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MATTER CITY NEW YORK (10/10/68)

COURT OF APPEALS OF NEW YORK


decided: October 10, 1968.

IN THE MATTER OF THE CITY OF NEW YORK, RESPONDENT-APPELLANT, RELATIVE TO ACQUIRING TITLE TO PROPERTY IN THE BOROUGH OF MANHATTAN. FIFTH AVENUE COACH LINES, INC., ET AL., APPELLANTS-RESPONDENTS. (AND FOUR OTHER PROCEEDINGS.)

Matter of City of New York( Fifth Ave. Coach Lines), 29 A.D.2d 638, modified.

Chief Judge Fuld and Judges Scileppi and Breitel concur with Judge Burke; Judge Bergan dissents and votes to affirm in an opinion in which Judges Keating and Jasen concur.

Author: Burke

 This appeal presents for review a second time a portion of the condemnation awards for the Fifth Avenue Coach Lines, Inc., and Surface Transit, Inc., the nation's two largest privately owned municipal transit systems. Since the condemnation in 1962, eight opinions have been written in an attempt to properly value the tangible and intangible going concern assets of these enterprises. The value of the tangible assets -- $30,353,542 -- has been confirmed. (Matter of City of New York [ Fifth Ave. Coach Lines ], 18 N.Y.2d 212.) The valuation of the intangibles, necessitated by the continued use in public service of claimants' property, has proved to be quite troublesome as evidenced by the history of this litigation, is presently unresolved, and provides the subject matter for this appeal.

In its initial decision, Special Term applied two conflicting rules and yet reached the same conclusion in determining claimants' going concern value. (46 Misc. 2d 14.) At one point, citing Banner Milling Co. v. State of New York (240 N. Y. 533),*fn1 it was held that, in a condemnation proceeding, a separate valuation was not required for going concern value so long as claimant was allowed full value for the tangible assets, appraised as a going concern. (46 Misc. 2d, pp. 26-27.) In the opinion of the court, an award exceeding 30 million dollars was ample compensation for both the tangible and intangible assets, thus acknowledging that the intangibles had value and yet concluding that no additional award was required for this value.

At a subsequent point in the opinion, the court chose to abandon this position. In so doing, it was noted that Mr. Justice Cardozo had stated in Roberts v. New York City (295 U.S. 264, 282) "Substantial prices are not paid for the privilege of conducting a business at a loss". (46 Misc. 2d, p. 29.) Using this as its premise, Special Term concluded that, as claimants were not operating at a profit at the time of condemnation, they were not entitled to an award for going concern value. Accordingly, no award was made for these categories of intangible assets: coach routes; operating schedules; operating systems, records and procedures; trained personnel; layout of bus garages and shops; operating rights, permits and perpetual franchises. The Appellate Division affirmed, one Justice dissenting.

At the conclusion of an appeal from that order, it was the opinion of this court that the holding below was premised on a mistaken belief in the condemnee's inherent incapability to operate at a profit. (18 N.Y.2d, p. 220.) In fact, these condemnees -- Fifth Avenue Coach and Surface Transit -- whose personnel were both competent and efficient, were operating at a loss solely because of the restrictive rate structure imposed on them. (Id., pp. 220-221.) We found claimants to possess a viable, operative transit system presently capable of profitable operations under reasonable rates, thus rendering inapposite the reasoning employed by the courts below. It was the opinion of a majority of this court that the present capability to operate at a profit was indeed sufficient to entitle claimants to an award for their intangible assets.*fn2 (Id., p. 221.) Having concluded that an award should be made for these assets, we further stated that "The measure of value in this case is the cost of putting the entire transit systems together new plus all improvements, tangible and intangible, less depreciation." (Ibid.) The matter was then remanded to Special Term for the purpose of determining what these intangible assets were worth, based upon a reproduction cost less depreciation formula. Special Term, applying a different formula incorrectly,*fn3 subsequently found that the value of the intangible assets of both Fifth Avenue Coach and Surface Transit was $2,577,500, distributed as follows:

Trained Personnel $2,337,500

Operating Schedules 240,000

Coach Routes 0

Operating Systems, Procedures and

Records 0

Franchises, Operating Rights and

Permits 0

Garage and Shop Layouts 0

Total $2,577,500

This award was affirmed by the Appellate Division. (29 A.D.2d 638.)

