Opinion issued January 5,=20
2006
In The
Court of=20
Appeals
For The
First =
District of=20
Texas
NO.=20
=
01=E2=80=9305=E2=80=9300183=E2=80=93CV
HARRIS =
COUNTY=20
APPRAISAL DISTRICT, Appellant
V.
(KEMPWOOD PLAZA=20
LTD.) HARTMAN REIT OPERATING PARTNERSHIP, L.P.,=20
Appellee
On =
Appeal from the=20
157th District Court
Harris =
County,=20
Texas
Trial =
Court Cause=20
No. 1999-43970
O P I =
N I O=20
N
<=
/SPAN>Appellee,=20
Hartman Reit Operating Partnership, L.P. (Hartman), sued =
appellant, Harris=20
County Appraisal District (HCAD), to lower its ad valorem tax =
liability=20
for tax years 1999 through 2003 for its Kempwood Plaza LTD. =
(Kempwood)=20
property. Prior to the trial, HCAD filed a motion to exclude Gary =
Brown,=20
Hartman=E2=80=99s expert appraisal witness. The trial court denied =
HCAD=E2=80=99s motion.=20
HCAD subsequently re-urged the motion prior to Brown=E2=80=99s =
testimony, after=20
Hartman closed, and=E2=80=94after the jury returned a verdict in =
favor of=20
Hartman=E2=80=94in a motion for judgment notwithstanding the =
verdict. Each time,=20
the trial court denied the request. HCAD now appeals the judgment, =
arguing=20
in one point of error that it was error for the trial court to =
have=20
admitted Brown=E2=80=99s testimony.
=
We=20
affirm.
Background
<=
/SPAN>Kempwood=20
is classified by HCAD under the land use code of 343 (a =
neighborhood=20
shopping center) and the building class of D (a property which has =
=E2=80=9Clow=20
rent, inferior maintenance, poor and unstable occupancy, poor =
signage,=20
poor design, no quality tenants, poor tenant mix, weak anchor =
tenant, or=20
failure to attract customer traffic=E2=80=9D). The property is =
112,072 square=20
feet. To support its contention that the Kempwood property was =
unequally=20
appraised, Hartman hired Brown to assess the appraised value of =
comparable=20
properties. Brown=E2=80=99s research consisted primarily of =
compiling data taken=20
from HCAD=E2=80=99s website. Brown began by looking for properties =
in the=20
surrounding area with the land use code of 343 and the building =
class of=20
D. This produced a list of 24 properties. From that list, Brown =
restricted=20
it to properties between 60,000 and 200,000 square feet. This left =
Brown=20
with nine properties.
<=
/SPAN>Brown=20
then made adjustments in value according to the =
properties=E2=80=99 location, age,=20
and size. For location, he made upward adjustments to a couple of=20
properties that he believed to be in inferior locations. For age, =
Brown=20
made downward adjustments on some of the newer properties. For =
size, Brown=20
made downward adjustments on some of the smaller=20
properties.
<=
/SPAN>Brown=20
finally calculated the median per-square-foot value of the =
properties for=20
each tax year, and applied those values to Kempwood. The final=20
calculations showed a significant disparity between =
Brown=E2=80=99s median value=20
and the value assessed by HCAD.
Admission of=20
Expert Witness
<=
/SPAN>In=20
its sole point of error, HCAD argues that the trial court erred in =
admitting the testimony of Hartman=E2=80=99s expert witness, Gary=20
Brown.
