Calculating Just Compensation

Amdt5. Calculating Just Compensation

Fifth Amendment:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

The just compensation required by the Constitution is that which constitutes “a full and perfect equivalent for the property taken.” 1 Originally the Court required that the equivalent be in money, not in kind,2 but more recently has cast some doubt on this assertion.3 Just compensation is measured “by reference to the uses for which the property is suitable, having regard to the existing business and wants of the community, or such as may be reasonably expected in the immediate future,. . . [but] ‘mere possible or imaginary uses or the speculative schemes of its proprietor, are to be excluded.’” 4 The general standard thus is the market value of the property, i.e., what a willing buyer would pay a willing seller.5 If fair market value does not exist or cannot be calculated, resort must be had to other data which will yield a fair compensation.6 However, the Court is resistant to alternative standards, having repudiated reliance on the cost of substitute facilities.7 Just compensation is especially difficult to compute in wartime, when enormous disruptions in supply and governmentally imposed price ceilings totally skew market conditions. Holding that the reasons which underlie the rule of market value when a free market exists apply as well where value is measured by a government-fixed ceiling price, the Court permitted owners of cured pork and black pepper to recover only the ceiling price for the commodities, despite findings by the Court of Claims that the replacement cost of the meat exceeded its ceiling price and that the pepper had a “retention value” in excess of that price.8 By a five-to-four decision, the Court ruled that the government was not obliged to pay the present market value of a tug when the value had been greatly enhanced as a consequence of the government’s wartime needs.9

Illustrative of the difficulties in applying the fair market standard of just compensation are two cases decided by five-to-four votes, one in which compensation was awarded and one in which it was denied. Held entitled to compensation for the value of improvements on leased property for the life of the improvements and not simply for the remainder of the term of the lease was a company that, while its lease had no renewal option, had occupied the land for nearly 50 years and had every expectancy of continued occupancy under a new lease. Just compensation, the Court said, required taking into account the possibility that the lease would be renewed, inasmuch as a willing buyer and a willing seller would certainly have placed a value on the possibility.10 However, when the Federal Government condemned privately owned grazing land of a rancher who had leased adjacent federally owned grazing land, it was held that the compensation owed need not include the value attributable to the proximity to the federal land. The result would have been different if the adjacent grazing land had been privately owned, but the general rule is that government need not pay for value that it itself creates.11

Consequential Damages

The Fifth Amendment requires compensation for the taking of “property,” hence does not require payment for losses or expenses incurred by property owners or tenants incidental to or as a consequence of the taking of real property, if they are not reflected in the market value of the property taken.12 “Whatever of property the citizen has the government may take. When it takes the property, that is, the fee, the lease, whatever, he may own, terminating altogether his interest, under the established law it must pay him for what is taken, not more; and he must stand whatever indirect or remote injuries are properly comprehended within the meaning of ‘consequential damage’ as that conception has been defined in such cases. Even so the consequences often are harsh. For these whatever remedy may exist lies with Congress.” 13 An exception to the general principle has been established by the Court where only a temporary occupancy is assumed; then the taking body must pay the value which a hypothetical long-term tenant in possession would require when leasing to a temporary occupier requiring his removal, including in the market value of the interest the reasonable cost of moving out the personal property stored in the premises, the cost of storage of goods against their sale, and the cost of returning the property to the premises.14 Another exception to the general rule occurs with a partial taking, in which the government takes less than the entire parcel of land and leaves the owner with a portion of what he had before; in such a case compensation includes any diminished value of the remaining portion ( “severance damages” ) as well as the value of the taken portion.15

Monongahela Navigation Co. v. United States, 148 U.S. 312, 326 (1893). The owner’s loss, not the taker’s gain, is the measure of such compensation. Brown v. Legal Found. of Washington, 538 U.S. 216, 236 (2003); United States ex rel. TVA v. Powelson, 319 U.S. 266, 281 (1943); United States v. Miller, 317 U.S. 369, 375 (1943). The value of the property to the government for its particular use is not a criterion. United States v. Chandler-Dunbar Co., 229 U.S. 53 (1913); United States v. Twin City Power Co., 350 U.S. 222 (1956). Attorneys’ fees and expenses are not embraced in the concept. Dohany v. Rogers, 281 U.S. 362 (1930).

