I. Introduction
In this opinion we continue the discussion of the nature of the Rail Act in Part III of our opinion of October 18,1976,
As indicated in the Memorandum of June 16, 1976,
II. Reorganization v. Eminent Domain:
The Propriety of Compensation Other than Cash
In our memorandum of June 16,1976, we noted that “a question lurking in the case is whether the standard of valuation should be different if the Act be regarded as a reorganization statute, as an eminent domain statute or as both,”
■ The issue has lost much of what once seemed to be its significance because of the concession of the Government parties (Brief at 12):
We do not contend that the Act cannot involve a “taking” or that the Fifth Amendment standard differs depending on which powers Congress invokes.
See also id. at 14-15. Indeed, it now appears that the chief, if not the sole, importance of the question how far the Act is a reorganization statute may be in its bearing on the issue framed in our notice of April 14, 1977:
whether payment in the manner provided in the Rail Act, namely, that net liquidation value shall be paid in securities of ConRail and certificates of value and that only the excess of constitutional minimum value, if any, as finally determined, shall be paid in cash, is constitutional.2
A large step toward answering this question was taken by the Supreme Court in the Rail Act Cases,
L.Ed.2d 320 (1974). The plaintiffs there asserted
that the Rail Act is basically an eminent domain statute and, because compensation is not in cash but largely in stock of an unproved entity, will necessarily work an unconstitutional taking. A variant of the argument is that, even if a reorganization statute, the Rail Act would be unconstitutional unless the Tucker Act remedy is now held to assure payment of any amount by which the market value of stocks and securities awarded by the Special Court is less than the value of the rail properties conveyed.
Various transferors
The first contention need not detain us long. While the Supreme Court’s decision is conclusive only with respect to PC, the Court was well aware that the Rail Act operated similarly with respect to the other bankrupt railroads, see
[W]e believe that there is nothing in the Act fundamentally at odds with the expressed purpose of Congress to supplement the reorganization laws, see H.Rep. 29, and, with the Tucker Act, the Rail Act is valid as a reorganization statute.
In contrast, the nonbankrupts are right in saying that, in light of the concession of the Government parties in the 1974 proceedings, noted in the portion of this Court’s opinion written by Judge McGowan,
The nonbankrupts had agreed that their properties should be operated, in most cases for many years, as an integral part of railroad systems that are now bankrupt. These roads depended financially on rental or similar payments from the bankrupts. Most, although not all, were controlled by the bankrupts, a considerable number to the extent of being wholly owned.
New of the nonbankrupts employed their own personnel or operated their own rolling stock; and most, according to their financial statements, passively received income from sources such as rentals, dividends, interest, and the sale of property. Many were “profitable” only because they continued to state uncollected rentals as income.
The nonbankrupts formed an integral part of the bankrupt systems; indeed the shipping and traveling public had no notion of their separate existence. Most of them had no rolling stock and for this and other reasons could not be operated except in connection with the bankrupt system of which they had so long formed a part;
From the beginning, the tendency of legislation and of judicial interpretation has been uniformly in the direction of progressive liberalization in respect of the operation of the bankruptcy power.
And these acts, far-reaching though they may be, have not gone beyond the limit of congressional power; but rather have constituted extensions into a field whose boundaries may not yet be fully revealed.
Cf. Capital Telephone Co., Inc. v. FCC,
Callaway v. Benton, supra,
The considerations that led the Supreme Court to conclude in the Rail Act Cases that securities of ConRail and obligations of USRA might constitutionally be used as payment for the assets compelled to be transferred with a cash award only for any “shortfall” between their value and the just compensation required by the Fifth Amendment, thus support the same conclusion with respect to the ConRail securities and CV’s provided for in the amended Act not only as to the PC, the carrier before the Court in the Rail Act Cases, but as to all transferors, both bankrupts and nonbankrupts. Indeed, we would reach this conclusion independently. As the Court observed,
No decision of this Court holds that compensation other than money is an inadequate form of compensation under eminent domain statutes.
The one federal case and the state cases cited by some transferors as so holding are not impressive. Most of them were decided many years ago and evince attitudes reflective of an earlier stage in the development of the economy when compensating a condemnee in securities would force him to resort to an imperfect, discontinuous market to retrieve their value. In some, the state attempted to compensate the condemnee with land, e.g., Vanhorne’s Lessee v. Dorrance, 2 Dali. 304, 315-16,
We shall not attempt to discuss in detail all of the decisions the transferors have cited. We note only that the transferors would have us mechanically apply the rulings of these cases while ignoring their underlying rationale — that the compensation required by the Fifth Amendment must be sure and certain and equivalent in value to the property taken. The payment scheme of the Rail Act complies with that requirement. The CV’s “constitute general obligations of the United States of America for the payment or redemption of which its full faith and credit are pledged,” § 306(a). The value of such a certificate, carrying 8% interest and redeemable not later than December 31, 1987, § 306(c)(1), can readily be computed by reference to other Government obligations for which a wide market exists. The method for determining the market value of the ConRail securities, which is to be deducted in fixing the base' value of the CV’s, § 306(c)(5), accords with commercial practice; while there is some risk that these securities may be overvalued, there is equal risk that they may be undervalued. Experience has taught us
III. Net Liquidation Value (NLV)
We deal in this section with a variety of questions relating to the determination of net liquidation value under § 306 of the Act relating to the certificates of value (CV’s). It is well to emphasize that these are questions of statutory construction, not of constitutionality; we will consider the constitutional questions in Part IV.
(1) DOT’s contention that NLV is limited to scrap value
We begin with the contention of the Department of Transportation (DOT) that the only kind of liquidation contemplated by Congress for the purpose of fixing the face value of the CV’s would be a liquidation for scrap. The principal basis for this claim is that when Congress adopted the amended Act in 1976, the only theory of liquidation value which was before it was the discussion in the New Haven Inclusion Cases,
(2) The transferors’ contention that for purposes of determining NLV, the United States may be regarded as a purchaser
At the other extreme, we likewise reject the contention of the Trustees of the Penn Central that the directive in § 306(c)(4) that net liquidation value be “determined by the special court” gives us free rein to incorporate into NLV our guess as to what the United States would have paid for the properties if the Rail Act had
First, the House Report on the 1976 Amendments stated that the Committee concurred with USRA’s general approach toward valuation, H.R. Rep. No. 94-725, 94th Cong., 1st Sess. 90 (1975), and intimated that this Court should be guided, although it would not be bound, by that approach:
While the Committee finds persuasive the Association’s particular methodology in arriving at its estimates of net liquidation values, it also recognizes that these determinations must be left to ultimate judicial review and determination.
Id. Although, as indicated in the previous section of this opinion, Congress cannot be supposed to have endorsed every statement in the FSP’s analysis how NLV would be determined, it surely did not mean us to depart so far from the Association’s “particular methodology” as to regard the Government as a prospective purchaser and to guess what it would have paid. As noted above, the FSP stated, “In essence, then, the liquidation plan postulated by USRA is for an orderly transfer of the transportation services provided by the estates to other railroads. . . ” Vol. I, at 125 (emphasis added).
Second, we may look to the New Haven Inclusion Cases as some evidence of the type of liquidation Congress had in mind for purposes of determining NLV.
Beyond all this, whatever may be the proper characterization of the role which Congress intended for the United States under the Rail Act, it was certainly not that of a “willing buyer.” It would thus be impermissible, as a matter of statutory construction, to take account in fixing NLV of the possibility, probability or, as the transferors would have it, certainty that, failing the Rail Act, the United States would have been obliged to make other arrangements for continued rail service. This would be true even if we were required to take account of that factor in fixing CMV. However, as will be shown in Part IV of this opinion, we are not required or even permitted to determine CMV in this manner. Congress created the CV’s to afford a bridge, partial or total, between the value of the ConRail securities and CMV — not to constitute part of a bundle that might exceed CMV, with the consequent need for corrective action by this court under § 303(c)(3).
This leads us to the renewed contention of the Government parties that in determining NLV, and for that matter CMV, potential sales to other governmental bodies may not properly be taken into account. Just as we see no reason why sales to other railroads for railroad use should be excluded from consideration in fixing NLV, as the Government parties other than DOT now concede, Brief at 72-74, we likewise see no basis for assuming that when Congress spoke of liquidation it meant to exclude sales to public bodies. It must have been known to Congress that there had- been such sales, particularly of commuting lines, and there was every reason to suppose that in the event of such a catastrophe as a general cessation of railway service in the Northeast, states and municipalities would at least endeavor to salvage the lines on which hundreds of thousands of citizens traveled to and from work in the cities. Indeed, other sections of the Rail Act reflect Congressional recognition of the active role state and local governments would assume in ensuring continued rail service. Section 304(c)(2)(C) of the Act provides that rail service may not be discontinued if a financially responsible person “including a government entity,” offers to purchase the rail properties in order to continue service. Section 403 provides for federal loans to enable state and local governments to make such purchases. See also New Haven Inclusion Cases, supra,
Of course, if the Government parties were right in their contention that prices payable by public bodies cannot be taken into account in determining CMV, this would argue against taking the possibility of such sales into account in determining NLV for reasons similar to those on which we partially relied in rejecting the notion that NLV could take account of a possible sale to the United States. However, for reasons developed in Part IV of this opinion, we largely reject that contention.
(4) The method for determining scrap value
As already indicated, although the Government parties other than DOT concede that the transferors are entitled to attempt to prove NLV based on sale of part or all of their property to profitable railroads, the only figures presented to Congress in the FSP contemplated sale for scrap in accordance with the MLP. Vol. I, at 124-26. This plan was more fully described in a report dated March 1, 1976. The report disclosed, as FSP had already done in some degree, Vol. I, at 145-46, that one of MLP’s assumptions was that a considerable amount of time after the conveyances would be consumed in obtaining regulatory approvals.
The parties appear to agree that most issues concerning the methodology of the MLP are not yet ripe for decision — a rather obvious conclusion since MLP is still evolving. However, the Government parties have asked us to uphold the validity of the model for purposes both of NLV and CMV insofar as it pre-supposes a coordinated method of withdrawal. In contrast, the transferors seemingly invite us to rule that the model is invalid on precisely this account, since the scrapping of one railroad, particularly if PC were the one, might avoid any need for scrapping others. We decline both invitations.
The Government parties stress that what they term the “retrieval model” embodied in the MLP assumes the presence of the Rail Act and apparently argue that this requires a hypothesis of simultaneous withdrawal. It is surely true that the Rail Act compelled the operation of all the roads until April 1,1976 and the cessation on that date of operations over the mileage that was transferred, with a consequent fulfillment of “Brooks-Scanlon rights” at that time. But, as developed in our CUE opinion,
A transferor cannot, of course, realistically assume that it would have been operating in a world where it was the only railroad engaged in a liquidation for scrap. If it presents a plan which does not appropriately allow for this, the Government parties can object on that account. By the same
(5) The method for determining values attainable on sales for railroad use
The Government parties concede (Brief at 74) that:
Any transferor is entitled to attempt to show that it had (before the Rail Act was passed) and would have exercised (had the Rail Act not been enacted) a right to take some specific course of action to realize rail use values from its properties.
