Almota Farmers Elevator & Warehouse Company v. United States

PETITIONER:Almota Farmers Elevator & Warehouse Company
RESPONDENT:United States
LOCATION:Allegheny County District Court

DOCKET NO.: 71-951
DECIDED BY: Burger Court (1972-1975)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 409 US 470 (1973)
ARGUED: Oct 18, 1972
DECIDED: Jan 16, 1973

ADVOCATES:
Kent Frizzell – for respondent
Lawrence Earl Hickman – for the petitioner

Facts of the case

Question

Audio Transcription for Oral Argument – October 18, 1972 in Almota Farmers Elevator & Warehouse Company v. United States

Warren E. Burger:

We’ll hear arguments next in number 71-951, Almota Farmers Elevator against the United States.

Mr. Hickman.

Lawrence Earl Hickman:

Mr. Chief Justice and may it please the Court.

This is a condemnation action to acquire the leasehold interest of the Almota Farmers Elevator and Warehouse Company in a track of land required for the Little Goose Lock and Dam Project, a Corps of Engineers project on the Snake River in Eastern Washington.

The fee owner, the railroad in this case was not joined.

For many years, the OWRNN Company had owned and operated a railroad on the north bank of the Snake River which ran through the little village of Almota.

The Almota Elevator Company in 1919 went to the railroad and they leased 7,500 of an acre, three quarters of an acre of bare unimproved land, absolutely nothing on it.

And under various consecutive leases from that date forward, the date of taking on May 26, 1967, the Almota Company continued to hold this lease.

At the time of the taking, they held under a 20-year lease which had a term to expire on October 12, 1974.

Potter Stewart:

And that how long did you say?

Lawrence Earl Hickman:

The date of taking was May 26, 1967.

It was to expire October 12, 1974.

Potter Stewart:

But how?

Lawrence Earl Hickman:

It had been a 20-year lease.

Potter Stewart:

And had there been lease prior to that?

Lawrence Earl Hickman:

Oh!

Yes, there had been various short-term leases since 1919.

Potter Stewart:

1919 that’s what —

Lawrence Earl Hickman:

Consecutive, continuous.

Harry A. Blackmun:

Were they all 20-year leases or varied?

Lawrence Earl Hickman:

No, it started out with 5-year leases.

In fact the 20-year lease is the longest lease the company ever had.

There was no renewal option in this lease.

Now that’s actually what’s involved in the taking in this case and if it was only, this bare unimproved land that was involved here, we wouldn’t have any problem because the Almota Company isn’t arguing on the point that the valuation of this very leasehold is its use value for the length of the term remaining on the lease less the agreed rent.

We have no argument over that.

But shortly after the company acquired this property, in 1919 they went out on the property and they built a warehouse on this property to handle grain and some years afterwards, they built three crib elevators on this property and at some time later, it put up a concrete tank on the property.

Now, it’s all of those improvements that are involved, it was before the Court.

Warren E. Burger:

What does the lease provide with respect to those improvements at the term if the lease is not renewed?

Lawrence Earl Hickman:

All through the period that these improvements were on there.

These improvements under the terms of the lease and the treatment of the parties were the personal property of the elevator company.

Lawrence Earl Hickman:

The elevator company owned these improvements and it had the right to take the improvements at the end of the term.

But since those improvements were physically a part of this land, they were part of what the Government had to take in this condemnation action.

Now the real problem as we see it here in this matter is the valuation of these improvements.

Not the valuation of this very leasehold.

There’s a basic difference here in the duration of Almota’s property interest in this basic leasehold and in the improvements that’s essential to understanding of this case.

In the leasehold, it’s obvious at the end of the term, the reason anything there left, is no property rights to value but the improvements at the end of the term.

Almota still own those improvements.

Warren E. Burger:

Now do you — when you speak of the value of those improvements, are you speaking of their current use value or their salvage value to the lessee.

Lawrence Earl Hickman:

I’ll get to that point Mr. Chief Justice —

Warren E. Burger:

Very well.

Lawrence Earl Hickman:

— in just a moment.

What I’m pointing out now is that there’s a difference between the very leasehold and the improvements.

The Ninth Circuit Court didn’t appreciate that.

In the one case, at the end of the term all the rights were extinguished.

In the other case, you’re still the full fee owner of these building improvements for their full lifetime as long as they exist.

What you do with them, that’s part of the valuation problem.

Potter Stewart:

Under the law of your state, are those improvements part of the real estate?

Lawrence Earl Hickman:

For the purpose of what the Government has to take, the Seagren case cited in our opening brief says, they are part of the real estate but under the law of the State of Washington and we cited authority for that.

They are the personal property of the tenant and you have a very confusing situation here.

The Government is taking real estate, you got to deal with this real estate and yet what the tenant actually owns, his personal property and you are going to have to value it and his ownership continues when the lease is up.

The Government has treated this as so we have no further rights in the property at that time.

Potter Stewart:

Well, I thought that — well, perhaps you enlighten me.

I — certainly the court just didn’t disregard entirely that value than it give value to those improvements in terms of their salvage value at the termination of the lease.

Lawrence Earl Hickman:

That is the argument of the Government.