A.=20
Standard of=20
Review
<=
/SPAN>We=20
review a trial court=E2=80=99s ruling on a motion to exclude an =
expert witness=20
under an abuse of discretion standard. Gammill v. Jack Williams =
Chevrolet, Inc., 972 S.W.2d 713, 718=E2=80=9319 (Tex. 1998); =
Wolfson v. BIC=20
Corp., 95 S.W.3d 527, 531 (Tex. App.=E2=80=94Houston [1st =
Dist.] 2002, pet.=20
denied). We will not reverse a trial court=E2=80=99s judgment even =
if we would=20
have held differently, or even if the trial court made a mere =
error in=20
judgment. Id. at 531=E2=80=9332. Instead, we only reverse =
if the trial=20
court acted without reference to any guiding rules or principles.=20
Id. at 532. Thus, a trial court enjoys wide latitude in =
determining=20
whether expert testimony is admissible. Id. =
B.=20
=
Analysis<=
/P>
<=
/SPAN>In=20
Gammill, our supreme court held that all expert testimony =
must be=20
relevant and reliable under Rule of Evidence 702. 972 S.W.2d at =
727.=20
Appraisal expertise is a form of =E2=80=9Cspecialized knowledge =
[used to] assist=20
the trier of fact to determine a fact in issue.=E2=80=9D =
Guadalupe-Blanco River=20
Auth. v. Kraft, 77 S.W.3d 805, 807 (Tex. 2002) (quoting Tex.R. Evid. 702). It is =
therefore=20
subject to Gammill=E2=80=99s relevance and reliability =
requirements.=20
Id. The proponent of expert testimony must show that the =
opinions=20
are both relevant to the issues and based upon a reliable =
foundation.=20
Id.; E.I. du Pont de Nemours & Co., Inc. v. =
Robinson,=20
923 S.W.2d 549, 556 (Tex. 1995) (adopting analysis of Daubert =
v.=20
Merrell Dow Pharms., Inc., 509 U.S. 579, 589=E2=80=9390, 113 =
S. Ct. 2786, 2795=20
(1993)). The trial court must make the threshold determination of =
whether=20
the testimony meets both the relevancy and reliability standards =
for=20
admissibility under Rule 702. Robinson, 923 S.W.2d at=20
557.
<=
/SPAN>1. Qualificat=
ions
<=
/SPAN>Although=20
Rule 702 of the Texas Rules of Evidence requires a finding that =
the=20
witness is qualified to testify, we do not review that finding in =
this=20
appeal. During the trial, HCAD stipulated that Brown was qualified =
as a=20
real estate appraiser. In its brief, however, HCAD argues that it =
did not=20
stipulate to Brown being qualified to determine (1) what a =
reasonable=20
number of properties was, (2) what qualified as a comparable =
property, or=20
(3) how to make appropriate adjustments. Regardless, this is part =
of the=20
work involved in making appraisals. If HCAD had not meant to =
stipulate to=20
Brown=E2=80=99s qualifications in these areas, it should have =
qualified its=20
stipulation at trial. See Hansen v. Academy Corp., 961 =
S.W.2d 329,=20
335 (Tex. App.=E2=80=94Houston [1st Dist.] 1997, pet. denied) =
(enforcing=20
stipulation because it was clear and no qualification given to =
court). We=20
hold this argument is waived.
<=
/SPAN>2. Relevance<=
/SPAN>
<=
/SPAN>The=20
relevance requirement, which incorporates traditional relevancy =
analysis=20
under Rules of Evidence 401 and 402, is met if the expert =
testimony is=20
=E2=80=9Csufficiently tied to the facts of the case that it will =
aid the jury in=20
resolving a factual dispute.=E2=80=9D Robinson, 923 S.W.2d =
at 556. Evidence=20
that has no relationship to any issue in the case does not satisfy =
rule=20
702 and is thus inadmissible under rule 702, as well as under =
rules 401=20
and 402. Id.
<=
/SPAN>The=20
original suit was brought under the former subsection 42.26(d) of =
the=20
Texas Tax Code. Act of June 1, 1997, 75th Leg., R.S., ch. 1039, =
=C2=A7 42,=20
1997 Tex. Gen. Laws 3897, 3917 (amended 2003) (current version at =
Tex. Tax. Code =
=C2=A7 42.26(a)(3)=20
(Vernon Supp. 2005)). ![3DFootnote](3D"")
The former subsection 42.26(d) provided =
=E2=80=9C[t]he=20
district court shall grant relief on the ground that a property is =
appraised unequally if the appraised value of the property exceeds =
the=20
median appraised value of a reasonable number of comparable =
properties=20
appropriately adjusted.=E2=80=9D Id. Thus, Brown=E2=80=99s =
job for the trial, at=20
minimum, was to find a reasonable number of comparable properties, =
make=20
appropriate adjustments, and compare the median appraisal value of =
those=20
properties to the appraisal value applied to Kempwood. This is =
what he=20
did.
