UNITED STATES v. 564.54 ACRES OF LAND
Legal provision: Takings Clause
Argument of Stephen R. Barnett
Chief Justice Warren E. Burger: Case is submitted.
We'll hear arguments next in United States against Land in Monroe and Pike County.
Mr. Barnett, I think you may proceed whenever you're ready.
Mr. Stephen R. Barnett: Thank you, Mr. Chief Justice, and may it please the Court.
The question in this case is whether when the government condemns facilities that are operated on a not-for-profit basis by a church or another private entity, the measure of just compensation that the Fifth Amendment requires is the fair market value of facilities taken or whether, on the other hand, it is the cost of constructing substitute facilities.
The respondent, the Southeastern Pennsylvania Synod of the Lutheran Church in America, owned three separate parcels of land, totaling about 300 acres on the Delaware River in northeastern Pennsylvania which had used those three summer camps for the young people.
Justice Harry A. Blackmun: Attachment to the original 564?
Mr. Stephen R. Barnett: The 564 acres, Mr. Justice Blackmun, included a number of tracks besides the three owned by the Synod.
At the beginning of the appendix, you'll find the declarations of taking applicable to all the tracks, and the Synod tracks are three of them.
In June of 1970, the United States condemned these three parcels for a river project.
Six years before, in 1964, anticipating that the land would be condemned, respondent had purchased some 3,800 acres of land in the nearby Pocono as a replacement site for its camps.
When the land on the river was taken, the Government offered to pay $485,000.00 as the fair market value of the camps taken.
Respondent, however, rejected the offer, claiming that the cost of developing equivalent camps at the new site would be something in excess of $5 million.
Respondent accordingly asked the Court to rule that the appropriate standard was the cost of constructing the new facilities, not the fair market value of the old facilities.
The District Court ruled against that contention.
The respondent took an interlocutory appeal and the Fourth Circuit ruled that the substitute facility's measure of compensation is available to private owners of non-profit community facilities in certain cases, as well as to public owners, that is governmental entities, as it had previously recognized -- been recognized to be available.
Justice William H. Rehnquist: Am I right, gener -- I'm thinking that this Court has even applied that doctrine to public.
Mr. Stephen R. Barnett: That is true.
This Court has never endorsed the Substitute Facilities Doctrine even for public entities.
The Brown case, which is cited in the briefs, was a case in which Congress, after one town was flooded by a public project, Congress appropriated money to condemn another area as a substitute site and the question was the constitutional validity of that subsequent taking, whether that was a public use under the Fifth Amendment.
The Court held that it was and the Court's language talked about how it's a reasonable thing to substitute a new town for the old town, but the question was not the scope of compensation for a taking.
So, this Court has never approved the Substitute Facilities Doctrine.
In any event, the Third Circuit here, in its first opinion, said that the doctrine can be applicable to a private non-profit entity in certain circumstances.
It described the key circumstance as one in which the facilities taken are reasonably necessary to public welfare.
On remand, the trial was divided into two phases.
The issue in the first phase was whether the substitute facility's measure of compensation applied to the taking of these camps.
After a 10-day trial, the jury returned a verdict, by special interrogatory, finding that the doctrine did not apply here.
The second phase of the trial was devoted to the issue of the fair market value of the condemned camps.
Respondent sought to establish the fair market value by what is called the cost approach.
That is, the reproduction cost of the camps minus depreciation.
That is, the reproduction cost of the buildings minus the depreciation of the buildings plus the value of the underlying land.
The Government used two evidentiary approaches to show the fair market value.
One was, again, the cost approach and the other was the so-called market data approach, that is, comparable sales.
The jury returned a verdict -- an award of $740,000.00 as the fair market value of the camps which was a compromise between the positions taken by the opposing sides, which, of course often happens in these cases.
Respondent then took a second appeal, and the Court of Appeals reversed again.
In addition to finding error in comments to the jury in closing, the Court held that the District Court's instructions on application of the substitute facility's measure of compensation have been erroneous.
As the Court of Appeals restated the doctrine, it has three requirements, the property must be operated on a not-for-profit basis, there must be no ready market for the particular type of property, and the facilities must be reasonably necessary to the public welfare.
That is, I should have made clear, that is the Court of Appeals restatement of what it held the first time.
The Court of Appeals then went on to elucidate further what it meant and, with respect to the no-ready-market test, for example, the Court held that even if respondent could have sold its camps and even if they had a fair market value, as the jury had found that they did, this condition of the substitute facilities test was met if respondent could not have replaced the camps in the market place for a cost roughly equal to their fair market value.
With respect to the third condition that the facility be reasonably necessary to the public welfare, the majority explained that what it meant by this was not really necessity, but simply that the condemned facility must “provide a benefit to the community that will not be as fully provided after the facility is taken.”
Thus, the Court gave as an example, if the camps here did, as respondent contended, help to reduce juvenile crime by taking some youngsters from Inner City Philadelphia and, thus, helping to alleviate the gang problem in Inner City Philadelphia.
Then, the Court said these camps will provide to the entire community of eastern Pennsylvania, not just to the campers.
Judge Stern concurred in the opinion under compulsion of the Court's earlier opinion, but his opinion is essentially a dissent on the merits.
Judge Rosen dissented but, from the Court's interpretation of the earlier opinion.
The Court of Appeals remanded the case for a new trial pursuant to its newly articulated standards and, at that point, this Court intervened by granting certiorari.
Well, the Substitute Facilities Doctrine with which we deal here and which, as Mr. Justice Rehnquist has pointed out, this Court has never approved is, in any event, an exception to what this Court has made clear is the standard method of computing just compensation under the Fifth Amendment and that method, of course, if fair market value.
The Court has defined just compensation as the full monetary equivalent of the property taken in the Reynolds case and, as stated in Almota, the Court earlier established the concept of market value.
