Petition for Writ of Certiorari — Tishman Realty & Construction Co. v. United States

IN THE

ow, FILED

MAR = 4 1952

CHARLES ELMORE CROPLE

CLERK

Supreme Court of the United States.

cis aan

-No. 29.

Unttep States oF AMERICA,

Plaintiff-Respendent,

v.

TISHMAN ReEatty & ConstrRucTION Company, INC.,

Defendant-Petitioner,

and

49,375 Square Fret, More or Less, IN THE BorovucH

OF MANHATTAN, City AND STaTE oF NEw York,

and MertropotitaN Lire INSURANCE COMPANY,

Crry or New York, PEOPLE oF THE STATE OF

New York,

Defendants.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

AND BRIEF IN SUPPORT THEREOF.

EUGENE EISENMANN,

Counsel for Petitioner,

11 Broadway,

New York 4, N. Y.

Pure W. HaBERMAN, JR.,

PROSKAUER Rosr Goetz & MENDELSOHN,

Of Counsel.

Taz Court Przss, N. Y. 0.

INDEX.

PAGE

Petition for Writ of Certiorari ................00s: 1

I, in. kwinis wkcabueedns x leave Sek 2

Summary Statement of the Matter Involved .... 2

NE DINE, 6 edad vena vcobacacsaanasen 6

Reasons Relied on for the Allowance of the Writ 7

POE ME ev ews deksenaevibicehbpeswekieass 8

ee rr rere 11

SY So sures cck Sue a Scene cee o% te bak 11

PS sik erie as 11

NE IE OO CR 6 i vos dius dredannsucancaas 12

Constitutional Provision and Statutes Involved.. 12

Specification of Errors Intended to Be Urged... 13

MIE i655 0 ewiaktedadwie desne as ckedndss 14

Point I—The four Government sales as a mat-

ter of law could not establish the “market

value” of the taken property .............. 14

Pornt II—The income approach should have

been taken into consideration .............. 17

Point I1I—The State Emergency Rent Laws

are only a part of the factual complex that

would be considered on an actual sale. There

is no warrant for giving them conclusive

effect, as was done below in disregarding the

actual earning power, capitalizing the “Emer-

gency Rent” and using worthless sales for

I i a. Ca cutndinkeddonsamasnesnenas 24

ERE Laat IRR CRE Dri on SRA POMEL EN aon 25

ii

TasBLe or Cases CITED:

Ernst v. Oberferst, 166 F. 2d 519 (C. A. 2, 1948) .....

Joanette Juniors, Inc. v. Princeway Realty Corp., 272

ie cack rn i aheneken~csiwenees tak Ae

Kaufmann, Matter of, 245 N. Y. 423 ................

Kimball Laundry Co. v. United States, 338 U. S. 1. .4, 17, 22

N. Y. Title € Mortgage Co., In re, 21 N. Y. 8. 2d 575

Se I SOND bs nadine ws ccecewcaccecess

Smith v. Feigin, 276 App. Div. 531 .................

Twentieth Century Associates v. Waldman, 294 N. Y.

TEL Wick .de ket ke oan bake heels Mules Re cidbane Se 6, 8, 21

United States v. Commodities Trading Corp., 339

is Sank aie aed wanes sdaned ok aaaone

United States v. Improved Premises known as the

Cadillac Building, 80 F. Supp. 55 ......... 18, 18n, 21

United States v. Toronto, etc. Navigation Co., 338

i. RC band eee ete disk snees « 4, 16, 24

Oruer AvutHorities CirTED:

Dolan, Harry T., Court Practice in Condemnation

SS 8 re ree

MeMichael, Appraising Manual, 3rd Edition, page 83 23

New York Insurance Law, Section 81(7) ........... 14, 15

_. a

ili

PAGE

New York Emergency Commercial Space Rent Control

Law:

L. 1945, ch. 3, as amd., Section 2(e) ............ 5, 12

L. 1947, ch. 822:

NT ee ea ak eae ag 20

Ne Fae aw ig on 0: bn 9 a a ole ein ak « Bacask 20, 21

Unconsolidated Laws (65 McKinney’s Cons. L.,

part 2):

er er re me ts 12

Cd ala dd Guia 4 ANG HONS Ere 5, 12, 13

TE Gk 6 a5 ek bios aod ths grins eh wee 6, 13

Title 28, United States Code:

dn dn UKE Sa LMC k Ae eaken we 2,12

Dee aoe bie bic alls VS wis dw eink 2,12

Title 40, United States Code (Declaration of Taking

Act) (46 Stat. 1421), Sections 258a, et seg. ...... 2,12

United States Constitution, Fifth Amendment ....... 12

United States Supreme Court Rules, Rule XXXVIII

Et aces Ls kL bh uate kink Caller eee hater a ote 7

IN THE

Supreme Court of the United States.

