Arch Insurance Company v. Carol & Dave's Roadhouse, Inc. , 567 F. App'x 131 ( 2014 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 13-2631
_____________
ARCH INSURANCE COMPANY
As Subrogee of
FAIRFIELD TOWNSHIP
VOLUNTEER FIRE COMPANY NO. 1,
Appellant
v.
CAROL & DAVE’S ROADHOUSE, INC.;
v.
DEAN CALDWELL
_____________
On Appeal from the United States District Court
for the Western District of Pennsylvania
District Court No. 2:11-cv-00801
District Judge: The Honorable Terrence F. McVerry
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
May 13, 2014
Before: SMITH, VANASKIE, and SHWARTZ, Circuit Judges
(Filed: May 20, 2014)
_____________________
OPINION
_____________________
SMITH, Circuit Judge.
Arch Insurance Company (“Arch”) filed this subrogation action against
Carol & Dave’s Roadhouse, Inc. (“Carol & Dave’s”), seeking to recover damages
in the amount of insurance benefits that Arch paid to its insured, Fairfield
Township Volunteer Fire Company No. 1 (“Fairfield”), after a fire destroyed a
building on Fairfield’s premises. Arch alleges the fire was caused by the negligent
actions of Carol & Dave’s employees, who were catering a wedding reception in
Fairfield’s fire hall. While attempting to light a stove in the fire hall’s kitchen,
Carol & Dave’s employees opened the valve of a propane gas line that was
uncapped and not connected to any kitchen appliance. On a subsequent attempt to
light the stove, the escaping propane ignited, causing a fire which ultimately
destroyed the building.
During the course of this litigation, Arch made a self-executing disclosure
on March 27, 2011, listing its damages, including $563,158.28 (actual cash value
(“ACV”) of the building); $126,525.39 (personal property); and $3,825.00 (extra
expense). On October 24, 2012, Arch filed a pretrial statement listing the
replacement cost of the building ($1,309,268.03) as its measure of damages instead
of the ACV.
2
Prior to trial, Carol & Dave’s filed a motion in limine asking the Court to
permit Arch to present evidence only as to the building’s ACV as set out in the
March 27, 2011 disclosure, and to not allow evidence as to the building’s
replacement cost. The District Court granted the motion on February 19, 2013,
concluding that, under Babich v. Pittsburgh & New England Trucking Co., 563
A.2d 168 (Pa. Super. Ct. 1989) and other Pennsylvania authorities, the proper
measure of damages for a destroyed building is the decrease in fair market value
(“FMV”) of the property. The Court rejected Arch’s argument that this case fell
within the exception recognized in Pennsylvania Department of Transportation v.
Estate of Crea, 483 A.2d 996, 1001 (Pa. Commw. Ct. 1997) (allowing plaintiff to
use replacement cost for collapsed bridge because there was no “value in the
market place” for a public bridge that is a component part of a highway system).
Jury selection was originally scheduled for March 11, 2013, but was
postponed after the District Court learned that significant unresolved issues
remained as to the measure of damages and the evidence which could be produced
to establish those damages. Arch contended it should be permitted to introduce
evidence as to the repair cost of the building and argued that the burden of proof
would then shift to Carol & Dave’s to show that the FMV was less than the cost of
repairs. Alternatively, Arch argued it should be allowed to present the testimony of
Fire Chief Kevin Stiffler (“Stiffler”) to establish the FMV of the building.
3
Carol & Dave’s responded to Arch’s arguments and also moved for partial
summary judgment on the damages issue, arguing that Arch had failed to produce
any evidence that would be admissible for the purpose of establishing the
building’s FMV. On April 16, 2013, the District Court issued an order consistent
with its February 19, 2013 decision, and held that Arch would be limited to
recovery of the reduction in FMV of the destroyed building. The Court rejected
Arch’s “novel burden-shifting theory,” noting that Arch “has the burden to prove
its damages.” The Court further held that Stiffler would be able to testify as to the
building’s FMV only “if Arch is able to lay a proper foundation as to his
knowledge of the real value of real estate in the vicinity[] and his particular
knowledge of the value of the Fairfield building before and after the fire.” The
Court then instructed Arch to file a “proffer of Fire Chief Stiffler’s qualifications to
testify as to FMV.”