The owner is entitled to the fair market value of his property at the time of taking.
Now, the Court has also made clear that where the property is so special that market data, such as comparable sales, may be few, resort must be had to other data to ascertain its value, this is the Miller case.
And, those other approaches are, for one, the income approach, capitalization of net income, which can be used for business properties, or the cost approach, reproduction cost minus depreciation, which in fact was used here in the fair market value aspect of the trial.
Chief Justice Warren E. Burger: It isn't very helpful to use a capitalization approach on a voice camp which --
Mr. Stephen R. Barnett: No, it will not be, and nobody -- (Voice Overlap) -- and nobody suggested that that approach be used here, Mr. Chief Justice.
But, the Court has indicated that these approaches “may have relevance but only, of course, as bearing on what a prospective purchaser would have paid.”
They are all approaches that are designed to determine fair market value.
Now, the difference with the Substituted Facilities Doctrine is that it concedingly is not a method of determining value at all.
It is -- or at least certainly not fair market value.
It is a completely different avenue.
As the respondents here -- as respondent here says in its brief at page 23, the doctrine is not used in conjunction with the market value approach evaluation but as an alternative to it.
And, thus, the difference which is indicated by the facts of this case where the fair market value was found to be $740,000.00 and yet, respondent claims that the cost of substitute facilities would be $4 million or $5 million.
Now, respondent has attempted to justify the use of the Substitute Facilities Doctrine here on the basis that this case is unique or at least very, very special, that it is a situation that arises infrequently.
What is rare about it?
Well, respondent says that this is a case in which the property's chief value is in its use, not its status in the marketplace.
And this theme that the true value of this property is in its use and that that makes this case very rare and different recurs throughout respondent's brief.
In the first place, we're not sure what this means, that the true value is in its use.
It may means simply that the property is adopted for a particular use, in this case, camps, and that makes it particularly valuable.
If that is all it means, we have no quarrel with it whatever.
It is what this Court has said, for example, in the Mitchell case.
Well, if it means more than that, we see nothing so rare about this case and no justification here for deviating from the principles of fair market value that this Court has laid down.
If it simply means that there is a disparity here, as respondent emphasizes, between what the property owned would be seen by way of fair market value and what the property owner needs in order to preserve the use to which the property was devoted, well, that happens very commonly.
It often happens that a property may be -- may suffice for its owner's use, even be uniquely well adapted for that use and yet, when it's condemned, the fair market value fall short of what the owner would have to pay to acquire a property equally suitable for carrying on that use.
It may happen, for example, in the case of an old factory specially adapted for the owner's use.
For example, in the Certain Property in Manhattan case, 306 F.2d 439, one of the issues involved the printing plant of a newspaper, Il Progreso, in Manhattan which was an old printing plant but very well adapted to putting out this particular newspaper.
However, the evidence was that if anybody bought the property, they would tear the building down and use it for something else, that is, it -- the fair market value of the structure as a printing plant was nil, and the Court held that there would be no compensation for that structure.
And, that is one example.
Another example would be an old and man-shackled house, very commodious, very convenient for the family living in it, but if the house were condemned, its age -- and I suppose we're not talking about a house in Washington, D.C. but elsewhere, its age might bring it a reduced price on the market which would not suffice to buy a new house or any house of equal size and convenience.
Justice John Paul Stevens: I suppose, Mr. Barnett, you take the same position with regard to an old church, too.
Say, this had been a church instead of a camp.
Mr. Stephen R. Barnett: Well, I guess, that would be true.
The -- similar with an old church, the fair market value might be insufficient to purchase a new church equally suitable to the needs of the congregation.
On the other hand, it might not be the case.
The reproduction cost of the old church, if it's not a worn out old church, but a well-preserved old church, the reproduction cost conceivably could be higher than the cost of building a new plastic church.
Justice William H. Rehnquist: Well, that was the case too in Cors, wasn't it, where the ships condemned had risen in value and it's perfectly clear that the Court said the award -- the just compensation award need not be sufficient to enable the owner to buy ships at an inflated value because the inflated value had been created by the Government.
Mr. Stephen R. Barnett: Yes.
Indeed, this follows almost necessarily from the consideration of the depreciation and new regulatory requirements.
The old building is going to have depreciated and it is going to follow almost necessarily that a new building will cost more.
Also, if there are new regulatory requirements, as one --
Justice John Paul Stevens: Yes, but as I understand their test, it's substitution cost less depreciation.
They do would allow for it.
Mr. Stephen R. Barnett: No, we do -- we're not sure that they do it at all, Mr. Justice Stevens.
They have said in their brief -- they have said that if there are what they call maintenance and capital savings from the new camp, they should be deducted from the rewa -- from the award.
We're not sure what they mean by maintenance and capital savings.
If they meant depreciation cost, one would've thought they would say so, but that certainly was not their position below.
Even the trial court, as we explained in our reply brief, they argue precisely for the entire cost of constructing these camps, as testified to by their expert, without any depreciation.
Justice John Paul Stevens: But you would still object to the alternative approach even if they did allow a factor for depreciation or betterment in the insurance company?
Mr. Stephen R. Barnett: Yes, we still would object to it.
But, it's -- it's noteworthy that the Substitute Facilities Doctrine, as applied to public entities, more often than not has been applied without a deduction for depreciation.
And the trial court here so-ruled, at page 650 of the transcript, the Court, after stating the Synod argues that depreciation cannot be concerted in a substitute facilities evaluation, that's page 657, the Court went on to rule at page 650, “I think that the depreciation is not a proper deduction for taking a public property and, therefore, it should not be permitted when it is private.”
And, indeed, if the purpose of the Substitute Facilities Doctrine is to allow substitution, replacement of the facility, it is certainly arguable that that purpose is frustrating.
