UNITED STATES OF AMERICA, PETITIONER V. 50 ACRES OF LAND, ETC. AND THE CITY OF DUNCANVILLE, TEXAS No. 83-1170 In the Supreme Court of the United States October Term, 1983 On Writ of Certiorari to the United States Court of Appeals for the Fifth Circuit Brief for the United States TABLE OF CONTENTS Opinions below Jurisdiction Constitutional provision involved Statement Summary of argument Argument Fair market value is the proper measure of just compensation for the taking of publicly owned property that has a reasonably ascertainable market value A. Fair market value is the controlling standard for measuring just compensation B. No justification for a departure from the fair market value measure of compensation exists in this case C. The court of appeals' effort to adjust the substitute facilities standard to avoid a windfall only demonstrates the appropriateness of the fair market value standard; the court of appeals formulation renders the determination of just compensation unnecessarily difficult and will prejudice the United States Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1a-19a) is reported at 706 F.2d 1356. The district court's opinion (Pet. App. 20a-28a) is reported at 529 F. Supp. 220. JURISDICTION The judgment of the court of appeals (Pet. App. 29a-30a) was entered on June 13, 1983. An order denying timely petition for rehearing (Pet. App. 31a-32a) was entered on September 19, 1983. On December 8, 1983, Justice White extended the time for filing a petition for a writ of certiorari through January 17, 1984. The petition was filed on January 16, 1984, and was granted on March 19, 1984. The jurisdiction of this Court rests on 28 U.S.C. 1254(1). CONSTITUTIONAL PROVISION INVOLVED The Fifth Amendment to the United States Constitution provides in pertinent part: (N)or shall private property be taken for public use, without just compensation. QUESTIONS PRESENTED Whether, when the United States exercises its power of eminent domain to take property owned by a state or local government entity, the Just Compensation Clause requires payment of compensation measured by reference to the cost of acquiring a substitute facility, rather than the usual fair market value standard, in a case where the fair market value of the condemned property is reasonably ascertainable. STATEMENT 1. The United States commenced this action in the United States District Court for the Northern District of Texas by filing a complaint in condemnation, coupled with a declaration of taking, pursuant to 40 U.S.C. 258a, on October 3, 1978. The site acquired was a 50-acre sanitary landfill, owned by respondent, the City of Duncanville, Texas, that it used for the purpose of disposal of regular garbage collections. The site was needed by the United States to accommodate the United States Army Corps of Engineers Lakeview Lake flood control project (subsequently renamed the Joe Pool Lake Flood control project). As estimated compensation, the United States paid $199,950 into the registry of the court, which was subsequently paid over to respondent. Pet. App. 3a & n.2. /1/ The landfill site had been operated by respondent for that purpose since 1969; since 1977, the City had operated its landfill under a state permit (Tr. 69-71). At the date of taking, approximately 15 acres of respondent's landfill had been filled with waste and approximately five acres of the total area were unusable for landfill because of the presence of a creek (Pet. App. 13a & n.8; Tr. 85). Approximately 313,000 cubic yards of the landfill's capacity had been used, and the remaining capacity was 650,000 cubic yards, an amount that gave it an expected remaining life of 12.8 years (Pet. App. 14a; Tr. 383-388, 398). Immediately adjacent to respondent's landfill was a privately owned landfill on a 64.28 acre tract, which had also been acquired by the United States (Tr. 211-213, 345, 352). Following the United States' acquisition of respondent's landfill site, respondent acquired a new landfill facility, consisting of 113.7 acres, at a location approximately the same driving time from Duncanville as the prior facility. According to the uncontradicted trial testimony of an expert geologist, more favorable soil and water-table conditions at the new site made it a better landfill location than the former site; the new site could be excavated to a depth of 20 feet, twice the usable depth of the former landfill. The usable capacity of respondent's new site was 2,100,000 cubic yards, giving it an expected lifetime of 41.6 years. The residual capacity of the former site thus was only 38.8% of the capacity of the replacement landfill. Pet. App. 3a, 13a-14a; Tr. 397-399. 2. a. Prior to trial, a dispute emerged between the parties as to the proper measure of just compensation. The government contended that fair market value was the applicable standard; respondent maintained that it was entitled to recover the entire sum expended in acquiring, improving and putting into operation its substitute facility, which, it claimed, amounted to over $1,276,000 (see Pet. App. 16a-17a n.10). In order to resolve this dispute as to the proper measure of compensation, the government filed a motion in limine, requesting that the court limit the evidence to be received at trial to evidence relating to the fair market value of the property, and exclude all evidence as to the cost of reproducing the property taken or acquiring a substitute facility (R. 62-79). This motion was denied (R. 111), the district court noting that in United States v. 564.54 Acres of Land, 441 U.S. 506, 509 n.3 (1979) (Lutheran Synod), this Court had reserved the question whether a substitute facilities measure of compensation is appropriate when publicly owned property is taken. The district court reasoned that "a complete factual record should be developed from which an independent determination of the appropriate measure of compensation can be made" (R. 111). b. The issue of just compensation was then tried to a jury. Both parties presented testimony as to the fair market value of the property taken. Appraisers who testified for the government and those testifying for respondent agreed that a district market existed for landfill properties in the vicinity of Duncanville, and that the fair market value of the condemned site was readily ascertainable by reference to sales of other, comparable, landfill properties in the area. See Pet. App. 7a, 25a. /2/ In addition, over the government's continuing objection (R. 151-152), respondent presented the testimony of Robert B. Lee, Duncanville's Director of Public Works, that the aggregate cost of acquisition and preparation of the substitute landfill site established by the City was $1,276,311.76 (Tr. 78). Lee's testimony indicated that although respondent has the power of eminent domain, it did not attempt to acquire a landfill site comparable in size to its former site, and that respondent did not have the new landfill site it purchased appraised prior to making its negotiated purchase and did not bargain with the vendor over the price (Tr. 91-94). The testimony of the government's appraisers indicated that the amount paid by respondent to purchase its substitute site was substantially in excess of the fair market value of that site (Tr. 273, 282, 319-321, 357). The United States moved to strike Lee's testimony, on the ground that it was not probative of the value of a reasonably necessary substitute facility (Tr. 433-434). The court denied the government's motion (Tr. 435). c. At the close of the evidence, the district court submitted the case to the jury, directing the jury to respond to special questions. Through these questions, the jury was asked to determine both the fair market value of respondent's landfill on the date of taking, and the cost to respondent of establishing a substitute sanitary landfill. /3/ The government objected unsuccessfully to submission of the substitute facilities issue to the jury (Tr. 499-500); see also R. 151-152), while respondent objected unsuccessfully to submission of the fair market value question (Tr. 499-500). The jury returned a verdict of $225,000 based upon the fair market value standard, and an alternative verdict of $723,654.01 as the cost of substitute facilities (Pet. App. 4a). d. Each party then moved for entry of judgment based upon the verdict reflecting the measure of compensation it had advocated (R. 203, 223). The district court ruled in the government's favor, entering judgment against the United States in the amount of the fair market value of the property taken, as determined by the jury ($225,000), plus interest due upon the deficiency in the estimated compensation previously paid by the United States, at the rate of 6%. /4/ The district court held, initially, that respondent "did not meet its burden of establishing what would be a reasonable cost of a substitute facility" (Pet. App. 22a). The court noted that respondent's evidence reflected only its actual costs in acquiring and developing its new landfill site, which was much larger than the facility being replaced, and had more unused capacity. The court also suggested that the evidence indicated that the purchase price paid by respondent was excessive. Pet. App. 21a-22a. The district court further held that, even if the evidence supported a finding as to the reasonable cost of an equivalent facility, the fair market value standard was the proper measure of just compensation, where, as here, a market for property of the kind taken exists, and the market value of the property taken is ascertainable (Pet. App. 22a-25a). Noting that fair market value is ordinarily the proper measure of compensation, the court found that neither of the exceptions to that rule recognized by this Court in Lutheran Synod, 441 U.S. at 513, was applicable (Pet. App. 23a-25a). The court observed, first, that here, unlike cases involving the taking of streets or sewers or other local government property for which no market exists, or for which the market is so thin as to make comparable sales data unreliable, the record established that a fair market value was readily ascertainable for the property taken (ibid.). Second, the court determined that compensation based upon fair market value placed respondent "in as good a position pecuniarily as if its property had not been taken" and that an award based upon fair market value accordingly "does not impermissibly deviate from the indemnity principle" (id. at 25a). The court also noted that the fair market value standard is a desirable one because it provides a relatively objective measure of compensation due (id. at 22a). 