United States v. Certain Property Located in Borough of Manhattan

374 F.2d 138, 1967 U.S. App. LEXIS 7113
CourtCourt of Appeals for the Second Circuit
DecidedMarch 13, 1967
DocketNo. 173, Docket 30396
StatusPublished
Cited by5 cases

This text of 374 F.2d 138 (United States v. Certain Property Located in Borough of Manhattan) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Certain Property Located in Borough of Manhattan, 374 F.2d 138, 1967 U.S. App. LEXIS 7113 (2d Cir. 1967).

Opinion

MOORE, Circuit Judge:

This is an appeal by defendants, Steven and Martin H. Goodstein (appellants) from a judgment in a condemnation proceeding brought by plaintiff, United States of America (the Government), awarding to appellants “as just compensation for the property acquired” the sum of $600,000. Appellants find nothing “just” in this award and attribute it to the District Court’s exclusion of (to them) vital evidence and to error in its instructions to the Commissioners who fixed this value.

On July 26, 1962, the Government filed proceedings to condemn the fee simple to the land herein involved and on September 30, 1963, filed a declaration of taking for public use of “an estate in fee simple.” 1

The Trial

The District Court (the Court) appointed three Commissioners. Rule 71A(h) of the Federal Rules of Civil Procedure. The Court and the Commissioners sat together throughout the trial. The Court ruled upon the admissibility of evidence and at the conclusion of the trial instructed the Commissioners as to the law, by which they were to be governed in reaching their determination of value upon the facts presented. Thus the Commissioners were, in effect, a jury of three, albeit the relationship between court and jury was substantially closer than upon an ordinary trial. However, virtually the same principles should be applied on appellate review, namely, the facts as found by the fact-finding body should not be disturbed unless they were based upon erroneous legal standards conveyed to it in the Court’s instructions. Unlike the ordinary jury trial resulting in merely a general verdict, the nature of the basis for the determination here is disclosed by the Commissioners’ Report and Supplemental Report from which may be obtained a quite accurate account of the strict adherence which they gave to the Court’s instructions.

The Facts

The record reveals a remarkable agreement as to the facts and the invariable disagreement as to the experts’ conclusions and as to legal theories.

In August 1961 appellants2 entered into four contracts of sale for the purchase of four parcels of property on the west side of Third Avenue, New York City, between East 31st Street and East 32nd Street for the purpose of erecting a high-rise apartment house.

(1) 464-468 Third Avenue and 166 East 32nd Street were purchased for $165,000 subject to the Ginger Estates, Inc., lease on the Third Avenue property [140]*140and the Ellen Estates, Inc., lease on the 32nd Street property. Appellants purchased these leases for $95,000 and $25,-000, respectively, and thus obtained the entire fee.

(2) 168-170 East 32nd Street was purchased for $100,000 subject to the Gerber lease which was acquired for $5,000.

(3) 462 Third Avenue was purchased for $120,000.

(4) 458 Third Avenue was purchased for $180,000.

These properties referred to as Tract 11 were thus acquired for $690,000, $565,000 for the properties subject to the leases and $125,000 for the leases.

Exclusion of the Price Paid for the Leases

The Court ruled, in effect, that $565,000 constituted the total purchase price for the assembled property. However, ,this sum did not obtain for appellants the fee which was condemned. $690,000 was actually required for this purpose. Significance may be attached to the Government’s failure on appeal to justify (or even discuss) the exclusion of evidence relating to the cost of acquisition of the leases. Unencumbered property might well command a higher price and have a higher market value' than a lease-encumbered property. Although the $125,000 paid need not necessarily reflect the additional compensation to be awarded, in our opinion testimony as to the leases and the amounts paid therefor should have been before the Commissioners and they should have been instructed to consider the total price paid by appellants for the entire fee taken by the Government. The importance in the minds of the Commissioners of the $565,000 figure as the purchase price appears in their first Report in which this figure is used. For this reason (exclusion of prices paid for the leases) alone, these proceedings must be remanded for further consideration of value in the light of such proof.

The Package Deal

Appellants also claim error in the exclusion of testimony dealing with the various operations which appellants had undertaken on the “road to fulfillment” of their apartment house project. The contents of this “package” included (1) building plans prepared (claimed cost some $90,000) and filed to take advantage of the less restrictive zoning situation prior to a change (possibly allowing 30% fewer apartments) effective December 15, 1961; demolition and possession costs (appellants’ expert claimed $5 a square foot); F. H. A. financing (an alleged commitment about to be issued when the Government announced its taking); a Consolidated Edison extension of its steam lines from East 35th Street (cancellation of the contract claimed to have subjected appellants to a liability of $120,965); test borings on the site; and eleven other contracts for building supplies. All these preparations gave to the land, so say appellants, an enhanced value on September 30, 1963, the date of the Government’s taking.

The Court refused to permit appellants’ expert to testify as to the value which he would attribute to the property in its then (September 1963) state of development, largely on the theory that to do so would involve a valuation on a “business venture basis.” It regarded these items as “non-eompensable non-realty items.” As to such items, namely, “possible availability of FHA financing, favorable zoning situation and availability of public steam supply,” the Court instructed the Commissioners that, “You are not to value and award compensation for these items.” However, it immediately added, “You are to consider them only as they bear upon the value of the realty.” And then followed the limiting instruction that these facts were to be weighed in determining the property’s highest and best use but that the items themselves were not compensable. But the Court then qualified this by saying that if the Commissioners found “that realty here was of a type which would normally have been sold in the market as part of a package deal,” they might “consider the price which would have been paid for such a package.” However, [141]*141there was straightway an instruction that if they did consider “such a price in bearing upon the value here,” they were to deduct such part as “represents the amount attributable to non-compensable non-realty items.”

Possibly, the theory of the trial may explain what otherwise might appear to be a seeming inconsistency. At the outset, appellants clearly represented that they did not intend to value the property by the capitalization of projected earnings method. As appellants’ expert gave his testimony, he adhered to the standard fair market value theory based on comparable sales in the vicinity. It was only when he approached the items which the Court regarded to be in the “business venture” category that he was not permitted to add these as factors entering into his opinion of value.

In our opinion, the Court properly excluded these “business venture” or “package deal” items. In the first place, appellants concede (Brief p.

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Bluebook (online)
374 F.2d 138, 1967 U.S. App. LEXIS 7113, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-certain-property-located-in-borough-of-manhattan-ca2-1967.