Petition for Writ of Certiorari — Port Authority Trans-Hudson Corp. v. Hudson Rapid Tubes Corp.
Supreme Court brief1968
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PREME COURT. U. & park: /\ FILED”
one JAN 26 1968
IN THE - . Je Fa, LER
Supreme Court of the Unit sad State:
OCTOBER TERM, 1967
No] ea
Port AvrHority feeaceiGaigels CoRPORATION,
Petitioner,
Vv.
Hunsox Rapip Tunes Corporation,
s iecaieel
_ PETITION FOR A WRIT OF CERTIORARI-TO THE ©
COURT OF APPEALS OF THE STATE OF NEW YORK
Sipney GoLpDsTEIN, | .
General Counsel, :
| The Port of New York. Authority,
ar ae. _ Attorney for Petitioner,
| JosEPH LESSER
IsopeL E. MurrHeap ~
Mitton H. Pacuter
-Wuitney Nortu Seymour .
Joun A. GuzzeTTa .
ArTHURI-SETTLEes. | Ph
James J. Hacan cree aes ae
Smpson TuHacuer & Bartiert,
Of Counsel ; | ;
a A ‘ ,
0
&
»
a
INDEX
| , PAGE
Opinions BELow .-. as weiees EE en ree ee ei At mex y
JURISDICTION ........ EMR ew eA S Rw aks guekes resdnns 2
Question PRESENTED seen tePakeoies (enemas ae) Oe
Compact AND CoNSTITUTIONAL Provisions INVOLVED .. 3
STaTEMENT ..... Bt SMT Ah DAME ee RES aay cies 5
Reasons For GRANTING THE WRIT .........0eeeeeee *..
ConcLusion ...... Srvigdessouas MOL OTT Rt ee
“AppENDIX A:
(Opinions of the Ne ew York Court of Appeals) ; “ Al.
APPENDIX B: . i ea
entenp of the Appellate Division) seosdgaeces AOS
- Appenpix C: 3
(Opinion of the Trial Court dated pooner 10, ee
1965) sea ene SRY HY a teem A 62
APPENDIX D:
(Opinion of the Trial Court dated — 25, si 6 - 129
Appenvix E: | | |
(Opinion of the ‘Trial Court dated June 10, oan) . 134
APPENDIX F;
($14 of the 1962 New York and New J ersey Com-
OG LAMMRIO Yo occ ce se esa dass rere A145
_AppEenprx G: ° Si Son: koe
($17 of the 1962 N ew York and New J ersey Com-
pact Legislation) ix aibias eateenan guseawaine ee
_ Appenpix H:
(Remittitur of the New York Court of Appeals’
- datéd October 31, 1967) ........... weeeeeees A151
ii
Appenprx I: ; | : ° PAGE °
(Order of the New York Court of dopiaais dated
- December 7, 1967 Amending Remittitur) ..... A 154
Apramerx J: |
(Judgment of the Supreme Court of New York
County dated eet *, er) eee rere A 156
TABLE OF. SOE,
R CaAsES
Boston Chamber of Commerce v. Boston: 217 U.S. me:
NE ae Ae cans ts ene ee eee : 21
Bowié Lumber Co. v. United ‘States, 156 F.2d 295.:;. 20
Brooks-Seanion Corp. v. United States, 265.-U. bis 20°
hii. Giedraitis, 14 Ill. 2d 45, 150 N. E: 24577 eae
Courtesy Sandwich Shop, Inc. v. Port of New York
Authority, 375 U.S. 78, rehearing denied, 375 U:S.
960, dismissing for want of a substantial federal
question an appeal from 12 N. Y. 2d 379, appeal —
- dismissed, 375 U:-S.78 ........ Uy er 11, 30
: Curia >. Waverly &G N.Y. B. R. Co., 52 N, J. L,.381,_ .
Ps 2s ea ea venetoes eer ore ee rere 19, 27 °
Delaware River Joint Toll Bridge Commission v. aa
* Pelbtrn; $10 U. B. G10 coc hiciiscccicneses ewes 29, 30°
Devou v. Cincinnati, 162° Fed. 633, cert. denied, 212.
Ws Ee ech a aoe ae E ok ee awoken dekeienes 20
Dyer v. Sims, 341 U. 8. 22 o....s...05. Pegler “spe 18,28
Kimball Laundry. Co. v. United States, 338 v. S.
p TTT eT eS Te eee ere ere TPE ETT eer Cee Tey 19, 24; 28
Kintor v, United States, 156 F.2d5........ a eaa as 20
Klaxon Co. v. Stentor Electric mis Co., Inc., 313
a rr ergy a ya ere gear” eeu OSONN ee .
In the Matter of Hudson & Manhatian Railroad Co.,
— 7 8 ioe Beer PP Ce Pe ere ee 9.
>
es
; ‘ PAGE :
Olson v. United States, 292 U. S..246 ..........0. 19, 23, 28
Onondaga County Water Authority v. New York
Water Service Corp., 285 App. Div. 655 ......... 20
_Penn-Central and N. & W. Inclusion Cases, - 36
wo a Se er earn nN ema
Pennsylvania Railroad: Co.—Merger—Néw York -
Central Railroad Co., 1.C. C. Finance Docket No.
DG Podiad a Gel in kok ¥en ee kes a eae ois 31, 32 .
Port Authority Trans-Hudson ies. —Acquisition.
and ae a alin _— wus Corp., 317 ;
I I asses nee ne Gaetan cadbet cteaauee es 12:
Radio Station WOW, Ine. v. J ohnson, 326 U.S. 120. , 17
Redevelopment Commission of Winston-Salem v.
Hinkle, 260 N.C. 423, 182 §. B.2d 761 ...0.0..5.. °° 20
Roberts v. City of New York, 295 i | Pere er 24°.
St. Agnes Cemetery v. State, 3 N. Y. 2d Oey ne 19°
Sears, Roebuck & Co. v. Mackey, 351 U.S. 427 ..... 00. «17
Shoemaker v. United States, 147 U.S. 282 ota ae 19
Spitzer v. Stichman, 278 ¥'.2d ro ene ivepeviwne: Ve
State v, Burnett, 24 N. J. 280 ........... Paresh fomiee 28
State Highwar y Commission v. Anderson, 234 Ore:
ee yc ci hace vii ccewers ban bois 20
State Highway Comm’r V.. Nations tereprooping
Corp., 127 N. J..Ls S46... cece etee i Pare arwee 28
Fhe Chase Manhattan Bank, N.A. v. United States
of America and Interstate Commerce Coninission,
S.D.N.Y., 68 Civ. No. 806 ..’..:.. Tere Serres 19, 32, 33
United States v. Chandler-Dunbar Water Power Co.,
We U. BSB 6... PR ee tae Pee Pere Ror 23
_ United States v. Cors, 337 U. S. 320 .......... wees
United States v. Miller, 317 U. S. 369 ............ , 22, 23
United States v. Rands, 389 U,S. 121 ............. 25
United States:v. Toronto, Hamilton & Buffalo Navi-
gation Co., 838 U. S..396 icoccccccecceciccesces 20
United States v. Vu ginia Electric é & Power Co., 365
U.S. 624 oes eeceereree teres eeeeeteeeeees 33°) gs
os. , iv
aa? Statutory Mareriats
U.S. Const. °- Ratan ete hadl mes PAGE
,art. I, $10, oL.\8....;.... Se eee pee ND PON 3, 4, 6
amend V:.....0.05. yeaelenas speeds evakeae eke 4
ME TE xi scccives eaueheeeeveenes de ertns =
Act of Aug. 23, 1921, Pub. Res. No. 67-17, ch, 77, 42 :
Rs ccc is cack eect soe reesei ens 3, 6
Merchant Marine Act of 1936, Section 902, 49 Stat.
2015, as amended, - 53 Stat. 1255; 46 Use ‘1242
. (1939) (eecisbankd ebeenet eo eeperecceccegecenoes 72
_N. J..Const., Art. I, 720 ...... veda banedeans ates esr
Bey ee Cy NG © eG i 6s Rien deaceiesccceces — es
Ch. 8, Laws of N. J., 1962, amending Ch. 151 Laws of ~
Ms Deg BORE cckacssiccces uses eeeuas 3, 4,.6, 11, 13, 25,26
Ch. 209, Laws of N. Y5 1962, amending Ch. ‘154, Laws °
of N. Y., 1988. .;.<: jebeeneuas leeeen 3, 4, 6, 11, 13, 25, 26
N. Y. Sess. Laws 2097 (McKinney BOOED scasbvecats 12
ee - Miscx1 ANEOUS 7
Bonbright, Valuation of Property ONS oncaeid; ;~ m2
‘Leacn & Svuce, Jr, THe ADMINISTRATION OF LN'TER-
sTaATE Compacts (1959) ....... eeens Perens ree . 31
a
aS
J J mF -
wih vn ee ena eee ee eee re Te rr
IN THE
Supreme Court of the United States
| OCTOBER: TERM, 1967
No.
re
‘Post AUTHORITY Tains-Hupson CoRPORATION,
! Petitioner,
Vv.
a a
* Hupson Rapiw Tuses ConPoRati0N,
Respondent.
»~
™
PETITION FOR A WRIT OF CERTIORARI TO THE ,
COURT OF APPEALS OF THE STATE OF NEW YORK
ey
,
Petitioner Port Authority Trans-Hudson Corporation,
a wholly-owned subsidiary of The Port of New York Author-
ity, petitions for a writ ef certiorari to review a final judg-
. ment of the Court of Appeals of the State of New York,
which violates, the express terms of a Congressionally-sanc-
_tioned interstate Compact | between the States of New York .
and New J jersey." ;
Opinions Below ‘. e entilicy
The opinion of the New York Court of Appeals is re-
| ‘ported at 20 N. Y. 2d 457. The majority ‘opinion of —
Judge Keating and the dissenting opinion of Judge Burke’
‘are printed herein as Appendix A to this petition. ,
*On January. 22, 1968.the State of New Jersey filed a motion
for leave to file a complaint in an original action entitled State of
New Jersey v. State of New York and Hudson Rapid Tubes Cor-
poration (No. 34, Original) which also st i the Judgment of
ee New York. Court of Appeals. | ao
.
SS ere nS eo =
SL
*
: s
a ea a
:
2
The opinion of the indie Disision of the aes |
Court of the State of New York, First Department, is re- .
ported at 27. App. Div.’ 2d 32; 276 N. Y. S. 2d 283. The .
opinion of the Appellate Division, together with the two
concurring opinions and two. dissenting opinions of the
Court, is printed herein as Appendix B.
_ , The initial opinion of the trial court pmenenaees Court
of the State of New York, County of New York, at Special
Term) is reported at 48 Mise. 2d 485, 265 N. Y. S. 2d 925,
~ and is- printed herein as Appendix C. A supplementary
opinion of the trial court, ‘overruling objections raised to
the findings and conclusions contained in its initial opinion,
is reported at 52 Mise. 2d 943, 277 N. Y. S. 2d 999, and is
printed herein as seas D.* .
| Jurisdiction =
‘The ‘itech of the New York Court of ‘Appeals was
entered on October 31, 1967.
The jurisdiction of this ‘Court is invoked te 28.
U.S. C. a:
Question Presented
. rr
_ Did the New York Court of Appeals violate the Con-
gressionally-sanctioned Compact between the States‘of New
‘York and New Jersey authorizing The Port of New York
Authority to condemn an interstate commuter railroad,
eoncededly incapable of: profitable operations, by basing .
the cond@mnation award on the value of the raiiroad to the
public, rather than off the loss to the owner, thereby com-
mitting: reversible error in that:
A. It failed to give effect to the express -provi-
sion of the Compact which declared that in valuing.
*- subsequent opinion of the trial court relating to interest on
the awards is printed herein as. — E, but is not relevant
to the instant petition for review.
ihe _ this railroad, the court-was not to award ‘‘. . . any
increment above the just compensation required by
‘the constitutions of the United States and of the’
state or states in which the property is located or
has its situs by reason of: any circumstances what-
soever’’ and, on the contrary conferred on the owner -
. an unjustified windfall at the public’s expense ;
.. B. It failed to give effect to another express pro-
vision of the Compact which: required it, in valuing
the 65% of the railroad’s property located in the
State of New Jersey, to apply the valuation law of.
_ that State, which expressly prohibits condemnation
awards i in excess of the owner’s economic loss ; =
C. It failed to give effect to the nantes aia
. ‘of the two states in executing the,Compact that the eee
.. then-existing well-settled rules of just compensation - -° ‘
: valuation under the Constitutions of the United
States, New York and New-Jersey be incorporated
into their agr eement. ,? |
y gi é Ciceabeis and Constitutional Provisions Involved
Le a ne
.1. The following extracts from § 14 of the 1962 amend-
- ment to the Congressionally-sanctioned interstate Compact
between New York and New J ersey relating to the condem-
nation of the Hudson Tubes railroad are involved. * The
entire text. of § 14 is printed herein as Appendix F. 4 ~
... In any such [condemnation] action or proceed-
saa the court or.courts @f the forum state shall apply
‘the laws of valuation of the other state (hereinafter
sometimes ealled the nonforum state) to the valua- -
tion of the property which is located or has its situs
in the nonforum state .. .’’
qj -
* Ch. 209, Laws of N. Y., 1962, amending Ch. 154, Laws of N. Y.,
1921; Ch. 8) Laws of N. J., 1962, ones Ch. 151, Laws of N. J.,
1921. .»
This Compact received the consent of Congress pursuant to
Article I, § 10, el. 3 of the United States Constitution. Act of.
Aug. 23, 1921, Pub. Res. No. 67-17, ch. 77, 42 Stat. 174.
. +
‘‘The owner of ahy property acquired by con-
demnation or the exercise of the right of eminent
domain for any of the purposes of this act shall not
be awarded for such property any increment above
the just compensation required by the constitutions .
of the United States and of the state or states in ©
which the property i is located or has its situs ” rea-
son of any circumstances whatsoever. ”’
2. The following extract from $17 of the 1962 amend-
ment to the aforementioned Compact is involved. The entire:
. text of § 17 is printed herein as Appendix G.
‘This section and the preceding sections hereof ~
constitute an agreement between the states of New
New York and New Jersey supplementary to the
compact between the two states dated April thirty,
nineteen hundred twenty-one and amendatory
thereof . |
3. The following constitutional provisions are involved:
Tintied Glades Consiiiution, art. I, 630, ol. 3: “No
State shall, without the. Consent of the Congress, .
enter into fad Agreement or r_ Compact with another
State. .
United States. Constitution, amendment.V: ‘‘.
nor shall private property be taken for public use,
without just compensation.”’
United States Constitution, amendment XIV:**. .,
nor shall‘any State deprive any person of life; liberty
or property, without due process of law;”’
New York Constitution, article I, § 7: ‘‘(a) Private
property shall not be taken for public use without
just compensation.”
New Jersey Constitution, article I, 120: ‘Private
property shall not be taken for public use without
just compensation. mee
5
Statement
It may be helpful at the outset, before outlining the
facts, to pinpoint the error of fhe court below which re-
quires review here. ; In violation of the terms of a Con-
gressionally-sanctioned interstate Compact, the New York ~
Court of Appeals based its condemnation award for a 7.9
mile interstate. commuter railroad upon the railroad’s
value to.the public and not, as the Compact required, and
the law has traditionally specified, upon the economic loss .
to the owner occasioned by the condemnation.
The Compact provision in question was designed to
mean, and can only mean, that in valuing this interstate
railroad the well-established rules of Federal, New York
-and New Jersey law must be applied. While acknowledg-
ing that the rule of decision in each of the three relevant
jurisdictions ‘‘is that.just compensation requires only that
the condemnee be paid for what he has lost and not for
what the taker has gained,’’ (A. 5)* the Court of Appéals
refused to follow what.it thus recognized to be the law. It
held that for the purpose of this case, and for this case
alone, the owner must be paid not for his economic loss, but
for the public gain resulting from the taking. Should it ©
stand, the Court of Appeals’ award would achieve the very
result which the Compact provision was enacted to prevent.
The Court’s failure even to mention the relevant Compact
provision in its opinion, or the obvious bi-state legislative
intent behind it, serves only to accentuate the general lack
of regard with which it viewed the very bi-state Compact
which gave it its jurisdiction to hear the case.
The Court of Appeals, moreover, failed completely to
follow the mandate of the Compact that it apply New Jersey
law to that portion of the condemned railroad (65%) which
‘is located in New Jersey. The court conceded that New Jer-
sey law requires only that the condemnee be compensated
for his economic loss, and not for what the public has.
gained, but nevertheless stated that this case ‘‘requires
° ‘hidiemnein to the Appendix to this Petition are introduced
in ‘the text by the abbreviation SA.” oe
5
: >
. an approach different from that ‘generally followed’? .
(A. 6)—an approach which Judge Burke, in his dissent,
characterized as violating the Compact by ‘‘create[ing] new
and revolutionary law’’. (A. 22) Thereby the Court of
Appeals raised what Judge Burke called ‘‘an important —
question of Federal law.” (A.23)
The following is a summary of the pertinent facts in the
case: :
The Port of New York. Authority is a body, corporate
and politic, created in 1921 pursuant to an interstate Com-
pact between the States of New York and New Jersey.*
This Compact received the consent of Congress pursuant ©
to Article I, § 10, cl. 3 of the United States Constitution.**
‘It is the responsibility of The Port of New York Au-
thority as the joint and common governmental agent of
the States of New Yérk and New J ersey to provide trans-
portation, terminal and other facilities of commerce within
a geographically-defined bi-state area identified as the Port
of New York District in order to protect and to promote
the commerce of the port in an orderly. and effective
manner. In-carrying out this responsibility The Port of
New York Authority operates the George Washington
Bridge, the Holland and Lincoln Tunnels, three Staten
Island bridges between the states, John F. Kennedy Inter-
national, La Guardia and Newark Airports, bus and truck
terminals, docks, piers and other port facifities within the
New York-New Jersey port area.