Cognizant of the fact that we do not review an affirmed finding of fact based upon the evidence (see Diocese of Buffalo v. State of New York, 18 N.Y.2d 41, 45; St. Agnes Cemetery v. State of New York, 3 N.Y.2d 37, 40) and aware that findings of value supported by substantial evidence are immune from our

    --> probing (Matter of City of New York [ Sound View Houses ], 307 N. Y. 687, 688), we nevertheless conclude that this case must again be remanded to Special Term as certain findings are not only at variance with the proof, but contrary to it.

As shown above, four of the six classes of intangibles were found to have no value by the courts below. Of these "worthless" assets, claimants valued most its coach routes, contending that they were worth $6,870,000. This figure was apportioned between the cost of laying these routes ($730,000) and the cost of continuing their development ($6,140,000).

With reference to the laying of the routes, the court below stated that "no study was or would be required to determine that, in Manhattan, buses should be operated on the north-south arteries and on the main crosstown streets" so that "a prudent buyer would have no need to, and would not, make any study as to the layout of bus routes." Indeed, the argument has been made that the potential routes in New York City are both obvious and limited, so that neither expertise nor imagination would be required to select them.

Such statements, however, are irreconcilable with the facts. We are concerned with 73 bus routes covering 46,000,000 passenger miles and providing virtually all the surface transportation in Manhattan and The Bronx with some additional routes in Queens. It cannot be seriously contended that all streets in The Bronx, where more than half the routes were laid out, conform to the geometrical pattern of north, south, east and west, to which the courts below attributed such significance in finding that the routes had no value. In addition, while this pattern does exist through downtown and midtown Manhattan, there are complex routing problems even in this area. How, for example, should Central Park be circumnavigated by the buses? Clearly, such a question could not be answered without considering, inter alia, where potential passengers live, how they travel, their present destination, and what the traffic problems are in the area. Without such considerations, an effective route would be impossible. The crosstown buses on 57th Street illustrate the results of such comprehensive planning. Two buses proceed side by side crosstown west to east until their routes part, one bus turning uptown and the other downtown, so that they are nearly 20 blocks apart at their final destination. In light of this, the determination below that "a prudent buyer would have no need to, and would not, make any study as to the layout of bus routes" is not a binding conclusion.

Closely associated with this claim for route layout is the sum sought for route development. Route development can best be defined as the plans and studies which are made to insure maximum patronage, once a route has begun operations. Claimants' expert witnesses testified that it is customary "in the industry * * * to use 10 per cent of a year's gross revenues as being indicative of this loss in earning power" incurred until routes are developed. In disposing of this claim, the court below noted that, since Manhattan and The Bronx represented the best transit market in the country, "it was not necessary for claimants to solicit or advertise for business, nor to do gratuitous work, nor to operate at a loss in order to educate the public up to the maximum point of patronage." We disagree.

As Mr. Justice Frankfurter points out in Kimball Laundry Co. v. United States (338 U.S. 1, 10-11), intangible going concern value, as a whole, increases with the probability of continued patronage. Fifth Avenue received its first franchise for horse-drawn vehicles in 1886. Claimants have, since then, added on the average of one new route per year. It is not disputed that many of these routes have been modified to meet the city's increased population and to adjust to the commercial and residential changes that have taken place since the turn of the century. Such adjustments necessarily involved expense. As the city's principal expert witness at the first trial testified: "the routes of the company may have an attached traffic sufficient to pay for the service and representing substantial value to any prospective purchaser."