Justice John Paul Stevens: Well, your ultimate purpose is to provide just compensation as required by the Constitution and it -- and one could say that that means you've got to have full compensation and able to replace it, but you're not entitled to a profit on the transaction.
Mr. Stephen R. Barnett: Well, one certainly could say that.
We would say that you are entitled only to the fair market value of what you have and you are not entitled to replacement at all.
One reason for that is the tremendous -- and a point that we -- that has not really been emphasized so far in this case is the tremendous flexibility and leeway that comes in by way of the Substitute Facilities Doctrine.
It is suppose to be a functional equivalent substitute facility.
And this case well illustrate how much flexibility can come in there.
For example, here, respondent had 300 acres of flat land along the river where its camps were located.
It went out and bought 3,800 acres of wooded hilly land on which the only water was a creek.
Thus, in order to functionally equivalent aquatic facilities, it is necessary to dam the creek to create a small lake for which respondent would have $1 million to build the dam.
Respondent wants three beaches to put in on the small lake.
Respondent has to build a bridge to get over the new lake.
The old camps were on a public road.
Respondent has to build a new access road of 1.6 miles to get to the new camp plus substantial interior road facilities.
The trial court charged that this was all alright, that so long as the jury found that the new camp was adequate, that the new site was adequate to respondent's needs, the cost resulting from new conditions at the site should be taken into account in computing the cost of substitute facilities, and that is the one of the huge reasons for the difference between reproduction cost of the old facilities and the cost of substitute facilities.
Well, respondent argues that the doctrine should be extended to private facilities and asks to put a hard case.
Why should it be that when a city takes -- or when the United States Government takes a city school, a public school, the city is compensated with the cost of constructing a new school, but if the city were to take a parochial school right across the street, the non-profit church that owns the parochial school would not be entitled to such compensation but only to the fair market value?
Well, we think there are a number of explanations, even assuming that the doctrine should be applied to the public facility in the first place or even assuming that it should be applied in particular to public facilities like schools for which fair market values can be established as distinguished from where the doctrine started, streets and highways which had no fair market value.
For one thing, the public entity is often under -- the assumption in the case of the public entity for the doctrine being applied is that it is under a requirement to replace the facility.
Now, this requirement can be legally enforced in various ways in the case of the public entity.
Now, it is true that a private entity, such as the church, may say that it too is required to replace its school.
It needs its school for its purposes.
It has children who are attending the condemned school, and so forth.
One answer is that in the -- one difference is that in the case of the public entity the requirement is legally enforceable.
A further answer is that if simply need to replace is the test, why stop with private non-profit entities?
A business firm which has its only establishment taken, its only manufacturing establishment, its only sales establishment is surely under as much factory need to replace it as a non-profit entity would be or as a government would be and, yet, no one has suggested that all this Court's prior ruling should be thrown out and substitute facilities be substituted across the board for the fair market value test.
A third difference is that if the facility is not in fact constructed with the substitute facilities award or if it is constructed and subsequently sold or devoted to another purpose, in the case of the public facility area, the assurance is that only the public will benefit from the money in any event, whereas, in the case of the non-profit private facility, one cannot have that assurance.
A further difference is the need for a very difficult task of devising standards that arises once one goes beyond public facilities, and that difficulty is well illustrated by this case where the Court of Appeals first said the standard was whether the non-profit facility was reasonably necessary.
Then, as to the jury's negative verdict, the Court relaxed its standard and said the test is whether the facility provides the community benefit.
And, when we pointed out some of the difficulties in determining what's the community and what's the benefit, respondent now does not defend the Court of Appeals latest opinion either and respondent simply contends that all non-profit entities are entitled so long as their facility is devoted to any religious public charitable or educational purpose.
The problem with that is it would cost a lot of money, for one thing, and we find it hard to find in the constitution anything that says all non-profit entities are entitled by constitutional command to the substitute facility's measure of compensation, whereas, profit entities are not.
In addition to -- so, those are the reasons why we think that if the doctrine is to be recognized at all, that it's a very good reason for limiting it to public governmental entities.
Finally, there are in this case the First Amendment problems that we have -- had noted where a church is concerned.
Chief Justice Warren E. Burger: Before you get to that, Mr. Barnett, where lies the authority to define what is just compensation, exclusively with Congress or is it with the Courts or where?
Mr. Stephen R. Barnett: Oh, I think it's in the courts, Mr. Chief Justice.
It's a constitutional requirement, which I think the courts have authority to -- that is, the constitutional requirement of just compensation, I think, is in the province of the Court to delineate.
Chief Justice Warren E. Burger: This Court could say, in your view, that just compensation means to do justice presumably, and that when you take something away from a person, you want to give him the equivalent.
Mr. Stephen R. Barnett: The Court could say that, but it will be inconsistent with what the Court has said.
Chief Justice Warren E. Burger: Well --
Mr. Stephen R. Barnett: In -- in the recent Budcore case, for example, the Court of Appeals said something very much like that, that our duty in just -- in eminent domain cases is to do justice.
This Court reversed saying, among other things, the one principle to which it has always adhered is that compensation is for the property and not to the owner.
Chief Justice Warren E. Burger: I was only addressing myself to the ultimate authority.
In your view then, I take it, that if the principle of such a longstanding in our jurisprudence were to be changed, it should be changed not that by the Court but by Congress?
Mr. Stephen R. Barnett: Well, Congress can add to the compensation to be provided.
Congress has done so in the Uniform Location Act, for example, but I think Congress could not take away from what this Court decided was required by the Constitution as just compensation.
Chief Justice Warren E. Burger: I'm just talking about enlargement substitution.
Mr. Stephen R. Barnett: Enlargement certainly could be done by Congress or by state legislatures.
