*1 America, UNITED STATES Plaintiff, Appellee, SONS, INC., SCHIAVONE

MICHAEL Defendant, Appellant.

No. 7510. Appeals, Court First Circuit. May 5, 1970.

Heard July

Decided

232 beginning year

from the of the fourth through year the tenth of the lease. 1960, February In late after Schia- experienced vone difficulty had in ob- taining long financing term because of tonnage requirements, annual Harvey Silverglate A. and Kevin M. granted Railroad 60-day op- Schiavone a Keating, Boston, Mass., with whom purchase tion for cov- the 21.5 acres Flym, Silverglate, Joseph Zalkind & S. square ered the lease for 50 cents a Oteri, Crane, Oteri, Boston, and Inker & option April foot. The on exercised Mass., brief, defendant, ap- were on conveyed 15 and the land in December pellant. 1960, paying pur- Schiavone the total Atty. Schaitman, Dept, of Leonard $479,000by chase the end of the Justice, with whom Ruckel- following William D. year. thereafter, Soon shaus, Atty. Gen., brought Asst. F. against Herbert suit Travers, Jr., Atty., and Morton U. S. Act, under Schiavone the Elkins contend- Hollander, Atty., Justice, Dept, of ing were knowingly re- that Schiavone had brief, plaintiff, appellee. on against freight ceived a rebate rates property when it from ALDRICH, Judge, Before Chief Mc- fair market Judges. COFFIN, ENTEE and Circuit value. COFFIN, Judge. Circuit Expert witnesses for the property testified at trial that the appeal This is an from a treble dam- probably age unmarketable with the judgment against lease Michael Schiavone produced encumbrance—since the lease Sons, Inc., & the district court no income owner for the remain- knowingly found that Schiavone years half six and a the lease—but rebate from the Boston & encumbrance, that property such without Railroad, Maine in violation of the Elk- square foot, Act, worth $1.00 41(3), ins pur- 49 U.S.C. § expert or placed witness property chased certain from Rail- the value of the road for less than the fair market value. roughly $350,000 with the lease encum- United States v. Michael Schiavone brance, roughly $480,000 Sons, and at without Inc., (D.Mass. F.Supp. 304 it. The district court concluded that the 1969), appeal dismissed, 275, 396 U.S. contrary lease itself was not to the Elk- (1970). S.Ct. 24 L.Ed.2d 466 ins but that the should be May 1, 1957, Schiavone, On a dealer encumbrance, viewed scrap metal, and the Railroad entered purchase since Schiavone’s ten-year Mystic Railroad’s erty the lease as an encum- eliminated Charlestown, Wharf Massa- on it far as brance Schiavone was chusetts. The rent was set forth as concerned. The court then held that the spend Schiavone’s $300,000 at least with- fair market value of the dock the encumbrance was at least out premises and within the had received a 000 and years addition, $221,000 [$700,000 mar- some agreed taxes, all real estate price], less ket value charges, premiums, utility insurance and was trebled in accordance which amount generate 135,000 and to tons of road Act and assessed the Elkins haul traffic for the Railroad against Schiavone. 75,000 the first tons year contention on each The lease con- thereafter. appeal is es- proper- option tained an bringing suit, topped ty per foot, square exercisable $1.00 Commission both the Railroad had Commerce Interstate legality subsequent suspicions had discussions with I.C.C. investigators. early knew about Both Railroad and sophisticated option a month were in business within the 1960 exercised, yet fully neither real transactions aware after estate it was requirements. of the Elkins Act Yet advised Schiavone *3 agreed sought enjoin they option improper the when on an 1960 was nor foot, conveyance prop- square a at 50 cents December 1960 knowing existing option erty. that such that in the concludes government price to a called for a twice that inaction “is tantamount given they seeking to this in advance acted without determination approval he is to do is or the I.C.C. and defendant that what advice governmental ac- trace concern as to without a visible lawful.” concerning quiescence market value was. what fair for acqui- phrased in terms of does not constitute Whether the test be the 1957 lease being prohi- “wholly trans- indifferent” escence 1960 sale —the York, statute, of the Elkins Act New New action found violative bitions price forth in the 1957 v. Interstate set Hartford R.R. —at Haven half 361, Commission, Moreover, it not until after 200 Commerce U.S. 272, 396, 397, sale that L.Ed. 515 of the 1960 50 the consummation 26 S.Ct. indifferent”, government appraisal, “consciously (1906), obtained its or Rail- indicated to that Maine which it United States v. Boston & (D.Mass. road, F.Supp. 218, fair market val- far below the 220 157 purpose 1957), ue. or of a “conscious enlightenment”, United States to avoid some evi Even if there had been 745, Corp., 226 F.2d v. Motors General governmental acquiescence dence of 1955), (3d court the district 749 Cir. would not bar the 1960 finding met it had been not err bringing suit, government from in this case. it is not true that once a rat, agency agency brings ex must the crux of the smells us to This appeal: it problem presented terminate it forthwith allow perpetuo. illegal public’s house in run an obtained whether Schiavone Socony-Vacu pur See, e.g., against v. it United States rates 225-226, Co., 150, 60 in De um S. Oil 810 U.S. chased (1940); 811, if Utah Ct. 84 L.Ed. 1129 is clear that Schia It cember 1960. States, Light property from United 243 purchased Power Co. v. 389, 387, 409, 61 L.Ed. 791 what 37 U.S. S.Ct. amount for an Railroad (1917); Orleans had to New shippers have other Contractors, open Chapter, mar Associated General on the same 5 L.Ed.2d ket, 86 15 did receive U.S. S.Ct. then Schiavone (E.D. ques F.Supp. (1965), reversing two have therefore We ship 1964). specific affirmative other La. Absent what to decide: tions governmental property? approval sale paid of the 1960 for this pers have giv dis pay? there none asked or As —of which did Schiavone what question estopped indicates, here —the is neither en cussion below bringing appears. under the Elk- from this action simple it first is ins Act. other trying determine paid for this similarly shippers launches a fact erty, confronted we are the district insubstantial shippers could “knowing finding no other erred in unencum- same ly” The Elkins received a rebate. obtained during negotia which Schiavone fee bered been discussed property, purchased Officials of when tion the 1957 lease. automatically directly ex- itself attributable tinguished the lease encumbrance which Railroad’s its purchasers against other ran all as encumbered. property’s greatly depressed