3. a. The court of appeals reversed and remanded for further proceedings (Pet. App. 1a-19a). The court of appeals recognized that this Court's decision in Lutheran Synod left open the questions whether, and in what circumstances, the usual fair market value measure of compensation may be superseded by a substitute facilities cost measure when publicly owned property is taken (Pet. App. 4a). The court also recognized that the substitute facilities doctrine generally has been applied to taking of "streets, alleyways, bridges, sewers, and other public facilities for which fair market value cannot accurately be determined" (id. at 6a). And the court acknowledged (id. at 7a (footnote omitted)) that (t)his is a rather different case. Unlike the vast majority of substitute facility cases, here the parties agree that the landfill has a determinable market value, although at trial they disagreed as to what that value was. Nevertheless, the court of appeals concluded that "the reasonable cost of a functionally equivalent facility is the just measure of compensation when a public facility is obligated to replace the condemned property" (Pet. App. 7a). Reasoning from the "indemnity principle" underlying the Fifth Amendment Just Compensation Clause, the Court concluded that respondent would not be made whole unless reimbursed for "the amount of money reasonably spent in (its) venture to create a functionally equivalent facility" that it was obliged to establish (Pet. App. 9a). /5/ (The court of appeals assumed for the purpose of its analysis that replacement of respondent's landfill facility was either a legal or practical necessity, but left open for consideration on remand the question whether this was, in fact, so (Pet. App. 8a-9a & n.6). b. The court of appeals also rejected the district court's alternative holding that respondent had not met its burden of proving the cost of a functionally equivalent substitute facility. By presenting testimony as to the cost of acquiring and developing its substitute site, and testimony that the entirety of the substitute site had been acquired in order to avoid severance damage claims that respondent believed would be costly, respondent had met its burden of going forward with evidence of the cost of substitute facilities, the court held. Pet. App. 12a-13a. Nevertheless, the court of appeals did not direct entry of judgment based upon the jury's alternative verdict of $723,654.01. The court observed that the substitute site acquired by respondent was substantially larger in area than the facility replaced and was usable to a greater depth. The substitute site accordingly could be expected to serve respondent for a far longer time than its former site, which had been acquired by the government. The court of appeals concluded that the district court's instructions defining the substitute facilities measure of compensation (see page 5 note 2, supra) "did not take into account the need to deduct for the benefits which Duncanville gained from the acquisition of the new fill" (Pet. App. 14a) and that a remand for retrial under proper instructions accordingly was required. The precise manner in which such a deduction was to be made was left open for determination on remand (id. at 16a). /6/ The court stated that respondent "is entitled to reimbursement for the reasonable cost of an alternative site, along with the reasonable cost of preparing that site for use as a landfill" (id. at 17a). The court cautioned that "(w)hether the price actually paid (by respondent for its new site) is reasonable under the circumstances is for the jury to decide" (ibid.). /7/ SUMMARY OF ARGUMENT A. In giving content to the just compensation requirement of the Fifth Amendment, this Court has started from the precept that the owner of condemned property should, in general, be left in as good a position pecuniarily as if his property had not been taken. However, this principle of indemnity has never been given full and literal force. Because of serious practical difficulties in assessing the value an owner places on property at a given time, the Court has recognized the need for a relatively objective working rule. The Court accordingly has fashioned the concept of fair market value to determine compensation due to the condemnee. And the Court has repeatedly emphasized that the fair market value standard fulfills the constitutional requirement of just compensation even when such an award does not compensate for all values an owner may derive from his property or otherwise fails to achieve perfect indemnification. This Court's decisions establish, moreover, that there are only two situations where an alternative measure of just compensation must be employed: when market value cannot reasonably be ascertained or when application of the market value standard would result in manifest injustice to the owner or the public. B. The decision below is irreconcilable with this Court's teaching that fair market value affords just compensation save in two unusual situations. The court of appeals failed to understand that the goal of indemnification is to be pursued through objective working rules that can be administered by the courts. And it plainly did not find that either of the two situations that justify a departure from the fair market value measure of compensation is presented here. Nor would any such determination be permissible in this case. 1. First, as in Lutheran Synod, the record reflects that the fair market value of respondent's landfill is ascertainable by reference to comparable sales. Practical necessity accordingly provides no basis for a departure from the settled constitutional measure of just compensation. Moreover, as the court of appeals acknowledged, because the fair market value standard is workable here, unlike cases involving federal acquisition of streets or alleyways that have no ascertainable market value, this case does not present the circumstances that the lower courts typically have found sufficient to warrant recourse to an alternative to the fair market value standard -- i.e., the substitute facilities doctrine. 