United States v. Eastern SS Lines, 4366.

• Decision Date: 31 December 1948
• Docket Number: No. 4366.,4366.
• Citation: 171 F.2d 589
• Parties: UNITED STATES v. EASTERN S. S. LINES, Inc.
• Court: U.S. Court of Appeals — First Circuit

171 F.2d 589 (1948)

UNITED STATES v. EASTERN S. S. LINES, Inc.

No. 4366.

United States Court of Appeals First Circuit.

December 31, 1948.

Jess H. Rosenberg, Atty., Dept. of Justice, of Washington, D. C. (H. G. Morison, Asst. Atty. Gen., William T. McCarthy, U. S. Atty., of Boston, Mass., J. Frank Staley, Sp. Asst. to Atty. Gen., of Washington, D. C. and Edward O. Gourdin, Asst. U. S. Atty., of Boston, Mass., on the brief), for appellant.

Arthur J. Santry and Richard Bancroft, both of Boston, Mass. (Putnain, Bell, Dutch & Santry, of Boston, Mass., on the brief), for appellee.

Before MAGRUDER, Chief Judge, WOODBURY, Circuit Judge, and PETERS, District Judge.

WOODBURY, Circuit Judge.

This is an appeal by the United States from a final decree entered in a libel brought under the Suits in Admiralty Act of March 9, 1920, 41 Stat. 525, 46 U.S.C.A. §§ 741-752, awarding the libellant, Eastern Steamship Lines, Inc., $1,100,000 as "just compensation" as of October 30, 1944, for the Steamship George Washington with interest on the amount awarded at 4 percent calculated from the date the libel was brought.

The steamship in question was a combined cargo and passenger vessel 375 feet and 5 inches in length, 54 feet and 2 inches in breadth and 29 feet and 9 inches deep. She was built in 1924, and had been used exclusively by her owners from that time until early in 1942 in the United States Atlantic Coast trade, although at all times she was certified by federal steamship inspection authorities as fit for use in any ocean. She had capacity for 320 first class and 35 second class passengers, plus a crew of 125, and capacity for about 2,475 long tons of cargo, fresh water and stores. Her normal speed was 16 knots and she apparently was capable of crossing the Atlantic but it does not appear that she ever did so. Her original cost was $1,617,183.81 and the libellant had spent amounts variously estimated at from approximately $125,000 to $160,000 on her in "betterments". At all times the vessel had been maintained in excellent condition.

In February 1942, at the Government's request, the libellant chartered the George Washington on the bare boat basis to Alcoa Steamship Company, and that company used her for the carriage of passengers and cargo between United States Atlantic coast ports and ports in the Caribbean Islands. Then, as of June 2, 1942, the libellant chartered the vessel, also on the bare boat basis, directly to the United States acting through the War Shipping Administration for employment in the same trade. Thereafter Alcoa Steamship Company continued to operate the vessel as the agent of the United States.

Under the terms of this charter the United States assumed all marine and war risks and agreed in the event of the total loss of the vessel that it would pay the libellant "just compensation to be determined in accordance with Section 902 of the Merchant Marine Act, 1936, as amended 46 U. S.C.A. § 1242." The United States also agreed that in the event the vessel was seriously damaged it would "have the option of declaring the Vessel a constructive total loss by so notifying the Owner" in which event it would "forthwith reimburse the Owner in the amounts and in the manner indicated * * * in the case of actual total loss."

The George Washington was in collision with another vessel on September 10, 1944, and subsequently the United States exercised its option by notifying the libellant that it had declared the vessel a total loss as of October 30, 1944. Approximately a year later the War Shipping Administrator determined that the sum of $667,500 constituted just compensation for the vessel and tendered that sum to the libellant. Believing this amount inadequate, the libellant rejected the tender and on April 8, 1946, filed the instant libel against the United States.

Both parties agree that the term "just compensation" in the charter means fair market value — what a willing seller would take and a willing buyer would give in a free and open market for the ship at the time of its constructive total loss — and both parties also agree that at the time of the constructive total loss of the George Washington, October 30, 1944, there was no free and open market for merchant vessels and had been no such market for them for almost two and a half years due to the wartime conditions then prevailing. The principal issue between the parties is as to the method to be used in arriving at the "fair market value" of the vessel under the abnormal economic conditions prevailing at the time of its constructive total loss.

At the trial the libellant offered the testimony of two expert witnesses as to the cost of reproducing the George Washington at the time of its loss and as to the rate of depreciation which ought to be progressively applied to that cost in order to calculate the fair market value of the vessel on the critical date. The libellee strenuously objected to the introduction of this testimony on the ground that reproduction cost was not a proper basis for determining fair market value, but the court below overruled the objection and admitted the testimony.

The libellant's two expert witnesses then testified to a reproduction cost for the vessel, plus its betterments, as of October 30, 1944, of approximately $3,650,000 and expressed the opinion that to arrive at the fair market value of the vessel on the date of loss her reproduction cost ought to be depreciated progressively over the vessel's elapsed life of 20 years at, respectively, 2½ and 3½ per centum per annum. The libellee, in its turn, but saving its objection to the admission of any testimony of reproduction costs, put on two witnesses who said that it would cost in the neighborhood of $3,000,000 to construct a vessel like the George Washington at the time she was lost, and that to arrive at her fair market value on that date the cost of reproducing her should be progressively depreciated for twenty years at 7½ per centum per annum. The United States also put on an expert witness who gave the opinion that the proper basis for valuing the vessel was not her reproduction cost at all, but was her actual cost in 1924, which was stipulated to have been $1,617,183.81, plus the actual cost of its betterments, found by the court below to be $157,184.66, depreciated on the straight line basis for the first 15 years of the vessel's life at 3 1/3 percent and for the next 5 years of her life at 5 percent calculated on the undepreciated balance, which gave a value for the vessel on the date of her loss of approximately $665,000.

The District Court did not adopt the view expressed by this last witness. Under the circumstances it considered reproduction cost of the vessel and its betterments progressively depreciated to be an appropriate basis for determining fair market value, and, taking the estimate of this cost made by one of the Government's witnesses ($3,150,000), it depreciated that amount progressively for twenty years at the rate of 5 per cent per annum and arrived at $1,129,230.66 as the value of the vessel on this basis. Then the court said 74 F.Supp. 37, 41: "With due consideration of this figure and the various elements upon which its determination was based, and with due regard to other factors, previously mentioned, making adjustments for each according to its relevancy, competency and materiality, I find that the fair value of the `George Washington' on October 30, 1944 was $1,100,000."

The District Court obviously rested its ultimate finding of value principally, although not exclusively, upon the cost of reproducing the George Washington at the time of her constructive total loss, progressively depreciated for 20 years at 5 per centum per annum. This, the Government contends, constituted error.

It does not, nor could it successfully, contend that evidence of the reproduction cost new of a merchant vessel, progressively depreciated over its life span, is, as a general proposition of law, inadmissible at the trial of the issue of the fair market value of such a vessel during war-time when no free and open market for such property exists. Undoubtedly, contemporaneous sales of comparable property on the market afford the best evidence of market value. But...