However, the Government parties insist, id., that any endeavor on the part of transferors to show that such a course would have produced values exceeding the sale of their properties for scrap must conform to an “alternative scenario.” They say this must meet four criteria: “(1) consistency, (2) feasibility, (3) legality, and (4) the assumed absence of the Rail Act or any other new governmental action designed to keep the rail properties indefinitely in operation.” (Govt, brief at 77). Application of the last of these criteria would, in practical effect, make presentation of an alternative scenario impossible since, as appears from our CUE opinion,
At oral argument Government counsel relented in some important respects from the rigidity of the position taken in brief. The Government indicated that it would not demand proof that the transferors had received actual offers at identifiable prices. This might well be difficult to show in view of the fact that once serious discussion of what was to become the Rail Act began in the winter of 1973, profitable railroads had little incentive to conduct discussions directly with the various reorganization trustees. Hence it would be enough to show that, in the phrase used by counsel for EL at oral argument, profitable railroads should in their “own self interest” have wished to purchase various lines of the transferors. On the point mentioned at the end of the preceding paragraph, the Government parties also conceded that an alternative scenario might legitimately assume that the Government would have provided emergency assistance in some form for a reasonable period “to permit adequate ICC review of the abandonments or transfer applications,” Transcript at 296, and to avoid liquidation “in chaos,” Transcript at 283. Furthermore, counsel for the Government parties did not exclude the idea that the alternative scenario could take account of possible regulatory reforms including those made by the Railroad Revitalization and Regulatory Reform Act of 1976, which would have made purchases more attractive.
We believe these concessions were well advised; indeed they may not constitute the limit. If the Rail Act had not been passed, Congress still would have had powerful in
However, the Government parties have not receded from their most basic position relating to the alternative scenario, namely, the requirement of consistency. For example, they would insist, with r iason, that it would be improper to fix NLV or CMV on the basis that a number of transferors would have been able to sell lines connecting the same points to a single profitable railroad when that railroad would have wished only one, or to assume that a particular line would have substantial traffic because a parallel line was being dismantled and then to make the same assumption in valuing the parallel line. From this premise, the Government parties go on to insist (Brief at 81) that “all transferors seeking to show rail use values for particular lines should be required to set forth explicitly their underlying assumptions about all other lines whose dispositions would bear on their properties’ value.” As a practical matter, this would seem to require a joint presentation by all transferors proposing to offer evidence of higher values attainable by sales for rail use.
Such a course of action by the transferors would surely be desirable and, at the conclusion of the oral argument on April 13, we suggested that the transferors should not await the issuance of this opinion but should begin conversations among themselves with a view to seeing whether a unified alternative scenario could be developed and to report to us if any progress along these lines had been achieved. We have received no report as to what, if anything, has been done. While we believe that, as in the case of sales for scrap value, each transferor is entitled to make its own proffer as to what it would and could have done by way of sales for rail use, the Government parties are right in saying that a most difficult problem will be presented if transferors make basically inconsistent proposals. It is in everyone’s interest that all reasonable efforts should be made to eliminate or at least to reduce these inconsistencies. We therefore direct that any transferor seeking to present evidence of values to be obtained by sales for rail use shall exchange its proposal with all other transferors not later than January 9, 1978; that the transferors shall then meet among themselves with a view to a maximum ironing out of inconsistencies; that they shall deliver their proffers, as these may be revised in the light of such discussions, to the Government parties on a date not later than March 9, 1978; that the Government parties shall indicate any objections on the score of inconsistency within another 30 days; and that finally revised proffers shall be filed with this court not later than 30 days after the transferors’ receipt of the Government’s objections. We do not deem it practical at this time to specify the level of detail to be contained in such proffers, beyond saying that they should be sufficiently particularized to be meaningful.
We also agree with the Government parties that the proffers of sale for railroad use must meet the criterion of legality. In saying this, however, we would not wish to be understood as ruling that the transferors must carry the burden of showing that the proposed transactions would have been approved by the Interstate Commerce Commission under criteria which the ICC had evolved in dealing with sales of profitable railroads. The Commission would have been confronted with a situation quite un
Finally, we record our disagreement with the suggestion of the Government parties that the Interstate Commerce Commission would or could have used its power to withhold approval so as to insist on the inclusion of unprofitable mileage to a degree that would have driven down the price that purchasers would pay to the level of scrap value, a view which now appears to have been the basis for the extracts from FSP, Vol. I, at 125, cited above, p. 1004.
IV. Constitutional Minimum Value (CMV)
The basic position of the Government parties is that CMV is the market value of rights of which the transferors were deprived by the Rail Act. These would include (1) the right to use their properties for a profit and (2) the right to sell the properties for continued rail use by others or, failing this, for scrap.
While the transferors attack the MLP and the demand for a single Alternative Scenario on the grounds indicated in Part III of this opinion and others, their major contention with respect to CMV is that the entire approach of the Government parties is wrong. Pointing to numerous declarations of members of the executive and legislative branches during the consideration of the Rail Act and to recitals in the Preliminary System Plan
Before going further it is useful to comment on what seems to us to be a difference in the concept of “property” held by the Government parties on the one hand and certain transferors on the other. Some transferors challenge the Government parties’ valuation theory at a fundamental level by arguing that what was taken, and what must be valued, is “property,” not “rights” to use or sell or, in a favorite phrase of the Government, “foreclosed options.” If they mean by this that the Government’s “foreclosed option” approach is only a valuation standard rather than a description of what was taken and that we should begin our valuation analysis on the premise that “property” rather than certain “rights” were taken,
It is conceivable that the [term “property” in the just compensation clause] was used in its vulgar and untechnical sense of the physical thing with respect to which the citizen exercises rights recognized by law. On the other hand, it may have been employed in a more accurate sense to denote the group of rights inhering in the citizen’s relation to the physical thing, as the right to possess, use and dispose of it. In point of fact, the construction given the phrase has been the latter.
(Footnote omitted).
Some of the transferors argue for a constitutional minimum value in excess of what could have been obtained by sale to private entities or governmental bodies other than the United States on the basis that the United States should be included in the market, while others argue that in the peculiar circumstances of this case the ordinary willing seller-willing buyer approach is simply inappropriate.
In answering the first contention, the Government parties naturally emphasize Mr. Justice Holmes’ famous aphorism in Boston Chamber of Commerce v. City of Boston,
It is conceded ‘that the owner is not permitted to take advantage of the necessities of the condemning party,’ and it would seem that it might well be that the commissioners regarded it as too plain to be shaken by evidence, on the public facts, that the value of the land for a reservoir site could not come into consideration except upon the hypothesis that the City of New York could not get along without it and that its only means of acquisition was voluntary sale by owners aware of the necessity and intending to make from it the most they could. It is just this advantage that a taking by eminent domain excludes. (Emphasis supplied).
The italicized statement is not inconsistent with remarks in McGovern and other cases, City of New York v. Sage,
In United States v. Miller,
Since the owner is to receive no more than indemnity 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 consideration 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 excluded as an element of market value.
To be sure, the point covered by this statement was not in controversy. The issues were whether the owner should have “the benefit of any increment of value added to the property taken by the action of the public authority in previously condemning adjacent lands,” id., to which the Court answered that he should, except for an increment “arising from the known fact that the lands probably would be condemned,” id.,
The owner is to be put in as good a position pecuniarily as he would have occupied if his property had not been taken: and in United States v. Reynolds,
The owner is to be put in the same position monetarily as he would have occupied if his property had not been taken.
See Bauman v. Ross,
The value compensable under the Fifth Amendment, therefore, is only that value which is capable of transfer from owner to owner and thus in exchange for some equivalent. Its measure is the amount of that equivalent.
Here, if the “property had not been taken,” the transferors would have had, at least so far as now known to us, hopelessly losing railroads, on the verge of “cashlessness.” See p. 1008, supra. The only value “capable of transfer from owner to owner” was the value obtainable by sale to private or governmental bodies other than the United States for continued rail use or by sale as scrap. The transferors answer that the United States had even greater compulsion to buy than other governmental bodies would have had and that, if we should sustain inclusion of the latter in the market, as subsequently we broadly do, there is no reason to exclude the former.
It appears to us, however, that inclusion of the taker in the market, in the sense of here attempting to reconstruct a bargaining process between the transferors and the United States, is inconsistent with the basic principle of eminent domain. While suitability of the property for a public purpose may properly be considered, this will not affect market value unless there is a prospective buyer other than the taker. It would be incongruous if the owner of an abandoned warehouse standing in the way of a contemplated highway or runway, who is relegated to market value if the building possesses some, were allowed the benefit of a hypothetical bargain with the taker because the structure had become so dilapidated as to have no market value at all. The essence of eminent domain is not only that it enables the condemnor to acquire property which the condemnee may not wish to sell but that it allows the condemn- or to do this at a cost determinable in accordance ■ with some external standard rather than by hypothesizing a bargaining process in which the condemnor’s needs are an element and there is simply no way of determining the point where the bargain would ultimately be struck. See also Note, supra, 90 Harv.L.Rev. at 604. To reiterate Mr. Justice Holmes’ statement in McGovern, supra,
A. Decisions Applying Rules Other than the Market Value Rule
The transferors respond that, however we might view the matter if it were one of first impression, the decisions discussed up to this point have been qualified by others which have established that, in a case like this, a court must consider values beyond those attainable in the market, notably reproduction cost or some variant upon it, whether on the theory of including the condemnor as part of the market or because market value is simply not an appropriate measure of just compensation. The transferors have advanced several lines of decisions to support this argument. We shall consider each of them:
(1) Takings of property not held for profit
The transferors refer us to federal cases such as United States v. Certain Property,
Whenever the property is of such character and nature that it has no market value, its value for the uses and purposes to which it is being devoted and to which it is peculiarly adaptable may be shown
There are, as well, statements that appear to support the transferors’ position that “[i]n such cases just compensation is arrived at by considering reproduction costs, replacement costs and other measures of value designed to approximate the true worth of the condemned property.” PC Lienholders’ reply brief at 20-21.
Whatever literal application such statements may have and, of course, the railroads here in question did possess some market value — the transferors’ argument misses the true thrust of these decisions. The basic principle, as the Supreme Court said in the extracts from the Miller and Reynolds opinions quoted above, is that the owner is entitled to be put in as good a position as if the taking had not occurred. This means, in situations such as those here under discussion, being provided with the funds needed to build another school or church or to create another park.
The community entity is entitled to be made whole, and making it whole means more than forcing it to abandon its nonprofit community use and accept what it could obtain in the marketplace from a profit motivated purchaser. Simply stated this method insures that sufficient*1017 damages will be awarded to finance a replacement for the condemned facility. Nothing less would afford just compensation. And since the owner of a facility devoted to a non-profit, public use has a proprietary as well as a community interest in it, if the fair market value exceeds the costs of the substitute facility, such an owner should be entitled to the higher of the two measures of compensation.
See also State of California v. United States,
Here the transferors have no desire to be put in a financial position that will enable them to build another railroad; they want to exit from the railroad business, not to enter it. As the Supreme Court said in the Rail Act Cases, supra,
Complainants evidence no interest in retaining their property for longer than the Rail Act requires. Indeed, their position is really that they want to be free to dispose of it sooner. Thus, there is no interest asserted in retaining the properties themselves; the only interest is in making sure that creditors receive fair compensation for those properties.
In short, the notion of indemnity which is the root principle of the line of decisions here being reviewed is of no avail to the transferors in this case.
(2) Use of reproduction cost to value a plant being used for a profitable purpose but unmarketable as such
The transferors rely on the portion of United States v. Certain Property Located in the Borough of Manhattan,
(3) Cases where the market value of property is temporarily distorted or eliminated by governmental action
Another group of cases said to require a departure from market value as a criterion in this proceeding concerns situations where market value has been adversely affected by governmental activity. The transferors claim that the Government’s regulatory actions and its subsidization of other competing forms of transport bring them within the thrust of these decisions. It will be useful first to review the cases and then to consider their applicability.