OCTOBER TERM, 1951.

No.

»~

_

UNITED STATES OF AMERICA,

Plaintiff-Respondent,

Vv.

TISHMAN REALTY & CoNSTRUCTION CoMPANY, INC.,

Defendant-Petitioner,

and

49,375 SquaRE FEET, More or Less, IN THE BorovuGH

OF MANHATTAN, City AND STATE oF NEW YorK,

and MerTROPOLITAN LIFE INSURANCE COMPANY,

City oF New York, PEOPLE OF THE STATE OF

New York,

Defendants.

™™

_

Petition for Writ of Certiorari to the United States

Court of Appeals for the Second Circuit.

Defendant-Petitioner Tishman Realty & Construc-

tion Company, Inc., respectfully prays the issuance

of a writ of certiorari to the United States Court of

Appeals for the Second Circuit to review a judgment

and decision of that Court which affirmed on opinion

below a judgment entered by the United States Dis-

trict Court for the Southern District of New York on

July 27, 1950, fixing $3,090,000 as the compensation

to be paid for the taking of petitioner’s property

under eminent domain (pp. 646-8).

JURISDICTION.

The judgment of the Court of Appeals was entered

on January 2, 1952. The jurisdiction of this Court is

invoked under Sections 1254 (1) and 2101 (ec) of

Title 28, United States Code.

SUMMARY STATEMENT OF THE MATTER INVOLVED.

Petitioner’s property—a sixteen-story office and

loft building occupying a blockfront 250 x 200 feet on

Seventh Avenue, New York City—was condemned

under the Declaration of Taking Act (40 U. S. C.

§§258a, et seq.) for use by the Veterans Administra-

tion as a Regional Office (p. 12).

The judgment rendered below awarded only

3% more than the Government’s estimated value

($3,000,000, p. 13), though the claimant had refused

$3,500,000 offered by a third party for the property

six months before it was taken (pp. 616-9 and stip-

ulation, pp. 598-9).

The decision below was based on a novel and errone-

ous ruling of law: In valuing this income-producing

business property, the Trial Judge refused to give

any consideration to capitalization of earnings—‘‘my

valuation of the building is not at all on an income

basis’’ (p. 513)—holding that it was precluded from

doing so by reason of the New York emergency rent

laws (pp. 506-7).

It is undisputed that under the New York emer-

gency rent laws, during the period of the statutory

3

emergency*, a landlord may not collect rent exceed-

ing a defined ‘‘emergency rent’’ unless he obtains a

higher ‘‘reasonable rent based on the fair rental

value’? by legal proceedings, by arbitration or by

agreement of the tenant. Despite these methods pro-

vided by State law for fixing and obtaining a fair

rental value, the Trial Judge held that the State

statute prevented him from finding or considering

fair rental value in a Federal condemnation pro-

ceeding.

Having thus refused to utilize the income approach,

the Court considered itself relegated to a last-resort

arithmetical formula that was incapable of yielding

just compensation:

‘‘there is nothing left but to attempt** to value

the building on a unit basis, taking into con-

sideration for what they are worth the recent

sales of property somewhere nearly equivalent

to the subject premises. Of these, the govern-

ment seems to concede there are only four * * *”’

(Opinion, p. 509).

As a matter of law, the four sales so relied on were

not capable of establishing value. One was a trans-

fer between two companies owned by the same man,

another was a sale to a tenant holding a lease

disadvantageous to the owner, and a third was under

compulsion of law. Thus only one was a sale at

arms’ length between willing parties, and even that

admittedly involved a dissimilar building in a dif-

ferent neighborhood (post, pp. 14-15).

* Since 1945, the emergency has been redeclared each year

for a period of one year by the State Legislature.

