Before LUMBARD, Chief Judge, and FRIENDLY and KAUFMAN, Circuit Judges.
Wishing to build a Customs Court and Federal Office Building in Foley Square, the United States began an action in the Southern District of New York to condemn an area bounded generally by Worth Street, Lafayette Street, Duane Street, and a line about 175 feet east of and parallel with Broadway. A declaration of taking, dividing the property into 20 damage parcels, was filed on February 1, 1960; along with it, the Government deposited in court $2,613,501, estimated as just compensation. On May 9, 1960, Judge Knox granted the Government's motion for an order of possession, decreeing that the United States would be entitled to take over the property "on May 1, 1961 or on such earlier dates as any part of said property shall be vacated by the existing tenants or former owneroccupants."
Judge Knox's order did not establish the terms upon which those in possession could retain it until the May 1, 1961 deadline; to fix these the Government entered into leases with most, although not all, of the occupants. The leases were on a basic mimeographed form, for a term stated as beginning February 1, 1960 and ending April 30, 1961; quite clearly they were not signed until after Judge Knox's order of May 9.*fn1 Two provisions require mention because they were later to be relied on by the Government as working a waiver of the claims for fixtures asserted by many of the appellants.*fn2 Paragraph 16, set out in the margin,*fn3 was a complete release of the United States from all claims arising from the condemnation. The Government deleted this for anyone who sought its excision; all but three of the present appellants did.*fn4 However, the Government would not consent to the removal of paragraph 11,*fn5 and it argued, successfully in the District Court, that this alone sufficed to destroy any claim for fixtures its tenant would otherwise have had.
Prior to trial the owners of parcels 1, 4, and 5 settled with the Government; the claim for parcel 20, consisting of the land comprising the beds of Pearl and Elk Streets, was not adjudicated with the others. Trial, by Senior Judge Knox without a jury, took about 30 court days, spread over three months, in late 1960; in addition, myriad motions were heard before and after the trial. The contesting fee owners were awarded $2,265,875; the claims of twenty-seven tenants for fixture awards were denied. The appellants here are three fee owners and eleven tenants; nine other tenants' appeals were dismissed by this Court as untimely; the remaining seven did not appeal. Our disagreement with certain portions of the decision, in considerable part because of our now taking a view of New York law different from that expressed in an earlier opinion, is not to be deemed as detracting from our high regard for the public service rendered by Judge Knox in discharging this onerous task.
1. The Respective Roles of Federal and State Law
Many of the controversies before us hinge on what the Government "took." The Government contends that "Determination of what is taken in federal condemnation proceedings and the ascertainment of compensation therefor are governed by principles of federal law," and that New York property law concepts are therefore irrelevant. It relies on such unquestionable propositions as that the United States' power of condemnation "can neither be enlarged nor diminished by a State. Nor can any State prescribe the manner in which it must be exercised," Kohl v. United States, 91 U.S. 367, 374, 23 L. Ed. 449 (1876), and that "* * where essential interests of the Federal Government are concerned, federal law rules unless Congress chooses to make state laws applicable," United States v. 93.970 Acres of Land, 360 U.S. 328, 332-333, 79 S. Ct. 1193, 1196, 3 L. Ed. 2d 1275 (1959). Acceptance of all this and of the corollary that Federal law governs the principles whereby "just compensation" is determined in a Federal condemnation still does not establish the conclusion the Government draws from them.
The declaration of taking relies on various statutes, of which the Act of August 1, 1888, 25 Stat. 357, as amended, 40 U.S.C.A. § 257, is sufficient and typical. That section provides that whenever an officer of the Government is authorized "to procure real estate for the erection of a public building or for other public uses he may acquire the same for the United States by condemnation * * *." By the declaration the United States took "The land, including all buildings and improvements thereon, all appurtenances thereto, and all interests therein * * *" Although the Government took only "real estate," it "took" whatever was real estate.