Applying the owner's-loss standard, the Court addressed a state program requiring lawyers to deposit client funds that cannot earn net interest in a pooled account generating interest for indigent legal aid. Brown, 538 U.S. at 237. Assuming a taking of the client's interest, his pecuniary loss is nonetheless zero; hence, the just compensation required is likewise. Brown is in tension with the Court's earlier treatment of a similar state program, where it recognized value in the possession, control, and disposition of the interest. Phillips v. Washington Legal Found., 524 U.S. 156, 170 (1998).

Van Horne’s Lessee v. Dorrance, 2 U.S. (2 Dall.) 304, 315 (C.C. Pa. 1795); United States v. Miller, 317 U.S. 369, 373 (1943). back
Regional Rail Reorganization Act Cases, 419 U.S. 102, 150–51 (1974). back
Chicago B. & Q. R.R. v. Chicago, 166 U.S. 226, 250 (1897); McGovern v. City of New York, 229 U.S. 363, 372 (1913). See also Boom Co. v. Patterson, 98 U.S. 403 (1879); McCandless v. United States, 298 U.S. 342 (1936). back
United States v. Miller, 317 U.S. 369, 374 (1943); United States ex rel. TVA v. Powelson, 319 U.S. 266, 275 (1943). See also United States v. New River Collieries Co., 262 U.S. 341 (1923); Olson v. United States, 292 U.S. 264 (1934); Kimball Laundry Co. v. United States, 338 U.S. 1 (1949). Exclusion of the value of improvements made by the government under a lease was held constitutional. Old Dominion Land Co. v. United States, 269 U.S. 55 (1925). back
United States v. Miller, 317 U.S. 369, 374 (1943). back
United States v. 564.54 Acres of Land, 441 U.S. 506 (1979) (condemnation of church-run camp); United States v. 50 Acres of Land, 469 U.S. 24 (1984) (condemnation of city-owned landfill). In both cases the Court determined that market value was ascertainable. back
United States v. Felin & Co., 334 U.S. 624 (1948); United States v. Commodities Trading Corp., 339 U.S. 121 (1950). See also Vogelstein & Co. v. United States, 262 U.S. 337 (1923). back
United States v. Cors, 337 U.S. 325 (1949). See also United States v. Toronto Navigation Co., 338 U.S. 396 (1949). back
Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470 (1973). The dissent argued that since upon expiration of the lease only salvage value of the improvements could be claimed by the lessee, just compensation should be limited to that salvage value. Id. at 480. back
United States v. Fuller, 409 U.S. 488 (1973). The dissent argued that the principle denying compensation for governmentally created value should apply only when the government was in fact acting in the use of its own property; here the government was acting only as a condemnor. Id. at 494. back
Mitchell v. United States, 267 U.S. 341 (1925); United States ex rel. TVA v. Powelson, 319 U.S. 266 (1943); United States v. Petty Motor Co., 327 U.S. 372 (1946). For consideration of the problem of fair compensation in government-supervised bankruptcy reorganization proceedings, see New Haven Inclusion Cases, 399 U.S. 392, 489–95 (1970). back
United States v. General Motors Corp., 323 U.S. 373, 382 (1945). back
United States v. General Motors Corp., 323 U.S. 373 (1945). In Kimball Laundry Co. v. United States, 338 U.S. 1 (1949), the Government seized the tenant’s plant for the duration of the war, which turned out to be less than the full duration of the lease, and, having no other means of serving its customers, the laundry suspended business for the period of military occupancy; the Court narrowly held that the government must compensate for the loss in value of the business attributable to the destruction of its “trade routes,” that is, for the loss of customers built up over the years and for the continued hold of the laundry upon their patronage. See also United States v. Pewee Coal Co., 341 U.S. 114 (1951) (in temporary seizure, Government must compensate for losses attributable to increased wage payments by the Government). back
United States v. Miller, 317 U.S. 369, 375–76 (1943). “On the other hand,” the Court added, “if the taking has in fact benefitted the remainder, the benefit may be set off against the value of the land taken.” Id. back

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