Justice Thurgood Marshall: Could they set the guidelines?
That's -- that's where I get in trouble.
Mr. Stephen R. Barnett: That's a difficult question.
In a federal taking, I would suggest perhaps not.
In a state taking where the Forth Amend -- Fourteenth Amendment is the vehicle, perhaps it will have more leeway.
Justice Potter Stewart: There's no such thing as a state condemnation of a federal property, is there, I suppose because of the Supremacy Clause?
Mr. Stephen R. Barnett: Not that I know of.
Yes, I meant a state taking of private property.
Chief Justice Warren E. Burger: Certainly, when I -- taking demolishes, let us say, a small college in an isolated place, a non-denominational, so you keep away from the First Amendment that you're about to address.
There's no market for small colleges in isolated areas, is there?
Mr. Stephen R. Barnett: Well, there may be a market for college type facilities for campuses in isolated areas.
Businesses use them.
All sorts of schools, other than colleges, use them.
All sorts of --
Chief Justice Warren E. Burger: But it isn't the kind of market you have for real estates in --
Mr. Stephen R. Barnett: No.
Chief Justice Warren E. Burger: Washington.
Mr. Stephen R. Barnett: No and, in such a case, you have to look further.
The Newton Girl Scouts case, which is cited by the District Court in its opinion in the appendix, makes clear that when you have a fairly special kind of facility, you may have to look across the country rather than just in the neighborhood, but it doesn't -- and you may have to wait longer to get a purchaser.
It doesn't follow that there's no market at all for the facility.
Chief Justice Warren E. Burger: Well, when I said “no market,” there's not a very good market for colleges campuses and things of that kind, is there?
Mr. Stephen R. Barnett: Well, there may be -- it may not be terribly active but, certainly, the land is marketable and the buildings, depending on how many other things they're suitable for, there are all sorts of conference centers and retreats these days that thrive on being in isolated places.
So, I wouldn't --
Chief Justice Warren E. Burger: This case illustrates something about the marketability and how much market there is for boy's camps, doesn't it?
Mr. Stephen R. Barnett: Well, we put in testimony showing that, indeed, there were, that there had been 11 comparable sales within a 7-year-period in this very county of camps.
Of course, that evidence was disputed.
Chief Justice Warren E. Burger: That's because it's up in Pocono.
You do have a large area there, don't you?
Mr. Stephen R. Barnett: I think so.
If I may, I'd like to reserve the rest of my time.
Argument of H. Ober Hess
Chief Justice Warren E. Burger: Very well.
Mr. H. Ober Hess: Mr. Chief Justice and may it please the Court.
The -- the essence of this case, I think, is best presented by supposing three identical camps.
The first, a non-profit camp owned by a governmental body, the second, a non-profit camp owned by a non-governmental body, and the third of which there are a significant number in this country, a private commercial camp operated for the profit of the owner.
I would take it that petitioner has conceded that a camp owned by a governmental body is entitled to just compensation determined according to the Substituted Facilities Doctrine.
Justice William H. Rehnquist: I didn't understood -- I didn't understand it to concede that.
Mr. H. Ober Hess: I take it then, if I may rephrase my sentence, not to dispute it at this time.
Justice Byron R. White: But that's just -- that will be -- just be the Government's opinion as to what the constitutional law might be.
It certainly doesn't concede his concession might not control this Court.
Mr. H. Ober Hess: Well --
Justice Byron R. White: And this Court has never decided --
Justice William H. Rehnquist: This Court has never so-held.
Mr. H. Ober Hess: Certainly, it is open to this Court despite that very nice dictum of Chief Justice Taft in the Brown case.
It's open to this Court to demolish the Substitute Facilities Doctrine.
I would think it would be --
Justice Byron R. White: You mean not to embrace it.
Mr. H. Ober Hess: To demolish it to the extent that it has been followed, if the Court please, in 10 circuits and rejected in none and in some State Courts as well.
Justice William H. Rehnquist: Well, surely, we're not bound by the holdings of the Courts of Appeals.
Mr. H. Ober Hess: Indeed, not.
And my point merely is that it has had really a universal acceptance in the district -- in the circuits, but whether it concedes it or not is not all together the point here.
The point is that, as the decided cases in the circuits now stand, a camp owned by a governmental body would certainly be entitled to the Substitute Facilities Doctrine.
Justice John Paul Stevens: Mr. Hess, is it perfectly clear that the doctrine would apply to a government-owned piece of property, such as a camp?
As I understand, there is some argument about that.
Mr. H. Ober Hess: Well, I would -- I cannot--
Justice John Paul Stevens: Even in the lower Courts.
Mr. H. Ober Hess: I base by statement that it would upon the comparable cases involving bath houses, recreation centers, playgrounds, and public parks.
I would put them in an indistinguishable category with camps.
Justice John Paul Stevens: And there is the same uniformity of that category of cases.
Mr. H. Ober Hess: Yes.
Now, as to the commercial not-for-profit camp, it clearly is not entitled to have its award determined under the Substitute Facilities Doctrine.
The question here, as we see it, is whether just compensation for a non-profit camp owned by a non-governmental body is to be determined as it is for a governmental camp or as it is for the commercial camp.
The governmentally owned camp receives an award based on the Substitute Facilities Doctrine when three conditions are met.
First, that the fair market value is insufficient to obtain a functionally equivalent camp.
It's not a question of the-- whether there is some kind of a market for the disposition of the condemned camp but whether there is a replacement market in which a substitute could be purchased for the equivalent of the award.
That's the first test.
The second is that the camp was fully used before the taking and, third, that the taking itself did not eliminate the use for the camp.
There would be no qualitative evaluation of the benefit of the camp or, for that matter, of a bath house or school or a playground or park.