We see no basis for doubting that Congress meant that a Federal court, in determining what such a taking embraced, should look to the law of the state where the property is located. Although the Government urges us to look to "Federal law" to determine what the taking included, it does not tell us where to find this - no corpus of Federal law on this subject exists and 1962 seems rather late to start developing one, especially for so limited a function. Even the celebrated opinion, now rejected, upholding the power of Federal courts to disregard state decisional law in certain areas, recognized that state law should be looked to as regards "rights and titles to things having a permanent locality, such as the rights and titles to real estate, and other matters immovable and intra-territorial in their nature," Swift v. Tyson, 16 Pet. 1, 18, 41 U.S. 1, 18, 10 L. Ed. 865 (1842). Although the principle announced in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), would not deprive Congress of constitutional power to create a separate "Federal law" as to what constitutes real property for Federal condemnation, see Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S. Ct. 573, 87 L. Ed. 838 (1943), the practical considerations for referring to state law for that purpose are overwhelming. All states have bodies of law as to what is real and what is personal property, which they require for a variety of transactions. Persons dealing in land within a state must conduct themselves in the light of state law, which will inevitably govern most of their relations; it would be inconvenient in the last degree if they had also to take cognizance of a Federal property law that would apply only in the rather rare event of a Federal condemnation. Hence we hold that Congress meant us to refer to New York law to determine what the United States acquired when it "took" what it did here, United States v. Becktold Co., 129 F.2d 473 (8 Cir., 1942); United States v. 19.86 Acres of Land, 141 F.2d 344, 151 A.L.R. 1423 (7 Cir., 1944); Carmichall v. United States, 273 F.2d 392 (5 Cir., 1960).
None of this gainsays that, subject to the overriding requirements of the Fifth Amendment, including the mandate "nor shall private property be taken for public use, without just compensation," Congress could constitutionally create a special Federal law of real property for Federal condemnation purposes, or that such a body of law could define real property more narrowly than the law of the situs. It is even possible that under existing statutes the United States might elect not to "take" certain interests which the situs state regards as real property, cf. United States v. Certain Interests in Property, 271 F.2d 379, 382-384 (7 Cir., 1959), cert. denied, 362 U.S. 974, 80 S. Ct. 1058, 4 L. Ed. 2d 1010 (1960), a point we do not decide.*fn6 But nothing in the declaration here suggests an intention that the United States was taking less than all the real property, and nothing in the authorizing statutes suggests any source for defining that save New York law.
It will be convenient to take up first the award of $254,050 ($70,000 for land and physical structures and $184,050 for fixtures) for property owned by Il Progresso Italo-Americano Publishing Co., Inc. in fee simple, from which both the Government and Il Progresso appeal. These appeals present two basic questions, one relating to the New York law concerning fixtures, and the other to principles of valuation, without being complicated by considerations as to the respective rights of landlord and tenant or as to the effect of the Government leases that arise on other appeals.
The building is an old one, erected in 1878. It was then and ever since has been used as a printing plant, having been altered from time to time to meet the needs of the business, notably in 1940 when a concrete pit was installed, the cellar floor was lowered and a mezzanine was removed to permit the installation of a press 33foot 10inch long, 9foot wide and 16foot high. The building contained a quantity of special equipment useful in newspaper publication, such as a sidewalk elevator to carry heavy rolls of newsprint, monorails to move the paper to the press, an electrically driven dumbwaiter to carry papers from the press to the mailing and delivery room, special duct work and electrical systems, and the like.
Wittman, a real estate expert called by Il Progresso, valued the land at $55,750, and the buildings, exclusive of fixtures and machinery, at $44,250, for a total of $100,000; this appraisal assumed a gross rental of $12,000 per annum which a vacancy allowance and expenses*fn7 would reduce to a net of $7,652. To this $100,000 figure he added $484,084, found by Il Progresso's machinery expert, Yocum, to be the depreciated replacement cost of the machinery and fixtures. The Government's real estate expert, Kazdin, estimated the gross rental income for the land and building ex machinery and fixtures at $13,800; however, a larger allowance for expenses, which included many items omitted by Wittman, reduced the net income to $4,100. Capitalizing this at 9% for 10 years, for a product of $25,680, and adding the present value of the reversion of the land at the end of the 10 years ($67,000 discounted at 6%, or $37,413), he arrived at a total of $63,093. He concluded that the land alone was worth more than the land with the building and that the parcel should be appraised at its land value, $67,000, alone. Although the Government contested any allowance for fixtures and machinery, it offered evidence of an expert, Shulman, that "based upon present day sound market value for similar and comparable used equipment, delivered, installed and connected, in good operating condition," this was $178,050. Shulman's appraisal did not include items such as power wiring, shelving, floor coverings, cabinets, window fans, and others.
Judge Knox accepted Kazdin's appraisal of $67,000 for the land, which he increased to $70,000. He made no allowance for the building, believing that "to the ordinary purchaser, the building is an encumbrance that must be demolished" and that "as a newspaper plant, the building is antiquated and obsolete, and this limits its marketability." To the $70,000, he added Shulman's $178,050 figure, plus $6,000 for a newspaper folding and marking machine that Shulman had omitted, for a total of $254,050. The Government appeals on the ground that the machinery for which the judge made an allowance was not "taken"; Il Progresso complains about the ...