Port Authority Trans-Hudson Corp. v. Hudson & Manhattan Corp.

• Decision Date: 29 December 1966
• Docket Number: TRANS-HUDSON
• Citation: Port Authority Trans-Hudson Corp. v. Hudson & Manhattan Corp., 276 N.Y.S.2d 283, 27 A.D.2d 32 (N.Y. App. Div. 1966)
• Parties: In the Matter of the Application of The Port Authority Trans-Hudson Corporation to acquire title to certain property in the State of New York and the State of New Jersey for Hudson Tubes purposes. PORT AUTHORITYCORPORATION, Petitioner-Appellant-Respondent, v. HUDSON & MANHATTAN CORPORATION and Hudson Rapid Tubes Corporation,Claimants-Appellants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 283

276 N.Y.S.2d 283

27 A.D.2d 32

In the Matter of the Application of The Port Authority Trans-Hudson Corporation to acquire title to certain property in the State of New York and the State of New Jersey for Hudson Tubes purposes. PORT AUTHORITY TRANS-HUDSON CORPORATIONPetitioner-Appellant-Respondent, v.HUDSON & MANHATTAN CORPORATION and Hudson Rapid Tubes Corporation,Claimants-Appellants-Respondents.

Supreme Court, Appellate Division, First Department.

Dec. 29, 1966.

Whitney North Seymour, New York City, of counsel (John A. Guzzetta, James J. Hagan, Eleanor M. Fox and Nancy M. Clarkson, New York City, on the brief; Simpson Thacher & Bartlett, New York City, attorneys; Sidney Goldstein, New York City, attorney (Joseph Lesser, Milton H. Pachter and Robert S. Tobin, New York City, on the brief) for petitioner-appellant-respondent.

David W. Peck, New York City, of counsel(Theodore N. Tarlau, L. Robert Driver, Jr., John C. Jaqua, Jr. and Michael A. Cooper, New York City, on the brief; Sullivan & Cromwell, New York City, attorneys) for claimants-appellants-respondents.

Arthur J. Sills, Trenton, N.J. (Alan B. Handler and David A. Biederman, Newark, N.J., on the brief) for intervenorState of New Jersey, amicus curiae.

Louis J. Lefkowitz, New York City(Ruth Kessler Toch and Julius L. Sackman, Albany, on the brief) for the State of New York, amicus curiae.

Before BREITEL, J.P., and RABIN, STEVENS, STEUER, and CAPOZZOLI, JJ.

STEVENS, Justice.

These are cross-appeals by Port Authority Trans-Hudson Corporation(PATH) and claimantsHudson and Manhattan Corporation(H & M) and Hudson Rapid Tubes Corporation(HRT) from the final decree entered June 13, 1966, in a condemnation proceeding making awards for the Hudson Tubes Railroad and the Hudson Terminal Office Buildings, title to which vested in PATH.H & M is the fee owner of twin 22-story office buildings located at 30 and 50 Church Street, Borough of Manhattan.Special Term awarded $17,996,000 for the buildings based on a capitalization of projected net income.With that we are in accord and the award therefor is affirmed.Remaining for determination is the award to be made for the railroad, and what interest rate should govern.

Originally the Hudson & Manhattan Railroad Company(Company) owned and operated the realty owned by H & M and also the railroad owned and operated by HRT at the time of taking.Reorganization resulted in two separate corporations.Company continued its corporate existence as H & M, with HRT as a subsidiary.HRT became the owner of the damage parcels which constituted the railroad with the exception of three rights of passage and easement of which H & M was the record owner and HRT had the beneficial use.PATH took possession of this property Steptember 1, 1962 by condemnation.Special Term awarded $55,000,000 for the railroad on the theory that its original cost should govern the determination of value.The original cost was $62,000,000.Special Term concluded that the tunnels represented approximately 50% Of the value of the railroad and allowed the sum of $30,000,000 for the tunnels, $20,000,000 for the depreciated value of the remainder of the railroad property, plus $5,000,000 or 10% Representing the going concern value.It was stipulated that approximately 65% Of the railroad property was located in New Jersey.On such property the court allowed interest at 6% And on the railroad property located within the State of New York Special Term allowed 4% Interest.

The claimants urge that the award for the Church Street property was inadequate, the award for the railroad was inadequate, and the interest allowed on such awards is inadequate.PATH on the other hand contends that the award for the railroad is grossly excessive and that the interest on any award should be a uniform 4%.PATH urges that the award should not exceed the liquidation value of the railroad which it approximates at $3,500,000.