Some of the eases concern compensation for property whose ordinary use and marketability were affected by wartime governmental regulation. In United States v. Buxton Lines, Inc.,
the [ship] could quite easily have been used during the period in question, the only difficulty being the absence of a private market as a consequence of the war and Government policies.
Id. Specifically, the condemnee offered evidence that the Government had prevented it from accepting a foreign company’s lucrative offer to purchase the ship. Id. at 997. Buxton holds little more than that the Government cannot by order destroy a market, with buyers who would have been willing to pay high, perhaps even exorbitant, prices, and then say the property is worth nothing.
Swiss Federal Railways v. United States,
Would anyone contend that the Government could take the completed or partially completed works of a fine watch that was ready to be fitted into the case and, on account of wartime conditions, forbid the sale of watches and pay for the watch on the basis of the limited value of the raw material that went into its production? Would anyone dare suggest that the Government could take a man’s house and by forbidding the sale of houses or limiting the sale hold the value to the scrap value of the material that originally went into the house? If this were carried to its ultimate result the Government could requisition the arms and ammunition, the trucks and cars used in wartime, and pay for them on the basis of scrap material. It could make a regulation forbidding the sale of these articles in the general market and limit their sale to the Government itself. No one would even dare suggest that it would satisfy the requirements of the Fifth Amendment to offer to pay for them on the basis of scrap material. Yet that is the ultimate effect of what is being contended for in the instant case.
Considering several factors,
In two other cases, the Government’s pretaking activity affecting market value related peculiarly to the property taken. In the first case, Turney v. United States,
In the second case, United States v. 220.0 Acres of Land (Assateague Island Condemnation Case),
The principal legal problem in this case is the effect that should be given to the actions of the State of Maryland, which were induced to a considerable extent by the Secretary of the Interior, and were intended to prevent any building on Assateague during the years 1963-1965. .
The Court concludes that in the context of the present case the consequences of those actions should not be ignored or dismissed as “incidents of ownership”. It would be unfair to permit the condemning agency to depress property values, directly or indirectly, by interfering with the property owners’ rights to use their land, and then take advantage of such depression to reduce the price which it must pay for the property.
In sum, the cases hold that the Government may not manipulate a market to depress prices and then benefit from the reduction.
In an effort to bring themselves within these cases, the transferors have mounted an extensive presentation to show that public policies toward the railroads have had such a depressing effect as to entitle them to a valuation on the basis of a market somehow reconstructed so as to be free from these adverse effects or on some other basis'that would more properly reflect the “intrinsic” value of their properties. A particularly impressive showing with respect to
First,
Public (federal, state and local) financial subsidies to the intermodal competition of the railroads which decisively favored rival modes and hurt the railroads at precisely the time that such a competitive disadvantage was most likely to jeopardize the survival of the railroad. .
And second,
A regime of regulatory and political constraints governing the railroads that stifled efforts to respond to larger economic forces impacting the railroads and to the specific challenges of less regulated inter-modal competition; all evidenced by artificial and destructive policies on such subjects as rates, divisions, technological and service innovations, labor relations, service and branch line curtailment, to name just a few.
(Brief at 96-97).
In support of the former, the brief quotes from the Preliminary System Plan
The early assistance to railroads pales when compared to the continuing aid given to the development of the private automobile and trucking industry, the airlines and inland barge operations — all competitors to the railroads.
Through 1973, total federal, state, and local expenditures to support rival forms of transportation have been in excess of $450 billion, most of it spent since 1920.
PSP, Vol. I, at 4.
Federal, state and local government expenditures for highways between 1951 and 1973 amounted to almost $305 billion and for waterways to almost $14 billion. At the same time the railroads were able to invest only about $37.5 billion, all internally generated or privately raised. Moreover, whereas the highways and waterways are free from state and local taxes, these consumed more than half of the pre-federal income tax net railway operating income of the Class I railroads for many years until by 1970 they exceeded such income. The railroads were burdened with the capital costs of providing and maintaining their rights of way whereas their motor and water competitors were not. The railroads were also burdened by regulation, particularly by use of the minimum rate power to prevent their competing more effectively with motor and water carriers. The PSP, Vol. I at 4, cited a recent study which estimated the enormous loss from excess capacity and misallocation of resources attributable to regulatory inadequacies as ranging from $4 to $9 billion annually. See also Friedlaender, The Social Costs of Regulating the Railroads, 61 Papers and Proceedings of the American Economic Assoc. 226, 234 (1971) (estimating $2.4-3.8 billion loss in 1969). The brief lists various defects and inadequacies in rate regulation, prohibition of diversification into other modes of transportation, failure to increase the divisions of the railroads in the northeastern region, refusals to allow the railroads to terminate light density lines and losing passenger service, and what is claimed to be unduly favorable treatment of job protection for railroad labor, as instanced, for example, by Senate Joint Resolution 59 of February 9, 1973, Pub. L. 93-5, 87 Stat. 5, noted in our CUE opinion,
While answers can doubtless be made to some of this barrage of charges, we have little doubt that the governmental policies and actions we have here summarized and others we have omitted in the interest of brevity have contributed greatly to the plight of the northeastern railroads. Not denying this, the Government parties assert that such matters may not be taken into account in fixing “just compensation” unless the governments’ acts were unconstitutional, which the transferors other than Reading, see fn. 35 infra, have not claimed.
The decisions discussed up to this point do not support the broad conclusion the transferors would have us draw from them. Buxton Lines, Swiss Federal Railways, Wilson Athletic Goods, Illinois Pure Aluminum, and Seven-Up Bottling were concerned with distortion of market conditions related to wartime governmental needs or exigencies, not to governmental activity serving more traditional regulatory or promotional purposes. The courts have deemed it somewhat unfair to ignore market values that will be shortly attainable — and indeed would have been attainable during the war if the Government had not prevented their realization.
A decision closer to supporting the transferors’ position is that of a badly split New York Court of Appeals in In re Fifth Ave. Coach Lines, Inc.,
We basically disagree with the Fifth Avenue Coach majority. Railroads, like other forms of business, take their chances on what government may do in the way of regulating them or helping their competitors. So long as government has not acted beyond its constitutional powers, a condemnee is not entitled to the recognition of values that have been impaired by a long and established course of government action.
Political considerations, in this case the pocketbook of the millions of New Yorkers who use the transit system daily, are not to be shrugged off lightly. This was a fact of life with which the claimants were required to contend throughout their operating existence. The announcement of condemnation did not herald an end to their burden — at least it should not with regard to valuation. .
Moreover, even if we agreed with the majority in Fifth Avenue Coach, it would not bridge the gap between the cases discussed at the beginning of this section and the result that the transferors wish us to reach. Whereas in Fifth Avenue Coach a court could quantify the result of rate increases that had been sought and denied, no one could possibly determine what the bankrupt railroads would have earned if government had not taken, or had taken less of, the various promotional and regulatory steps of which the transferors complain.
(4) The patent cases
The line of decisions most helpful to the transferors’ contention that value to the taker must be considered in some circumstances are cases, arising under 28 U.S.C. § 1498(a), where the Government has infringed a patent having no or little commercial use and the Court of Claims has considered the value to the Government — in some instances hypothesizing a bargaining process such as we have described above. The principal cases relied on by the transferors are Olsson v. United States, 25
The most recent case, Tektronix, applied a willing buyer-willing seller approach to an instance where the patent had commercial value, but where the court deemed there was no established royalty rate. Olsson, the case most helpful to the transferors, applied a similar approach to a patent on howitzer recoil mechanisms which had no commercial value, and used cost-savings to the Government as a basis for determining a reasonable royalty. In Ushakoff, where the patent on solar-powered water stills again had no commercial value, the court set a rate of slightly under 5 percent, apparently based on customary commercial standards. In Badowski, there was a limited commercial market for the patented parachute release device; the willing buyer-willing seller approach was used by taking the prior commercial license rate as a benchmark, and then reducing the royalty somewhat because of the greater volume purchased by the Government. In Saulnier, the patented airplane canopy had no established commercial royalty rate and the court used the patent owner’s settlement of an earlier claim against the British Government as a guide. In Marconi Wireless, there was no assertion that the patented radio circuitry had value only in Governmental uses; the case applies a percentage-of-cost-savings approach to establish reasonable compensation — apparently because the finished radios sold by an infringer to the Government embodied several different patents and it was thus difficult to determine a gross sales figure to which a royalty should be applied. In Amerace Esna, there were no industrial licensing agreements to serve as a standard for the patented process of removing rust from ballast tanks, but it does not seem very plausible that the invention was without any commercial application. The court rejected a cost-savings approach as lacking factual support and instead resorted again to the fiction of a willing buyer and willing seller agreeing on the apparently common 5 per cent royalty.
Apart from the facts that the Court of Claims’ application of the willing buyer-willing seller approach to the Government in these cases has never been passed upon by the Supreme Court and that the benefits realized by the patentees from that approach have been rather modest, we do not believe the cases support the broad conclusions the transferors would have us draw from them. They are distinguishable on several grounds. One lies in the origins of 28 U.S.C. § 1498(a), under which these cases were decided.
28 U.S.C. § 1498(a) provides in pertinent part:
Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture.
For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.
The statute is derived from the Act of June 25, 1910, c. 423, 36 Stat. 851, as amended by the Act of July 1, 1918, c. 114, 40 Stat. 705. The 1910 statute provided in pertinent part:
*1024 That whenever an invention described in and covered by a patent of the United States shall hereafter be used by the United States without license of the owner thereof or lawful right to use the same, such owner may recover reasonable compensation for such use by suit in the Court of Claims. .
The 1918 .amendment changed the standard of compensation from “reasonable compensation” to “reasonable and entire compensation,” and made recovery available not only when the United States had “used” an invention covered by a patent, but whenever the invention had been “used or manufactured by or for the United States.
Before 1910, the protections afforded a patentee against the Government’s use of his patent were strangely limited, even though it was clear that governmental use was one of the exclusive proprietary rights belonging to the patentee, see Schillinger v. United States,
The objective of the 1910 statute thus was to place the patentee who had not consented, either because the Government had not sought his consent or because it had been impossible to reach an agreement, on the same footing as the patentee who could spell out some form of consent and sue on an implied contract. In working out what the terms of such an implied contract would have been in situations where no other standards were available, the Court of Claims would necessarily have had to consider what agreement the patentee and the Government would have reached. It is thus not surprising that, despite the many references by the Court of Claims and some by the Supreme Court to § 1498 and its predecessor as being an eminent domain statute,
A further basis of distinction — perhaps only a different way of stating the same one- — is this. In the cases relied upon by the transferors, the Government was not taking the patent but rather a non-exclusive license for governmental use. As noted in a somewhat different context, Schillinger v. United States, supra,
There may be a distinction between the taking of intangible property, such as a patent right, and the taking of tangible property in this, that by the Government’s use of a patent right the owner loses nothing per se through the taking; whereas if a tangible article be appropriated the owner instantly becomes so much the poorer. . . . [T]he use of a patented process or article may directly deprive the owner of nothing of intrinsic value, but be simply an invasion of a right. .