<=
/SPAN>3. Reliabilit=
y
<=
/SPAN>This=20
case turns, then, on whether Brown=E2=80=99s underlying data was =
reliable. When=20
the reliability of an expert=E2=80=99s testimony is challenged, =
the trial court=20
must =E2=80=9Cgauge=E2=80=9D the expert=E2=80=99s reliability by =
ensuring =E2=80=9Cthat the opinion=20
comports with applicable professional standards outside the =
courtroom.=E2=80=9D=20
Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 499 (Tex. 2001) =
(quoting Gammill, 972 S.W.2d at 725=E2=80=9326). In =
applying this=20
reliability standard, however, the trial court does not decide =
whether the=20
expert=E2=80=99s conclusions are correct; rather, the trial court =
determines=20
whether the analysis used to reach those conclusions is reliable.=20
Gammill, 972 S.W.2d at 728. Expert testimony is also =
unreliable if=20
there is too great an analytical gap between the data upon which =
the=20
expert relies and the opinion offered. Id. at=20
727.
&=
nbsp; a. Weingar=
ten
<=
/SPAN>Both=20
parties pay significant attention to Weingarten Realty =
Investors v.=20
Harris County Appraisal District, 93 S.W.3d 280 (Tex. =
App.=E2=80=94Houston=20
[14th Dist.] 2002, no pet.). The facts of Weingarten are =
very=20
similar to this case. However, in that case, the trial court =
granted=20
HCAD=E2=80=99s motion to exclude the expert witness. Id. at =
283. The=20
Fourteenth Court of Appeals affirmed, finding the following =
deficiencies=20
in the witness=E2=80=99s underlying data: (1) the compared =
properties were=20
significantly smaller than the Weingarten property; (2) nine of =
the ten=20
compared properties had per-square-foot appraised values =
significantly=20
lower than the Weingarten property; (3) the expert only compared =
ten=20
properties, even though there were 191 retail centers in the same =
quadrant=20
as the Weingarten property; (4) the expert carved out portions of =
some of=20
the compared properties due to disparate ownership; (5) the =
adjustments=20
made to the compared properties were only for physical =
characteristics of=20
conditions, age, size, and location; and (6) the amount of =
adjustment for=20
each characteristic of the compared properties was subjective. =
Id.=20
at 285=E2=80=9386.
<=
/SPAN>In=20
formulating his analysis, Brown attempted to avoid the pitfalls of =
Weingarten. Brown=E2=80=99s research consisted primarily of =
compiling data=20
taken from HCAD=E2=80=99s website. Brown began by looking for =
properties in the=20
surrounding area with land use code 343 and building class=20
D.
Properties under land use code 343 are=20
neighborhood shopping centers. Building class D applies to =
properties=20
which have =E2=80=9Clow rent, inferior maintenance, poor and =
unstable occupancy,=20
poor signage, poor design, no quality tenants, poor tenant mix, =
weak=20
anchor tenant, or failure to attract customer traffic.=E2=80=9D =
From this initial=20
query, Brown came up with 24 properties. Brown then further =
restricted the=20
query to properties between 60,000 and 200,000 square feet. This =
left=20
Brown with nine properties.
<=
/SPAN>Brown=20
then made adjustments in value according to the =
properties=E2=80=99 location, age,=20
and size. For location, he made upward adjustments to a couple of=20
properties that he believed to be in locations inferior to =
Kempwood=E2=80=99s=20
location. For age, Brown made downward adjustments on some of the =
newer=20
properties. For size, Brown made downward adjustments on some of =
the=20
smaller properties.
