Likins-Foster Monterey Corporation v. United States, No. 17218

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBARNES, HAMLEY and HAMLIN, Circuit
Citation308 F.2d 595
PartiesLIKINS-FOSTER MONTEREY CORPORATION, a Delaware Corporation, and Likins-Foster Ord Corporation, a Delaware Corporation, Appellants, v. UNITED STATES of America, Appellee.
Docket Number17956.,No. 17218
Decision Date01 October 1962

308 F.2d 595 (1962)

LIKINS-FOSTER MONTEREY CORPORATION, a Delaware Corporation, and Likins-Foster Ord Corporation, a Delaware Corporation, Appellants,
v.
UNITED STATES of America, Appellee.

Nos. 17218, 17956.

United States Court of Appeals Ninth Circuit.

October 1, 1962.


308 F.2d 596

Lytle, Johnston & Soule, and Roy C. Lytle, Oklahoma City, Okl., Joseph M. Williamson, Urbana, Ill., Danzansky & Dickey, and Raymond R. Dickey, Washington, D. C., Lillick, Geary, Wheat, Adams & Charles, and Edwin L. Gerhardt, San Francisco, Cal., for appellants.

Ramsey Clark, Asst. Atty. Gen., Roger P. Marquis and S. Billingsley Hill, Attys., Dept. of Justice, Washington, D. C., Cecil F. Poole, U. S. Atty., Charles R. Renda, and J. Harold Weise, Asst. U. S. Attys., San Francisco, Cal., for appellee.

Before BARNES, HAMLEY and HAMLIN, Circuit Judges.

HAMLEY, Circuit Judge.

In this suit by the United States to condemn two Wherry housing projects at Fort Ord, California, the testimony as to value ranged from $650,000 to $3,880,000. The jury returned a verdict of $1,106,000 and judgment in that sum was entered. The two condemnees, jointly referred to herein as Likins-Foster, appealed.1

308 F.2d 597

This court thereafter remanded the cause to the district court for the purpose of permitting it to consider a motion, made by Likins-Foster, to vacate the judgment and grant a new trial. The district court denied the motion and Likins-Foster filed a second appeal. The two appeals have been consolidated for argument and disposition in this court.

Appellant corporations were formed for the purpose of constructing and operating two housing projects at Fort Ord pursuant to the provisions of the Wherry Act of August 8, 1949, 63 Stat. 570, 12 U.S.C.A. § 1748. The projects, considered together, consist of six hundred and fifteen residential buildings comprising one thousand dwelling units, with necessary streets, walks, carports, service buildings and sewage systems. The buildings are one-story structures of pumice concrete construction with concrete walls and roofs. The first project was completed in July, 1952, and the second in June, 1953.

These facilities were constructed on 219.5 acres of government land under two long-term leases calling for a total rental of two hundred dollars annually. One lease was executed on November 16, 1950, and the other on June 27, 1952. Both leases were for seventy-five years, but one was cancellable at the end of fifty years.

In arranging the financing for these projects, the Federal Housing Administration (FHA) estimated that the original cost, payable by the sponsors, would be $9,737,257.2 Under the authority of the Wherry Act, FHA authorized, and Likins-Foster placed, federally insured mortgages totaling $8,742,400, representing approximately ninety per cent of the estimated cost. Each mortgage was to mature thirty-two years and seven months from the date of its issuance.

Under the Capehart Act, enacted on August 11, 1955, 69 Stat. 646, as amended, 12 U.S.C.A. § 1748, 42 U.S.C.A. § 1594a, government acquisition of all Wherry housing projects located at or near military bases where construction of Capehart housing had been approved was made mandatory. Pursuant to this requirement this condemnation action was commenced on November 1, 1957. The government deposited $782,053 estimated compensation with its declaration of taking filed on that date.

On the main appeal Likins-Foster advances three general grounds for reversal. One of these is that the government's appraisal witnesses, Robert C. Hastings and William W. Mollan, based their estimates of value on a number of false assumptions of fact and law. It is argued from this that their testimony was incompetent and objections thereto should have been sustained, failing which the jury verdict was deprived of a substantial basis in the record.