2. Nor did the court of appeals even purport to find that an award of market value would produce injustice or depart significantly from the indemnity principle here. Indeed, the court of appeals left undisturbed the district court's determination that an award of market value would place respondent in as good a position pecuniarily as if its property had not been taken. The fact that respondent may be required (by law or practical necessity) to replace its facility does not set respondent apart from private condemnees or render the fair market value standard of compensation inappropriate here. The actual replacement needs and costs of private condemnees have never been considered relevant to determining just compensation, and no reason appears to treat public condemnees differently. Moreover, the market value principle operates even-handedly with respect to public condemnees, mandating payment of compensation gauged by the market value of the property taken, irrespective of whether that amount is more or less than the actual substitution costs borne by the condemnee, if any. The court of appeals' decision also appears to rest upon the unexplained and erroneous assumption that the fair market value measure of just compensation diverges in principle from a substitute facilities cost measure -- even if the latter is tempered to avoid windfalls to the condemnee by limiting it to the reasonable cost of a functionally equivalent facility. That assumption, however, is inconsistent with the very definition this Court has given the fair market value standard: "what a willing buyer would pay in cash to a willing seller" (United States v. Miller, 317 U.S. 369, 374 (1943)). The reasonable cost of a functionally equivalent substitute facility generally should not be greater than what a willing buyer would pay a like-minded seller, provided that a market exists for property of the kind taken, as it does in this case. This is especially so when the condemnee is itself a governmental body, vested, as such bodies typically are -- and respondent is -- with the power of eminent domain. Respondent's eminent domain authority protects it from paying an exorbitant price in the market place for a substitute facility, and enables it to acquire whatever interest and quantum of property it deems appropriate in establishing a substitute site. Moreover, because a public condemnee need not, under the Fifth and Fourteenth Amendments, itself pay more than fair market value to acquire a substitute site, no different measure of compensation need be afforded to such a condemnee. A substitute facilities measure, to the extent it diverges from the ascertainable fair market value of the property taken, thus confers a windfall upon the public condemnee. C. The very adjustments to the cost of substitute facilities that the court of appeals acknowledged to be necessary if that measure is not to confer a substantial windfall upon the respondent confirm that fair market value is the standard by which just compensation should be measured, where feasible. These adjustments amount to a highly inefficient and speculative attempt to achieve through a substitute facilities cost-based computation a result approximating the fair market value of the property taken. The practical impact of the court of appeals' decision, then, at best, will be to substitute a cumbersome procedure for the equitable, workable and proven fair market value standard. As a practical matter, however, it is more likely that the undue attention that would be focused upon the actual (albeit inflated) cost of the substitute facilities acquired by respondent by the court of appeals' prescription for a substitute facilities standard would lead to entry of an award against the United States substantially in excess of the value of the property taken. The fair market value standard, by contrast, affords respondent the just compensation that is its due under the Fifth Amendment, without conferring a windfall upon respondent at the expense of the United States. ARGUMENT FAIR MARKET VALUE IS THE PROPER MEASURE OF JUST COMPENSATION FOR THE TAKING OF PUBLICLY OWNED PROPERTY THAT HAS A REASONABLY ASCERTAINABLE MARKET VALUE The court of appeals' decision mandating application of a substitution cost measure of compensation for publicly owned property in circumstances where the market value of the property taken is reasonably ascertainable effects a substantial departure from the general principles governing determination of just compensation that have been developed by this Court. By imposing the substitute facilities measure in situations where the fair market value standard prescribed by the Court provides a workable and fair method of determining just compensation, the decision below renders that determination unnecessarily burdensome and speculative. A. Fair Market Value Is The Controlling Standard For Measuring Just Compensation In United States v. 564.54 Acres of Land, 441 U.S. 506 (1979) (Lutheran Synod), this Court held that the Just Compensation Clause does not require the United States to pay damages measured by the cost of substitute facilities instead of the traditional fair market value standard, when the United States takes property owned by a private nonprofit organization that is operated for a public purpose. The Court declined in Lutheran Synod to decide whether, or under what circumstances, the cost of substitute facilities might be the constitutionally mandated measure of just compensation when publicly owned property is taken. 