United States v. Michoud Industrial Facilities

• Decision Date: 22 August 1963
• Docket Number: No. 18837.,18837.
• Citation: 322 F.2d 698
• Parties: UNITED STATES of America, Appellant, v. MICHOUD INDUSTRIAL FACILITIES and Board of Commissioners of the Port of New Orleans, et al., Appellees. MICHOUD INDUSTRIAL FACILITIES and Board of Commissioners of the Port of New Orleans, et al., Appellees v. UNITED STATES of America, Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

322 F.2d 698 (1963)

UNITED STATES of America, Appellant, v. MICHOUD INDUSTRIAL FACILITIES and Board of Commissioners of the Port of New Orleans, et al., Appellees.

MICHOUD INDUSTRIAL FACILITIES and Board of Commissioners of the Port of New Orleans, et al., Appellees v. UNITED STATES of America, Appellant.

No. 18837.

United States Court of Appeals Fifth Circuit.

August 22, 1963.

Harold S. Harrison, Roger P. Marquis, Attys., Dept. of Justice, Ramsey Clark, Asst. Atty. Gen., Washington, D. C., Kathleen Ruddell, U. S. Atty., New Orleans, La., Norton L. Wisdom, Asst. U. S. Atty., New Orleans, La., M. Hepburn Many, U. S. Atty., New Orleans, La., for appellant.

A. J. Waechter, Jr., of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, La., for Krim-Ko Corp.

James H. Drury, Peter L. Bernard, Jr., New Orleans, La., for defendant-appellee The Southland Engineering Corp.

Lewis, Rice, Tucker, Allen & Chubb, Abe Garland, St. Louis, Mo., Monroe & Lemann, Malcolm L. Monroe, Jerry A. Brown, New Orleans, La., for Laclede Steel Co.

Phelps, Dunbar, Marks, Claverie & Sims, Sumter D. Marks, Jr., New Orleans, La., Barnes, Hickam, Pantzer & Boyd, Louis A. Highmark, Indianapolis, Ind., for defendant-appellee Claude A. Staats & Son, Inc.

Leonard B. Levy, New Orleans, La., for defendant-appellee Schaller Steel Works, Inc.

Dufour, St. Paul, Levy & Marx, Henican, James & Cleveland, Murray F. Cleveland, New Orleans, La., for defendants-appellees B. & H., Inc., and Stewart-Duravan Co.

Deutsch, Kerrigan & Stiles, New Orleans, La., for appellees Cloar Glass Co., Inc., Ralph L. Kaskell, Jr., New Orleans, La., of counsel.

George R. Blue, A. J. Schmitt, Jr., New Orleans, La., for defendants and appellees The Panel-Ette Corp. and Jack A. Wilson and Associates.

Beard, Blue, Schmitt & Treen, Louis M. Jones, New Orleans, La., for defendant-appellee Industrial Food Machinery Co.

Sumter D. Marks, Jr., Herbert S. Weil, Emero S. Stiegman, Peter G. Burke, New Orleans, La., for appellee and cross-appellant Bd. of Comrs. of Port of New Orleans. Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., of counsel.

Before TUTTLE, Chief Judge, and RIVES and BROWN, Circuit Judges.

TUTTLE, Chief Judge.

There is here in issue the correctness of the determination by the trial court, based upon the awards made by commissioners, of the values of three different types of interests resulting from the condemnation by the United States of the 1,000.22-acre tract of land, and 22 buildings comprising the Michoud Industrial Facilities in New Orleans, Louisiana. The three takings, giving rise to the need for three types of valuation, occurred as follows:

Effective May 1, 1951, the Government took possession of all but one building (the Laclede Steel Company Building) and all of the land comprising the Michoud facilities. It took possession initially under a taking of a leasehold for the entire property to December 23, 1952, extendible to June 30, 1975. This required valuation of this right of possession from May 1, 1951 to December 23, 1952. By Amendment, filed in February, 1952, the Government took the entire leasehold estates of the tenants, for whatever period they were to run. This required a valuation of the several leaseholds from the May 1, 1951 date of taking possession. Finally, on December 23, 1952, the Government filed an Amendment taking the fee of the property. This, of course, required a valuation of the fee¹ as of December 23, 1952.

A brief history of this property will aid in a discussion of the appeal.