‘During the years just prior to 1962 it- henmine apparent
to the legislatures of New York and New Jersey that one
of the transportation facilities operating between said states
was near financial collapse. The Hudson Tubes Railroad,
the construction of which was commenced in 1874 and com-
pleted in 1911, had been providing interstate commuter
service between’ the urban areas contiguous to the New
York and New Jersey shores of the Hudson River for
approximately 50 years. It was owned and operated by a
_© Ch, 154, Laws of N. Y., 1921; Ch. 151, Laws of N. J., 1921.
** Act of Aug. 23, 1921, Pub. Res. No, 67-17, ch. 77, 42 Stat. 174.
7
private corporation known as finde & Manhattan Rail-
road Company.* 3
By 1962, the year of condemnation, any profit, potential
to be found in the;Hudson Tubes had long since vanished.
Indeed, for the decade prior to condemnation the railroad
was capable of producing only continuing and substantial
’ deficits. (Tr. 4893)** . .
Its passenger traffic had declined from more than 112
million in 1929 to 29 million by the year 1962, a decrease of -
almost 75%. (PATH Ex. 258)
From the very outset ‘of its operations in 1911 the rail-
road had been beset by financial troubles. It hdd not paid
_a dividend on its common stock since 1932, or on its pre-
ferred stock since 1933. It had not paid full interest on
its junior indebtedness since 1934, or any interest what- —
. soever on its indebtedness’ since 1950. It had produced
no net income since the year 1952 and,‘in the four years
immediately preceding 1962, had incurred the oo
1958 .5....%. [$331,000]
oe [$488,000] .
1960 .....:.. [$504,000] ,
eee [$466,000] (PATH Ex. 299)
Aside from the large losses being iticurred’ in its daily
operations, the railroad was faced with capital replacement
* By corporate change resulting from the termination of certain
reorganization proceedings involving the railroad, which proceed-
ings were pending between 1954 and 1961, the . owner of
the railroad at the beginning of 1962 was Hudson Rapid Tubes
Corporation, respondent herein, a wholly-owned subsidiary of
Hudson & Manhattan Corporation, successor in 1 interest to. Hudson
& Manhattan Railroad Company.
** Citations to the printed transcript of the trial and post-trial
hearings are prefaced by the abbreviation ‘‘Tr.’’. The printed
portion of the Record On Appeal before the New York Court of
Appeals ‘is cited as ‘‘R.’’. References to. the separate exhibit
, appendix-are. introduced i in ‘the text ded the abbreviation —*
Ss“.
requirements impossible of resolution.so long as the rail-
road remained in private hands. (A. 2) As Justice Stevens
- noted in the Appellate Division, commenting on the rail-
road’s condition at the time it entered bankruptcy: ‘‘The.
rolling stock was old; in some instances in a hazardous
condition, most of the cars having been acquired between
1909 oad 1911, the most recent being 20 cars acquired in
1928.’’ (A. 29) ee
The railroad had been forced into reorganization under
the bankruptcy laws in 1954 and had emerged from reor-
ganization at the beginning of 1962 under a‘new corporate
structure. The reorganization plan recommended by the .
Trustee, and adopted by the bankruptcy court, was pre-
mised on the conviction that the railroad was utterly in-
solvent. The result was that (a) all stockholder interests,
both common and preferred, were wiped out; (b) unsecured
creditors were paid in cash at the rate of 10 cents per dollar;
and (c) the railroad operation was severed from the only in-
come producing asset ofthe old railroad company, the twin
_22-story office buildings that were constructed on top of the .
railroad’s downtown Manhattan terminal.* The Office.
buildings were separated from the railroad in order to—
prevent the deficits of the latter from causing the finan¢ial
demise of the former. Under the reorganization plan, the
profitable real estate operations were to continue under
a new entity, Hudson. & Manhattan Corporation, while
the unprofitable railroad operations, thus severed, were to
be placed in a wholly-owned subsidiary, Hudson Rapid
Tubes Corporation, respondent herein. (A.2) —
In the course of the reorganization proceeding the Secur-
ities and Exchange Commission rendered an advisory re- .
port to the bankruptcy court pursuant to Section 173, Ch. X
of the Bankruptcy Act, recommending approval of the pro- :
posed reorganization plan as fair and feasible. In evalu- —
ating the report of the, Trustee, the Commission noted:
* The office buildings were: also condemned i in this proceeding,
but the ultimate award for these buildings (approximately $18
million) is not an issue ) hers. ‘
?
aT ee
DARA CEM patina IT iat ABE tile Bar RNC ats
. 9
‘The report concluded that the Debtor, as a pri-
vate enterprise, could produce no. foreseeable return
to: its present security holders; consequently, the
only value would be the salvage resulting from liqui-
dation, which is estimated as of December 31, 1959,
at $2,573,800 for the. railroad properties exclusive
of the tunnels. In.an earlier report on the liquida-
tion value of the railroad assets, the engineers had -
arrived at a value of $525,000 for the tunnels on
.the basis of their use to carry telephone lines, re-
sulting in a combined liquidation value of $3,098,800.’
In the Matter of Hudson & Manhattan Railroad Co. *
Debtor, 39 S. EK. C. 852, 865.
‘The Commission’ @ final conclusion was as follows:
‘Accordingly, we conclude that the assets to be
acquired by the Railroad Company shouldbe valued
at not in excess of $3,500,000 estimated liquidation .
value for purposes of testing the feasibility and fair-
ness of the plan. The engineers’ value of $8,000,000,
which includes an evaluation of' the likelihood of a
_ Sale, is predicated upon many speculative factors and
‘assumptions; it bears little weight upon our conclu-
sion of value for purposes of this reorganization.’’
Id. at 866.
The ‘‘engineers’ value’’ referred to by the Commission
was that submitted by Ford, Bacon & Davis,* one of the
leading engineering and consulting firms in the country,
during the course of the reorganization proceeding:./That
firm valued the railroad ‘‘as an operating enterprise’ at
$8 million (PATH Ex. 203). Only a few months later, the
railroad had protested this $8 million valuation as exces-
sive, claiming before the New York State Tax Commission
that its properties had ‘‘no value on a going concern basis.’’ ©
(PATH Ex. 301). . '
The stockholders of the-old ilvens company appealed
to the United States Court of Appeals for the Second
Circuit from the district court’s ruling that they were not
entitled to participate in the newly-formed corporations.
The Second Circuit affirmed the district court’s decision,
*Ford, Bacon & Davis ultimately acted as respendent’s ex-
pert in the instant ne before the trial court.
10
sub nom. Spitzer v. Stichman, 278 F..2d 402. In rejecting
the stockholders’ argument that the railroad possessed
commercial value because of the likelihood that it might
‘be condemned by a public agency for continued operation,
the Second Circuit observed: .
‘‘The only invariable principle of ‘valuation in .
condemnation proceedings is that the award should -
reflect what the owner has lost; the criterion is not
what the taker has gained. Roberts v. New. York
City, 1935, 295 U.S. 264, 282, 55 S.Ct. 689, 79 L.Ed.
1429. In the absence of a market value, this may
properly be determined by what the property ‘brings
‘in the way of earnings to its owner.’ Monongahela
Navigation Co. v. United States, 1893, 148 U.S. 312,
328, 13 S.Ct. 622, 627, 37 L.Ed. 463. Where the prop-
er ty j is incapable. of producing earnings, ‘junk yalue’
/ may be appropriate. ”? 278 F.2d 402, 410.
Respondent Hudson Rapid Tubes Corporation emerged
from ‘the bankruptcy proceedings with approximately
$500,000 in cash. This amount was clearly insufficient for
the railroad to continue in private operation for more than
‘a brief period (A. 2). As respondent’s President ob-.
served. in the New York Supreme Court in July of 1962
at the beginning of the condemnation proceedings:
* “Tt is no longer possible for us, sir, to find the
money with which to replace our signal system, and
_it is time that it was dene. It is impossible, sir,,for
us to find the money to replace our ssid system |
which it is essential be done.
‘‘It is impossible, sir, in view of the competi-
tion—they have done a great job in bringing people
over—but it is impossible for us to find the funds -
with which to replace our antiquated car equipment —
which i in some cases is older than that of the city
transit system. Some of it is forty or even’ fifty
years old. : B R
‘‘It is essential to the safety. of the more than
100,000 passengers who ride the road each asp he-
tween New York and New Jersey that something
be done. We cannot do it. We have not si the funds.
11
_ “Now today we are safe, sir, but in view of the
condition of our signal system, in view of the condi-
tion of our equipment, I can not tell you what might
happen in the next ten days or thirty days. We are
_ running as best we can.’’ Official Transcript of
Proceeding before Mr. Justice Quinn, July 24, 1962,
pp. 43, 44, 45; read-in part in evidence on the trial
of this proceeding. ,
Faced with the imminent cessation of railroad opera-
tions in private ownership because of lack of funds, the
‘legislatures of New York and New Jersey enacted concur-
rent legislation in 1962 directing the acquisition of the
- railroad and related properties by The Port of New York
Authority, or a subsidiary thereof created for the purpose.
The bi-state legislation -thus required the Port Authority
“Yo take over the railroad to preserve its role-as a com-—
muter facility serving the Port of New York District.* -
The 1962. statutes of. New York and New Jersey were
expressly declared to be supplementary to, and amendatory —
of, the 1921 Compact which created ee Port Authority
(A. 150). The constitutionality of the statutory agreement
was upheld in Courtesy Sandwich Shop, Inc. v. Port of |
- New York Authority, 375 U: 8S. 78, rehearing denied, "375
U. S. 960, dismissing an appeal for want of a substantial
federal question from 12 N. Y. 2d 379, when attacked on
the ground, inter alia, that further Congressional consent
was required.
In enacting such legislation, the States were cognizant
of the fact—amply substantiated’ by the uncontradicted
evidence at the trial of this proceeding—that merely to
keep the railroad operating safely in the future would re-
quire a multi-million dollar rehabilitation and moderniza- |
tion program and that, no matter what improv ements
were made, the railroad would continue to incur substan-
tial sicabeed deficits. ?
* Petitioner ane Port Authority Trans-Hudson Corporation
(‘‘PATH’’), was created pursuant to this enabling legislation.
es
12.
This condition of the railroad was recognized by the
Interstate Commerce Commission in its granting of a
Certificate of Public Convenience and Necessity to PATH
on August 24, 1962. :
“a the Port Authority, through the applicant .
[PATH], is .willing to take over the operation of
‘the line for the benefit of the metropolitan area |
population of New Jersey and New York, knowing
that the operation will probably continue to incur
deficits, it should be permitted to do so. In-view of °
the present operating deficits,-it is doubtful that the
operation of the line’ could long continue otherwise.’’
317 I.C.C. at 361. - :
: 2 (
It was clear that a massive ‘infusion of public capital
was needed in order to restore the railroad to a reasonable
condition. Governor Rockefeller in 1961 noted:
“Asa privately owned and operating es |
enterprise it is, and wjll continye to be, an‘economic :
failure. It is presently in.the process of reorgani-
gation. It is extremely doubtful that the Hudson.
and Manhattan Railroad can continue to operate
under present arrangements for -more two
years.
‘‘Most of the rolling oaquigancuit of the Hudson °
and Manhattan Railroad is from 30 to 50 years old.
It has been estimated that to restore the Hudson
* and Manhattan to reasonably modern and efficient.
operation, a capital investment of over 40 million
dollars will be required.’* N. Y. Sess. Laws 2097
* (MeKinney rr
The two states were therefore careful to specify in,
directing public take-over of this railroad that:.
. Port Authority Trans-Hudson Corp.Acquisition’ and Oper-
ation—Hudson Rapid Tubes Corp., 317 1.0.C. 357.
** Judge Keating noted in his majority opinion for the Court.
of Appeals:' ‘‘The record reveals that much of the non-tunnel
property was severely deteriorated, and that an expenditure of
almost $32,000,000 would be pecemary to rehabilitate the non-
tunnel property. . * (A..9).-
ay 7
€e
i+]
18
“The owner of any property acquired by. con-
demnation or the exercise of the right of eminent ~
domain for any of the purposes of this act shall ’,
not be awarded for fon property any increment
above the just compe
states in which the property is located or has its
“4° gitus by reason of any circumstances whatsoever. ?
(A. 148) | <3
P Since approximately 65% of the vidivaiits physical }
plant was located in New Jersey ‘and the remainder in New -
York, the 1962 legislation provided that the courts of either
of the States could, in a single condemnation ‘proceeding,
determine the total value of the properties condemned. The
States agreed as well that ‘‘In any such action or pro-
_ ceeding the court or courts of the forum state shail apply
the laws of valuation of the other state (héreinafter some- -
times called the non-forum state) to the valuation of the
‘: property which is located or has its situs in the non-forum
state.’’ (A. 147-A. 148)
The legislation directed the Port Authority to deter-
mine in which State it was ‘to institute the condemnation
proceeding by estimating i in which State ‘‘the greater part
in value of all the property to be acquired”? was located.
(A. 147) Since the Port Authority was condemning not
only the railroad, but also the two office buildings (owned
by Hudson & Manhattan Corporation) which housed the
principal terminal of the railroads and since the office build; -
ings had been producing net income of a capitalized value”
substantially i in excess of the liquidation value of the rail-
road. (A. 26), the Port Authority, through PATH, insti-
tuted condemnation’ proceedings in the New York State
Supreme Court on J une 28, 1962. '
The decision by New York and New Je ersey directing
the Port Authority to condemn, acquire and. operate the
‘Hudson Tubes necessarily was based on a legislative
judgment which balanced the necessity for keeping the
. pailroad running against the‘ ultimate cost to the public
he
sation required by the consti-
tutions of the United States.and of the state or.
14
for the preservation of such a commuter service. Such
judgment, of course, was influenced by the various valua-
tions of the railroad which had been a matter of public
record throughout the bankruptcy proceedings prior to
the 1962 condemnation. These valuations, | as noted above,
had ranged between $3.5 and $8 million, and served as
indices for the states in making the difficult choice be-
tween abandoment and unavoidable costly; operation of
the railroad. ;
Valuation proceedings concerning ‘both the buildings
and the railroad were conducted in the New York State
Supreme Court during late 1964 and early 1965, following
the earlier litigation conterning the -constitutionality. of .
the enabling legislation prescribing the condemnation.
The decision of the lower pars rendered on December
_ 10, 1965, awarded the sum of $55 million for the railroad.*
The trial judge arrived at this figure by granting $30 mil-
lion for the four railroad tunnels under the Hudson River
(virtually the entire original cost of the tunnels, incurred
at the turn of the century), $20 million for the remaining
nor-tunnel properties, and an additional 10% of the $50
million already awarded, or an additional $5 million, as
going concern value. (A. 26)
Contrary to well-settled a New York and New
Jersey law, this award was based solely on the ground that
the railroad was condemned for continued operation. No-
where in its lengthy opinion did the trial court mention a
single New J ersey decision, nor did it refer to the Compact
provision requiring the award. not to exceéd the amount
‘required by applicable constitutional standards. It ignored
-PATH’s proof that the railroad’s maximum pecuniary
value to-réspondent was its value in liquidation. It likewise »
‘ignored PATH’s evidence showing: the epee market’s
-* As indicated earlier, the trial court also wean approxi-
mately $18 million for the buildings, but the latter award is no
longer an issue in the case. is
>»
15
y os
appraisal of theyrailroad’s value as well as the ‘‘cash throw-
off’? value of the railroad to the respondent.
The award of original cost:for the railread tunnels com-
pletely disregarded their technological obsolescence. This
obsolescence resulted mainly from their design which, ‘‘be-
cause of their size, and sharp curvature, has given them a
handicap which will last as Jong as the tunnels last. It
doesn’t prevent their use under certain conditions, but it
prevents the best possible use being made of them.’’ (Tr.
4902).* As Justice Stevens noted when the Appellate
Division later reduced the-award to $3.5 million:
‘‘The construction utilized here; with particular
reference to the tunnels, would not be used today.
These tunnels are much smaller in diameter than
other. commercial tunnels since constructed in the
_area, and are not readily adaptable, if at all, to mod-
ern improvements to mtet present-day needs in
order to make the enterprise a profitable one.’’
(A. 38)
Andi in the Court of Appeals Judge Burke, in his dissenting
opinion, described the tunnels as eo. and “badly:
" mended’’. (A. 13)
- In its objections to the iad court’s decree, PATH
argued :
‘“‘The awards violate the compact between the
States of New York and New Jersey (Ch. 154, Laws
of N. Y., 1921; Ch. 151, Laws of N. J., 1921), con-
. sented to by Congress (42 Stat. 174); under Article I,
Section 10, Clause 3, of the Constitution of. the
United States, as said compact has been amended
by Chapter 209, Laws of New York, 1962, and Chap-
ter 8, Laws of New Jersey, 1962, in that, contrary to
_.* Construction of the tunnels had been started in 1874 to accom-
modate streetcars and this resulted in tunnels smaller and contain-
ing sharper curyes than modern tunnels. It has been recognized
by all the New York courts which have considered the matter that
neither the tunnels nor the railroad would be reproduced by om
. today. aia 8-A. 9, A. 38, A. 119)
16
the specific mandate set forth in Section 14 of the
said 1962 legislation amending the compact, the
awards exceed just compensation required by the
Constitution of the United States.as well ‘as the just
compensation required | ‘by the Constitution of New
York for that portion’ of the condemned property
located in New York and by the Constitution of New
Jersey for that portion of the condemned property
located i in New Jersey. »? (R. 28).
‘In its ahnseneaih opinion relating to ‘PATH’s objections,
rendered on April 25, 1966, the trial court simply noted:
. ‘<The objections of petitioner, Port Authority
Trans-Hudson Corporation, to the Second and Last
Separate and Partial Tentative Decree of the court
filed February 2, 1966, in the above proceeding, with
respect to Damage Parcels 1 Through 53, are over-
ruled in their screed ?? (A. 129)
| On appéal ‘“ ‘the Appellate Division of the New York
- State Supreme Court (New York’s intermediate appellate
- egurt), the Court reduced the trial court’s $55 million award
to $3.5 million. Relying on traditional principles in the
law of condemnation, the Appellate Division, two Justices
dissenting, held that respondent was only entitled to an
“award representing the amount of its pecuniary loss occa-
sioned, by the condemnation. The Court, in reviewing the -
entire record, set this amount at $3.5 million.* (A. 46) _
| iaeundons thereafter’ appealed to the New York Court.
