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United States v. 190.71 Acres of Land

February 14, 1962


Author: Major

Before DUFFY, SWYGERT and MAJOR, Circuit Judges.

MAJOR, Circuit Judge.

In this condemnation action, the United States has appealed from a judgment entered August 15, 1960, upon a jury verdict rendered June 17, 1960, awarding to defendants $2,509,632, as just compensation for the taking of their leasehold interest in a certain Wherry housing project known as Forrestal Village, at the Great Lakes Naval Training Center in the city of North Chicago, Illinois. The complaint and declaration of taking were filed April 1, 1959.

Corbetta-Price Co., Inc. (hereinafter referred to as the Owner) was the lessee and the United States the lessor of the land in question. Upon the leased land the Owner erected and operated a military rental housing project of 1000 dwelling units. The stockholders of the Owner corporation were Louis P. Corbetta, Roger H. Corbetta, Gayle D. Price and Harry S. Price, Jr. During the trial they were substituted as defendants in place of the Owner corporation.

The housing project covered three contiguous parcels which had been leased by the Government to the Owner under three separate leases. The three projects were actually one, being completely integrated through unified management, common piping and utilities, common services and the like. The leases were not uniform although each was for a period of 75 years. Two were terminable by the Navy after 39 years; the third, after 50 1/4 years. The ground rent payable under two of the leases was the sum of $1.00 each per annum, while under the third it was $100.00. Under two of the leases title to the buildings remained in the lessee until expiration, while under the third, title passed to the Government upon erection of buildings by the lessee. The differences in the terms of the leases are of no importance in the present case except as to their termination clauses, and even this is of little consequence because the case was tried on the theory that the leases were to be considered as terminable at the end of 50 1/4 years.

The project was leased, financed and constructed under the terms of the Wherry Act of August 8, 1949, 63 Stat. 570, 12 U.S.C.A. (1952 ed.) § 1748 et seq. After World War II, there was an acute shortage of housing for the families of military personnel at most military installations throughout the country. The purpose of the Act was to afford the Government a program for promoting the construction by private enterprise of low-cost housing. Numerous inducements were offered, the most important of which was for financing by the Federal Housing Authority (FHA) of a major portion of the cost of such construction. The Government controlled rentals, operation, maintenance, rate of return, etc. The maximum amount of a mortgage obtainable upon such projects was 90% of the cost of construction, and the rate of return to the Owner was based thereon.

On August 11, 1955, the Wherry Act was amended by what is referred to as the Capehart Act. 42 U.S.C.A. (1952 ed., Supp. V) § 1594a. Provision was made in this Act for the acquisition of Wherry housing projects in the discretion of the Secretary of Defense. On August 7, 1956, the Capehart Act was amended so as to make such acquisition mandatory. 42 U.S.C.A. (1952 ed., Supp. V) § 1594a(b).

The leases included an area of 191 acres, of which 13 were covered by buildings, 125 by lawns and play areas and 53 by roads, etc. There were 1000 dwelling units contained in 273 buildings. The first buildings erected by the Owner were occupied October 1, 1951, and the last, March 1, 1953. These dwelling units consisted of 68 1-family dwellings, 34 2-family dwellings, 156 4-family dwellings and 15 16-family dwellings. The average monthly rental was $73.40.

The Owner borrowed a total of $8,380,500 on mortgages with the New York Life Insurance Company and the New York State Retirement Fund, graranteed by FHA, which matured in 32 1/2 years and required an annual payment on principal and interest of $464,717. There was due annually a mortgage insurance premium of 1/2 of 1% of the diminishing unpaid principal balance, which averaged about $18,000 per year, making a total of debt service charges of about $483,000. At the date of taking, April 1, 1959, this mortgage indebtedness had been reduced by $793,198, leaving a balance of $7,587,301.

The general nature of projects leased, financed and constructed under the Wherry Act has been considered and described by numerous courts who have dealt with the evaluation issue in condemnation actions. United States v. Certain Interests in Property in Champaign County, Illinois, 7 Cir., 271 F.2d 379, cert. den. 362 U.S. 974, 80 S. Ct. 1058, 4 L. Ed. 2d 1010; United States v. Benning Housing Corp., 5 Cir., 276 F.2d 248; United States v. Leavell & Ponder, Inc., 5 Cir., 286 F.2d 398, cert. den. 366 U.S. 944, 81 S. Ct. 1674, 6 L. Ed. 2d 855; Buena Vista Homes, Inc. v. United States, 10 Cir., 281 F.2d 476; United States v. Tampa Bay Garden Apartments, Inc., etc., 5 Cir., 294 F.2d 598, and United States v. Certain Interests in Property, etc., 4 Cir., 296 F.2d 264.

The Government deposited $709,000 as estimated compensation with its declaration of taking filed April 1, 1959. As previously noted, the case was tried to a jury. At the trial, five expert witnesses testified as to the value of the interest taken. The three Government witnesses valued such interest at $500,000, $575,000 and $725,000; the two Owner's witnesses, at $2,814,000 and $3,000,000. The jury awarded $2,509,632. After denial of the Government's motion for a new trial, the Court entered judgment in the amount of the jury award. It is from this judgment the appeal comes to this Court.