The property, consisting of 1,000.22 acres of land and improvements, while within the city limits of the City of New Orleans, abutting on the United States Highway 90 from New Orleans to Mobile is approximately 13 miles east from downtown New Orleans. Much unimproved and undeveloped land lay between the built-up city and this tract. It is bounded by two canals, the Intracoastal Canal on the south and the Michoud Canal on the east. It is served by rail connections, with the main line of the Louisville and Nashville Railroad at the extreme northeast side of the property. The tract was originally acquired by the United States in 1942 on behalf of the Defense Plant Corporation for the construction of a shipyard. At that time the land was marshy and subject to tidal overflow, but it was filled and graded and drainage was provided. The industrial plant, which had cost the United States approximately $17,721,000, was completed in 1944. During the period of construction the purpose of the plant was changed from ship building to the fabrication of aircraft. This effort was equally abortive and no aircraft were built, so that by the end of the Second World War the plant stood as a monument to the inefficiencies of waging a war which requires tremendous industrial construction before production of war essentials can be undertaken.

At the end of the War, the property was declared surplus. Extensive efforts were made to dispose of it without success. In November, 1947, it was sold, together with all machinery, equipment, tools, furniture, fixtures, and other personal property located thereon, to the Board of Commissioners of the Port of New Orleans, which, for convenience, we refer to herein as the "Dock Board."

The contract of sale called for the payment of $9,506,541, with no cash down, and the total consideration to be paid only from rents and profits which the Dock Board might receive for fifteen years. The property consisted of 22 buildings and 16 other installations, including some trackage, sewerage facilities, airplane runways, docks, parking lots, etc. The buildings themselves covered approximately 50 acres. Much the largest and most important facility was a main manufacturing building more than a quarter of a mile in length, with ceiling heights from 48 to 55 feet. Other important buildings were a two-story administration building, 837 feet long, and a two-story engineering building, 1157 feet long.

Because of the bearing on the outcome of the appeal of underlying legal questions, we conclude that it is not necessary to make a more specific or accurate description of the facilities and land that were subject to valuation. These legal problems arise from the peculiar circumstances: (1) that the 1,000.22-acre tract with such a tremendous complex including buildings of truly gargantuan size, which must be valued as a whole by determining its fair market value, does not really have any comparables in the market on which expert opinions of valuations can be based; (2) that the very size and nature of the improvements so narrowly limit the potential market of those who might be ready, willing and able to acquire and use the property for which it was most ideally suited that, according to the principles announced by this Court in United States v. Benning Housing, 5 Cir., 276 F.2d 248, the cost of reproduction, less depreciation, cannot be used as an aid to valuation; and (3) the fact that within a few months of the date of taking on May 1, 1951, of all of the unleased space, there was approximately 1,767,000 square feet of space in these buildings then being offered to the public by the Dock Board for long term leases at rentals of approximately 20 cents per square foot per year and more than 700 acres of raw land being offered at $200 to $350 rent per annum, is so indicative of the lack of demand and the lack of the rental possibilities of the property as to completely dominate, if not absolutely control, the income factor in any capitalization formula for arriving at the fair market value of the property as of May 1, 1951; there is also the fact that on December 23, 1952, any hypothesis dealing with an assumption that there would be a purchaser ready, willing and able to buy from a seller, ready, willing and able to sell, must include the fact that these buildings with 1,767,000 square feet of floor space would hang over the New Orleans market for similar factory and warehouse space to such a degree that it must also be considered to have a dominating, if not an absolutely controlling place in determining the market value of the fee as of that date on any valuation based on capitalization of income. Finally, there is the circumstance that the lack of available space for the tenants to lease when their leasehold interests were taken by the May 1, 1951 condemnation was directly attributed to the contemporaneous taking by the Government of all of the unoccupied space in the Michoud buildings.

On May 1, 1951, there were 32 lessees of part of the property, much the greater part of whom held space in the tremendous main manufacturing building, but some of whom had entire buildings or space in the office building and the engineering building. The latest of these leases to be executed had been signed as recently as January, 1951. One of these January leases was for 4,200 square feet of space in the main manufacturing building for a term of nearly five years at 20 cents per foot; one of them was for 45,300 square feet of space in the manufacturing building for a term of 10 years at 20 cents per square foot; another was for 6,400 square feet in what is known as the office or administration building for a term of ten years at 25 cents a square foot. All of these leases were in conformity with a published rate schedule of the Dock Board dated May 1, 1950, which offered nearly 1,500,000 feet of space in the main manufacturing building at 20 cents per foot for terms of from 5 to 25 years and offered some 40,000 square feet in the office building at 30 cents per square foot for office use and at 25 cents per square foot for light manufacturing. It also offered 60,000 square feet in the engineering building at 30 cents per square foot for office space and 25 cents per square foot for light manufacturing space.

In the same schedule published by the Dock Board as of May 1, 1950, the rental rates for the vacant land were $200 per acre...