. of Appeals.** That Court, in an opinion by Judge. Keating,
acknowledged that ‘‘. . . the Araditional rule which has
evolved in condeinaation cases ... is that just compensation
requires only that the condemnee be paid for what he has
*In its brief to the Appellate Division petitioner argued that
any amount awarded in excess of the owner sg, economic loss would
violate the Compact. (PATH Br. 86-88).°
- *® Petitioner also filed a limited cross-appeal which, however,
is not relevant to or involved in the present petition.
17
lost and not for what the taker has gained. »» (A.5)* Judge
Keating, however, reasoned that since the railroad was
‘‘condemned for continuéd dedication to the same use to
which the owner liad dedicated the property’? (A. 3), the
Court did not have to abide by ‘‘the traditional rule’’.
Declaring that this case. was ‘‘sui generis and one which
requires an approach different from that generaNy fol-
lowed’’ (A. 11), the Court awarded $30 million for the rail-
road’s tunnels alone—a reinstatement of the trial court’s
awardcon this point—and remanded the rest of the case to
_the lower court for further proof as to the value of the
. remaining railroad properties condemned, instructing the
court however not to limit its award to, liquidation value.**’
(A. 10).
As in the Appellate Division, so aldo in the. Court of
Appeals, petitioner argued that the Compact would be vio-
lated if any award in excess of the pecuniary or economic
loss occasioned by the condemnation were to be granted.
(PATH Br. 74-75). The majority opinion, however, did
* While for the sake of simplicity, in light of the familiar
terminology of the cases, we must discuss the applicable law in
terms of contrast: between ‘‘value to the taker’’ and ‘‘loss to the -
owner’’, such terms by themselves are grossly inadequate to de-
‘seribe the true nature of the ‘property - of which claimant was
deprived in this case. Here, ‘‘value’’ to the taker was acquisition
of an antiquated, financially debilitated railroad which required
the expenditure of tens of millions of dollars and which would pro-.
duce nothing but financial losses for the indefinite future: - Here,
‘*loss’’ to the owner was an eagerly sought opportunity to rid it-
_ self of a commercial property incurring mounting losses, which
could not have continued in private operation for very long. These
are the realities with which this case is concerned.
** In accordance with New York practice, upon remand to the.
trial court, that portion of the case involving the tunnel and subway
properties was severed, and judgment was entered thereon for the
respondent against the petitioner in the-sum of $34,839,636.43, in- |
cluding interest. (A. 156-A. 158). Thus the judgment of the Court
of Appeals clearly is final. Radio Station WOW, Inc. v. Johnson,
326 U. S. 120. Cf., Sears, Roebuck & Co. v. Mackey, 351 U. S. 427.:
Execution upon this judgment has been stayed pending the action
of this Court.
A)
te, a es
18
not expressly mention the point, although the dissenting
opinion indicated that it must have been passed on.*
(A. 22)
Judge Burke’s dissenting opinion pointed out that the
majority was disregarding well-established principles of
condemnation law by ‘‘its new and radical theory”’ (A. 22).
He concluded that such action on the Court’s part violated’
in several respects the interstate Compact which author-
ized the condemnation, and thus presented ‘‘an important
question of Federal Law’’. (A. 23)
REASONS FOR GRANTING THE WRIT
This Court should issue a writ of certiorari in the
instant case because the integrity and future-viability of _
interstate compacts are at stake. This is a case where the
highest court of one of the comp&cting states has deliber-
ately failed to apply the express terms of an interstate
- agreement in several respects. In addition, the case in-
volves an important question of current National interest—
the valuation of a railroad incapable of profitable apes
tions. /
Under similar circumstances, involving an interstate
compact, this Court, as the supreme judicial arbiter of our
Federal system, has recognized a ‘duty to — a writ of
certiorari. . Thus, in Dyer v. Sims, 341 U. 8. 22, this Court
granted a petition for certiorari sought by commissioners
of an interstate agency on the ground that a decision of the
highest court of a compacting state violated the Compact.
This Court, in agreeing that the Compact had been violated
and in rectifying its violation, asserted that the determina-
tion of ‘‘the nature and scope of obligations as between
States’’ arising out of an interstate compact ‘‘is the func-
; * Thereafter, petitioner, in accordance with the usual procedure,
moved to amend the remittitur to show that the court had passed
‘ on the Compact question and it was duly amended to show that ©
PATH had properly raised and the court had rejected the federal
question wiseh is here in issue (A. 154-A. 155).
er Pig 3 ee ae
A a Re Tce shee
19° |
tion and duty of the Supreme Court of the Nation. 9 , Sal
U. S. 22, 28 (emphasis added).
The current railroad crisis is well known to this Court. iets
' See ae Court’s recent decision in the Penn- Central merger
-ease.* A three-judge District Court has been convened**
to consider suits by creditors attacking the correctness of
an order of the Interstate Commerce: Commission which
valued the assets of.the New Haven Railroad for the pur-
pose of its sale to the merged Penn-Central system on the
basis of a liquidation value, which they also contended was
too low. Creditor interests in the New Haven proceeding .
are complaining inter alia that the Interstate Commerce
Comniission did not follow the Coart of a istnil s decision
in this case.***
(a) The New York Court of Appeals Disregarded
the Compact Provision Relating to the Valua-
tion Criterion to be Applied
The 1962 agreement between the states clearly directed
‘the court to apply the principles of just compensation as
hey had been established in prior judicial decisions, and. |
to award only such amount for the properties condemned.
The principle of just compensation, whether viewed under
the Federal Constitution, or those of New York and New
Jersey, has always been limited to indemnification of the
condemnee’s loss, with any gain to the condemnor : being
irrelevant. Kimball Laundry Co. v. United States, 338
U. S. 1; Olson v. United States, 292 U. S. 246; Shoemaker .
v. United States, 147 U. S. 282; St. Agnes Cemetery y. State,
- 3N. Y. 2d 37 (1957); Curviev. Waverly & N.Y.B.R. Co., 52
N. J. L. 381,20 Atl. 56.
The decision of the Cqurt of Appeals here is a complete
evasion of that controlling principle. In awarding respond-
* Penn-Centrak and N. & W. Inclusion Cases, 36 U.S.L. W. 4093
(decided January 15, 1968).
** The Chase Manhattan Bank, N. A. v. United States of
America and Interstate Commerce Commission, 8. DNY., 68 Civ.
No. 306.
eee Td., Complaint, pp. 9-10.
ay a aa al
ent substantially the original cost incurred in construeting
its antiquated tunnel facilities at the turn’of the century,
the court ignored numerous precedents rightly declaring
original cost to be a false standard in the determination of
~ just compensation.* The court failed to discuss the only rel-
evant and material issue, the actual economic loss incurred
by the owner of the railroad as a result of the condemnation, |
and was seemingly overwhelmed by the sheer cost of the
four functionally obsolescent tunnels under the Hudson
River, much as’ one might be impressed and awed by the
pyramids of Egypt.** The court failed, however, to relate
such cost, however awesome, to the question of determining
* United States v. Toronto, Hamilton & Buffalo Navigation Co.,
. 38 U. S. 396, 403 (‘‘Original cost is well termed the ‘false stand-
ard of the past’ where, as here, present market value in no way
reflects that cost.’’); Onondaga ‘County Water Authority v. New
York Water Service Corp., 285 App. Div. 655, 662 (‘‘... . ‘original
cost’ and ‘present value’ are not equivalent terms.’’) ; Kinter v.
United States, 156 F. 2d 5 (admission of cost of improvements held
reversible error) ; Bowie Lumber Co. v. United States, 155 F. 2d
225 (exclusion of cost of 46-year-old building affirmed) ; Devou
—v. Cincinnati, 162 Fed. 633, cert. denied, 212 U. S. 577 (exclusion
of cost of elaborate 40-year-old building in once-fashionable
area which had ‘greatly deteriorated affirmed); Chicago v.
Giedraitis, 14 Ill. 2d 45, 150 N. E. 2d 577, 580 (exclusion of cost
of improvements affirmed; evidence designed ‘‘only to show the
appellant’s investment . . . was therefore clearly inadmissible’’) ;
Redevelopment Commission of Winston-Salem v. Hinkle, 260 N. C.
423, 132 S. E. 2d 761 (exclusion of cost of property purchased
ten vears earlier affirmed because no evidence was introduced to
show similarity of conditions at time of purchase and time of con-
demnation) ; State Highway Commission v. Anderson, 234 Ore. 328,
381 P.-2d 707 (admission of cost of improvements held reversible
error). See Brooks-Scanlon Corp. v. United States, 265.U. S. 106, .
123. See also 1 BonBriGHT, VaLUATION oF Property 429 (1937).
** Ford, Bacon & Davis had testified‘in the trial court that the
reproduction cost of such tunnels, if one were to reproduce them
today, would approximate a half billion dollars. Cross-examination
of the witnesses as to whether such reproduction cost had any rele-
vaney-in determining the economic value of the railroad as a busi-
ness enterprise was blocked by objections which the Appellate Divi-
- sion held should not have been sustained. (A. 32-A. 83).
21
the prior owner’s economic loss. This the Compact re- —
quired it to do by specifically directing that ‘‘just com-
pensation’’, as determined by Federal and State consti-
tutional standards, was to be the sole governing criterion.
The critical question, therefore, was and is: What are
‘the parameters of the constitutional requirement of just.
compensation? Until this case, all courts, federal and ~
state, were in accord with the pronouncements of this Court
that the determinative question was; What was the owner’s
economic loss as a result.of the taking?"
United States v. Cors, 337, U. 8S. 325, involved a statu-’
tory provision essentially similar to the one contained
in the Compact.** In the Cors case this Court held that the
statutory provision there in question was ‘‘coterminous’’
with the requirements of the: Federal Constitution. 337
U.S. at 332. Mr. Justice Douglas pointed out that the basic
principle embodied in both the statutory requirement and
‘ . the cases construing the constitutional mandate of just com-
pensation excludes ‘‘enhancement of value resulting from
the government’s special or extraordinary demand for the
* property’’.. 337 U. S. at 333. He noted that ‘‘The special
value to the condemnor . . . has long been excluded as an
element from market value’’. Ibid. And further:
*In Justice Holmes’ classic formulation: ‘‘. . . the question is
what thas the owner lost, not what has the taker gained.’’ Boston
Chamber of Commerce v. Boston, 217 U. 8S. 189, 195.
** The pertinent statutory language involved in the Cors case,
which involved Government requisition ofa steam tugboat, was
as — .
. When any such property or the use thereof wa so requi-
sitioned, the owner thereof shall be paid just compensation
for the property taken or for the use of such property, but in
no case shall the value of the property taken or used be deemed
enhanced by the causes necessitating the taking or use... .’’
(Emphasis supplied.) Merchant Marine Act of 1936, § 902, 49
Stat. 2015, as amended, 53. Stat. 1255, “6 U. & C. § 1242
ated
. ,
LYNTON EPP IIE EST RIES SE ADP EE ORE OE MY SL
a th Fa ie
ak oe?
Niel R ab DAN Se BSB Ot at. wiht Rectal NCEE Mh Telly KT ll DF me ONE DELP eh PN DO Pea athe AI AT OB A thea oat gt
“It is not fair that the government be’ required
to pay the enhanced price which its demand alone -
has created. ... the enhanced value reflects specula-
- tion as to what ‘the government can be compelled to
' pay. ‘That is a hold-up value, not a fair market value.
That is a value which the government itself created
and hence in fairness should not be weurer to pay.’’
337 U.S. at 333- ate
Just as this Court i in Cors held that he statutory provi-
sion fhere involved was coterminous with existing deci-
sional law on the subject, so the Compact provision here in >
question must also be interpreted in the light of settled law.
And it is \clear’ that such law prohibits the transformation
of the public need for such a commuter facility into an un-
warranted source of private gain to the former owner—
gain which Mr. Justice Douglas aptly characterized as
‘thold-up value’’.* 337 U. S. at 334.
Directly in point is this Court s statement in United
“States v. Miller, 317 U. S. 369, 375:
‘Since the owner is to receive no more than in- |
demnity for his loss, his award cannot be enhanced
' by any gain to the taker. Thus although the market
value of the property is to-be fixed with due consid-°
eration of all its available uses, its special value to
the condemnor as distinguished from others who may
or may not possess the power to condemn, must be
* It is equally clear, as respondent argued to the Court of Ap-
‘peals (in its memorandum opposing petitioner’s motion to amend
the remittitur), that the just compensation provisions of the Fed-
eral,*, New York and New Jersey Constitutions have always been
considered to be identical in meaning. The highest courts of both
States have cited this Court’s decisions on questions of valuation
interchangeably with their own. Under the decisions of this Court,
as well as under the previous rulings of the New York and New |
Jersey courts, the law categorically forbids compensating the prior.
‘owner on the basis of the public need, rather than that of his own
economic loss.
$403) ee ea os ee
23
excluded as an element of market value.’’ (citations
omitted).
In Miller, this Court had defined the constitutional require-
ment of just seleeiamiinion to mean that:
_- “The owner is to be-put in as good position
_ pecuniarily as he would have otcupied if his property
had not been taken.’’ 317 U.S. at 373.
Similarly, in Olson v. United States, 292 U. S. 246, 255;
this Court interpreted the constitutional standard to mean °
, that a condemnee :
‘must be made whole but i is not entitled to more.’’*
a
This ‘‘ouiding pringple of just compensation”? was
most recently restated by this Court in United States v.
Virginia Electric & Power Co., 365 U. 8. 624, 633. This
is the principle supported by all New York and New Jer-
sey precedents on the point, which the Compact directed:
be applied in the present condemnation proceeding. ' Tlie
New York Court of Appeals, by ignoring such precedents
in valuing the railroad, violated the Compact and committed
error which requires correction. |
The critical error in the Court of Appeals’ opinion lies
in its apparent inability to reconcile the fact of PATH’s
continued operation of the railroad with the fact that re-
spondent’s peeuniary loss as a result of condemnation is
*The Court of Appeals’ ruling is directly contrary to this
Court’s decision in United States v. Chandler-Dunbar Water Power
Co., 229 U. S. 53, 80 where it said:
‘‘That-the property may have.to the public a greater value
than its fair market value affords no just criterion for estimat-
‘ing whaf the owner should receive.’
and sania ae a
. in a condemnation proceeding, the value of the property
to the Government for its particular use is not a criterion.’’
(229 U. 8. at 80-81. ote wre, , @
@
é
°° ' 24
fairly represented by an amount equal to the liquidation
value of the railroad. Liquidation value for an enterprise
which the Appellate Division stated is ‘‘inherently imeapa-
ble of profitable operation’’ (A. 45), however, has already |
been’ acknowledged as proper by this Court in Kimball.
Laundry Co. v. United States, 338 U.S. 1, 9:
‘‘(T]he value of specially adapted plant and machin-
ery exceeds its value as scrap only on the assumption
that it is income-producing.’’
And Justice Cardodo stated i in Roberts v. City of New York,
295 U. S. 264, 282:
‘‘Substantial prices are not paid for the privilege of -
conducting a business at a loss.’’ .
In directing that no more than ‘‘just compensation”’’ be
awarded to the former owners of the railroad, the States
sought to avoid the precise result now wrought by the
Court of Appeals’ decision, the unjust enrichment of specu- ©
lator interests at the expense of the public. This fact was
noted by Judge Burke in his dissent, and also by Justice.
Steuer in ‘his concurring opinion in the Appellate Division, -
where the award was reduced to $3:5 million. Judge Burke
_expressed dismay over the majority’s ‘‘judicial ‘solicitude
for those financial interests, whoever they may be and
wherever they may be located, that have seized upon this
railroad as an object for ‘speculation. ” (A. 23) Justice
Steuer recognized the magnitude of the windfall speculators
would receive if the trial-court’s award were undisturbed,
_ pointing out that a windfall of over $34,000,000 would have
been granted to the shareholders (A. 52).
_ The record demonstrates that the, investing public
valued all of the securities of this interurban railroad prior
to the news of condemnation, after éxcluding ‘the appraisal
value of the buildings and miscellaneous property not con-
demned, in a range between $1 million (A. 43) and $3.8 mil-
*
‘
25
_ lion (A. 39), thus confirming that all that the prior owners
, ,
lost: was a value equivalent to liquidation value.
This Court recently noted in United States \ v. Rands,
_ 389 U. S. 121, 126 that:
. special values arising from access to a nav-
igable ‘stream are. allocable to the public, ‘and not to. .
private interest. Otherwise the private owner would
receive a windfall to which he is.not entitled.”’
So, too, in the present case, the special value inherent,.in "8
the public’s acknowledged need for the continued operation
of this railroad cannot be inflated into a multimiflion dol-
lar windfall for venturesome investors. o
' Nothing in-the record indicates the owner’s loss. ex-
ceeded an amount between $3.5: million (as determined by
the ‘reorganization court, the Securities and Exchange
Commission and the Appellate Division) and-an outside
figure of $8 million (based upon an optimistic opinion of
Ford, Bacon & Davis (PATH Ex. 203), officially repudi-
ated by the railroad three months later as excessive (PATH
_ Ex. 301)), and any amount.in excess thereof was,constitu-
tionally improper. The New York Supreme Court has now
entered a judgment for $34,839,636.43 for the tunnels alone
(A. 158), and, under the mandate of the Court of Appeals,
it must determine how much more is to be awarded for the
non-tunnel properties and going concern value, if any,
‘ after further consideration based upon the criteria laid
down by the Court of Appeals.
