Petition for Writ of Certiorari — Certain Interests in Property in the Borough of Brooklyn v. United States

Supreme Court brief1964

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°° AN THE

_ Supreme Court of the Rnitrd States

- October Term, 1963

CERTAIN-INTERESTS IN PROPERTY [NX THE BOR- _.

OUGH OF BROOKLYN, COUNTY OF KINGS, -

STATE OF NEW YORK, and DAYTON DEVELOP-

MENT FORT HAMILTON CORP. and FURT HLAM- .

ILTON SLANOR, INC.,

atiiioweys:

- US, ° . sg

UNITED STATES oF AME RICA.

De spondent.

a ey a

PETITION FOR WRIT OF ‘CERTIORARI TO THE

UNITED. STATES COURT OF une FOR THE ,

‘ : ; SECOND CIRCUIT .

cy \

° ot s

ey I . _ . Bernarp L. Bermant,

Grorck B. Kenner, .

Attorneys for Petitioners.

tLerspert Monte Levy.

' of Counsel,

“«

’ a | PL Sets pact

Opinions Below ... ra 56 EE eee Pe eres LP ESO

Jurisdiction ...... Se ee pea ee gaa, re eer ee

Questions Presented for Review pewah akinee se Sete

| Constitutional Provision and Statutes Involved ....

"Statement of the Case ecnees Aon eee |

* ‘The Pre-Trial Hearing ..... HE EMIS ee Te

sh is aerate Are ‘ ears per

em Way THE W RIT ep Be Quanren: | ;

oon

I. The- inherent difficulties if valuation of

Wherry ‘projects have resulted in .diametri-

‘cally oppcsed measures of just compensation

* »*“in different Circuits ...4...... eee eee ee CAVE

I. In holding sales of. common stock in, other

Wuerry corporations to be sales comparhble.

enough to the taking at bar,.so that a capi- ©

talization_rate* for—petitioners’ leaseholds «

ores ~~" eould be derived therefrom, though the under-

_lying real estate was entirely non-comparable,

: the Court below rendered a decision: in con:

flict. with those of other federal appellate

COUTTS: oc ccc cccvecscccccegececessecceentn

/ TIL.- In exeletling ‘evidence of reproduction cost ‘

less depreciation in valuation. of Wherry —

projects, both as direet evidence of value and and

—__——-——a8 a basis upori which an appraiser can con-

sider-or corroborate his appraisal, the Court

. » Jelow rendered a decision in. conflict «with o

chose of other federal appellate ‘courts and

in’ a way in conflict with a plicable decisions

of this SEE 5 oa euscassAubi encod enees peas

_—————

IV.

Vv,

- Contlnsion

" decisions of this Court

: ; :

Valuation was made‘on the basis of capitali-

zation of net incoine,.in which’ all witnesses

had deducted as an expense an annual amount

to be paid to the replacement fund.

ing of needed replacements was made. - In

deducting, from the (apitalized valu® the

amount of the replacerent ‘reserve fund -pre-

‘viously paid-in by, an

a decision in confliet with that of two other

federal: appellate courts

ee ee

; & :

In” permitting a valdabion to be- ascertained

based upon a capitalization rate larger than

that allowable -by law, an@ higher than those _

previously arrived’ at by the condemnor and

condemnee, the Court below rendered .a deci-

sion in a Way in conflict with applicable

This Court should grant review to determine-

whefher a eoneededly erroneous and .con-

cededly - irreleyant, instruction to the effect

that-there had been a windfall ‘was sufficiently .

prejudicial to justify. upsetting

especially in the light of -the novel

verdict,

uling of

‘the Court -below that the question of preji-.”

dice ‘arises solély’from the petitianers?. em-

* phasizing the irrelevant issue ...:@......

¢ ‘ .

ary owe. :

Opinion of the U hited States C ourt of Mau

for the Second C ireuit

espe Oioaee @eaeevecs 62 8 6 ®

PAGE

No show-

songing to, peti- _.

tioriers ($172,000), the Court below rendered -

ied

d he: e

30 7

"33

1A.

oe f

. “iil

finig! * PAGE

Aprenpix B:. :

Earlier Opinion of the United States Court of

Appeals for the Second Cireuif ....:.2...... 712A,

APPENDIX C: ° | .

Tue W herry.Act, 63 Stat. ; fae rehire |

The 1955 Capehart Act (69 Stat. 646)... Kean ae

The 1956 Capehart’ Act (70 Stat. 1109) 0......2 QUA

Acquisition of Wherry Act Housing ... v3 QA

56 Stat. 303 (Séetion GOS. of the National Hous- ; :

ne Bet}. ....... Po caves rere y bee Knees | J3A

Federal Rules of Civil Procedure, Rule Aa(a) . * 234

Federal Rules of Civil Procedure, Ritte eee ae

28 U.S.C. $2111, 63:Stat. 105... eter as

§ ; Sav

‘és oO Snes

| Cases Citéd. be

‘ Atlantic Coast Line R. Co. Ms 1 died States, 132 F.

|, 92d 959 (Sth Cir, | ee ee ae Ae ee pos, MEAIB

Bihn v. United States, w 1. =: Sey

Broderiek v. Harvey, af F. i. 274 (Ist Cir., 1958) . 32

BuehVista Homeg/ine. 1 . United States, 281 F.

2d_ 476 (10th Cir., 5 RUD «orc oe tps aeons ncanes 28

Carlstrom v.U “nited States, 275 F. 2d 802 (9th Ctr.) 22

Certain Interests in’ Real Property in Champaign

County, ll. v. [foie Statesg271 F. 2d 379 (7th

Cir., 1961) (affiyming 165. F. Supp:. 474), cert. 7%,

Pi MT ES oe vices os cu dicewansoscseess 15, 21

Clark v. United States, 155 F. 2d 157 160 (8th Cir.,

1946) .:..... res pore ree gricttttesnseesees " 21

Ka irfield Gardens, ‘Inc. v. United States, 306 B 2d

2. 167 (9th a PR era cee rin ears 15, 16, 17, 22

/ : eer So .

o . rs Pima

ead - Ee

: . : icone ee ,

- - eee 2 . . F . PAG

Fontanello x. nited States, 19-F. 2d 921 0D. € Cir.,

ier... eet aM ikte CAEN Se, Oe eee :

he aie Ea Co.v. United States, ye |

ies Henry’ Barracks Housing @orp. v. United States,

. O81 F, 2d g06 (Ct. Cls., 1960) 22... he na thy

Hickey. v.. United States, 208 F.2d 269 (3d Cr.

~ In re United States: Commissien_to ar W ash-

ington’ Merket, oa Fed. 950" AD. Cir., 1924),

cert. dism., I MTR Es ene Se ee bane ta es 14,2.

Kimball Laundry Co. . United States, 33 388 UU. *

Apa Meee Pe i ‘have acbeceie’ hie he agai eh ae 1 19; 26,

‘Kingsley’ Pictures v. Regents, 360 U.S. 684, 694 .

Likins-Foster Monterey Corp. v. United States, 308

F. 2d 595 ), 599 (9th Cir:, 1962) .....; Sse Pee a

. ,eMarraro v. State of New York, 12 N.Y. 2d 285, 297,

180 N. H. 24-006, 613... ..2.5..-::. leaves ss

Matter of City of New York, 19s s; Y. 84,91 s. BK.

Se Ra SE ig | ange onan hes Pee aed

> MeCandless v. U nite ds States, 298 U. Sz 3 ore

Vg Navigation Co. v. United Stas, 148

ae Ain. Se» See ve MCE wae tank cere eh cw ee

Offutt Housing € ‘ompan? v. County of’ Sarpy, 351

U.S, 253, - ere ees ae fo Gud i ve

‘ane Olson v0 sited States, 202-47 S. 246, - Rg ee ae a

“4 Omnia Co, v. United > ates, 261 0), 8: 502 .....:. Pere

Riley x. District of Columbia ~Redevelop. Land

wile: Agency, 246)", 20 (AT (DLC. Cir, 1957) 2.00000. eee

cp Rov Swanson, 145UF. Jk 262 (8th Cir, 2 a 5

State of re ygir a vy. Red Wing Laundry & Dry-

é Cleaning, Co., 253 Minn. 57Q, 93 N. W. 2d 206 es

Stromberg y. California; 283 U. i ee

Thayer-West Point Hotel Co. v. United States, 64

f -* F.. Supp. sae (Ct. Cs. 1945), modified or "othe y

: ON, 2 Oy Oe og ve nce ecco ss Sine eneaeis 24, :

a’

: : +4

PAGE

Thompson v. City of- Louisv iMe, 362 U. S. 199 . 33

United States v. Becktold Co., 120 F. 2d’ 473 (8th .

ME eek once sacs eile (ack ss ee

United States Vv. Benning Housing Corporation, 276

Fp PRE Nias eins 66 6b snaly owns mavaee dapat bees 22,25

U hited States v. Certain inhendate in. ‘Propérty, Ete. -

.(Fort Bragg), 296 F. 2d 264 (4th Cir., 1961) ..... 28°

United States v. Certain. Interests in Property. in ¢

Monterey County, Ca!., 186 F. Supp. 16% (N. D. .°

Cal. 1960), affd. sub. nom. Likins-F oster Monterey,

Corp. v. (United States , 308 F,.2d 596 (9th Cir.,

|. ns Sra rN eee Cer ramen, See ere apne nn +

United States v. Certdin Interegs in Property i in the

‘Borough*of Brooklyh (Fort lamilton), 3 326 F. 2d -

109 (2d Cir.; i creas fe oeeees el, 2, 6,10, 11, 13, 14, 16,

ee se “"" . «4 4T,18, 19, 20, 21; 22, 24,

U nited Siates sv. Certain Interests i in Property in the,

Borough of Brooklyn ( Fott, Hamilton), 212 F.

Supp. 88 (K. oe ee MEE oie a ce

United States v. ‘Certain Intérests in Property Situ-

ate in Brooklyn (Fort Hamilton), 302 F. 2d 201

(2d Cir., 196: 2) Baek mega AY ST gs Aa Ri Be 2, 124

United States v. ‘Commodities Corp., 329 U.S S i ee

‘United States v. Cors, 337 U.S. 325 ...0.......... es 24

‘United States v. Delano Park Homes, _ 2a aT: é

Ce SOMA Ce, eke ee ey 16

United States #. Dressler,. i 2B 2d 972 (ith Cir.

ete. eomeerenee Oy cat ake al vos ke ATES 33

? United States v. Veitivers ston, 325 FL 2d 539 (10th

CNR ssc eas eres oer i

United States v. “Folin & ( %o., 334 U. S624... . 23, 24, 29

United States v. 5139.5 Acres of Land, me., 200 F. 2d

eee re rr ee ee ee 18

- UnitedSfates v. General Motors Corp., 393 U.S. 373 24

United. States v. Johnson, 285 F. 2d 35 sie ies

oS ees See eaiiaes a Telex dele es hae 17,

* 96.27, 98 30,31,32~' -

2 ° vi- r é - # ‘

e° ‘a PAGE

United States: v. Ln Ponder, at i ld 308, cert.

GbR Oe. U, ME POE + che cess necndters suseks » og 40, Af, 1

, U nited States. v/ Merz, ‘4 Ss. et 639. ate Ui 8. — ..:.. . 32°

~. United States v. Mighoudl Industrial I ‘acilities, 322 Fi: :

2 694 FLOLE Cir., 1963) ....... tee Soe ieee “DAs.

United ‘States v. Miller, 317 U. 8. 369 <.....:...gyp 24 7

United States v. Ne w River Collieries Co., 263 U7S

ne eh a Ma Mee et eT weber rat Weg Ds Sa) We-

United States v. 190.71 yee ‘of Land 4 Lake

Counts, Il. (Forrestal Village}; 300 F. 2d 52, 56

(7th Cir., 1962) °.. 0... 52.00... +; LE, 13, 18, 19, 24, 27, 28

‘Enited States ve Tampa Bay Garden Apartments, 9 ©.

Inc, 204 F, 2598 (Sth Cir, 1961) ........ ‘ayes ee

United States v.Foronto Nav. re '6., B38 TLS S.396..... 93..-

United States v. 2,872:88 Acges: of Land, Ete., 310 |-

F. 2d 76. (Sth, Cir, 1962), meditied on other.

‘grounds sulLreim. United States v. Merz, 84S. Ct.

OE Be SR peta 2 \

United States V.. tate ise, 131 F. 2d 8 ot (4th Cir. Wye a1

‘3 ogelstei ‘in & Co. ‘y, Cited States, 262 U, Ri. Sy eee ee 2Y, 30

W iltiams v. North Carolina, 317 UYS.- 287, 292 Smee? - ae

. Worcester ’y. Pure Torpedo, Co., im I's 2d 945 (7th

Cit, VAL) epee eee eee Give avikaeen tate ts: 32

aire sg Statutes Cited

ep sare Act, 69 Stat. 601 (19: 99), us amended,

U.S. C. & . 1594-1594) (1958) ........ pag yf: 14 WAZA ‘.

Nation: ul Housing rages $ 6%, 56 Stat. 503 (98: 2y, ais

amended, 12. UL S . 1743 (A ile, Soap oes they Zod

BUS. Cs 1358, 62: Stat..935 ...°.. Menetk dese css” vee

28 U. 8S. C. $2111, 6 Stat. 105 (1949) pira a ok 4,31, 24A |

W herry Act, 63 Stat. a0 (1949), 12 U.S. £.-4§ 1748.

et te ayn IS), ag amended, 7 (3 Stat. 6$2 (19: 59), 12

U.S. Cv $$ 1748 et- seq, (Supp. TV 1939-62)... 4,5,17A 0°

as ‘ Peo es vii eh

: a ee See

Constitution Cited _

; . a iar ore. ; H PAGE

- Antendment V, United States Constitution . .4, 12, 13, 14.53

‘om . = y ‘a 5 E

- Federal Rules of Civil Practice °

Rule 43(a) ..... SYA OS ae A SARTORI ory SEA.

RM Sorat ee ener res ot Y.

i ' Other Authorities Cited _

SACU Os oes ITE RL

2 Orgel, Valuation Under Eminent Domain, ‘4 1s8-

WN 9d 00s, TIES). cc evcgasvecy sees hagae a ee ee

5 Nicholson, Eminent Domain (3rd éd., § 21,31). ¢.2.° Is

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IN THE .

Bacon Court of the United States | ;

. Getober Term, 1963

No.

: P n

- cy Vv

CERTAIN Interests 1X Property w ‘tHE Boroven or Broox-—

. byx, County er Kings, State or New York, and Dayton |

Piedneien, Ya Hamintos Corp. and Fort Hamivton,

Manor, Inc., . :

~ Petitioners

| coe Us. Shula is

a. : =

: Usirep States or AMERICA, | xt

ate ; * ' Respondent.,

0 - By

PETITION FOR WRIT: OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

Stats dad CIRCUIT a

To thie Chiet. Justice and Associat Justices

of the Supfeme Court of the United States:

: S -

Your petitioners hereby petition for’a writ of-certiorar!