HRT urged and urges that the award for the railroad should be based upon reproduction cost less depreciation.More precisely, HRT offered testimony that the present-day cost of constructing the Railroad properties would be $521,763,469 and that the reproduction cost less depreciation on the basis of trended original cost would be $447,595,589.Using the unit price method of estimating reproduction, HRT offered testimony that the present-day cost would be $563,168,028 and that such cost less depreciation would be $488,462,153.These cost figures were based upon testimony given by members of the firm of Ford, Bacon and Davis.HRT on appeal urges that the award should be increased to $127,400,000 for the railroad.It reaches this figure by averaging the lowest estimate in the record of reproduction cost less depreciation, $447,600,000 and the original cost of $62,000,000 which make a total of $509,600,000.This figure is divided by two and the resulting figure of $254,800,000 halved, which amounts to $127,400,000.The difficulty with that approach is that it is founded on no sound basis and consequently must be rejected.Thus it will be seen that PATH's approach of liquidation value and the claimants' approach of reproduction cost less depreciation and the original cost trended less depreciation are diametrically opposed.

When private property is taken for a public use, as occurred here, the law requires that just compensation be paid (N.Y.Constitution, Article 1, § 7(a);N.J.Constitution, Article 1, para. 20;U.S.Const. Amends. 5 and 14).When the Port of New York Authority, the parent body of PATH, was created, it was envisaged that it might be necessary or convenient for it from time to time to acquire real property or other property.More particularly the States of New York and New Jersey authorized in 1961 the development of a World Trade Center by the Port of New York Authority.They found, Inter alia, '(2) that in order to preserve the northern New Jersey-New York metropolitan area from economic deterioration, adequate facilities for the transportation of commuters must be provided, preserved and maintained and that rail services are and will remain of extreme importance to such transportation of persons (3) that the interurban electric railway now or heretofore operated by the Hudson and Manhattan railroad is an essential railroad company facility serving the northern New Jersey-New York metropolitan area; that its physical plant is in a severely deteriorated condition; and that it is in extreme financial condition; (4) that the immediate need for the maintenance and development of adequate railroad facilities for the transportation of persons between northern New Jersey and New York would be met by the acquisition, rehabilitation and operation of the said Hudson & Manhattan interurban electric railway by a public agency, and improvement and extensions of the rail transit lines of said railway to permit transfer of its passengers to and from other transportation facilities and in the provision of transfer facilities at the points of such transfers'(Laws of 1962, c. 209;N.J.Laws 1962, c. 8;seeN.J.S.A. 32:1--35.50 to 32:1--35.68 approved February 8, 1962;see alsoLaws of 1961, c. 312, for earlier legislative findings (McK., Uncon.Laws, § 6601)).However, it was specifically provided in connection with the condemnation of property that '(t)he owner of any property acquired by condemnation or the exercise of the right of eminent domain for any of the purposes of this act shall not be awarded for such property any increment above the just compensation required by the constitution of the United States and of the state or states in which the property is located by reason of any circumstances whatsoever'(ibid.McK., Uncon.Laws, § 6614, L.1961, ch. 312, § 14).The law, both constitutional and statutory, requires that just compensation, and no more than just compensation be paid.In determining what constitutes just compensation several methods of approach are possible.A brief consideration of some of them will determine whether they are feasible or conducive to the desired result.

PATH acquired by eminent domain on September 1, 1962, a railroad which had undergone reorganization as a result of a petition filed August 11, 1954, by three of the railroad's bondholders.The reorganization was terminated December 31, 1961, and title was taken by PATH less than one year later.

The Hudson and Manhattan Railroad Company(predecessor of HRT and H & M) admittedly was unable to meet its debts as they matured.In reaffirming approval of the petition for reorganization it was noted that assets available to meet the debts fell far short of the sums required, and prospects for the future were dismal (In re Hudson & Manhattan Railroad Company, 138 F.Supp. 195(D.C.1955)).Insofar as the actual railroad operation was concerned, the railroad had failed to earn its interest and expenses for several years.The rolling stock was old, in some instances in a hazardous condition, most of the cars having been acquired between 1909 and 1911, the most recent being 20 cars acquired in 1928.In its opinion the court(Walsh, J.) stated there was no possibility of avoiding a default on bonds due February 1, 1957(approximately $46,339,404.62).A property amortization fund, established as required by the terms of the mortgage indentures, had been totally exhausted in 1952, and only a small part of the fund had ever been used for the intended purpose.Additionally, there was a combined deficit of $818,857.55 comprising $406,542.55, the deficit of current liabilities, plus $358,295 representing the minimum program of authorized expenditures to maintain and permit safe operation of the railroad.The reorganization plan proposed by the trustee in bankruptcy was submitted by the District Court, Southern District, to the Securities and Exchange Commission(SEC) for examination and report.The advisory report of the SEC thereon (38 Securities...