# Petition for Writ of Certiorari — Port Authority Trans-Hudson Corp. v. Hudson Rapid Tubes Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_1239%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1968 - **Citation:** 390 U.S. 1002 ## Text aA # ee oe = sob Rainy) oe ole BE a Sa OTR Sum one COUP, U.o. 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. .;. . 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) | » 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: . ‘ 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; “ 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 PRELIM E HMR Fe Sa AM Seok nid) ABLE TESS SEL MRL ca! SD ie Gis tea at ba 2 hai bg nt eal? hoe Lehane! SBS il ee ne PALTE DEAS chee , AS. me ee Opinion per Keating, J. 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 ~ e SAREE CINE OPENED A 2 hen PP GER ADT WRN REI RI NETO OA: La re Pe ee Lt eS Ee i clsbinstirrhtind Cite i ORBAN ERR IAC Ne eo pb BS Ne MRE 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 at ee ae £2 tt Sn it ty rey 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 ‘ ? 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, 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 came into being (earlier adverted to) and hecause they were adopted and used by the trustee in reliance upon their contents and the opinions expressed therein. The opinion expressed in the letter of Ford, Bacon and Davis dated March 17, 1958, addressed to the trustee, was that the maximum value of the ‘‘companies tangible railroad properties at February 28, 1958’’ was $1,278,200. To this figure, in their view, there could possibly be added a figure of $525,000, estimated economic value for continued tunnel cable usage by the telephone somnyennete based . on then current rentals. ' The letter dated March 17, 1960, and accompanying ‘réport to the trustee, expressed an opinion of Ford, Bacon & Davis of an increased salvage value. ‘The items, the - basis for the opinion, were enumerated and their estimated | values stated. The 20 new cars represented an added fac- tor of value. Their opinion of total salvage value from liquidation was $2,573,800. Ford; Bacon & Davis went further in their analysis of the situation, and expressed the view that the salvage value’ represented a minimum value because the public would not permit a cessation of operations and liquidation, ‘ and that the railroad’s value depended upon the price it could cémmand in a sale to 4 public authority. Proceed- ing on certain stated assumptions and probabilities, chief ' of which was sale to a public authority, it was the opinion of Ford, Bacon & Davis that the ‘‘present value of the - H&M railroad properties, as an operating emtengriay, is $8,000,000. ’’ phan a (Ses. Oe RO. ——ooorre £43 _ Opinions of the Appellate Division No satisfactory explanation appears in the record for the difference between the figures above quoted and the- —»-.- = indicia of value testimony on reproduction estiniates, as _ indicative of the value‘of the railroad. The figure of $525,000 (economic value based on con- tinued cable rental use) should not be added to the $2,200,000 (1iew cars and cash advarice). It was uncertain and contingent. The testimony at trial with reference to value at the time of taking ranged, depending upon the circumstances, from” slightly above $1,000,000 ($1,022,000 liquidation value) to a figure of $1,290,134 as value de- ' ferred liquidation, plus $182,000 representing present value estimated at the end of fifteen years. Here the owner of the railroad properties was valtnna: of the burden of continued operation of an ‘unprofitable ' enterprise. Such enterprise had lately, shortly. prior to takeover, been adjudged insolvent and the outlook for- . the foreseeable future was not good. Maintenance and replacement of physical properties, where needed, would "+ require substantial expenditures. Even a fare increase, ~ if the pattern of the past was repeated, while,,affording income ‘support, would result in a decline in passenger -carriage. The process ‘could be repeated indefinitely. The’ . fact that the taker in condemnation would continue to operate the railroad because it had received a possible: loss offset in the proposed World Trade Center, does not increase the actual loss suffered by the owner, nor increase the liquidation value of the property taken. While sal- vage value cannot be determined with mathematical pre- cision, a reasonable figure based on all the evidence re-— ceived, and which should have been received, is $1,300,000 - (rounded). Adding this figure to the sum previously calculated would result4in a value liquidation of $3, 500, 000, - and such is the figure now set. To recapitulate, new cars — $1,700,000, $500,000 working capital, plus $1,300,000 sal- vage, equals the liquidation value, which is ‘determined to be just compensation. ~ A444 Opinions of the Appellate Division Evidence was received concerning possible benefits which might have accrued from the so-called Aldene Plan when, as and if it were brought to fruition. Not much evi- “-~dence was received as to the possible cost and necessary expenditures involved. No value is attributed to the prop- erties here (as of the time of taking) because of it. At the time of taking the Plan was little more than an abstraction © and its possible influence and results too speculative. In urging that the court failed to give significant weight to reproduction cost less depreciation, and that the rail- road award should be increased to at least $127,400,000, -claimant HRT, water alia, cites Matter of City of New York (Fifth Ave. Coach Lines), 18 N. Y. 2d 212, in sup- ‘port of its position. It urges that its approach as to re- production costs finds support therein and since HRT, like the cqach lines, is an operating enter pring, going concern value should be allowed. Going concern value .seems to refer to certain intan- gibles in an operating business where the entire enter- ‘prise is taken.