_° & review the decision -of the’ United States Court of Ap-

peals fer the Seeond Cireuil Which affrmed’*a judgement

(entered inthe United States District Gourt for the East-

ern District of New York 7. your petitiqners in-the

Amount of $370,000, . being the differenee between the,

amount previously ‘certified by the Secretary of the Army.

ax the estimated value of.petitioners” properties ‘taken in

‘eminent domain ($1,250,000), and “the amgunt of the jury

verdict ($875,000). ~ aa

”

©}

“(

Seer Opmions Below

* e

The opinion delivered on the affirmance im the Tnited ©

“States Court of Appeals for the Second Cieuit is a, sary

at B26 F. 2d 109; it is appended hereto us Appendrx <A.

No opinion was delivered by the Said Court of Appeals

wpor the denial of the petition for rehearing. The only

opinion — by the Distriet Court, reported at 212

rE Supp. SS isprinted at pages L060a-L067a of the Appen-

dix te? fet cddant Appellants: Briet ;-it is not “appended”

hereto ina&much as nine copies ef the Appendices “of all

‘the parties he rgto are being filed tovether with the cer-

tified record.

n earlier opinion in this ease rendered in the Court

of Apipedtls below [United-States vi Certain IMerests am

Proverti Situate te Brooklan, 302 F. 2d 201 (2d Cir., 1962) |

“is appauded herete ds Appendix B, in accordance with the

Rule? of this Court, though said opinion Ix not pertinent to

any question raised in this Petition. %

ie ; ms

dae - Jurisdiction,

The judgment sought to be reviewed was made and en-

tered on January 9, 1964. An order denying a timely peti-

tion for, rehearing was made and entered on Fk ‘bruary 4,

1964, T he statutory provision betieved to confer on this

court jurisdiction, to review the judgment in dauedlion is -

. id XY

” 98 U.S. C. § 1254(1).

“

Questions Presented for Review

1. Whether under the Fifth Amendment to the United

States Constitution, the owners of long-term leaseholds in

Wherry housing projects have been awarded just comper-

sation for their taking by the United States Government,

when the amount-of the compensation awarded could not

- : Pa

have been arrived at without contiolling considexation of

sales oceurring several yeirs previously of common stock

(not leaseholds) of corporations ow ning Wherry projects,

loc: ited far away, cosicededly non-compa rable in type of .

cgnstruction, physical characteristics, type of location, and -

availability of potential tenants, similar only in the finane-

ing aspects of all Wherry projects. —

2. Whether.in so determining the Fount of just com-

pensation for suck long-term leascholds, just cofupensation

has been awarded wien evidence of reproduction cost less

depreciation is Wholly excluded (especially in the absence

of comparable sales), both as direct evidence and as.v basis

“upon which an appraiser. ean consider or corroberate his

appraisal, especially when sueh evidence would be admis.

sible’ in the state courts in the state Where > the United States

court was held. .

£3. Whether the owners of such leaseholds have been

awarded Just compensation under the Fifth Amendment

to the United States: Constitution, when the emount of the

award is first determined by capitalizing a net income trom

which all witnesses had deducted an annual amount to be

waid to the replacement fund as an expense, and thereafter

deducting (from such capitalized value) the amount of the

replacement reserve fund previously paid in by, and belong-

ing to, the owners’ ($172,000), especially in the absence of

any showing of needed replacements. * .

4, Ww héther, ip. * valuing such lez iedeld interests by a

“capitalization process, capitalization rates hagher than those

previously arrived at vyohuntarily by the parties, and higher

than the maximum allowable under controlling FHA ‘poticy,

may be used in arriving aPjust compensation.

5: Whether a jury verdict. purportedly awarding Just

‘compensation to the owners of such interests may stand

when untrue testimony had been given. repeatedly by the

) major government: witness that the owners of the said

interests, had received a windfalb--theusks there had been no

windfai—, Government counsel urged that there had been

a windfall both during the trial and in his summation, and

when the Court erroneously instructed the jury that it was

undisputed that petitioners had received a windfall, in

the Jight of a record showing that the jury accepted to

’ the penny the appraisal of. the saitl Government witness

and éntirely rejected the appraisals of the petitioners’

witnesses, rendering a verdict substantially (30%) less

than the amount previously certified by the ‘Secretary of

the “Army as t the estimated value.

6. W hether | petitioners’ properties were taken fa¥ pub- -

lic use without just compensation, in violagion of the Fifth

Amendnient to the United States Constitution, under all

the facts, and_gireumstances of this case. —

Constitutional Provision and Statutes Involved:

Amendment V,-U nited States Constitution:

so; @ @ &

nor shall private property be taken for

public use, without just compe nsation.’

The provisions ‘of the statutes ienalobd: are lengthy ;

their pertinent text is set forth in Appendix C hereto.

' The‘citations therefor.are as-follows:

Phe Wherry Act, 63 Stat. 570 (1949), 12 U.S: ¢.8$ 1748

et séq. (1958), as amended, 73 Stat. 682 (1959), 12 U.S. ¢.

$$ 1748 et geq. (Supp. IV 1959-62); The ¢ pret Act, 69

Stat. 646 (1955), as amended, 42 U.S. C. 6 1594- 94())

"(1958). a “ 4 ; ° ° :

‘khe National oe sing Act § 5 GOS, 06 Stat. 803 (1942), |

as seiebidink: 12.U. S. C. $ 1743 ( (1958). .

Federal Rules of Civil Procedure, Rules 43(a) and 61.

88 U.S. C. $2111, 63 Stat. 105 (1949).

oe és is 9 :

ft \ + | fs

. ? my 4

Statement of the Case

On ,December 15, 1960, . the United: States. teok, by

‘@ninent domain, petitioners’ two.75 year leasehold interests

in Wherry projects? erected on-separate tracts of land on +

the Fért Hamilton military reservation, Brooklyn, New

‘York, facins lower New York Bay and*‘the Shore Park-

-way. The buildings thereon cwmsisted of -five six story,

brick. elevator apartment houses with interior garages,

constructed in accordance with Governmerital specitica-

tions for use as housing by the militaty and their families,

with civ lian use to folfow if there was cessation of military

occupaney. They were taken ‘fofeontinue their military:

use Dasbiter egies in accordaiee’ withthe Capehart “Act |

(20A-21A, 22A, infra). oe cs.

‘The properties—less than ten vears old when tiie i

were a éhort distance fromea subway ‘line, and a fraction

of a mile from the entrance to the Shore Parkway leading

?to the Brooklyn-Battery Tunnel. It would take 25 or 30

Minutes by ear or aap! to get to midtown New York

City (Cl Exh. FS, p. 43 of the Ft. Haiiiton-Exhs. 6a.

Gla; T37a-&a). The areas in which the apartments wore ———

constructeb wert coneedted Ty the Ge Government's expert., -

witness to be one of the two or three best mea Utlons in

Brooklyn (530a). |. ate eee ;

° Such projects were constructed in varying areas in the Umited

States pursuant to the Wherre Housing et Cintra, IZATION),

proy vit s for government-insured mortgages of COC: at the estimated

cost of Coystruction, and the leasing to the projeet’s corporate sponser

Po military sttes mainly af nominal rentals. The Federal Housing

pore rity reguigtéed rents, Charges, capital cirnéture, ‘rate of retarn,

ete. As noted in the opinion below, the leases themselves were not

transferable. and under FH.\ policy. the rentals’ may never net

mere’ of a return to the sponsor than’6.5'% of the, estimated cost of

coustruction. , ‘ - .

*Such references are to pages in the’ Appendix tu Defendants:

Appellants’ Brief” :

{

nN”

The federal project analyses to which . ‘your petitioners

and the Government had agreed, and pursuant to which

the properties had been erected, Specifically, provided that

. the ‘rate of return for -each of’ the projects should | be

: respectively 6.1% and 6.4% of the estimated cost of.,con-

~ struction.’ A capitalization rate ‘of over 6.5% would not

have been permitted by the FHA ( 305a).

The Pre-Trial Hearing

At the pre- trial hearing, the trial court ruled out ‘evi-

‘dence of reproduction cost less depreciation, both as evi-

~ dence and as a fact that an appraisal witness considered

in arriving at his Valuation. (1Sa, 42a-43a). It was re-

quested] by! defense counsel that there be a preliminary

pre-trial showing to the Court of comparability of what-

ever sales. would be alleged to be. comparable 442a), though

né ruling was had, the Court stating that it would delay

ruling on the sale« question until Jater in the jury trial

(44a). fe SF

Sk e . A -

3 The project an: alyses (Def. Eexhs. D-F and F-G, reproduced in

the Government's Loves at pp. 1-8 thereof) showed such: at.

tions (Gost. App. 2, 6). As the Court below noted (6A, n. 4)

however, the actual figures as shown on th analyses cale cated ‘out

at 6.32% ahd 6.65% respectively. However, if the land value is

sicluded iyi the estimated original ‘cost of construction, based upon

_ the gapitalized value. of the. ground renfal, the rates of return work

out to 6.10 and 6.4¢¢ respectively. {795a- 8008 : see “CAPITAL Ia~

ties Rate Catcunatep IN Viocation or -FEHLA ie ;

handes ‘up on argument te the Court below, immediately following

the Clerk's certification of exhibits and immediately preceding the

exhibits themselves.) . Petitioners sought to imtroduce in evidence

ther Exh, FVV for Identiticatign—which showed that. when the

ground gents were substantial, as here [$3,000 and $4,825 per anaunr

respectvely |, thy land value was to be considered in calculating the

perm#ted rate of return. This exhibi; was, however, exeluded

(20%4-205a. 7930). -Thongh the Court below noted that the project

analyses showed land value as zero, (infra, OA, mn. 4) the analyses

showed the ground rentals at a 400 figure (see itemis numberéd 6 at

pp. 2 and 6 of Govt. App.), the 47, being, used for calculation of

interest at‘4°, on the mortgage—the amount of the méttgace beiny

based on the estimated original cost of constructron.

~~"

on |

The Trial s

Expert witnesses testified as to appraisals for both the.

Government and the defer nse based on a. -apitalization of

income approach. - ‘Petitioners’ expert appraiser Tuchler

Was instructed by the Couyt not to give any /figures. on. re- -

production Gost less depreciation, though he testified that

~he used such method fo support and justify the figures,

he arrived at by the capiti itization metho 1 (1154).

“3

Since the jury Accepted . re the penny (1009a- 10a) the

auaount of the $875,000 appraisal reagyed bY the Gov ern-

ment’s. expert Shlichta, (Govt. Exh. 15, reprinted at p. 43 —~

of the Government's Appendix), we turn_—te-at analysis. -

vf his material testimony. .\ *

Shlichita SRY upon the basis of estab-

lishing a capitalization rate of the net income of the

Wherry leaseholds. Looking for comparable, sales as a

basis to-establish the rate, ke turned primarily to the’

three sales of corporate common stock in’ Wherry -corpe.

rations which had ‘been made out of some 275 Wherry's

(628a, G7Sa). Shlic ‘hta conceded that he ** weeded the sales’

of the Wherry stock ‘*to justify my raté‘of return’? (703a),

and. was unable to arrive at a-conclusion without a study

of these three sales and of sales of stock in FILA G08"

housigg corporations [built- under the National Honsing-

Act See, 608, 56 Stat. 303. (1942), as amended,-12 U.S

See. 1745. (1948) ]. |

The trial court ruled that sales of, stgck are sales of

interests‘in real property (9942).

No proct whatsoever was introduced@hy the .Govern-—

ment to show that the. underlying réal ésf@h: of any of

the three Wherry progeet s were at all contticine or sinit-

lar, in type of location, in physi« ‘al characteristics, Or in-

deed in any other way éxeept that they were Wherry

housing projects. Counsel for the-Governinent conceded

that these other Wherry sales were not similar:

“Mr. Dolan: * * * Now, we donjt claim that—he

ithe government's appraiser} didn“t claim, 1 don't

od]

claim-—that these these Ww herry housing, projects are

similar "or identical in location, in physical charac-

teristics. We don’t claim that they are identical or

comparable as to physical characteristics, the date

of sale or the location * * 8? £908a) >

Asx jieted by’ the Court below.- these three Wherry lease-

-holds ‘“were located in relatively isolated surroundings ’’—

petitioners’ leaseholds were in one of the best locations in

New York City—; and these other leaseholds were all small

*seovered fraine’ buildings’’ (one, two and four family

houses), not six story brick elevator apartment houses of .

- semi-fireproof construction, with central heating—as peti-

tioners’. Though the condemnation here took place in De-

cember 1960, the three sales of the Wherry-stock took place

in. 1954,1955 and 1956;,the real estate was not in New York

C ity, but hundreds an housands. of miles away—in Loui-

siana, Massachusetts dn Virginia.

As set forth below, proof as to these very three’ stock,

sales had been excluded in ‘several other Wherry condemna-

tions, and the exclusion thereof affirmed ‘by several United

States Courts of Appeal. ;

The Government’s expert Shlichta further testified that

the location of any particular piece of property does affect

the capitalization. rate to be applied in determining value,

that the type of improvement on a perticular piece of prop-

erty also affects the capitalization ra‘e, and that the ques-

tion of potential tenants also affects the capitdlization rate

(791a), although he concededly did not ‘compare the phy-

sical features of * * * any %* * W herry housing sale to the’

physical features of * * *” ‘the premises condemned here

(70: da).

After arriving at a capitalization rate based upon these

other saies and computing a value thereby, the Govern-

ment’s expert Shlichta further deducted from such value

figure the amount of the replacement reserve fund belong-

ing to petitioners and .previously withdrawn by -them

with Governmental, permission (approximately $172,000).4

Shlichta, as well as the other valuation experts, had pre-

viously deducted, from the net income to be c&pitalized, the

annual amounts to be paid into the replacement fund after

the taking. There was to showing that any replacements

to be paid for by the replacement fund were necessary or

advisable; indeed, Shlichta testtied, many items- would not

have to be replaced even when it had been estimated they

had to bé replaced (552. du). a. ,

As the Court below ruled, petitioners had not received a

windfall, ie., an amount of mortgage money in excess of

actual cost of construction. However, the Government wit.

ness Shlichta had frequently adverted to such a windfall.

Karly in the trial, Mr. Shlichta testified that there had been

such a windfall on, one of the projects in the case .at bar,

which he terme “d‘**a profit’? of some $106, OOO (561a).

Subsequently, the. witness used the term windfall, pe bai

tioners objected, Government, counsel insisted that there

- had been a wind 'fall® the witness constantly reiterating the

“up in all the newspapers

fully moved for a misir ial, ami the Government witness'was |

word wiydfall whilé a ruling was pendin&, twice stating:

‘it is known as windfail all over the country and written

’. Petitioners thereupon unsuccess-

allowed tovusé the word windfall immediately thereafter

(643%- 644a). - ar « °

Later, Shli¢hta testi had a as to a 1 $100,000 ,re: tlized profit

(note—the- record erroneous|y misprints this as $1000),

- stating that windfall preceedings were discontinued, though

‘there was no evidence they had- ever been begun (S65a-

R6Sa): Still later, Claimants * Exhibit F-YY for Identifiea-

tion, showing that there was no windfall, was exeludest tr om).

evide nee "(9120-91 3a), over petitioners’ objection.

tHe also deducted $80,000 for needed-repairs. We make no

-complaint here of this $80,000 deduction.

