Hеarings conducted by Judge Dimock in the District Court for the Southern District of New York pursuant to our
I. The Government’s Appeal
Most of the points raised by the United States were argued, both initially and on petition for rehearing, on the former appeal, before a panel consisting of Chief Judge Lumbard, Judge Kaufman and the writer. We could rest on our previous opinion both because it is the law of the case, see Zdanok v. Glidden Co.,
(1) The Government insists that it is under no obligation to pay for trade fixtures at all. Its first proposition is that in condemnation it need pay only for what it has “taken,” regardless of what other losses the taking may cause. Harsh as the proposition sounds, and whatever qualifications it may require, see United States v. Grizzard,
Our disagreement rests both on reason and on authority. The Clear-field opinion itself noted, “In our choice of the applicable federal rule we have occasionally selected state law.”
In our previous opinion we cited decisions of three other circuits as holding that a federal court will normally apply state concepts of real property in determining what comes within a federal taking. United States v. Becktold Co.,
Moreover, in pressing its argument in favor of “federal” law, the Govеrnment assumes much too readily that we would not independently arrive at New York’s rüle that fixtures that cannot be removed without loss of all or most of their value are included in a taking of the real estate. The rule is manifestly a fair one, it carries the authority of a great New York judge, Jackson v. State,
The Government’s claim that the New York rule as to fixtures is really
Indeed, on further reflection, we are not at all sure that the issue has not been settled against the Government on a constitutional basis by the Supreme Court’s statement in General Motors that “for fixtures and permanent equipment destroyed or depreciated in value by the taking, the respondent is entitled to compensation. An owner’s rights in these are no less property within the meaning of the Fifth Amendment than his rights in land and the structures thereon erected.”
(2) The Government next says that if fixtures of the sort here at issue are included in the taking, the basis of compensation is a matter of federal law. Here also we readily agree. United States v. Miller,
The Government continues that the only'method of valuation tolerated by federal condemnation law, even in the case of a building leased to many tenants, is to determine the market value of the building as a unit, and then either to allow for the fixtures taken from the tenants only the amount by which thе fixtures were demonstrated to have “enhanced” the market value of the building or to carve' any larger allowance out of this total sum. Acceptance of this argument would indeed keep the word of promise to the ear and break it to the hope. In most cases, the first alternative would effectively deny any significant compensation for the fixtures, whereas the second would cause payment to be made not by the taker but by another whose property has been taken. At least this would be so if we adopted the Government’s position that the fees are to be valued on the basis of capitalization of existing rentals or of sales of other properties in which the tenants owned the fixtures.
What the Government seeks is to translate a formula which produces fair results in many cases into a categorical imperative that must be applied regardless of consequences. See 1 Orgel, Valuation Under Eminent Domain §§ 109-10, at 464, 466-69 (2 ed. 1953). When the existing use of an equipped building, occupied by its owner, would be its “highest and most profitable use,” Olson v. United States,
It would be possibly to satisfy the Government’s desire for a “unit” valuation of a loft or other leased building, in a manner consistent with the Fifth Amendment, by reconstructing the rentals at what they would have been if the landlord had supplied the equipment and then applying the suitable capitalization rate to the rentals as so readjusted; if this were done, each tenant could be required to share in the total to the extent of the capitalized value of the added rent determined with respect to him. But we see no reason why courts should be required to proceed in so cumbersome and circuitous a manner in order to arrive at a result that can be more directly reached. In Marraro v. State,
“Indeed, we think that it is an undue simplification to extract from the books any ‘Unit Rule’ whatever, in the sense of general authoritative directions. What has happened, so far as we can see, is that, as different situations have arisen, the courts have dealt with them as the specific facts démanded.”
That we are not bound by this New York ruling does not mean that, in the absence of some authoritatively determined federal rule to the contrary, we must ignore a pronouncement of an admired court having much experience with condemnation.