The value of which the patentee is deprived by the Government’s taking a nonexclusive license is the value he might have obtained by selling a license or the finished patented product to the Government itself. This is true of every ease where the Government infringes a patent, even where the patent has significant commercial value, so long as the governmental use of the patented invention does not diminish the market demand for the patent for nongovernmental uses. It should therefore be no surprise that in the instances where there happens to be no or little nongovernmental use, the Court of Claims should have sought to construct a market. Yet even in such cases the Court of Claims does not generally apply a value to the taker concept in the sense of giving significant weight to the Government’s necessities. The Court of Claims has not used governmental cost-savings as even a basis of calculation under § 1498 since the Marconi case in 1943, see Amerace Esna, supra,
Finally, while we find little merit in the broad contention of the Government parties that the results of the cited cases were dictated by the very existence of a patent system which is designed to encourage inventors by offering them suitable rewards, a narrower form of the argument has validity. This is that since adoption of the predecessor of 28 U.S.C. § 1498(a) in 1910, the Government has held out the promise to inventors that if it used their inventions without their consent, it would pay suitable compensation. Many inventors may have proceeded in reliance on this representation. To read the statute as denying compensation in cases where the invention was of no or little use save for governmental purposes would indeed keep the word of promise to the ear but break it to the hope. Congress held out no similar invitation in the Rail Act — a statute designed to preserve a failing transportation system from completely disappearing, at the minimum cost to the taxpayers permitted by the just compensation clause, and there is no suggestion that any transferor has constructed its railroad in the expectation that the Government would take it over.
The transferors cite a number of cases where the condemnor of unprofitable public utilities for continued use as such was required to pay more than liquidation value which in those instances seems to have been a sale as scrap. If we leave for further discussion the decision of the New York Court of Appeals in In re Port Authority Trans-Hudson Corp. (PATH),
We can pretermit discussion of the cases giving weight to OC or OCLD since this subject will arise in our discussion of PATH. The RCNLD cases are distinguishable on their facts. In the Appleton Waterworks case, one of only two rendered by courts in the United States, it is not clear that the utility was incapable of profitable operation; the condemnation by the city seems to have been caused by the utility’s inability to improve the service rather than by the impossibility of going on.
Despite this, the Government parties have not met the challenge of the transferors to produce a single decision in which a losing public utility being taken for continued use was valued as scrap
Of all the cases brought to our attention, PATH provides the strongest support for deviating from the market value rule. That case was concerned, among other matters, with the condemnation of four single track railway tunnels under the Hudson River and subterranean tunnels connecting them with passenger terminals in New York and New Jersey. The operation was a hopelessly losing one. The trial court awarded $30,000,000, “predicated on the conclusion that the condemnees should at least be repaid for the depreciated original cost of the tunnels,”
Can it be said by any objective standard that an award 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 indefinite period? We think not. .
Both the majority and the minority in PATH sought to draw comfort from Mr. Justice Cardozo’s opinion in Roberts v. New York City,
*1029 Substantial prices are not paid for the privilege of conducting a business at a loss.
Id. The Court also sustained the award of only $235 for the scrap value of the spur, id. at 284,
The structure was appraised as junk, the city having undertaken to bear the cost of removal. Such an appraisal might be too low were it not for the award for the private easements. To realize the value of those easements, an abandonment of the spur was necessary. “The railroads could not release their rights to the abutting owners and continue to operate their railroads in the street.” [In re East 42nd St. Elevated R.R. Structures,] 265 N.Y. [170] at p. 181 [192 N.E. 188 ]. The structure in the circumstances had no value except as scrap. (Emphasis supplied.)
The PATH majority, and here the transferors, stress the italicized sentence, which could mean that when the condemnation is of a railway not possessing easements of light, air and access, scrap value would not be enough even when there is no continued use. Against this are the final sentence and the previous discussion. We thus derive little help from Roberts.
B. Applicability of the Market Value Rule to this Proceeding
While the cases previously reviewed do not carry the weight the transferors would give them, we cannot be wholly insensitive to the views that seem to underlie them. The courts rejected market value as the measure of just compensation in circumstances which made that measure suspect.
Circumstances peculiar to this case make market value particularly hard to prove. The transferors face serious difficulties in proving alternative scenario sales and. the amounts that would have been obtained from those sales. These difficulties are increased by the chilling effect, not disputed by the Government, that serious discussion of the Rail Act had on the prospect of such sales. The discussion and enactment of the Act eliminated any incentive other parties might have had to negotiate purchases.
This does not mean that we should reject the role of market value in determining just compensation. Nor, however, should we bind a notion as fundamental as just compensation by the sterile logic of provable market value if a manifestly unfair result is produced. We may have such a situation here. It seems incredible that these 19,000 miles of railway and freight and passenger terminals, together with the equity in rolling stock, were worth only $685 million, the sum arrived at in the revised MLP of March 1,1976.
It suffices now to note that if the transferors should not be able to establish a figure for NLV which would square with our notions of what constitutes “just compensation,” we may be obliged to consider some other method to arrive at CMV. This would not be to deny the thesis of the Government that value to the taker should not be considered. However, if the unique circumstances of this case make it impossible to establish a market value which constitutes just compensation, it may be necessary to resort to some other rule. As the Supreme Court has pointed out:
The Court in its construction of the constitutional provision has been careful not to reduce the concept of “just compensation” to a formula. The political ethics reflected in the Fifth Amendment reject confiscation as a measure of justice. But the Amendment does not contain any definite standards of fairness by which the measure of “just compensation” is to be determined. . . . The Court in an endeavor to find working rules has adopted practical standards, including that of market value . . . But it has refused to make a fetish even of market value.
United States v. Cors, supra,
If it should prove impossible to establish a market value which constitutes just compensation, the basis that now seems to us most deserving of serious consideration— whether as the sole basis or as one to be considered along with NLV we need not now determine — is a basis related to original cost. In contrast to most condemnations, the property is not being converted to new uses; ConRail is being substituted for the transferors. In other words, ConRail has been put in roughly the same position it would have occupied had it made the transferors’ original investment when they did and depreciated it at the proper rate. Thus, a figure related to original cost may have some relevance to the value of what is being transferred. We use the phrase “related to” since not only must allowance be made for depreciation, but a further deduction might be justified to reflect physical deterioration beyond the point provided by the normal depreciation allowances but not constituting CUE.
Figures appropriately related to original cost would be entirely “just” to the transferors absent proof of a higher sale value; owners of hopelessly losing properties who are unable to establish a higher net liquidation value would have no just grievance if they receive back their original investment less one or even both of the deductions we have outlined. The Supreme Court’s decision in Roberts with respect to the easements is authority at least for this. A figure based on original cost has the further advantage of relative ease of determination from records which, except for any deterioration deduction, are readily available in the carriers’ reports to the ICC. See Phillips, The Economics of Regulation 239 (1965). The Government parties complain that it is not rationally related to the rights of which the transferors have been deprived, and call attention to the portion of Mr. Justice Clark’s opinion in United States v. Toronto, H. & B. Nav’n Co.,
*1031 original cost is well termed the “false standard of the past” where, as here, present market value in no way reflects that cost.
Here, however, we have a case where provable market values may be as inaccurate an indication of just compensation as original cost can be in a more traditional proceeding. And the Court was also to say, less than four months after the Toronto decision:
This Court has never 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 market value has been too difficult to find or when its application would result in manifest injustice to owner or public, courts have fashioned and applied other standards. Whatever the circumstances under which such constitutional questions arise, the dominant consideration always remains the same: What compensation is “just” both to an owner whose property is taken and to the public that must pay the bill?
United States v. Commodities Trading Corp., supra,
The parties should not read this discussion of original cost to indicate we are bound to it as a factor in valuation. It should be clear that we are not suggesting that a figure related to original cost is the best indication of CMV. Instead, we propose it only as a possible cheek on shortcomings we fear may develop in the usual valuation method focusing on market values. Furthermore, we would not be surprised to find that revised market value figures were not much different from depreciated original cost. After all, some of the rail property is heavily depreciated and the original cost value of much may be further reduced when deterioration is considered. But in the event a wide disparity should exist, we may not be able to accept as fair any valuation which does not reflect an adjustment related to original cost or a better check on fairness that the parties may suggest. We thus place the parties on notice that we may feel obliged to resort to some kind of analysis related to original cost and that they should present evidence accordingly.
We should also advise the parties, in the interest of their avoiding the expense incident to complex engineering studies, that we do not intend to consider estimates of reproduction cost, variations on that theme such as “assemblage value,” value of materials “in place,” trended original costs, gross liquidation value or societal values.
Although the transferors have not said what RCNLD would amount to, it is clear that the figures would be tremendous. To take one example, the Penn Central estimated its RCNLD as of December 31, 1970, as some $13 billion as against December 31, 1975 book value of $3.6 billion, FSP, Vol. I, at 142; as a result of inflation the disproportion would probably be greater today. EL estimated its RCNLD as of December 31, 1973, as some $3.6 billion as compared to a book value of $318 million. Id. While we understand these figures relate to the entire estates (including non-operating properties) and not simply to the portions transferred, the disproportion remains significant. The railroads in the eastern district have not earned a rate of return on book value as high as 4% for the past dozen years; the rates of return for the years ending March 31, 1968, 1969 and 1970 were 1.51%, 1.33% and .37%. See The American Railroad Industry: A Prospectus 48 (America’s Sound Transportation Review Organization 1970). Moreover, since the Supreme Court’s decision in FPC v. Hope Natural Gas Co.,
Apart from these basic conceptual defects, resort to reproduction cost as a measure of value in a case like this would lead into a never-never land where this court and the parties would perforce spend long years in the quest of a goal that is unattainable and not worth attaining.
In the first place, despite the deceptive simplicity of the terms, no one knows what RCNLD means. Hartman’s book on Fair Value at 100 (1920) more than a half-century ago noted that attempts to define the term had developed along three general lines: (1) the cost of reproducing a plant similar in all essentials to the existing plant, under present conditions; (2) the cost of reproducing a similar plant at present prices, under conditions prevailing at the time of original construction; (3) the cost of constructing a substitute plant capable of performing the same service. Hartman, supra, at 100. The list in not exhaustive. See
Perhaps enough has already been said to illustrate the interminable debate among engineers and other experts which any attempt to arrive at the reproduction cost of the properties here at issue would engender. The experts and ultimately this Court would have to sort out the various senses in which one can “reconstruct” a railroad. Is one required simply to provide service between cities, or does “reconstruction” entail the duplication of all existing spur connections to industrial shippers although they could reach the main line more efficiently by truck? Would the substitute service have to be equivalent to existing service, with slow orders of 10 m. p. h. on much of the track, or would it have to be the equivalent of the service that would have been offered by a well-maintained version of the former railroad? In computing the cost of land for track, freight yards and terminals, must one assume use of the existing sites, or may cheaper ones be substituted? On either view, is one to take account of increased land values due in part to the presence of the railroad and in part to the efforts of others; or is one interested in what it would cost to reconstruct a railroad if the existing ones had never existed?