** Italics ours throughout.

4

Four such ‘“‘sales’”’ du not afford ‘‘any assurance

that the prices paid would have been repeated in the

sale we postulate of the property taken’’ (United

States v. Toronto, etc. Navigation Co., 338 U. 8S. 396,

402). Hence on a record like this, ‘‘recourse must be

had to other means of ascertaining value, including

even value to the owner * * *”? (Kimball Laundry

Co. v. United States, 338 U. 8. 1, 6).

Here the award was $410,000 less than the price

refused by the owner.

The uncontradicted proof showed that the building

alone could not be reproduced for less than $7,500,000

(p. 31).

Admittedly the building would command rents

proved by the owner—‘‘you have rents of $1.25, $1.50

and $1.75. Now that is true, they were that much”’

(p. 209)—and such rents, as the Trial Judge said,

showed ‘‘that on the capitalization basis this building

is worth $5,000,000”’ (p. 344).

In the face of these facts, it was wholly indefensible

to make an award of $3,090,000 on the sole basis of

four ‘‘sales’’ such as those relied on below.

The complete disregard of the income approach is

the basis of this petition. The Trial Judge accepted

the Government’s contention that capitalization, or-

dinarily the prime factor in valuing income property,

was rendered ‘“‘unreliable’’ in 1947 because of the

State rent control act (pp. 209-10, 257-8, 506-7).

We maintained below and here urge that the exist-

ence of a rent control law is merely another fact in

—_—_——an

5

the valuation complex, not an excuse for violating

the principles of just compensation.

Beyond this, it was shown by the testimony of

leading bank and insurance officials that responsible

lending institutions in New York gave prime weight

to capitalization during the existence of the rent con-

trol law (post, p. 18).

Though the courts below refused to consider the

income approach, such was not the Government's

position. Capitalization of estimated net income was

used by the Government in support of the so-called

‘‘comparative sales’. But the Government in so

using the income approach gave no heed to admitted

earning power: it took as its ‘‘earnings’’ base a net

income derived from the New York ‘emergency

rent’’, and the Trial Court, though rejecting the

method (p. 507), adopted the end result.*

To accept a result so arrived at violates every con-

cept of due process. A result must be tested by the

means used to achieve it. This result does not sur-

vive that test. The ‘‘emergency rent’’, as the court

below recognized, was not a proper basis of valua-

tion in 1947, when the property was taken. It was

a purely arbitrary amount, viz.: the rent of March

1, 1943 plus 15% (L. 1945, ch. 3, §2(e); Uneons. L.

[65 McKinney’s Cons. L., part 2], §8522e). Beyond

this, the state law in terms contained mandatory relief

against the rigors of the ‘emergency rent’’ formula.

A “reasonable rent based on the fair rental value”’

* ‘It is my finding that at the time of the taking the market

value of claimant's building, as such, was certainly not more

than $3.50 per square foot, the value for which the government

contends’’ (Opinion, p. 513).

6

and ‘‘exceeding the emergency rent’’ could be fixed

by agreement, by arbitration or by application to the

New York Supreme Court (ibid., $8524). These pro-

visions had saved the constitutionality of the rent

control statute under state law (Twentieth Century

Associates v. Waldman, 294 N. Y. 571, 581).

Thus there is ample reason for this cause to be

heard, since the owner of property taken in invitwm

has here had his compensation measured not by its

conceded earning power or any finding of its fair

rental value, but by four worthless sales and a rental

of 5214¢ per square foot—the ‘‘emergency rent’’ paid

by ‘‘people who were willing to sit tight and take

advantage of the rent laws’’ (Shlichta, for the Gov-

ernment, at p. 209).

QUESTIONS PRESENTED.

1. Is a federal court in eminent domain justified

by the existence of a state emergency rent control

law in refusing to give any consideration to the in-

_ecome approach and basing its award on sales alone, .

where the few ‘“‘sales”’ relied on could not, as a matter

of law, establish the market value of the condemned

premises ?

2. Under such circumstances, may a federal court

because of the emergency rent law refuse to do what

the state court would be obliged to do under the

emergency rent law (i. e.: determine the fair rental

value of the subject premises), where such a deter-

mination is material to the admeasurement of fee

value and no other legally adequate method of ad-

measurement was found ?

REASONS RELIED ON FOR THE ALLOWANCE OF THE WRIT.

Petitioner relies on Rule XXXVIII (5)(b) in so

far as it indicates that the Court will consider an

application for a writ where a Court of Appeals has

decided an important question of federal law which

has not been, but should be, settled by this Court.

