United States v. Certain Interests in Property, Civ. No. 1952.

• Decision Date: 20 June 1958
• Docket Number: Civ. No. 1952.
• Citation: 163 F. Supp. 518
• Parties: UNITED STATES of America, Plaintiff, v. CERTAIN INTERESTS IN PROPERTY IN COUNTY OF CASCADE, State of Montana, Harsh Montana Corporation, a corporation of Montana, et al., Defendants.
• Court: U.S. District Court — District of Montana

163 F. Supp. 518

UNITED STATES of America, Plaintiff, v. CERTAIN INTERESTS IN PROPERTY IN COUNTY OF CASCADE, State of Montana, Harsh Montana Corporation, a corporation of Montana, et al., Defendants.

Civ. No. 1952.

United States District Court D. Montana, Great Falls Division.

June 20, 1958.

COPYRIGHT MATERIAL OMITTED

Krest Cyr, U. S. Atty., Butte, Mont., and Dale F. Galles, Asst. U. S. Atty., Billings, Mont., for plaintiff.

Hutchinson, Schwab & Burdick, Portland, Or., and Church, Harris, Johnson & Williams, Great Falls, Mont., for defendant Harsh Montana Corp.

JAMESON, District Judge.

This is an action to condemn a leasehold interest (and all other right, title and interest) of the defendant Harsh Montana Corporation in and to a Wherry family housing project located at Malmstrom Air Force Base, Great Falls, Montana. The action is brought pursuant to the Housing Act of 1956, approved August 7, 1956 (Public Law 1020-84th Congress, 2nd Session), as amended by the Act of Congress approved July 12, 1957 (Public Law XX-XXX-XXth Congress, 1st Session), requiring that the Secretary of Defense acquire, by purchase or condemnation, all Wherry housing units located at military installations where construction of Capehart family housing has been approved.

The proceeding was instituted November 1, 1957. There was filed with the complaint a declaration of taking executed October 10, 1957 by the Under-secretary of the Air Force, in which the compensation was estimated at $1.00. An amendment to the declaration of taking was filed January 29, 1958, substituting the sum of $75,000 as the estimate of just compensation. The sum of $1.00 was deposited with the Registry of this Court on November 1, 1957 and the additional sum of $74,999 on January 29, 1958.

Prior to the filing of the amendment to the declaration of taking, the defendant Harsh Montana Corporation filed a motion to set aside and vacate the declaration of taking and order for delivery or possession. Subsequent to the amendment, a motion was filed to strike the amendment to the declaration of taking. The defendant has also filed a motion for appointment of commissioners to determine the issue of just compensation and a brief urging the Court to enter an order directing negotiations between the Air Force and defendant under the Housing Act of 1957 as a condition precedent to plaintiff's right to proceed in condemnation. All motions are resisted by plaintiff.

Motions to Set Aside and Vacate Declaration of Taking and to Strike Amendment to Declaration of Taking

The motion to set aside the original order of taking was based on the ground that the sum of $1.00 estimated as just compensation was on its face "plainly inadequate, sham, frivolous and a mere simulated and token compliance". The motion to strike the amendment was based upon the grounds that the amendment was filed without service upon defendant and without leave of Court, and that the amendment did not allege facts from which the Court could conclude that the estimate of just compensation was "other than a repetitive, inadequate, sham, frivolous, and a mere simulated and token compliance."

While plaintiff should properly have obtained leave of Court to make the amendment to its declaration of taking, such leave would have been granted and the amendment does not in any way prejudice defendant. There is no evidence that plaintiff acted in bad faith or that any substantive right of defendant was affected by the amendment. See United States v. 44.00 Acres of Land, etc., 5 Cir., 234 F.2d 410,¹ and cases there cited. Accordingly, it is my opinion that both motions should be denied.

Paragraph III(a) of Answer

As a defense to the taking, defendant alleges in paragraph III(a) of its answer that the complaint fails to state a claim, because plaintiff failed and refused to enter into negotiations with defendant to acquire the project as a condition precedent to the institution of this action, pursuant to the Housing Act of 1956 as amended by the 1957 Act.

The facts as presented by affidavits of Harold J. Schnitzer, president of Harsh Montana Corporation, and as evidenced by letters attached to plaintiff's brief are, briefly, these:

On November 7, 1956, Schnitzer, as president of Harsh Montana Corporation, received a letter from the Department of the Air Force informing him that acquisition of the 400 unit Malmstrom Wherry Project would be mandatory and requesting that he advise them "whether you desire to negotiate the disposal of your interest", and, "your offer as to terms acceptable to you."