The benefit in the cases of governmentally owned faci -- operated and owned facility, the benefit is presumed from the fact that the governmental entity decided to have a camp and that the camp was fully used.
There is no requirement that the governmental unit be legally obligated to replace the condemned facility and that is all spelled out very clearly in a note in the Yale Law Journal which is cited in our brief.
Now, the Synod, the respondent seeks the same treatment here, nothing more or less.
It, too, must demonstrate that the fair market value will not be sufficient to obtain a functionally equivalent camp in the replacement market.
Chief Justice Warren E. Burger: We'll resume there at one o'clock, Mr. Hess.
Mr. Hess, you may resume.
Mr. H. Ober Hess: Mr. Chief Justice and may it please the Court.
As we -- or immediately prior to our noon recess, I was pointing out that, under existing decisions, a non-profit camp operated by a governmental body would have to show, in order to bring into play the Substitute Facilities Doctrine, three things.
The Synod, this petitioner, just seeks precisely the same treatment here.
It, too, must demonstrate that fair market value will not be sufficient to obtain a functionally equivalent camp.
It's the replacement market that must be taken into account.
And secondly, that its camp was fully used prior to the taking and, thirdly, that the taking itself did not eliminate or destroy the use.
The benefit of the camp, as in the case, the governmentally owned camp is presumed from the fact that it is running on a non-profit basis and is devoted to public charitable, educational, or religious purposes.
Justice Potter Stewart: I don't -- i don't --
Mr. H. Ober Hess: In this --
Justice Potter Stewart: I'm not quite sure I understand the third of those criteria.
Mr. H. Ober Hess: The third is included because this is the familiar category in which non-profit activities, which are classified in the quasi-public corporation category, are expressed.
This is the way the category is expressed.
It's so-expressed in many places in the law.
A non-profit corporation operated for charitable, educational, or religious purposes -- public charitable, education, or religious purposes.
That is the --
Justice William H. Rehnquist: You say it's expressed in many places of the law, like the Internal Revenue Code, or --?
Mr. H. Ober Hess: Yes, a number of times in the Code and elsewhere in our jurisprudence.
Justice William H. Rehnquist: Where?
Mr. H. Ober Hess: Now, in this case, we're not talking about the Tennis Club or the Swimming Club or the Country Club.
Justice William H. Rehnquist: Where other than --
Mr. H. Ober Hess: Well, in the Constitution of Pennsylvania, for example, and in real estate tax exemption cases such as existed in New York which came under inspection in Walz versus the Tax Commission, to which I will presently refer it in another context.
As I say, we're not talking about Country Clubs.
They certainly would not qualify.
In a sense, they're non-profit, but they are not devoted to public, charitable, educational purposes and have no proper claim to be included with non-profit organizations which operate and which are encouraged, I submit, by our public policy to operate.
Justice William H. Rehnquist: What if a Country Club gave a free golf clinic once a week?
Mr. H. Ober Hess: Well, I would not think, Your Honor, that that would put it in the category of a non-profit corporation operated -- organized and operated for public, charitable, educational, or religious purposes.
No, I would not think so.
Now, these non-profit corporations I refer to which do operate and are encouraged by a public policy to operate non-profit facilities for public, charitable, educational, and, yes, too religious purposes.
We're talking about that category alone, such as the Synod in this case and we're talking about non-profit camps and schools and hospitals and homes for the aged and similar Ilimasinary institutions.
For Fifth Amendment purposes, we submit they are clearly distinguishable from the commercial condemnee.
They stand rather in a position identical with the governmental condemnee.
Now, the commercial camp owner, and this is an important point, the commercial camp owner, having decided to use his capital in the commercial market place, must also have his just compensation determined in the commercial marketplace, and that's no hardship.
The value of his facility takes into account its profitability and its earning power, and he is made whole by an award that provides him with an opportunity through investment or, otherwise, to receive a comparable return on his capital investment.
Justice William H. Rehnquist: What if a non-profit company paid its director a salary that the Government claimed was three times what a comparable director would receive?
Would that be a litig -- litigable issue in the served condemnation that it called itself a non-profit company but was really a way to give a very fancy salary to the chief executive?
Mr. H. Ober Hess: That would contradict the non-profit -- it might go to contradict it.
It would depend on many other things.
I -- that's -- you know your one swallow doesn't make a summer, but it would certainly go a long way to contradict the non-profit status, if it were just a way for -- to slice him off a huge salary for some persons that private benefit.
That's not this case.
It's not contended that that is this case.
Now, I've just said, and I mean to emphasize this point, that non-profit corporations are encouraged by public policy in this land to operate these non-profit facilities for public, charitable, and educational purposes, and religious too, I include that, that this policy just lies so deep in the American tradition, which leaves large measures of public good to be provided in whole or part by a non-profit organizations, countless voluntary hospitals --
Justice Thurgood Marshall: But what were --
Mr. H. Ober Hess: Homes for the aged, and schools and colleges.
Justice Thurgood Marshall: Mr. Hess, I agree on tax exemption and all those things but, here, you're asking the Government to give you some money.
Mr. H. Ober Hess: I am not asking the Government, Your Honor, to give us any money.
Justice Thurgood Marshall: You are asking the Government to give you --
Mr. H. Ober Hess: I am asking the Government to give us just compensation.
Justice Thurgood Marshall: You are given -- you're asking the Government to give you the difference between 740,000 and 3 million.
That's what you're asking for.
Mr. H. Ober Hess: I am asking for just compensation, Your Honor.
Justice Thurgood Marshall: Is that in dollars and cents, what you're asking?
Mr. H. Ober Hess: In dollars and cents, I am asking for --
Justice Thurgood Marshall: You are asking for money.
Mr. H. Ober Hess: I am asking -- our evidence was the effect and wasn't contradicted because we didn't get into that phase at the trial.