We find no case in which the Court has considered

the effect that should be given a state emergency rent

control law in a federal proceeding for the condemna-

tion of real property.

United States v. Commodities Trading Corp., 339

U.S. 121, referred to by the Trial Judge on oral argu-

ment (pp. 603 et passim), did not answer the question

here presented. There, five justices held that the

owner of pepper taken during the war for Government

use must needs remain satisfied upon receiving the

OPA ceiling price, since that represented the highest

market price obtainable under federal law.

The difference here is apparent. This- was a state,

not a federal regulation. It did not limit or control

the price at which the owner could sell, but only the

rent he could charge. Further, though tie state law

contained a rent ceiling, it also contained judicial and

arbitrational machinery for fixing reasonable rentals

in disregard of the ceiling.

Absent any possibility of deriving a market value

from sales of similar property, the Trial Court here

refused to perform the duty enjoined by the very

state law it relied on as the excuse for non-perform-

ance. The state law directs the state courts to find

8

fair rental values notwithstanding the emergency.

The state courts have stressed the constitutional im-

portance of this mandate (Twentieth Century Asso-

ciates v. Waldman, 294 N. Y. 571, 581), and obeyed

it in countless proceedings brought thereunder (see,

e. g., cases tabulated at p. 612). But here a federal

court, faced with the duty of making just compensa-

tion in eminent domain, has elected to rely on ad-

mittedly worthless evidence, pleading that because of

the emergency rent law it could not find the fair rental

value and thus admeasure fee value on a rational

basis.

In the words of Mr. Justice Cardozo, *‘A non pos-

sumus so feeble has no warrant in the statute.’’ (Mat-

ter of Kaufmann, 245 N. Y. 423, 429.)

If this be judicially permissible, then the owner of

property taken by the Federal Government can not

hope to receive rational treatment if his property lies

in a state that controls rents,.unless he can perchance

establish market value by sales of similar property.

Henee, and for the further reasons given in the

brief subjoined, the existence of a question deserving

of review is respectfully suggested.

PRAYER,

Petitioner prays that a writ of certiorari issue to

the United States Court of Appeals for the Second

Circuit commanding said court to certify and send to

this Court a transcript of the record in this cause, to

the end that the same may be here reviewed and de-

9

termined; that the judgment and decision of said

Court of Appeals be reversed and a new trial ordered ;

and that petitioner have such other relief as may be

proper.

Dated: New York, N. Y., February 15, 1952.

TisHMAN Reatty & ConstrvcTION

Company, INc.,

Petitioner,

By Evcenrt ErsenMANN,

Counsel for Petitioner,

11 Broadway,

New York 4, N. Y.

Of Counsel:

Putte W. HaBerMan, JR,

ProsKAvER Rost Gorrz & MENDELSOHN,

New York, N. Y.

11

IN THE

Supreme Court of the United States.

OCTOBER TERM, 1951.

No.

s

~

UNITED STATES OF AMERICA,

Plaintiff-Respondent,

v.

TISHMAN Reatty & Construction CoMPANY, INc.,

Defendant-Petitioner,

and

49,375 SquaRE Fret, More or Less, IN THE BorovucH

OF Manuwattan, City AND STaTE oF New York,

and Merropotitan Lire INnsuRANCE CoMPANY,

City or New York, ProrpLe or THE STATE OF

New York,

Defendants.

a

>

BRIEF IN SUPPORT OF PETITION.

Opinions Below.

The opinion of the District Court (Kennedy, Dt. J.)

is reported in 92 Fed. Supp. 384. The per curiam

opinion of the Court of Appeals for the Second Cir-

cuit (Swan, L. Hand and A. N. Hand, Ct. JJ.) is not

yet reported.

Jurisdiction.

The judgment of the Court of Appeals was entered

on January 2, 1952. The jurisdiction of this Court is

12

invoked under Sections 1254 (1) and 2101 (ce) of

Title 28, United States Code.

Statement of the Case.

This is set forth in the petition (at pp. 2-6)

under the heading ‘‘Summary Statement of Matter

Involved’’.

Constitutional Provision and Statutes Involved.

Amendment V to the Constitution of the United

States provides, in appropriate part:

‘‘No person shall * * * be deprived of * =

property, without due process of law; nor shall

private property be taken for public use, without

just compensation.”’

