United States v. CERTAIN INTERESTS IN PROPERTY, ETC.

• Decision Date: 16 May 1962
• Docket Number: Civ. No. 1952.
• Citation: 205 F. Supp. 745
• Parties: UNITED STATES of America, Plaintiff, v. CERTAIN INTERESTS IN PROPERTY IN CASCADE COUNTY, MONTANA, Harsh Montana Corporation, et al., Defendants.
• Court: U.S. District Court — District of Montana

205 F. Supp. 745

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

Civ. No. 1952.

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

May 16, 1962.

Robert M. McKee, Dept. of Justice, Washington, D. C.; Moody Brickett, U. S. Atty., Butte, Mont., and Krest Cyr, Butte, Mont., for plaintiff.

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

JAMESON, District Judge.

This is an action to determine just compensation for the leasehold interest (and rights arising out of easements and contracts) of the defendant Harsh Montana Corporation in a Wherry Housing Project located at Malmstrom Air Force Base, Great Falls, Montana. The action was brought pursuant to the Housing Act of 1956, approved August 7, 1956 (42 U.S.C.A. § 1594a, 70 Stat. 1110), as amended by Act of Congress approved July 12, 1957 (Pub.L. 85-104, Title V, § 504, 71 Stat. 303), 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 had been approved.

The property was taken on November 1, 1957. The original declaration of taking estimated just compensation at $1.00. An amendment to the declaration of taking filed January 29, 1958, estimated just compensation at $75,000.00. On February 23, 1960, defendant filed a motion for order requiring a further increase to not less than $476,800.00. At a hearing on this motion counsel for plaintiff informed the court that it had received an appraisal in the sum of $141,503.00, upon which plaintiff intended to rely at the trial. Pursuant to order entered May 29, 1960, plaintiff paid the additional sum of $66,503.00, with interest from the date of taking.

The Wherry Housing Act of August 8, 1949, was enacted by Congress to "assist in relieving the acute shortage of housing" at military installations and "to increase the supply of rental housing accommodations available to military and civilian personnel at such installations * * *".¹ The Act provided for the construction of the needed housing by private builders or "sponsors".² The Federal Housing Administration was authorized to insure mortgages executed under the Act. The buildings and equipment on the project were constructed in accordance with detailed plans and specifications approved by the Air Force and Federal Housing Administration. The sponsor mortgagors were subject to regulation in such matters as rents, charges, capital structure, rate of return, and methods of operation.

On January 15, 1952, the defendant Harsh Montana entered into a 75-year lease³ with the Secretary of the Air Force, at an annual rental of $100.00, for the purpose of enabling Harsh to construct a housing project upon the leased lands, consisting of 39.582 acres. Concurrently with the execution of the lease there were executed easements and contracts relating to utility services.

On September 11, 1953, Harsh completed construction of a total of 64 residential buildings, providing 400 dwelling units,⁴ and 33 garage structures providing space for 196 cars, together with a gas system, water system, sewage system, roads, walks, and landscaping. Title to the buildings and other improvements passed to the Government upon their completion. The lessee also furnished ranges, refrigerators, screens and shades.

Harsh's final estimate of the cost of construction, upon which the maximum insurable interest and rental income were based, was $3,565,206.00.⁵

On October 14, 1953, the defendant Harsh became indebted to Manufacturers' Trust Company in the sum of $3,208,600.00, evidenced by a promissory note and secured by real and chattel mortgages. The mortgage indebtedness, bearing interest at the rate of 4% per annum, plus ½ of 1% F.H.A. premium charged for insurance, was payable in monthly installments of $14,706.08, including principal and interest, beginning April 1, 1954, and continuing to October 1, 1986. The note and mortgages were assigned to Federal National Mortgage Association on January 12, 1954. At the time of taking, the balance due on the note was $3,023,496.78.