> After petitioners ‘objection to the use of the term, Government

counsel insisted that the word “windfall” appeared on the exhibit in

evidence. It did: the paper read “No windiall deduction” (643a).

oF.

10.

In his summation to the jury.. the Government’s attor-_

ney contended that there- was a net amount of shout

$94,000 that they {petitioners} reskin ed in mortgage money

over and above what they actually spent’? (956a). °°

Over the unsuccessful exception of petiticuers in the

jury’s absence (1000a), the Court charged (985a-$ 960a) that

e*.* the following facts @re not in dispute :

** "8: Fort Hamilton Manor received from the

mortgagee on the -Government-insured mortgage

es $106,144 in excess : ofthe cost of the

construction; * * *’’. ;

The jury returned a verdict that the fair market value

of the two leaseholds was $875,000 (1009a-4010a). Judg-

“ment was entered in favor of the Government against the -

petitioners. in the amount of $375,000—the difference be-

| tween the amount deposited under the Secretary of. the

Army’ s certified valuation of $1,250,000 (withdrawn by

- petitioners) and the jury verdict of $875,000—, together

with a sum for the rental value between the taking and the

taking of possessiou. :

.On appeal, the C ourt of- Appeals for the Second Circuit |

affirmed. Petition for rehearing was denied. Execution of

the judgment was stayed by the Court of Appeals pending

this Court’s action. al ah .

_ \.(The basis for federal jurisdiction in the: District C ourt

pret 28 U.S. C. 5 1888, G2 Stat. 92 0.)

REASONS ‘WHY Tee WRIT SHOULD BE GRANTED

Be The inherent difficulties i in valuation of Wherry

projects have resulted in diametrically rg meas-

ures of = Compomation in different circuits.

Sines, us the Court be low poipted out, Wherry, leases

cannot be transferred and thus have no market value.’

¢ é : e

_ «< rad ri s J

fe. ; 4

oe <

° ad .

a “t *

ef \

. : 11 ‘ ‘

. ats °

. uw -

> ° . . 3

(infra, 3A), there is “difficulty, if not impossibility,’

of the application: offth.’ market value test in’ Wi erry

condemnation cases: United States Vv. 190.71 Acres of

Land he Lake County, Ill. (Forrestal Village ), 300 F.. 2d

52, 56 (7th Cir., 1982). ~ °. "0G

As shown inthe opinion below, the doctrine has de-

veloped in.some cireuits that the issues of admissibility:

. of-ailegedly comparable sales, and of admissibility of re-

‘production ¢..° less depreciation, have been left to the

“*diseretion”’ of the tria) courts—and whichever way the

discretion has been‘exercised ‘n different distrfet courts,

its exerefse has been“ upheld in the first Wherry case to

‘reach that district’s- federal Court of Appei uls.? While

we cannot tell as yet whether a Court of. Appeals would:

uphold directly opposite exercises of diseretion within its

own cireuit.” it is plain that each district court would ex-

clude such evidence if exclusion of such evidence had heen

previously upheld as an exercise of diseretion—in Its cir-

cuit; it ix equagby plain that. each district. court. would

admit: such evidence if admissien of such evidence had

been previously upheld as an exercise of disere ‘tion—in its

‘cireuit.

and substitute therefor a test of valuation solely by capitalization of

income, it Would seem to be in conflict with: the approaches of all”

- other Circuits speaking in Hherry cases, see infra passim, and ift a

way in canflict with this Court's decision im Olson v. [ mited States,

292-U. S. 246, 257. rig cn

As to ddmissibility. of allegedly comparable sales, and othe

. exclusion by other federal ‘courts of the very wales alinitte: | here, see

Poing I, infra, pp. 14-20. As to the differing - wavs of treating

adnussibility of reproduction Cost im different circuits, see Point

TI, mfra, pp. 20-26.

-e

x :

* Had. petitioners’ two properties been tried separately, with

opposite rulings on. the allegedly discretionary questions, query

whether the @ourt below would not have had to attirm both decision

under its ratio décede ndi here, See n. 16, infra

6 . .

eens 2.

. :

Plamiy. then, though the issue of -just compensation—

-a-constitutional issue—does not vary from qreuit to cir-

cuit, the standards used in determining the amount of just

compensation differ and will différ from cireuit to circuit.

to the extent of*Suehi ‘standards being diametrically op-

posed to each other. Since the: amount of just compensa-

‘tion almost invariably depends upon the standards usec:

to arrive at that amount, the conflicting standards—even

though couched it terms of discretion—will result in ‘just

‘compensation? differing significantly’ from cireuit to cir-

cuit. - The’practical effect of the discretionary rule is ‘‘to .

leave to those who have to apply it’? not merely ‘*too wide ;

‘a ‘diseretion’’ (Mr. Justice Frankfurter, concurring ‘in

Kingsley Pictures Corp.,v. Regents, 360 U. S. 684, 694), but

to permit entirely different results from cireu:t to circuit in

ascertainment of just compensation. ‘And the diseretion-

ary rule enunciated below is in conflict with that of other |

Cireuits which hold that it is reversible error to admit’

evidence of sales of noncomparable real estate.*

9 The Tenth Circuit: “While we haxe recognized ‘the general

proposition that this court would not substitute its judgment fc tat

qf the trial court in determining. whether a partigular sale was tow

remote in point of time or was not comparable in s*ze, this principal

related merely to the adinissibility Of the evidénce to be considered

by the trial court.* * * It ‘falls far short of conStitufing a rule

that. the appellate courts may not reverse a finding of value. which

it finds to. have been based on a comparison of the condemned

property with other tracts“ which neither. by location mor quantity

of land inyolved or other characteristics bear any resemblance to ea7"

other in the market.” (The finding of value was reversed.) [/mt.

States y. Michoud Industrial Facilities, 322 F. 2d 698%, 706 (10th

Cir., 19635. Accor United States v. Featherston, 325 F. 2d 539,

543 (10th Cir., 1963): (reversing because no discretion exercised }.

The lourth Cirenit: “Cases-can readily be imagined where the

court in ‘its-discretion. should exclude evidence [ot alleged: comparable

‘ sales] because’ of - remoteness in time of the sales or because: the

property sold was not similar fo ‘that being valued, but it should

\ordiparily not be. arth under the hearsay or best evidence -rules.”

lasted States v..5439.5 Acres of Land, che. 206 F. 2d 659, O02 (4th

r., i952). ; ,

: , tham binding tipon this Court.

Just comprtisatipn, a constitutional! terin, is Meaningless

in the abstract; only in the standards used to arrive at the

meaning of the term is there constitutional content. As

we show in the margin, thé application here of the standards

of valuation used. in the W herry. project ease of, United:

States v. Tampa Bay Garden Apartments, Inc., 294 F.2d

598 (5th Cir., 1961),' would result in an award almost three

times as great as that approy cd below. - One Constitution

cannot logitally and justly treat Wherry owners so un-

equally in | capil cireuits. ne

—-In-the last analysis, just coinipen nsation is a constitutions!

issue finally resalvable in this Court’ only—and she rulings

of the courts’ below, their exercises vf ‘‘diseretion’’, the

testimony ot experts—all must be: merely dvi isory ra ther

Though | ‘this Court has not resolvéd | the issue of how

Just comperisation is to be arrived at in Wherry eases (and .

_cases of other non-marketable leaseholds whieh are federally

1 In Taw oa Bay, the Fifth Circuit approved the District’ Court's

us¢ of a 6% capitalization rate for the economic dite of the strictures?

{(4U vears in that case ) resultmg in an Inwood factor of 15 9.046 (thi.

is a table of factors as ‘multipliers of Met annual mcome us¢ d to reduce

to present worth. periodic payments over periods of future years).

If'we apply to the Government's figures below, the 6% rate used by

the Fifth Cffeuit tor the 65 vears of economic life estim ated by ‘the

Government's expert,*we get an Inwood" factor of 16.289 (736a ).

Multiplying’ this by the Government's estimated net income. below

of $352,137, and deducting from the product the mortgages totalling

$4,935,518, we arrive at a valuation fur the petitioners’, interests of

$2.416.6 19—almost three times the $875,000 awarded here: ( Peti- :

_ tionets’ eXpert arrived at a valuation. of $2,469,768. )

If all Wherry projects are materially alike for purposes oi aig

ing at a capitahzation rate—and the Court below so ruled-—it,

‘difticult to explain this discrepancy. sae

financed), we submit that the time has come '! for: this.

A‘ourt, writing apon a-clean slate, to clarify the constitn-

tional standards, so that ‘just compensation ’’ will mean

the same thing to all federal courts, irrespective .of the

Cirenits’in which they sit.

| elt. In holding sales of common atock in other

Wherry ‘corporations tosbe sales comparable enough to

the taking at bar, so that a capitalization rate for peti-

tioners’ leaseholds could be derjved therefrom, though .

the underlying real estate was entirely non-comparable,

the Court below rendered a decision in conflict with

those of other federal appellate courts.

Tn ruling that sales of stgek were “comparable sale ‘Ss at

least for the purpose of arriving ata capitalization rate,'-

the Court below is in conflict with the Distriet of Columbia

and Seventh Circuits: In dn re United States Commission to

Appraise Washington Market, 295 Fed. 950, 954 (D.C. Cir.,

1934), “cert. dism., 265 U.S. 598, it was held that sales of

stock in corporations owning housing projects are not.

comparable to sales of realestate interests. And though.

two of the three Wherry stock saley relied upon below had

Though all Wherry’s are or will be corenmed under the

Capehart Act, and though there are scarcely a dozen reported Wherry:

Cases, there were some 275 Wherrv's erected (628a, 67a). There

will thas be scores of ‘future Wherry cases—and other cases invols

ing tederetly-tinanced non-marketable leaseholds—where this Court's

guidance could prevent unequal treatment in ate ‘rent Circwits.

Moreover, the many conflicts already developed in differmg Circuits

icate that this Court's granting of review we wld not he premature.

_ 18 The Court below draws a distinction bétween comparab He sales

used as sitrect evidence of value, and comparable sales used to ‘arrive

“a capitalization rate (S.\5. Kur since value was determined

npre sglel, by a capitalization rate, this woul seém to be a distinctiori

without a ditterence, at east in the case at bur, where the capitalization

rate and hence value—-could not have been arrived at without con

sdera@ion ot these sales.

Ns)

. ®

been offered as evidence at the condembution ‘trial of the

Chanute, Illinois, Wherry project; it was ruled that ‘There

was no evidence of comparable: sales’? in the Seventh

Cireuit opinion. Certain interests wm Real Property in

“Champaign County-v. ‘United States, 271 F. 2d 879, 382.”

(7th Cir., 1961), [affirming 165 F. Supp. 474), cert. -de n.,

862 U.S. 974.

Though the Court below ruled the three W bores: sales

- admitted in evidence to be comparable because of @able

rentals'* and finaneing patterns, when the underlying rei ul-

estate was different in construction, type .of location,

availability of civjfan tenants, ete.,'' the Seventh Circuit

has fond that tse very factors result in noncomparabil-

ity, and has approved the exclusion of such evidence’ not

merely as direct proof of value, but as support for estimates

of the appropriate rate of return. United States v. 19071

Acres of Land in Lake County, I. (Farrestal Viliaae),

supra, 300 F, 2d at 59-61.) The Ninth Cirewit, tes, has ruled

‘these very three sales (as well as sales of 6GOS’s)-to be non-

comparable {Fairfield Gardens, Inc. v. United States, 306

a a

tut even over thershort term, stability of rental, differs trons

W herry to. Wherry bacayse-of variation in alternative sources of

tenants should the military installation be closed. When such a closing

took place in, Puerto Rico upon construction, the, non-availalality of

_ civilian tenants resulted: in detault on the mortgage. Henry Barrack

Housing Corp. v. United States, ch i 2d 196 (Ct. Cls., 1960). ©

Yet.under the deciston below, the Hdury Barrack + of Puerto Kico

could have been valued at the same capitalization rate as petitioners’

_ propertics in the heart © f metropolitan New Y ork City .

4 The Court below ruled that this dissimilarity of iactors operated

overt the dong term, while the more immediate elements of tinancing,

were simitar. However, since the test of market Value is the price

a willing buver and selier would agree on, and. since’the Government

expert a 1 that only a long-terny investor would be interested in.

buving a Wherry (545a-6a), it is plain that all simiar elements were

irrelevant to determination -of ‘value, amd that the only willing buyer

would ba interested in the long-term—and «dissimrlar—tactor-

F. 2d 167 (9th Cir., 1962)],° and indeed ruled that these

very csales * leap not. be testified to on direct examination

by witnesses * * * in the capitatization- -of-income approach’?

Ido at V2, ne 7. In United States v. Tampa Bay Garden |

Apartments, supra, 294 F.2d at 601, 605, the Fifth Cireuit

approved the holding .of non-comparabiliiy of these three

saies, of their rejection as a separate method of appraisal,’ -

“but did not comment upon the appraisers.” consideration of

these sales giving varying weights to such data.

Though the most technically construed holdings of these

three cases would be that the trial courts did not abuse

their disergtion (but ef. pp. 18-19 infra), the thtee Courts

clearly ruled the sales nou-comparable. And w hatever the

technical holdings, the decisions are irreconcilable with the

decision below, for the same facts in each of these thre?

cases gave rise to constitutional determinations at com-

plete variance ~..h the constitutional determination below.

Actually, no court except the'one beiow has held such

sales to be admissible, as an-essential factor in arriving at

a capitalization rate, where the only methed of valuation

used is the capitalization approach, as here (994a). The

cases-cited by-the Court below (SA-6.A) do not support its

decision.” And the decision below is in conflict with the.

hough the Court below admutted evidence on the sales of the

608 St also ruled that “Because of the special risk-reducing features

ef Wheriy leases, sales-of other ieaseholds are net readily com-

pare le” (3 A)

e In ihe case at bar, it was only through these three sales (and

of the (OS's) thar the Government expert Was able tu appraise peti-

honers’ properties. His appraisal was followed -to the penny by the

jury. Thev-were thus used below im conflict with the decision of the

Fifth Corcuit in Tampa Bay. i

Jamra Bay either overrules the Fift§ Circuit's earlier decision In

U'mited States... Leavell @ Ponder, 286 F. 2d°398, cert. dene 366

Ud. 944, or else both cases serve as an example of the same Court

ot Appeals permitung Opposing eEXETCISES ot discretion’ in its Circuit.

Sec no, supra.