As the routes have changed, so too have the conveyances. Thus, the horse-drawn carriages gave way to electric cars and the latter have been replaced by buses. That such advancements, designed to retain customers as well as to attract additional patrons were successful is best evidenced by the fact that, in the year preceding condemnation, claimants served a half

    --> billion riders. Clearly, such efforts were not undertaken without considerable expenditures -- expenditures for which an award must be made.

Columbus Gas Co. v. Public Utilities Comm. of Ohio (292 U.S. 398), a utility rate fixing case, fails to sustain the award of no value for route development. In his opinion, Mr. Justice Cardozo stated: "The burden of building up patronage may be negligible where there is little competition" with other competitors. (Id., p. 413.) His subsequent remarks, which were accorded great weight by the court below, are here inapplicable in light of the nature of this litigation and because of the claimants' competitors -- rapid transit, private automobile and taxi. Accordingly, Special Term's finding of no value for claimants' continuous efforts, over a period of 75 years, to attract and maintain patronage is not a valuation determination binding on this court.

A second claim rejected in toto by Special Term, for $3,546,500, was attributed to the operating systems, records and procedures of claimants. This claim has three components, which were treated separately by the court below. The first and most extensive element of this claim pertains to the accounting records and systems of procedures. Claimants sought compensation for 171 different records and reports produced by their accounting departments. The information contained in each document was explained by experts, using both charts and prepared text. The reproduction cost of each document was established by showing the number of postings on each record, the salary of the posting clerk and the overhead expenses attributable to clerical personnel. Finally, testimony was presented regarding the period of usefulness for each record. The total cost of reproducing these documents, giving consideration to each of the above factors, was $2,127,500. At the conclusion of this testimony, claimants' expert, a Mr. Trentin of the accounting firm of Arthur Andersen & Co., stated on cross-examination:

"Q. I now ask you for your expert opinion. If all of the accounting records of the claimants were destroyed by fire or some other catastrophe and Arthur Andersen & Company were asked to design and install a new accounting system for these claimants, would you recommend reproduction of the accounting system and records as they existed at the time of your computation for the purpose of these proceedings? A. No."

Special Term erroneously denied the entire claim for accounting records solely on the basis of this one answer.

It has long been settled that, in evaluating intangibles, consideration should be given solely to the present system, without regard for different, more modern methods. (McCardle v. Indianapolis Water Co., 272 U.S. 400, 417-418.) Our own courts have stated the rule quite clearly -- "'It is this system [the condemned one] that is to be appraised, in its present condition and with its present efficiency.'" (Onondaga County Water Auth. v. New York Water Serv. Corp., 285 App. Div. 655, 665, quoting Kennebec Water Dist. v. City of Waterville, 97 Me. 185, 216.) The finding of no value for the accounting records, premised on a factor which cannot be considered by the court, must, therefore, be set aside.

The second subdivision, in the amount of $360,000, was for the maintenance records and systems of procedures. The court, in valuing this claim, chose to accept the testimony of the city's expert that the maintenance records were covered with dust,*fn4 that they were seldom used, and that they did not make available the cost per mile for maintenance of engines, transmissions and the like, by location and by bus model. It is nevertheless evident that these records were used, albeit infrequently, that they were taken over by the city and that the system of maintenance was not so poor as to prevent the city from obtaining a fleet of buses operable at the time of condemnation. In view of this, we do not accept the finding of no value.

The third portion of this claim was for personnel records, valued by claimants at $1,059,000. As noted below, this included all the reports and other information collected pertaining to each employee from the time of his application until the termination of his employment. Specifically, each employee's file contained his initial application, any investigatory data collected in processing the application, records of his training reports showing his progress and the results of his training, records of his

[22 N.Y.2d 613 Page 625]

    --> assignments during his term of employment, accident reports, reports from supervisors, attendance charts, reinstruction information, public complaints as well as commendations, payroll records and deduction authorizations, and memoranda relating to any disciplinary action which may have been necessary during the time of his employ.