The Government says there is such a contrary rule but we cannot find evidence of it. Judge Learned Hand knew of none in 1948, as apparently the Supreme Court had not when Mr. Justice Roberts wrote the General Motors opin
(3) The Govеrnment’s final point is that, at the hearing before Judge Dimock, it should have been permitted to have its expert witness at the first trial, whose figures Judge Knox had used as a basis and then slightly increased, testify as to the extent to which he had taken the tenants’ improvements into account in fixing the value of the fee. We do not believe that the point was open. If the Government has in fact paid the wrong parties for certain of the fixtures and those payments are beyond recall, the Government can blame no one but itself. Precisely because the condemnation proceeding was a unified in rem action, it was within the Government’s power to see that the aggregate of awards to the owners contained no duрlication of claims and did not exceed the value of all the property taken. The tenants never concealed their position that the Government had taken from them property which deserved separate appraisal; if the Government believed that the awards to the landlords might be partially duplicated if the tenants succeeded on their prior appeal to this court, it could have taken a protective appeal. Moreover, the fears of double payment are plainly exaggerated. The tenants’ claims originally were disallowed in part because most of the fixtures were not deemed “taken” from anyone, and we remain convinced that, as nоted- in our first opinion,
(1) Accepting the bulk of Judge Dimock’s careful determinations, as many-other tenants have done in toto, Pearl Street Restaurant, Inc., Lafayette Nut Product, Inc., and II Progresso contend that he took too narrow a view of what we characterized as a “middle category” of property “which New York regards as neither being so ‘distinctively realty’ as to belong to the landlord nor as being removable with such little difficulty or loss in value as to have retained its personal character,”
The lines marking the boundaries of the “middle category” are anything but bright, and views on cases near the boundaries will necessarily differ. The New York courts, bearing in mind the purpose of the law of fixtures “to protect those who, having an estate less than a fee in the land, had made improvements upon it which, if they could not retain, would be lost to them,” In re Mayor etc. of City of New York,
At the other border the controversy concerns such itеms as air-conditioning systems, where the judge included ducts and piping but excluded machines and a water tower, and dishwashing equipment, where he included certain hot water plumbing but excluded the sink. Here also New York appears to take an approach consistent with business realities. Although gas ranges and ordinary lighting fixtures are “mere personalty,” Madfes v. Beverly Dev. Corp.,
The Government has not favored us with detailed discussion of the appellants’ claims but has contented itself with a general argument, already answered in large part, that their very nature, especially as to items claimed to have been readily removable, shows that we are really sanctioning compensation for damage to the claimants’ businesses. This is no more true than was a similar argument as to the “bins and other facilities,” see
(2) The district court denied any award to Boylan’s Tavern because of a clause in its lease, which we quote in the margin.
On the previous appeal we remanded Boylan’s claim, like those of other tenants, for the purpose first of determining what property of the tenant fell in the “middle category” and then of evaluating such property. No other issues were left open to the district court. In re Potts,
Moreover, assuming the issue to be open, we think our prior treatment of Boylan’s on the same basis as other tenants was right. Noting that a clause “very similar” to that in Boylan’s lease had not been deemed a bar in Matter of City of New York (Allen St.),
Judge Dimock helpfully listed the items that he thought would qualify if we disagreed with his view that Boylan’s could not receive an award, as well as two which he thought could not. Consistently with our ruling as to other tenants, we think all these items should be included.
(3) In our previous opinion we ruled that the measure of the value of the tenants’ fixtures and the items compensable to II Progresso was “what a purchaser would pay for them” — but for the condemnation — for use in the premises being “condemned,” and that since sales of this sort are rare, depreciated reproduction cost should be considered “as some indication of what a hypotheticаl purchaser would pay.”
“If exchanges of similar property have been frequent, the inference is strong that the equivalent arrived at by the haggling of the market would probably have been offered and accepted, and it is thus that the ‘market price’ becomes so important a standard of reference. But when the prоperty is of a kind seldom exchanged, it has no ‘market price,’ and then recourse must be had to other means of ascertaining value, including even value to the owner as indicative of value to other potential owners enjoying the same rights.”