the Only by requiring the lessee- purchasers. to such shipper fair that since the other therefore contends the lease encum only purchase proper- shippers could brance can bewe certain that the afore lease, ty as encumbered advantages mentioned do accrue way property must be viewed for lessee-shipper. We therefore hold inquiry. purposes of our first ig the district court was correct noring the 1957 lease encumbrance suggests, If the law were as Schiavone purposes inquiry of this first in set negotiate shipper ting $700,000 as the fair market value *4 fee as encumbered val- make the would property. of the period of ueless or unmarketable property purchase the and then Having concluded that Schiavone extinguish- thereby for a small required by the at Elkins Act to encumbering The result lease. the property, least for the con- we shipper would that such would be question: sider our second how much pittance. It land for a valuable obtained pay? did in fact dis- Schiavone The say to is not a sufficient answer payment trict court treated Schiavone’s two-step plotting would scheme such a $479,000 purchase price the as by proscribed Act. Not the Elkins be finding only expenditure, relevant no planning only proof be of such argument merit in Schiavone’s might obtain, such leases difficult to but prepaid portion of its rental good faith, complete with in be made payments capital temptations pressures subsequent and price.1 purchase added to the be causing shipper them both railroad and question, is a Without concessionary purchase engage in a to comprehend, is difficult one to for one transaction, the shield of behind inclined and the to view 1957 lease acquisition prior Such valuable separable 1960 sale as distinct than property less from a railroad Indeed, parties transactions. since give the les- fair its specify portion that some advantage see-purchaser substantial prepaid to to the rent was be added shippers. over other $479,000 payment in at order to arrive purchase price, normal actual Moreover, purchase since Schiavone’s portion prepaid view would be property automatical- of the encumbered parties were con- far these was —as as encumbrance, extinguishes ly Schia- by simply subse- washed out position re- immediately to cerned — in a vone quent sale. property without encum- sell case' in this If brance. Elk- our aim under the en- a value of with prevent from ob- ins Act is to sug- (as expert taining concession, cumbrance Schiavone’s concern is rate our gests) and Act allowed Schia- conceptual separateness Elkins with (as rights at that vone or lease insists), buy par- existing between and liabilities immediately ties, resell with what cost Schiavone but $700,000, court acquire property. discuss be- amount found As we portion low, of Schia- the fair market that a as think rep- The result lease do payments the encumbrance. under the vone’s acquiring the profit very cost real Schiavone turns a substantial resent a gold proved argumentation; how can well understand case 1. This rich ore for intricate pyrite. obscured purchasing part payments should cost of those Schiavone’s adding By prepaid this into account this taken have been pay- determining portion the amount of unused but trict court price, any illegal Elkins Act. we believe under ment of rebate possible as to ascer- we come close that, rent specified taining the total cost to Schiavone ten-year term, ex- purchasing in December improvements, capital pend $300,000 for remand, 1960. On the district years. Had these all in the should ascertain total cost before yearly in- payments made been recomputing the amount of the than stallments rather under the Elkins Act. obviously at the ended them would Lest our be misun- discussion above simply made a time of sale by courts and con- derstood businessmen price. We see part the total problem future, fronted with this differently to treat Schiavone no reason First, points. dis- we stress three payments were simply these applies in- cussion above to cases paid in installments. prepaid than rather volving leases held valid under the Elk- pursuant payments Those Act, ins one was. Were period are attributable aft- les- itself confer a concession on the out- reflect er the December see-shipper, inap- probably it would of-pocket expenses of Schiavone *5 propriate determining, by as a basis for value, are no which has amortization, prepaid the to amounts be part very of a real sense in a therefore any subsequent purchase price. added to purchasing of cost Schiavone’s assuming Secondly, lease, a we valid at- such* treated property and should be significance tach no the to fact that the of determin- $300,000 one problem capital improvements becomes Our to ing payments designated rent; are attributable as the our result would Rely- regardless 1960. period par- December the after be the same of what the accounting principles, we designate ties Thirdly, on normal rec- as rent. we payments ognize the given weight full cost the no amortize we have to specified use- over their the fact under the lease released 120 months ful Since 76 life. Schiavone from a rather onerous remaining tonnage obligation after Railroad, the lease were still to the propor- may same which December 1960 release have been of some by $304,808.02 However, found to tion of value Schiavone. capital spent provided by trict court to have has no evidence charged improvements- properly orwe the district court can assess period a is therefore Schiavone,2 the sale and after such release to Perhaps point hypothetical long pays illus- 2. can be further so as Schiavone simple hypothetical. $400,000 property. Assume 'trated more for $300,000 had made the that Schiavone (rather proved month If the could have years) Schiavone, than this release property. clearly If the and then that value be relevant determining fair market value whether Schiavone received a rebate, so, and without and if in what As- amount. $700,000, surely no one would contend sume the same lease this case. required by tenant-shipper Schiavone was Elkins After pay $700,000 more comes to the landlord-railroad offers requirement property. $50,000 would mean Such to be released from what be- has expended $1,000,000 taking that Schiavone had come an Instead onerous lease. agree parties within a month’s time to obtain which both only worth, simply worth which could release grants railroad release, explicitly implicitly We resold shipments by fail to see the rate concession in this in return for continued obligation, no must treat the release as the neces- sarily suggests. con- in this case and ascertainable remaining arguments payments clude that all carefully have been considered and are purchase price of