The entire claim for personnel records was dismissed for two separate and independent reasons: "no competent evidence was adduced as to the cost of reproducing such records" and "it is not apparent why any buyer would pay for such material." Having reviewed the record, it is our opinion that this finding of no value cannot be sustained on either of these grounds.

In substantiating their claim, claimants employed the same detailed valuation techniques here as they did for the accounting records. Work sheets, prepared by an expert, were submitted showing the cost of reproducing the personnel files for all those employed at the time of condemnation. The cost of individual records was established, and the final claim was proved in this manner. In light of this extensive documentation, we cannot concur with the court's statement that "no competent evidence was adduced as to the cost of reproducing such records".

Aside from the claimants' present contention that many of these personnel records are required by law, the very nature of the information contained in them is prima facie evidence that these records were essential in evaluating and classifying each of the nearly 6,000 active employees at the time of condemnation. It cannot be seriously argued that a work force this big can be properly deployed, evaluated, and supervised without personnel records as extensive as those maintained by claimants. As these records were taken over at the time of condemnation, claimants are entitled to an award for them, following the formula of reproduction cost less depreciation.

Claimants also sought $3,000,000 for operating rights, permits and perpetual franchises. Of the franchises possessed by claimants, 10 were not officially condemned. The remaining ones (which were condemned) were nonexclusive.

It is well established that a franchise, a form of property, is protected both by the State and Federal Constitutions against substantial curtailment or destruction by the government without payment of fair compensation. (City of Los Angeles v. Los Angeles Gas & Elec. Corp., 251 U.S. 32, 39; see, also, Kimball Laundry Co. v. United States, 338 U.S. 1, 13, supra.) Thus, in each instance where one of claimants' franchises was destroyed, an award must be made whether or not that franchise was the subject of a formal condemnation As we so recently declared in the Port Authority case, in making such awards, the question under consideration is "what constitutes just compensation to the owner and operator of an essential public facility when its property is condemned for continued dedication to the same use to which the owner had dedicated the property." (Matter of Port Auth. Trans-Hudson Corp. [ Hudson Rapid Tubes Corp.], 20 N.Y.2d 457, 466, supra ; emphasis added.) Yet this very principle was ignored by the court below.

In the opinion of Special Term "The City did not need to acquire these franchises in order to operate the buses over the routes theretofore used by claimants, since the City always had the right to do so." The denial of any value for these franchises cannot be sustained, as such an "award" is in contravention of the established law of this State.

One final item was found to have no value -- expenditures incurred in selecting and arranging the bus garages and shops. The court concluded that, since the allowance heretofore made for these garages and shops was computed on the basis of an operating system, no additional allowance was warranted. In the absence of any showing of error, we sustain this disallowance.

We now come to the claims for which an award was made -- personnel and operating schedules. As we stated above, claimant employed nearly 6,000 persons at the time of condemnation. This large work force was divided into the following classifications: bus operators; maintenance workers; administrative staff; clerical employees and executive personnel. Awards were made for certain classes of employees, based on some evidence in the record. Since these awards were affirmed by the Appellate Division, we merely note that our jurisdiction precludes us from further scrutinizing them.

This limitation, of course, does not apply where no allowance was made for the employees. Thus, unsupported statements that trained janitors, watchmen, car washers and cleaners, flagmen, firemen, building mechanics and register inspectors exist in New York City in such abundance that no award need be made for them are not binding on this court. We cannot agree that there is no expense involved in interviewing, selecting and training these members of the maintenance force. Equally illogical is the finding of no value for all the executive personnel based on the unsupported speculation that "the hypothetical buyer would be able to recruit such personnel at nominal expense, from other bus companies or other cities." Mr. Roberts, testifying for the city at the first trial, said: "The investment in the training of supervisors and executives runs into a large sum and an average of 6 months expires before the new occupant of any supervisory or executive position is fully qualified to stand on his own feet and make all the decisions and to perform all the acts for which his position calls." Claimants are, therefore, entitled to an award for all their employees.