The rule which appellants ask us to invoke is that where unwarranted theories of law or assumptions of fact guide the expert and are used as a basis for value, the evaluation will be set aside. See United States v. Honolulu Plantation Co., 9 Cir., 182 F.2d 172, 178.

One of the false assumptions which the government witnesses made, appellants assert, had to do with net income and rate of return. With regard to these factors, it is argued, these witnesses made the false assumption that the FHA Commissioner: (a) possessed the power to establish a rigid net dollar income or rate of return for the entire life of the insured mortgage, permitting it to vary only to reflect changes in operating expenses; (b) possessed the power to enter into, and had entered into, a contract establishing a rigid net dollar income; and (c) properly adopted regulations and policies which operated rigidly to peg net income.

In order to determine exactly what assumption the government witnesses made in this regard and whether such assumption

308 F.2d 598
was false in any sense that would render their testimony incompetent, the legislative policy behind the Wherry Act, and pertinent provisions of the Act calculated to achieve that policy, must be considered

The over-all design of the Act was to bring about, through the cooperative effort of the government and private business, needed low-cost housing on or adjacent to military installations. United States v. Benning Housing Corporation, 5 Cir., 276 F.2d 248, 252.

In order to interest private business in such projects, special inducements were provided in the Act. FHA mortgage insurance was made available through a new certificate procedure. The cost of land acquisition was eliminated by the leasing of federal land for long terms at nominal rentals. Provision was made for utility service by the military on a long-term basis.

In practice there were other inducements. Sponsors were excused for a long initial period from amortization payments. Where sponsors were building contractors they received or were credited with builder's fees. There was the possibility, which became a reality in this case, that the project could be constructed at a cost less than the FHA estimate, so that the sponsor would have the use of mortgage proceeds in excess of the intended limit of ninety per cent of the cost of the project.

Some of these inducements also had the effect of minimizing the cost of the project, thereby setting the stage for low rents. But to further assure low cost housing the Wherry Act empowered FHA to impose controls on such matters as rents or sales, charges, capital structure, rate of return, and methods of operation. Wherry Act of August 8, 1949, 63 Stat. 570, 572 § 803(b) (1).

In the exercise of these controls FHA has set a policy in Wherry projects whereby the return allowed from rentals on the project is not to exceed 6.5 per cent of FHA's estimate of original cost. FHA has rigidly adhered to the policy of maintaining this fixed return through all business cycles since the 1940's and during the administration of seven Commissioners.

The rentals which may be charged the military personnel have been fixed on that basis. Increases have been allowed in the rent schedules to meet increased operating costs, taxes and the like, but the return allowed to the project has not been permitted to exceed 6.5 per cent. Nor has it been changed from that fixed at the time of original processing, except to correct errors and oversights.

On the project involved in the case before us, the return allowed was fixed at the time of processing at 6.1 per cent of the estimated original cost. This is 6.99 per cent of certified actual cost. That return is for the entire leasehold interest before deduction of debt service.

In arriving at their opinions as to value the government witnesses assumed that this net return to the sponsors, fixed at the commencement of the projects, would continue to be controlled in the future at the same rate.

This assumption was not predicated on the view that FHA was without statutory power to change its past policy as to these matters, or that the agency had deprived itself by contract or regulations of the power to make such a change. These witnesses agreed that FHA had authority to change its policy and the jury was similarly instructed.

Nor did the government witnesses assume that, in setting controls governing net income and rate of return, FHA was not required, under the Fifth Amendment to be reasonable in establishing rents, charges and methods of operation. Again, the jury was specifically instructed that FHA had a constitutional duty to permit a fair dollar return on the value of the assets after taking into consideration all the relevant facts and circumstances, including the entire history of the project.

What the government witnesses did assume was that, considering consistent past FHA practice, through the

308 F.2d 599
ups and downs of the business cycles, the controls which had resulted in stabilized rents in the past properly could and probably would be maintained in the future. This was an exercise of judgment just as was the assumption of John L. Vaughan, Jr., the valuation witness for Likins-Foster, that in the future FHA controls would be relaxed to the point of permitting a ten per cent increase in rents. The evaluation of these varying appraisal judgments was for the jury. This court is in no position to say that one of these assumptions was true and the other was false, rendering the latter testimony incompetent

Another false assumption of the government witnesses, it is urged, was in considering it appropriate to rely upon sales of similarly regulated and restricted housing projects to determine a multiplier or rate of return (capitalization rate), although it was stipulated that such sales were not comparable.