441 U.S. at 509 n.3, 515. /8/ Nevertheless, Lutheran Synod outlines the fundamental principles that are controlling here (id. at 510-511 (footnote omitted)): In giving content to the just compensation requirement of the Fifth Amendment, this Court has sought to put the owner of condemned property "in as good a position pecuniarily as if his property had not been taken." Olson v. United States, 292 U.S. 246, 255 (1934). However, this principle of indemnity has not been given its full and literal force. Because of serious practical difficulties in assessing the worth an individual places upon particular property at a relatively objective working rule. See United States v. Miller, 317 U.S. 369, 374 (1943); United States v. Cors, 337 U.S. 325, 332 (1949). The Court therefore has employed the concept of fair market value to determine the condemnee's loss. Under this standard, the owner is entitled to receive "what a willing buyer would pay a willing seller" at the time of taking. United States v. Miller, supra, at 374 (additional citations omitted). Notwithstanding the indemnity ideal, mentioned above, that it is intended to effectuate, the Court has emphasized that the fair market value standard fulfills the constitutional requirement of just compensation and accordingly is to be employed even when such an award does not "compensate for all values an owner may derive from his property," omits the "special value of property to the owner arising from its adaptability to his particular use" or "fails fully to indemnify the owner for his loss" (Lutheran Synod, 441 U.S. at 511; Kirby Forest Industries, Inc. v. United States, No. 82-1994 (May 21, 1984), slip op. 8 n.15)). The fair market value measure comports fully with the Fifth Amendment even though, in particular cases, its application may result in advantage or disadvantage to the condemnee (Olson v. United States, 292 U.S. 246, 255 (1934)): (Market value) may be more or less than the owner's investment. He may have acquired the property for less than its worth or he may have paid a speculative and exhorbitant price. Its value may have changed substantially while held by him. The return yielded may have been greater or less than interest, taxes and other carrying charges. The public may not by any means confiscate the benefits, or be required to bear the burden, of the owner's bargain. The Court has explained that occasional departures from a regime of perfect indemnification that may result from use of the fair market value measure of just compensation are "tolerate(d) * * * because of the difficulty of assessing the value an individual places upon a particular piece of property and because of the need for a clear, easily administrable rule governing the measure of 'just compensation,'" Kirby Forest Industries Inc., slip op. 8 n.15. Justice Frankfurter, writing for the Court, amplified the foundation for the governing fair market value standard in Kimball Laundry Co. v. United States, 338 U.S. 1, 5 (1949): The value of property springs from subjective needs and attitudes; its value to the owner may therefore differ widely from its value to the taker. Most things, however, have a general demand which gives them a value transferable from one owner to another. As opposed to such personal and variant standards as value to the particular owner whose property has been taken, this transferable value has an external validity which makes it a fair measure of public obligation to compensate the loss incurred by an owner as a result of the taking of his property for public use. /9/ In sum, the Court has adopted the fair market value standard of compensation because it strikes a necessary and proper "'balance between the public's need and the claimant's loss upon' condemnation of property for a public purpose" (Lutheran Synod, 441 U.S. at 512, quoting United States v. Toronto, Hamilton & Buffalo Navigation Co., 338 U.S. 396, 402 (1949)). See generally J. Gelin and D. Miller, The Federal Law of Eminent Domain Section 3.1 (1982). /10/ The Court has recognized, however, that there are two situations where an alternative measure of just compensation must be fashioned because the fair market value standard would be inappropriate: "when market value has been too difficult to find, or when its application would result in manifest injustice to owner or public." United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950). These exceptions to the fair market value rule are exclusive: "Other measures of 'just compensation' are employed only 'when market value (is) too difficult to find, or when its application would result in manifest injustice to owner or public . . . .'" Kirby Forest Industries, Inc., slip op. 8 n.14 (quoting Commodities Trading Corp., 339 U.S. at 123. Thus, here, as in Lutheran Synod, the fair market value measure of just compensation must be applied unless "application of the fair-market-value standard * * * would be impracticable or * * * an award of market value would diverge so substantially from the indemnity principle as to violate the Fifth Amendment" (441 U.S. at 513). B. No Justification For A Departure From The Fair Market Value Measure Of Compensation Exists In This Case The decision below is irreconcilable with this Court's teaching summarized above. Indeed, the linchpin of the court of appeals' analysis is an approach to the case that, in the guise of fidelity to that teaching, actually stands the governing principle on its head (Pet. App. 7a-8a): Although the indemnity principle which animates the just compensation clause of the Fifth Amendment "has not been given