The Wherry Act was superseded in 1955 by the Capehart Act,⁶ which provided that housing constructed on military installations after its enactment would be managed by the Secretary of Defense instead of by private builders as under the Wherry Act. The Secretary of Defense could, in his discretion, acquire existing Wherry housing projects. Where Capehart housing was to be constructed on a military base already served by Wherry housing, acquisition of the Wherry housing was mandatory. This action was instituted pursuant to the latter provision, acquisition having been made necessary by the construction of Capehart housing on Malmstrom Air Force Base, and the failure of negotiations for a voluntary sale.⁷

Defendant alleged in its answer that the complaint failed to state a claim, because plaintiff had 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. This court held in an opinion filed June 23, 1958, that the evidence disclosed bona fide negotiations by both parties pursuant to the Housing Act of 1956, which terminated in disagreement, and that neither party requested further negotiations pursuant to the 1957 amendment. The court also denied defendant's motion for appointment of commissioners to determine the issue of just compensation. By subsequent stipulation of counsel, the cause was tried to the court without a jury, followed by extensive post-trial briefs. Pursuant to agreement of counsel at the time of trial, the court viewed the premises.

The property condemned is Harsh's interest or equity in the leasehold. Two qualified expert witnesses or appraisers testified for each side. They had testified in prior Wherry cases.⁸ All were obviously and understandably partisan, as reflected in their opinions of just compensation:

                                         Total Value          Per Unit
                                          of Equity             Value
                J. L. Vaughan, Jr.      $1,126,503.00         $2,816.00
                O. C. Brothers           1,099,866.00          2,749.00
                William Mollan             189,000.00            472.00
                Robert C. Hastings         176,500.00            441.00
                

Harsh Montana is entitled to just compensation for the property condemned. The test of just compensation is "market value fairly determined". Market value "is what a willing buyer would pay in cash to a willing seller" for the estate or interest being valued.⁹ Where there is an established market through sales of comparable property in the same vicinity, it is relatively simple to determine market value. In the absence of any "going market", the problem becomes more difficult. Then, "The amount can be determined only by a guess, as well informed as possible, as to what the equivalent (value) would probably have been had a voluntary exchange taken place".¹⁰ This concept has special relevance here. Not only is there no "going market", but also a unique estate was taken, involving many intangible and uncertain factors which make difficult the application of any of the standard and recognized approaches to the valuation of property.¹¹ Obviously this accounts in part for the wide variation in the appraisals for the respective parties.

Malmstrom Air Force Base, located approximately four and one-half miles from the center of Great Falls, is an installation of the Strategic Air Command, with responsibility in refueling. It is also the Headquarters of the 29th Air Division Defense. At the time of taking, new construction related to future housing requirements included a Semi-Automatic Ground Environment (SAGE) structure being built at an approximate cost of $5,000,000.00. In addition to the 400 housing units involved in this action, there were 192 other Wherry units and 150 Capehart units, and the construction of 560 additional Capehart units was contemplated. More than 4500 military and civilian personnel were employed on the base. The demand for low-cost base housing was greatly in excess of the housing available. During the years 1953-54 and 1954-55, the rate of occupancy of the Wherry project was in excess of 98%. In 1955-56, it was 99.6%, and in 1956-57, it was 99.8%.

Appraisers for both parties agreed that the Great Falls metropolitan area at the time of taking had a population in excess of 70,000; that Great Falls is an industrial and marketing city, its area activities including agriculture, livestock, wool, minerals and oil; that it is a gateway to a well-known resort and recreational area; that five hydroelectric plants are operated in the immediate vicinity of Great Falls, and that Anaconda Company refines copper and zinc, and manufactures aluminum and copper wire and cable. In personnel and dollar volume of business Malmstrom Air Force Base was the most important segment of the city's economy.¹²

In the realm of intangible factors, it seems advisable at the outset to consider two related contentions of the plaintiff, by reason of their effect upon various factors considered by the appraisers in their valuations. Plaintiff argues first that at the time of construction the Wherry Housing Project was relatively free from competition but that, "During the interim between the date of construction and the date of taking * * * the City of Great Falls has done considerable building in the direction of Malmstrom Air Force Base, and this lack of competition has practically evaporated." It is true that there had been substantial building in the direction of Malmstrom. There is no evidence, however, to support a conclusion that the lack of competition had practically evaporated. There was still...