<=
/SPAN>Brown=E2=80=99s=20
final list contained properties both larger and smaller than =
Kempwood to=20
avoid the first problem in Wiengarten, that of choosing =
only=20
smaller compared properties. Brown searched HCAD=E2=80=99s website =
with the=20
criteria of land use code 343 and building class D to avoid the =
third=20
problem in Weingarten, that of selecting only a small =
number of=20
compared properties. While the final list was of the same =
approximate size=20
as in Weingarten, the intent was to make it a list of =
properties=20
significantly similar to Kempwood. Although Brown only made =
adjustments=20
for physical characteristics, he felt that, because the criteria =
he used=20
in his search already encompassed economic factors, he had avoided =
the=20
need to make further adjustments and had avoided the fifth problem =
in=20
Weingarten, that of making limited =
adjustments.
<=
/SPAN>We=20
note, additionally, that the second problem in Weingarten =
is not,=20
in and of itself, a problem. If property has been inappropriately=20
appraised, it would not be surprising for the per-square-foot =
appraisal=20
values of the compared properties to be lower than that of the =
complained=20
of property. Regardless, HCAD admitted at trial that the second=20
Weingarten problem was not a problem in this=20
case.
&=
nbsp; b. Basic=20
Methodology
<=
/SPAN>HCAD=20
presents a list of problems that, it argues, prevents =
Brown=E2=80=99s analysis=20
from being considered reliable. First, HCAD argues that Brown =
admitted at=20
trial that the report was =E2=80=9Cnot really an =
appraisal=E2=80=9D and that he did not=20
comply with the standards of the Uniform Standards of Comparables. =
However, in respect to both points, Brown=E2=80=99s testimony =
clarified how he=20
developed his report. Contextually, his statements contained no =
admission=20
of error.
<=
/SPAN>Similarly,=20
HCAD complains that Brown =E2=80=9Cmade no effort to verify =
[HCAD=E2=80=99s] information.=E2=80=9D=20
However, we cannot see why Brown should be expected to verify =
HCAD=E2=80=99s data.=20
HCAD also complains that Brown did not look at all of the compared =
properties. This is incorrect. Brown testified that either he or =
his=20
assistant viewed each compared property as well as=20
Kempwood.
<=
/SPAN>In=20
reference to Weingarten, HCAD argues that nine properties =
was not a=20
reasonable number for the purposes of the former subsection =
42.26(d) of=20
the Texas Tax Code. We disagree. Brown ran a query for similar =
properties=20
in the same approximate area as Kempwood in order to avoid the =
pitfall of=20
comparing unrelated properties. Based on his criteria, he was left =
with=20
nine properties. Thus, Brown had the choice to either base his =
evaluation=20
on those nine properties or to expand his list by including =
properties=20
that had fewer similarities to Kempwood.
&=
nbsp; c. Comparabil=
ity=20
of Properties
<=
/SPAN>HCAD=20
complains that Brown did not research the occupancy rates of the =
compared=20
properties. Brown admitted that he did not, but he also said that =
the=20
classification of building class D already accounted for this=20
characteristic. This was never controverted at =
trial.
<=
/SPAN>HCAD=20
complains that four of the compared properties were divided among=20
different owners with different HCAD accounts and that Brown only =
used one=20
of the accounts for each of the four. This is similar to the =
charge that=20
the expert witness in Weingarten carved out portions of =
some of the=20
compared properties. Id. at 286. We consider this argument =
to have=20
some merit and review it further in section 4 =
below.
&=
nbsp; d. Adjustment=
s
<=
/SPAN>According=20
to HCAD=E2=80=99s website, the year of construction for Kempwood =
was 1970. During=20
discovery, Hartman turned over an SEC filing that listed the year =
of=20
construction as 1974. HCAD argues that Brown=E2=80=99s adjustments =
for age were=20
flawed because they did not take into account the correct year =
that=20
Kempwood was constructed. However, there is no indication that =
HCAD ever=20
used the 1974 year either. Considering that this suit was brought =
under=20
the legal theory that Kempwood was appraised unequally based on a=20
comparison to the median value of similar properties, it was =
reasonable=20
for Brown to base his conclusions on the same data that HCAD used =
in=20
determining the appraised value. Absent a showing that HCAD did =
not use=20
1970 as the year of construction, we hold there was no error in =
Brown=E2=80=99s=20
using the same year.