(see, generally, 2 Orgel, Valuation Under Eminent Domain (2d ed.) Ch. 18, § 214 et seq.). The con- cept represents value for an existing established business as distinguished from value for the physical properties and ‘‘is allowed on the theory that a prospective purchaser would pay more for a ‘live and, developed’ business than for the ‘bare bones’ of the utility plant’’ (ibid, § 216, p. . 123). It would seem that before the concept is applicable there should be a determination the enterprise is. capable of profitable operation. (Cf. Matter of City of New York (Sixth Ave. El. R.R.), 265 App. Div. 200, 206). In the cited case it was said ‘‘{i]f the court should determine that-the . Sixth Avenue Line was capable of profitable operation, © then some fair measure of the value of the railroad as a going concern would have to be applied. Just compensation being required, the full and fair equivalent of the property taken is essential (Monongahela Navigation Co. v. United A 45 Opinions of the Appellate Division States, 148 U. S. 312” (emphasis supplied). In Matter of City of New York (Fifth Ave. Coach Lines), supra, the- court found that claimants were entitled to reasonable fares and such fares had been denied them. It found fur- ther that claimant’s capability for profitable operations, trpon recognition of such right, was clearly demonstrated ‘‘and they aye, therefore, entitled to going concern value’? .. (p. 221). In the case before us it is clearly shown that _ HIRT is inherently incapable of profitable: operations. Therefore, an additional allowance for going concern value is not warranted, and-the properties are entitled to liquida- tion value only. Going concern value should probably rep- ‘resent some relationship between cost of acquisition and cost of development into a ‘profitable business. The busi- ness here seems to have been started under such severe handicaps, including its capitalized structure, that it has not been able to cast off the burden. To allow going con- cern value here is to-place a premium on deficit operations, This should not be done. .The profitable portion of the formerly united operations of real estate and commuter transportation is now being continued by H&M. The remaining question has to do with the interest rate on the awards. The right to interest is an extension of the substantive right to recovery provided for by statute (McK. Unconsol. §2501). The dispute here is as to the rate to be applied. The court fixed at 4% on the New York properties which represented 35% of the whole. We are in accord with that determination (Laws of 1939, ¢. 585 [McK. Unconsol. §2501]; Matter of City of New York. (Maxwell), 15 AD 2d 153, 179, aff’d 12 N. Y. 2d 1086; aff’d sub.:nom. Matter of City of New York (Schnurmacher Corp.), 16 N. Y, 2d 497.) However 6% was allowed on the New Jersey properties. Sixty-five percent of the properties involved are located there. PATH and the Attorney General of New Jersey in‘his amicus brief recognize the right to in- terest (see, State, by State Highway Commissioner v. Sea- way, Inc., 46 N. J. 376, 217 A 2d 313). Both urge, however, Q soil . . ret ames te Ce a aS ee eed . + fs ey anal sat at i il RE al ce aaa PI LER RPGR LN IGE IL ABT IEF A46 Opinions of the Appellate Division that the 4% rate-should apply to the New Jersey property _ as well. New Jersey urges the interest rate, equitably, should be 4% for this unprofitable enterprise and that 6% would represent a windfall. PATH expresses a similar view. HRT urges the additional compensation, represented by interest, is indemnification for delay. Interest rates have increased generally and even the 4% provided by New York statute is outdated, unrealistic and unfair. ~ ‘In the view here adopted no valid reason is shown for the difference in the applied interest rates. Equitably, a unifaym rate should be applied, otherwise the New Jer- sey property is subject to a penalty by reason of situs. New York law establishes a 4% rate. Four per cent should be \applied to the award for. the entire property wherever situated. The enabling statute under which the property was taken required that New Jersey law be applied to the property located in New Jersey (McK. Unconsol. § 6614) with the requirement that just compensation be paid for the property acquired by condemnation or the exercise of the right of eminent domain. New Jersey urges: that market value, which in this instance is the scrap value of the railroad, is the applicable standard under New Jersey law. That the approach of allowing an award based on any th [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_1239%3A1. Public record. Not legal advice.