough P’ship v. State, 66 S.W.3d 213, 220 (Tex. 2001).

[22] See Caffe Ribs, Inc., No. 14-0193, 2016 WL 1267677, at 8; See also City of Fort Worth v. Corbin, 504 S.W.2d 828, 830-31 (Tex. 1974).

[23] See Caffe Ribs, Inc., No. 14-0193, 2016 WL 1267677, at 14.

[24] Id.

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