Home/Emergency Court of Appeals/315 West 97th Street Realty Co. v. Bowles

315 West 97th Street Realty Co. v. Bowles

156 F.2d 982, 1945 U.S. App. LEXIS 2385
CourtEmergency Court of Appeals
DecidedJune 25, 1945
DocketNo. 166
StatusPublished
Cited by3 cases

This text of 156 F.2d 982 (315 West 97th Street Realty Co. v. Bowles) is published on Counsel Stack Legal Research, covering Emergency Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
315 West 97th Street Realty Co. v. Bowles, 156 F.2d 982, 1945 U.S. App. LEXIS 2385 (eca 1945).

Opinions

MARIS, Chief Judge.

This case involves the validity of the Rent Regulation for Housing for the New York City Defense-Rental Area1 which was issued by the Price Administrator on October 8, 1943 and took effect on November 1, 1943. It established March 1, 1943 as the maximum rent date. The New York City Defense-Rental Area consists not only of the five boroughs of the City of New York but also of the counties of Nassau and Suffolk on Long Island. The parties, however, have concentrated their attention upon the regulation as it operates in New York City in view of the fact that the city contains more than 90% of the housing accommodations in the Defense-Rental Area.2 We shall likewise confine our consideration to the regulation as it applies to housing accommodations in New York City.

The complainants are owners of housing accommodations located in New York City which they rent to tenants. They are, therefore, subject to the provisions of the regulation. They filed with the Price Administrator a joint protest against the regulation, which the Administrator denied. They seek to have this court set the regulation aside upon the ground that it is invalid because the maximum rents which it fixes are not generally fair and equitable in that they do not afford the owners of rented housing accommodations in New York City a proper return. They also assert in support of this contention that the Administrator in fixing the maximum rents prescribed by the regulation did not take account of relevant factors of general applicability which required the establishment of maximum rents at a higher level. In order to meet the statutory standard that the maximum rents which the Administrator fixes must be “generally fair and equitable,”3 the complainants urge that those rents must allow the rental industry a fair return on its investment and must accord it profits equal to those which it had earned in normal times prior to the impact of defense activities. They assert that the maximum rents established by the regulation operate so that the industry receives neither a fair return on its investment nor its historical return.

Turning to the complainants' first contention, namely, that the regulation [985]*985•prevents the industry from receiving a fair íeturn on its investment, we find that the record is devoid of any data as to the industry’s investment in the real estate affected by the regulation. The complainants appear to assume that present fair value may for this purpose be treated as the equivalent of original investment. We do not think that such an assumption is justifiable. It is common knowledge that fortunes have been built from comparatively small investments in New York real estate as a result of the unearned increment in values which has accompanied the growth of the metropolis over the years.4 Moreover the only evidence of present fair value which the complainants offer is the assessed value for purposes of taxation. But values established by assessments made for tax purposes may be quite inappropriate for rate making purposes. Bonbright, The Problem of Judicial Valuation, 1927, 27 Col.L.Rev. 492; Missouri Rate Cases (Knott v. Chicago, B. & Q. R. Co.), 1913, 230 U.S. 474, 33 S.Ct. 975, 57 L.Ed. 1571; Wilson v. Brown, Em.App.1943, 137 F.2d 348.

The complainants assert that by New York law assessed valuation and fair value must be identical. Whether the New York statutes and cases cited in support of them so hold is of little significance for our present purpose because the admitted facts are to the contrary. For example there is evidence in the record that real estate in the Borough of Manhattan was sold upon the open market between 1937 and 1943 at prices ranging from 63% to 83% of its assessed valuation for tax purposes. The complainants have thus failed to show either the original investment in or the present fair value of the rental properties subject to the regulation. Since the burden was upon them to do so5 we cannot hold that the regulation is not generally fair and equitable because it prevents the rental industry generally from realizing a fair return upon one or the other of those bases.

The complainants’ second contention is that the regulation is not generally fair and equitable because it prevents landlords from realizing the profits which they normally enjoyed before the impact of defense activities. The Administrator concedes the appropriateness of this test of the validity of the regulation and indeed urges that it is the only practicable way to measure the fairness of the return which landlords will realize on their investment. This court has upon several occasions given tacit approval to such a test. In Madison Park Corporation v. Bowles, Em.App.1943, 140 F.2d 316 we discussed the meaning of the standard “generally fair and equitable” when applied to the maximum rents established by a rent regulation. We concluded from the legislative history of the Act that Congress intended (page 324 of 140 F.2d) “to permit business a yield or profit sufficient for its sustenance in a state of efficiency and for reasonable development and expansion” and that this objective “usually will be attained by permitting profits which the industry was willing to accept prior to defense activities.” In Equitable Trust Co. v. Bowles, Em.App.1944, 143 F.2d 735 we treated as significant upon the contested issue as to whether the maximum rents were generally fair and equitable the fact that the overall profits under rent control were above prewar levels.

The test of the historical return has been applied by the Administrator in price control also. By the use of the so-called industry earnings standard he has permitted price increases in order to compensate for those cost increases which an industry could not absorb without impairment of its normal peacetime earnings. Gillespie-Rogers-Pyatt Co. v. Bowles, Em.App.1944, 144 F.2d 361.

The parties, therefore, are in accord that the regulation is invalid if it fixes the maximum rents at so low a level as to prevent landlords generally from receiving the return enjoyed by them in a representative prewar period. They are not in agreement, however, as to the prewar period which should be selected as a basis for comparison. In passing upon the pro[986]*986test the Administrator employed the average results of the years 1939 and 1940 as the basis for comparison. He urges that those are appropriate years for this purpose. The complainants strongly object to the use of the year 1940 in this connection. They say that in 1940 defense activities had begun to bring about an increase in their operating expenses which resulted in a reduced net return since the rate of occupancy was still declining in that year.

Indeed the complainants suggest that 1939 was a year of abnormal depression in the New York rental market. It may well be that in earlier decades landlords did receive rates of return in excess of that enjoyed in 1939. But as we pointed out in Spaeth v. Brown, Em.App., 137 F.2d 669

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Bluebook (online)
156 F.2d 982, 1945 U.S. App. LEXIS 2385, Counsel Stack Legal Research, https://law.counselstack.com/opinion/315-west-97th-street-realty-co-v-bowles-eca-1945.