The Declaration of Taking Act (46 Stat. 1421;

40 U. S. C. §258a et seg.) provides i: a, propriate

part:

‘“‘In any proceeding in any court of the United

States * * * for the acquisition of any land * * *

just compensation shall * * * be ascertained and

awarded in said proceeding and established by

judgment therein * * *.”’

The New York Emergency Commercial Space Rent

Control Law (L. 1945, ch. 3, as amd.; Uncons. L.

[65 McKinney’s Cons. L., part 2] §§8520 et seq.) pro-

vides in appropriate part:

‘*§8522. Definitions * * *

(e) ‘Emergency rent.’ The rent reserved or

payable * * * on March first, nineteen hundred

13

forty-three, plus fifteen per centum of such

rm” * *

§8524. Determination of reasonable rent by

court ***

A rent, exceeding in amount the emergency rent

may * * * be fixed by arbitration or by the

supreme court. The rent to be so fixed shall be

a reasonable rent based on the fair rental value

of the tenant’s commercial space * * *

In lieu of the provisions contained elsewhere in

this section * * *, the tenant and the landlord may

fix a reasonable rent by written agreement * * *’’

Specification of Errors Intended to Be Urged.

The courts below erred in:

1. Rendering an award that had no arithmetical

basis other than a square-foot unit derived solely from

four sales incapable of establishing the ‘‘market

value’’ of the premises taken.

2. Disregarding other relevant evidence of value,

namely :

a. The admitted earning power of the prop-

erty;

b. The value of the property to the owner as

evidenced by the owner’s refusal to entertain an

offer exceeding the amount of the award.

3. Refusing, because of the state emergency rent

law, to consider the conceded earning power of the

building or to make a finding as to its fair rental value

as a factor in admeasuring the value of the fee.

14

ARGUMENT.

POINT I.

The four Government sales as a matter of law

could not establish the “market value” of the taken

property.

The courts below relied on four ‘‘sales’’ as estab-

lishing a unit fee value for the building of $3.50 per

square foot (pp. 509-13). The building award was

thus made at $2,450,000 by simple multiplication (p.

513).

One of the ‘‘sales’’ so relied on was not a sale at

all. The ‘‘seller’’ and the ‘‘buyer’’ were two cor-

porations owned by the same man (p. 260). The

Government witness admittedly would not rely on

evidence of this kind in making an appraisal (p. 261).

But it was relied on below, the Court saying (p. 510):

‘<* * * Tt is almost impossible to understand what

motive was to be served by placing upon the

transaction a price ruinously low.”’

The capital gains tax suggests itself as one obvious

possible motive.

Sale No. 11, also relied on, was a sale by Metro-

politan Life Insurance Company in 1945 under the

compulsion of New York Insurance Law §81(7).

The last paragraph of that section required life in-

surance companies doing business in New York to

liquidate all real estate acquired in satisfaction of

mortgages within five years after acquisition unless

15

the Insurance Superintendent gives a certificate ex-

eusing ‘‘the forced sale thereof’’.

In 1945 (the year World War II ended), Metro-

politan liquidated.a huge portfolio of real estate

taken in during the depression. In Manhattan alone,

it sold off twenty-four major buildings for a total

price of $17,545,000. Our exhibit, an extract from

Metropolitan’s Annual Report (Exhibit ‘‘6’’, p. 402),

shows that every one of the twenty-four was sold at its

approximate cost or book value.

Another sale involved a building that was under

an unfavorable lease to the buyer (pp. 268-9, 375-6).

In such a case, the owner parts with something less

than unencumbered fee value. Were a property so

encumbered taken in eminent domain, the owner

would receive less than fee value and the tenant would

receive a sum representing the present value of his

leasehold. (See pp. 262-3.) Thus, such a sale would

not be evidence of unencumbered fee value; it would

only show the value of an interest similarly encum-

bered.

Thus, only one of the four sales relied on (Sale

No. 3) had any bearing on market value. One sale,

as we shall show, does not establish a market. Be-

yond this, the building there involved was an elderly

store building in a different neighborhood in no way

comparable to the subject premises (pp. 217, 267,

374-5, 510).