its full and literal force," Lutheran Synod, 441 U.S. at 510-11, 99 S. Ct. at 1856-57, 60 L. Ed. 2d at 440, it must nevertheless be our aim to place a condemnee "in as good a position pecuniarily as if his property had not been taken. * * *" Olson v. United States, 292 U.S. 246, 255, 54 S. Ct. 704, 708, 78 L. Ed. 2d 1236, 1244 (1934). Compare pages 16-17, supra. And the court of appeals plainly did not find -- and could not responsibly have found -- that either of the two situations that justify a departure from the fair market value measure of compensation is presented here. 1. First, there can be no claim here that market value "is too difficult to ascertain" or that the property involved is of a "type so infrequently traded that we cannot predict whether the prices previously paid, assuming there have been prior sales, would be repeated in a sale of the condemned property" (Lutheran Synod, 441 U.S. at 513). The court of appeals frankly conceded that respondent's "landfill has a determinable market value" (Pet. App. 7a). That conclusion clearly was compelled by the record (see pages 4-5 & note 2, supra), and there has been no dispute on this point during the course of these proceedings (see Pet. App. 7a). Accordingly, here, as in Lutheran Synod itself (441 U.S. 513-514), practical considerations pertaining to the determination of a representative market value provide no justification for a departure from the fair market value standard. /11/ Specifically, because the market value of respondent's landfill site was reasonably ascertainable by the trier of fact, this case is, as the court of appeals conceded (Pet. App. 7a), "rather different" from those cases in which the lower courts typically have sanctioned the use of a measure of compensation gauged with reference to the cost of establishing or acquiring a substitute facility. As the court of appeals observed (Pet. App. 6a) "the substitute facilities standard has been applied to the condemnation of streets, alleyways, bridges, sewers and other public facilities for which fair market value cannot accurately be determined." See, e.g., Washington v. United States, 214 F.2d 33 (9th Cir. 1954) (highway); Town of Clarksville v. United States, 198 F.2d 238 (4th Cir. 1952), cert. denied, 344 U.S. 927 (1953) (sewer system); City of Fort Worth v. United States, 188 F.2d 217 (5th Cir. 1951) (street); Woodville v. United States, 152 F.2d 735 (10th Cir.), cert. denied, 328 U.S. 842 (1946) (streets, sidewalks and alleys); United States v. Des Moines County, 148 F.2d 448 (8th Cir. 1945) (streets). /12/ In such cases it is difficult or impossible to fix compensation by the fair market value standard because facilities of this kind ordinarily are not bought and sold in the market and are seldom, if ever, operated privately or on a profit-making basis. See Lutheran Synod, 441 U.S. at 513; Mayor & City Council v. United States, 147 F.2d 786, 790 (4th Cir. 1945). Because some alternative to the fair market value standard necessarily is required in such cases, the reasonable cost of creating an equivalent facility, less an appropriate allowance for depreciation, may serve as a standard for just compensation. /13/ The rationale of the foregoing cases, however, is wholly inapplicable here. 2. Nor did the court of appeals purport to determine that "an award of market value would diverge so substantially from the indemnity principle as to violate the Fifth Amendment" (Lutheran Synod, 441 U.S. at 513). Indeed, the court of appeals did not undertake to give any reason why a properly determined award of just compensation based upon the fair market value standard would be inadequate -- much less so substantial a departure from the indemnity principle as to violate the Fifth Amendment. The district court had determined that the fair market value award embodied in its judgment did place respondent "in as good a position pecuniarily as if its property had not been taken" and that the award accordingly "does not impermissibly deviate from the indemnity principle" (Pet. App. 25a). Yet, the court of appeals did not explicitly find any error in the district court's assessment. Rather, unlike the district court, which properly applied the teaching summarized in Lutheran Synod, the court of appeals assumed to decide by its own lights that use of any measure of compensation other than the cost of substitute facilities "would be to deny just compensation" (Pet. App. 9a). a. In support of its judgment, the court of appeals observed that, unlike the nonprofit camp operator in Lutheran Synod (see 441 U.S. at 515-516), respondent "presumably was required to spend certain monies to purchase a new landfill site and prepare that site for its purpose," (Pet. App. 8a). /14/ But, so to state is scarcely to establish the constitutional inadequacy of compensation for the taking measured by the fair market value of the property taken. Private condemnees are typically required, as a practical matter, to replace the facilities -- residences and business premises -- that have been acquired by the sovereign by exercise of the power of eminent domain. /15/ Yet -- with the exception of the court of appeals decision reversed by this Court in Lutheran Synod -- it has never been thought that the Just Compensation Clause requres the courts to undertake to evaluate a condemnee's need to replace facilities taken by eminent domain, or to fix compensation due therefor by a substitution cost standard. Cf. United States v. Westinghouse Electric & Manufacturing Co., 339 U.S. 261, 264 (1950). /16/ Moreover, even