One category remains -- operating schedules. Special Term concluded that these schedules were worth $240,000. As we have stated before, affirmed findings of fact, based on some evidence, will not be disturbed. Accordingly, we do not question this award.

At the conclusion of its opinion, the court below tested its total award by showing a percentage relationship between the award and the total value of the tangible assets. Citing several utility cases, the court contended that an award of 8.5% of these tangible assets for going concern was adequate and just. In the Port Authority case we stated that "There is no basis or warrant in law for any such rule of thumb." (20 N.Y.2d 457, 472.) We adhere to this position.

Were we to bind ourselves to such a mechanical jurisprudence, these utility rate cases would in any event be inapplicable. As the city's expert testified, a proper rule (should one be employed) for bus companies would require an award for going concern of 20% of the tangible assets. In this case, that would be $6,070,708. Thus, by properly employing the verification test suggested by Special Term, it becomes apparent that an award of only $2,577,500 is indeed inadequate. In summary, we find that there is sufficient evidence to sustain the award made for claimants' operating schedules. We also affirm that portion of the award for trained personnel which attributes actual value to certain classes of employees. We further conclude that the court below properly found that the garage and shop layouts were considered in evaluating the tangible assets. We reject those findings of the lower court which are at variance with the proof, and contrary to it -- specifically, findings of no value for the coach routes; operating systems, procedures and records; franchises, operating rights and permits, and certain classes of trained personnel referred to above.

Accordingly, the order appealed from should be modified and the matter remitted to Special Term for further proceedings in accordance with this opinion, with costs.

Disposition

Ordered accordingly.

Bergan, J. (dissenting). The legal issue on which this court remanded the case to the Special Term for further consideration was narrow in scope. It may be stated without undue elaboration as a direction to the Supreme Court to give due consideration to the value of the intangible property of claimants. The majority opinion in this court stated flatly (18 N.Y.2d 212, 222), concerning the original decision, that "no allowance was made for the going concern items". The minority view was, among other things, that the total award in excess of $30 million embraced whatever going concern value existed.

Although the city continues to urge the point, based on several distinct grounds, that there was no going concern value at all and especially none in excess of the original award, it seems preferable to consider that the decision of this court settled this legal issue against the city by holding there was, indeed, value to "going concern attributes or so-called intangible assets" in addition to the award for tangible property.

But, of course, this court did not hold, and it had no power within the frame of its constitutional jurisdiction to hold, what that value was. The quantum of damage in New York is a Supreme Court question. Even if a party be entitled to damage as a matter of law if there is a loss, where the fact-finder is able to say justly and within the record that there is in actuality no real value in the thing taken, he is free to do so. If, for example, the records of the claimants were so inefficiently maintained, obsolete, and inaccessible that they would in fact be of no value to a successor by purchase or condemnation in continuing the business, there seems no conceivable legal reason why the city should pay for them as though they had value, even though useful records taken over might, as a general matter, be thought to be compensable.

Attempting to follow the direction of this court on remand to find the value of going concern assets, the Justice at Special Term acted conscientiously and responsibly. He allowed some items and disallowed others. In doing this he acted within the exact frame of his constitutional and statutory jurisdiction.

In reviewing the facts the Appellate Division affirmed his evaluations. If on any possible reasonable view of the record these factual conclusions could have been reached by fair-minded Judges, this court should not try to interpose its possibly different factual views on value. The rule applies as well to whether there is reliable proof of any damage at all as to how much damage there has been where actual damage is shown.

In People ex rel. Kings County Light. Co. v. Willcox (210 N. Y. 479) cited by this court in its prior opinion (18 N.Y.2d, p. 221) in support of the conclusion claimants are entitled to "going concern value", it is made explicitly clear that "going value" must be appraised as "a question of fact" (supra, p. 492).

The appraisal of going concern value for a bus company is an elusive and difficult task, as this present record suggests. Much of "value" is a matter of opinion and of judgment and hence peculiarly within the ambit of fact-finding. The burden of establishing it above the allowance for tangible property is clearly with claimants (Kimball Laundry Co. v. United States, 338 U.S. 1, 19-20).