7 hn ( mited State v. Delano Park Ries Ine., 146 F. 2d 47

474-3. (2nd Cir. 1944). it was anerely stated im dictum that we

under pressure of condemnation may be testined to by an vexpert if

-his opinion’ is. part based thereon, merely asx things which con-

“Coast Line Ro Co.

decision of the Fifth Cireuit in Atlan

v. United States, 132 F. 2d 950, 963/5th CD 1943), holding

that while evidence of non-compar thle sales n\ay be referred

to ba din expert merely as factors whieh contributed to his

opinion,Ain opinion tea based’ on sueb/a type of testi-

cae to be rejected’: The ¢ uled the experts’

testimony: properly rejected when the experts ‘*did hot say

What opinion they had independent of these askings, nor

did they say whether their opinion was much or little af-

efected by them.*’. In the ease at bar, Shlichta readily con-

coded he could not have arrived ata capitalization rate or

tluc without consideration of the —— non-comparable

W he rry sales, =

“We know of no appellate, decision anywheres in this.

country which has ever held that stock sales. may be used

as a basis for valuing the underlying real estate, directly.

or indirectly -—except the decision below and Le avell supra,

- 46 (but see pv. 16, supra).* We know of no appellate

Pee ‘ativwheres in this country which has ever admitted

“¢@ vidence of sales in rural or suburban areas as a “basis for

‘aluing Inetropoiitan’ real estate, directly or indirectly—~

except the decision below and Learell. We know of no

appellate decision anywheres in this country which has

ever admitted evidence of sales not in the vicinity of the

taking, but hundreds and thousands of miles away. as a

basis for valuing real estate, directly or indirectly—except

the decision below and Leavell. We know. of new ap) pe ‘Hate,

tributed to his opimion—-but herg these sales were a stime qua non

of the experts “having “am opinion) Sunilariv, fo nited Stat

Johnson, 285. ¥. 24°35; 40-41 (uy Cir, 1900), merely belel that the

rules of comparability are not s strict where the sales 7

merehy in support of, and as background ter, the expert's opimon

And in.’ nited, States © Certaim Interests in, PR perty im. AMontére,

Gounty, Cal. 186 F.Supp.” 167, 169-70 @N. D. Cal. 1960), aff'd

' i y ’ . e

er Monterey Corp: v. United States, 308 J

CS Dix oltere:

1 595, 509 (Oth Cir. 1902), the Only question was possible viola-

ton of a stipulation re comparable sales: the Court considered no

‘question of comparabilty. Nor.did either of these Ninth Cireuit

case- involve the issue of comparability of Wherry stock sales. sx

tercetully ruled non- Comparatic by the Ninth Cirewit im Fairheld

Gurdens, Supra

decision anywheres in this country which has ever admitted

evidence vf sales of property so dissimilarly constructed,

as are one and two family frame buildings to six story brick

elevator apartment houses wiffi hundreds of units, as dt

basis for valuation, directly or indirectly—exeept the de-

cision below and Leavell

A In plain fact, the Court below stands alone; among all

appe ‘Hate’ Courts in the country, state And federal, in hold-

ing that leasehold interests in wetropolitan real estate may

be valued by a capitalization largely—if not’ entirely—

based upon sales of corporate stock in corporations made

many years previously, when the underlying real estate is

“entirely dissimilar in construction, type of location, avail-

ability, of tenants, and is hundreds of miles away.!®

Whatever may be the technica | way of distitnguishing

Forrestal Village, supra, there is* clearly a contliet he-

“tween the Second Circuit in the ease at bar and the Seventh

Cireait, which stressed the non-admissibility—and indeed.

_'8 Comparability is not a question of fact, the Court below to

the contrary (3A) notwithstanding... The legal requirements of

proof of similarity of type of location, in’the vicinity. of the taking,

of similarity of the real estate, of closeness -in time must all be

satistie] {5 Nicholsor, Eminent Dorfain (3rd ed., $21. $i) j—the

discretion tomes into play only in judging whether the other sales”

meet these critegla. The Court below te aves to the discretion of the

trial court the establishment of the basic cotéria—thougli the enteria

are legal’ standards tor resolving consiffutional issues:

. '* Per contra, the tederal appellate courts have always herétofore

insisted on proof of similarity. of property, Conese itv of

sales, nearness and type of location, ete.as a condition of admissibility

of evidence of other sales, at least where the experts’ opinion was

iargely based precisa aitlant: Coma R. Co. v, United States, 132

2d 959, 96f (35th Cir., 1943), Supra: United States v. 5139.5

vicres of Land 200) I. 2d Os) (4th; ¢ Une I 52 )° supra;-l nited . fates

Michoud tndustrial Factittes, 322 _ 2d 09s, 706 (3th Cir, 19635,

supra. i nited States v. Featherston, supra, 323 -¥. 2d 330° (10th

oF]

Saree ee

the complete irre ‘lev alicv—of these three W herry stock

sales: " > Y ce!

Certainly it is essential that fhe potential in-

come be established and that the proper eapitaliza-

tion rate be applied. These are both dependent, how-.

ever, upon the degree of risk involved, which is

dependent upon many factors pe euliar to each

project. ° * * How mere proof of a sale (if sueh’

| chad been made) of aproject, for instance in Virginia, —

~ Without proof of comparability, would baye—any

bearing upon the potential income+or the ¢ ae

tion rate to be applied, is not discernible.** 300-F.

rat 61. ‘

“The Court in Forrestal vilage 40 ilystrated its point: ="

“* * © THustrative, there is sanakicand | in the reeord

a W herry project about 100 miles from El Paso,

Texas, where, if the military installation were aban-’

doned or severely reduced, there would remain as

prospective tenants only ‘jackrabbits and rattle-

snakes’. Certainly the sale of the owner’s interest in»

such a project would, have no relevaney whatever to

the value of the owner's interest in -the project avith

which we are now. concerned. , The illustration used,

even though exaggerated, points uy ‘Tn unmistakable

fashion that proof of comparability, particularly as

“it relates ‘to income-producimg capability, must be

-tnade before the sale of Mee a projec}! can be treated

‘as comparable.”’ (300 I *. 2d at 59-60). - ;

The decision of the Court below on this constitutional:

question was also in a way in conflict with an applicable

decision of this Court, for it seems plain that in upholding

the basing of the.amount of just compensation upon non-

comparable sales, the Court below ignored ** The importancs

of varving in accordance with varying risks the percentage

at Lane income is capitalized to obtain business value

Nedaiivee Ulustration may be found in the fact that the FHA

‘xed two different capitalizatign “rates for pet:tione & two propertie

although they were only a half mile apart—obviously because of

ditteriny risks in each ’

"°°" Kimball Laundry Co. v. United States, 338 U, 8.

1,17, n. 8. The risks of long-term leaseholds in six-story

brick elevator buildings in one of the. two best locations in?

metropolitan New York City, with its housing shortage, are

certainly. not comparable to .thgse..in- ene -or two-family...

“Houses in areas relatively remote from large metropolitan

populations, even if the financing aspects be similar. .

III. In excluding evidence of reproduction cost less |

depreciation in valuation of Wherry projects, both as

direct evidence of value and as‘a basis upon which an

appraiser can consider or corroborate his appraisal, the

Court below rendered a decision in conflict with those

of other federal appellate courts and in a way in con-

flict with applicable decisions of this Court. ~

~ When.the Court below held that evidence as to the essen-

tially non-eomparable sales was admissible as ‘integral to

the eapitalization-approach since it was used in selecting

the apprepriate rate of return’’.(S8A), it rélied upon

decisions which held at most that such evidence could be

introduced as corroboration of a value arrived, at other-

wise. However, the learned Court below held that peti-

tioners’ reproduction costs less depreciation estimate conld

not be introduced in evidence because it ‘twas simply an

alternative “method of Valuation offered as corroboration |

of the capitalization of income method*’ used by the peti-

tioners’ expert (7A-S.A).*? But the cases cited by the Court

as to evidence of sales hold that an appraiser may, ‘and

perhaps should, testity ato all bases of valuation—as cor-

‘roboration, even if this basis upon which he corroborated

his decision be itself excludable as direct evidence of value.

Thus, the cases cited by the Court below on the sales ques-

As noted above, however: supra, p. ©, petitioners’ ‘offer of-

proof of reproduction cost less depreciation as evidence of value had

been excluded at the pre-trial, and at the trial, petitioners” expert

was ordered simply not to give any figures on this at all

21 -

tion are in disect conflict with the Court below ‘on the re.

production cost, question.

; ' The federal appe llate cases are in even further stark

. confliet on the question of reproduction éost admissibility.

at let

Somme ireuits, h hold that evidence of reproduction costs

* are admissible as direct eviderier of value, at least in the

absence of comparable sales [United States v. Certavr

Interests mm Property in Champaign County, ll., 271 F. 2d.

“379 (7th Cir., 1961), cert. den., 362 U.S. 974], as here,** or

where, as here, **there had been no recent sales of similar

property. in the vieintty * * *

the property in a technical sénse had a market value."’

[Clark v. United States, 155 F. 2d 157, 160) (sth oCir.,

* 1946)).2* Similarly, the Distriet of Cobumbia Cireuit has

ruled that when—as here—‘‘the character of the: property

ix not such as to be susceptible to the application of the

market value doctrine’; then repréduetion cost is a method

of valuation usualiv resorted to. Riley v. District of Co-

iumbia Redere lop. Land Agen y. 246 F.2d O41, 644 6D,

Cir, 1957) (city owned- bank). Still other cireuit= seem

to admit reproduction cost evidence irrespective of whether

other mdicia of value are available, v.g., United. States v.,

Wiese, 131 F.2d Sol (4th Cir., 1942); United States sv. Beck-

told €o.. Y29 FB. 2d 473 (Sth Cir, 1942): Hickey vo United

. States, 208 FF. 2d. 269, 279 (3d Cir., 1954), -cerf. den. 347

U.S. 91024

Iwo of the tgree sade, adautted m evidence here were also

involved im the Champatam County case! but ruled: non comparable,

; * ;

Indeed, in Clarks the bighth Cireu held it to be an abusé ot

es discretion to keep evidence of reproduction cost -from, the yur’ Id

at 16]

, 2# (ther summaries of variants in this aspect of the law will be

found in 172 AL. Rk. 236, and in State of Minnesota v. Red Wma

Laundry & Dry Cleantny Co., 233 Minn. 370,93 NW. 26 2006.

and it ean not be-said that.

The Ninth Cireuit has held that evidence of ‘reprodue-

tion cost may not be ¢onsidered as itself evidence of mar-

ket yalue in Wherry ‘eases, but that it may be considered

by the expert ‘‘only as a factor to be considered in arriv-

ing at inarket value’’. Fairfield Gardens, lac. vy. United

“States, supra, 306 F. 2d at 173. The Court below stated

that Fatrfield Gardens. merely upheid a jury charge. that

reprodnetion costs could be considered as corroboration for

expert testimony it it had been shown that a reasonable

person Ww vould reproduce the project for such costs. How-.

ever, the Ninth Cireuit in Farrfeld merely referred to this

jury charge as an additional reason for apholding admissi-

Lility of reproduction costs (306 F. 2d at 174), and eare-

fully noted that such evidence may be received as back-

vround for the expert’s opinion as to value. Here sueh

evidénge was exelnded as backgrotnd opinion.?*

And then there is the-other line of federal eases, cited

below, perhaps holding sach evidence completely eéxelud-

able, absent .some special showing, beginning (in time)

with United States v. Benning Housing Corporation, 276

F. 2d 248 (5th Cir., 1960)" though the Ninth Cireuit in .

Fairfield Gardens construed this-line of cases only to

exclude reproduction cost ax direct evidence of value; not

as ecrroborative proof of an expert's’ valuation.

Insofar as the question is concerned of whether repro.

“duction cos} is an appropriate measure of vaiue where no

one would think of reproducing the property—a cee

enunciated in this Court-in dictum in United States:

“7 The Court below noted that the Ninth Cireuit in Fairfield

Gardens caretully distinguished its prior decisign in Carlstrom 4s

(nited States, 275 F.2d S02, 808, which had upheld exclusion of

reproduction cost-testimony. However, Carlstrom had held that ‘the

experts could consider reproduction costs in arriving at and in check--

ing their far market value hgures-—which petitioners’ expert was

not allowedeto do here. ;

*" Benny rehed, tor ths proposition of law, upon 2 Orgel,

* Valuation Under Eminent Domi un, $$ TSS8-197 (26) ed...19353). How-

ever, Orgel Is contra.

. .

Toronto Nav. Co., 338 U. S. 396, 403, we note that this

Court in Torento-—the case‘ from which all of the -later

cases flow as to whether 4 person would be likely to repro-

duee the property—was referring’ to property. which no

one would reproduce beeause of its obsoleseenee, wheréas

«the units here were almost new. More ‘over, Wherry proj-

ects were erected without any concern for economic feasi

tility, and to take then: on a basis of economic feasibility

would seent to bé in a way in conflict With this Cor'rt’s ryle

that ‘‘the transaction cannot be torn from the context’’

(United States v. Felin & Co., 334 U.S. 624, 652}; the

Government, having: invited the construction on a non-

‘economic basis, should be estopped from securing a valua-

tion On an economic basis. Cf, Monongahela Navigation

Co. v. United States, 148 U.S. 312, where’ the measure

. of just’ compensation ‘rested primarily upon the doe

trine of estoppel, as this-Court has ip several cases since

pointed out’’, - Omnia Co. y. United States, 261 U.S.

502, 513-4. In any event, however, it ‘eannot be said he rm

thet no one would think of reproducing the property, sitee

_the Government itself was building, under the ¢ ‘apehart-Act

program, new and similar housing on military bases (30a),

-the units being slightly larger, including the one here, and

_no one else can do the building under the law at the time

of the taking. “And certainly, it needs no proof to show

that a person iu New York € ity would today’ build six-story

briek elev ‘ator apartme nf buildings, Bor Wits ans offe at ae

such proof necessary. since the trial coi wart, hac cay mt

ruled out evidence of nie eh route costs | Mel andles-

lnated States, ae 342. ; .

Bat all of the above line of eases, insofar a~ they involve

Wherry project - Valuation, are in eonthiet with iA line of

carver federal appeilbate decisions holding that where. a-

here, the real estate taken “7 Was constructed under Govern

we } ? * * é a

rs Visougs thy WitCTes! takes a Jertye’-lere? foasehiii? ¢

fay i el q j Nites

! bn tal t t ‘ ‘

tie Ti ; ye , _< I yz )

ment sponsorship on Government property for goyern-

mental purposes ‘and is: taken to continue such use,

‘reproduction cost less depreciation is‘the main or exclusive

method of arriving at just compensation—a line of cases.