(b) The Court of Appeals Disregarded the Com-
_ pact Provisions by Ignoring the Controlling _
New Jersey Precedents
In authorizing the courts of one state (New York) to
value that portion of the Hudson Tubes located in the other
state (New Jersey), Section 14 of the 1962 legislation pro-
vides :
In any such leckdicamatinn' action or pro-
oseiding ‘the court or courts of the forum state shall
eo
26 | : i"
_—" the firs 0 of valuation of the other state (here-
inafter sometimes called the nonforum state) to the.
value of the property which is located or has its
situs in the nonforum state ...’’ (A. 147-A. 148)
Whatever might have been the’ power of the New York
Court of Appeals to fashion an ad hoc principle of valua-
_tion for the New York portion of the railroad (absent the’
Compact and the restrictive legislation to which we have
referred), it is clear that under the 1962 Compact legisla-
tion the New York courts were expressly required to apply
New Jersey: principles of valuation law in valuing the great
bulk of the railroad. which was physically located in New
Jersey. This the Court .of Appems refused to beadh even
though it concluded;
“<The Appellate Division’ correctly Suink that.
the traditional rule which has evolved in condemna-
.tion cases, is that just compénsation requires that
- the property owner be awarded in cash an amount
equivalent to the value which the property had in
_ his hands—i.e., the sum of money which he could
- have realized i in an uncoerced sale in the oper mar-
- ket to a willing buyer. More* precisely stated, the
rule is that just compensation requires only that
the condemnee be paid for what he 7 lost and not
for what the taker has gained.’’ (A. 5)
Solely because the railroad was condemned for con-
tinued operation in the public use, the Court of Appeals
called this case ‘‘sui generis’’ and adopted an ad hoc rule of
valuation, ostensibly for this case alone. Significantly, it
reached this result without once mentioning the relevant
Compact provisions, or New Jersey law, although the |
Court discussed in detail many Federal and New York
eases. Only after it decided the issue did the Court allow
that ‘‘a brief discussion of New J ersey law is appropriate.”’
ae 10)
. “The New J ersey. law i in this area is similar to
‘the general rule which prevails in this and the fed-
- eral jurisdiction.’ (Currie v. Waverly, etc. R. R., 52
N. J. 387, 395, 20 A. 56, 58: City of Trenton v. Lenzer,
16 N. J. 465, 478, 109 A. 409, 416 cert. denied 348
U. 8.972).”” (A. 11)
27
This is the only discussion. of New Jersey law found in the
- entire ‘opinion, and the Court refused to. follow. the rule
set forth in the cited New Jersey cases, saying:
‘‘For the reasons we have outlined, we regard
this case as sui generis and one which requires an
approach different from that generally followed.”’
(A. 11)
Although the Court of Appeals acknowledged that ‘‘the
rule which was applied by the Appellate Division is one of
general acceptance,’’ (A. 6), it, nevertheless, fashioned a
new rule for tHis case in New Jersey (as well as in New
York), ignoring the intent behind the’ Compact provision, -
closely analogous. to the obligation of the Federal courts
in diversity cases ‘‘to ascertain what the state law is, not
what it ought to be.’? Klaxon Co. v. Stentor Electric Mfg.
Go. Inc., 313 U. 8. 487, 497.
The dissenting opinion by Judge Burke ie points
- up the Court’s failure to abide by the language of 1
Compact:
“The court in. reaching today’s Pee pays.
lip service to the mandate it is, under to determine . .
the award for the New Jersey properties here in
question under the requirements of the New Jersey
and federal constitutions, but it is not an open
question what the New Jersey and federal author-
ities hold. They expressly reject the notion that
special or unique value to the taker alone, the basis *
upon: ‘which the majority’s suggested award is
founded, may be considered in determining just
compensation. = (A. 21)
Judge. Burke noted that the leading Ne ew Jersey decision
on this. point speaks ‘‘in terms so unambiguous that one
would not think its view could be disregarded’’. (A, 21)
In Currie v. Waverly & N. Y. B..R. Co., 52 N. J. L. 381, 20.
Atl. 56, still the leading New J ersey authority on the ques-
tion, the highest court of New Jersey had before it almost
* the precise question which faced the New York Court, of
Appeals in this case—whether the particular use’ which
the condemnor was going to make of the property affected
(8
its value in determining the just compensation- to be
- awarded.- The New Jersey court answered the question in
the negative :
“Tt is for the o owner’s deprivation of any existing
value that he is to be compensated. Neither the in-
- dividual advantages to the party acquiring the land,
nor the necessity of its acquisition, can be considered
in computing the loss of the land to the owner. . .:.”’
52 N. J. L. at 395-396, 20 Ati. at 58.* .
But this is precisely what the New York Court of Ap-
_ peals did in the present case—it valued the: railroad solely
on the basis of the alleged advantages accruing to the public
. condemnor—advantages which had no bearing whatever on
the owner’s economic loss occasioned by the taking. °
(c). This Court Should Preserve The Integrity of
Congressionally-Sanctioned Interstate Com-
pact Provisions
‘In Dyer v. Sims, 341 U. S. 22, a case orn here by
writ of certiorari, this Court said:
‘It requires no elaborate argument to reject the sug- _
gestion that an agreement solemnly entered into be-
tween States by those who alone have political
authority to speak for a State can be unilaterally
nullified, or given final meaning by an organ of one
of the contracting States. A State cannot be its own
ultimate judge in a controversy with a sister State./
‘To determine the nature and scope of obligations as
between States, whether they arise through the legis-
lative means of sitady as or the ‘federal common law’
* As the present New. Jersey Supreme Court recently stated in
State v. Burnett, 24 N. J. 280, 288:
‘*the constitutional requirement is satisfied by a sum of money
which fairly represents the transferable value of the property
in the market place.’’
In support of this statement, the New Jersey Supreme Court cited —
two decisions of this Court, Olson v. United States, 292 U. S. 246,
and Kimball Laundry Co. v. United States, 338 -U. S. 1, adopting
their holdings as the law of New Jersey. See also State Highway
Comm’r v. National Fireproofing Corp., 127 N. J. L. 346, 351.
29
governing interstate controversies ... is the func-
tion and duty of the Supreme Court of the Nation.”’
341 U. S. 22, 28.
Delaware River Joint Toll ‘Bridge Commission y. Col-
burn, 310 U. S. 419, is a case virtually identical to the
present one. There, as here, an interstate agency, éreated
by a bi-state Compact that had received the consent of .
Congress, sought a writ of certiorari to review an adverse __
decision by the highest court of one of the compacting |
states construing its Compact, and this Court granted.the
writ. _In that case both the old New Jersey Supreme
Court, as well as the Court of Errors and Appeals, had
held that a Congressionally-sanctioned interstate Com-
pact between New Jersey and Pennsylvania had obligated
the Bridge Commission to pay property owners consequen-
tial damages caused by the construction of a highway ap-
proach to one of the Commission’s bridges.
The New Jersey courts reached this result by constru-
ing a 1912 New Jersey statute (which=was incorporated —
- by reference into the 1934 compact creating the Bridge
Commission) in the light of Pennsylvania law. The 1912:
act was passed in pari materia with a similar Pennsylvania
statute and the New Jersey courts, believing that the Penn-
sylvania constitution required payment for this kind of
consequential injury, interpreted the New Jersey act in
accordance with what they believed to be the requirements
of Pennsylvania law. |
‘This Court, held that it had jurisdiction to review, by
writ of certiorari, this decision by the highest court of a
‘ compacting State construing an interstate compact:
‘|. . we now conclude that the construction of such
a " compact sanctioned by Congress by virtue of
Article I, § 10, Clause 3 of the Constitution, involves
a federal ‘title, right, privilege or immunity’ which
when ‘specially set up or claimed’ in a state court.
may be reviewed here on certiorari under § 237(b)
of the Judieial sai 28.0.8. C. § 344.” 310 U.S. 419,
427. | 7
30
Mr. Justice Stone’ s language is fully applicable here. —
First, as previously noted, Courtesy Sandwich Shop, Inc.
v. Port.of New York Authority, 375 U. S. 78, rehearing
denied, 375 U. S. 960; dismissing for want of a substantial
Federal question an appeal from 12 N. Y. 2d 379, holds
that the interstate Compact here in question was ‘‘sanc-
tioned by Congress’’. '
Second, the Federal question raised by. the interpreta-
tion of the Compact was ‘‘specially set up or claimed’’ in
the New York State courts and therefore ‘‘may be reviewed
here on certiorari’. As previously noted, petitioner spe-
cifically pointed out to the trial court that its proposed
award would violate the Compact’s provisions (R. 28)
and,-in each of the New York appellate courts, including
the Court .of Appeals, petitioner pointed to the applicable
Compact provisions and informed the court that any award
for the railroad in excess of the prior owner’s economic
loss would violate the Compact. The-Federal question which ;
PATH now raises before this Court was, therefore, raised
before the New York Courts.’ The amendment which the
New York Court of Appeals made to its remittitur is con-
clusive on this point. Under these circumstances, this
Court should grant the writ and construe and enforce the
Compact, aceording to its express terms.
Here, as in Colburn, the highest court of :a compacting
State has construed an.interstate Compact in such a manner
as to impose on an interstate agency a cost for which the
agency.claims it is not liable under the terms of the Com-
pact. As in Colburn, this Court alone is in a position to
determine whether the courts of one State have properly
determined the law of the other State in construing the
Compact between the States.
The effective future use of interstate compacts requires
that the courts. enforce them according to their terms.
Since the decision of this Court in the Colburn case in 1940
the use‘of the interstate compact as an effective means for
joint state action has expanded greatly: The range of
subject matter of these compacts is extremely impressive :
31 - oan
allocation and conservation of waters; flood control; water
pollution control; management of fisheries; control of forest
’ fires; harbor management; development of multi-state. met-
ropolitan areas; construction and operation of interstate —
_parks ; conservation of oil; regional development of higher
education ; modernization of parole and probationary
procedures. . a ° .
It would seem clear, however, that, if the compact is to
be a continuing effective device in the implementation of
such joint activities, the courts of the compacting states
must adhere to the express provisions of the compact when
such are clearly applicable to judicial proceedings pending
before those courts. As is evident from the instant case,
where the highest court of one of the compacting states has
ignored the language of the compact and entered a judg-
ment affecting.a bi-state agency, clearly contrary to its ~
terms, this Court should provide the appropriate judicial
review to rectify the situation. — | —
(d). This Case Involves A Question of Current
National Importance ne Consideration
by this Court
The National importance of this litigation is illustrated
by the fact that only two weeks after the New York Court of
Appeals’ decision, ‘the Interstate Commerce Commission
rendered : an opinion valuing the New Haven: Railroad in ©
connection with its forthcoming acquisition by the merged
Penn-Central system. The Commission found that like the
' Hudson Tubes, the New Haven is both essential and inher-
ently incapable of-profitable operations: The Interstate Com-
merce Commission found that ‘‘the total value of the New
Haven sold [to an assumed public body] as a going concern
is less than its liquidation value.’’** It therefore found
Leacu AND Sues, JR., THE ADMINISTRATION OF INTERSTATE
Compacts (1959):
** Pennsylvania Railroad Co. —Merger—New ‘York Central
Railroad Co.,1. C. C. Finance Docket.No. 21989, pp. 20, 62.
{>
aN a i ect ls
acl to ch ah a hey iti
i i i aay a
that liquidation value _" constitute ‘‘ just. and adequate
compensation, ’’*
The. determination of the Interstate Commerce Com- |
mission is now being challenged before a three-judge Fed-
eral Court in actions brought by creditor interests of the
- New Haven Railroad against the United States of America
and the Interstate Commerce Commission. An important —
contention in that litigation is that the Interstate Commerce .
Commission erred in not following the ruling of the New
York Court of Appeals in this case. ‘Thus, cteditor in-
terests are now contending on the basis of the Court of
| Appeals’ decision that the Interstate Commerce Commis-
sion ‘‘erroneously gave no weight.to the going concern
value of the New Haven on the ground that its operations
have been conducted for some years at a deficit.’’** The
creditor interests have pointed with precision to the ‘simi-
larity between the situation of the New Haven Railroad
and that of the Hudson Tubes. They noted that the New
York Court of Appeals’ decision:
‘«. . . involved the Port Authority’s acquisition by
condemnation of the railroad properties of a corpora-
tion which were,-: ‘and would-continue to be, operated
at a loss.’’***
They pointed out that because. of the deficit nature of
‘Hudson Tubes operations:
“«. . . the intermediate appellate court in New York
had awarded only scrap value for the railroad prop- ,
erties and had rejected the corporation’ s claim for
going concern value.’’****
* Ibid. p. 115. (il :
'. ** Complaint, The Chase Manhattan Bank, N. A. v. United
States of America one Interstate Commons Commission, S. D. N. Y,,
68 Civ. No. 306, p. 9. a
*** Td., p. 10.
Ptr Ibid.
—_ ip site jee Rich £5 i cath ti NRRL Sic fata RRS
> . -
/
However, they emphasized that the Court of Appeals i
reversed and held:
“| that the Port Authority a should pay for the
property depreciated original cost and not. merety
liquidation value and, since the property was -ac-
quired for operation, ‘that there should also be an
award for going concern value.’’*
-
Therefore, on the basis. of the Court of Appeals’ Pn
sion the creditor interests urge that the Interstate Com-
merce Commission erred in valuing the New Haven Rail-
road. :
The correctiiess of the Interstate Commeree Commis-
sion’s order valuing the New Haven Railroad will ulti-
mately come before this Court for decision. Accordingly
Judge Keating was incorrect w hen he said that the Hudson
Tubes valuation problem is ‘‘sui generis’’, On the con-
trary, it involves an important National issue .which has
occurred in both ‘the Hudson Tubes and New Haven’ suits
.and which most likely will reoccur again in the future.
We have earlier noted that this Court has pending be-
fore it a motion by the State of New Jersey for leave to
file a complaint in an original suit against the State of New
York and Hudson Rapid Tubes Corporation challenging
the award which we seek here to have reviewed by writ of:
certiorari. We submit that the judgment of the Court of
Appeals should be directly reviewed by a } oo of this
_ petition. ,
* Ibid.
pha ggisas \eiibteh tow, BAS Ba Sa as tent ye LWT eRe nk Vie
| Conclusion
¥or the foregoing reasons, this petition for a writ of
certiorari should be granted.
Rasen submitted, ,
Siwney GoupstEIn,
General Counsel, The Port of ve ew
York Authority,
Attorney for Petitioner,
JoserH LEssER
TsoBpeL E. Murryeap
Mrzton H. PacutTer
Wuuitney North Seymour
_Joun A. GuzzETtTa
Artuur I. SETTLES
James J. HaGan |
‘Simpson TuHacuer & BaRTLerr, |
Of Counsel ©
3 anuary 26, 1968
sy
ben " : - Se» ee re ed » ’ or, . et Bi
“ SS ‘ . .
-Al
| ’ APPENDIX A
Opinions of the New York Court of Appeals
_ Opinion per Keating, J. | |
Keatinc, J. The Hudson Rapid Tubes Corporation and
the Hudson and Manhattan Corporation were the owners
and operators of an interurban. electric railroad system °
commonly known as the Hudson Tubes... The facility which
has been in operation since 1911 carries some 28,000,000
passengers yearly and over 24% of the daily rush hour
- commuters between New York City and its New J ersey
suburbs. a
The Tubes have not, however, aalniied the financial sue-
cess which these figures might indicate. From its inception
the Tubes encountered financial difficulty which continually
plagued its operation. These difficulties, though initially
due to the poor financial structure of the corporation .as
well as inefficient management, were compounded in recent
years by a tremendous decline in the number of commuters
_ as well as increasing labor costs.
The construction of bridges and tunnels opened the
gates of New York City to millions of automobile and bus
commuters who would otherwise use.the Tubes. In addi-
tion, improved labor conditions since the 1930’s served not
only to increase the cost of operating. the facility but also
contributed to the passenger decline by reducing the work
week from 6 to 5 days. All these. factors combined ac-
counted for a decline in passengers from 113,142,000 in
1927 to 28,000,000 in 1964.
Moreover, the ready availability of sharaadtes forms of
transportation via the tunnels and bridges limited the effec-
tiveness of fare increases in coping with: the desperate finan-
cial situation brought about by the loss in passenger service
and increased labor and maintenance costs.
- The situation was such that the corporation which had
operated the Tubes was forced into reorganization under
the Bankruptcy ‘Act. In this reorganization, completed in
1961, all the shareholder interests, both common and pre-
ferred, were wiped out; unsecured creditors were paid in
cash at the rate of 10 cents on the dollar and the railroad
a
A A a CR rd eat Tht ave WI Rad
: Opinion per Keating, J. ;
operation was severed from -the building structures in
order fo prevent ‘the deficits of the former from causing
~ the financial. demise of the latter. Under the plan, the
building properties were placed in a new entity, the Hudson
and Manhattan Corporation, while the railroad operations
were to be, condueted by a wholly owned subsidiary, the
- Hudson Rapid Tubes Corporation. he latter was provided
with approximately $500,000 in cash, an amount woefully
inadequate to meet the long-neglected maintenance needs
of the corporation. a
_ Yet, despite its poor financial condition, the. Tubes re-
mained an essential public facility, without Which the
remaining interstate facilities were incapable of transport-
_ ing the thousands of persons who commuted daily between
New York City and New Jersey...
| Given the essentiality of this facility and, faced not only
with the bleak past but with the dim financial future of
the Tubes, .the Legislatures of both the States of New York
and New Jersey determined ‘that the continued operation
of the facility could only be continued under public owners
ship. Therefore, pursuant to bi-State legislation (L. 1962,
ch. 209; N. J. L. 1962, ch. 8), the petitioner, Port Authority
Trans-Hudson Corporation (PATH), a wholly owned sub-
sidiary of the Port of New York Authority, condemned ‘the
property of both the Hudson and Manhattan Corporation
and the Hudson Rapid Tubes Corporation.
The Supreme Court’ (Special Term) made an award of
- $55,000,000 to the Hudson Rapid Tubes Corporation for its
railway property and an award of $17,996,000 to the Hudson
and Manhattan Corporation for its buildings. Interest on |
the IIudson Rapid Tubes award was granted at the rate of
4% per annum on that portion of the property ‘situated in|
New York State and at the rate of 6% on the physical assets
situated in New Jersey. By stipulation, the railway prop-
erties were allocated 65% to New Jersey and 35% to New
York. Interest on the award to the Hudson and Manhat-
tan Corporation for its real property was also limited to 4%:
A3
=e
_ Opinion per Keating, J.