Their proof rested heavily on opinion views. Some of it could well be deemed incredible by a careful Trial Judge; and highly speculative as well. In some areas the Judge did not credit parts of this testimony, although the city did not in express terms refute it. But few things are better settled than that the trier of the fact is not bound helplessly by opinion evidence offered by a party having the burden. And if he takes it to be incredible or can be said fairly not to be required to believe it, he is not bound to accept it.

Even where there is no testimony "to contradict" the testimony of experts, the "weight to be given" to opinion evidence is ordinarily "entirely for the determination of the jury" (Commercial Cas. Ins. Co. v. Roman, 269 N. Y. 451, 456-457). See, also, The Conqueror (166 U.S. 110); Head v. Hargrave (105 U.S. 45); People ex rel. Third Ave. R. R. Co. v. State Bd. of Tax Comrs. (212 N. Y. 472); Tubiola v. Baker (225 App. Div. 420); Brooklyn Hgts. R. R. Co. v. Brooklyn City R.R. Co. (124 App. Div. 896, affd. 196 N. Y. 502).

The Trial Judge could consider, on the general reliability and reasonableness of claimants' demand for going concern value and the credibility of their experts, the singular circumstance, for example, that between the first trial and the second trial on remand, claimants' experts blandly increased the values they attributed to going concern assets by about $6,000,000. No change whatever in the value of those assets could possibly have occurred between the two trials.

This change which the court at Special Term could and did consider was from $24,575,300 to $30,363,300. On appeal, and in reviewing the facts, the Appellate Division not only agreed that the allowances made at Special Term were adequate ("quite generous"), but as to items for which no award was made it held there was a failure to present "sufficient proof", a fact evaluation, to support an award.

The ultimate test, of course, is one of fairness to claimants and to the city (People ex rel. Kings County Light. Co. v. Willcox, 210 N. Y. 479, 485, supra ; see, also, The Minnesota Rate Cases, 230 U.S. 352). When one looks closely and objectively at the going concern intangibles put forth by claimants in seeking an additional award, it is not easy to escape the conclusion that the $2,500,000 granted at Special Term has amounted to fair compensation. This is demonstrable on analysis.

A substantial part of claimants' damage, totaling nearly $7,000,000, was for two items called "Route Development" ($6,140,000) and "Layout of Coach Routes" ($730,000). Both were disallowed entirely by the court at Special Term. They are similar enough in principle to be treated together. The theory of the route development part of the claim is that there would be initial losses when a bus route is first put into operation, which is part of the cost of development, until riders enough begin to use the line.

There was proof that claimants themselves had never incurred any cost in laying out their bus routes and there was proof that no initial losses had ever occurred in New York bus lines because of the newness of routes or would likely occur. The choices available to a route-maker of bus lines in New York are limited but obvious. The great north-south avenues must be used by any bus company in the appropriate directions; and all of them are used. The court could quite readily find that it did not take either imagination or expertise to decide where these routes would go. The east-west cross streets are just as obvious for selection. In the 1880's, for example, there was a horse-car route over 23rd Street. It was followed by an electric street car line which, in turn, was superseded by a bus line. It requires no ingenuity to think this route necessary or to realize that the patronage was there without "development" and that all that was needed was to provide the bus service. This was equally true of the other main cross streets as well as of the north-south thoroughfares and of the main routes in other parts of the city.

These areas of population and business obviously needing bus service and along lines made plain by the city's geography were in plain sight for claimants' predecessors, for the claimants, and for any succeeding bus enterprise. Claimants did not create this patronage or use much imagination to map out routes where the buses should run.

The opinion evidence on which claimants based these portions of their claim was the merest theory, having no relevancy to the actual situation to which the court at Special Term was addressing itself. The "cost of development" was estimated by claimants' witnesses to be equal to 10% of a year's gross revenue. The Justice at Special Term found there was no evidence whatever of any loss of earnings in the development of claimants' routes and it certainly cannot be said that he was wrong as a matter of law in arriving at this entirely reasonable opinion.