I would like to get an answer to that later and if I don’t I’d appreciate going back to that again.

Potter Stewart:

Right.

Who was the trial judge?

Lawrence Earl Hickman:

Judge Powell in the District Court in Spokane.

In other words, the valuation of these improvements at the end of the term of the lease or at the time of the taking is vastly different than the manner of the valuation of the bare leasehold itself where the rights are limited by the duration of the term.

William H. Rehnquist:

Mr. Hickman, there is no dispute is there that upon the Government’s taking, your client is obligated to sever the improvements that he can’t leave them in place and continue to use them.

Lawrence Earl Hickman:

He had no legal right to continue to use them in place.

On the other hand, I’d like to make equally clear that the Government own no legal right to determine that the company could not use them in place.

This is not like the Fuller case where it’s a revocable permit.

The Government did not own the fee at the time of the taking.

The Oregon Washington Railroad Navigation Company owned this fee.

Warren E. Burger:

Well, they have a right to use them under the lease for seven more years approximately.

Lawrence Earl Hickman:

That is right.

William H. Rehnquist:

While in the condemnation vested full right in the Government, did it not subject to the obligation to pay just compensation?

Lawrence Earl Hickman:

Yes, the vested full right in the leasehold and the improvements but mind, the Government did not condemn the rights of the fee owner.

This was still property of the fee owner and only the fee owner could terminate this lease and refuse to renew.

William H. Rehnquist:

So you said that the Government couldn’t insist under the way it took the land that you remove those buildings just because —

Lawrence Earl Hickman:

The Government had no right to insist because the Government was not acquiring the fee.

This isn’t like the Fuller case in that respect where the Government could have said we have a legal right and at the end of the term you’re just not going to stay there.

Warren E. Burger:

Well, it is now taken.

You said the Government did not acquire the fee to the 3/4 acre of land.

Lawrence Earl Hickman:

No, the fee owner was not joined in this case.

And so far as I know that this date, the Government still does not own the fee to this property.

Harry A. Blackmun:

I’m confused as others apparently are.

What did the Government — why did it take just the leasehold interest?

Lawrence Earl Hickman:

Well, of course it is not a part of the record.

What I can inform you that is the policy of the Government and these relocation cases where they relocate the railroad to enter into an agreement with the railroad and they do not acquire the fee they trade.

But the fact of the matter is that at the time this was done, no such agreement existed with the railroad.

This has to be considered as the facts were at the time.

That they did not own the fee, the railroad did own the fee and that’s very important in this case.

William J. Brennan, Jr.:

Yes, but what was the Government’s purpose?

What was the purpose for which the Government was acquiring this?

Lawrence Earl Hickman:

For the Little Goose Lock and Dam project, it would be flooded.

William J. Brennan, Jr.:

And why would the leasehold just be enough for that?

Lawrence Earl Hickman:

Well, they expected to acquire the fee by making a deal with the railroad but they hadn’t made the deal yet.

William J. Brennan, Jr.:

You mean by a negotiated purchase?

Lawrence Earl Hickman:

That’s right.

Harry A. Blackmun:

Or by trading and relocation.

Lawrence Earl Hickman:

That’s right, they relocated the railroad higher up on the hill and went ahead.

Now, there wasn’t any substantial factual dispute in this case.

Potter Stewart:

If they just before you proceed, if the Government had first acquired the fee, you would hardly have any case at all would you?

Because the Government tells them, “I am your lessor.”

Lawrence Earl Hickman:

Your Honor, I would agree with you because the Government then would have had the right at the end of term to say, “Sorry boys, we’re not going to renew but the thing is we have to take the facts in this case as they are.”

The Government didn’t do that.

And in the stipulation that’s entered here and we did enter into a stipulation for the reason that the only difference between this ultimately was how do you value these improvements.

So we simply got together and we stipulated on the facts.

And if it was to be valued as determined by the Government, the value is set to be a $130,000.

If it was to be valued, the way we contended, it was to be $274,625.

Potter Stewart:

And did that in turn, that difference in turn in valuation depend upon whether or not consideration was given to the possibility of renewal of the lease?

Lawrence Earl Hickman:

Actually, it ultimately boils down to that.

But I’d like to get at it in a little bit different way there.

In both cases, on both valuation, stipulated values, it was the same property involved.

I want you to understand that because there are some contentions in here in the argument of the Government in the brief that would lead you to the contrary but the stipulation was the value of the land and the improvements.

That is the leasehold and improvements, in the one case it was a 130 and the value of the same thing and the other was 264,000, $274,625.00.

Now we get really to the tracks of the thing and that is the reason for this difference in value was a difference of opinion as to what elements of value were entitled to be considered in determining the value of these improvements.

It wasn’t any argument over this very leasehold.

Now, the question is what should be considered when it comes to determining the value of these improvements?

Now in the opening brief, we cited quite a number of cases on the proposition that in determining the fair market value of any property that you must consider, all elements of value you must consider all reasonable, probable uses of the property that affect the very market value.

Now, they don’t disagree with that but they don’t apply the law — the rule.