The Appellate Division, two Justices dissenting, modi-
fied the award to Hudson Rapid Tubes from $55,000,000 to.
$3,500,000. The basis of the Appellate Division’s ruling .
was that, because of the poor financial sg ad the cor-
poration, there. would be ‘no prospective ercial pur-
chasers available on the open market and, therefore, under
traditional rules, the only value which the property had to
its owners was liquidation or scrap value. The Appellate
Division also reduced the rate of interest on the properties
situated in New Jersey from 6% to 4%. ;
The claimant-appellant, Hudson Rapid Tubes Corpora-
tion, appeals from the Appellate’ Division order, alleging
that the court erred in pr edicating its award on salvage or
scrap value. It asks us to increase the award to $127,000,-
000. In addition, \it asks reinstatement of Special Term’s
interest award of 6% on the New Jersey property and, °
along with its parent, Hudson and Manhattan Corporation, oe
it asks us to strike down as unconstitutional New York’s a
statutory award of 4% interest as it applies to the New |
York property for the period after January 1, 1966.1 |
The condemnor, Port Authority Trans-Hudson Corpora-.
tion, also appeals from so much‘ of the order of the Appel: —.
late Division as included in its award $500,000 cash which
was not appropriated.
The first and most important issue which must he de-
cided on this appeal is the question of what constitutes &§
just compensation to the owner and operator of an essential |
public facility when ifs property is condemned for continued
dedication to the same use to which the owner had dedi- -
cated the property. “It is essential to the resolution of this
question to consider first what was actually taken. Special
Term divided the property’ into two classes, the tunne!
pr operty and the non-tunnel property.
LOO EEE eT .
‘ 1 This is: the “a portion of the order of the Appellate Di-.
vision from which the Hudson and Manhattan Corporation appeals.
: Opinion per Keating, J.
ze “Phe tunnel pr operty upon W hie it placed an evaluation
of $30,000, 000 included : ;
: (a) | ‘Four single-track railway tunnels under the Hudson
Riv er, thy 0 6,600 fe long and the other two 6, 060 in length—
aking a total of 253200 feet, or about 4%/, miles of sub-
_ . aqueous tunnels.
(bd) Subtorranean tunnels or subways, which connect
the river tunnels to the railway’s terminals—at Church
Street and at 33rd Street in Manhattan: and at Hoboken
and Jersey City—including nine stations which are integral ~~
parts of these subway tunnels: The entire, railw ay system
‘~™easures,.as double track, 7.9 miles in length, of which the
subterranean” tannels or “subways are shout 5.4 miles in
length. '
For’ this property, whieh w onld’ cost in excess of $400,-
‘000,000 to reproduce arid would require an expenditure of
_\only $88,000 to put in perfect working order, the Appellate
Division awarded virtually nothing, since the property
W ould i in liquidation’ bring at most.a nominal sum, if that.’
. The ‘non-tunnel_ property, for which Special Term
awarded $20,000,000 plus an additional i increment of $5, 000, -
~000 for gding concern value, included:
(a) Generally speaking, all the non-tunnel, properties, )
_Ineluding 223 passenger cars; .
(bd) the signal system, track and. roadbed ;
£. (ce) clectr ical transmission, distribution system, commu--
‘nication system and compressed air system;
-{d) structur es, including repair shops, electrical substa:
_ -tions and surface passenger stations ; :
(e) emergency: ‘fans and blower 2. tunnel drainage and
sew ‘age ejection systems; and |
f ) shop equipment, tools, change booths, turnstiles, ete.
2 Indeed, it appears that upon liquidation it ‘would cost at
least $100,000 to plug up the tunnels.
a ian abe nama Na
Ad
Opinion per K eating, J
For this non-tunnel property, the: Appellate Division
awarded approximately $3,000,000. Of this, $1,700,000 cov-
ered the cost of recently purchased. railroad cars and
$1,300,000 the remainder. The Appellate Division also held
that, because of the unprofitability of the business -enter-
prise, no separate award for going concern value was .
justified.
We hold that the Appellate Division erred in ‘its aie
sition, that its decision, particularly as it relates to the
tunnel property,’reaches a harsh and unjust result and is
neither compelled nor warranted by precedent. Le
The Appellate Division correctly observed that the tradi-
tional rule which has evolved in condemnation cases is that
just compensation requires that the property owner be
awarded: in cash an amount equivalent to the ‘value which
‘the property had in his hands—i.e., the sum of money which
he could have realized in an uncoerced sale in the open
market to'a willing buyer. More precisely stated, the rule
is that just compensation requires only that the condemnee
be paid for what he has lost-and not for what the taker
has gained.
A problem like this, however, cannot be dealt with dog-
matically. One commentator has described ‘‘value to the
taker’’ as being ‘‘One of the most confusing aspects of the
theory of valuation under the law of eminent domain”’
(1 Orgel, Valuation Under Eminent Domain [2d ed., 1953],
p. 301). The decisions are not always helpful. The oft-
cited opinions of Mr. Justice Houmes in City of Néw York
v. Sage. (239 U. S. 57) and McGovern v. City of New York
(229 U. S. 363) both dealt with the claim of a farmer whose
_.property -was taken, along with many other parcels, to
establish a reservoir site. The court corregtly rejected the
_ owner’s claim that he be compensated on the basis of reser-
voir values, since the reservoir was created by the assem-
blage made possible solely by the condemnation itself.
The present case is in sharp contrast. We are here con-
cerned with a property which has a usefulness created by
OF EIN SIE TT NEE PT PEERY GE
es AL Ohi CTE ER Raa cg AT ale OS Nel Oat
A6
Opinion per Keating, J.
the owner himself through the expenditure of large sums
of money and by the continued operation of the property
for the very purpose for which the petitioner is acquiring
the property. It is the owner who built the ‘‘reservoir’’—
the Tube railway system in the present case. This owner |
has. developed its property at a cost of millions of dollars
and operated it for mare than 50 years. It is admittedly
of great usefulness in the daily*transportation of thousands
of commuters. A condemnor should not be permitted to tell ..
. him: ‘‘It’s only worth serap or less’’.
While the rule which was applied by the Appellate Divi-
sion is one of general acceptance’ (1 Orgel, Valuation Under
Eminent Domain, supra, p. 353) and achieves a reasonable.
and just result in most cases, neither this court nor the
‘Supreme Court of the United States has ever attempted
‘‘to prescribe a rigid rule for determining what is ‘just
compensation’ under all circumstances and in all cases.
Fair market value has normally been accepted as a just
standard. But when the market value has been too difficult
to find, or when its application would result in manifest
injustice to the owner or public, courts have fashioned and.
applied other standards.’’ (United States v. Commodities
Corp., 339 U. S. 121, 123 [emphasis added]; United States .
v. Virginia Elec. Co., 365 U: S. 624.)
Thus, in Matter of City of New York (265 N. Y. 170), -.
involving the condemnation. of an elevated railroad spur _..
for the purpose of destruction, we sustained an award for
the easements of light and air for which the condemnee.
was required to pay when it constructed the elevated rail-
road. Although the railroad facility in question was losing.
money and the easements had no value to the railroad upon
the cessation of operations, we upheld an award predicated
upon original ‘cost.. Chief Judge Pounn, speaking for the
court, wrote (p. 181): ‘‘The contention of the city, that
the railroads are entitled to no compensation, is based on ~~
the arghment that these rights were - tio use to the rail-
«Secale aa Da area
AT
Opinion per Keating, J.
roads. except as they were compelled to acquire them to
operate and of no value except to a going concern, has some:
logical force, but such rights were obtained in order to per-
mit the roads to exercise their franchise in the street in F
perpetuity, and when the city terminated such rights it.
should fairly compensate the roads for the loss of such ..
rights.’ a
It is true that we sustained in that case an award of — q
scrap value for the actual structures. Unlike the case at
bar, however, the structures were useless and were being
condemned for destruction. Likewise, no award was al-
lowed for the franchise which the corporation received with-
out cost from the State, albeit they were required to ex-
pend large sums of money to acquire the easements. The ©
court quite properly felt that the reimbursement for the
cost of these easements was sufficient under. the circum- _
stances. .
We note that the Supreme Court in affirming our deci-
sion as to the value of the structure wrote: ‘“The structure
was appraised as junk, the city having undertaken to bear
the cost of removal. Such an appraisal might be too low f
were ut not for the award for the private easements. To. a F
realize the value of those easements, an abandonment of i
the spur was necessary. ‘The railroads could not release
their rights to the abutting owners. and continue to operate
their railroads in the street.’ * * * The structure in the
- eireumstances had no value except as scrap.’’ (Roberts v.
City of New York, 295 U. S. 264, 284, per Carpozo, J. [em-
phasis added].) .
Most recently in Matter of City of New York (Fifth
Ave. Coach Lines) (18 N Y 2d 212, 225) we likewise de-
parted from the “general rule where to do otherwise would
have, in the words of the Supreme Court, resulted in
. ‘manifest injustice to the owner’’ of the property. In that
case both lower courts and this court awarded amounts far
in excess of ‘what could have been realized on the open
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market because of the financial condition of the condemnee.
We felt it would not conform to traditional standards of
equity and justice to permit the city to break the company
financially and then pick up the pieces at a highly de-
preciated rate.*
We are well aware of the debian between this case
and cases we have just cited and discussed. Nevertheless,
the common thread which runs through all of them is that
just compensation requires a result which is ‘‘ ‘just’ both
to an owner whose property is taken and to the public that
must pay the bill’’. (United States v. Commodities Corp.,
339 U.S. 121, 123, supra.)
Can it be said by any objective standard that an + denial
of scrap value—nothing—is fair and just for the tunnel
property, an essential part of an essential public facility,
which cost some $32,000,000 to construct, which would cost
in excess of $400,000,000 to reproduce and which, with some .
minor expenditures, will function as good-as new for an in-
definite period? We think not. As the Supreme Court
noted in another context: ‘‘It involves a practical contra-
diction of terms to-say that property useful and actually
used in.a public service is not to be estimated as.having the
value of property in use, but is to be reckoned with on the
basis of its ‘junk value.’ ’’ (Denver v. Denver U dion Water
Co., 246 U. S. 178, 191 [1918].)
On the other hand, we cannot ignore the factors which
militate against a recovery of the kind suggested by the
- condemnee. We eannot ignore the unprofitability of the
corporation. That is a very significant factor. We cannot
ignore the reasons for this unprofitability. Nor can we
ignore the fact that, while these tunnels are adequate to
meet the needs of the condemnor, for an indefinite .period
3 We had reached this conclusion despite the fact that the con-
demnee had never in fact complained about the. validity of the
fates and without any finding that they were constitutionally in-
valid. |
AQ”
-- Opinion per Keating, J.
- of time, their construction and design left something to be
desired 50. years ago and. that, if a new facility were being
constructed, it would be structured in such a manner as to
insure adaptability to thé modern means of transportation
which are likely to be eee as we progress into the
21st' century.’
Considering all these factors, we ae that the award
‘of $30,000,000 made by Special Term and predicated on the
conclusion that. the condemnees. should at least be repaid
for the depreciated original cost of the tunnels is fair and
just and that: an award either considerably above or below .
that figure would’ be ‘‘manifestly unjust’’ to the owner ~:
whose property is taken and the people who must pay the
a. >
As to the non-tunnel property we believe, for the same
reasons outlined above, that the Appellate Division erred in’
awarding scrap value solely on the basis of unprofitability of —
the enterprise. On the other hand, the award of $20,000,000, '
allowed by Special Term, on the basis. of original cost less
an amount for depreciation which had no support in the
record, is, arbitrary and cannot be sustained.
The record reveals that much of the non-tunnel property
was severely deteriorated, and that an expenditure of al-
most $32,000,000 would be necessary to rehabilitate the non-
tunnel property whereas only $88,000 was all that would be
required to restore the tunnéls. In addition, the record
indicates that, despite rising costs of labor and equipment, |
the original cost of the non-tunnel property exceeded the
depreciated reproduction cost of that property and the
award made by Special Term was only some $3,000,000 less
than the depreciated reproduction cost. By comparison, the
award for the tunnel property, which gave effect. to the
| unprofitability factor, was less than one fifteenth the depre-
ciated reproduction cost. Itis thus clear that Special Term
not only failed to give effect to the physical and technolog-
ical obsolescence of the property but that it also apparently ~
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A10
‘Opinion per K eating, J.
ignored the enormous expenditure which was required to
rehabilitate the property and did not give any significant
effect to the unprofitability factor.
We believe that this. portion of the case mast be re-
manded to Special Term for a determination of just com-
pensation based upon all the factors which we have outlined:
Similarly, we believe that Special.Term erred in. award-
_ ing $5,000,000 for going concern value by taking 10%. of the
total award for tangible property. While there is evidence
that such a value exists in this case, there is no proof in. the
_ record to sustain Special Term’s finding that the claimant
sis entitled to an award of an additional 10% of the values
fixed forthe tunnel and non-tunnel properties. There is ° ©
no basis or warrant in law for any, such rule of thumb. A -
finding of.going concern value must be based upon evidence
paralleling what we held would have to be shown in.the
Fifth Ave. Coach case (18 N Y 2d 212, 221-222, supra),
that is, the eost of organizing and systematizing the enter-
prise, such as the cost of developing operating schedules,
operating records, systems of procedure and the training
of personnel* To the extent that unprofitability is evidence
of inefficient organization that factor must be considered i in
- determining the award. .
Before going on to discuss the remaining points, a brief
discussion of New Jersey law is appropriate. Under the
bi-State legislation authorizing the condemnation of prop-
erty by the Port of New York Authority (L. 1961, ch. 312,
*The argument forcefully advanced in the dissenting opinion. .
is.that ‘‘[e]conomic viability, i.c., the capacity to operate at a
profit,is, as the Fifth Ave. opinion makes clear, the sine qua non
for an award of going concern value.’’ The only opinion in the
. Fifth Ave. case which clearly outlines that position is the dissenting
opinion. Judge Burke, speaking for the majority, wrote: ‘‘The .
argument made by the respondent [condemnor] that going con-
cern value should not be allowed where the court found an inade-
. quate plant, dwindling profits and poor future prospects was made
long ago and rejected.’’ (18 N Y 2d 212, 223.)
are sha alanine ach se Neaesctei cranial
aia)
ae
Opinion per Keating, J.
§14; N. J. Stat..Ann., § 32:1—35.63) we are required to
apply New Jersey law to that portion of the property lo-
cated in New Jersey. The New Jersey law in this area is © |
similar to the general rule which prevails in this and the ;
- Federal jurisdiction. (Currie v. Waverly éN.Y.BayR.R. :
Co., 52 N. J. L. 381, 395; City of Trentonv. Lenzner,16N.J. = 7
465, 478, cert. den.-348.U. S. 972.) For the reasons we have a
outlined, we regard this case as sui generis and one which
_ requires an approach different from that generally followed.
Indeed, the few cases in other jurisdictions which are simi-
lar to the one at bar have also departed from the general
rule (See 2 Orgel, Valuation Under Himinent Domain [2d
oe, “= Ch, SSE).
We of course cannot state with certainty what approach
our brethren on the New Jersey Supreme Court would take -
to this problem. Perhaps they would award léss—perhaps
more.. We must, however, decide the case and we believe
that, because of the manifest injustice of awarding scrap |
value, it is not unreasonable to assume that the view we t
have taken would be adopted by that court... po an oe :
~ We turn now to the award of interest. The contention ~ ;
made by both condemnees regarding the unconstitutionality
of the New York statute limiting the award of interest to
4% was made and rejected in Matter of City of New York
(Fifth Ave..Coach Lines) (supra, cert. den. on this particu-
lar issue 386 U. S. 778). No substantial reason has been
suggested reqniring a different result in the case at bar.
We agree, however, with the Hudson Rapid Tubes’ con-
tention that.the Appellate Division erred in reducing the
interest award on the New Jersey property from 6% to
4%. The argument advanced by the condemnor is that
New Jersey has no statute regarding the payment of a
specific rate and that the New Jersey courts, in considering
the rate of interest to be awarded, would give some weight
to the fact that the condemnee’s enterprise was operating -
at a loss and would, therefore, award only 4% interest
Al2
Opinion per K eating, J.
instead of the usual 6%. This argument, however, over-
looks the fact that the condemnee is entitled to the principal
award for the taking of its property from date of the taking
and that the award of interest compensates for the failure
to make such payment. It is most inequitable and, indeed,
unconstitutional, we believe, to penalize the condemnee for
the delay which has resulted in the most part from the liti- |
‘gation which it has engaged in to protect its own rights.
Moreover, the unprofitability aspect has already been taken ,
into consideration in determining the initial award. To
consider that fact again in determining the rate of interest
is unfair and is not’ permitted or sanctioned either by the
Constitution ‘of the United States or New Jersey , law.
(United States v. Klamath Indians, 304 U.S. 119, 193 State
v. Seaway, 46 N. J. 376, 380.) -
The award of 6% is fair and proper under New ag ersey
law (Cohrs v. Igoe Bros., 71 N. J. Super. 435, 448) and the
Appellate Division’ S. deter mination in this regard ‘should be
rejected and Special Term’s accepted.
To summarize:
On ‘appeal by the claimant Hudson Rapid Tubes aie
ration, tlie order of the Appellate Division should be modi-
fied, with costs in this court and in the Appellate Division
‘to the claimant, to the extent of (1) reinstating so much
of the decree of Special Term as awarded $30,000,000 for®
_ the subway and tunnel properties and as fixed the rate of@
interest applicable to the award for the New Jersey prop-
erties, and (2) remanding to Special Term for further con-
sideration, in accordance with the opinion herein, questions
relating to the determination of value for the remaining
properties and going concern value and, as so modified,
affirmed. -
On the appeal by the claimant Hudson and. Manhattan
Corporation, the: order of the Appellate Division should be
affirmed, without costs.
A13
Dissenting opinion per Burke, de
Burke, J. (dissenting). ‘‘[I]t is axiomatic that the
measure of compensation for property taken is the owner’s
loss and not the taker’s gain (Boston Chamber of Com-
merce v. Boston, 217 U. S. 189, 195; Kimball Laundry Co. v.
