United States v. Cors/Dissent Frankfurter

by Felix Frankfurter

United States Supreme Court

337 U.S. 325

United States  v.  Cors

 Argued: Feb. 3, 4, 1949. --- Decided: June 13, 1949

Mr. Justice FRANKFURTER, with whom Mr. Justice JACKSON and Mr. Justice BURTON join, dissenting.

We brought this case here on certiorari to the Court of Claims under 28 U.S.C. § 1255(1), 28 U.S.C.A. § 1255(1), because it seemed to present constitutional issues important in the award of compensation for vessels requisitioned by the Government during the recent national emergency under § 902(a) of the Merchant Marine Act of 1936. ^[1]

The following facts are the basis of the claim that the scope and validity of that section of the Merchant Marine Act call for adjudication.

The steam tug Guthrie was owned by the United States and operated by the Coast Guard continuously from 1895, when she was built, until 1941. In that year a special Board of Survey appointed to determine her condition found her in need of a new boiler and extensive repairs. In view of 'the present emergency and the great need of vessels,' the Board recommended that the necessary reconditioning be undertaken. The Coast Guard, however, directed that she be sold to the highest bidder. Respondent's was the highest bid received, and on March 19, 1942, the Guthrie was sold to him for $2,875. He proceeded to carry out the repairs that had been indicated by the Coast Guard survey, doing most of the work himself with the aid of a crew of four; the rest was done by a shipyard at Portland. His total expenditure on labor and materials was $5,699.78 but would have been substantially greater had he not been experienced in this type of work.

On April 20 and 21, the Department of Commerce licensed the Guthrie as a 'towing steam vessel' permitted to navigate in 'bays, sounds, rivers and harbors' and also authorized respondent to employ her in the coasting trade. Respondent then brought her under her own power to New York where she was rechristened the MacArthur and where she remained inactive until September, 1942, when the Navy surveyed her for use as a steam-heating plant for heating and pumping fuel oil from barges into combat vessels. On October 15, 1942, the War Shipping Administration requisitioned the MacArthur for the Navy and later offered respondent $9,000 as compensation for her. This figure was based upon the Coast Guard survey, the Navy survey, and the rules adopted by the Advisory Board on Just Compensation which had been appointed to clarify the measure of compensation payable by the War Shipping Administration nder § 902(a) of the Merchant Marine Act. ^[2] Respondent protested against the award and, as he was entitled to do under § 902(d) of the Act, accepted 75% of it, and brought suit in the Court of Claims for the difference between the amount he had been offered and the amount he alleged to be due as just compensation.

The Court of Claims found that the market value of the MacArthur on the date of taking was $15,500. 75 F.Supp. 235. 110 Ct.Cl. 66. The Government does not dispute that there was a market nor that value on the market was as found, but insists that there should have been deducted from it an amount representing enhancement 'by the causes necessitating the taking' under the terms of § 902(a). It bases this contention on two findings of the Court of Claims. The first is that 'At the time of the requisition, there existed in and about the Port of New York a rising market and a strong demand for tugs of all types, including the MacArthur. This situation was due to the greatly increased traffic in the harbor during the period of war, and to the fact that the Government had been requisitioning tugs and to the resulting shortage of tugs.' 75 F.Supp. 235, 110 Ct.Cl. at pages 75-76. The second is that the market value of the MacArthur had been enhanced between September 8, 1939, when the President proclaimed a limited national emergency, and October 15, 1942, when she was requisitioned, by the sum of $5,000, part of which, after proclamation of a general national emergency on May 27, 1941, 'was due to the Government's need for vessels, which necessitated the taking of many vessels * * *.' Id. 75 F.Supp. 235, 110 Ct.Cl. at page 77. But the Court of Claims concluded that 'it is not possible to allocate to the (Government's need) a definite part of the increase in market value, but even if it were possible to do so, we do not think that the defendant is entitled to a deduction from market value on this account.' Id., 75 F.Supp. 235, 110 Ct.Cl. at page 78.