are attributable to devoid of merit. Vacated and remanded to district response Finally, we add a word illegal court for reassessment re- analysis dissenting brother’s opinion. bate consistent with this goes astray We think it case. have focuses on what

received, than on what Schiavone rather Judge (dissenting). ALDRICH, Chief think, paid. misplaced, focus is This agree is to because our Elkins Act aim assess I pay that Schiavone must premises lease, ship- unaffected vis-a-vis other Schiavone’s status value, pay and that if he full he pers, not the Railroad’s status vis-a-vis received an I In other Schiavone or other railroads. ** agree “required cannot that he was words, prevents the Elkins Act pay at least for the paying less for erty,” figure im- included shippers paid. other than provements, corresponding or with the shippers paid other Since would have concept he be considered fee, for the unencumbered “paid” other than what railroad is the amount which Schiavone must my view, payment received. $479,000, his —any less and can resell for and his towas Judge profit. approach Chief Aldrich’s owned, equitably the railroad for what he set forth his dissent would allow namely, wramproved plus premises, Schiavone to the accrued rent. (thus, $479,000purchase *6 ordinary lease, If this were an at though an overpayment) an was it even of, annual dollar rental the court as- immediately $700,000.4 could resell sumes, a fair the fair “prepaid an rent” As alternative to its price at moment would be the then above, ad- claim discussed property acquired. market value of the vances the is entitled already The rent accrued would “imputed interest” on the paid; the future rent would price purchase May from the date of Although have been earned. more com- original expiration date of plicated compute, I the same believe obliged Although 1957 lease. are not principle applies Accordingly, here. I claim, to deal with this alternative disregard to fur- see no merit to it: since the freight, nish a future annual amount of immediately obliga- terminated all lease proved, not because its value was not tions, original expiration date of the but because it was irrelevant. The sole wholly The question irrelevant. revolves around Schiavone’s ini- $300,000, tial prepayment in investment of was no sense which the $430,000 prove proved property If in tenant. 1960 was gratuitous clearly ($700,000 improved release, there value less would contrary improvements). have been a this amount To $37,800 (the the Elkins Act. would add about dissent present in discounted value compound interest). assumptions years, 4. On in seven at set forth 6% senting opinion, the unim- It was prepaid rent. would call the extent my opinion, rent, America, UNITED STATES of of what the value increase it would Appellee, Be- lessor. to be was expense of les- yond was BRYANT, Appellant. Harest Tancle business, retained he see’s No. 19951. acquired the owner- he benefit full Appeals, Court of property, and ship of the Eighth Circuit. any interest. never had lessor Aug. assume Let us originally increased the full unimproved premises structure

$300,000, but corre-

depreciate, the market value decrease, the rate

spondingly year. eventual The lessor’s basis,

receipt, would be a on this benefit, years. This ten due in was rent. When is the

amount assume, after, us let terminated years, in market value net increase opinion, my an irrele- $270,000; figure. rent The accrued

vant three-tenths

lessor had earned $200,000, Even must seven due for another pay- early in return

be discounted result the same I reach ment. the amount

whatever

originally to the market added is, question what they les- value when the add to its

sor was due receive it. my view, here railroad

should receive should be demised, say, unimproved, thereon,

premises, plus the accrued rent wit, proportion of the rail- the earned receipt, appro-

road’s ultimate additional priately To discounted. the extent that this,

the railroad received shipper-purchaser a

afforded sal-

To extent that this,

able more than it was because in which the rail-

road had earned no interest. computation culminating

court’s in foot- note no cause for concern.

Because of what the

cost him Schiavone’s resale would not profit.

show a