Thus, there was ample reason for the Court to

apologize for basing its building award on such sales

as these, taking them into consideration ‘“‘for what

they are worth’ (p. 509). The sales here relied on

16

had far less relevance than the five sales considered

in United States v. Toronto, etc. Navigation Co., 338

U. 8. 396. That case involved the taking of a Great

Lakes car ferry. Two of the five sales were of vessels

built from the same plans, though in poorer repair

than the vessel taken. Three were sales of other

‘similar’? vessels, also in poorer repair (p. 400).

But all five sales were at arm’s length and free of

compulsion, so far as the opinion shows. On these

facts, Mr. Justice Clark said (pp. 402-3):

““* * * the determination of value cannot be re-

duced to inexorable rules. Suffice to say that the

balance between the public’s need and the claim-

ant’s loss has been struck, in most cases, by

awarding the claimant the monetary ‘market

value’ of the property * * *

At times, however, peculiar circumstances may

make it impossible to determine a ‘market value.’

There may have been, for example, so few sales

of similar property that we cannot predict with

any assurance that the prices paid would have

been repeated in the sale we postulate of the

property taken. We then say that there is ‘no

market’ for the property in question. * * *

We agree with the Court of Claims that in this

ease, there was no Great Lakes ‘market’ in the

sense discussed above. We hardly think that

five sales of dissimilar vessels require a finding

that any one of the varying prices would have

been repeated had the Maitland been offered for

sale. And so we are in basic agreement that other

measures of value may be relevant.’’

We note that the absence of any finding below that

the four ‘“‘sales’’ relied on established a ‘‘market”’.

17

The only finding as to these sales is that they are so

poor in relevance that the Court could use them only

as a last resort ‘‘for what they are worth”’ (p. 509).

Thus the case falls within the rule stated above.

Or, as stated by Mr. Justice Frankfurter in Kimball

Laundry Co. v. United States, 338 U. 8.1:

‘Tf exchanges of similar property have been fre-

quent, the inference is strong that the equivalent

arrived at by the haggling of the market would

probably have been offered and accepted, and it is

thus that the ‘market price’ becomes so important

a standard of reference. But when the property

is of a kind seldom exchanged, it has no ‘market

price’, and then recourse must be had to other

means of ascertaining value, including even value

to the owner * * *’’ (p. 6).

POINT II.

The income approach should have been taken into

consideration.

At page 513, the Court below enumerates the mat-

ters given consideration in reaching its award. Earn-

ing power is not there mentioned.

Elsewhere (p. 513), the Court says

“‘my valuation of the building is not at all upon

an income basis’’.

At pages 505-7, the Court states that it disregarded

capitalization of net income because, in its view, the

existence of the state emergency rent law made it im-

possible to reach a reliable estimate. Yet, there was

18

uncontradicted testimony by the President of the

Dry Dock Savings Bank, the President of the Pru-

dential Savings Bank of Brooklyn, the Vice-Presi-

dent in charge of real estate of the Irving Trust

Company of New York and the Assistant Chief

Appraiser of the New York Life Insurance Company

that in the year of taking, notwithstanding the exist-

ence of the emergency rent law, the prime factor in

appraising improved real estate for mortgage loan

purposes was ‘‘the net stabilized income that we think

the property will produce over the period of our loan”

(p. 336; see also pp. 354, 356, 360).

Beyond this, in United States v. Improved Prem-

ises known as the Cadillac Building, 80 F. Supp. 55,

the same District Judge had made a finding of fair

rental value notwithstanding the New York rent

control law.* (See also Ernst v. Oberferst, 166 F. 2d

519, 523 (C. A. 2, 1948), holding that a bankruptcy

court sitting in New York may itself fix a reason-

able rent under the local rent law without referring

the issue to the state court.)

Here, the earning power of the subject premises

was established by competent testimony. Petitioner

showed that the floor units of 49,000 square feet here

available were rare and in high demand by mail order

and chain store houses (pp. 64-5). The year of the

taking, thirty named companies were in the market

for such units on long-term leases (pp. 365-6). Hence,

had the Government yielded possession instead of

condemning on the expiry of its lease, the entire

* He there said (80 F. Supp. at 58), ‘‘It seems to me that it is

my task to test the conflicting claims of the parties to this litiga-

tion in an effort to determine which of the annual rentals sug-

gested more nearly meets the standard of what is fair and reason-

able, treating the New York statutory formula not as a mandate

binding on the federal court either in whole or in part, but

rather as one of several possible guides.’’