‘more or less overlooked in a quest for market value in

‘the early Wherry cases ** which the federal appellate courts

are only. now beginning to realize is illusory.**

ne Thayer-W est Point Hotel Co. v. U nited States, 64

F. eh" 565 (Ct. Cls. 1946), modified on other grounds,

329 U.S. 585, residential accommodations had been con-

structed by a long term lessee for military authorities on

a military reservation, the government owned the prop-

erty and controlled the rentals—a virtual duplicate of —

the situation here. Theugh the proceeding | was not in,

eminent’ domain, the case involved determination of ‘just

compensation”’ pursuant to contract. After rejecting the

applicability of the market value test becanse ‘‘There was.

no market to which resort might be had for adjudging

value’’ and because the realty was a) government. military

reservation (64 F. Supp. at 568), the Court considered

24 Ey., the entire tenor of the early Wherry case opinion in the

Champaign County case was. that the search was for market value:

29 See, .¢.g., the opinion below at 3A. and’. the quotatior from

Forrestal \iliage, supra, p..11. Though even, the Court below

searched tor, an admittedly non-existent market value, it myst be

queried whether market value is the test in Wherry project situa-

tions, where there is no market. Cf. United States v. Miller, 317

U.S. 369, 374: United States v. General Motors Corp.. 323°U. S.

373, 379;. United States v.°Felm & Co., 334" U. S. 624, 629-30;

United States v. Cors, 337 U.S. 323, 332: Kimball Latndry Co.

v, (nited States, 338 U. 5.1, 6: United States v. Commoditws Corp.,

oo? U.S. 121, 125... , nie

bee

The net practical effect of the decision below mav well be to

I ) e¢ \

substitute a capitalization of meome approach, based upon other sales,.

‘tor the traditional consideration-of-all relevant factors approach-—-

for. surely this is the way-condemnation cases—at least Wherry

cases——will hereafter be tried, in the Second Circuit. See n. 6,

supra..

° i. . * ° ° °

“the history and cireumstances’’ ard placed ‘*main reli-

ance upon.sound value, ‘that is, reconstruction new

less depreciation * * *"* (considering only original cost in

addition thereto ).®” f .

The Court of Appeals of ‘the District of Columbia has

taken the approach that total reliance must be had upon

reproduction cost less depreciation in such circumstances.

In In re United States Commission to Appraise Washing-

ton Market Co. Property, 295 Fed. 950 (D.C. Cir., eset

pet. for cert. dismissed on Government ‘ s motion, 265 U.

598, a market for publi¢é purposes in government abate:

ties had been constructed by a long- term lessee according

to Gofernment specifications, and ‘the property Was con-

demned to continue its use—the identiéal rw: as in the

case at bar, save the petitioners here constructel military

housing . on a military base rather than a market... The

Court’ of Appeals, ‘stressing that “the gov ernment in

taking over this property is doing 80 With a view of con-

tinuing the business, not for the purpose of destroying the

plant’? (id. at 953), reached this conclusion :

; ¢

“We are of opittion that the pniy. just and. legal

method of arriving at the tair value of the property

*-* * is to determine tirst the cost of reproduction

based upon present values and deducting therefrom

the amount ofedepreciation.”” (Id. at 954-5).

—_ ; Py Zi ae

“0 The Bia Circuit “ai Pehiain te supra, in distinguishing. 7 hayer-

Hivest Pott, -relied on the so-called inducements to Wherry owners

and on rent control as the reasons for rejecting reproduction cost

But in, Thayer est Pot. even greater laducemer Is were present’

than in the case-at par-—the lessee there’ paul fig lgre und gent. (64

F. Supp. at 568); anc rents were controlled agbrtrarily by the nul-

tary. ‘Yet neither the Solicitor General nog’this Court saw any

reason to object to main reliance bemyg placed on reproduction cost

41 Benning sought to distinguist LWashington, Mark: toon the.

theory that it did not inv6lve leases at nominal re ntals and Govern

ment-insured’ mortgages. But this is entirely irrelevant to the ratio

* decedend: ot Washint;ton Market, which rélyd entirely uporthe

mm ‘ ; ’ ”»

Under Rule 43(a) of the Federal Rules of Civil’ Pro--

eedure, alf evidence would have been admissible’ below,

if adihissible in the New York State Courts. There ean

be no dispute here that the evidence of reproduction cost

less depreciation er have been. admissrble in the New

~Yérk State Courts.** . Though the Court below choye ‘to

rule that the seo of basing an estimate ‘of va ide on

reproduction cost: less’ depreciation involves a substantive

rule of law,** petitioners’ evidence of reproduction costs’

less depreciation was also offered as corrdboration of pe-

titioners’ expert‘s capitalization of income method, so that ”

it. was not offered simply as evidence ofgvalue, arid was

clearly admissible. 7 ..

fact that the property “was taken to continue its use; the existence

_ of af initro inducements seems ‘irrelevant to the question of present

-value. Moreoever, in thescase at bar, the rentals to port oners were

hot nomiual—and the use of Government-insured mortgages is. so

common nowadays.that its existence can hardly be perstiasive as the

pivotal ‘point upori which the methodology of arriving at. just com-

pensation will turn.

* Marraro’vy. State of New York, 12. N. Y¥. 21 285, 297, 189°

N. E. 2d 606, 613; Matter. of City a New’ York, 198 MY. 84, 91

N. E.: 278.

33 This does not quite: square » with the view of the Court ens

that admissibility of reproduction ‘cost less depreciation | is a question

of discretion, for a substantive rule 6f law canno® turn on judicial

discretion’. On the other hand, if—as we contend--the methodology

of arrivirg at just Compensation is a question of constitutional law,

then a fundamental- question arises as to the applicability of Rule’

- 43/2) to eminent domain cases, one whicli has | Rot been but should be

passed upen by this Court!

e wt -

: “ .

IV. a was made on the basis of copiadlian:

tion of net income, in which-all witnesses had deducted

as an expense an annual amount to be paid to the re-

. placement fund. No showing of needed replacements

was made. In deducting, from the capitalized value,

the amiount of the replacement reserve fund previously |

paid in by, and belonging to, petitioners ($172,000),

the Court below rendered a decision in conflict with that

. of two other federal appellate courts.

The (‘ourt below ruled that items of extraordinary ex-

“pense not accounted for ax a deduction in tlie computation

mites of va’ °, the Governme nt > get Shliehta deducts

-an amount of over $25,000 per year, which resulted iMhet

decrease in capitalized value of Spme $335,000 (S18i). . The

Court below held that since the $172,000 in the replacement

fund, returned to the petitioners be ‘fore trial here, relates to

a past. period, contributions to it for the subsequent period

will not allow for all the replacements that will occur during

the period after condemnation’ The Court below: thus -—

ruling that a condemmee must pay For replacements in the

building to be made after condemmation, without a showing

that any were necessary at the time of .condemmnation,

‘rendered a decision-in direct-and irreconcilable conthet with

that of two other Courts of Appeal.

In Forrestal Village. (United States v. 190.71 Acres of:

Land in Lake County, ll,. supra), exactly the same situation

- existed. The Court there considered—and_ rejected—each

and every argument and consideration, broached: by the

* Court below [300 F. 2d at 62-63), holding squarely that the

replacement fund must not bee deducted frot valuation

ra)

of anticipated annual egspings, must be subtracted from

the appraiser's etal value—but all apprarsers here

deducted the amount of dnnuai contributions to the replace- | «

_ ment fund as an item of expense in arriving at their esti a

The

arrived at by a eapitalization sehen deducting future

payinents on the fund from net income.”

Just as ita Goverygient witness Shiichta had testified

in-the case at bar tha®the typical purchaser would have

the benefit of the funds previously accumulated on’ the re-

placement fund and turned over to the condemnees (oda),

so in Forrestal V Wage a government witness made the state-

nent that the fund goes with the property when it-is sold’ .

‘The Seventh Cireuit rejected this argument as well in refs.

ing to allow the deduction. Id. at 63-4. ¢— ; ; e

Accord, United States v. Certain Interests in Property,

ete. (hort Bragg), 296 F. 2d 264. (4th Cir, 1961), afirming

vn unpublished opinion of the District, Court quoted.

United States.¥. 190.71 Acres o, Land in Lake County, Lil: ‘

gf orrestal Village), supra, 300 FY. 2d at 64. Cf. Buena

Visty Ilomes,; Ine. v. United State §,°281 F. 2d, 476 (10th

Cir, 1960). ree wee twang

V. In permitting a valuation to be ascertained based

upon a capitalization rate larger than. that allowable

by law, and higher than those previously arrived at

by the condemnor. and condemnee, the Court below

rendered a decision in a way in — with applicable

decisions of this Court.

7 cer

. . . Pie “Aa

-Government @xpert Shiichta, and the jury Which -fol

towed hid exdet figures; capitalized net yentab income at a

rate cf some T.o%,, wrecter than 61.6, . nso doing. how

rn bd a : is

‘would seem cleor that tf the tiovernment had comdemmed o:

purchased the petitioners stock interests/at a ume when the $172,005

replacenioat reserve was stil in the corporate coffers, that it woult

have had to pay dollar tor dollar tor that $172,000 cash. Ii Abn

S172 UU 15 no longer im the corporate cotfers, then the Cn vernment t )

would nut have to pay $172,000 orita dollar tor dolfer. fasi is—bie = *

would not be enti Ue lthenmto a deduction from t e purchas:

mieeiot S17 2.000, Since that purchase price had. neat, included payment

the $172,000 in the tirest place

99.

ever, the trial court impropefly. capitalized’ rentals at a

greater rate than that allowable, under FHA policy, tor

Wlierry projects.®® oe

Wien the Government establishes ceiling prices, they

“normally eentrol the determination of market value.

United States v. Commoditues Carp., 339 U.S. W21. Here’

“* we have the converse of Commodities—-the Government

haye established a ceiling rate of eapitalization when it

ruled a the. maximum rate of return for Wherry’s was

to be 61,57, and, indeed, in the two projects at bar, 6.1%:

cand 6.4/7 respectively. Since Commodities was bound by

‘the Government ceiling prices, the ruling that the Govern-

ment is not bound by its ceiling rate of return here seems

in conflict with this. Court’s ruling in Commodities.

“Cnder the circumstances of this case, any other value than

the ceiling price is illusory."’ Messrs. Justices Ried, Black °

and Murphy, concurring in United States v. Felin €-Co.,

B84 US. 624, 643, ; pas

We submit that? this question is substantial: an the

Government say, whe 0 authorizing a Wherry,-we wili not -

allow you greater than a6". return in any event, and then,

upon taking a Wherry, t take if at ; higher rate of return,

than it itself set as reasonable? Is there a different mile

when the Government takes than when it contracts? Ths

Court has held that. the doctrine of estoppel applics against

“the Governgient in condemnation cases (Omnia Co. ¥.

Cnited States, 261 U.S. 502), and we bolas that it is a

substintial and important question of law as to whether thiit

doctrine applies . here. ‘ ,

Moreover, bani s holding that ceiling price + preyail ;

determination of value, this ¢ ‘onrt has also held thiit re

price which is Controlling is the price which is fixed voiun-

tarily between the industry and the condemmor | Vegel-

45 The <ditherence is substantial. Using the’ 6.35% vin the samc

_way weeused the 6°% rate 1m n. 10, supra, wevarrive at a valuation

more than a niilion dollars higher ‘than the jury's finding, to wit

$1,002 144 :

stem & Co. v. nited States, 262 U.S. 337 | or between the

particular condéemnee and the condemnor. Ifanson Co. vy.

Uwited State’. 261 U.S. Dsl; Unite ad States v. New Haver

Colheries Co., 262°U. S. 341. >

We sabmit that the decision below was rendered in a

_ Way in conflict with these applicable decisions. For here,

the rate of return had been voluntarily fixed between the

condemnor and the econdemnee, and vet valuation here was

hased ona rate of return higher than that which was ficed

and existing—as well as higher than’ that allowable under

‘Jaw.

VI. This Court should grant review to determine

whether a concededly erroneous and concededly irrele-

vant instruction to the effect that there had been a

windfail was sufhciently prejudicial to justify upset-

ting a verdict, especially in the light of the novel ruling

of the Court below that the question of prejudice arises

solely from the petitioners’ emphasizin, the irrelevant

issue. ,

lt necds no documentation to show that there have been

screaming newspaper headlines over the past vears ch

‘nounciny scandalous windfalls accruing to government ear

tractor, as Slilichta, reminded the jury. Windfall ha-

clearly beeome a term of epprobrium.. Yet in the ease at

bar, the Court bélow has upheld a charge to the otfeet that

“nelitioners were windfallers to the tune of ever S100),

When. that-¢harge was net only admittedly irrelevant. but

Was admittedly cleariv erroneous.

in refusing to upset the judgement on this: basis, the

‘Court below first ruled that there would be no question at

aH of premeiee from this erroneous and irrelevant charg.

“af the defendants had not imSisted on emphasizing the

issue. In our Statement of: the Case (supra. po. Ol

we bave-tndicated éach and ever, place where theeissue was

» a. ;

CBee

brought up before the jury. We submit that any analysis

of the.t testimony, the objections and the colloquy of counsel

will demonstrate clearly thai the: Government counsel and

its expert witness constantly persisted in using the term

windfall, in attempting to persuade the jury that there had

- been a windfall (whether it was characterized as such or

“not), that defense counsel did no more than to ze ‘alously

protect the interest of his clients and to preserve his”

» record, in making appropriate obje etions and motions in

regard thereto,

The decision below is entirely novel in its thes ory that

defense counsel should not vigorously press his objections

in the face of irrelevant. erroneous and inflammatory testi-

mony. The net effect of the ruling of the ( ourt below may

well be to make de ‘fense counsel less, zealous Yagthe protec.

tion of the interest of their client, and we ey e there.

fore that this case should be reviewed by'this Court if for

uo other reason than to restrain a possible tendency to-

Wards ‘such conduct among the members of the bar.

The Court below then goes on to tell us that in the hi¢ht

of the record as a whole, the charge was not sufficient!,

. prejudicial to justity upsetting the verdict. But this is not

the test to he Papers For, under McCandless vy. United

States, 298 U.S. 342, 347-8%,-*tan erroneous ruling which

relates to the soleteatial rights of a party is‘ground for

reversal unless it affirmatively appears from the whole

record” that. it Wiis not prejyudicial.**” '( Kamphasis thos

Court's.) The Court below, far from finding that wa firma

36 Cf. F. R. Civ. Pro., Ride 61 and 28

. S. C. Sec? 2711; quok

Appendix C hereto at op. “244 Under McCandless. ‘the M

Candless rule.is controlling here rather than swid Rule and Section:

Necord, Bin 4.) fo nited States, 328 UL 8. 330° ° .

“ We alse note that the Exhiint showing that there had been por

windfall was not before the jury, having been excluded from es)

: j wa ] r * 7 . ’ . ,

dence. This exclusion was plain prejudicial error, smce the inal

court treated the issue of windfall as relevant

o~ re

. =

». ad .

- ‘ oe

. *s

tively appears that there was no prejudice, ruled that the

‘plain error must appear sufficiently prejyadieial.

But even if the standard of the Court below be the

Jaw, still it is plain that the decision below contliets with ”

these of other federal courts, .as well as.being in a way

in cou flict. with an applicable. decision of this Court.

Firstly, it was.riled in United Statéis v. 272.88 Acres

of Land. Ete., 310 F, 20 775. (ath Cir, 1962), that no error

can be ruled harmless.to the Government where the con-

demnation awards are substantially in exeess .of the

amounts deposited in) Court) upon the declaration ot

taking.’?- In the case at bar, plain error eannot be riled

harmless to the condemnees when the condemnation awards

are substantially less (30¢6,) than the amount so deposited.