<=
/SPAN>For=20
the properties that Brown did adjust for age, HCAD argues that =
Brown was=20
unable to =E2=80=9Cexplain the math=E2=80=9D behind his =
adjustments. While Brown did=20
provide a rationale for the adjustments he made, there was no =
precise=20
mathematical formulation that lead to his using 15% as the rate of =
adjustment. However, this was not required. Appraising property is =
not an=20
exact science based on set mathematical formulas. It is not error =
for an=20
appraiser to use his or her personal experience and expertise to =
make=20
certain determinations. Exxon Pipeline Co. v. Zwahr, 35 =
S.W.3d 705,=20
711 (Tex. App.=E2=80=94Houston [1st Dist.] 2000) rev=E2=80=99d =
on other grounds, 88=20
S.W.3d 623 (Tex. 2002). The question is whether there is too great =
of an=20
analytical gap between the data and Brown=E2=80=99s =
determinations.=20
Gammill, 972 S.W.2d at 727. For each of the compared =
properties=20
adjusted with respect to age, Brown used the same 15% rate of =
adjustment;=20
thus, the lack of a mathematical formula in this circumstance does =
not=20
raise any suspicion of an analytical gap.
<=
/SPAN>Next,=20
HCAD argues that Brown failed to adjust the properties based on =
their=20
=E2=80=9Ceffective age,=E2=80=9D that is, he presumed that each =
property received the same=20
level of individual wear and tear, maintenance, updating, and =
remodeling=20
over the years. First, even if this were correct, no evidence was=20
presented to counter this presumption. Second, Brown stated that =
the=20
building class D made these adjustments for him. Therefore, a =
manual=20
adjustment by Brown was not required. Again, no evidence was =
presented to=20
suggest this was incorrect.
<=
/SPAN>HCAD=20
presented evidence that three of the compared properties had been =
built in=20
phases, instead of all at once. For at least two of the =
properties, Brown=20
acknowledged that he had not made any adjustments due to the =
phased=20
construction of the buildings. While HCAD failed to clarify the =
impact of=20
the lack of these adjustments, we consider this argument to have =
some=20
merit and discuss it further in section 4 below.
<=
/SPAN>For=20
locational adjustments, HCAD complains that Brown =E2=80=9Cdid no =
analysis of=20
market sales, rents, occupancies, or anything else.=E2=80=9D =
Again, these were=20
factors that Brown argued were incorporated into the building =
class D=20
characteristic. By using this characteristic in limiting his =
search, Brown=20
argued that the appropriate adjustments had already been=20
made.
&=
nbsp; e. Building=20
Class D
<=
/SPAN>HCAD=20
complains that one of the properties in Brown=E2=80=99s compared =
properties was in=20
fact a building class C property. Even if there was error in =
Brown=E2=80=99s list=20
of compared properties, this cannot be said to have harmed HCAD. A =
classification as a building class C property results in a higher=20
appraised value than a building class D. Any error in this regard =
would=20
only raise the median appraised value of the properties and =
undercut=20
Hartman=E2=80=99s cause of action.
<=
/SPAN>We=20
recognize that Brown made a number of adjustment decisions based =
on the=20
assumption that the building class D already accounted for a =
number of=20
factors. To clarify, we do not hold today that those assumptions =
were=20
correct. Instead, we note that Brown presented his bases for =
developing=20
his underlying data. One of those bases was the building class D, =
and=20
HCAD=E2=80=99s own description of what that classification meant: =
properties which=20
have =E2=80=9Clow rent, inferior maintenance, poor and unstable =
occupancy, poor=20
signage, poor design, no quality tenants, poor tenant mix, weak =
anchor=20
tenant, or failure to attract customer traffic.=E2=80=9D From that =
classification,=20
Brown asserted that there was no further need to make certain =
economic=20
adjustments to the compared properties. While HCAD questioned the=20
reliability of that assumption multiple times, it presented no =
evidence to=20
show that this assumption was incorrect.