During the pretrial conference a stipulation was agreed upon that:

"* * * there are no comparable sales that should be considered by the jury in this case, and there will be no proffer of any comparable sales in the trial of this
...

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13 practice notes
  • Brown v. AVEMCO Inv. Corp., No. 77-2169
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 12 Septiembre 1979
    ...Cir. 1974); Hays v. United Fireworks Manufacturing Co., 420 F.2d 836, 841 (9th Cir. 1969); Likins-Foster Monterey Corp. v. United States, 308 F.2d 595, 603 (9th Cir. 1962); Reiner v. Northern Pacific Terminal Co. of Oregon, 259 F.2d 438, 439 (9th Cir. 1958); Panther Oil & Grease Manufac......
  • Likins-Foster Honolulu Corp. v. CIR, No. 10060-10061.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 16 Octubre 1969
    ...was the amount of the compensation to be paid for the taking of the property. Likins-Foster Monterey Corporation v. United States, 9 Cir., 308 F.2d 595. While this may be a collateral attack upon the condemnation judgment,3 we are satisfied that by the enactment of the Capehart Act and supp......
  • U.S. v. Angelini, No. 78-2432
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 9 Noviembre 1979
    ...of his own orders and pre-trial stipulations approved by him is applicable here. Likens-Foster Monterey Corp. v. United States, 308 F.2d 595, 599 (9th Cir. 1962); Winston v. United States, 342 F.2d 715, 722 (9th Cir. 1965); United States v. Pomares, 499 F.2d 1220, 1223 (2d Cir.), Cert. deni......
  • Winston v. United States, No. 19106.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 4 Mayo 1965
    ...Fairfield Gardens, Inc. v. United States (9 CCA 1962), 306 F.2d 167; Likens-Foster Monterey Corporation v. United States (9 CCA 1962), 308 F.2d 595; United States v. Certain Interests in Property (2 CCA 1964), 326 F.2d 109. Here, again, the leasehold interests of Appellants, subject to the ......
  • Request a trial to view additional results
13 cases
  • Brown v. AVEMCO Inv. Corp., No. 77-2169
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 12 Septiembre 1979
    ...Cir. 1974); Hays v. United Fireworks Manufacturing Co., 420 F.2d 836, 841 (9th Cir. 1969); Likins-Foster Monterey Corp. v. United States, 308 F.2d 595, 603 (9th Cir. 1962); Reiner v. Northern Pacific Terminal Co. of Oregon, 259 F.2d 438, 439 (9th Cir. 1958); Panther Oil & Grease Manufac......
  • Likins-Foster Honolulu Corp. v. CIR, No. 10060-10061.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 16 Octubre 1969
    ...was the amount of the compensation to be paid for the taking of the property. Likins-Foster Monterey Corporation v. United States, 9 Cir., 308 F.2d 595. While this may be a collateral attack upon the condemnation judgment,3 we are satisfied that by the enactment of the Capehart Act and supp......
  • U.S. v. Angelini, No. 78-2432
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 9 Noviembre 1979
    ...of his own orders and pre-trial stipulations approved by him is applicable here. Likens-Foster Monterey Corp. v. United States, 308 F.2d 595, 599 (9th Cir. 1962); Winston v. United States, 342 F.2d 715, 722 (9th Cir. 1965); United States v. Pomares, 499 F.2d 1220, 1223 (2d Cir.), Cert. deni......
  • Winston v. United States, No. 19106.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 4 Mayo 1965
    ...Fairfield Gardens, Inc. v. United States (9 CCA 1962), 306 F.2d 167; Likens-Foster Monterey Corporation v. United States (9 CCA 1962), 308 F.2d 595; United States v. Certain Interests in Property (2 CCA 1964), 326 F.2d 109. Here, again, the leasehold interests of Appellants, subject to the ......
  • Request a trial to view additional results

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