Secondly, the decision bélow is in contliet with those of

several other Circittts: Broderick v. Harvey, 202 F. 2d 274;

ov (ist Cir., 1958) (when basis ef jury verdict. unknown,

‘possibility of prejudice requires reversal); Worcester v.

Pure Torpedo Co., 127 F. 24 945 (7th Cir, 1942) (unless

it affirmatively appears that there was no prejudice, must

be presumed reversible error committed); Roth v. Swanson.

145 FF. 2d 262, 269 (Sth Cir., 1944) cerror reversible if any

issue of fact érroneously supmitted to Jury).

Thirdly, it must be noted that the jurors accepted the

Gevernment appraiser's vahiation to the penny, rejecting

completely the testimony of petitioners’ appraisers.” Since

petitioners’ counsel (correctly) had maintained the non

existence of a swindfall, and the Court charged that there

had been a most’ substantial windfall, phe judicial stamp

of ineredibility given to petitioners and their counsel by

the erroneous charge may weil have been the reason for

" “ 2 Pe . - . * :

37 fy modifying this decision on other grounds su. nom. United ,

* Sutes v. Merz. S48. Ct. 039, 376 U.S. —. this, Court must have a

approved such doctrine. else there would have geen no basis tor

qa eranting of review:

~ - . -

Ls)

the jury’s most-unusual action. _ When other Cireuits have

found highly prejudicial in erbninal cases the accidental

disclofure of a defendant's criminal past [United States

- Dressier, 112 F.2d 972 (7th Cir., 140) Lora prosecutor s

ease reference to criminals of the defendant’s same

natignal packsround {Fonfanelly v. United States, 19 F. 2d

92} (tv. C. Cir., 1927) ], the untrue and trrelévant direction

to aA jury froma judge 1 in an economic case, > that petitioners

are windfallers—which the jury could net have tfatled to

consider material to its deliberations—must just as surely

‘be considered harmful error.

We submit that since this factor in determining just

compensation—the untrue, baseless and irrelevant charge

that defendants were windfallers—deprived petitioners of

property without sisal due process [Thompson vy. City

of Lousville, 362 U. _ 199), they are entitled to a trial

whose outcoine should be determined solely on the basis ‘of

constitutional standards [Stromberg vy. hla ZS)

1;, S. 359, 308; Williams v. North Carolina, 317 ty, S. 23i,

267 }—and that this Court should grant’ review so as to

clarify the constitutional standards of just compensation

applicable to Wherry and other federal ly- assisted housine

projects,

CONCLUSION

This Comet should grant certiorari, and the juds-

ment below should be reversed. :

Respectfully submitted,

Bernary L, Bermarr,

. ar; Grorct B. KENNER,

Attorneus for Petitioners.

Herperr Moste Levy,

of Counsel.

Appendix. -

(Opinion of the United States Court of . enn ey

for ase second Circuit )

Before: ° ;

LuMbBakD, Chiet Judge,

Kacrmas and Hays, Circuit Judges.

Appeal from judgments of the District Court for the

Eastern District of New York, Walter Bruchhausen, Judae,

212 F. Supp. 88 (1962), in a proceeding condemning, the

leasehold wuterests of defendants Fort Hamilton Manor,

Ine. and Dayton Development Fort Hamilton Corporation

in certain apartment developments constructed ynder. the

Wherry Housing Act, 63 Stat. 570 (1949), l2eUl SS. Co. AT 48

et seq. (1998), as amended, 75 Stat. G82 11959), T2 UL S. ©.

- 1748 et seg? (Supp. IV 1959-62). ‘

Affirmed.

Hays, t ireul Judge rd er

Defendants, Fort Hamilton Manor. Ine. and havior Tbe

velopment Fort Hz imulton Corporation, appeal from jude

ments entered in a proceeding for the condemnation of thei

leasehold interests in certain housing projects constructed

under the Wherry Housing Act, 62 Stat. S70 (140), 12

U.S. €. 41748 et seu. £1MON3, as afnended, 73 Stat? 682

(1999), 12 U.S. 0. 4 1748 et Seq. (Supp. TV 1959-62). “We

* affirm. ae

( ougress puassed the Wherry Act in. 1040 to encourage

the construction of low-cost military housing by private en-

terprise. Inducements to private builders ‘incPaded. covern-

ment insured mortgages of 90 of estimated cost of con-

struction, without regard to the risk, and ebimination of

land acquisition coAt~ through the leasing -of vovernimnent

“4° . ~ } " j Py ' 7

owned anijiary. sites gt pominal or very low rentals. in re-

tury for these benefit. and to ensure-the realization of the

3 : - * ,

objective of providing housing at rentals military personne!

could afford, the mortgagors were made subject to Federal

Housing Authority” reculation of rents, charges, capital

Structure, rate of return, and methods of operation.

Fort Hamilton Manor, Ine., and Dayton Development

Fort Hamilton Corporation, sister corporations, constructed

Wherry Act Housing projects on government land at Fort

Hamilton, Brooklyn, New York, under two 7o-year lbases.

Together, the two projects comprise five six-story, elevator

“apartments, with a total of 682 rentable units. ;

_In 1955, Congress adopted a new approach to military

housing. The Capebart Act, 69, Stat. 651 (1955), as

amended, 42 U: S. C. §§ 1594-94}-1 1958), provided for gov-

ernment construction of new housing and made mandatory

the acquisition by the United States of Wherry Act projects

located at military installations where Capehart housing .

wis approved, On December 15, 1960, the United States

instituted condemnation, proceedings’ with rgspect to. the

Fort Flamiltgn housing by. filing a declaration of taking and

by depositing into court $1,250,000 as estimated compensa-

tion. The United States took possession on February’ 1,

1961.' ?

————

°*

| ina prior-appeal, / nited States Vv. Certam Intercets in Property,

Situate in Brooklyn, 302 ¥. 2d 2%) i (2d Cir. 1962), this court held |

that the United States was entitled to the rental value :of the premises

from the date of taking. when title vested in the government, the’:

date wher thé government "was awarded + possession, © * Fémanided

for a determination of rental value. In the trial. iow the urs

Awarded the government. rentals of $14,502 agamst Dayton Develop

ment aad $42,016 against Fort Hamilton Mafhor. These amoutt-

parallete | the government > estimate, which wa~ based on what the

long-term lease rentals, would have heen tor the period, with adjust

ments for seasonal factors stich as heating costs and tor incidental

income. Defendants contend that the government's, evidence was

insubstantial as a matter of law as an estimate’of the value of the

remeorary term and that the court erroneously prevented them from

cross-exanyning the government's expert regarding actual receipts

and expenditures for the period in United States v. General Motors

Corp.. 323 U. $2373, 382-83. | 1945) the Couft stated that long-term

° . 3A erase

Wherry jeaseholds have unique features that render

difficult the direct determination of market value,-the usual

‘measure of just compensation in condemnation cases. The

leases themselves cannot be transferred and thus have no

‘smarket value.’’ Although sale of a Wherry jleaschold can

be effected indirectly by sale of the stock in thy mortgagor

corporation, such sales have been infrequent. Because of

the special risk-reducing features of Wherry leases, sales

of other leaseholds are not readily, comparable.

On the other hand, Wherry leases are particularly ame~

nable to the capitalization of income method of valuation,

which estimates the market price of the right to receive a

certain estimated income, since the regulation to which the

projects arg subject permits a relatively precise estimate

of future income. At the beginning of the lease, maximum

rentals are established that will-restriect net income, after

operating expenses and taxes, to less than 6.5% of. the

estimated cost of construction. If operating costs intreause

or the rate of occupancy changes significantly, the regula-

tions permit a’ redetermination of maximum rentals, with

the result that net income’ remains virtually constant over

the period of the lease. .

At the trial, the parti¢s ‘appraisal experts, both of whom .

used the capitalization of income method, were in substan-

tial agreement as tothe amount of incotiie to be capitalized,

Their principal disagreement concerned the rate of return

"at which the capitalization was to be computed, the govern-

ment witness adopting ‘a higher rate of return apd thus

a lower capitalized value! The jury apparently accepted

a i

rental value may be evidence of the value of a temporary occupancy.

In the present case the’ government's expert took into account tactors

‘peculiar to the temporary eceupancy, ant his testimons afforded

‘sufficient justification for the jury finding. Detencdants introduced, ©

no evidence concerning actual receipts and expenditures, although they

were in the best position to do 0. Therefore they cannot complain

of not having been allowed to*cross-examune the government's witness

- as te suth mformation, imtormation which he had not used in reaching

his estimate of rental value. a oe

P .

—

“the opinion of the government expert, for their verdict

($200,000 for the Dayton Developinent le asehold © and

$675,000 for Fort Hamiiton) adopted his appraisal to the

penny“ .

Defendants contend that the ‘testimony of the govern-—

ment witness, Shlichta, was insuffic ient to support the ver-

dict becanse it was based on eyidence, which defendants

claim was inadmissible, concerning sales ‘of stock’ in Wherry

corporations and FHA *‘*608"’ housing corporations, ‘Na-

tional Housing Act § 698, 56° Stat. 303° (1942), as amended,

12 U. S. C. § 1743. (1958). -The Wherry leaseholds as to

which Shlichta testified were located in relatively isolated |

surroundings near Fort Devons, Massachusetts, Barksdale,

Louisiana, and Quantico, Virginia, and covered frame build-

ings rather than six-story apartments as at Fort Hamilton.

The FHA rent-controlled projeets were-located near Fort

Hamilten and were substantially similar in eonstruction to

‘the Fort Hamilton developments. Rentals in these projects

were lower than those in uncontrolled neighborhood apart-

: ment buildings but abeve the maximum for defendan’

prajects.

Defendants argue that ev widenece of such sales is not ad-

+ missible unless the properties are comparable to that bemg

valued and that because of the differénces which we have

_described tie properties were incomparable as a matter of

‘aw. For this conelusion they rely on Fatsfield Gardens.

Lne, v. United States, 306 F. 2d 167, 170-73 (9th Cir. 1962),

I yatemt States v. 140.71 Acres of Land in Lake County, il.

' {Forrestal Village], 300 F. 2d 52, 59-62 (7th Cir. 1962), and

lnited States'v. Tampa Bay Garden Apartments, Inc., 294

4 . - . 2 os bead

* As the government s deposit, which had been withdrawn by de-

fendants, exceeded the verdict. a deficiency judgment was entqred in

favor of the government.

-% Since Wherry corporations are precluded from engaging in any

business other than the operation (1 Wherry leaseholds, the consid-

eration 21ven for the stock can he regardef as the price pail tor the

ndg i leaschold.

-F. 24.598, 605 (Sth: Cir, 1961), which held ‘that the ‘iriai

court had not abused. its déseretion in excluding evidence

of these same Wherry sale% and, in the Fairfield Gardens

Case, evidence of sales of hearby FHA ‘‘608"" leascholds.

Since comparability is essentially a question of fact, trial

- judges exercise broad discretion in ruling on the ‘admis-

sibility of proof of comparable sales. As the court stated’

in Forrestal Village, supra, at 60, ** ‘It is traditional that .

the question whether the compared, property is truly com-

parable is for the judge to decide.’ ** This the cases cited

by-defendant do not require reversal of a trial judge who

exercises his diserction to admit, rather than exclude, the

challenged evidence,

Moreover, in the cases ‘cited by defendants, the evidence

as to comparable sales was offered as direct proot of value,

whereas in the present ease the gave ronment used thie evi-

dence of comparable sales not directly as proof of value brit

only to establish the ratio between income and Sale price,

ie,, aS support for its estimate of the a appropriate rate of

return, We think there is sufficient similarity of risk to per-

mit reference to the sales for that purpose. Although dif-

ferences Ta durability of construction (which. nay affect

athe risk thet physical deterioration will reduce ‘Income-

producing capability ), in proximity: to civilian population

centers (which provide alternative oirces ‘of tenants

should the military installation be closed), and in. the

margin between the controlled and competitive nneont roiled

rentals (which affords a cushion against a downward price

trend) are factors creating a dissimilarity of risk, they

operate over, the long-term and are comernied with reja

tively speculative aspects. The compared leascholds arte -

alike in the more immediate, and more impertant, elements

of Jow rentals, low morte¥ee interest rates, high mortgage

cove rage, and stalifé rental income, Taking all factors into

consideration, we hold that the trial judge acted within his.

diserction in edmitting’ the testimony. | See Cited State.

v. Delano Pari Homes, tuc., 146 F. 2d 472, 474-75 (2d Gj

1944); United States vy. Tampa Bay Garden. dnatimenty.

Iee., supra at #05; U nited States v. Johnson, 285 F. 2d 35,

40-41 (9th Cir. 1960): 1 nited States v. Certain Interests in

Property in Monte rey ( ‘ounty, Cal., 186 F; Supp. 167, 169-

TO (N,. Cal. 1960), aff'd sub nom. Likins-Foster Monte rey

Corp. v. United States, 308 FY. 2d 595, 599 (9th Cir. 1962). .

De beakeaks argue that it was error to exclude evidence*

concerting’ current) reprodyction costs less depreciation,

because such evidence was admissible’ under both federal

decisions and under state decisions allegedly made ap-

plicable by Bule 43(a) of the Fed¢ral Rules of Civil Pro-,

* Defendanis also contend that it was error for the court to | *

+ * exclude an FILA circular letter offered ‘to buttress the testimony of

their expert Tuchler. ee

On cross-examination of T uchler the government brought cut that

he had accepted the project analysis figures of 6.4¢% and 6.1% as the

“rate ot retfirn to which the parties had agreed.” without calculatiny

“the actual rate himself, and Ahat in fact the ratio of allowable income

_ to estimated original cost was 6.65 for Fort Hamilton Manor,and ¢

. sah fo Dayton Dev lopment, a revelation that retlected adversely

Tuchler’s compet ence as an expert. The next day defendant.

aiiae 1 in evidence tve FILA circular letter which instructed the Ked-

eral Housing Authority's Chief* Underwriters that whereve®-the

ground rental waé more’ than a nominal sum they’ should include in

the estimate of /original cost.of construction a value for land based

on the capitalzed value of the ground rental. ~The trial judge ex-

cluded the prottered evidence and charged the jury that land value

was not tobe considered :

- The fetter was not relevant evidence for the purpose of re-estal

lishing Tuchler’s-status as ane xpert, sence ‘he had not relied on it as

a basis for his estimate. a : ,

With regard t6 the correctness of the 6.10 aml 6.44; figures, the

letter merely permits the speculation thit a value for land wy as ine lide: I

when the computation Was made, a speculation directly contr: iry to the

estimate Of original cost of construction in the project analysis, which

showed land value‘at zero, In any event, defendants were not preju-

diced by exclusion of the letter, since the court charged the jury that

6.5°7 was the lew: il maximum and she Jury nevertheless accepted ar

appraisal based On a tn rate or return. 4°

cedure.” We look only to the federal decisions, because the

propriety vf basing-an-estimate of value on reproduction

cost less depreciation involves a substantive rule ‘of jaw

rather than an evidentiary question. governed by Rule

43(a) see United States v. ‘Certain Property ‘located in

. Manhattan, 306 FY 2d 439, 444 (2d Cir. 1962); ef. West-

che ‘ster County Park Commassion v. United State s, 144 F,

2d 688, 693-94 (2d Cir.), cert. denied, 323 U.S. 726 (1944);

and because, in any event, the peéuliarities of W herry

projects render the state decisions inapposite.