Now I cited the Olson in which this Court here lays down in very good language exactly what I’ve said and I had intended to read it but in the interest of saving time, I will proceed.

Now, at this point in determining what these buildings can be used for, in determining what the elements of value that should be considered, I think you need to pretty well understand the structural nature of these facilities.

Now, I mentioned that there were three crib buildings that were put up on the property.

If you understand what a crib elevator building is, it’s a wooden structure, it’s made of cribbing, we take, well for example 2 x 12 planks and a spike one on top of the other.

And you continue that type of structure clear to the top of the beams.

Now, each one of these structures would hold 125,000 bushels.

That’s enough to fill 62-1/2, 120,000 capacity grain carts to give you an idea of the size of this thing.

Lawrence Earl Hickman:

Now, there were three buildings like that.

To top that of, there was the concrete tank which would hold148,000 bushels, that would take 74 railroad cars at the same size to fill that.

Now you can realize and appreciate that there had to be very substantial and permanent foundations under these structures.

So when you get to the matter here of selling this property and determining fair market value, what’s the first and most important thing the buyer is going to ask?

He is going to ask what are the probabilities, what are the chances of continuing to use these structures right were they are.

Why?

Because he knows, there is little or no value whatsoever to attempt to move them, probably nothing but junk value to try and move these buildings.

That’s where the difference arises between the Government and ourselves in this case and that is in Almota’s view at that stage of the case, Almota has contended that there should be taken into consideration that the probable use of these improvements right where they were was very great that was a reasonably probable use and you’ll find in the stipulation that there were facts.

In other words, it was stipulated that was — there was evidence to the effect that the railroad is a general policy, never refuse to renew one of these leases where railroad traffic was being produced for the railroad.

Warren E. Burger:

What if the railroad somewhere toward the end of the seven years remaining in the lease decided for their own reasons to move the track to high ground if in case of flooding or move it anywhere else?

Lawrence Earl Hickman:

Your Honor, that is one of the risks that any buyer takes.

Warren E. Burger:

Well the buyer or the —

Lawrence Earl Hickman:

You buy a few property for example and you take the risks that the party between you and the view might build a high rise apartment.

Warren E. Burger:

Isn’t that a risk?

Lawrence Earl Hickman:

It is a risk, yes.

Warren E. Burger:

Isn’t that a risk that your client took when he built the property on that land under that lease?

Lawrence Earl Hickman:

Yes but the thing is Your Honor that Government here would have this value the thought was a certainty.

It is not going to be renewed at the end of the term.

We say that it was reasonably probable that it would be renewed at the end of the term and that that is an element of value that’s considered by the market and should be taken into consideration in this case and with the statute stipulation.

That was actually the case because that’s the only difference between the two values.

The Government recognizes that the market was valuing this probability for renewal and approximately a $144,625 because that’s the only difference between the two values.

They recognized that if you let a buyer use his own devices in determining for himself what the probabilities of renewal were that he’d finally and hard knows bargaining from up until your okay.

It’s worth $274,625.

Byron R. White:

The — if the lease have had in a clause that automatically terminated the lease if the property was condemned.

Lawrence Earl Hickman:

Your talking of a problem there Your Honor that doesn’t apply in this case, there was no condemnation clause in the lease and Almota in this case by — is entitled to the full value of these structures, whatever it may be.

Now —

Lewis F. Powell, Jr.:

Mr. Hickman, did I understand you correctly to say that at the time of the commencement of the condemnation case that railroad still own the fee?

Lawrence Earl Hickman:

That is absolutely correct Your Honor.

Now, there’s been some remarks made in the briefs that would lead you to the contrary.

Lewis F. Powell, Jr.:

Well I have before me, I think the opinion of the Circuit Court of Appeals for the Ninth Circuit which says prior to the commencement of the condemnation action under review, the United States had settled with the fee owner, the railroad for the railroads interest in the land in question.

Lawrence Earl Hickman:

I realize that that is in the opinion and there’s been some contention of that type in some of the briefs.

Lewis F. Powell, Jr.:

Is it your position that —

Lawrence Earl Hickman:

It’s absolutely no truth to it.

That’s an erroneous conclusion on the part of the trial court and the only answer — I mean of the Ninth Circuit Court.

The only answer I can come up with was that there was a footnote to that effect in one of the Government briefs.

No citation has ever been made, anything in the record that that is true and it actually is not factual.

Lewis F. Powell, Jr.:

Is the record —

Lawrence Earl Hickman:

That did not happen as I just mentioned to you, they don’t yet own the fee.

Lewis F. Powell, Jr.:

Mr. Hickman, is the record silent on this issue?

Lawrence Earl Hickman:

It is.

It is but it was tried in the trial court on the basis that the railroad owned this property and the Government did not.

The Government is absolutely not in the position in this case to held out till 1974 and then said, “Gentlemen, we’re not renewing, take your elevator and go.”

And yet that’s what they would do.

They would value this as though that was the certain result at the end of the term.

We say that it’s for the market to determine what the probabilities are of that happening.

Potter Stewart:

Well, had the Government acquired the fee thereby condemnation or negotiation, it would have been certain that the lease would not have been renewed and —

Lawrence Earl Hickman:

Well now except for this Your Honor.