The Government's arguments in support of its claim that all or part of the $5,000 enhancement in market value of the MacArthur should be deducted in computing just compensation to respondent ultimately reduce to two. The first is that there should be deducted any speculative increase of value due to the probability of the taking. It is clear that such a deduction must be made where the increase is traceable to the probability that the Government would take the particular property for which compensation is sought. United States v. Miller, 317 U.S. 369, 63 S.Ct. 276, 87 L.Ed. 336, 147 A.L.R. 55. But the application of this principle is impossible here in the face of the Court of Claims' explicit finding that 'prior to the time that the defendant requisitioned the MacArthur there was no reasonable prospect that she would be requisitioned, and no part of the enhancement of her value was due to such a prospect.' It is arguable, however, that the rationale of the Miller case should be extended to property of a less unique character than land-property of a class any member of which would fulfill the taker's need more or less equally well. As to such property there may be speculative increase in value because of the dual expectation that some members of the class will be taken and that the taker may be forced to pay, when the time comes for the award of compensation, something more than what would have been market value had not speculation occurred. See McGovern v. City of New York, 229 U.S. 363, 372, 33 S.Ct. 876, 877, 57 L.Ed. 1228, 46 L.R.A.,N.S., 391. And this might be true even though it could not be said that it was probable that a particular member of the class-in this case a particular tug would be taken. ^[3]

But this is a question we do not need to pass on now because, in addition to the finding that it was not probable that the MacArthur would be taken, the record contains evidence of the most conclusive kind that a taking was improbable: the Government had got rid of the tug only seven months before the taking, with complete awareness that she was capable of being adequately reconditioned. Among those whose dealings in tugs established market value, therefore, whatever may have been the tendency of their activities to bring about speculative increase in the value of tugs generally, it must have seemed so unlikely that the Government would reverse itself and take the MacArthur back that the market value found by the Court of Claims for this particular tug could hardly have reflected enhancement due to speculation at the expense of the Government's need for her. It may be suggested, to be sure, that the need which prompted this reversal might have been anticipated by one shrewd enough to foresee a growing shortage of tugs more accurately than those responsible for the Government's decisions in these matters. But whatever might conceivably be the effect on the market of the operations of such persons, it would be an effect so far beyond the possibility of measurement that it would be futile in the extreme to remand for a finding on the point, especially when it is remembered that the MacArthur was requisitioned not for use as a tug but as a heating plant.

We must reject, therefore, speculation by purchasers of tugs at the expense of the Government's need as a factor contributing to the market value of the MacArthur at the time she was requisitioned. The only other way that has been suggested in which her market value could have been increased by the Government's need is as a result of the increase in demand presumably brought about by previous Government seizures of tugs during a period when, as the Court of Claims found, there was a shortage of tugs due to a great 'increase in shipping and harbor traffic.' In this indirect way, the Government's need can be regarded as a 'cause' of the increase in the MacArthur's market value. Because this need could be foreseen at least by the time of the declaration of limited national emergency on September 8, 1939, the Government argues that all enhancement in the value of vessels since that date should therefore be deducted from their market price in determining just compensation. In the alternative, it urges that there should be deducted that proportion of this increase which is allocable to the Government's intervention in the market.

Whether regarded as founded upon § 902(a) of the Merchant Marine Act or upon judicial principles of just compensation, both these contentions, in my judgment, must be rejected. When the Government first took out of commercial operation some of the tugs which had been thus employed, it could requisition them at a price uninfluenced by its own need. A subsequent increase in the market value, though precipitated by the shortage caused by the earlier taking, could be a direct result only of the tug operators' need for the remaining tugs, not of the Government's for those it had taken. Leaving enhancement attributable to speculation out of account, as the record obliges us to do, the Government could then requisition still more tugs at a market value at most no higher than the level at which the new price had settled. Unlike an increase due to speculation by buyers of tugs that awards for requisitioned tugs would exceed the price likely to be paid by commercial operators purchasing tugs for their own use, an increase due to shortage would affect the price to any purchaser and enhance value to any owner even though no further requisitions were anticipated and even though none were made. Exactly the same increase would result whether the shortage were induced by the expanded business of a commercial operator or by Government requisition. It simply is not true, therefore, that the enhanced price resulting from shortage is a price which the need necessitating the taking, as opposed to need of the tug operators, created.