These definitional difficulties are augmented by additional problems of calculability. While some of these have been anticipated in our discussion, further elaboration may be useful. Perhaps the most difficult question is how to make allowance for functional depreciation. Mr. Justice Brandéis thought that functional depreciation should encompass not only “progress in the art of rail transportation” which has reduced the value of the existing plant, St. Louis & O'Fallon Ry. v. United States,
The uncertainties in calculating functional depreciation are rivalled by the difficulties of arriving at the initial estimate for RCN. In his O’Fallon dissent, Mr. Justice Brandéis noted, in terms fully applicable here, that “there was practically no construction of new lines” during the recapture years there in question, making it very difficult to estimate current construction costs; on the other hand, indexing construction costs from earlier years was unsatisfactory since it gave no effect to new cost-saving methods of construction,
Commissioner Eastman of the ICC also considered that RCN estimates were unreliable, for they were “based on all manner of assumptions, and invade the realm of fancy at numerous points.” He cited, as one example, not without applicability here, that the estimate of RCN for a given segment of railroad would depend on how many other railroads were hypothetically being reproduced, since it is more expensive to construct a railroad if no other railroads are available for the transport of construction
Another type of objection to RCN as a valuation method is based at root on considerations of equity. RCN under prevalent methodology would take no account of the fact that the original construction of the railroad was done in a timely fashion. In regard to land, for instance, basing the value on the current market price of adjoining land would amount to positing the reconstruction of the railroad with the least efficient timing possible in the development of an industrial area. See San Pedro, Los Angeles & Salt Lake R.R., supra,
Finally, it is hard to see why investors, and particularly bondholders in bankrupt railroads, should enjoy a bonus for the effect of inflation not accorded to most other citizens. Commissioner Eastman inquired in his San Pedro dissent,
[W]hy should public utility investors be constituted a favored class exempt from the hardships suffered by other investors due to the change in the purchasing power of the dollar?
See also Mr. Justice Brandeis in Southwestern Bell, supra,
The difficulties in the use of RCNLD are not decreased by the suggestion of some of the transferors, apparently embarrassed at the size of the award on a reproduction cost theory alone, that we need not take RCNLD as “the value” but simply as a factor to be considered along with OCLD and NLV in arriving at value. Rather they are augmented. As Commissioner Eastman noted in his San Pedro dissent, it is one thing to apply RCN as a check on estimates of OC when the range between the two is narrow, but is a quite different thing when a long period of price change has produced a vast difference between the two. Under such circumstances the choice of a figure becomes increasingly arbitrary.
We are told that, however all this may be, authority compels us to plod into the morass of taking evidence on RCNLD “for whatever it may be worth” — the hope being apparently that a decade hence, when this job has been completed,
One line of cases, cited to us not as binding authority but as “an instructive analogy to the present valuation task”, Reply Brief of Intervening PC Lienholders at 42-47, consists of decisions of the ICC under § 3(5) of the Interstate Commerce Act:
If the Commission finds it to be in the public interest and to be practicable without substantially impairing the ability of a common carrier by railroad owning or entitled to the enjoyment of terminal facilities to handle its own business, it shall have power by order to require the use of any such terminal facilities, including main-line track or tracks for a reasonable distance outside of such terminal, of any common carrier by railroad, by another such carrier or other such carriers, on such terms and for such compensation as the carriers affected may agree upon, or, in the event of a failure to agree, as the Commission may fix as just and reasonable for the use so required, to be ascertained on the principle controlling compensation in condemnation proceedings.
49 Ü.S.C. § 3(5).
The leading decision under § 3(5) (at the time, § 3(4)) is Missouri-Kansas-Texas R.R. v. Kansas City Terminal Ry.,
Before proceeding to discuss the evidence and our conclusions relative thereto, we repeat it is our interpretation of the statute that the principles controlling compensation in condemnation statutes are fully applicable and appropriate to determine the value of the property for the use of which compensation is to be made. Insofar as the rules, methods, and principles laid down by us in our valuations under section 19a of the act are applicable, we shall be controlled thereby. At the same time we recognize the distinction between the controlling principles applicable for the ascertainment of values for rate-making purposes and those applicable in condemnation cases. We do not perceive, however, why the principles applicable for the determination of individual elements, such as cost of reproduction, cost of reproduction less depreciation, and original cost, should be any different in the instant case from those in the rate-making case. It is true that certain facts — earnings for instance — may be relevant in condemnation cases while irrelevant in rate-making cases, but if the facts are relevant the controlling principles in their ascertainment should be the same.
This seems to us little more than saying that the Commission proposed to apply its San Pedro and O'Fallon decisions concerning the factors to be taken into account in valuation for rate-making purposes under § 19a as a guide for its decisions under § 3(5). See also III-A Sharfman, supra, at 124 (noting that § 19a was “a statutory replica [of] Smyth v. Ames [
The Brief of the PC Lienholders at 161-62 & n.145, also tells us that “In public utility condemnation cases the reproduction cost of the facility is invariably a significant measure of value,” and that “Reliance
More clearly inapplicable are cases in which there is no indication that the utility was hopelessly unprofitable, City of Omaha v. Omaha Water Co.,
Beyond this, many of these cases stem from the heyday of Smyth v. Ames and even more extreme Supreme Court decisions extolling the role of reproduction cost in public utility valuation for rate-making purposes, e. g., McCardle v. Indianapolis Water Co.,
In sum, the time has come “to lay the ghost of Smyth v. Ames,” FPC v. Natural Gas Pipeline Co.,
V. Sales to Other Public Bodies
In this section we deal further with the argument of the Government parties that the alternative scenario may not include sales to other public bodies or, at minimum, may not include sales to such bodies by way or in lieu of condemnation. We have previously indicated in Part III that, as a matter of statutory construction, we see no reason why such sales should not be includible in determining NLV; however, that would serve little purpose if they were required to be excluded for purposes of determining CMV.
In this Court’s June 16, 1976 Memorandum, we requested briefing of the question whether, in determining NLV under § 306, account should be taken of potential rail use sales at prices greater than nonrail NLV “when the proposed sale is to a public body vested with the power of eminent domain, in the absence of proof of a private purchaser ready and willing to make the purchase?”
As a result, another aspect of the question of sales to public bodies, previously somewhat obscured by the controversy over the salvage clause, becomes significant. This is whether, assuming that public bod
The Government’s invocation of the “same project” limitation on actual market value as of the time of the taking is unavailing. We follow the Government parties in their claim that any increases in market value resulting from the taker's project are to be excluded in computing the amount the taker must pay. See Shoemaker v. United States,
The Government’s reliance on the decision in United States v. 124.21 Acres of Land,
Such Supreme Court opinions as exist lend support to the proposition that other potential condemnors may be considered, although the Court’s discussion has not been altogether clear. The lack of clarity is largely due to the fact that the cases, like those dealing with inclusion of the taker in the market, supra, Part IV, generally deal
Probably the leading case on the inclusion in the market of public bodies other than the taker is Olson v. United States, supra,
. The fact that the most profitable use of a parcel can be made only in combination with other lands does not necessarily exclude that use from consideration if the possibility of .combination is reasonably sufficient to affect market value. Nor does the fact that it may or is being acquired by eminent domain negative consideration of availability for use in the public service. New York v. Sage,239 U.S. 57 , 61 [36 S.Ct. 25 ,60 L.Ed. 143 ], It is common knowledge that public service corporations and others having that power frequently are actual or potential competitors, not only for tracts held in single ownership but also for rights of way, locations, sites and other areas requiring the union of numerous parcels held by different owners. And, to the extent that probable demand by prospective purchasers or condemnors affects market value, it is to be taken into account. (Emphasis supplied.)58
Although the opinion thus referred to the “most profitable use” of the property, the Government parties’ effort (Government Br. at 254-55 n.299) to limit the Court’s language to cases where public buyers are looking to the profitability of the property in question is unpersuasive since it seems more likely that the Court meant only to refer to the idea of most advantageous use in the sense of that yielding the highest price to the condemnee. The actual holding that reservoir use was too speculative,
The opinions in United States v. Miller, supra,
*1040 [Although the market value of the property is to be fixed with due consideration 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 excluded as an element of market value. (Footnotes omitted, emphasis supplied.)
See Note, supra, 90 Harv.L.Rev. at 600 n.20. To the same effect, the Cors Court stated,
The special value to the condemnor as distinguished from others who may or may not possess the power to condemn has long been excluded as an element from market value. (Emphasis supplied.)
In both instances, the Court cited United States v. Chandler-Dunbar Co., supra,
The exception taken to the inclusion as an element of value of the availability of these parcels of land for lock and canal purposes must be overruled. That this land had a prospective value for the purpose of constructing a canal and lock parallel with those in use had passed beyond the region of the purely conjectural or speculative. That one or more additional parallel canals and locks would be needed to meet the increasing demands of lake traffic was an immediate probability. This land was the only land available for the purpose. It included all the land between the canals in use and the bank of the river. Although it is not proper to estimate land condemned for public purposes by the public necessities or its worth to the public for such purpose, it is proper to consider the fact that the property is so situated that it will probably be desired and available for such a purpose. Lewis on Eminent Domain, § 707. Boom Co. v. Patterson,98 U.S. 403 , 408 [25 L.Ed. 206 ]; Shoemaker v. United States,147 U.S. 282 [13 S.Ct. 361 ,37 L.Ed. 170 ] ....
The Miller and Cors Courts apparently read this not as a departure from the general rule against taking account of value to the taker but as indicating that value for the same purpose as the taker’s to other purchasers or condemnors is includible.
Despite all this we find appreciable force in the Government parties’ argument that considering other public purchasers might threaten the ability of the federal government to solve national problems through use of the condemnation power whenever the problem also impacts at the state and local level — a point which does not appear to have been brought to the Supreme Court’s attention in any of the cases we have discussed. The effective result of including such purchasers in the market, the Government says, would be that despite the disallowance of “hold up” value when considering the condemnee-federal condemnor relationship, we would then allow a similar “hold up” to enter the calculation of just compensation through the back door of hypothetical dispositions to other public bodies. It is not a sufficient answer to say that doing this does not bar the federal government from resort to condemnation solutions but affects only the just compensation figure. (See EL reply brief at 13.) If a state or local government, by an improvident arrangement with the condemnee, could dictate what the Federal Government must pay for its decision to condemn, the federal
The problem is sufficiently troubling that we think it preferable, before attempting anything like a complete resolution, to await factual development which will enlighten us as to the true dimensions of the issue. The Government is clearly entitled to be protected against prices that would represent simply the appraisal of a state or local body of how much it would pay under duress rather than have service cut off. Payment of any such price would be unreasonable. The state and local bodies themselves had or could readily have been given the power of eminent domain, including power to take title without contemporaneous payment so long as they recognized “the absolute right of the owner, upon his property being taken, to just or reasonable compensation therefor, and [made] provision . . . for the ascertainment . of the compensation to which, under the constitution, he is entitled.” Sweet v. Rechel,
VI. Severance Damages
Our June 16, 1976 order requested briefing and argument on the issue whether compensation was due for “any diminution in value of the assets severed and then left with the transferors, on a theory of inverse condemnation or otherwise.”
To no one’s surprise the transferors answer in the affirmative, referring to 4A Nichols, supra § 14.231 and the many authorities there cited. While asking that we endorse this general proposition, the PC Trustees consider that it would be unwise for us to go further at this time since the method for computing severance damage may vary according to the general theory of valuation- that is adopted.
Not disputing the general principle advanced by the transferors, the Government parties urge that it can have little or no application in this case since the condemned rail properties have been taken for continued rail use. Accordingly “[W]hat was railroad property stays in rail use, and what was railroad frontage remains railroad frontage after the Government has acted.” (Govt, brief at 239). It follows, they say, that “any ‘severance damage’ claim must be based on an allegation that retained properties could have been combined with transferred properties to produce greater aggregate value in the absence of the Rail Act” (Govt, brief at 242) and that all this will be reflected in “the alternative scenario.”