And that is, I don’t think it’s exactly the law and it’s not in here and hasn’t argued.

You know when we ask for compensation, we can’t ask for the benefits of the project and value.

Potter Stewart:

Right.

Lawrence Earl Hickman:

And the trial judge was of the opinion that the Government can’t assert the detriments of it either.

Potter Stewart:

I think that’s correct.

Lawrence Earl Hickman:

In other words that they have got to take the title as it was at the time they are taking this and at that time the Government didn’t own it.

Now, you see where this renewal of the lease comes in.

It isn’t really renewal of the lease.

It comes in, in determining what the probabilities are that at the end of this term, this personal property continue, can continue to be used right where it is.

If it can continue to be used there, it’s of great value.

If it can’t be, it’s probably nothing but junk.

I want to point out here that the argument the Government has made here actually they’re really only allowing this junk value for this.

If you want to refer to that Charlotte case that’s cited in the brief and I didn’t cite the case for that purpose but it says that and that is under the facts there.

Lawrence Earl Hickman:

The tenant did not own the building improvements.

Yet, and that’s the Washington DC Circuit case.

Yet in that case, the Court held that the owner was entitled to the use value of those improvements for the entire period of the lease.

Now here, all the Government would give us as a use value of these improvements for the term.

I’m pointing out that in the Charlotte case, the Court has held we can get that without owning it.

Now all that the Government would give us in addition in this case to what the party in the Charlotte case got, who didn’t own the improvements is they give us this junk value for these improvements.

What are you going to get out of a concrete tank when you go to try and move it or tear it down?

Just a bunch of rubble, that’s all and that’s all they allow us in addition to what was allowed the owner in the Charlotte case.

It’s just a junk value of these improvements.

I might also call attention that we are only arguing and have only argued that it is to be taken into consideration only the probability of the renewal of this lease at the end of the term, in other words, the probability that we can continue to use it there.

Now, I’ve cited the brief the Manhattan case and the Upper Alleghany case Second Circuit cases.

Those cases go one step further than what we are arguing here.

They would have it valued as used property in place for used in place without proving any probability of renewal.

Warren E. Burger:

Where most of these buildings put up since 1954 or a large portion of them?

Lawrence Earl Hickman:

The concrete tank was put up about 1954 and the rest have been put up about 1940 and the flat house about 1919.

Warren E. Burger:

The most expensive piece I suppose is the concrete tank?

Lawrence Earl Hickman:

Not necessarily.

Warren E. Burger:

But it’s the one on which you have the lease salvage.

Lawrence Earl Hickman:

Well, there’s no salvage to that.

Warren E. Burger:

In any of it really?

Lawrence Earl Hickman:

Really not.

When you start tearing down plank spike together, I leave it to your judgment what you’re going to have left.

Warren E. Burger:

Well is this perhaps the explanation why the earlier leases were five years for example and the final lease is —

Lawrence Earl Hickman:

I think not Your Honor.

It simply the policy the railroad to want to control these properties to ensure that there’s freight going to the railroad.

Warren E. Burger:

Would a prudent business man in 1954 go to the expensive building that concrete tank if he had only a five-year lease?

Lawrence Earl Hickman:

Your Honor, that’s just the point I’m trying to make.

Prudent businessman and you got to assume that a prudent buyer, you got to assume that the Government in agreeing to this $274,000 valuation was considering a prudent buyer willing to pay that, they’ve admitted that buyers on the market, if you left them to their own devices and let them be examined all of this would have come up with that figure.

Warren E. Burger:

Well that’s not quite the question I was driving at.

Would a prudent man build an expensive concrete tank on which there be no salvage or portable value on land on which he had a five-year lease or would he want something more than that.

Lawrence Earl Hickman:

He’d want something more than that —

Warren E. Burger:

So he got a 20-year lease the last time?

Lawrence Earl Hickman:

He would do it with the railroad and the type of lease as it was being written and has done quite regularly.

It’s not uncommon at all and the reason is that the railroads are after freight traffic and don’t continue renewing those leases time after time allowed any question.

And that’s why the market makes a difference of a $144,625.

If this were so speculative and so uncertain, the market would have said, well we’ll give you a thousand dollars more.

And that’s all.

But this thing, there’s more than twice the difference and value between the Government’s contention and our own in this case.

Harry A. Blackmun:

Mr. Hickman, it may be of no consequence but the annual rental under release was 114.20 a year?

Lawrence Earl Hickman:

That’s right.

Harry A. Blackmun:

Had it always been at that figure?

Lawrence Earl Hickman:

Here, it never had been more than that.

I suspected it may have been a little less at one time.

Harry A. Blackmun:

A typical nominal railroad lease.

Lawrence Earl Hickman:

That’s right, that’s right.

The railroad saves these properties for justice purpose and they continue to lease them, the only thing they want to control out is that if the lessee goes to doing business with someone else and doesn’t produce anymore freight traffic, then they better watch out.