And he was likewise of opinion that no study "was or would be required" to determine where buses should be operated in Manhattan, nor was there satisfactory evidence as to the routes in The Bronx. The court's conclusions are in accordance with any reasonable reading of the record and this court should not now venture on new initial fact evaluations.

The court at Special Term disallowed also the claim for operating systems, procedures and records which, under three headings, totaled over $3,500,000. One was for maintenance records. There was proof these records were rarely used, did not contain essential information, and were inefficient in over-all utility.

It became clear that the value of such records on sale or acquisition was not the cost of putting them together inefficiently, but their actual value for the future operation. The proof suggests that if cost of putting them together became the inescapable criterion, a wasteful and inefficient set of records would become more valuable by virtue of the mere expensive inefficiency of their compilation.

There was opinion evidence in the record that the operating systems were inefficient "particularly with respect to maintenance". As to accounting records, one of claimants' witnesses testified that if the accounting records of claimants had been destroyed he would not recommend their reproduction. There was evidence they were inefficiently maintained and the court could well have concluded, in disallowing this item of damage, either that these records had been entirely depreciated from whatever they had cost or that, in any event, they constituted no asset of value to a successor operator.

In this class, too, are personnel records, no claim for which had been made on the original trial. But, besides this, there was no competent proof of their cost of reproduction, nor, indeed, does there seem any escape from the Special Term's conclusion that they would have no independent value for a successor operator.

The court allowed claimants $240,000 for operating schedules, described as "the estimated cost of preparing schedules" for bus runs. Claimants asked for $1,102,800. The normal procedure to work out these schedules would be to retain consultants to make the necessary studies. Claimants did not do this. The work was done by claimants' staffs. It should have been easy to show what it cost. This was not done. The only evidence in support of the claim was work sheets which did not persuade the Justice at Special Term of their reliability. He did not, as a matter of law, have to be persuaded by this kind of ambivalent proof and there is no legal basis to alter his fact-finding here. And the court could well have believed that theoretical bus schedules worked out by claimants bore little relevancy to the actual operation of the buses on the streets or that spacing their operations or fitting them into the patterns of traffic were notably successful either during claimants' operation or thereafter.

The largest allowance made by the Special Term to claimants was in excess of $2,300,000 for "trained personnel". The theory of this element is that claimants had gotten together an organization of people ready to carry on a bus service and that it would cost a new owner an initial investment to do this. There is in the record, however, a wide range of view as to what this was actually worth to any successor operator. Claimants sought over $15,700,000 for these items. Many of them are speculative in detail. It is particularly difficult to apply literally a theory of "reproduction less depreciation", appropriate enough to telephone lines and railroad cars, to a group of human beings. The best one can do is reach estimates of training that are fair; but however one approaches the problem, these are likely to be theoretical.

The largest item in this group was for the bus drivers. They require training; but, on the other hand, they are not skilled technicians in the sense that physiotherapists or dental assistants are. The claimants' theoretical estimate that it costs $1,527 to train a bus operator seems grossly excessive. This totaled up to over $5,800,000.

Bus drivers are, as the Special Term noted, licensed chauffeurs to begin with. The vehicles they operate are not much more difficult technically to run than trucks. Traffic problems are generally the same for all large vehicles. All modern drivers have to cope with them. For the rest, the bus drivers must learn where the stops are and how to let passengers on and off. They must try to avoid accidents in traffic; but so must truck drivers. The claimants charged $525 a driver for "safety instruction" and then additionally, after having given safety instruction, $500 for estimated "anticipated accidents" in spite of the "safety" instruction. The Special Term, as a fact evaluation, regarded these items together as "fantastic"; they are at least unrealistic.

The allowance of $450 each by the Special Term for training bus drivers is fully justified by the record. There is no legal warrant for this court to interfere with it by substituting some other factual value judgment.