The Government had a witness there on replacement -- or in the -- on substitute facilities value.
It was not called because we didn't get into that phase of the case.
Our testimony was the effect that the -- a substitute facility would cost around $4 million-3, and it's not -- that's not easy.
It shouldn't be a shocking figure because this was a big operation.
This had a capacity of 600 children at a time.
These three camps combined and, out of that three, I don't remember off hand, although it's in the record what went to make up that total of $4 million and 3, but two items that had come to my mind.
Replacing the sewage facilities alone was 400,000-plus.
Replacing the water system was 400,000-plus, which makes ridiculous that $740,000.00-fair market figure if we come to consider the question of what is just compensation.
What is just?
It's according to the cases, it's what's equitable, what's fair.
And, we submit that that's not fair and we say that the public policy of this country, which I was referring to, entitles us to be treated the same as the governmental condemnee because we are in that category and, in a very real sense, the Government does not and need not and probably should not do all and provide all these facilities.
There should be some range left for the type of facility we are talking about here and, to a large extent, these non-profit corporations in this category are really surrogate to Government and when their facilities are condemned, our position is that they should not be treated differently from the governmental owner of similar facilities.
Justice John Paul Stevens: Mr. Hess.
Mr. H. Ober Hess: And it's this very policy of encouraging volunteerism which makes non-profit corporations of this category quasi-public corporations in the language which was used in Walz versus the Tax Commission.
Justice John Paul Stevens: Mr. Hess, on your emphasis on the justice, which of course is the bottom line in a case like this, is it really just, if your view is correct, to treat a profit corporation, take -- give it $700,000.00 when it cost it $5 million to stay in business?
Mr. H. Ober Hess: Now, Your Honor, that's a different category, as I endeavored to point out.
The commercial corporation, when its facility is condemned, take the commercial camps, as I -- take the closest thing to it, the -- a very important item of evidence on value, for condemnation purposes, would be the profitability of the facility and the commercial camp would in -- would and should get an award that would be sufficient to protect that profitability.
It may not be enough to buy another camp because the price of facilities may have gone up so greatly that it would be folly to take that money and put it into another camp, but it ought to be enough to produce a yield comparable to what the commercial camp produced and that, I say, is fair.
Justice John Paul Stevens: Well, but let's take this example.
Supposing the fair market value of the property is $700,000.00, but the earnings of this camp are enough to justify a $5-million investment, but it just doesn't have it.
It just -- what should be paid in that case, just the 700, wouldn't it?
Mr. H. Ober Hess: Well, you mean, to us, a non-profit --
Justice John Paul Stevens: No, I want to try and think it through in terms of a profit-making corporation.
Assume that they're a very, very profitable camp, but there only has a -- the real estate only has a fair market value of $700,000.00.
Mr. H. Ober Hess: Oh!
But, if Your Honor please, in a condemnation case, the value of the real estate would take very largely into account its profitability.
That's a common type of evidence where a commercial facility is condemned.
The jury takes into account how -- whether that was a profitable facility.
Justice John Paul Stevens: Even if all the comparable sales were at 700,000?
Mr. H. Ober Hess: Yes.
Now well, I think I've said enough about the public policy involved here, the public policy which leads us to the conclusion that we should have treatment comparable to the governmental condemnation.
Justice Byron R. White: Does the camp -- does the public or does the non-profit facility have to be in existence and operating to invoke your rule?
Mr. H. Ober Hess: Yes, it has to be.
The three tests that the --
Justice Byron R. White: Suppose the Government condemned the day after the organization passed a resolution saying, “Our -- we've been doing a great job, but our facilities are worn out and we can't afford to replace them, so we're closing down at the end of the year.”
Mr. H. Ober Hess: That would be another case.
That would be --
Justice Byron R. White: But it would still be the same valuable function.
Mr. H. Ober Hess: No, if the Court please, may I repeat the three test.
The operation must be conducted on a non-profit basis.
It must be conducted for charitable educational, etcetera purposes.
It must be fully used at the time of the taking and the taking must not have destroyed its use.
Justice Byron R. White: Well, but in my example the only reason this very valuable public function doesn't go on is that there isn't -- that the organization doesn't have the money.
Mr. H. Ober Hess: That would have bearing upon full --
Justice Byron R. White: And similarly, in the actual case, if there's a condemnation and they play only the fair market, the only reason the organization does -- won't continue is that it doesn't have the money.
Mr. H. Ober Hess: The case, Your Honor, supposes is different from the case here.
If the cap were in its death rows by coincidence, just happen to be in its death rows, when the condemnation proceedings came along --
Justice Byron R. White: Well, death row is only because they didn't have the money to replace the sewer plant or the water facility.
Mr. H. Ober Hess: That would bear on the full use at the time of the taking.
It would bear on the full use at the time of the taking.
Now, if you've got one of those, as I say --
Justice Byron R. White: Well, I know, but --
Mr. H. Ober Hess: Such a rare coincidence case --
Justice Byron R. White: But I would think --
Mr. H. Ober Hess: It would be a different case from this.
This case was in -- we were in full swing.
It was fully used before the taking and no -- the taking did not itself destroy the use, as in the case of a country road leading through a condemned dam site to know where.
Justice Byron R. White: Well, you could also make your argument in the case where an organization was about to -- had the great plans to build a camp.
Then they got right up to it and then they suddenly announced it “We're abandoning our plans because we haven't got the money to build it,” and then, the Government condemned and you said, "Well, gee!
It would be nice if you paid us enough money for this land to build a camp.”
Mr. H. Ober Hess: That would not be this case or anything closely reassembling it in our --
Justice William H. Rehnquist: Mr. Hess, did this “charitable” mean something more than non-profit in your definition?
Mr. H. Ober Hess: Yes.