I want to call attention that the Government has gone against the unit rule cases and they’re against in conflict with the Second Circuit cases, the Washington DC Circuit case in our Opinion is in line with the Second Circuit although it doesn’t specifically so state and they’re also in conflict with a statute of Congress that was enacted in the first part of 1971 which now recognizes that just compensation is more than what the Government is arguing in this case.

And by policy of the Congress now that in this case, they would award the full value that those improvements add to the whole value of the property.

I’d like to save the rest of my time, if you please.

Warren E. Burger:

Very well Mr. Hickman.

Mr. Attorney General.

Kent Frizzell:

Mr. Chief Justice, may it please the Court.

I’d like to discuss two or three essential matters with you if I may.

First, let us establish that if we were to adopt appellant’s position in viewpoint urged upon us, it will necessarily and clearly dictate and require that his Court overrule the establish law of just compensation as set forth 26 years ago by this Court in United States versus Petty Motor Company.

Secondly, I’d like to share with you why the rule as enunciated in Petty is the proper rule and thereby why it should not be set aside and overruled.

And lastly, I’d like to deal with some of the specific arguments in questions raised by petitioner Almota.

Let’s turn our attention if we may then, the United States versus Petty Motor Company case cited in our brief.

This Court in Petty held that a tenants expectancy that its leasehold would be renewed upon expiration even though its lease did not provide for renewal is not a compensable element of value under the Fifth Amendment.

The Court further held that each tenant in that case was entitled the compensation measured solely on the basis of the remainder of its term which existed after its ouster.

This Court said, the fact that some tenants had occupied their leaseholds by mutual concept for long periods of years does not add to their rights.

Kent Frizzell:

Now, the question arises is Petty binding in this case or is it distinguishable.

Petitioner contends that it is distinguishable and therefore isn’t binding.

I submit that the Petty Motor case is directly in point despite the efforts of petitioners to distinguish it.

In substance the facts are the same.

The difference is pointed out by appellant and that difference is as follows.

He says “well after all, the tenants in the Petty case add no improvements considered part of the fee as is present in the instant case.”

But that does not change the legal principles involved, they are identical.

This Court in Petty held that the possibility of renewal is not a compensable element and made clear that this was because such a prospect of a renewal expectancy does not add to the tenants rights with or without improvements.

Generally, the only value that any buildings have to be used in connection with leasehold interest is their use in place.

We are willing to pay the petitioner here for the buildings and their use in place for the remaining term of the lease.

But we’re not willing to pay petitioner based on the speculation or the mere expectation of those buildings in place where there is no renewal of the lease — renewal of the lease containing in that lease but a mere expectation.

The decision in Petty was based upon pure property law.

Basically it wasn’t decided with any controlling considerations a fairness or lack of fairness. I submit that in many instances, condemnation law is harsh law.

In the instant case, the Government admits that the renewal expectancy is there and it is true that such expectancy has been frustrated by the Government taking.

This occurs frequently.

It occurs with frustration of contract rights.

It occurs with frustration of business profits but the remedy if desired should lie with Congress.

William H. Rehnquist:

Mr. Frizzell, you refer to this holding and Petty as to the expectancies of a tenant for years.

If that was such an important holding, why is it just in a footnote?

Kent Frizzell:

We discussed it in our brief further than merely in a footnote.

William H. Rehnquist:

No.

But I mean there was a footnote in Petty as I read Petty.

It isn’t in the body of the opinion.

It’s a footnote on page 380.

Byron R. White:

It isn’t a part of the holding and the same in fact that you — in Petty that you defense its cause of removal and replacement, relocation, isn’t that the same — doesn’t it have the same plight?

Kent Frizzell:

I’m sorry.

Mr. Justice I was reading when I shouldn’t have been listening.

Byron R. White:

I’m sorry.

I’m sorry you don’t —

Kent Frizzell:

May I, Mr. Justice, may I bring your attention to page 381, the page following the footnote that you refer to.

Kent Frizzell:

There, the last sentence recites the major of damages is the value of the use and occupancy of the leasehold for the remainder of the tenants term plus the value of the right to renew in the lease of Petty less the agreed rent which the tenant would pay for such use in occupancy.

Warren E. Burger:

When the Court used the language the right to use the — to renew the lease of Petty, do you say the Court meant a right which is a legal right enforceable under some option?

Kent Frizzell:

And that was the instance with that one defendant in Petty.

There was a renewal right in that particular instance.

Warren E. Burger:

My preference is not to expectancy or hope or custom of renewing the lease independent of some option to renew, is it?

Kent Frizzell:

Not at all.

Nor allow that mere expectancy to rise to the level of a legal property right or interest and that squarely what Petty held, that you can’t allow mere expectancy, a right, a hope, of a renewal of a lease to raise to the status of a legal compensable right under condemnation.

Now, what are the alternatives?

If we stay with the decision in Petty, Congress can go either way.

If we reverse Petty, we freeze into the Constitution, one rigid concept that may be just in one case but will likely result and inflame in sole and verdicts and hundreds of others.

We’re not making law for a particular case but for the whole range or eminent domain cases.

When you look at petitioner’s argument realistically, shift and sift the chaff from the wheat.

It’s appealing on the surface but it is in truth and fact one of form over substance, it is I submit a distinction without a difference.