The need of the tug operators, moreover, not merely for the tugs that had been taken, but for additional tugs, was in its turn only one factor in the complex which makes up demand in a period of high costs, high wages, shortages, and inflation. We speak, in referring to the interacting forces of such a period, of the 'inflationary spiral,' and although a requisition by the Government in the midst of this dynamic process undoubtedly has some effect in accelerating it, it is an effect which loses its ascertainable significance by being merged with countless other factors. Whatever may be the proper scope of the declaration in § 902(a) that the value of vessels taken during the national emergency shall not 'be deemed enhanced by the causes necessitating the taking or use,' the wartime economy itself cannot be regarded as such a cause. Even assuming that there may be other circumstances than those of gambling on the result o an award in which a connection between the taker's intervention in the market and an enhancement of price might be traced, on this record it would be asking for the impossible to insist on an attempt to trace one. The Government has advanced no basis for the undertaking; it points to no evidence already offered which would justify it and suggests none that it might have offered. Under the circumstances, we should not require the Court of Claims to embark upon so murky a sea of speculation. Cf. International Harvester Co. of America v. Commonwealth of Kentucky, 234 U.S. 216, 223, 224, 34 S.Ct. 853, 855-856, 58 L.Ed. 1284.

If what I have said appeals to common sense, market values which have been increased as the result of the interaction of supply and demand in a wartime economy cannot be rejected as the applicable measure of just compensation merely because the competition of the Government, regarded from the point of view of an exercise in tracing ultimate causes, may theoretically be deemed to have contributed to the increase. Nor is it to make a fetish of market value to affirm its selection as a standard in a case where no other standard that offers the possibility of observance has been put forward. The record rules out any increase due to speculation, the only other suggested form of enhancement attributable to the Government's need. Since it is our duty to avoid constitutional adjudication, see the concurring opinion of Mr. Justice Brandeis in Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 341, 346 et seq., 56 S.Ct. 466, 480, 482, 80 L.Ed. 688, and Rescue Army v. Municipal Court, 331 U.S. 549, 568 et seq., 67 S.Ct. 1409, 1419, 91 L.Ed. 1666, the decision below should be affirmed without reaching the constitutional issues raised by the Government's construction of § 902(a).

Notes

1. 'Whenever the President shall proclaim that the security of the national defense makes it advisable or during any national emergency declared by proclamation of the President, it shall be lawful for the Commission to requisition or purchase any vessel or other watercraft owned by citizens of the United States, or under construction within the United States, or for any period during such emergency, to requisition or charter the use of any such property. The termination of any emergency so declared shall be announced by a further proclamation by the President. When any such property or the use thereof is so requisitioned, the owner thereof shall be paid just compensation for the property taken or for the use of such property, but in no case shall the value of the property taken or used be deemed enhanced by the causes necessitating the taking or use. If any property is taken and used under authority of this section, but the ownership thereof is not required by the United States, such property shall be restored to the owner in a condition at least as good as when taken, less ordinary wear and tear, or the owner shall be paid an amount for reconditioning sufficient to place the property in such condition. The owner shall not be paid for any consequential damages arising from a taking or use of property under authority of this section.' 49 Stat. 2011, 2015, as amended, 46 U.S.C. § 1242, 46 U.S.C.A. § 1242.
2. The Advisory Board on Just Compensation, consisting of Judge Learned Hand, Judge John J. Parker, and Judge Joseph C. Hutcheson, Jr., was appointed under Exec.Order 9387, Oct. 15, 1943, 8 Fed.Reg. 14105, 3 C.F.R.1943 Supp. 48-49. The following is the most important of the rules adopted by the Board:
3. The core of the problem emerged in the following colloquy at the hearing held before the Advisory Board on Just Compensation:

'Judge Hand: It comes to this, that a society which foresees a shortage, a consequent shortage in one kind of supply, must either proceed at once to seize, or must subject itself and society at large to the disadvantage which comes from the shortage. But when the shortage comes, it may not say 'So far, and no farther. We leave the property in your hands for use, but we are helpless to prevent your further exploitation of society by your special interest.'

'Is that your position?

'Mr. McInnis: I think, your Honor, that that is the logical implication of my argument.

'Judge Hand: It does seem to me, if it is all perfectly clearly known in advance, to put a society in a rather helpless position as against a small group that has control of all of one vital commodity. You can imagine cases where that would work a result that no one would support. You can imagine the destruction of a large part of food in a community where there was no immediate relief, and, as I understand your argument, they either have to take it now, or when they would find it more convenient to take it they should have to submit to the increase in value, however clearly the owners were advised at a given point, 'This marks the end of that kind of profit-scarcity profit.'

'Mr. McInnis: I think that is correct, Judge. But I would agree-

'Judge Hand (interposing): It might be that the Constitution protects that kind of profit. I won't say now.' 1 Report of Proceedings of the Advisory Board 134-135 (United States Maritime Commission, War Shipping Administration, mimeographed, 1943).