Well, yes, it's a broader word than “non-profit.”
Justice William H. Rehnquist: Yes.
Assuming it's non-profit, what more does “charitable” mean?
Mr. H. Ober Hess: Charitable embraces a whole dictionary of considerations.
Justice William H. Rehnquist: What if instead of Lutheran, these have been very wealthy Episcopalians that had gone to this camp?
Mr. H. Ober Hess: Well, if it's operated on a non-profit basis for wealthy people who could pay and don't, it's -- I suppose that puts it in the category of a Country Club, but it's --
Justice Byron R. White: Even a Lutheran Country Club?
Mr. H. Ober Hess: Well, the Episcopalians have the money, and the Lutherans have the good intentions.
Justice Harry A. Blackmun: Mr. Hess, I suppose your approach here would be the same if this were a non-profit denominational hospital.
Mr. H. Ober Hess: Precisely.
We submit that whether the condemnee is a municipal corporation or a non-profit, charitable, educational corporation, just compensation should be the same and I think the Third Circuit put its -- put it very well in its opinion.
On the first appeal, we are not dealing with Congressional or just.
It comes back to Your Honor's question.
We are not dealing with Congressional or just which might justify a distinction between governmental and non-governmental community facilities.
Rather, says the Third Circuit, we are dealing with judicial interpretation of the Taking Clause.
Accepting the interpretation that it protects the value of community uses, there is no basis for distinguishing between governmental and private community uses.
That's the Third Circuit and I might just add this further indicative of this approach, the communi -- the commissioners on uniform state laws have promulgated and recommended for the adoption by the states a code on condemnation containing a -- in which they have a adopted the Substitution Doctrine for non-profit corporations on a basis similar to what we are contending for here.
Now, the Government does not dispute -- I think they don't dispute and it has been uniformly decided in every case where it's come and get -- come up to date that subordinate state governmental units get their condemnation awards under and only under the same Fifth Amendment Clause which applies to us.
For this purpose, cities and school districts, townships and towns are treated as the same as private condemnees because the Fifth Amendment Clause refers to the taking of private property for public purposes.
And for this purpose, these state units are treated the same as we are.
Justice Thurgood Marshall: Why should the federal government be moved eminent domain, while we're at it?
Mr. H. Ober Hess: The federal government?
I'm sorry, I didn't understand Your Honor's question.
Justice Thurgood Marshall: Well, you say it's just like a county, or a city, or anything else, but you don't have eminent domain.
Mr. H. Ober Hess: The --
Justice Thurgood Marshall: You don't have anything close to it.
Mr. H. Ober Hess: Well, of course, many subordinate governmental units also lack eminent domain.
That's a statutory matter in each state.
It's a state statutory matter.
Justice Thurgood Marshall: But you still want money.
Mr. H. Ober Hess: We want to say we want an award of just compensation.
Justice Thurgood Marshall: And the just compensation is in dollars and cents?
Mr. H. Ober Hess: Yes, it is.
Now, the Government --
Justice Thurgood Marshall: You asked the Government giving that money to church.
Mr. H. Ober Hess: What?
Justice Thurgood Marshall: Yes, sir.
I said, does that mean that the Government will be giving the church that money?
Mr. H. Ober Hess: Well --
Justice Thurgood Marshall: The Lutheran Church that money?
Mr. H. Ober Hess: Well, the Southeastern Pennsylvania Synod of the Lutheran Church in America is the respondent here.
Justice Thurgood Marshall: And that's who should be getting the money.
Mr. H. Ober Hess: That's right.
They are the owner of the property.
Justice Potter Stewart: Well, that'd be true whenever their property was condemned.
Justice Thurgood Marshall: No, the difference is -- I'm not talking about the same amount of 40.
I'm talking about the difference of 740 and 5 million.
Mr. H. Ober Hess: That is the cost of the substitute.
So, it's 4 million-3, I think, according to the testimony, but --
Justice Thurgood Marshall: Well, in guess to the millions, it's millions.
Mr. H. Ober Hess: And the same thing was true of the bath house case in New York.
The award that was given before the substitute facilities applied was simply -- or at least the testimony was, it was about 5 million and about 1.5 million was what was determined under the substitute facilities application.
Now, I would like to make this further point.
The -- the Government tries to make a distinction by saying the governmental unit is under some kind of a legal necessity and we are not.
Now, that distinction I think fails on two counts.
Firstly, the legal necessity has been ruled out at least in the Second and Eighth Circuits, and a different test applied which makes it discretionary with the governmental unit.
But, secondly, in this case, it can be guaranteed that we'll use the -- if there's any doubt about it, that we will use the award for the creation of a substitute facility and it can be done so under Section 285 of the condemnation -- the federal condemnation statute by making the award in trust for release as the facility is built.
This -- this treatment is available, in our opinion, under the general language of Section 285 (a) in the Yale Law Journal note cited in our brief, I think so, too.
Now, one final point.
The Government charges that to apply the substitute facilities rule to us is to give us a windfall, and I think this might be in, Your Honor, Mr. Justice Marshall's mind.
The Government says that we will get new buildings for what may have been dilapidated buildings with no adjustment for depreciation.
Now, this assertion is without foundation, first, on a factual basis because the fact is and the evidence shows it that our structures were not dilapidated but were well-maintained.
The further fact is that we have --
Justice Byron R. White: They weren't new though?
Mr. H. Ober Hess: They weren't new.
Justice Byron R. White: They weren't depreciated.
Mr. H. Ober Hess: They weren't new.
The further fact is that we have stated in our brief that an adjustment should be made in the substitute facilities award for the economies which new structures would afford.
Now, we do not concede that depreciation should be deducted.
That's a technical term and one that I think has been used too loosely in some of the cases.
We do not concede that depreciation should be deducted.