It cannot be seriously argued that evidence of reproduc

tidn cost was admissible as direct proof of, value. pao

interest being condemned is essentially the prospect “%

receiving a certain income based on the original cost of be

property, Fluctuations in’ costs of construction would af-

ford no basis for an increase in rentals. “The [Wherry |

Act did not contemplate that sponsors would! resover: :

reproduction costs on a sharply: rising market.?" United

States v. Benning Housing Corp., 276 F. 2d 248, 253 (Sth

Cir. 1960). See also’ United States vv Leaveli & Ponder,

Tic., 286 F. 2d 898, 401 (5th Cir); cert..denied, 366 U.S,

944 (1961); Buena Visti Homes, Inc. vo United States,

_ 281 F.2d 476, 478 (10th Cir. 1960).

Defendants asse rt, i reliance on Fairfie ld Gardens, Ine.

. lL niled State iz. 205 F. 21 167 (8th Cir, 1962), thi il re-

be wtion cost may be admitted for its indtreet effect as

background for an expert's. testimony. Thyir argument,

however, ismarkedly weaker ‘than the government's sifuilar

argument for the admission of the comparable sales evi-

dence. Defeitidants’

timate was simply an alternative taetnod: of valuation

** AIL evidence shall be admitted which is admussiblé under the

statutes of the United States, or under the rules of evidence hereto-

fore apphed tthe courts of the United States on the hearing of suits

m equity, or under ‘the rulee of evidence applied im the courts of

general jurisdiction of the state in which the United Statés court is

held. In any case, the statute or rule which tavors the’ reception OF

‘the evidence governs *e¢” Fed. R Civ. |’ AS (a)

reproduction cost less depreciation es

“offered as corroboration or the’ eaynt alization of ° ineome

method, while the comparable sales information was in-’

tegral to the capitalization approach since it Was Used 3

sefeeting: the Spproprare rate of return.

Dete ndant:' reliance on Fairfield Giordens. supre, is.

misplaced, Thi it ease did not hola that reproduction ‘cost

test onony must be admitted, Indeed, the. court carefully

distinguished. a prior decision, Carlstrom vy. United States,

278 F.2d 802, "808 (9th Cir, 1960), that had sustained the

trial court’ < exclusion of reproduction cost evidencé of-

fered in support. of expert testimony. Fairfield Gardens

did uphold a jury charge that ceproduction cost eould be

considered as corroboration for expert testimony if it had

been shown that. “a reasonable, prudent person would 4

produc e the project, on the valuation date, for the Saison’

viven as reproduction cost:"? 306 F, 2d cat ATA. No. such

showi.g having been made here, it was not on abuse of dix

cretion to exelide the proffered evidence. 4*1t.is the:

primary responsibility ef the trial court to determine.

» Whether reproduction Cost evidence should be admitted iis

an nid to valuation.’ United States v. Benning Housing”

‘Corp., supra_at 201. tee ner is

Hefendants airo objpet to the treatmont of a replace

re3t fund and of certain repair costs.- Wherry leases re-

quire_the lessee to make annual contributions to a replace

nent fund; which acts as security te the mortgagee that

necessary replac ements, such as stoves “and, retrigerators,

will be made. In practice expenditrres for replacement

“may. he made either out of. the réplacemmnt fund or out of

“separate funds ofthe Mssee. Prior to trial the govern

ment had assumed the ohljgation of replacement, and’ the

“foplacement fund, which then amounted @approkimatels

44 70,000 for the two projects, was withdrawn by -defend-

ants with the. gevernmen’s permission, In reaching lii-

“final estimate tie governme nts expert Witness capitalizede

the netineome at 7.57, the rate of return drawn from the

comparable sates, and: then deducted the $170,000 for the

* .

“

: : ; : ; 9A .

replacemept, fund and an additional $80,000 for repairs

not covered by the replacement fund that he thought im1-

mediately necessary to preserve the ineome pricuciney °

capabilities of the properties. Defendants contend that

these adjustments duplicated the deductions of annual

maintenance e and of the annual contribution to the replace.

ment fund which both experts allowéd as expenses in”

computing estimated income. We hold that deduetion of

the replacement: fund and of,‘the iteme for repairs wa-

proper. . . i ;

The assumption of the capitalization of income methad

is that the property will sustain throughout the life of the

lease the leved of income used as a base for the eapitaliza

tion. [tems of: extraordinary expense necessary to-mi tit

tain that level of income and net accounted for as deduce

tions in the computation of anticipated annual earning-

must ‘therefore de subtracted fram. the appraiser's: esti

deterred improvements cove ‘red neither Ly the replacemen!

eg nor by future. maintenance charges. See Carlstrom

. Unite d State s, 275 F. 2d 802, SOS (th. Cir. 1960). The

‘ replete moent-fund has.the effect of averaging certain ON

pense over the period of the entyre’ lease. Beean- the

cess of contributions oyer replacemetits in the past period,

contributions to the replacement tupd fer the permed sit

sequent to the condemnation will not allow, for al! the

replacements that will ocenr during that Pertod. - The-

_the replacement fund must be deducted to compensate to

the failu: e Of the experts to deduct from future imeonsy

the full amount of future replacement costs, As 1) the Fists

pe ‘riod, appe ‘Hants did not show that the tutiad wneladed the

mate of value. The repairs item was such a deduction for:

1OA

cost of any replacements which were not paid for, by with-

drawals from the fund.”

The reeord discloses that detendants were not riven a

‘ full opportunity-te e xplain the bases upon Which objections

were raised to the court's charge. Although in this ease

defendants were not prejudiced since the eourt ‘Was un-

doubtedly cognizant of defendants’ position—which had

boon explained during the trial in numerous colloquics

between counsel and the bench and in defendants’ r@quests

to charge—and the court committed no revérsible error in

its charge, we emphasize that Rule 51 ot the Rules of Civil

Procedure explicitly permits a party to state *‘distinetly

thee matter to whieh he objects and -the rounds of his ob-

jeetion.’* One significant purpose of the rule is to allow the

distriet judge to eorreet any errors in his charge breaght

io his attention by any ef the parties. Unless the court’

yerniits the Darties to eX iain their objeetion, this im-

oo ’ « ! . .

portant purpose of Rule 41 cannot be effectuated.

a x

® Another government witness, Mr. Bingham, testiued that

property heeded repairs and replacement. totaling S450. Since

shlichta deducted Only S8O.000 for repairs, defendants claim that.

Singha’ s testumony was irrelevant and that at preyudjced them |

she curvy the alitgediv erroneous impression cLat the proper

@ cttw

fiat itige é

was determrated and im disrepair. Such testumerny, howesxer,

relevan’ to establsh-the alternative -pasis tor deducting the replace’

miemt fur! that replacent: ats were mmmediately requuted. Compare

Buena lista Homes, Inc. v. Untted States, 281 1% 2d 476, 478-8

(10th Cor, dy, with Comited States vy. 197.71) cterés of Land inl

County. Ti. 300 F. 2d 32, 04-63 7th Cir, 102): Moreover,

though defendants moved to strike portiynms of rhamys testun

as hears iv, we of #1 the record any obrection to Dinh:

. =? 14 1 fits cord trf it ¥! sy. Te ‘ to ‘ om t ¢ . i pir?

, oe ‘4 , ~

TPeequentiy Mpc TEMANAT et the NMea;rsary le ter pert

expert f estiiy i cert Pd the basis of his vpn inted Sf

se ri et i rif 1 ‘, ; i , 4.22% , i a’?

Now 12 F.2d Jad r. ]'43 nile yfut v3

Ta. - ss ¢ ‘ { }

S10 FES Limd. 1m shibed ma bary une 4 th c

659 th? 4th Circ, |

11A

. We have considered the other contentions of defendants *

anid find no érror. 5

oe i *

Aftirmed.

7 The defendants find errer in the judge's ie that it was

undisputed that defendants had received a windtall, ie., the amount

of the mortgage was greater than the actual cost o1 ‘construction

Not onle was this untrue but whether defendants had received a’

windfall «vas totally irrelevant to determination of the present value

ot the leasehold, although it might affect the jury's attitude towar

defendants. tiowever, Shlichta’s testimony presented the matter

accurately and fairly, If the defendants had not insisted on empha

sizing the issue, there would be no‘question at all of prejudice. In.

the hight of the record as a wheéle, the charge was not suthcient!s

prejudicial to justify upsetting the verdict.

. 12

Appendix -B

(Earlier Opinion of ‘the ‘United States Court

_of Appeals’ for the Second Circuit)

Unrtep States oF AMERICA,

° . Plaintitf-Appellee,

v.,

Cratais Interests 1x Propekry Situate In the

Boxovcn OF Broodkiyn, ¢te.

Before:

Mepina, Smirn axuv Hays, Circuit Judaes.

Sarru, Circuit Judge. prety

This is an appeal from an order of the United States -

District Court for the Eastern District of New York, Leo

F. Rayiiel, D. J. granting a motion 0¢ the United States for

‘an accounting. The order appealed from grows Gut of an

action to condemn defendants’ leasehold interests in two

parcels of real property, located at Fort Hamilton, in the

Borough of Brooklyn. The land involved hertin was ewned

by the Gevernment, and oceupied by the defendants under

a 7o-year lease. Between 1951 and 1953 the defendants had

eonstructed npon said-land 669 apartments co be rented for

the use of military personnel, financing the construction

through private mortgage loans guaranteed by the FLEA.

under the Wherry Act.

The complaint was filed on December 15, 1960 on behalf .

of the United States which at the same time filed a declara-

tion of taking and deposited with the court the sum ot

$1,250,000, estimated by the Government to be just ear

A «

13A

pensation pursuant to 40 U.S.C. §258a.! On the following

day an ex,parte order granting possession thereof to the

Government as of February 1, 1961 was entered. .

Thereafter, on September 20, 196f; the Government

moved for an order requiring the appellan’s to account, for

the period during which the condemnees remained in pos-

session, pursuant to the order of the court, after title had

vested in the United States. The order for aceounting was

granted and condemnees appeal. We hold that the United

States has a valid claim for rental value of the premise~

during this period, rather than an accounting of moneys re-

ceived as agent, and reverse and remand for determination

of such rental value.

The date. set for the surrender of possession was that

which was requested by the United States. The request

Was apparently based upon the premise that it would b«

advisable to effect an orderly transition in the. manage-

ment and operatica of the property as well as upon an al

leged understanding. between the parties that the econ

4 USCA, § 258a: CAct of February 26. 1931, C. 307 Ss

1, 46 stat. 1421, .

‘Ss ,.@ S&S

upon the tiling said ssoreris\s m of taking and of +

deposit in the court. to the use of the persons entitled there

of the amount of the estimated compensation

the said lands * * * spéemied in said declaration, slic!l! vest in tha

United States * * * and said lands shall be deemed to be

denned and taken * * *, and the right tO Just COMpetisation |

the same shall’ ve t if th Braden pasar ble nil

caapensation shall he.asgertained and awareled im saved proce

ing anid extablis ed by yudyment therem. and the sard-nelymernt

hall melude. as part of the just compensation dwarddd, mitesest

at the rate of O per Centum per annum on the amie

“awarded as the value of the property as of the cate

from: said «fate to the date vf payment; but imrerest, shall

be allowed on so much thereof as shall bave been pord inte t

court eee | stl the tlm ova deckirat! m of tal go. the es

> i 4 ¢ tower to x the fs: 1 i i i tt te

u 1 Whit lit par [vrs ri ~ ; tw r;

: : - ‘

Tevicdey [Me <¢ Cyt: top thre peeitne

14A

demnees would manage and se ‘vice che property as agent-

for the #overnment in return for a management fee amount:

ing to 5°? of the gross income. No terms for continuing in

possession were fixed in the court order. The delendant-

strenuously deny that any agreement was ever’ reached

and contend that atthough the Government seat a letter,

; dated December 22, 1960, outlining such niearrangement the

corporation never rephed thereto, or agreed te the fiovern

ment’s proposa! either then'or later. — -

The Distriet Court concluded that the continue “l DOSses-

sion and operation by the defendant: Was a tacif acceptance

of the terms stated in the Government's letter, and * that

even if that were not so, the equities would demand aati ae

counting.” 2 “ ;

The existence of an agreemen te sharply disputed. in

the absenee of a written acer ia by the condemmees, or

‘other evidence to support an inference of acceptance of the

Government proposal, it was error for the District Court.

“toe coneluge that suck an agreement came into being. The

Gevernment canhot rely upon the continued DOSSOSS 101) and

operation ef the property by defendants since the condem

nation order provided for the condemnees te continue in

possession until February 1, 1961. Ceasequentiy the situa

‘ioncis net analogous to that of a holdever tenant’= con

tinued eccupation after a demand by the lesser fer an in”

crease in rent, whieh atiite naturally t- heid to constitits 3

acceptance ofe such nrapecnt. Harrison v. Berkowitz, 202

‘Mise, 799, 19 N.Y. $5. 2d (22; ‘T MeAdam én Gandlord and

‘ * Tenant 162 (oth ed. 1984). For im the ease at bar the con

demiee. were exere:sing their adjudicated right te retain

possession until February 1, 1961. We know of me principle

ef contraet law that requires a party ta choose between ar

yepting an unpalatable offer and giving up bis legal might te

possession. We therefore conclude that no agreement wa-

entered inte and it was elear error for the court te hold

-otherwisé It gs Woeessars therefore for the econrt to deter

mine the amount due the Government for possession during

thisperiod in the absence of contract. ;

ef ee ;

Under See. 258a the ‘‘court has the power to fix the time

within which and the terms upon which the parties in pos-

session shall be required to surrender possession.’’ (km-

phasis added.) Terms were not fixed at the time of the

order and should now be fixed with due regard to the

parties’ relationship to the premises during the period

tron termination of the lease to the surrender of possession,

Since the Government compensated the defendants for the

taking as of December 15, 1960? the court should order the

payment of reasor ble compensation to the Government,

the then owner of the property, as provided by’ the statute,

for its use after that date. Cf. United States v. 6,576.27

Acres of Land in McLean “ounty, 77 F. Supp. 244, 245

(D.N.D. 1948).

