Temporal Posture and Discount Rates for Groundwater Contamination Damages

• Date: 01 March 2010
• Author: William W. Wade, Ph.D. and Robert R. Trout, Ph.D.

40 ELR 10262 ENVIRONMENTAL LAW REPORTER 3-2010

Temporal Posture and Discount

Rates for Groundwater

Contamination Damages

by William W. Wade, Ph.D. and Robert R. Trout, Ph.D.

Dr. William W. Wade is a resource and nancial economist in the rm Energy and Water Economics, in Columbia, Tennessee.

Dr. Robert R. Trout is a nancial economist and a partner in Lit.Econ, LLP, a California-based economic consulting rm.

Recent experience as an economic expert in a ground-

water contamination lawsuit reveals that lawyers

and nancial experts are unclear about what cri-

teria govern temporal posture for determining economic

losses. Whether da mages should be benchmarked ex ante at

the time of harm, or ex post at the time of trial, has a long

intellectual history in nancial and legal journa ls—and in

case decisions. e theoretical elegance of some of the con-

siderations discussed in the literature may overwhelm the

practical issues governing choice of temporal posture in a

contamination case.1

A much-cited 1992 article by John Taurman and Jerey

Bodington concludes that the distinction bet ween ex ante

and ex post benchmarking of damages is “a choice between

two well-dened methodologies.”2 After an exhaustive sur-

vey, they conclude: “e historical trend to damages law is

toward more detailed inquiry into the par ticulars of a plain-

ti’s loss.”3 ey wrap up their article by saying: “[I]n the

hands of juries, t he a llure of hind sight c an be expected to

be strong.”4

While relying on factual evidence uncovered between the

time of harm and time of trial may have great appeal, some

experts may argue that the standard practice for an economic

damages calculation is to benchmark the value ex ante to

the date of the harm. Ultimately, damages measured at the

time of harm presume that the values are not undone by fac-

tual evidence uncovered while va rious lega l activities delay

the trial date further into the future. e longer the delay

before trial, the more plainti’s and defendant’s experts’

1. See Robert F. Lanzillotti & Amanda K. Esquibel, Measuring Damages in Com-

 5 J. A. A 

F. 125, 141 (1990) (concluding “that where a choice of methodology exists,

it does not necessarily follow that the more theoretically elegant approach is the

most appropriate in light of practical considerations”).

2. John D. Taurman & Jerey C. Bodington, -

 37 A B. 57, 60 (1992).

3. Id. at 105.

4. Id. at 106.

damage estimates might diverge, if only because of consider-

ations of rates for prejudgment interest. For the practitioner,

the choice between “two well-dened methodologies” needs

more concrete guidance. e allure of hindsight is not a suf-

cient condition to support the choice.

Some guidance arises from various areas of the law; how-

ever, the guidance works both ways. For example, U.S. Tax

Court cases require that valuation experts use only informa-

tion available as of the date of valuation in determining the

value of a na ncial asset. To the contrary, in other areas of

business valuation, for example, eminent domain, appraisers

often take into account events subsequent to the time of a

property condemnation in determining any loss of business

goodwill.5 ey do this primarily because the actual impact

on a business aected by condemnation is not known until

after the fact. In the Court of Federal Claims, Independence

,6 a temporar y taking case,

set the valuation date as the end of the taking period for cal-

culation of damages. Finally, in determining economic losses

by e stimation of a “reasonable royalty” in patent litigation

cases, economists routinely rely on what is called the “Book

of Wisdom,” whereby one can consider ex post events and

information in determining the value of a reasonable royalty

on the date of rst infringement, i.e., the d ate of harm.7 Taken

together, these examples conrm that no single method is set

by law to measure damages at the date of harm or at the date

of trial.

is Article examines conceptual and practica l issues

bearing upon the choice between Taurman’s and Boding-

ton’s “two well-dened methodologies” in a situation involv-

ing losses caused by contaminated groundwater. e Article

begins with denitions and factual background, discusses

5. In states where recovery for loss of business goodwill is allowed.

6. 61 Fed. Cl. 692, 709-10, 34 ELR 20090 (2004). e court rejects the position

“that events occurring after the beginning of the temporary takings period [are]

‘ex post’ and should be disregarded.. .. [T]he events during the temporary

takings period are relevant not just to delineate the period itself but also to

provide an objective, non-speculative basis for assessing value.” Id. at 709 n.16

(second emphasis added).

7. See Sinclair Ref. Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 698-99

(1933).

      

contaminated groundwater and related business losses in the unreported

contamination case discussed in this Article.

Copyright © 2010 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.