The Government in its brief states:

"This appeal followed because it is believed that an excessive award resulted from several errors of law. In general terms, they erroneously led the jury to return either the owners' investment in the business venture or the income they hoped to receive at the existing rate for 43 years into the future, instead of an award correctly based on fair cash market value."

The errors of law asserted by the Government are embodied in its statement of contested issues, as follows:

"1. Whether, in this proceeding to condemn the interest of the sponsors [Owner] in a Wherry housing project, the district court erroneously abandoned the standard of fair market value as the measure of just compensation under the Fifth Amendment.

"2. Whether the district court erred in admitting in evidence asserted original cost as a measure of valuing the sponsors' [Owner's] interest in a Wherry housing project.

"3. Whether the district court erred in rejecting evidence of the ratio of sales price to income from other Wherry and federal low-cost housing projects on the ground that those projects were not comparable.

"4. Whether the district court erroneously permitted double compensation by allowing the sponsors [Owner] to receive compensation, based on the assumed availability of $233,000 accumulated as a reserve fund for replacing short-lived equipment seven to nine years old at the date of taking, when the sponsors [Owner] had been paid that fund.

"5. Whether the district court erred in permitting consideration of a 'bonus' value due to the low interest rate on the mortgages on this property as a result of the Government's insurance of them.

"6. Whether the district court erred in admitting testimony that a witness had a specific customer who was willing to pay his estimate of value."

We shall discuss these issues in the order stated.

The record does not support the Government's contention that the Court abandoned the standard of fair market value as a measure of just compensation. Most of the matters cited by the Government on this point consist of statements made by Owner's counsel in his opening statement to the jury, to which no objection was made and to which Government's counsel had a right to respond, and statements made by counsel and the Court in a colloquy out of the presence of the jury. The matter referred to by the Government falls far short of disclosing that the Court abandoned the fair market value test, particularly in view of the testimony of the expert witnesses for both the Owner and the Government and the instructions which the Court gave to the jury.

There was some confusion as to the proof which might be utilized to determine market value of a leasehold interest the like of which had never been sold and from its nature could not be sold, but a reading of the numerous opinions in Wherry Act condemnation cases reveals that such confusion is not unusual. Determination of the market value of property for which there is not and never has been a market has plagued the courts on innumerable occasions. As stated in United States v. Miller, 317 U.S. 369, 374, 63 S. Ct. 276, 87 L. Ed. 336:

"It is usually said that market value is what a willing buyer would pay in cash to a willing seller. Where the property taken, and that in its vicinity, has not in fact been sold within recent times, or in significant amounts, the application of this concept involves, at best, a guess by informed persons."

In Kimball Laundry Co. v. United States, 338 U.S. 1, 6, 69 S. Ct. 1434, 93 L. Ed. 1765, the Court stated:

"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 as indicative of value to other potential owners enjoying the same rights."

In United States v. Cors, 337 U.S. 325, 69 S. Ct. 1086, 93 L. Ed. 1392, in discussing the constitutional provision as to just compensation in a condemnation proceeding, the Court stated (page 332, 69 S. Ct. page 1090):

"The Court in an endeavor to find working rules that will do substantial justice has adopted practical standards, including that of market value. United States v. Miller, 317 U.S. 369, 374 [63 S. Ct. 276, 280, 87 L. Ed. 336]. But it has refused to make a fetish even of market value, since that may not be the best measure of value in some cases."

In United States v. General Motors Corp., 323 U.S. 373, 65 S. Ct. 357, 89 L. Ed. 311, in discussing principles applicable to valuation, the Court stated (page 379, 65 S. Ct. page 360):

"In the ordinary case, for want of a better standard, market value, so-called, is the criterion of that value. In some cases this criterion cannot be used either because the interest condemned has no market value or because, in the circumstances, market value furnishes an inappropriate measure of actual value."

We cite these cases, and many others could be cited, not to justify an abandonment of the fair market value test but to show the difficulty, if not impossibility, of its application in a case such as the one before us. This difficulty permits the utilization of other theories bearing upon value and, consequently, justifies the reception of some kinds of evidence which otherwise would not be proper.

The tidbits which the Government selects from a rather voluminous record in support of its argument on this point are insignificant in view of the Court's charge to the jury. The Government in its original brief in this Court makes no reference to the Court's instructions other than to state:

"It is true that market value was referred to frequently during the trial, especially on the Government's side. It is also true that the jury was instructed that an 'owner's loss is generally measured' by the fair market value of the property."

This concession is in order inasmuch as the Court clearly and emphatically instructed the jury in the traditional manner as to the meaning of fair market value and the manner of its determination. After having done this, the Court gave the Government's requested instruction #6:

"Various theories or ways of arriving at or checking market value are advanced in the testimony. None of them is binding on you except in so far as they are in accord with your own observation, human experience and common sense. You will give to them and the testimony relating thereto or based thereon such weight and consideration as you deem them entitled to. You are entitled to consider and weigh all the facts and all the circumstances that you have heard in the case as to just compensation of the leasehold interests taken, and then by your verdict return the amount which in your estimation is just compensation."

The Government in its motion for new trial, evidently overlooking the fact that instruction #6 was proposed by it, stated:

"The foregoing instruction virtually gives the jury complete license without benefit of legal guidance as to methods of arriving at value which are incompetent as a matter of law, and with no remonstrance whatever as to ...

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