Claimants under this general heading additionally sought almost $3,300,000 for their maintenance force, shop and garage mechanics and helpers. The court allowed $300 for each mechanic and $200 for each helper, a total of $320,600. This Special Term developed in detail in its opinion the grounds for regarding claimants' amounts both excessive and reduplicated. Moreover, there is proof that the maintenance force was inefficient and that labor difficulties for which claimants might be held responsible had greatly increased the cost of maintenance. One estimate of this increase reached $4,900,000 a year. In any event, the value of this force as trained and maintained by claimants could not as a matter of law be held in excess of $320,600, which was allowed on the basis of the per man value of training mechanics and helpers.

The amount claimed for administrative staff was almost $5,200,000. This averages $10,460 a man for the administrative staff. This is close to the cost of training a biologist. Some of these people were engaged in supervising claimants' mechanical operations. There was proof which the court at Special Term credited that the maintenance system was "chaotic"; that it lacked "management, direction, follow-up and procedure"; that it was necessary to "retrain" its personnel. Many of the other personnel were bus supervisors.

It is not surprising that there was some unwillingness on the part of the Special Term to believe that claimants spent $10,460 each to train these people. The court's allowance of $250,000 is adequate. For similar reasons, the allowance of $100 per employee for clerical employees was adequate; and the court was justified in rejecting any allowance for executive personnel. On the "value" of the trained personnel to which the new enterprise succeeded, some consideration must be given to the fact that there was a large unfunded pension obligation which had been allowed to accumulate by the claimants. This amounted to $58,000,000, almost $10,000 per man. This normally would be the legal obligation of claimants. The obligation to pay into a trustee's hands a contractual pension benefit would usually accrue from week to week as the wages became due to an employee.

If claimants, for example, had not paid for gasoline which had been consumed in their operations, it could scarcely be felt that the new owner would have to pay for this. That they did not pay for the gas they used because they expected to be able to do so from revenues from future operations based on other gasoline is utterly irrelevant to the obligation that matured to pay for what they had consumed.

Yet pension obligations are not as clean-cut as this where a work force is continued and the failure of claimants to fund their pension system made it possible to say, as one expert did in his testimony, that "this work force carried with it a liability in excess of $58 million for past accrued but unfunded pensions".

On the whole record, the allowances that have been made at Special Term for the trained work force of over $2,300,000 are justified as a matter of law on the record.

This court's opinion on the prior appeal indicated that the city would be obliged to pay for franchises it condemned. Of course this, as a general rule, is true; and the refusal of Special Term to allow any money for this item was the main ground of the dissent at the Appellate Division. Yet this liability, too, depends on the facts. The court is not dealing with an abstract theory but with this case. Claimants asked $3,000,000 for the value of their franchises and operating rights and permits. The Special Term allowed nothing and the Appellate Division affirmed this on the facts.

In the first place there was only one perpetual franchise held by claimants. This was the Fifth Avenue route on Fifth Avenue to 135th Street. There were other routes partly perpetual and partly term. Not any of these routes were condemned by the city. The franchises that were condemned were nonexclusive. This

    --> intimately and adversely affected their value. The Special Term held they had none. The city could at any time have competed with them or allowed other operators to have competed.

As to the franchises that were condemned, their utilization could only have been to permit the claimants to operate in competition with the city. It is not easy to see how these would have had any value. The court at Special Term held squarely they had no value.

The city's proof was that the expiration of "vital franchises" had a strong adverse effect on any value to be attributed to them. The "value" attributed by claimants to their rights, permits and franchises of $3,000,000 was based entirely on the payments made to the city for the rights exercised. But when these rights ended the obligation to pay ended and this seems to have no substantial relationship to "value" to the bus companies as the Special Term found. It is difficult to escape either the fairness or the reasonableness of this conclusion.

The allowance now made of $2,577,500, in addition to $30,353,542 for tangible assets already allowed, is by any measure fair and just compensation and the order should be affirmed.


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