United Staics, 338 U. S. 1, 5; McGovern v. New York, 229
U. S. 363). In its application to this case, this simply
means that we must look to the value of what the condem-
nees have lost and not to what the condemnor has gained.’’
(Matter of City of New York [Fifth Ave. Coach Lines], 18 -
N Y 2d 212, dissenting opn., p. 224; see, also, St. Aqnes
Cemetery v. State of New York, 3 N.Y 2d 37, 41.) There
was no disagreement on this court in the recent Fifth Ave...
case on this point; our only difference concerned the amount
‘of the loss resulting: to the ° condemnee because of that
taking. The fundamental premise upon which our holding
there was based, as well as that upon which the dissent was
grounded, was that the economic loss of the owner was de-
terminative of the amount of compensation to which it was
_ entitled under the Constitution of this State-and the Fed-
eral Constitution. The very same Tule is articulated by the
New Jersey authorities as to the requirements of the Con-
stitution of that State. (See, eg. Currie v. Waverly &
N.Y. Bay R. R. Co., 52.N. J. L. 381. (Ct. Err. & App., 1890] ;
City of Trenton v. Lenzner, 16 N. J. 465 [1954], cert. den.
348 U. S. 972 [1955]; Yara Eng: Corp. v. Newark, 136 N. J.
Kq. 453 [1945].)
Today, however, we are told that the claimant owner of
_a decrepit, financially hopeless . transportation system,
- tailored to the measurements of an, ancient, badly mended
tunnel! is entitled, by reason of the decision of the public
1In the course of its construction, the original tunnel ‘‘blew
out’’ and was flooded, requiring the installation of a reinforced
conerete lining which reduced the bore of the tunnel to 15 feet 8
inches. This set the standard for the balance of the system, re-
quiring utilization of cars of a size unsuitable to a modern transit -
system. Additionally, the line has sharp curves and steep grades
necessitating reduced operating speeds for its trains. In 1910 the
chief engineer for the road told the Institute of Civil Engineers
of Great Britain that the road had been planned with _— unit
trolleys in mind, not multiple unit trains.
Fe ee ee Oe
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Dissenting opinion per Burke, J.
nets 2 id teteuelp "een
authorities to take over its operations, rehabilitate it at A,
cost of about 80 million dollars, and, assume its losses, to
a special dispensation from:this basic rule: Weare told
that, to avoid ‘‘injustice,;’’ the property, since it is to be
. put by the public authorities to the very same use to which
it was formerly devoted, must be valued at its original cost _
less some amount representing the cost which the public -
~will have to pay to put it in condition to operate safely and
efficiently,
In my view ‘‘justice’’ demands nothing of the sort.
There is neither authority nor reason for such an award.
‘It is unreasonable and unfair to the Port Authority, and,
therefore, denies this bi-State agency the due process to
which it is entitled in our courts, and it may well be in viola-
tion of the interstate compact under which the Legislatures
of New York and New Jersey provided that the Port of
New York Authority should take over | and operate this
commuter railroad.
It is abundantly clear, I feel, that the majority is trou-
._ bled by the great disparity between this railroad’s commer-
cial value as scrap and its value, as the majority views it;
to the public as an operating, though unprofitable, publicly
financed transit facility. The court has not, however, trans-
lated this visceral feeling of discontent with the application
of traditional rules of valuation to the case at bar into a
rational alternative formula for determining just compen-
sation. .
The majority i is correct in asserting that determination
of the just compensation to which one whose property has
. been taken under the power of eminent ‘domain is entitled -
~ is, as the cases reveal, not subject to ‘‘rigid rules’’. Notions
of ‘‘fairness’’ and ‘‘equity’’ under all the, circumstances |
of the case are. involved. (United States v. Commodities
Corp., 339 U. S. 121, 124, cited in United States v. Virginia
Elec. Co., 365 U. S. 624.) ‘*‘Fairness’’ and ‘‘equity”’, how-
ever, are terms with content, albeit often difficult of exact
determination. ‘They are not mere alibis upon the basis of «
which emotion unreined by reason wed roam unchecked.’
— a nee
Alb
. Dissenting opinion per. Burke, J.
The demands of fairness are fully met when, as Mr. Justice
Roser'ts observed in United States v. Miller (317 U. S. 369,
373), the owner of taken property ‘‘is to be put in as good
position pecuniarily as he would have occupied if his prop- -
‘erty had not been-taken.’’ Likewise, ‘‘It is not fair that .
the government be required to pay [an] enhanced price
’ which its demand alone has created.’? (United States v.
Cors;-337 U. S. 325, 333; italics supplied.) The taker too
is entitled to fairness. To compel it to pay an award which
‘‘does not fairly represent the fair market value is effec-
tively a confiscation of public property.”’ (Matter of City
of New York [Friedman], 24:A D 2d 243, 246. >
- What, then, we may ask ourselves, have the owners of
this railroad lost through its taking? Where would they _
be, what would their investment be worth, absent this tak- —
_ ing? The answer is very ‘simple. Absent this taking, the
Hudson Rapid Tubes Corporation would still be the owner
of a dismally unprofitable railroad, whose highest commer-
cial. value was as scrap. This is not disputed. The opin-
ion for the majority sufficiently describes the road’s bleak —
history and its barren future.? No private purchaser would
think of taking it over for purposes of continuing its opera-
tions. Commercially, its liquidation value was all the
owners could hope to realize. I cannot see how ‘‘fairness”’
and ‘‘justice’’? require that the public, here this bi-State
agency, its bondholders and the millions of persons it serves,
should have to pay the owners any more than this amount
for their property. Mr. Justice Carpozo’s comment is per-
fectly apt: “Substantial pene are not paid for the ae
* For instance, in the face of a 50% increase in the saeiiietion
of Northern New Jersey between?1930 and 1960, this railroad’s °
traffic declined 70%. From the date of this taking, 1962, to 1964,
it declined 10%. Its operating losses were staggering, and, if it
were not taken over when it was, continued operation would have
served only to lessen (probably eliminate) the value of the owners’ ‘
equity in the enterprise. This decline continued into 1965 (an
additional 6%). _ 3
*- Al6
Dissenting opinion per Burke, J.
ilege of conducting a business at a loss.’’ (Roberts \ Vv. City
of New York, 295 U. S. 264, 282.) |
The majority, in order to justify an-award higher than
» scrap value, has stressed the fact that these railroad prop-
erties are (and presumably need) te. be continued in use
by the condemning agency and that they would cost hun-
_ dreds of millions of dollars to reproduce. $ Such considera-
tions are, however, irrelevant to determination of the ques-
tion at hand. These properties have, it is clear, value to —
_the taker, only in the sense that they are specially adaptable-
to a continually diminishing public need, at a huge cost,
but it is equally clear that such gain'to the taker is wholly
unrelated.to any deprivation, imposed upon the owner and
. must, for that reason, be rejected as a measure of the pub-
lie’s: obligation to pay. (Kimball Laundry Co. v. United
States, 338 U.S. 1; 5.) Value to the taker can be allowed
as a basis for an pene here only if we are to allow the
. owner to take advantage of the political necessities of the
| condemning party. But ‘“ [i]t is just this advantage that
: a taking by eminent domain excludes.’’ (McGovern v. City -
of New York, 229 U. S. 363, 371- 372: see, also, United
States v. Twin City Power Co., 350 U. S. 222, 228, citing
United States v. Miller, supra, 4 375; United States v. Cors,
supra. )
Analogous to this present situation was the situation
involved.in United States v. Twin City Power Co. (supra).
There, as here, the property acquired had conceded physical
utility for the purposes of the acquisition whether in the
hands of the condemnor or the condemnee. The condemnee,
_a power utility, had previously assembled. the lands for
the very purpose to which the Government intended to de-
vote the land. The utility began its acquisition in 1901. By
_ 8% The majority recognizes, as did the six Justices below, that
these allegedly essential facilities (whose absolute essentiality is
open to considerable doubt in light of the severe and continuing
-passenger decline) would not be reproduced exactly. The ‘‘sub-
stitute facility’’ might well be additional automotive tubes and
buses, all of which have proven profitable.
Al7
Dissenting opinion per Burke, J.
°
1911; it aia practically all the land necessary for an in-
tegrated site for a hydroelectric power project. The Twin,
_ City land (4,700 acres) was not only available but essen-
tial for such project.
The position taken by the condemnee in Twin City had
in many respects a more valid basis'in terms of ‘‘justice’’
and ‘‘‘equity’’ than that of the present claimant, butAhere
in rejecting the power company’s claim based on the spe-
cial availability of the lands for the purposes of the Gov-
ernment (i.e., for power-site purposes) the Supreme Court
held that it had such value only in the hands of the Govern-
ment since the latter possessed the dominant servitude in
the flow of the stream, without which the land had no vale
as a power site. Sinee the.owner did not possess the. power
potential i in. the stream, it could. claim no power potential
in the Jand. By the same token the property in the casé at
bar has utility only in the hands of the petitioner which has
the financial capacity to engage in a deficit operation,
whereas it is conceded that no private investors. can -be
«found who would undertake: such ‘an operation. To para-
phrase Twin City, only a‘governmental entity, such as the
petitioner, has possession of the cash flow, without which
the property involved herein has no value tor railway pur-
poses. Since neither the claimant nor other private persons
possess such cash flow which they would willingly devote
to such purpose they can claim no’ railway value in the
property. — :
The majority’s citation of Denver v. Denver Union
Water Co. (246 U.S. 178), a rate making case, as support
for the proposition that in.a proceeding i in eminent domain
a commercially valueless enterprise must be valued above
scrap, simply because the condemnor has elected to continue
the business at a loss, i is inapposite. ‘The majority concedes
that the remark it quotes -was uttered in ‘‘anéther context’’,
and that context bears examination. In Denver v. Denver
Union Water Co., the Supreme Court was dealing with a
situation wherein. ‘the City of Denver attempted to impose
upon the utility, by mean? of an | ordinance declari ing its
o.
-
i a ae ae ti
A 18
Dissenting opinion per Burke, J.
right to carry water under the city streets to be merely .
‘tat sufferance’’, rates based upon liquidation or ‘‘junk’’
value of the enterprise. The Supreme Court, however,
read this ordinance as failing inachievement of its declared
purpose. It found that it could not read the enacting pro-
visions of the ordinance ‘‘as leaving the company actually
without the right to maintain its plant in the City there-
after’’. ‘‘The alternative, which we adopt,’’ the court said,
‘tis to construe the ordinance as the grant'of a new fran-
chise of indefinite duration, terminable either, by the City
or. by the company at such time and under such circum-
stances as may be consistent with the duty that both owe
to the inhabitants of. Denver.’’ ‘‘In this situation,’’ the
court stated, ‘‘there can be no question of the company’s ~
right to adequate compensation for the use of its property
employed, and necessarily employed, in the public service ;
nor can it be doubted that the property must be valued as
_ property in use’’ (supra, pp. 190-191). On this basis, it
was held that the utility’s valuation for rate making pur-
poses had to be higher: than scrap.
‘ The Denver case, wherein there was, apparently, no
question but that the company would be an economically
viable, profitable enterprise, given a reasonable rate, is to
--be contrasted with the Market Street Railway case, in
which, by force of economic circumstances, no matter what—
the contemplated rate, the transit company would not pro-—
vide any return on investment. (Market St. Ry. Co. v.
Commission, 324 U. S. 548, 565.) There the Supreme Court
indicated that: even salvage value could be utilized as the
basis for determining the rate to’which the company was
entitled. (Id., p. 568.)
The majority compounds its error in considering the
public’s need for this property with the Mogic of utilizing
‘‘ori¢inal cost’’ as a basis upon which, with adjustments,
the amount of claimant’s award should be determined. As
Mr. Justice CiarK pointed out in United States v. Toronto
Nav. Co. (338 U. S. 396, 403), ‘‘Original.cost is well termed
the ‘false standard of the past’ where, as here, present
market value in no way reflects that cost.”’ The only source
_*
Al9 i
Dissenting opinion per Burke, .
even approaching the status of authority that the majority
can find to justify an award based on original cost is Matter
of City of New York (265 N. Y. 170) where this court held
that the city had to pay the condemnee for the original cost
of presently valueless easements of light and ‘aik it had
‘earlier been required to purchase. The majority takes no
note of the commenrits of Mr. Justice Carpozo on this aspect
of the case when it came before the United States Supreme
Court. There he declared: ‘‘Much could be said in support
of the position that the value of the so-called easements
was nothing more than nominal. * * .*. We do not: go into
that question now, for the city and the abutters are not
petitioners in this court, and must acquiesce in the award
as made. * * * Enough for present purposes that the award
is not.too low, though perhaps it is too high.’’? (Roberts v.
City of New York, supra, p. 282.) The comment of Mr. -_
Justice Carpozo later in his opinion in Roberts to the effect °
that the value placed upon the physical assets of the Man-
hattan Railway Company as scrap might be too low were
it not for the award made for the easements in no way sup-
ports the proposition that the owners of. that railway were
entitled under the Constitution to compensation for their
taking. It seems clear that Mr. Justice Carpozo at. that
point in his opinion had referenee only to the determination
of scrap .value made by the courts below and there was
pointing out that any complaint the condemnees might have
with respect to this determination was more than suffi-
ciently cured by the award for the easements of light and
air. The action of this court in sustaining an award for
the taking of these easements which were no longer of any
‘value to the condemnees may most generous'y be character-
ized as the préduct of a momentary lapse, perhaps in“part
occasioned by a too harsh determination of the road’s scrap.
value, and this I think our former Chicf Judge fully
realized. The case lends little support to the action of
today’s majority. (Even Special Term recognized this,
distinguishing the case on the basis that there the property
was condemned for destruction, a qaenty invalid basis for
seetaeeedll
A 20
Dissenting opinion per Burke, J.
- Over and above what the majority proposes to award
claimant for its tangible properties, it further proposes to
allow an award for -‘‘going concern’’ value, the amount of
which is to be determined upon remand. In contrast to
the Fifth Avenue Coach.Linés, whose lack of earnings was ©
due to the action of the city in denying it a reasonable
rate at-which it could make a profit (witness the. City of,
New York’s highly profitable operation of these bus lines:
since the higher fare was inaugurated), this enterprise is.
‘inherently incapable of profitable operation’’. (Matter
of City of New York [Fifth Ave. Coach Lines], supra,
p. 220). Economie® viability, i.c., the capacity. to operate
at a profit, is, as the Fifth Ave. opinion makes clear, the
sine qua non for an award of going concern value. (Ibid. ys
This prerequisite condition | hag not been met here.”
*
4In footnote 4 of its opinion the majority attempts to seize
upon a remark I made in my Fifth Ave. opinion with respect to —
‘dwindling profits’. It fails to note that ‘‘dwindling profits’ .
still means profits. The entire thrust of the Fifth Ave. opinion
was that the bus company was capable of Profitable operation,
given & reasonable rate.
5 Additionally, even the grossest comparison between the Fifth
Avenue Coach Lines and the Hudson Tubes operations makes clear
the lack of any constitutional requirement for an award of going
concern value. The claimant in Fifth Ave. ‘had organized and
systemized an enterprise carrying each working day of the year
about 1,250,000 passengers. This service was complementary to,
not competitive with, the already overcrowded subway facilities
in New York City. With a fare increase the enterprise became
highly profitable. "The Hudsen Tubes, on the other hand, have in
recent. years-experienced a continual decline in the number of
passengers served. These passengers have been lost to other modes
of transportation, especially buses and automobiles. It is con-
ceded that with a fare increase so many passengers would be lost
-by this railroad that it would be in worse straits. Any value that
this railroad once, had, or might have had, as a going concern
has been lost by the operation of economie forces.: (Cf. statement
by’ the dissent in Matter of City.of New York [Fifth Ave. Coach
Lines], supra, p. 229.) At its taking this was a technologically and
functionally obsolescent railroad system.
A 21 |
- Dissenting opinion per Burke, J.
The. court in reaching today” s decision pays lip service
to the mandate it is under to determine the award for the
New Jersey properties here in question under the require-
* ments of the New Jersey and Federal Constitutions, but it
is not an open question what the New Jersey and Federal
authorities hold. They expressly reject the notion that spe-
cial or unique value to the taker alone,-the basis upon which
the majority’ s suggested award is founded, may be con- .. |
sidered in‘determining just compensation.
In what is perhaps the leading New Jersey case on this
point the Court of Errors and Appeals, speaking in terms. ©
so unambiguous that one would not think its view could
be disregarded, by this court,.declared, ‘‘Neither the indi-
vidual advantages to the party acquiring the land, nor the
necessity of its acquisition, can be considered in computing. — °°
the [owner’s] loss’’. ‘(Currie v. Waverly d N.Y. Bay R. R..
Co., supra, pp. 395-396.) The court there held that the prop- .
erty owner was improperly barred by the court below from
introducing evidence as to the special value of his land to
other potential purchasers than the condemnor, and thus oe,
reversal was called for (cititig, among other cases, Boom
Co. v. Patterson, 98 U. S. 403), but its statement of the rule.
applicable to the instant case leaves nothing to ms desired
in the way of clarity.
The very.same rule was pone ere in Yara Eng. Corp, :
-v, Newark (supra, p.,464), where the Court of Chancery of
New Jersey said: ‘The value [for compensation purposes ]
to be found is market value, what a willing buyer would
pay in cash to a willing seller. Ingreaching: the market -
value, consideration must be given to all uses to which the
land may be put, and the owner be given the benefit of the «
best and most valuable use. But the special value of the
land to the [condemnor], as distinguished from others who
may or may not have power to condemn, must be excluded.’’
In City of Trenton v. Lenzner (supra, p..476) the Su- . -
_preme Court of New Jersey reiterated the rule long ‘adopted
+ ee DEE RN LE IRD TIE: ea
ea eas
NO OPO LOBE I
A 22
‘Dissenting opinion per Burke, J.
by the courts of that State, ‘“The measure of compensation
is the fair market value’’, and cited repeatedly and with
~ obvious approval Kimball Laundry ‘Co. v. United States
(supra), wherein, it must-be recalled, Mr. Justice Frank-
FURTER very clearly pointed out that where gain to. the
taker is unrelated to any deprivation imposed upon the
owner it-must be rejected as a measure of. the public’s
- obligation under the Constitution to provide just compensa-
tion. (See 338 U. S. 1, 5, cited at 16 N. J. 465, 476-477.)