The test is the fair market value of the right to pos-

session of the leasehold for the period between the date of

passing of title and the erid of the holdover period under

the order of the court. This amount the United States i-

entitled to recover. The court has treated the condemnees ,

as managing agents, collecting rents from the subtenant-

and paying expenses for the account of the owner, on it-

finding, whieh we hold erroneous, that the parties had so

contracted. - Since the condemnees, however, were in the

position of lessees legally in possession after th: lease had

been terminated by condemnation of their intere ‘st therein,

under court order continuing their right to possession.

rather than as agents fer the Government, we bold taal

they had a right to continue their subrental and nfanagenien'

uf the premises during the period, with a duty te pay the

ee ed .

*% The fund deposited with the court 1 considered vested m de

fendant from the time it 1. deposited free of restriction. Lastog

Usmited states. 288 Fo 2d 525 65 Cir 1901 Lomted states v 33°4

Acres of Land in the Borough of Brookivi, 176 F.2d 255 258

(2 Cir. 1949)- United States.v Certam Lands m the Cite of st

Lous. Me.. 41 Fo Supp S800 (12 PP Mo 1941), aff sub nom,

O'Donnell vo United States. 432 Fo 2d 882 6& Cir, 1942). Unites 1

State- v. 15.03 Acres of Land, etc.. 253 F. 2d GPS (2 Cir. 1958)

16A

reasonabie value of their te naacy for the pe ‘riod, to be fixed

by the Court under the Act. 40 U.S.CLA. ¢ 255a,

l nquestionably, one considering entering inty a tens.-ey

for such a period would give major consideration to the

receipts “aud expenditures to be expected, based on the con-

depinees’ own experience with the project, and it may be

that the vourt in arriving at a fair rental vale might arrive

at . figure, including profits which obviously would be ex-

pected and ‘bargained for and represent additional elements

to be considered by one acquiring possession for the limited

period, substantially equal to the subrontals after main-

tenance expenses. less a reasonable management fee ap-

proximating the 5% proposed by the U.S. ;

What is a reasonable rental is a guestion to be deter-

mined. in the light of all the circumstances in the mstant

case taking into consideration evidence if available of what

is eustoniary for management services of a like character,

which amount may or may not be 5%. The parties are en-

titled to submit proof as to reasonable rental value.

+ Reversed and remanded for further proceedings in ac-

-cordance with this opinion. <«

Appendix Cc

}

‘The Wherry Act, 63 Stat. 570

- *Trrte VIL—Maurary Hovsiye Ixstraxce

“Sec, SOL As used in this tithe—

‘*(a) The term ‘mortgage’ means a first mortgage on

real estate, in fee simpic, or on a jedsehold (1) under a lease

for not less than ninety-nine years which is renewable, oF

(2) under a lease for a period of not less than fifty years to

run from the date the mortgage was executed; and the

‘term ‘first mortgage’ means such classes of first licns as

are cammonly given to secure advances on, or the unpaid

purchase. price ot, real estate, under the laws of tUygy Stat >

in which the real estate ix loca.ed, together with the credit

tion or disbursement thereon * * °.

‘Sec. 803. (a) In order to assist in relieving the acute

shortage of housing which now exists at-or in areas adjacent

to military installations because of uncertainty. av io the

permaneney Of such imstallations and to increase the sup-

ply of rental housiag’ accommodations available’to military

and ciyilian persoanel at such installations, the Comui--

sioner is authorized, upon application of the mortgagee, to

insure “nortgages (including advances on such mortgase-

during” @oustruction) which are eligible for imsurance “ap

hereinafter provi ided, and, upon such terms as the Com-

missioner may jpirescribe, to make commitments for so

insuring such mortgages rior to the date of their execn-

tion or disburstment thereon. ; |

. ° * * *

‘“(b) To be eligible for insurance under thi- tithe a

‘morigage shall meet the following conditions :

+44) The mortgaged property shall be held by a mort

gugor upproved by the Commissioner. The Commissioner

may, in his diseretion. require such mortgagor to be regu-

-18A

tated or restricted as to rents or sales, charges, capital

structure, rate of return, and methods of operation. The

Commissioner may make su¢h contracts with, and aequire

for not to exeeed $100 stock or interest in, any ‘such -mort-

gagor, as the Commissioner may deem necessary to render

effective such restriction or regulation. Such stock or

interest shal! be paid for out, of the Military Housing In-

suranee Fund, and shall be redeemed by the mortgagor at

pr upon the termination of all obligations of the Commis.

sioner under the insurance. _ ae

(2) The mortgaged property shall be designedi for

rent for residential use by eivilian er military personne! of

the Army, Navy, Marine Corps, or Air Force (including

Government coutractors’ employees) assigned to duty at

- the military installation ai or in the area of which such

property is constructed. Notwithstanding the provisions

_of any other law, prefererce or priority.of opportnnity in

_the occupancy of the mortgaged property for such person-

nel and their immediate families skal! be provided under

such regulations and procedures as may ke préseribed by

the Commissioner. No mortgage shall. be insured under

‘this title urtless the Secretary of Defense or his designer

sha!l have certified to the Commissioner that ‘the housing

avith respeet to which the mortgave is made is necessary

to provide adequas housing’ for such personnel, that such

installation is deemed to be a permanent part of the Mii

tary Establishment, and that there is no preserit intention

to substantially curtail activities at such installation:

(3) The mortgage shall inv olvea principal obligation

in an amount—

‘*(A) net to exceed $5,000,000; and

**¢(B) not to exceed 99 per centum ‘of the amonnt

which the Commissioner estimates will be the replace-

- ment eoct of the proverty or project when the pro

posed improt ements are Completed; and

b al

“shall preseribe, and sha

" standing at any time.

19A°

“(C) not to exceed an average of $5,100 per

family unit for ich part ef such property or project

as may, ve attributable to dwelling use, except that

where the Secretary of Defense or his désignee i

excentional cases certifies and the Commissioner con-

curs in such certification -tnat the needs would ,be

better served by single-family detached -dwelling

units the mortgage may involve a principal obliga ~.

tion tpt ‘to exceed $9,000. per family unit for. such.

part of such property as may be attributably to suc h

dw elling units.

rovide for complete amortization by

in such terms as the Commissioner

‘The mortgage shall

periodic payment wit

mium charges for insurance

per annum of the amount of the principal ‘obligatisn out

e , *

Sec 808. The Commissioner is authorized and directed

to make such rules and regulations as may be necessary to

carry out the’ provisions of this title.”’ :

The 1955 Capebart Act (69 Stat. 646) -

‘sec. £01, Titlé VIII of the National Housing Act, ‘as

amended, is hereby amended to read as follows:

** SEc. 803—

a | * *

(3) The mortgage: shall involve a principal obligation. -

in an amount— F

““(B) not to exceed an-average of $13,500 per faniil)

unit for such part of sucke property or project a= may be

attributable to dwelling uses; Provided, That the replac

ment cost of the property or project as determined by the

Commissioner including the estimated valne of any usable

,utilities within the boundaries of thé property or project

oP w: ; y20A me

/ .

where’ owned ‘by the United States and not provided ‘for

out of the preceeds of the’ mortgage, shall not exceed an’

, average of tal 000 per es oa * =.”

oe e ®@

Sec. 403. (ay The Secretary of Defense or his desiznee

is hereby authorized to enter into contracts with any eligibic

“uild& to provide for th Senstruction of urgently neéded

‘ efhousing on lands owned or’ Teased by the United States and

7e@

sttuatad on or neay a military reservation or installation

for the purpose of providing suitable living aceommoda-

tions forgmilitary personnel of the armed services assigned

to duty at. the military installation at ar.jn the area where

the housing is situated. Any such éontract shall provide

i housing unit in ‘the project shall be placed under

he Gontrol of the Scgretary of Defense, or bis designee, as

ods as the unit is available for oceupaney as determined.

by the Commissioner. Any such contract shall also provide

that, except Tor stock held by the Commissioner, the capital

stock ‘of the builder (where the builder is a corporation) he, -

fratferred to the Secretary of Defense, or his designee,

when the housing ‘has been completed-us determined by the

Commissioner. Any such:eontract shall:coptain seh terms

and conditigns as the,Secretary may determine to be neces-

sary to protect the interests of the United States.” * * --.

Src 40-4. Whenever the Secretary of Defense or ‘as

desien® atl deem it necessary for: the purposes of this

title, he yacquire by purchase, donation, or other means

of transfer, or may cause proceedings to be instituied in any

court having jurisdiction of such proceedings to acquire by

-. condemnation, any unimproved land or (with the approwal

of the Federal Housing Commissioner) any h@using financed

with mortgages insured under‘the provisions of title VUI

of the National Houging Act as in effect prior to the enact-

se *

ment ef the Housing Amendments, of 1955, ne

21A ats

53 es ad ‘e ®: :

‘eo Sec. 400. The See retary of De fense-or his designt Is

.teymined that adequate housing

“personnel at reasonable rentals w

5 a

,to read as follows:

authorized -to maintain and sperate any housing acuity

under yes. title und assign quarters therein to miilit ry ~

ewvijan personnel and their dependents.

es 3 * a °° « *

The 1956 CapeHart Act (70 Stat. 1109)

Sec. D04. Section 803 (b) (2) of such Act lthe National

Hous 6 Achy’ ‘is amendedsby striking out all that tollow-

Clause i) and inserting in lieu tite ‘dot the following: ‘*. and

(ii) withsthe approval of the ¢ Cémmissione r, Shall have de-

ing distance of the ifstallation ami ghat the mortgaged prop-

erty Wa not, so fag as can reasonably he foresee ny substam-

tially curtai? occupancy in existing housing covered by mort-

eages insured under this Act. . The housing ace common ih.

shall comply with such standards and- conditions “as the

Commissionér may prese tribe fo establish the aceeptabiity

of such property for ‘mortgage Inswrance, except that the

certification of the Secretary of ge éfense or his designer

shall (ver p urposes of mortgage maurance unde r‘this title)

he conclusive evidence to the Cs MMtssione r of the existence

of the need for such housing. ** as

* * *

"Sec. 505, Seetion803 4 by (3) (B) of sueh, Act yeamended

EB) not to exceed ‘an-average of SYG O00 por

family unit for such pary of such property Qr proje

(inchtding ranges, refrigerators, shades, scrve ns. ana

fixtures) as may “re attributable to,.dwelling use: Pre

Svided@That the weplace ment cost of the properts o

project as determined by the Commissioner; imeliud

ing the estimated value oftany usable utiht: Dwi itriti

the boundaries: of. the property or project! wher

owned by the United States ane. nok, provided for oi

ot tye procecd i the mor 4p oy, all net exceed ts

Javerage of $16500 per tanoily unit: and”, ee

ae ts

isMot av€lttable for such.

hid reas athe commit

. nents.

a? Acquisition of Wherrk Act Housing

_ Sec. 512. Séction 404 of the Hotsgig Amendntetits of

19.59. is amended to read as follows: *

». ‘Sec. 404. (a) Whenever the Secretary of Detense Gr

-his designee deems it necessary for the purpose of this ditle,

he may acquire by. purchase; donation, coudemnation, or

ther means of transfer, any land or (with the approval of

he Federal Housing Commissioner ) any housing financed

wit mortgages insured under the provisiong of title VITI

of, the Mtional Housing Act as in effect priof to the enact-

ment of the Housing Améndments of 1955: ss

‘*(b) } Notwithstanding any provision of walinsation (a), to

the contrary, the Secretary of Defense or his designee shalt,

in the manner provided in subsection (a), acquire by pur- .

chase, donation, ¢ or other means of transfer or, if the parties

cannot agree upon terms for acquisition by such means, by

‘condemnation, any housing constructed under the mortgage

insurance provisions of title VIII of the National Housing

-Act (as in effect. prior, to the enactment of the. Housing

Amendments of 1955) which is located at or near a military

installation where the consttuction of housing under the

Armed: Serviees Housing Mortgage Insurance ’ Program

has heen n approved by the Seeretary. |

@: * *

“(f} Any housing acquired under :this section may be

(1) assigned ‘as publie quarters to military personnel-and

their. deperidents ; or (: ”) leased ta milit: ary amecivilian per-

sonnel for oceupaney by them and their dependents, 4ipon

such terms and conditions ag Will in the judgment of the

Secretary’ef Defense or his designee be in the best interest >

of fhe United States, without loss to military personnel of

their basic allowance, for quarters or appropriate allot-

es 2 @#

cahieiatneeiai = _ eae

Z7H *

ZH, *

. 3A a “gb ame

° ,

‘Note: Though | the Jahon e Acts have been further

amended, the amendmeg@ts are not pertinent>to any issue

raised in ‘this petition. and ok a #

56 Stat. 303 (Section 608 of the Nationa] Housing Act) =

Sec. 11, Title Vl of the National Housing Act, as

ame mded¢is hereby furthe 1 alngnde vd, by adding the follow-

ing ne Ww section at the ergd thereof: ,

i ** Sec, GUS: (a) In addition to mort gages Insured ander

a section 605 of this-title, the Gianinisteator is authorize d to’

insure mortgayes as defined in’ seetion 601 Of this title

(including advanees en such mortgages durin’ construc: *

tion) which are eligi le, tor insurance ws hereinafter pro-

.¥ vided. ‘ ‘ on

i ib) To be eligil le far insurance under this section ik

» mortgage shallymest’ the. following ‘conditions

(1) The mortgaged prope rity es ll be held by a mort”

gagor ng cea “dd hy the Administrator. The Administrator

to rents or sales, charges, capital

A may. in his diserotion, require such mortgagor to be reg ate

“ } 493 ¢ P | ty

ewe or pestricted:

a? structure, rate of return, and me ethods of operation, * * *,

° -

Federal Rules of Civil Procedure Rule 43(a) hes :

Rule, 4 3. Evide nee : : ay

(a) Form and Admissibility. ~ * * Alltevidence.shall ls

admitted «whic lr is admissible nnder the statutes of the

“United States, orcunder the rufes af evidence ae ae

applied in the court@of the United States on the heariy ‘

stits in equity, orunder the rules of evidence app lied in un

coWXs of general juriseliction ofthe state i which the

_ Luited States court is held. In any case, the statute

‘

rule which‘favors .the reception of the evidence govert-

——_

RS ine .

. An _é : : . ° . ;

and the.ev avese shall be presented according to the most

convenient method prescribed in any of the statutes or rules

to. which reference is hérein made. The competency of a

witness to testify shall - determined in ‘like. manner. .

Fedecal Sides of Civil Procedure Rule 61 | a

Rule 61, Harilens Error

No erroy in either the admission ox the exclusion of evi-

dence and no error or defect in any ruling or order or in,

anything done or omitted by the court or by any of the

parties is ground for granting a new trial or for setting

aside a verdict or for vacating, modifying or otherwise dis-

turbing a judgment’ or order, uniess refusal to take, such

action appears te the court inconsistent’ with substantial |

justice. The court at every stage of the proceeding must,

disregard ahy error or defect in the proceeding. Which does

not affect “a substantial 1 rights of the parties.

Rca "28 U.S.C: — 63 Stat. 105

O11. Harmless Brror

On the hearing of any- -appeal er writ éf certiorari in any

case, ‘the court shall give judgment after an examination of

the dicord without regard to errors or defeets which do gote

affect the substantial rights of the parties.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.