when replacement of property diverted to government use is in some sense legally required -- as, for instance, to permit performance of a condemnee's contractual obligations -- the existence of those obligations would not be relevant to the assessment of just compensation absent an actual taking of the contract rights (in addition to the property that is the subject of the contract). See Omnia Commercial Co. v. United States, 261 U.S. 502 (1923). This result is but a reflection of the general rule that just compensation does not include "nontransferable values deriving from (the former owner's) unique need for property or idiosyncratic attachment to it. Kimball Laundry Co., 338 U.S. at 5. In short, it is not at all apparent how an imperative to replace a condemned facility justifies paying more than market value. Lutheran Synod, 441 U.S. at 518 (White, J., concurring). As previously noted (page 17), the "objective working rule" embodied in the fair market value standard for just compensation may, in a particular case, be more or less generous than a measure based upon the actual cost to the condemnee of the property taken. Olson v. United States, 292 U.S. at 255. So, too, fair market value may in a particular instance be more or less than the actual cost of replacing the property taken. This is not a one-sided rule; it may work to the advantage of either the United States or the condemnee. For instance, the air market value standard would ensure that compensation due to a governmental condemnee is not diminished simply because the site needed to replace a facility taken by the United States is donated to the local government by a civic-minded individual or corporation and accordingly need not be acquired at local government expense. Nor is compensation due a local government condemnee to be diminished simply because the municipal corporation is able to strike a more favorable bargain in acquiring a substitute site than data on comparable sales might have suggested. Indeed, although the question does not appear to be entirely settled, the more carefully-considered view appears to be that when replacement of a local government facility or site taken by the United States is unnecessary, but the facility or site had demonstrable market value in uses that were not legally foreclosed, the condemnee is entitled to compensation based upon the fair market value of the property taken, and is not to be denied compensation for property that it owned or limited to nominal compensation. See, e.g., United States v. 3,727.91 Acres of Land (Elsberry Drainage District), 563 F.2d 357, 359-360 & n.3 (8th Cir. 1977); United States v. Certain Property in the Borough of Manhattan, 403 F.2d 800, 804 n.9 (2d Cir. 1968); California v. United States, 395 F.2d 261, 266 (9th Cir. 1968). /17/ Accordingly, the fair market value standard of compensation operates in an even-handed manner as applied to the taking of public property, such as that in issue here, that has a reasonably ascertainable market value. It provides that measure of compensation that is just both to the condemnee and to the United States. See United States v. Commodities Corp., 339 U.S. at 123; Bauman v. Ross, 167 U.S. 548, 570 (1897); Searl v. School District, 133 U.S. 553, 562 (1890). b. The court of appeals declared (Pet. App. 9a) that respondent's "loss from the condemnation was the amount of money reasonably spent in (respondent's) venture to create a functionally equivalent facility." The court of appeals evidently assumed that an award of fair market value compensation would impermissibly leave respondent less than whole. That assumption, however, runs directly afoul of the very definition of fair market value: "what a willing buyer would pay in cash to a willing seller" at the time of the taking. United States v. Miller, 317 U.S. 369, 374 (1943); Lutheran Synod, 441 U.S. at 511; Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, (1973). Because the record establishes that a market existed for landfill properties comparable to respondent's former site in the vicinity of Duncanville, and that the fair market value of the condemned property was ascertainable, there is no reason to believe that the reasonable cost of a functionally equivalent substitute facility would be greater than what a willing buyer would pay to a willing seller for such a facility. Contrary to what the court of appeals apparently believed, the fact that the condemnee is a governmental body does not abrogate the relationship between fair market value and the ideal of indemnification. Indeed, the reverse appears to be true, for, like respondent (see page 5 supra), state and local government condemnees themselves typically enjoy the power of eminent domain. The eminent domain authority of public condemnees serves to confirm the constitutional adequacy of the fair market value standard of compensation in three respects. First, it is settled that the Fifth (and Fourteenth) Amendments are satisfied by the payment of fair market value when a state or local government entity acquires private property. Thus, to allow any different or more generous recovery to local government condemnees would provide them with a windfall, -- i.e., more than it would cost them to acquire a substitute facility in eminent domain proceedings. Second, even if a state or local government condemnee makes no resort to eminent domain proceedings to replace property taken by the United States, the availability of the power of eminent domain protects the condemnee in negotiating with the owners of substitute sites. It