Later in its opinion the court pointed out that a ‘‘foremost |
factor”’ in’ determining fair market value of a taken busi-
ness coy ‘ould be its prospective earning power evidenced
in considerable part by past earnings.’’ “(16 N. J., p. 479.)
Just compare this approach with that — by today’s
- majority in this court.
Just recently the Appellate Division of the Superior
Court of New Jersey, citing Currie and Yara Engineering,
had occasion to remark that ‘‘Certainly, the State’s pur-
poses’ in acquiring [condemned] property would not be a
proper consideration in fixing its value.?’ (State of New
Jersey v. Wemrock Orchards,.95 N. J. Super. 25.)
The majority, however, by the device of characterizing
the instant case as swi generis, presumes to reject the | New
‘Jersey authorities and, rather, imposes its new and radical
theory of what ‘<justice’’ requires upon a situation in which ae
the courts of New York have been authorized only to apply
New Jersey and Federal constitutional law, not to create
new and revolutionary law. The majority, by implication
at least, recognizes that its proposed award is not required
by the Federal. Constitution (rather, it acknowledges that
it must decide this portion of the case as if it were a New
ae ersey court), and, therefore, its disregard of the New
Jersey authorities is in my view tantamount to a violation
of the interstate compact authorizing this condemnation
and conferring jurisdiction upon this court.
o- A28:
Dissenting opinion per Burke, J.
Even further, it can reasonably be argued that the
’ eondemnor, this bi-State agency, the creature of the States
of New York and New Jersey, whose interests, however,
are not necessarily coterminous with the interests of either
State, has a right under the interstate compact to have ap-
’ plied even to determination of just compensation for the -
New York property here in question the law as it existed .
_ under settled principles heretofore followed in this State,
_ not as it has just been drastically changed. An interstate _
eompact is analogous in‘many respects to a contract (see
Dyer v. Sims, 341 U.S. 22, 28-29) and the bi-State legisla-.
tion constituting this compact, providing that the owner of
the property thus taken should ‘‘not be awarded for such
property any increment above the just compensation re-
quired by the constitutions of the United States,and of the .
' state or states in which the property-is located or has its.
situs by reason of any circumstances whatsoever’’ (N. Y. L.
1962, ch. 209, § 14; N. J. L. 1962, ch. 8, § 14); may, especially
since the requirements of all three Constitutions were
formerly regarded as virtually identical, reasonably be read
as incorporating the well-settled rules of law applicable to -
this case and as barring the sort of judicial amendment
of our State’s Constitution indulged-in here today. The
State of New J ersey, \ which has appeared herein by its At-
torney General as amicus curiae, andthe Port Authority,
it would seem, have rights under this compact which must
' take precedence over our judicial solicitude for those finan-
cial interests, whoever they may be and wherever they may
be located, that have seized upon this railroad as an object
for speculation. Determination of these rights presents an
important question of Federal law. (see Delaware Riv.
Comm: v. Colburn, 310 U. S. - to which the majority has
not even alluded.
I would modify the euiiine: Division’s award only to
the extent of reducing the award by $500,000, an amount °
~ representing cash assets of the Hudson Rapid Tubes Cor-
.
PERRI EN ENS LEON NSE Pe FOES YS
be
*
es
i
=
'
A24.
Dissenting opinion per Burke, J.
poration not taken in this proceeding, but mistakenly as-
sumed by the Appellate Division to have been taken, and
_ by allowing 6% interest on’ the’ New Jersey portion of the ©
award. Other than this, I would affirm its decision based
on the law’and the facts.
Chief Judge Fup and Judges Van Voorms, Sonarrt.
‘and Berean concur with Judge Keatine; Judge Burke dis-
sents as to the decision on the appeal by claimant Hudson
Rapid Tubes Corporation and votes to modify i in aseparate —
opinion ; Judge BReITEL taking no part: °
_ On appeal by claimant. Hudson Rapid Tubes Corpora-
tion, order of Appellate Division modified, with costs in this:
court and in the Appellate Division, in accordance with the
opinion herein and, as so modified, affirmed, and matter re-
manded to Special Térm for further proceedings i in accord-
ance with the opinion herein. - <
On appeal by claimant Hudson and Manhattan Corpora-
tion, order of Appellate Division affirmed, without costs.
_ In view of the disposition herein, cross appeal of the
Port Authority Trans- Hudson Corporation dismissed as
academic.
A 25
aha one APPENDIX Bo
Opinions of. the pe oe Division
SUPREME COURT
APPELLATE Division—F'irst DaPartuant
| November 1966
iain D. Brerret, J. P.,
Bensamin J. Rapin,
-Haroip A. STEVENS,
Aron STEUER, _
‘Louis J. Capozzout, JJ.
“>
?
Cross- ll from final decree of the Supreme Court at
‘ Special Term (Loreto, J.), entered June 13, 1966 in New
‘York County, insofar as it fixed awards on various dam-
age parcels in a condemnation proceeding. . | .
Whitney North ‘Seymour of counsel (John A. Guzzetta, |
James J. Hagan, ‘Eleanor M. Fox and N; ancy M. Clark-
son with him on the brief; Simpson Thacher & Bartlett,
attorneys; Sidney Goldstein, attorney (Joseph Lesser, /
. Milton H. Pachter and Robert S. Tobin with him on ‘the
_ brief) for petitioner-appellant-respondent. :
David W. Peck of counsel (Theodore N. Tarlau, L. Rob-
ert Driver, Jr., John G. Jaqua, Jr., and Michael A.
Cooper with him on the brief; Sullivan & Cromwell,
attorneys) for claimants-appellants-respondents.
- Arthur J. Sills (Alan B. Handler and David A. Bieder-
man with him on the brief) for intervénor The State
of New Jersey, as amicus curiae. ‘
“Louis J. Lefkowitz (Ruth Keseler Toch and Julius L.
Sackman with him on the brief) for the State of New
York, as amicus curiae.
‘
‘
.
EIT TEE NE RED. Pee STENT - .
@ «. =
-4
“ A26 | Oe
Opinions of the Appellate Division
STEVENS, J.:
These are cross- seal e Port Authority Trans- Hud-
son Corporation (PATH) and claimants Hudson and Man-
Corporation (HRT) from the final decree entered-Sprie 13,
hattan Corporation (H&M) and Hudson oe |
1966, in a condemnation proceeding making awards for the
* Hudson Tubes Railroad and the Hudson Terminal Office
Buildings, title to which vested in PATH. H&M is the fee
owner of twin '22-story office buildings located at 30 and 50
Church Street, Borough of . Manhattan. Special Term
awarded $17,996,000 for the buildings based on a capitaliza-
tion of projected net income. With that we are in accord
~ and the award therefore is affirmed. Remaining for deter-
mination is the award to be made for the railroad, ‘and what
interest rate should govern. -
Originally: the Hudson & Manhattan Railroad Company .
. (Company) owned and operated the realty owned by H&M
and also the railroad owned and operated by ‘HRT at the
time of. taking. Reorganization resulted in two ‘separate
_ corporations. Company continued its corporate, existence
road with the exception of three rights of passage and ease-
ment of which H&M was the record owner and HRT had
the beneficial use. PATH took possession of this property
September 1, 1962 by condemnation. Special Term
-.awarded $55,000,000 for the railroad on the theory that its.
original cost. should. govérn the determination of value..-
The riginal cost was $62,000,000. Special Term concluded
that the tunnels#represented approximately 50% of the
value of the railroad and allowed the sum of $30,000,000
for the tunnels, ‘$20,000,000 for the depreciated value of
the remainder of the railroad property, plus $5,000,000 or
(10% representing. the going concern value. It was stipu-
_ lated that approximately 65% of the railroad property was
* located in. New Jersey. On such property the court allowed
Ps
_ as H&M, with HRT as a subsidiary. HRT became the —
“ owner of the damage parcels which constituted the: rail-
AQT
a Opinions of the Appellate Division
interest at 6% and on the railroad property located within
the State of New York Special Term allowed 4% interest.
The claimants urge that’ the award .for the Church
Street property was inadequate, the award for the rail-
road was inadequate, and the interest allowed on such -
awards is inadequate. PATH on the other hand contends _
that the award for the railroad is grossly excessive and
that: the interest on any award should be a. uniform 4%.
PATH urges that the award should not exceed the liquida-
tion value of the railroad which it appreciates at
$3,500,000. i °
HRT urged and urges that. the award for the railroad
. should be based upon reproduction ‘éost less depreciation... .
: More precisely, HRT -offered testimony that the present-
day cost of constructing the Railroad properties would be
$521,763,469 and that the reproduction cost less deprecia-
_ tion on, the basis of trended original cost would be $447,595,-
589. Using the unit’ price method of estimating cepraies-
tion, HRT offered testimony that the present-day cost:
_ would be $563,168,028 and that such cost less depreciation
would be $488,462,153. These cost figures were based upon
testimony given by members of the firm of Ford Bacon
and Davis. HRT on appeal: urges that the award should
be increased to $127,400,000. for ‘the railroad. It, reaches
‘this figure by averaging the lowest estimate in the record
_ of reproduction cost less depr eciation, $447,600,000 and the .
original cost of * $62 0007000 which make a total of
$509,600,000. This figure is divided by two and the re-
sulting figure of $254,800,000 halved, which amounts to
$127,400,000. The difficulty with that approach is that it
is founded on no sound basis. and consequently must be’
rejected. Thus it will be seen that PATH?’s approach of
liquidation value and the claimants’ approach of reproduc- -
* tion cost less depreciation and the original cost trended.
‘less depreciation are diametrically opposed.
.When private property is taken for a public use, as
occurred — the law requires that just compensation be
AITO P IER ITNT ME NPL TED MOM IRL BANIN ID LODE OED INE
es
A 28
| Opinions of the Appellate Division
paid (N. Y.-Constitution, Article 1, §7(a); N. J. Consti-
tution, Article 1, para. 20; U. S. Const. Amend. 5 and 14). -
When the Port of New York Authority, the parent body
of PATH, was ‘created, it was envisaged that it might be
necessary or. convenient for it from time to time to
acquire real property.or other property. More particu-
larly the States of New York and New Jersey author-
ized in 1961 the development of a World Trade Center by
the Port of New York Authority. They found, inter alia, -
‘¢(2) that in order to preserve the northern New Jersey-
New York metropolitan area from economic deterioration,
adequate facilities for the transportation of commuters
must be provided, preserved and maintained and that rail
Services are and will remain of extreme importance to
such transportation of .persons; (3) that the interurban
electric railway now or heretofore operated by. the Hud-
son and Manhattan railroad is an essential railroad com-
pany facility serving the northern New J ersey-New York.
metropolitan area; that its physical plant 1 is in a severely
deteriorated ‘condition: and that it is in extreme financial -
condition; (4) that the immediate need for the mainte-
nance and development of adequate railroad facilities for
the transportation of persons between northern New Jer-
sey and New York would be met by the acquisition, reha-
bilitation and operation of the said Hudson & Manhattan
interurban electric railway by a public agency, and. im-
provement and extensions of the rail transit lines of said
railway to permit transfer of its passengers | to and from
other transportation facilities and in the. provision of
transfer facilities at the points of such transfers (Laws .
of 1962,'c. 209; N. J. Laws -1962, c. 8; see N.J.S.A. 32:1-
- 35.50 to 32.1-35.68 approved February 8, 1962; see also
Laws of1961, c. 312, for earlier legislative indians [McK.,
Uncon. Laws, §6601]).. However, it was specifically pro-
vided in connection with the condemnation of property
that ‘‘the owner of any property acquired by condemna-
A 29
‘Opinions of the Appellate Division
tion or the exercise of the right of eminent domain. for
any of the purposes of this act shall not be awarded for
‘ such property any increment above the just compensation
required by the Constitution of the United States and of |
the State or States in which the property is located by-
reason of any circumstances whatsoever’’ (ibid. McK,
Uncon. Laws, § 6614). * The law, both constitutional and
statutory, requires that just compensation, and no more
than just compensation be paid. In determining what
constitutes just compensation several methods of approach —
are possible, <A brief consideration of some of them will
determine whether they are feasible or conducive to the
desired result.
PATH acquired by eminent domain on September L,
1962, a railroad which had-undergone reorganization as a |
result of a petition filed August 11, 1954, by three of the
railroad’s bondholders. The reorganization was termi-
nated December 31, 1961, and title was taken by PATH
less than one year later.
The Hudson and Manhattan Railroad Compas (prede-
cessor of HRT and H&M) admittedly was unable to meet
its debts as they matured. In reaffirming approval of the-
petition’ for reorganization it was noted that assets avail-
able.to mect the debts fell far short of the sums required, '
and prospects for the future were dismal (In re Hudson
d: Manhattan .Railroad Company, 138 F. Supp. 195
'(1955)). . Insofar as the actual railroad operation was
concerned, the railroad had failed to earn its interest
and expenses for several years. The rolling stock was
old, in some instances in a hazardous condition, most of
the cars having been acquired between 1909 and 1911, the
most recent being 20 cars acquired in 1928. In its apin-
-ion the court (Walsh, J.) stated there was no possibility
of avoiding a default on bonds due February 1, 1957
(approximately $46,339,404.62). A property amortization
fund, established as required by the terms of the mort-
A 30
Opinions of the Appellate Division
: Se”
gage indentures, had been totally exhausted in 1952, and .
only a small part of the fund had ever been-used for
the intended purpose. Additionally, there was a com-
bined deficit of .$818,857.55 comprising. $406,542.55, the
deficit of current liabilities, plus $358,295 representing the ~
minimum ‘program of authorized expenditures to maintain
and. permit safe operation of the railroad. The reorgan-
ization plan proposed by the Trustee in bankruptcy was _
submitted by the District Court, Southern District, to the
Securities and Exchange Commission (SEC) for examina-
tion and report. The advisory report of the SEC thereon
(38 Securities Exchange Commission Report 676 (1958) )
approved the proposed plan with suggested minor modifi- —
cations. The report discussed the continuous decline in
passenger commuter traffic and noted even though fare
increases had been obtained. from time to time, -resulting
in increased operating revenues, operating expenses had
increased also. Such expenses ‘‘tended to reduce the
margin of -operating income, leaving the. debtor with
operating deficits in each year for the period 1949-1957
_ with the exception of 1950 and 1952”’ (p. 702). _The SEE —~
report referred toa March 17, 1958 opinion report of:
Ford, Bacon and Davis (the same firm’ which testified: as
to reproduction costs for claimant on the trial herein
appealed from) which placed a value for liquidation pur-
poses of ‘$1,278,200 on the tangible railroad properties
and of. $525,000 on the tunnels or a combined value of
$1,802,200’? (p. 707). Parenthetically, this report and a
later report of Ford, Bacon and Davis dated March 17,
1960, both submittéd to the trustee at his request, were
excluded from evidence on the trial in this. case. This
was error for reasons hereinafter stated. Reference was
made to $1,700,000 spent for the purchase of 20 new rail-
road cars, and the fact that $500,000 cash would be pro-
vided by the Company for the working needs of HRT.
The SEC report concluded the overall valuation of the
assets to be acquired by HRT amounted to $3,500,000.
A 31
Opinions of the Appellate Division
In a proceeding commenced in 1959, in the United States
- District-Court, Southern District, for approval of the plan
. of reorganization proposed by .the trustee in bankruptcy,
~ the court (Dawson, J.) found the debtor insolvent and
approved the plan for reorganization (In re Hudson and -
Manhattan Railroad Company, 174 F. Supp; 148, aff’d
— sub. nom. Spitzer v. Stichman, 278 F. 2d 402). The court
found ‘‘the value of the assets to be acquired by the rail-
road company under present and reasonably foreseeable
eircumstances, aside from the potential values that might
be realized upon a sale of_the railroad to a public agency,
is not in excess of $3,500,000 and that the amount’ that
could be realized in the event of such a sale is no more
than $4,000,000’ (p. 166). The reorganization was ter-
minated December 31, 1961.
In the condemnation hearings evidence of reproduction
cost, less depreciation, and of original cost ($62,000,000)
. trended upwards, was offered by claimant HRT. Baldin,
vice-president of Ford, Bacon—and Davis, and ‘‘group
_seniors’’-from that firm’s staff. testified as to estimates
of reproduction cost new and less depreciation as of
September 1, 1962. While subjecting Baldin to cross-
examination PATH’s counsel sought to introduce in evi-
dence portions .of a document dated March ‘17, 1960,
entitled ‘‘Report, Present Value of ‘the Railroad Prop-
erties of Hudson & Manhattan Railroad Company’’, and
to question Baldin thereon. The document had. been pre-
pared by Ford, Bacon and Davis at the request of the
Trustee in Reorganization and submitted to him. Objec-
tions to the offer and to certain questions with respect
thereto were sustained. Similar treatment was accorded
a salvage report of the railroad, dated February 28, 1958,
ulso prepared by Ford, Bacon and Davis at the. request
‘of the Trustee, submitted to him, and the substance: of
‘which, if not the actual report, had been before the SEC
and the Federal Court. Certain questions with respect
to the report were not permitted. The Trustee at the time
>
eid tue acea ada SRDS COT ES ONT Pr
A382
Opinions of the Appellate Division
he requested and obtained the reports was under the super-
vision of the court and acted for and ‘in place of the then
debtor in reorganization (see 11 U.S.C.A. §110). Excelu-
' sion.of the reports and the undte circumscribing of cross-
examination with respect thereto, as well as certain ques-
tions seeking to elicit’ whether Baldin considered certain
factors in reaching stated conclusions, was érror. Having
expressed certain opinions, inquiry should have been per-
mitted as to data and factors considered-in reaching such
- conclusions ( United States-y-Ham, 187 F.. 2d 265; 3 Wig-:
more, Evidence (3d ed.) § 992). The reports were relev ant
to the issue before the court which was to.determine the
value of the properties. The testimony of the witness and
the reproduction cost estimate reports were so inconsistent .
with the earlier reports submitted by the firm that cross-
examination should have been permitted to impeach the
credibility of the witness (Civil Practice Act § 343-a, now
CPLR 4514; Matter of City of New York [Brooklyn
Bridge], 50 Mise. 2d 478, 480; Larkin v. Nassau Electric
R.R. Co., 205 N. Y. 267; Kesten'v. Forbes, 275 nee Div.