While the formulation of the Government parties may cover most of the instances of severance damage, we are not satisfied that it would cover all. Moreover, to insist that all claims of severance damage should be handled by the alternative scenario approach might well put an undue strain on this already heavily burdened device. If a transferor prefers to attempt to establish severance damage on a parcel-by-parcel basis, we do not now perceive any reason for preventing this.
However, we agree that for us now to say more would be premature. We therefore content ourselves with the statement that we see nothing that should prevent application of the principle of severance damage in this case.
VII. The New Haven
In our June 16, 1976 memorandum we asked for briefing and argument on a “question raised by the statement of the New Haven Trustee, whether there is any requirement that the properties conveyed by the New Haven to PC should be valued on any higher basis than other properties,”
“. . . the findings of the Supreme Court with, respect to value of the New Haven properties established the net salvage value of those properties as of December 31,1966, and, after proper adjustment to date of conveyance to ConRail, set an absolute floor on the salvage value of the New Haven properties in these proceedings.” Br. at 4 n.4.
We agree with the Government parties that the former New Haven properties should not be valued differently in these proceedings simply because they were the subject of valuation at the time of their sale to Penn Central. As previously noted, note 42, supra, that valuation stemmed from an agreement between Penn Central and the NH Trustees. While the Government was a party to the New Haven Inclusion Cases, its interest was that of supporting the ICC’s orders and was not that of a condemnor. Moreover, what was there determined was the liquidation value of the entire NH as of December 31, 1966; the question here is the value of what remained of a portion of those properties,
VIII. Value of Other Benefits (VOB)
In Part IV of our Memorandum of June 16, 1976,
The December 1, 1976 Statement of the Government parties gave this subject a turn we had not expected. Departing from the analysis in FSP, Vol. I, pp. 128-34, the Government parties drew a sharp distinction between what their VOB claims would be under the alternative constitutional claims they assert the transferors are entitled to make: First, “they are entitled to assume the presence of the Rail Act” and to claim a right to withdraw all their properties from rail use. Value is calculated using the MLP. Second, “they are entitled to assume the absence of the Rail Act, and try to establish the values they could have attained by liquidating the transferred properties, for rail or non-rail use . . . ,” under an alternative scenario.
Under the first hypothesis the Government’s VOB claims are limited to two categories: One is a “technical adjustment” for part of the enhancement in value of a portion of a retained parcel of land by virtue of its access to ConRail service. The other category is the elimination of claims that would have been reached in a reorganiza
(I) the Corporation [or other persons] to whom such conveyance is made assumes all of the obligations under any applicable conditional sale agreement, equipment trust agreement, or lease with respect to such rolling stock (including any obligations which accrued prior to the date on which such properties are conveyed)
The Government parties contend that the transferors received OB to the extent that the liquidation value of rolling stock transferred under the Act was less than the assumed obligations upon it that would have been reached in the respective bankruptcy proceedings.
As compared with these two items, the Statement lists, without limitation, five other items which the Government parties would claim as VOB if any part of the rail properties of a transferor were to be valued under a scenario providing for continued rail use in the absence of the Rail Act: (1) expedition of and exemptions from regulatory action; (2) avoidance of operating costs after April 1, 1976; (3) avoidance of executory contracts and inchoate obligations; (4) avoidance of labor protection costs; (5) and avoidance of loss on retained properties to the extent that the FSP provided more rail service than an alternative scenario would have done.
The briefs have also flushed out a legal point that had escaped our attention. Section 303(c)(l)(A)(i) directs us to decide whether the transfers or conveyances to ConRail “in exchange for the securities, certificates of value and the other benefits accruing to such railroad as a result of such exchange” are fair and equitable; § 303(c)(l)(A)(ii) directs us to decide whether the transfers or conveyances to profitable railroads, States or responsible persons “in exchange for compensation and other benefits accruing to such transferor as a result of such exchange” are fair and equitable.
subtracting the value of other benefits provided under this Act, as determined by the special court. .
Most of the transferors contend that the omission of the “as a result of such exchange” language in § 306(c)(4) was simply permissible Congressional shorthand and does not indicate any intention that we should determine VOB on any more enlarged basis under § 306(c)(4) than under §§ 303(c)(l)(A)(i) and (ii). We do not understand that the Government parties seriously dispute this. We hold the meaning to be the same;
There is less agreement over the effect of that qualifying phrase. However, it would be wasteful to review the somewhat abstruse arguments that have been presented on that issue until we know just what OB
IX. Conclusion
As we review this opinion, we must confess some disappointment at the rather meager results which the extensive briefs and arguments of able counsel and our intensive consideration of them have produced. However, our malaise goes deeper. Even on the chart we have drawn for the future course of these proceedings, a chart which the transferors will doubtless claim to have wrongly precluded many lines of pertinent proof, the parties and this court seem doomed to spend years in an enterprise as unsatisfying as it will be interminable. We are to endeavor to fix the values of these enormous properties by estimating what the transferors could have realized by engaging in one course of action — ceasing operation and selling all of the property as scrap — that was never seriously considered by anyone, or another — an endeavor by each of the transferors to find a buyer or buyers for parts or all of its lines and selling the rest for scrap — that was not explored because it had become evident early in 1973 that something like the Rail Act would be adopted. Although the estimation of scrap value would not be simple, the problems inherent in determining value for railroad use are staggering. Even if we should take the easiest assumption — one which the transferors may not adopt and which the Government parties will doubtless contest — namely, that the transferors would have acted as a group and dealt with the western and southern railroads as a group, and then determined what lines would have been purchased, we would next have to determine what the buyers would have paid.
Our discussion in Part IV should have made two things very clear. One is that we will not value these properties on the basis of or even “consider” such fantasies of “experts” as RCNLD, trended OCLD, social value, etc., that would provide a bonanza to investors beyond anything of which they could have justly dreamed in the dark days of 1973. The nation’s need for rail service affords no basis for the award as just compensation of “values” which these properties have not possessed for years and which their owners could never have realized except through condemnation by the Federal Government. The other is that we will not limit just compensation to provable market values if the transferors, through no fault of their own, cannot prove market value with sufficient nicety. We again remind the parties of the wisdom of Mr. Justice Black that “when market value has been too difficult to find, or when its application would result in manifest injustice to owner or public, courts have fashioned and applied other standards,” United States v. Commodities Trading Corp., supra,
On Motions for Reconsideration
The Trustees of the Property of Penn Central Transportation Company and certain affiliated transferors (hereinafter the movants) having moved for reconsideration of this court’s decision of October 12, 1977 (the decision), which motion has been joined by the Intervening Penn Central Lienholders; the Trustees of Erie-Lackawanna Railway Company and certain affiliated non-bankrupts; the Trustee of the Lehigh Valley Railroad Company; North Pennsylvania Railroad Company, Delaware and Bound Brook Railroad Company, Philadelphia, Germantown and Norristown Railroad Company, Plymouth Railroad Company (the NBIO’s); the Peoria and Eastern Railway (P&E); and others, it is ordered as follows:
1. The movants’ first ground for reconsideration is that this court should make clear that the holding on pp. 1003-1004 of the decision that the method prescribed in § 306(c)(5) for determining the value of ConRail securities would pass constitutional muster in the sense that such securities might be used as part of the payment for the transferred properties, was not intended to preclude the transferors from contending that the particular method of valuing the ConRail securities was so unfair as to be unconstitutional. We agree; we will arrange for this to be taken up at a more appropriate time.
2. The movants’ second ground is that this court “should make clear that no ruling has been made concerning the types of evidence relevant to show what buyers other than the Federal Government would have paid for the transferors’ properties absent the Rail Act.” (Motion p. 9) More specifically the movants ask us to say that our rejection of the reproduction cost and other types of evidence discussed at pp. 1031-1037 was confined to a hypothethical sale to the federal government, to which the reified property concept urged by some transferors should clearly be added, and would not preclude the offer of such evidence, notably real estate assemblage costs, if relevant to show “that, absent the Rail Act a particular corridor would have been sold to a private buyer who needed to acquire such a right-of-way and would otherwise have to assemble real estate parcels into a continuous corridor.” (Motion, p. 8).
Our discussion was not intended to be as limited as the movants suggest. We had already rejected inclusion of the United States in the market (pp. 1015-1016) and the reified property concept (pp. 1012-1013) on other grounds. The principal purpose of our discussion on pp. 1031-1037 was to relieve the transferors of the expense of preparing and this court of the burden of hearing and passing upon studies of reproduction cost, etc., tendered on the basis that we might turn to such methods of valuation if efforts to establish market value proved unsuccessful. Although our discussion did not focus specifically on the possible relevance of such evidence to the price that would have been paid by profitable railroads or by public bodies other than the Federal Government, we think the instances where such evidence would have even minimal relevance, if existing at all, would be exceedingly rare. It is hard for us to understand why profitable railroads would have paid more than “a capitalization of the losses they would have suffered from cessation of service by the sellers + the income (or deficit) from the properties bought,” which we considered to be the upper limit of the bargaining range (p. 1044), simply because it would cost more to reproduce the property. It is equally hard for us to visualize public bodies taking into account such values as “assemblage costs,” and the inclusion of any such items would acutely raise the question discussed on p. 1040-1041 of the decision. Hence, while the movants may be literally correct in saying (Motion, p. 8) that we did not mean “to exclude all such forms of evidence in all circumstances” (save for the principle of Foley Square), our instructions to the masters, while taking account
3. The movants ask us to reconsider our discussion (pp. 1022-1025) of decisions of the Court of Claims relating to the Government’s use of patents. We find no reason to do so.
The additional point raised by the NBIO’s does not persuade us to modify our holding on pp. 1001-1004 except as stated in item one above. We make the same ruling with respect to the P&E. If, as alleged in its statement of additional grounds for reconsideration, a 1972 study showed that major portions of its lines “could feasibly be sold or leased to other profitable rail lines”, P&E should be able to establish a market value that will reflect this. We still hold that CV’s and ConRail securities, properly valued, may be used to pay part or all of this.
We have already taken action, in accordance with movants’ request, to postpone the effectiveness of our CUE decision until the entry of this order.
Except as heretofore stated, the motions for reconsideration are denied.
Notes
. We say this despite our recognition that any determinations made by us are subject to review by the Supreme Court. Section 303(d) of the Rail Act, as we read it, would permit the Court to review this opinion now, despite its interlocutory character, if the Court should deem that to be wise — a question on which, of course, we intimate no view.
. The Notice also requested discussion whether a distinction should be drawn between bankrupt and nonbankrupt transferors or between specific classes of nonbankrupts.
Briefs were received on June 1 and reply briefs on June 22, 1977.
. The Supreme Court elsewhere stated that the plaintiffs’ “principal contention” was, in part, that the ConRail securities and USRA obligations and other benefits to be received would not be the constitutionally required equivalent of the rail properties compelled by § 303(b) to be transferred.
[W]e hold ripe for adjudication the questions whether stocks, however valued, can be part of the .consideration for the rail properties .
. In light of the Government’s concession referred to above, the problem of the respective reaches of the bankruptcy and commerce power has no practical importance with respect to properties conveyed to profitable railroads or to states. In those instances, the transferors will receive compensation in cash from the transferees. See Sections 206(d)(2), 303(a)(2). If this Court finds that the terms of any such transfer are not fair and equitable, it is to enter a judgment against the transferee. Section 303(c)(3). The United States will be required to indemnify the transferee against the costs of any such judgment. Section 303(c)(5).