<=
/SPAN>It=20
is true that Hartman bore the burden of establishing that Brown =
was=20
qualified. Broders v. Heise, 924 S.W.2d 148, 151 (Tex. =
1996).=20
However, the trial court found that Hartman met its burden, and =
absent=20
contradictory evidence, we cannot say that the court abused its =
discretion=20
in making this determination.
&=
nbsp; f. Market=20
Value
<=
/SPAN>HCAD=20
complains that Brown had no idea what the market values of =
Kempwood or the=20
compared properties were. HCAD argues that United =
Investors, a case=20
in the line of Weingarten, holds that when there is no =
evidence of=20
market value, the court should presume that all of the properties =
were=20
valued at their market value. Harris County Appraisal Dist. v. =
United=20
Investors Realty Trust, 47 S.W.3d 648, 654 (Tex. =
App.=E2=80=94Houston [14th=20
Dist.] 2001, pet. denied). HCAD further argues that, because there =
is=20
evidence of Kempwood=E2=80=99s market value in 1999, it would be =
unconstitutional=20
not to use that value. We, however, find no such holding in =
United=20
Investors. Instead, United Investors held that =
=E2=80=9Cit is unfair,=20
and constitutionally prohibited, to require one taxpayer to pay a =
tax=20
based on market values if other taxpayers are paying a rate that =
is lower=20
than the market value of their properties . . . . If a conflict =
exists=20
between taxation at market value and equal and uniform taxation, =
equal and=20
uniform taxation must prevail.=E2=80=9D Id. Further, the =
former subsection=20
42.26(d) of the Texas Tax Code required only an analysis between =
the=20
appraised value of the property and the median appraised value of =
a=20
reasonable number of comparable properties appropriately adjusted. =
Act of=20
June 1, 1997, 75th Leg., R.S., ch. 1039, =C2=A7 42, 1997 Tex. =
Gen. Laws=20
3897, 3917 (amended 2003).
<=
/SPAN>4. Reviewing =
Trial Court=E2=80=99s Ruling
<=
/SPAN>After=20
considering all of HCAD=E2=80=99s arguments against the =
reliability of Brown, the=20
two problems we are left with is that four of the compared =
properties were=20
divided among different owners and that three of the compared =
properties=20
had additional construction in later years. These problems raise =
some=20
question as to the reliability of Brown=E2=80=99s underlying data, =
and the trial=20
court expressed misgivings about the reliability of =
Brown=E2=80=99s data.=20
Nevertheless, a trial court enjoys wide latitude in determining =
whether=20
expert testimony is admissible. Keo v. Vu, 76 S.W.3d 725, =
730 (Tex.=20
App.=E2=80=94Houston [1st Dist.] 2002, pet. denied). Here, the =
trial court=20
carefully considered the same arguments presented by HCAD on =
appeal. The=20
two problems that HCAD points out do not rise to the level as to =
make the=20
trial court=E2=80=99s ruling arbitrary, unreasonable, or made =
without reference to=20
any guiding rules or legal principles. We hold that the trial =
court did=20
not abuse its discretion in admitting Brown=E2=80=99s expert=20
testimony.
<=
/SPAN>Appellant=E2=80=99s=20
point of error is overruled.
Conclusion
<=
/SPAN>We=20
affirm the judgment of the trial court.
&=
nbsp; &n=
bsp; &nb=
sp; &nbs=
p; =
; =
Laura=20
Carter Higley
&=
nbsp; &n=
bsp; &nb=
sp; &nbs=
p; =
; =
Justice
Panel consists of Justices Nuchia, =
Jennings, and=20
Higley. |