The petitioner is trying to convert a non-property right, the renewal expectancy into a compensable interest.

They’re asking the Court to rewrite the lease with the railroad for them and insert therein a compensable legal right, a right of renewal in the lease with the railroad.

In effect what, they’re asking is that the Court, that this Court amend the Constitution and make the Fifth Amendment read nor shall private property nor reasonable expectations be taken without just compensation.

Thurgood Marshall:

We all take it that it could rule against it without doing that?

Kent Frizzell:

Not at all, Your Honor.

Not at all.

Potter Stewart:

If may with a decision to this Court had cited but only in the footnote in your brief, United States against Virginia Electric and Power Company in volume 365 of the United States reports?

Kent Frizzell:

I am not Your Honor.

Potter Stewart:

In that case the Court held that the valuation of an easement would depend upon evaluating the likelihood of its being exercised.

And that is not certainly very far away from evaluating the expectancy of at least being renewed.

You cited for different point for a dictum in passing but —

Kent Frizzell:

An easement would be a legal interest properly compensation.

Potter Stewart:

Well I know, but yes.

There’s no question about the compensability of the easement nor is there any question about the compensability of — interpretation of this property in this case but in evaluating it.

The evaluation depended upon predictability of the expectancy of its being exercised and that as I say is not maybe far away from the petitioner’s claim here evaluating the expectancy or the probability or lack of it of the lease being renewed.

But if you are not familiar with the case, there is no point continuing the colloquy.

Kent Frizzell:

Let’s turn our attention because it’s a logical question and a logical interest to take and that is how does the Government justify the petitioner in this instance getting something less than the $274,000.

Kent Frizzell:

In fact the petitioner repeats that in his brief several times and he says anything less than that is not just compensation under the Fifth Amendment.

Well, first of all let me point out that a $130,000 of that $274,000 represents compensation to the petitioner for its remaining 7-1/2 years under the lease.

Now, the reason petitioner gets less than the full $274,000 is because the remaining $144,625 is not part of the value of the leasehold owned by petitioner and condemned with the Government.

That much of the $274,000 represents value that petitioner desires to add-on based on the mere expectancy i.e. renewal of its lease.

A non-property expectation and I hear some add that the lease would be renewed.

If the Government were to pay Almota for such expectancy, we would be acquiescing in their attempt to convert a non-property interest into a compensable item.

Why should the Government be put in a different position than any other private fee owner that would have acquired the fee in this instance?

Why should we be paid — required to pay more than United States deal or G.E. had they acquired the railroad fee here?

What would have happened if they would have acquired rather than the Government and we’ve got to remember that the Government under the case law should pay no more for public purpose in condemnation of property then private interest would pay. G.E. owns this thing now, they have two options.

They can set the7-1/2 years out under the lease and pay absolutely nothing, so could the Government.

We could have acquired the fee from the railroad, set out 7-1/2 years and we wouldn’t have owned — owed one cent to petitioner.

Or G.E. could say to the petitioner, “Look, we like to build 7-1/2 years before your lease expires.”

What would G.E. have paid for the remaining term of that lease?

Would they have paid for an expectancy of the lease renewal?

No indeed nor should the Government be required to do so.

Petitioners assume the risk when they sign that lease 20 years ago almost in 1954 and they now want to transfer that risk to the Government and have us pay for it.

It is not a legally recognized right in the property and therefore is not compensable under the Fifth Amendment.

I think I should deal directly with some of the petitioners prompts the other day.

He said “Well after all under Washington new law between the lesser and lessee, the property, the improvements is considered personal thing.”

But when the Government condemns, it’s considered real estate.

Members of this Court, we value.

We, the Government value the improvements as real estate for the remaining term of the lease that is 7-1/2 years.

Harry A. Blackmun:

Mr. Frizzell.

Kent Frizzell:

Yes.

Harry A. Blackmun:

May I go back to your illustration.

You said the Government could have acquired the fee and waited 7-1/2 years.

I suppose Almota could have gone to the railroad and obtained a new 20-year lease and you would have had to pay something more.

Kent Frizzell:

Had they in fact acquired more than 7-1/2 year lease, 20-year, whatever, we would have had to pay them for their legal interest in the property condemned the leasehold interest but not any expectancy.

Warren E. Burger:

Would that necessarily be true if they acquire that 20-year extension after notice of the taking?

Kent Frizzell:

No.

Kent Frizzell:

That would not be true in that event because the compensation to be paid is as off the date of taking and the interest taken as of that date not subsequently acquired by petitioner through its own efforts with the railroad.

To answer a question that came up earlier, what really happened here, its true that in these type of situations, the Government generally relocates the railroad and they exchange these as of the date of taking in this instance those deeds had not been exchanged.

That’s why he says as of the date of taking we don’t disagree as of the date of taking.

The Government didn’t actually have possession of the exchange deed from the railroad.

Thurgood Marshall:

And at the date of trial, they didn’t have?

Kent Frizzell:

No, sir.

Thurgood Marshall:

In this appeal, they didn’t have it?

Kent Frizzell:

I think not.

Warren E. Burger:

Well, how should we weigh that circumstance?