. Section 210 of the Regional Reorganization Act of 1973 authorized the Association to issue obligations, guaranteed by the Treasury, not to exceed $1.5 billion, of which $500 million could be used for acquisition of the properties of railroads in reorganization. See H.R.Rep.No. 93-744, 93d Cong., 1st Sess. 60 (1973). The 1976 Amendments limited the amount of USRA obligations, restricted their use to loans pursuant to § 211, and created certificates of value. We described the workings of these certificates in our June 16 opinion,
. We include in the word “transferors” the intervenors allied in interest with them,
. Of 52 nonbankrupts, 42 were controlled by primary debtors or their subsidiaries, and 22 of these were 100% owned by primary debtors. Of 31 leased lines, 20 had leased their properties to a primary debtor in perpetuity or for terms of 999 or 990 years, and an additional nonbankrupt was under a 401 year lease.
. For example, neither the Norwich & Worcester nor the Little Miami railroads had operated their own lines for over 100 years before enactment of the Rail Act. North Pennsylvania Railroad had not operated its line since 1879. As of December 31, 1973, the Norwich & Worcester had three employees. On the same date in 1974, the Northern Pennsylvania also had three employees; the Philadelphia, Germantown & Norristown Railroad had one. And as of December 31, 1975, the Baltimore & Eastern Railroad had three employees, the Little Miami, two. See Moody’s Transportation Manual (1976).
. The nonbankrupts also rely on the statement of the court of appeals in Benton v. Callaway,
A solvent corporation, which has appeared specially as creditor and lessor in a reorganization proceeding, cannot be constitutionally compelled against its will to convey to the debtor a larger and better title than was granted in the lease.
In our view this reliance is misplaced. The court of appeals had previously noted that, “The jurisdiction of the federal district courts sitting in bankruptcy is limited to matters conferred by statute expressly or impliedly.” Id. at 880. The finding that no such jurisdiction over the fee interest in defendant’s property had been conferred compelled the conclusion that the district court could not constitutionally order the conveyance, since no court may constitutionally act beyond its jurisdiction. Here, there is no doubt that the Rail Act confers jurisdiction over the property of a nonbankrupt lessor. If the court of appeals meant more than what we think it did, we would be constrained to disagree.
. Ballantine’s Law Dictionary 743 (3 ed. 1969) broadly defines liquidation as “the winding up of a corporation, partnership, or other business enterprise by converting the assets to money, collecting accounts receivable, paying debts, and distributing the net proceeds, if any among the shareholders, partners, or owners of the business.” Webster's New International Dictionary 1441 (2 ed. 1960) adopts a similarly general definition, “To convert into cash by selling.”
. The Lehigh Valley Trustee apparently concedes that NLV does not encompass potential sales to the Government. Brief at 6-9.
. Indeed, Congressman Rooney, chairman of the House subcommittee that considered the 1976 amendments, stated on the floor of the House:
Underwriting all of the provisions of the transfer, this legislation authorizes “certificates of value,” which are financial instruments, to guarantee the creditors the net liquidation value of their assets if the new corporation fails. It is this net liquidation value that the Supreme Court in the New Haven case determined was the value of a bankrupt railroad. 121 Cong. Rec. H12754 (daily ed. Dec. 17, 1975).
. Section 303(c)(3) provides in relevant part: If the special court finds that the terms of one or more conveyances or exchanges for securities, certificates of value or other benefits are fairer and more equitable than is required as a constitutional minimum, then it shall order the return of any excess securities, [certificates of value,] or compensation ' to the Corporation or a profitable railroad, State, or responsible person so as not to exceed the constitutional minimum standard of fairness and equity.
. Specifically, the Report assumed that the railroads could only commence liquidation pursuant to orderly plans that would minimize the impact on the economy, that judicial and regulatory approval of such plans would take from two to nine years, that ICC approval for track-age abandonments would take up to 10 years, and that the time required for orderly transition of services to other railroads and modes of transportation, “a critical factor affecting the willingness of the judicial and regulatory authorities to let liquidation commence,” would be 7-10 years. See Selected Inputs to Valuation Analysis, 1-1 to 1-14, in Valuation Reports of Properties Subject to the Regional Rail Reorganization Act of 1973 (1976).
. Winddown is defined as “a period of intense activity associated with the promulgation of freight and passenger embargo notices and the preparation for ending railroad operations.” See Master Liquidation Plan and Summary of Valuation Reports, at 7-10, in Valuation Reports, supra. The period lasts 90 days, followed by a 180 day period, commencing April 1, 1979, for consolidation of inventories of rolling stock, materials and supplies, and other nonfixed assets. Sales of rolling stock would begin on April 1, 1979, and sales of dismantled
. This concession is due to the fact that MLP, now styled the “retrieval model,” assumes the existence of the Rail Act. Since the compelled conveyances constituted a maturation of the carriers’ “Brooks-Scanlon rights,” see 180-Day Appeals,
The Government Parties’ conclusion that, for retrieval model purposes, the transferors must be deemed to have certificates of abandonment in hand on April i, 1976, does not undermine the validity of the concept of using a computational proxy to model a multidate process. The validity of any particular proxy date depends, of course, upon (a) the nature of the gradual process for which the proxy substitutes, and (b) a fair valuation equivalence between the present value of the net proceeds produced by the gradual process and that produced by use of the proxy date. USRA has commissioned a study to determine an appropriate proxy date in light of the elimination of any pre-availability delay after March 31, 1976, attributable to the need for abandonment approvals, as well as possible changes in USRA’s valuation of particular asset categories. Preliminary results of the study suggest that the new proxy date may be earlier than January 1, 1979.
. If the transferors would prefer a course whereby they would seek to coordinate their scrap liquidation plans before disclosing them to the Government parties and the court, similar to what we later direct in connection with sales for rail use, infra pp. 1009-1010, we will entertain a proposal to modify the above direction accordingly. So also if the transferors should elect to forego the submission of any plans calling for a solely scrap liquidation and to integrate scrap sales with sales for railroad use.
. We rejected an argument that was a variation on this theme in the October 18 opinion,
. In one of the cases cited, Jamestown, W. & N. R.R. Abandonment,
Cases cited by the Government parties for the general proposition that conditions may be attached to an abandonment, ICC v. Railway Labor Exec. Ass’n,
. The presentation of the Government parties has been complicated by persistent argument on what they call “ConRail use value.” The point of this is that under the Rail Act the transferors receive all the junior securities of ConRail, so that whatever earning power Con-Rail possesses after payment of the charges on its debt and Series A preferred stock (or payment and redemption thereof) will belong to the transferors. While this is true for the properties transferred to ConRail taken as a whole, there may be lines which could now be operated at a profit, and some which after rehabilitation might attain that state sooner than others. Furthermore, the argument has no application to properties conveyed to persons other than ConRail, for which no ConRail securities are issuable. We thus fail to see that “ConRail use value” has great significance except as a shorthand way of stating that the conveyances compelled by the Rail Act differ from those usual in condemnation in that the transferors do retain upside potential if the properties should turn out to have earning power not reflected in the value of the ConRail junior securities at the redemption date of the CV’s.
. The Government parties other than the DOT further suggest that as a practical matter any value in possible retention for rail use by a particular transferor would be reflected in value for sale to others for rail use. This is not necessarily' true since while capitalized earning power would be what a seller would ask, it is not inevitably what a buyer would pay. The small number of prospective buyers, pressure on the seller to dispose of the property, and discrepancies in the information possessed by the parties to the transaction are some of the factors that would make the Government parties’ “perfect market” outcome unlikely.
. The House Committee Report on the Rail Act observed that
The services [that the bankrupt carriers] perform are essential to the nation, and the blow to the economy if such services were interrupted only briefly, would be devastating. This is a matter which affects not only the economy, but also the defense needs of the nation.
H.R. Rep. No. 93-620, 93d Cong., 1st Sess. 28 (1973). The Senate Report was equally apocalyptic;
[The carriers’] services are not only essential to the prosperity and well-being of the people and industry in the Northeast and Midwest, but they are essential to the well-being and prosperity of the Nation as a whole. Cessation of services on the Penn Central alone would have drastic consequences throughout the United States. For example, it has been predicted that a shut-down of the Penn Central would produce a decrease in the rate of economic activity in the region of 5.2%, a decrease in the entire Nation of 4%, and a decrease in GNP for the Nation as a whole of
*1012 2.7% after the eighth week of such a shutdown.
S. Rep. No. 93-601, 93d Cong., 1st Sess. 7-8 (1973). The Senate Report concluded that the “entire economy of the United States would suffer drastically if the railroads in the Northeast and the Midwest shut down operations.” Id. at 8. See also Hearings on Northeast Rail Transportation Before the Subcomm. on Transportation and Aeronautics of the House Comm, on Interstate and Foreign Commerce, 93d Cong., 1st Sess., pt. 1, at 219 (statement of Claude Brinegar, Secretary of Transportation); 621-23 (policy statement of the New England Governors’ Conference); Hearings on S. 281 Before the Surface Transp. Subcomm. of the Senate Comm, on Commerce, 94th Cong., 1st Sess. 1 (1975).
Section 101(a) of the Rail Act reaffirmed this determination of the essentiality of the Northeast rail system. The Preliminary System Plan, as well, recognized the “devastating implications for the regional and national economy” of shifting freight to other modes of transportation. Vol. I, at 139.
. A similar proposal had been presented in the Opening Brief of the NH Trustee. Brief at 59-73.
. As the PC Trustees at one point apparently do. See Reply brief at 20-21.
. See PC reply brief at 16-20; CNJ reply brief at 17-18; LV reply brief at 12-13.
. Although this was said in a case involving the taking of a portion of a lease, so that it was necessary to abandon a “vulgar and untechnical” view of property as a “physical thing” in order even to find that there had been a taking of property, the Court’s analysis in General Motors does not become inapposite in a case where the taking involves a more concrete property interest. As Mr. Justice Holmes once noted, “Ordinarily an unqualified taking in fee by eminent domain takes all the interests and as it takes the res is not called upon to specify the interests that happen to exist.” A. W. Duckett & Co., Inc. v. United States,
. As pointed out in Orgei, Valuation Under Eminent Domain § 88 (2d ed. 1953) at 365 (hereafter Orgei), it is not clear what the relevance of the value to the taker point was in the case, since the land was worth the'same to the city regardless of whether the owners’ claims were aggregated.
. We omit discussion of United States v. Chandler-Dunbar Co., supra,
. An emphatic statement by a lower court to that effect in a case not dissimilar to ours is United States v. Boston, Cape Cod & N.Y. Canal Co.,
We are of the'opinion that, in ascertaining the market value of property taken in a condemnation proceeding the utility or availability of the property for the special purpose of the taker cannot be shown, if the taker is the only party who can use the property for that purpose. If, however, the property has a special utility or availability, not only to the taker, but to other parties who could use the property for the particular purpose intended by the taker, then this utility or availability may be shown.
See United States v. Foster,
We see little relevance in Grand River Dam Authority v. Grand Hydro,
. Indeed, courts have limited application of this replacement cost standard to cases where replacement by the condemnee, whether public or private, is required by law or by the continuing needs of the community. See e.g., United States v. Certain Land,
. Specifically,
the fact that the value of the tires as manufactured articles was far above the price of scrap, the fact that they were purchased for a specific use and not for a speculative purpose, . . . the wartime conditions that existed, the necessity for special allocations and priorities, the natural and proper restrictions that are placed around the disposition of materials in a period when the world is torn by war, and . . the various regulations and restrictions and limitations that were placed upon articles of this character and made of this material .