Schnitzer replied on December 4, 1956, stating, "This corporation does desire to negotiate with you * * *"; and provided other requested information. The parties arranged a negotiation conference which was held in Washington, D. C. on April 11, 1957.

At that conference there were two points of disagreement: (1) the proper replacement cost of the project, from which there would be deducted the mortgage balance and an appropriate allowance for physical depreciation in arriving at the acquisition price; and (2) the method or formula to be followed in arriving at the appropriate allowance for depreciation.²

The discussion concerning the proper figure for replacement cost of the project as of the date of final endorsement for mortgage insurance continued by correspondence after April 11, 1957. Defendant contended that the Federal Housing Commissioner failed to properly revise the replacement estimates as of the date of final endorsement. The Air Force used an estimate of $3,658,308 for negotiations. Defendant contended the correct replacement figure under the Act was $4,111,282. From these figures there was to be deducted an amount of approximately $3,023,496.78 as of November 1, 1957 (the date of taking), representing the mortgage balance.

The parties in their correspondence failed to reach an agreement. By letter of June 14, 1957 defendant was informed that "the Federal Housing Administration has confirmed the original figure of $3,658,308 as their final estimate of the replacement cost and to be used in negotiation in accordance with Public Law 1020. In view of the above determination this office has assumed that continued negotiation will be futile and has instituted condemnation proceedings." Defendant replied by letter of June 19, 1957, in part "* * * it is now evident that such negotiations will not result in a price which we deem to be reasonable and fair. We, therefore, concur with you that condemnation proceedings should be instituted * * * We will cooperate with you to the fullest extent possible and request that you advise us of your estimated date on which you plan to take over the operation of the project."

In his affidavit of April 10, 1958, after reciting the negotiations with respect to replacement cost, Schnitzer says: "The more basic difference between myself and the representatives of the Department of Air Force related to the allowance for depreciation which the Air Force sought at the April 11, 1957 meeting. I contended that the allowance for the physical depreciation as used in the 1956 Housing Act meant that the Air Force was entitled to deduct from the FHA estimated replacement cost, as of the date of final endorsement of the mortgage note, a sum sufficient to place the property in sound physical condition and cited the congressional history of the 1956 Housing Act as my authority for this position. The Air Force, on the other hand, took the position that there were literally no limitations imposed upon it as the result of the 1956 Housing Act and as a consequence the deduction claimed by the Air Force was over 16 times as large as the figure proposed by me. I had obtained a survey from a Great Falls contractor for the purpose of correcting all deficiencies in the project and to restore the same to sound physical condition and had an estimated cost for this work in the sum of $23,233. The figure asserted by the Air Force was $368,616."

On July 12, 1957, Congress approved the Housing Act of 1957 (P.L. 85-104), § 504, 71 Stat. 303, 42 U.S.C.A. § 1594a which provided that:

"Section 404(a) (42 U.S.C.A. § 1594a(a)) of the Housing Amendments of 1955 is amended by striking out `an appropriate allowance for physical depreciation' and inserting in lieu thereof `an appropriate allowance representing the estimated cost of repairs and replacements necessary to restore the property to sound physical condition'."

Of the 1957 amendment, Schnitzer states in his affidavit:

"However, when the 1957 Housing Act was passed, it, in my opinion, completely clarified the allowance for physical depreciation. It was confined to the cost of restoring the property to sound physical condition; exactly the position I had previously taken on April 11, 1957, during the conference. I received no further communications from the Department of Air Force after the effective date of the 1957 Housing Act and without any further notice to me on November 1, 1957 condemnation was instituted in the above case."

Neither party requested further negotiations after the passage of the 1957 Act.

Negotiations between the Air Force and defendant had broken down on two points: (1) the estimated replacement cost; and (2) the appropriate allowance for depreciation. Defendant concedes in its brief in support of paragraph III(a) of its answer that any adjustment with respect to replacement cost could be made only by the Federal Housing Commissioner, and that the Air Force, sometime after the negotiation conference, was advised by FHA that the revision would not be made. As counsel state, "This ended the matter". Defendant now relies solely upon its contention that it was entitled to negotiate further with respect to the allowance for depreciation by reason of the 1957 amendment.

There is no evidence that defendant, prior to the institution of this action, either (1) advised plaintiff that it had abandoned its contention with respect to...