19

building could have been rented within a few months

at rentals averaging $2 per square foot on long-term

leases (pp. 80, 86). Thus, after allowing all normal

safety factors, the long range ‘‘stabilized’’ rent would

be not less than $1.1214 per square foot, or a net

rental, after operating expenses, of 53¢ per square

foot (pp. 109, 114-5, 418, 419). Capitalized at 5%

for the rent and 8% for the building,* the resulting

value would be $5,030,000 (p. 418).

Thus, there was a direct conflict between the value

based on capitalization and the value based on the so-

called ‘‘sales’’. At page 344, the Court said:

“The Court: I assure you, Mr. Witness, that

in this very case the testimony has been that on

the capitalization basis this building is worth

$5,000,000, and I assure you, Mr. Witness, that

the testimony on the comparative sales method

is that the building is worth $3,000,000.”

This petition is made possible because the Govern-

ment substantially conceded the factual basis of the

owner’s capitalization formula. The rents were ad-

mittedly obtainable: the Government’s expert testi-

fied,

‘you have rents of $1.25, $1.50 and $1.75. Now

that is true, they were that much”’ ( p. 209).

Beyond this, the capitalization rates adopted by the

Government did not differ materially from the rates

used by the owner (p. 486).

But in using capitalization, the Government tried

to carry water on both shoulders. On the one hand

* The Government used 6% and 9% (Ex. DD). Substituting

these factors in claimant’s appraisal, the result would be

$4,672,000.

20

(pp. 209-10, 257-8), the Government argued that the

rent control law made capitalization too unreliable to

be used at all. Elsewhere (pp. 230-1, 486), it argued

that the rent control law made it necessary to dis-

regard the conceded earning power of the building

and use the ‘‘emergency rent’’ as the capitalization

base.

In making both of these assumptions, the Govern-

ment proceeded on a fatally wrong premise (see our

motion to strike, at pp. 361-3). The Government’s

appraisal (Ex. DD, at p. 486) says:

‘‘Emergency Rent Law in the State of New York

provides for rental increase of 15% over those

in effect as of stabilization date. Undoubtedly

the owner by appropriate action could justify and

secure such an increase. In the following analy-

sis the Emergency Rent of $368,000 per annum

has been adopted.’’*

The Government’s witness orally repeated this as-

sumption (p. 245):

‘‘The [New York] Supreme Court will allow

you $368,000 as an emergency rent.’

This was a complete misunderstanding. Under

Section 2(e) of the New York Commercial Rent Law

(L. 1947, ch. 822), the increase of 15% was entirely

automatic. By ‘‘appropriate action’’, however, the

owner could obtain a larger rent upon a proper show-

ing of a higher rental value:

‘‘A rent, exceeding in amount the emergency

* Since the building contained 700,000 sq. ft. of rentable space

(p. 513), the ‘‘emergency rent’’ by computation would be 524%4¢

per sq. ft.

21

rent, may within the limitations specified by this

section, be fixed by arbitration or by the supreme

court. The rent to be so fixed shall be a reason-

able rent based on the fair rental value of the

tenant’s commercial space * * *’’ (ibid., Sec. 4).

In Twentieth Century Associates v. Waldman, 294

N. Y. 571, this provision was cited as saving the con-

stitutionality of the entire statutory scheme. Thacher,

J., said:

‘Certainly there was nothing arbitrary or unrea-

sonable in the remedy which the Legislature ap-

plied, providing, as it did, for arbitration or

judicial determination of fair and reasonable

rentals in all cases. Under the provisions of sec-

tion 4 of the act * * * Judicial determination of

a reasonable rent was thus made available to the

landlord in every case’’ (p. 581).

If a landlord had leased an office building for fifty

years at a rent of $10,000 a year with a lease which

expired shortly after the emergency rent date, and

comparable buildings were renting for $100,000 a

year, on the theory below, the statutory emergency

rent based on the rent of fifty years ago would be con-

trolling in a federal court condemnation, even though

it was perfectly clear that the landiord could go into

the New York court and obtain a very great increase

in rental.

The Trial Judge, in the Cadillac case, met the same

problem in a proper way. He says at page 363 of the

present record:

‘After holding that both the Government and the

claimant were wrong in their approach to the

22

question I insisted upon them giving me a fair

market value.’’*

Here, however, he solved the same problem by

simply ignoring the Government’s manifest mistake

and giving no consideration to rental values. We

maintain that this was a denial of just compensation.