. Staff of the Senate Comm, on Commerce, 92d Cong., 2d Sess., The American Railroads: Posture, Problems and Prospects (Comm. Print 1972); Staff of Senate Comm, on Commerce, 92d Cong., 2d Sess., The Penn Central and Other Railroads (Comm. Print 1972); U.S. Dept, of Transportation, Northeastern Railroad Problem (1973); USRA, Final System Plan (1975); USRA, Preliminary System Plan (1975); U.S. Department of Transportation, Rail Service in the Midwest and Northeast Region (1974); Rail Services Planning Office of I.C.C., Evaluation of the U.S. Railway Association’s Preliminary System Plan (1975); I.C.C., Means for Preserving and Maintaining Essential Rail Services, Report Pursuant to S.J. Res. 59 (1973); Task Force on Railroad Productivity of The National Commission on Productivity and The Council of Economic Advisers, Improving Railroad Productivity (1973).
. For a thorough review of Federal regulatory and tax policies regarding the railroads and other forms of transportation, see Study of Federal Aid to Rail Transportation: Report of the Secretary of Transportation to the United States Congress Pursuant to Section 902 of the Railroad Revitalization and Regulatory Reform Act of 1976 (1977), especially chapters III, IV and V.
. These cases may thus be thought to be akin to those that would disregard fluctuations owing to periods of depression or boom markets — a situation where the decisions are said to go both ways. See 4 Nichols, supra § 12.-3112; 1 Orgel §§ 24-25. See also United States v. Cors,
. We expressly reject the claim of the Trustee of the Reading that “regulatory strangulation” and particularly approval of the Penn Central merger constituted a taking. In regard to the merger, as pointed out in our CUE opinion,
Even if Reading’s claim of a regulatory taking were valid, it would not alter the standard to be applied in the determination of CMV, but would give rise to a claim for compensation independent of the one pressed in this Court, a claim for which we would not have the power to order relief.
. In 1960, a section covering copyrights and paralleling old § 1498’s provisions for patents was added as § 1498(b), see Act of September 8, 1960, Pub. L. 86-726, §§ 1, 4, 74 Stat. 855, 856.
. The first act providing jurisdiction in the Court of Claims for claims founded upon “any contract, express or implied, with the government of the United States” was the Act of February 24, 1855, c. 122, 10 Stat. 612; that provision was later incorporated into the Tucker Act, Act of March 3, 1887, c. 359, 24 Stat. 505, now codified as 28 U.S.C. § 1491. See Hart & Wechsler, The Federal Courts and the Federal System 1326-27 (2d ed. 1973).
. See, e.g., Crozier v. Fried. Krupp, supra,
. Armstrong v. United States, 287 F.2d 577,
The Court found that the ships had little or no market value because of their specialized construction and because “there was probably not a great market for unfinished boats any more than there would be a general market for a suit of clothes with just one leg of the trousers finished, even though the remaining material were furnished with the partially finished suit of clothes.” Id.
The case is not analogous to this one. The ships were built at the request of the Government and were only useful for the Government’s purposes.
. Upon application of the city, the railroad commission in May 1910 ordered the utility to make improvements in its plant before rate increases would be granted. Three months later, the city called an election to determine whether it should purchase the plant.
Although the utility was in receivership and a mortgage on its property had been foreclosed, there was evidence that expenditure of “at least $50,000” would render the plant “reasonably efficient,”
. The court also noted that although the parties “to some extent” treated the litigation as an “expropriation proceeding," it was in fact merely a suit on a contract.
. The New Haven Inclusion Cases, supra, 399 U.S. 392,
Market Street Railway Co. v. Railroad Comm’n of California,
The owners of a property dedicated to the public service cannot be said to suffer injury if a rate is fixed for an experimental period, which probably will produce a fair return on the present fair value of their property. If it has lost all value except salvage, they suffer no loss if they earn a return on salvage value. If the property has no prospect of salvage except through dismantling and sale for scrap, the scrap value for such of it as is to be scrapped may represent its present worth.
The record in the Market Street case does not disclose what the scrap value would have been. The transferors also urge that the quoted remarks were dicta as the Court had found that the rates that were upheld produced “all that the company could earn,”
. The attitude embodied in these cases is encapsulated by Justice Latchford’s remark in the Ottawa and Gloucester Road Co. case; noting the possibility that the owners should have been paid nothing because the properties had neither positive earning capacity nor scrap value, he said, “I am glad that no such view was taken . . . .” 69 D.L.R. at 494.
. The Court also said:
We are here concerned with a property which has a usefulness created by 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 more 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 scrap or less”.
The PATH case also involved non-tunnel properties. As to these, while the Court of Appeals disapproved the Appellate Divisions’s award of scrap value “solely on the basis of unprofitability of the enterprise,”
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 depreciated reproduction cost. It is thus clear that Special Term not only failed to give effect to the physical and technological obsolescence of the property but that it also apparently ignored the enormous expenditure which was required to rehabilitate the property and did not give any significant effect to the unprofitability factor.
Id.
. We do not agree with the contention of some transferors that PATH was “approved” by the Supreme Court in The New Haven Inclusion Cases, supra,
. Although we have refused to consider value to the taker as a measure of the transferors’ compensation, we do take note, as urged by counsel for the PC Trustees, of the spread between the approximately $86 million value placed by MLP on the existing Northeast corridor properties and the $1.6 billion appropriated in Title VII of the Railroad Revitalization and Regulatory Reform Act of 1976, 45 U.S.C. §§ 853, 854, to improve passenger travel time between New York and Boston by 16 minutes, and between New York and Washington by 24 minutes. See Study of Federal Aid to Rail Transportation, supra at VII-14. A spread of this magnitude provides occasion to recall the Supreme Court’s frequent iterations that the “word ‘just’ in the Fifth Amendment evokes ideas of ‘fairness’ and ‘equity’ . . United States v. Commodities Trading Corp., supra,
. An affidavit of J. Richard Tomlinson, Executive Vice-President of the PC, attached to the opening brief of the PC Trustees indicates that the $685 million figure reflected a large number of zero and negative values. Mr. Tomlinson roughly estimated that some $434 million of negative value had been deducted from the transferors’ facilities other than “trackwork.” Bridges and terminals are typical of such facilities. While we do not now take a position on the issue, we place the Government parties on notice that substantial proof will be required to convince us of the propriety of deductions for “negative value.”
. The acronym would be OCLD & D/.
. In this portion of this opinion we shall sometimes use the term “reproduction cost” to embrace these other theories as well.
. The PC lienholders assert that failure on our part to take account of reproduction cost would discourage investment in railroads or other public utilities. This is a combination of what Professor Bruce Ackerman, in analyzing utilitarian arguments for just compensation, has called the Appeal to General Uncertainty and Citizen Disaffection. See Private Property and the Constitution, supra at 44, 49. However weighty such arguments may be in forbidding an award that would be a mere pittance because of insuperable difficulties in establishing fair market value, we fail to see how they support consideration of reproduction cost. No one buys a railroad’s bonds or stocks in the expectation that the road will become bankrupt or that the government will take it over if it
. See also 1 Kahn, The Economics of Regulation: Principles and Institutions 39 (1970), quoting 2 Lyon & Abramson, Government in Economic Life 691 (1940).
. Commissioner Eastman stated:
I must confess that it seems to me that unless some definite standard can be found for determining the weight to be given to such widely conflicting evidence, the process of valuation will become arbitrary to a degree wholly impossible to defend. Value will become a speculative and capricious matter, varying millions of dollars upon exactly parallel sets of facts, dependent upon the bent of mind, temper, and perhaps, digestion of the particular individuals who happen to exercise the “judgment.”
Id.
. We are quite serious about the time estimate. The ICC’s valuations of the country’s railroads under § 19a of the Interstate Commerce Act required 19 years. See III-A Sharfman, The Interstate Commerce Commission 39 — Í0 (1935).
. We also reject the contention that the transferors are entitled to an allowance for the “going concern” value of their properties despite their unprofitability. Most of the cases cited which allow compensation for going concern value involve profitable utilities, e. g., National Waterworks Co. v. Kansas City, supra,
We have already indicated our disagreement with the holding of Fiñh Avenue Coach, see pp. 1021-1022, supra. To the extent that PATH, supra, 20' N.Y.2d at 471-72,
. This distinction is not called into question by application of the “same project” rule to a federal taking for the use of a local government, see United States v. First Pyramid Life Ins. Co.,
. We do note that, wholly apart from the necessity of excluding from the alternative scenario other possible federal responses to the rail crisis, the reasoning of the “same project” cases would require the exclusion of public sales whose likelihood is premised on a federal taking of other rail properties (for example,, of connecting lines), for in such a case the amount to be paid by the taker would be increased by demand for which his taking was a necessary condition. And we again note that proof of public sales will have to contend with “[the Government’s] claim that a state would not be interested in making the substantial payments required for taking over main line (as distinguished from commuting) operations without assurance that other states would take similar action to the extent required to constitute a viable system.” October 18 Opinion,
. Although the condemnation statute there provided for compensation in accordance with the constitution of Minnesota,
. The Court here cited Boom Co. v. Patterson, supra,
. To be sure, that portion of Chandler-Dunbar has been narrowly confined, see United States v. Twin City Power Co.,
There is one oddity here. Aside from relying on Boom Co. v. Patterson, discussed in note 58, supra, the Chandler-Dunbar Court’s supporting discussion of Shoemaker v. United States, supra,
. One of the most important assets conveyed by the New Haven to PC, its interest in “the Park Avenue properties” in New York City, was not conveyed in 1976.
. It goes without saying that we intimate no view as to how the claims of the New Haven Trustee against Penn Central are to be treated by the Penn Central reorganization court.
. The Statement made no attempt to analyze what the Government’s VOB claims would be on other valuation theories urged by the transferors, saying only that “VOB would, of course, be present on all such theories.” P. 2 note*.
. The Government parties recognize that some of these items might be taken as deductions in the alternative scenario itself; to that extent, of course, they should not be counted again as OB.
. The “as a result” language was contained in § 303(c)(l)(A)(i) of the Act as enacted in 1974. The 1976 amendment added to both subsections: “(taking into consideration compensable unconstitutional erosion, if any, which the special court finds to have occurred in the estate of each such railroad during the bankruptcy proceeding with respect to such railroad).”
. The NH Trustee suggests that the language of § 303(c)(4) may be more restrictive because of its use of the words “provided under this Act.” Brief at 5 n.7. We reject this suggestion.
. The Government may also be expected to argue that even a consortium of buyers would not have had the resources needed to rehabilitate the purchased properties.
. The geometric mean is the square root of the product of the two starting prices.
. See Cross, The Economics of Bargaining 42-90 (1969), for a discussion of other factors that would affect the outcome of the bargaining process.
Economists, as a rule, are not so sanguine as the New Haven Trustee about their ability to determine where the bargain will be struck between the parties’ bargaining limits. See, e. g., Ferguson, Microeconomic Theory 281-82 (rev. ed. 1969); Henderson & Quandt, Microeconomic Theory 247 (2d ed. 1971); Shows & Burton, Microeconomics 475 (1972); Cohen & Cyert, Theory of the Firm: Resource Allocation in a Market Economy 278-81 (2d ed. 1975).
. These statements are not contrary to our ruling that the Rail Act cannot properly be read as prescribing that method of valuation. We are here stating only what we think Congress expected, not what it prescribed or what the Fifth Amendment demands.