Arch filed the requested proffer on April 26, 2013. Arch claimed that Stiffler
would testify that the replacement cost of the structure was $1,309,268.03, and that
this amount should be reduced by 50 percent for depreciation, resulting in a FMV
of $654,634.01. In addition to the fact that this proposed calculation began with the
building’s replacement cost, which the District Court had previously rejected as a
basis for damages, the proffer did not demonstrate that Stiffler possessed any
knowledge of real estate in the area, nor did it explain how he was qualified to
assign a percentage of depreciation.
4
In view of these deficiencies, on May 7, 2013, the District Court issued an
order stating that “Stiffler will not be permitted to testify as to the FMV of the
Fairfield Fire Company building.” Because Arch had not presented any other
evidence establishing the FMV of the building, the District Court granted partial
summary judgment in favor of Carol & Dave’s on the claim for damages to the
building. The case then proceeded to trial and the jury found Carol & Dave’s to be
55% negligent for the fire. The jury awarded damages only for personal property
and extra expenses in amounts that were stipulated to by the parties before trial.
Arch timely appealed.1
We find no error in the District Court’s refusal to allow Fire Chief Stiffler to
testify regarding the FMV of the destroyed property. Under Pennsylvania law,
three types of witnesses may testify as to the market value of damaged property:
(1) the owner of the property, (2) expert witnesses, or (3) persons with knowledge
and experience qualifying them to form a reasonably intelligent judgment as to
value. Westinghouse Air Brake Co. v. City of Pittsburgh, 176 A. 13, 15 (Pa. 1934).
Arch asks us to treat Stiffler as an “owner” of the Fairfield building, which would
lower the burden for admissibility because owners may testify as to a property’s
1
The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have
jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. We review a district court’s
evidentiary rulings for abuse of discretion, Donlin v. Philips Lighting N. Am. Corp., 581
F.3d 73, 80 (3d Cir. 2009), including its admissions or exclusions of evidence, United
States v. Versaint, 849 F.2d 827, 831 (3d Cir. 1988), and admissions of lay opinion
testimony, United States v. Stadtmauer, 620 F.3d 238, 260 (3d Cir. 2010). Our review of
the District Court’s interpretation and application of Pennsylvania law is plenary. Salve
Regina Coll. v. Russell, 499 U.S. 225, 239 (1991).
5
value despite not “possess[ing] all the qualifications that would be required of
others who testify as to value.” Id. But Stiffler is not the building’s owner, and we
see no reason to treat him as such. Arch has not identified any authority
establishing that Stiffler’s qualifications should be evaluated under the more
lenient standard applied to individuals with an ownership interest. The District
Court did not abuse its discretion by requiring Arch to demonstrate that Stiffler
possessed the requisite qualifications before allowing him to testify regarding the
building’s FMV. Because Arch failed to lay the proper foundation, the District
Court acted properly in excluding Stiffler’s testimony.2
Further, the District Court did not err by limiting Arch’s recovery to the
FMV of the building instead of its replacement cost. Pennsylvania law is clear that
“the measure of damages for injury to property is the cost of repairs where that
injury is repairable; however, where the injury is characterized as permanent [as
when a building is completely destroyed], the measure of damages becomes the
decrease in the fair market value of the property.” Babich, 563 A.2d at 170.
“Repair and replacement costs are irrelevant when the damage is permanent, only
the reduction in market value can be considered.” Id. The exception to this rule
recognized in Crea and Pennsylvania Department of General Services v. United
2
Arch also contends that Stiffler should have been permitted to testify as a person
with knowledge and experience qualifying him to form a reasonably intelligent judgment
as to value. See Westinghouse, 176 A. at 15. Arch’s proffer, however, fails to show that
Stiffler had knowledge or experience concerning the actual FMV of the building or the
values of similar property in the area. Therefore, the District Court correctly barred him
from testifying about the building’s FMV.
6
States Mineral Products Co., 898 A.2d 590, 599 (Pa. 2006), is inapplicable
because this is not a situation where there is no value in the market place for the
destroyed property.
The FMV was the appropriate measure of damages for the building
destroyed in the fire. Due to its litigation decisions, Arch failed to produce any
admissible or competent evidence to establish a market value for the building.
Without the necessary evidence, the District Court acted appropriately in granting
partial summary judgment in favor of Carol & Dave’s. For these reasons, we will
affirm.
7