We further maintain that the Government’s error in-

fects the Government’s appraisal. We finally main-

tain that the award in accepting the Government’s

building appraisal to the penny is similarly infected.

This Court has recently indicated that in the case of

income-producing property, even the so-called market

data approach is merely a means of expressing income-

based values in an indirect way, since it depends on

tacit assumptions as to the capitalization factors used

by the buyers and sellers of other income properties.

Thus in Kimball Laundry Mr. Justice Frankfurter

says (338 U.S. at 9, 10):

“The market value of land as a business site

tends to be as high as the reasonably probable

earnings of a business there situated would justify

** * As fixed by the market, value is no more

than a summary expression of forecasts that the

needs and attitudes which made up demand in the

past will have their counterparts in the future.”’

* This was correct under the state rulings that ‘‘the presump-

tion in favor of the ‘emergency’ rent is rebuttable’’, and this in

turn ‘‘requires that an opportunity be given for a determination

of the amount of the ‘reasonable’ rent’’ (Joanette Juniors, Inc, V.

Princeway Realty Corp., 272 App. Div. 420, 423). And see:

Smith v. Feigin, 276 App. Div. 531, 535.

23

So, in Dolan,* Court Practice in Condemnation

Suits, 31 Va. L. Rev. 9, 22, the author says:

“The capitalization method * * * has only re-

cently found favor with the courts, although no

doubt there is no truer or more accurate index of

valuation for income types of property. * * *

The capitalization method is particularly adapted

to this type of property valuation, in view of the

difficulty in making proper adjustments and allo-

cations for non-conforming features when apply-

ing the comparison method. The courts have

pointed out that this method is particularly suit-

able where there is an absence of comparative

sales.”’

MeMichael says (Appraising Manual, 3rd Ed.) :

‘Value may be determined by the comparison

method * * *, Residences are appraised in this

way * * *. Business properties are best ap-

praised on an earning basis”’ (p. 83).

Mr. Dolan gives the reason:

“The question uppermost in the minds of the

owner or purchaser of an industrial or income

type of property is what the property will pro-

duce in the way of income and the justified capi-

tal investment, based on such net income” (31

Va. L. Rev., at 22).

For a provocative discussion of the capitalization

method and the experience of the New York courts

in using it, see the opinion of Referee John Godfrey

Saxe in Jn re N. Y. Title & Mortgage Co. (not of-

ficially reported), 21 N. Y. S. 2d 575, at 594-6.

* Harry T. Dolan, Esq., trial counsel to the Government in

mm this case.

a4

POINT III.

The State Emergency Rent Laws are only a part

of the factual complex that would be considered on

an actual sale. There is no warrant for giving them

conclusive effect, as was done below in disregarding

the actual earning power, capitalizing the “Emer-

gency Rent” and using worthless sales for com-

parison.

We grant that the scope of appellate review in

these cases is very limited. As Mr. Justice Frank-

furter says concurring in Toronto (338 U. 8S. at 408):

‘‘Barring obviously wrong criteria, or findings

baseless in proof, experience counsels empiricism

in dealing with these problems.’’

Empiricism, we submit, is not a policy of sanction-

ing manifest errors or awards in eminent domain

based on worthless proof to the total exclusion of

other evidence of value. Certainly empiricism cannot

justify a federal court in throwing up its hands aid

failing to award just compensation because of a state

emergency rent control law.

Were the sales relied on sufficient to establish the

market value of the condemned premises, this peti-

tion could not be made. Where, however, the basis

for the award selected below is clearly inadequate

under the pertinent decisions of this Court, and where

other relevant indicia of value are disregarded be-

cause of a purely temporary state regulation never

intended to affect a case of this kind, an important

question of federal law is clearly presented for re-

view.

25

CONCLUSION.

The decision of the Trial Court, adopted in toto

by the Court of Appeals, presents a grave question

as to the criteria affecting just compensation and the

effect to be given in eminent domain to a state stat-

ute regulating rents, and thus raises a question of

general and constitutional importance which should

receive review at the hands of this Court.

Respectfully submitted,

EUGENE EISENMANN,

Counsel for Petitioner.

Putte W. HaBerMAN, JR.,

PROSKAUER RosE Goetz & MENDELSOHN,

Of Counsel.

New York, N. Y., February 15, 1952.