The record before us is no taking, is it not?

The exchange was never consummated so far as this record.

Kent Frizzell:

That is not in the record.

No, sir.

Our position on the Government is that it makes no difference whether the Government owned the fee on the date of taking or whether the railroad did.

We, in fact have settled with the railroad.

They’re not a party to this action.

It was settled before the necessity of filing condemnation proceedings arose.

That only left us with the obligation to acquire the remaining interest of petitioners.

The leasehold interest and we did in fact in May of 1967 file that condemnation proceeding to obtain the remaining legal interest in the property.

Warren E. Burger:

And that taking was effective as of that —

Kent Frizzell:

As of that date.

Warren E. Burger:

And the money deposited in the usual way?

Kent Frizzell:

Yes.

Warren E. Burger:

But the monthly deposit, it is the 130,000 or the smaller of the two stipulated in us.

Kent Frizzell:

Yes, sir.

Lewis F. Powell, Jr.:

Mr. Frizzell how was the settlement between the Government and the railroad evidenced, was there contract?

Kent Frizzell:

The specific information I have here Mr. Justice.

This declaration of taking in the Almota case was May 26, 1967 as set out in the brief.

There was a direct answer to your question, a relocation contract between the Government and the railroad and it is dated August 30, 1966.

The deeds were not exchanged however between the railroad and the Government under the relocation contract as of the date of taking, as of the Circuit Court or Ninth Circuit hearing.

Lewis F. Powell, Jr.:

Is that information in the record?

Kent Frizzell:

No, sir.

It is not.

Warren E. Burger:

Let me back up that Mr. Frizzell.

On May 26, 1967 is that the date of taking of the leasehold interest?

Kent Frizzell:

Yes.

Warren E. Burger:

And that is of record and in this record?

Kent Frizzell:

Indeed it is.

Warren E. Burger:

So as of that date, the title passed?

Kent Frizzell:

As between petitioner and the Government, yes.

Warren E. Burger:

The leasehold interest, whatever is valued —

Kent Frizzell:

Whatever that interest is, whatever its value is passed to the Government as of May of 1967 leaving a remaining approximately 7-1/2 year term for the Government to compensate petitioner for under his original 20-year lease dating back to 1954 and expiring in 1974.

I think one other point that the petitioner made should be cleared up this time and that is the statement that the Government is only in essence allowing junk value for these improvements.

I refer you to our brief but let me point out again that the value of improvements at the end of the term of this lease is not any longer an issue in this case.

Why?

Because by stipulation here again, a lot were stipulated too in this case, one of those stipulations was that the right of removal under the lease was re-vested by the Government in petitioner giving him the exact same rights he had under the original lease with the railroad and giving him ample time to remove the improvements.

I think in conclusion — Yes.

Thurgood Marshall:

I understand your position that practically you can remove them except to a junk.

Kent Frizzell:

I would submit that that would generally be true with most permanent type of improvements after 13 years since their — this were erected in 1940, some of them I think is said.

After approximately 27 years, the removal right is somewhat of an empty gesture.

Yes.

Byron R. White:

As if maybe in a code word or the Government saying that we will assist to get along.

Kent Frizzell:

This lease provided by the way that if petitioner didn’t remove them that the railroad had the right to do so and charge petitioner.

Byron R. White:

Yes, and you could do the same.

Kent Frizzell:

Yes, as we exceed to the rights of the fee railroad owner.

Harry A. Blackmun:

Mr. Frizzell, do you think there is any basic inconsistency between the Ninth Circuit decisions in this case and in the Fuller case, preceding one?

Kent Frizzell:

Well, we and I disagree with the Ninth Circuit decision in the Fuller case but of course as you well know since it’s just been argued that is different to the extent that in that instance the expectancy was based on a license revocable by the Government whereas in this instance, there was no renewal right in the lease but a mere expectancy that petitioner desires to rise to the level of a legal interest in the lease and therefore be compensated.

I would like to conclude and I can think of no more fitting conclusions for argument in this case, in the words of Mr. Justice Douglas concurring in part in United States versus General Motors Company.

At that time, he stated “consequential losses or injuries resulting from the taking are not compensable under the Fifth Amendment.”

If we allow consequential damages to be shown here and awarded here, I do not see why almost any type might not be in the future.

Kent Frizzell:

If we take that step, we demonstrate that hard cases do indeed make bad law.

We give the Constitution an interpretation which promises whole in verdicts which no act of Congress can cure.

William H. Rehnquist:

What types of damages were being referred to under the head of consequential damages Mr. Justice Douglas’s opinion there?

Kent Frizzell:

That was an instance where General Motors Corporation desired to remove leasehold improvements in the matter of machinery and buildings.

Warren E. Burger:

Thank you Mr. Frizzell.

You have four minutes remaining Mr. Hickman.

Lawrence Earl Hickman:

Mr. Chief Justice, about the Petty case, we’ve dealt with that at length in the briefs and the preferences made to that I think that the matter is fully answered.

But again I repeat, in the Petty case, there was only the very leasehold to value in that case.

There were no tenant own building improvements.

The Court didn’t purport to be talking about tenant own building improvements in any sense whatsoever.