Apart from Boylan’s and one other appellant, which does not press this point, Judge Dimock accepted the testimony of appellants’ experts as to reproduction cost but not as to depreciation. The witness for Pearl Street Restaurant, Inc. deducted 15% for observed depreciation, which the judge rejected as fanciful since much of the equipment had been installed in 1925 and 1934. He also rejected the claim of Lafayette Nut Produсt, Inc. that practically no physical depreciation had occurred in 13 years and its figure of 20% representing the discount a supplier would take if new equipment were returned unused. As to II Progresso, the judge accepted the expert’s varying rates on machinery, where installation dates were discoverable, and on certain long-lasting power wiring; but he thought the rates on non-machine items, averaging 22.7%, too low because the articles were generally old enough that the purchase dates could not be recollected. In Boylan’s ease, the expert’s reproduction figure of $18,322 less 15% observed depreciation was disregarded in part because it conflicted too seriously with the figure of $3,000 for which Boylan’s had bought the appraised equipment, and some items not taken, from a predecessor in 1958. The judge felt this discrepancy
The Government made no effort to assist the judge by introducing expert testimony on its own behalf. It contented itself with cross-examining the claimants’ witnesses and introducing the claimants’ income tax returns, which showed higher depreciation rates than those asserted. The returns, while doubtless admissible, were in no way conclusive. The rate at which an owner endeavors to recover the cost of his capital as a tax deduction does not determine the value of the prоperty at any given date, and the cases which the Government cites, Redman v. United States,
Faced with the dilemma that he could not conscientiously accept the claimants’ depreciation estimates and that the Government had failed to provide him with a satisfactory substitute, Judge Dimock was forced to strike out on his own. Save where better evidence was available, he generally attributed a 20-year life to trade fixtures, apparently relying to some extent on an official tax manual in evidence. Perhaps more debatably, he fixed the average age of the fixtures at one-half the period the business had been conduсted on the premises and postulated straight-line depreciation. These presumptions were applied to Pearl Street Restaurant, Inc., whose 35-year existence translated into average life of 17.5 years and 87.5% depreciation. A similar method was applied to Standard Tag and, with a minor variation, to Loder Appeal Press. For Lafayette Nut Product, Inc., evidence indicated 1947 as the average installation date and because the equipment was apparently of high quality and very well maintained, a 30-year life was allowed, setting depreciation by 1960 at 43%%. As to II Pro-gresso, he accepted the expert’s estimate as to the power wiring and fixed 50% as the extent of depreciаtion on the remaining items; this latter figure was based on evidence of steady repair and renewal, the 80-year existence of the plant, and the judge’s inference that “the process of renewing these twenty-year lived articles must have reached an equilibrium during that long period so that the average age * * * was ten years” and the articles half-depreciated. In his estimate of what should be awarded Boylan’s if we disagreed with his legal conclusion that no award should be made, he rejected the expert’s starting figure of $18,332 and used instead the sum of $3,000 for which Boylan’s had bought the appraised equipment and some unineluded items. For separately valued air-conditioning equipment, he reduced the expert’s figure by 84%, a figure which he believed to represent the expert’s error as to the prior items. He did not reduce the $3,000 for depreciation but did borrow the expert’s general 15% observed-depreciation figure for the air-conditioning apparatus.
The claimants attack the judge’s rejection of what they urge to be the only proper evidence of depreciation in the record; pointing to the expense and delay already suffered in undergoing two trials and appeals to recover relatively modest amounts, they ask us to direct entry of a judgment in accordance with their experts’ testimony that will avoid another round in this circuit. But although the judge’s deductions may have been higher in some instances than we might have made as triers of the facts, we would not ourselves accept the claimants’ relatively small depreciation deductions. The insufficiency of most “visual” estimates of depreciation to measure even structural deterioration has been often noted, In re United States Commission to Appraise Washington Market Co. Property,
Moreover, the judge’s findings as to value are findings of fact entitled to the benefit of the “unless clearly erroneous rule,” F.R.Civ.P. 52(a), where — as here— he applied the proper legal standard. In view of that, of our considerable measure of agreement, and of the fact that depreciated reproduction cost is only “some indication of what a hypothetical purchaser would pay,”
We direct that the judgment be modified as herein stated and affirm it as so modified. Judge Dimock’s findings and this opinion ought permit judgment tо be entered by him without need for further hearings.
Notes
. This principle is an important basis for the decisions relied on by the Government that in the condemnation of timber or mineral lands, the entire fee will first be valued, and the shares of persons having timber or mineral rights will be carved out of the award. Meadows v. United States,
. Fourteen of the 20 damage parcels, including six of the seven damage par-eels occupied by the tenants against whose awards the Government appeals, were improved with loft buildings; the other was a two-story retail store building with offices above.
. The Government’s expert testified at the first trial that he had “included everything relating to the building, such as floors, electric wiring, the plumbing, the ceilings, any partitioning, and excluded furniture, machinery or other equipment which might be removable or was related to the business being conducted.” The italicized phrase would itself exclude most of the items here in question. Moreover, the witness made it clear that he relied primarily on sales of other loft buildings and on a capitalization of -net income, then assigning a portion of the latter sum to what he had independently determined to be the value of the land. For reasons previously outlined in the text, neither of these figures would significantly reflect improvements which tenants had made at their own expense and were free to remove.
. As to II Progresso there is a further question how far items as to whose disal-lowance it complains had been included in the appraisal of the building, which was found to be worthless,
. “Condemnation Clause.
“39. If the whole or any part of the demised premises shall be acquired or condemned by eminent domain for any public or quasi public use or purpose, the Tenant shall have no claim against the Landlord or against any award made in any sucb proceeding by virtue of which the premises are so acquired or condemned and the Tenant does by this instrument assign and set over to the Landlord any claim which it would have had to an award of damages in the absence of this provision of this lease.”