Depreciation is arbit -- is an arbitrary commercial accounting technique, whereby cost is recovered under current profits.
In substitute facilities cases, there is a projection of the cost of the equivalent with a discount in the language that was used by the Second Circuit.
These are the Second Circuit's words, “a discount by reason of the benefit which accrues to the condemnee when a new building replaces one with expired useful years.”
Now, the Second Circuit was very careful not to refer to depreciation but, instead, did carefully refer to a discount by reason of the benefit which accrues.
And the Second Circuit also reassured the government with these further words, “Even when substitution is required, sumptuous awards need not be feared.
Exact duplication is not essential.
The substitute need only be functionally equivalent.
The equivalence is one of utility.”
The -- my friend raises a further point, which I think is purely spectral, that we may take the award and apply it for totally unrelated uses.
The same could be said for the award to a city for bath houses and recreation centers but, again, the condemnation statute will protect this situation perfectly be the condemnee, a municipal corporation or a non-profit corporation.
As to the future, the specter has projected and the Government says we may rebuild the camp and later discontinue its use as such.
Again, we say that the same comment applies equally to the governmental condemnee.
Short of a sale of the camp, it is hard to see how the use of such a single-purpose facility could be greatly altered and if it is sold for other purposes, the price realized will contain its own penalty, in that, the proceeds will in all likelihood be as deficient as is the market value award already entered in this case.
In closing, may it pleas the Court, the question in human terms in this case is whether the non-profit condemnees camp can, with constitutional impunity, be expropriated and its full use, purpose, and function forever destroyed.
That's the result the government seeks sanction for here.
Rebuttal of Stephen R. Barnett
Chief Justice Warren E. Burger: Mr. Barnett, do you have anything further?
Mr. Stephen R. Barnett: Well, just a couple of points, Mr. Chief Justice, if I may.
My brother's key argument for the applicability of the Substitute Facilities Doctrine here to an entity like the Synod for this camps is that, as he says, public benefits are presumed from the fact that the facility has run on a non-profit basis and devoted to a charitable, educational, or religious purpose.
Now, I'm not clear from his position whether the reliance is on the public benefit that these camps are said to provide or whether it is simply on the fact that this is a religious institution and anything done by this religious institution would qualify.
Some of his language would cut either way, but if it's the public benefit, then we see these problems under the First Amendment.
This is --
Chief Justice Warren E. Burger: Well, I thought he -- I thought he cleared that up somewhat when he analogized it to a charitable hospital.
Mr. Stephen R. Barnett: Well, that's it.
If he is then relying on the good works, the public benefit that these camps provide --
Chief Justice Warren E. Burger: Well, the public service he is turning to --
Mr. Stephen R. Barnett: Yes, to that extent, it is similar to the benefit to the community test of the Court of Appeals and we see those problems with that under the First Amendment.
It has the Court involved in determining whether what a religious entity does provides a community benefit or not.
In the Walz case, 397 U.S. at 664, this Court said something very apropos to that.
“We find it unnecessary to justify the tax exemption on the social welfare services or good works that some churches perform for parishioners or others to give emphasis to so variable in aspect to the work of religious bodies will introduce an element of governmental evaluation and standards as to the worth of particular social welfare programs."
If, on the other hand, my brother's position is, and that's what the language in their reply brief would imply, that any religious purpose qualifies, then, they are saying that simply because of the church doing something religious, it qualifies and it wouldn't matter then whether these camps were converted into purely religious facilities or not.
Now, on that basis, we have the constitutional problem that the award here on a substitute facilities basis of much more than the fair market of the camps --
Chief Justice Warren E. Burger: How is that different from allowing the national cathedral, which I assume is tax exempt, or the shrine?
Mr. Stephen R. Barnett: The differences between the tax exemption created by a legislature and this Court saying that this is what the Fifth Amendment requires and that the Fifth Amendment draws that line between non-profit entities and profit-making entities.
The analogy is not the Walz case, but Tilton versus Richardson or the Nyquist case.
In both of those cases, this Court struck down.
In Tilton, it struck down unanimously the federal aid grants for the construction of facilities to the extent that --
Chief Justice Warren E. Burger: That was a giving of public money --
Mr. Stephen R. Barnett: Well --
Chief Justice Warren E. Burger: As distinguished from a recompense --
Mr. Stephen R. Barnett: We would --
Chief Justice Warren E. Burger: -- for a taking.
Mr. Stephen R. Barnett: Well, we would suggest that, here, when the award would be so much more than the fair market value of the property, that it would amount to more than compensation.
It would amount to a giving and that, on that basis, it would have constitutional problems when the recipient is a religious institution and the facility could be engaged on the second theory entirely on a religious function.
Justice Thurgood Marshall: It might stay on it, but they might not stay in the same business.
Mr. Stephen R. Barnett: Well, if the --
Justice Thurgood Marshall: Because you can give them the 740,000 and they could stop the business, couldn't they?
Mr. Stephen R. Barnett: Yes, but their theory for getting the 4 or 5 million is that they would stay in the same business.
That is under -- at least under the Court of Appeals approach, that is the premise on which they would be given a --
Justice Thurgood Marshall: You say you could hold them to that.
How long you can hold them to that?
Mr. Stephen R. Barnett: Well, that's precisely our point, that we could not hold them to that if the --
Justice Thurgood Marshall: Why does he have a right to?
Mr. Stephen R. Barnett: Well, because under the Court of Appeals theory that would be the basis for giving him that amount of money so that the camps could continue to function.
We do not espouse that.
We say the Government should not be involved in trying to monitor what a church does with its money.
Chief Justice Warren E. Burger: Very well, Mr. Barnett.
Mr. Stephen R. Barnett: Thank you.
Chief Justice Warren E. Burger: Thank you, gentlemen.
The case is submitted.