Also, I would like to point this out that counsel and in the briefs has argued a great length about this matter of property rights.

The only property rights we’re really talking about in this case is the very leasehold about which we have no disagreement and the building improvements and machinery that were disagreeing about.

There is no property right that we are claiming in the leasehold expectancy.

We haven’t asked for payment of a property right in the leasehold expectancy.

What we do say is that in the valuation of those building improvements that we’re entitled to the consideration of all elements that land value to those improvements upon the market.

We are entitled to the consideration of all reasonably probable uses of that property.

Warren E. Burger:

Isn’t that seven or 7-1/2 years used?

Lawrence Earl Hickman:

That’s not limited by the 7-1/2 years because as I have pointed out, at the end of the 7-1/2 years we still own these buildings.

What are they worth then?

Counsel would have them worth nothing.

Warren E. Burger:

Well, that’s what you said earlier didn’t you?

Lawrence Earl Hickman:

I said that if you took their view they would be worth nothing.

Under our view considering all elements of value and the fact that in all probability, they could continue to be used in place.

They have great value in —

Byron R. White:

Because of renewal — because of the probability of renewal.

Lawrence Earl Hickman:

Because of the probability of continuing to use them right where they are.

What are you going to use those buildings for at the end of the term?

Counsel would say there is only one use you can consider and that’s to tear them down and move them.

But the market says, look, there is a reasonable probability that we can use them right where we are.

This Court in the Alton cases said, all reasonable probabilities are to be taken into consideration.

Lawrence Earl Hickman:

The Court says in making that estimate, there should taken into account all considerations that might be brought forward and reasonably the given substantial weight in such bargaining.

Now the Government by their view says “you’ll take everything into consideration but this one element that’s valued at the $144,625 you’ve got to exclude that.”

Warren E. Burger:

Isn’t that quotation you read from directed primarily at the highest and best used concept?

Lawrence Earl Hickman:

Well, coming to the highest and best used concept, what is the highest and best used of this particular elevator at the end of the term to use it right where it is, isn’t it?

And there’s a reasonable probability of using that there and the Second Circuit says, we don’t care what the probabilities are.

It isn’t just compensation to pay this people off.

A junk or salvage value on this property because there is other things that enter into this.

Just common decency on the part of the landlords, they follow this, got the lease, he has got the inside track and if it adds value upon the market, it should be paid for and that’s our point.

This is an element of value.

We have never contended that as a property right we’re entitled to a single dime for this leasehold expectancy.

William H. Rehnquist:

Under your theory Mr. Hickman, could a witness testify that condemnation — the valuation hearing that your client have had a falling out with the railroad and therefore in this particular case it was very unlikely that the lease would be renewed?

Lawrence Earl Hickman:

I suppose it would be pertinent.

However, we could point out that the railroad is perfectly willing to take on some other client that we might sell to and giving the lease renewal.

Byron R. White:

What if the United States (Inaudible) and says we’re going to take this fee obviously and we’ll guarantee we’ll never renew it within the seven years.

Lawrence Earl Hickman:

Gentlemen of the Court, if you feel in this case that this matter of whether the Government own the fee in this or did not own it is the crux of this case, then this case should be remanded to try that matter of fact in the trial court.

That was never tried.

It was never argued in the trial court and in this case, they repeat that that was the case, we will certainly contest that matter because we have plenty, I’m sure of evidence that this fee was in the railroad yet and there was no agreement.

What I know about it is outside the record but if that is in your minds, this should be remanded to find out what the fact is.

It should now be decided on that fact.

Warren E. Burger:

What difference does that really make Mr. Hickman when there was a separate taking of the leasehold interest in 1967, a proceeding directed only at your client and at the interest of your client which was then7-1/2 years?

Lawrence Earl Hickman:

Well, the thing is that at the end of the —

Warren E. Burger:

Who cares in other words where the fee title was at that time?

Lawrence Earl Hickman:

Well, it has to do with the probability of renewal.

I would have to recognize Your Honor that if the Government had owned this all the time.

When we have a lease from the Government that they want to cut us off at the end of term, there wouldn’t be anything we could do about.

Warren E. Burger:

That’s what Justice White was suggesting to you, wasn’t it in his question?

Lawrence Earl Hickman:

Well, then if there is it would be probability of a renewal, would there?

In our case, we are simply asking.

Let the market judge the probability of renewal.

Don’t tell the market that there is going to be no renewal, we are entitled to that.

Lawrence Earl Hickman:

No more than less.

Lewis F. Powell, Jr.:

Mr. Hickman.

Lawrence Earl Hickman:

Yes.

Lewis F. Powell, Jr.:

The agreed facts state that the property was being acquired for public use in connection with the dam project.

Does the record show whether or not these particular parts of land would be flooded by the dam project or affected by the record?

Lawrence Earl Hickman:

The record is silent on that but for what benefit it may be to you.

I’m quite sure the reason for the taking was that the flooding line would be so close to the foundations of these elevators that they wouldn’t hold up anymore and consequently they felt they have to take this property.

Warren E. Burger:

Thank you gentleman.

The case is submitted.