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MATTER CITY NEW YORK (10/10/68)

COURT OF APPEALS OF NEW YORK 1968.NY.43080 <http://www.versuslaw.com>; 241 N.E.2d 717; 22 N.Y.2d 613 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. Counsel Roy M. Cohn, Milton S. Gould, Herbert Brownell, Bernard D. Fischman, Michael Lesch, Wendell Davis, Jr., and Frank S. Polestino for appellants-respondents. J. Lee Rankin, Corporation Counsel (Morris Handel and Morris Einhorn of counsel), for respondent-appellant. 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


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 ...


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