646).
The excluded reports ‘also tended to prove facts differ-
ing from:those asserted at the trial. If the views of the :
witness, Baldin, and the substance of the reports varied
with the necessities of the case that could properly have
been shown (Brooks v. Rochester Railway Co., 156 N. Y.
244° 250). The reports could also have been received as
admissions against interest. Certainly such reports con- .
‘tributed to the position which the claimant was attempt-
ing to prove in this proceeding. Not only had the Trustee
ordered and accepted the reports, but actual.use had
been made of: the 1960.report in seeking state tax adjust-.
ments. It is clear also that the 1958 report was adopted .
- and: utilized by the railroad company in the court pro-
ceedings (cf. People v. Burgess, 244 N. Y. 472; see 4.
Wigmore, Evidence (3d ed.) § 1048 et saq., § 1073). More- ~
over, as admissions of value by the owner and the pro-
A 33
Opinions of the Appellate Division ay
spective amount of damages to be suffered made reason-
ably near the time of taking, the reports should have been
allowed in evidence (18 Am. Jur., Eminent’ Domain, ¢ 349;
20 Am,.Jur., Evidence, § 583; Sparkill Realty Corp. v.
‘ State of New York, 254 App. Div. 78, 82, aff’d 279 N. Y.
656; cf. United States v. Toronto Nav. Co., 338 U. S.
- 396). Since it is concluded the exclusion of the reports
was error, they are hereinafter considered as received in
evidence and reference to their contents will be made as
necessary or deemed advisable. 2
Market Value
The approach frequently. used in determining value of
property taken by*eminent domain is to try to ascertain
its market value. As here used this should be construed
~ to mean the price at which an owner could have sold the
_property to another if the property were not taken, or
‘‘the sum of money a willing purchaser would pay * * *
arid a willing seller would accept’’ (Sparkill Realty Corp.
_v. State of New York, 254 App. Div. 78, 82, aff’d 279 N. Y.
656). ‘‘In order to arrive at an estimate of the fair
market value of the property in question all those things
which would be considered by a buyer and a seller, neither
under compulsion, neither having an advantage over. the
other, must be taken: into consideration by a witness
competent to assemble, weigh and translate them into
dollars and cents. All the facts and circumstances which
a buyer and seller would consider in connection with the
purchase and sale of a piece of property are relevant and
material in arriving at a determination as. to its market
value’’ (p. 82). The foregoing illustrates also a further
reason why the excluded reports should have been admitted |
into evidence.
The difficulty in evaluating this property in terms of.
market value in the conventional sense, is that properties
of this sort are in a sense unique and are rarely if ever
w4-
fay .
ON LEIP IE LL NEI PIN
REPRE
Sar
.
OT EON ONES LO eter; Periey, A ee le
Ah
. Opinions of the Appellate Division
bought and sold in the open market. Since the operation
of the railroad, financially, was a‘losing proposition, any
attempt to capitalize earnings as an element for considera-
tion in order to fix a price is equally unsatisfactory. Such
a method provides an alternative to market value. Past
earnings would be especially significant if they tended to
reflect possible future profitable operation, or if such ©
earnings were the result of an artificial or forced restrie-
tion (ef.-Matter of City of New York (5th Ave. Coach
Lines), 18 N. Y. 2d 212). The evidence indicated that the
railroad was incapable of. profitable operation. Under
such circumstances the concept of a willing buyer in an
open market must be discarded: Ordinarily no one will
buy an unprofitable venture especially where, as here,
there is a prospective inability to compete successfully
against other available modes of transportation. |
The Substitute Facility Doctrine
This doctrine has developed as ‘an alternative to the
‘market.value rule. Courts have’ developed the doctrine
‘““['T]o meet the unique needs of public condemnees;
‘ damages will be awarded sufficient to finance a replace-
ment’’; It is also applied when there is no ready market *
for certain public facilities, when market value is inap-
propriate, or when ‘‘the public property has a market
value, [b]ut that standard is inadequate”’ (Just Compensa-
tion and the Public Condemnee, 73” Yale’ Law ‘Journal
1053). It is pointed out, however, that the rule aé to
damages sufficient to finance a replacement is qualified —
‘by holding it is applicable only if a replacement is
‘necessary.’ .Some courts: have demanded in addition that
‘the necessity be ‘legally -compelled’, and. have granted .
compensation to replace only those facilities which the
state or niunicipality was legally obligated to provide’’
(ibid.). Sometimes’ the doctrine: is defined to mean the
obligation ‘‘to provide such substitute, facilities. as are
‘necessary’ to carry out the public function served ae
A 35
Opinions of the Appellate Division
condemned property’? (United States v. Certain Land in
. Borough ef Brooklyn, etc., 346 F. 2d 690, 695). . Where
there is no compulsion by law, and there is none in the
case on appeal ( though the facility is termed ‘‘essential’’),
whether the facility is ‘*necessary’’ becomes a fact question.
Implicit in the ferm ‘‘necessary’’ under these circum-~
stances, is some possible recognition of social needs and
values. |
* = If there were no Tubes available would it be necessary
to replace them with a substafitially similar facility in
- order to absorb the flow of passenger traffic carried by
it between the states of New York and New J ersey? I think
not. In thé peak hours of early morning traffic HRT car-
ries approximately 20-22% of such traffic. This is for a
relatively short period. Thereafter much of the equipment
remaing,idle until the next peak. period. From 1948 when
approximately 27.7% of commuter passenger traffic was
earried, to 1964 when approximately 11.4% overall was
carried, there is a decline of approximately 60%. Ferries.
and other railroads have also shown a substantial decline -
and the financial condition of some of the railroads which
serve as feeder lines to HRT is poor. Other modes of trans-
- portation, such as buses and automobiles, have shown a
substantial increase. The use of the tunnels (Lincoln, Hol-
land) and the bridges (George Washington and others) has
increased. Each new tube addition for automobile and bus
traffic was followed by a decline in passenger traffic carried
by HRT and its predecessor. Hudson County, New J ersey,
which supplies 45% of claimant’s commuter traffic, has
shown a population decline in. recent years. A 20-25 year
projection of population growth in the area serviced, of
job opportunities, of the development of residential urban
and suburban areas, of industrial complexes, highway con-
struction and possible and probable expansion of existing
. facilities lead to the conclusion that replacement is not
necessary. In fact, but for condemnation, this enterprise
SERS IST
Te
SE PPT SERGE ISIE ELIE LE ERLE
POP LI a ION &
A 36
Opinions of the Appellate Division
in all likelihood in the near future, would have died of mal-
nutrition. Moreover, to. make an award on the theory of
a substitute facility would far exceed the just compensa-
tion required by law. .It would mean the award of a sum
sufficient to pay for the cost of acquiring an acceptable
substitute property. It might be noted whether or not one
agrees with the conclusion as to necessity, an award pre-
mised upon the substitute facility doctrine, is likely to repre-
sent a negation of the fundamental princifile of what the
owner has lost, and be based instead upon what the, con-
demnor has permed.
Reproduction Cost . 9 an _
-This is thasis, somewhat modified, on which claimant
seeks compensation. Reproduction cost, new and with depre-
ciation, was offered as evidence of some indicia of. the
present value of the property. Obviously, at most, such
cost would set the upper limit of valuation. Here the
original cost was also trended upwards by -applying to it
a trend factor to bring the various included costs up to 1962.
The original cost was so remote in time it is questionable
if it is of real value here. (See Kintner v. U. S., 156 F.2d
5; 1 Bonbright, Valuation of Property, p. yet seq.) The .
hypothesis in using reproduction cost is that the identical
plant is to be reproduced, and that present value equals
_ reproduction cost new less actual depreciation. In property
of this nature that includes both physical and functional
depreciation. (See 2 Orgel (2d ed.), Valuation Under Emi-
nent Domain, Ch, XVIII, § 206, et seq.) In order for re-
production ‘cost to have validity as evidence of value, it
should be shown that the property would reasonably be
expected to be reproduced (Matter of City of New York *
(Maxwell), 15 AD 2d 153, aff’d 12 N. Y. 2d 1086; aff’d also
sub. nom. Mtr..City of N. Y. (Schnurmacker), 16 N.Y. 2d’
497). . It should be showy also that reproduction at such ..
cost figure represents a reasonable commercial investment
A837
Opinions of the Appellate Division
(see Spitzer v. Stichman, 278. 2d 402, 410). ‘¢RJeproduc-
tion costs must be on the basis of the plant as existing at |
the time of the appropriation and not upon a supposititious
‘value based upon a new plant and what it would produce.”’ —
(19 N. Y. Jur., Eminent Domain, §237; cf. Re: Board of
Water Supply my 121 Mise. 204). Here the taking is of an
entire business enterprise shown to be unprofitable. Op-
erating intome ‘less operating expenses, plus depreciation,
resulted in a constant deficit. Obviously, this is not such ©
~ a good commercial investment as to provide an incentive
for irivestment and reproduction. Since there was no rea-
sonable showing this property could be reproduced as a
good commercial investment this approach was unsound
- (Umited States v. Boston, Cape Cod & New York Canal Co.
(1st Cir. 1921),.271 F. 877). Evidence of cost reproduction |
by testimony of cost reproduction studies, if at all relevant,
was of little value here. Conditions precedent to its appli-
cation were not shown. At most and under proper. condi-
tions reproduction cost: less depreciation would not have
been conclusive but only a factor to be considered (Matter
of Huie, 2 N. Y. 2d 168). Evidenge of losses and expenses
since condemnation, if perm'‘ted, would have been relevant
in the issue of possible future profitable operation, a factor ~
which could have influenced buyer incentive (cf. Matter of |
City of New York (Manhattan Railway), 365 N. Y. 170, aff’d
sub. nom, Roberts v. City of New York, 295 U. 8. 264).
Valuation of units or elements by reproduction-cost
estimates and totalling the resulting. figures to. reach an
amount represented as reproduction cost for the Whole,
resulted. here in a gross over-evaluation. ‘‘The replace-
ment-cost method is theoretically applicable to the valu-
ation of an entire physical plant whenever the plant, were
it to be totally: destroyed, would be worth replacing.”’ (1
-Bonbright, Valuation of Property, p. 171.) If it were not
- te be replaced by a substantially identical property, ‘‘the
a hypothesis that the value of the existing property is de- ~
&
“
A38
Opinions of the Appellate Division
—, from the current cost 2s meting: or buying
a substantially identical property is always invalid’’ (ibid,
p. 163). The construction utilized here, with particular.
reference to the tunnels, would not be used today. These
tunnels are much smaller in diameter than other com-
mercial tunnels since constructed in the area, and are not
readily adaptable, if at all, to modern improvements to °
meet present- day needs in order to make a enterprise a
profitable one.
Just Compensation . :
In addition to the approaches heretofore mentioned, the
securities - valuation approach, the capitalization method,
and consideraion of cash throw-off are also sometimes
utilized. Since neither of these methods are being dis-
cussed extensively, a brief reference to each is being made
under the above general heading.
. The-term represents the constitutional and iaidaniy
f mandate for indemnification of the condemnee. The prop-
erty is to be valued as of the time of the taking.
‘‘The question is what has the owner lost, not what has
the taker gained.’’ (Boston Chamber of Commerce v.
Boston, 217 U. S. 189, 195; Roberts v. New. York City, .
295 U. S. 264, 282; Ringwood Company v. North Jersey
District Water Supply Commission, 105 N. J. 165, 169).
‘What the owner is entitled to is the'value of the property
taken, and that means what it fairly may be believed: that
a purchaser in fair market conditions would have given ~
for: it in fact—not what a tribunal at a later date may
think a purchaser would have been wise to give, nor a
proportion of the advance due to its union with other
lots.’’ (New York City v. Sage, 239 U. S. 57, 61). Since
‘there was no ready market, or indeed any market for the
subject property, market value in. the ordinary sense can-
not» be used as a criteria of evaluation. But the basic
principle of on to the owner to make him
A 39
% .
Opinions of the Appellate Division
pecuniarily ‘whole should control (Village of St. Johns-
ville v. Smith, 184 N. Y. 341; St. — Cemetery v. State
of New York, 3 N.Y. 2d 87, 41). 7
There was ‘ishing (using. the securities ‘illite
approach) that the market value of the property actually :
condemned (including the Church Street property),. with 3
certain. allowanges deducted, was $16,997,782. The market
evaluation of the railroad under such approach was ‘
$3,802,000. In this case, because of the relative inactivity g
of the stock for a period of time and the market fluctua- ,
tions attendant upon prospective condemnation announce-
ments, such an approach is less than satisfactory. (See -f
also, 1 Bonbright, Valuation of Property, p. 245 et seq.;
2 Orgel, Valuation Under Eminent Domain, § 220 (2d ed.).) .
®
There was testimony the railroad showed a constant
deficit in both net income and operating income in the
years prior to the takeover. Capitalization of realized :
earnings, or even of annual earnings reasonably antici- ~ :
pated (prospective income) while relevant and a proper - oe
consideration, is not a suitable criteria here. The earn-
ings, less fixed charges, operating expenses and deprecia-
tion resulted, invariably, in railroad deficits. The realty,
now owned by H&M, had to carry the burden. Utilizing /
any reasonable rate to capitalize a deficit would not change i
this picture (cf. Onondaga County Water Authority v.
New York Water Service Corp., 285 App. Div. 655)... When .
_ prospective income is used as a factor in capitalization
there is an element of pure speculation involved. If the
earnings can be reasonably anticipated the speculative fac-
tor is minimized but not eliminated. Certain extraneous
factors .such as business skill and proper management
remain. When the past record is one of deficit operation
there is little to capitalize unless an artificial condition is
created by non-recognition of essential, or important
¢ g factors.
Semmens
A40_
Opinions of the Appellate Division
There was testimony on behalf-of claimant of cash
throw-off (exclusive of capital expenses and construction)
for the years 1958-1961 inclusive of $241,000, $101,000,
$80, 000 and $117,000. respectively for the railroad. Cash
throw-off as there used eliminated amortization and depre-
ciation. Since operating losses existed for each of the years,
the cash flow figures presumably consisted of net profit, or
deficit, plus items not requiring cash outlays in the par-
ticular years, but which items were charged to operations.
The figures apparently included concourse rentals as reve-
nue, offset to some extent by expense itents. The source
property was transferred to H&M in the reorganization
and ‘is rio longer available to HRT. The cash throw-off
figures here are of doubtful value and somewhat unrealistic.
If fixed obligations are not met and proper maintenance
and. replacement of physical properties when needed, not
observed, disaster may be postponed but it is inevitable.
The whole operation will eventually collapse.
Using some of the same data, for like periods, as shown
‘in claimant’s exhibit indicating cash throw-off, but includ-
ing amortization, at least for 1958 and 1959, PATH offered
testimony of present value as of August 31, 1962 of $1,209,-
134. That figure represented the witnesses’ view of what
a purchaser “would pay assuming ‘the railroad operating
earnings, before depreciation, could be expected to continue
for 15 years, without equipment replacement with an inter-
est rate of 12%.
Returning to the principle deemed applicable here, i.e.,
what has the owner lost for which it should be compen-
‘sated, we consider the rounded figure of $1,700,000; the
» cost of 20 new railroad cars. The takeover; in point of
time, followed so shortly upon the acquisition that the full
amount.should be allowed. The éars should be readily sale-
able, commercially, and there is little reason not to allow
full value. Five Hundred Thousand Dollars (a part of
which was derived from realty funds) was given HRT to
cover certain estimated operating expenses. This also
A41
Opinions of the Appellate Division
should be allowed as a full. item, resulting in a total of
$2,200,000. The further question is what should be allowed
for salvage value for the other properties.
There was testimony by PATH’s expert that the highest
and best use of the railroad as of September 1, 1962, was
‘to liquidate the property. His opinion was based upon the
' conclusion that continued operation as a:private enterprise
would result in continued monetary loss. His estimate
based on the foregoing was approximately $1,022,000.
The principle enunciated in Matter of City of New York
(Manhattan Railway Company), 265 N. Y. 170, aff’d sub.
nom. Roberts v. City of New York, 295 U.S. 264, is relevant
here. In that case it was shown that an ‘elevated railroad
was incapable of profitable operations. The court held,
where such is shown, that only scrap or salvage value should
be allowed for its structures. Reference has already been
made to allowance which should be given for the cash ad-
vance made to HRT and for the purchase of the new cars.
It follows that something more than salvage value is war-
ranted. Liquidation value becomes market value in the broad
sense and is the standard properly applicable.
Claimant relied heavily upon the reproduction cost esti-
mates prepared by Ford, Bacon & Davis as indicia of value
of the railroad at the time of taking. This same company _
in 1958 and 1960 had prepared and submitted to the trustee-
in reorganization reports widely and substantially at vari-
ance with its reports and testimony mh the present case.
The contention that such reports were prepared in different
proceedings and for a different purpose, and consequently
could not be utilized or considered in this proceeding for any
purpose, must be rejected. Hither the reports were honest
and accurate as to the facts therein stated, and honest and
sincere in the opinions reflected, as of the time of submis-
sion, or they were not. A like observation might be made
as to the reports submitted in this proceeding. From our
early discussion of the prior reports it is apparent that the
ogee eee
A42 .
Opinions of: the estat Division
reports of March 17, 1958 and March 17, 1960 were iene
admissible, (1) not as proof of their contents, but for
purposes of impeachment as affecting the oredibility of its
authors (Matter of City of New York,.50 Misc. 2d 478,
480); (2) such reports should have been received in evi-
dence for other purposes as well because of the circum-
stances:under which they ca
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