offsets any opportunity that might otherwise exist for a private owner to take advantage of a city's pressing need for substitute property that may be in short supply in the marketplace, by demanding an exorbitant price. Finally, the availability of the power of eminent domain to a public condemnee may substantially broaden its range of choice in locating a substitute site. It need not confine its consideration to sites that are already on the market, or those where the owner is willing to sell; likewise the public condemnee is free to acquire precisely the quantum of property and the interest therein that it needs to carry on the function formerly carried out at the site acquired by the United States. As a result, an award of fair market value to a public condemnee is well-calculated to fulfill the objectives of the indemnity principle. C. The Court of Appeals' Effort to Adjust the Substitute Facilities Standard to Avoid A Windfall Only Demonstrates the Appropriateness of the Fair Market Value Standard; the Court of Appeals' Formulation Renders the Determination of Just Compensation Unnecessarily Difficult and Will Prejudice the United States The court of appeals correctly recognized that if respondent were awarded the entire amount it expended in acquiring and developing the substitute facility it actually established, it would, for two separate reasons, stand to receive a substantial windfall. First, the court acknowledged, such an award would overcompensate respondent because the substitute facility it acquired is substantially larger, more capacious, and has a much longer usable life than the landfill being replaced (Pet. App. 13a-14a). Second, the court recognized that respondent would be overcompensated if reimbursed for its actual expenses in the event those expenses were not reasonable under the circumstances (id. at 17a). To limit the windfall potential of the substitute facilities cost measure, the court of appeals devised two correctives. First, the court directed that the jury be instructed upon remand to make an appropriate deduction from the substitute facilities cost to reflect "the benefits Duncanville gained from the acquisition of the new landfill" (id. at 14a; see page 10 & note 6, supra). Second, the court of appeals made clear that the jury should be instructed upon remand to disallow the costs respondent seeks to recover to the extent they exceed what is "reasonable under the circumstances" (Pet. App. 17a). The very adjustments that the court of appeals recognized to be necessary confirm that its decision to abandon the fair market value criterion was unjustified. If the adjustments are to achieve the objectives outlined by the court of appeals, they amount to a highly inefficient and speculative means of achieving through a substitute facilities-cost-based computation a result that approximates the fair market value of the property taken. For instance, deduction from the cost of substitute facilities of an amount reflecting the enhanced value of the new facility as compared with the old, will undoubtedly limit the windfall potential of the substitute facilities measure (but see page 32 note 18, infra). But the same objective is achieved, more directly, by determining the market value of the property actually taken, through examination of comparable sales. Moreover, although the court of appeals found fault with the district court's instructions in this regard (see page 10, supra), it did not specify how an appropriate deduction reflecting the enhanced value of the replacement facility should be calculated, and it suggested that various approaches might be acceptable. Pet. App. 15a & n.9. This amorphous prescription for an inherently subjective adjustment is a poor substitute for the "relatively objective working rule" (Lutheran Synod, 441 U.S. at 511) afforded by fair market valuation. Similarly, the court of appeals' casual suggestion that whether respondent's actual expenditures were "reasonable under the circumstances" is a question for the jury on remand (Pet. App. 17a) cloaks a complex matter in deceptively simple garb. The court did not indicate how the jury was to make this assessment. But unless the jury is to be turned loose to speculate on this matter, it must have both evidence and a legal standard to guide it. The best available benchmark for determining reasonableness in the circumstances, however, is the market value of the property acquired. The combined effect of the two adjustments contemplated by the court of appeals, if they are meticulously carried out, will be to attempt to reconstruct the market value of the property actually taken. But the result, at best, would be to impose superfluous layers of complexity upon a determination that can more readily and directly be made through the traditional fair market value approach. No warrant exists for this burdensome departure from the ordinary method of determining just compensation. Moreover, it is reasonable to fear that, as a practical matter, the United States will be unfairly prejudiced by the procedure prescribed by the court of appeals. That procedure focuses undue attention upon the actual expenditures incurred by a condemnee such as respondent, irrespective of their reasonableness in the circumstances and the substantial disparities between the value of what was taken and that of the substitute facility acquired. The likely result is that the United States not infrequently would be held liable for amounts substantially in excess of the fair market value of the property it has taken, with a concomitant windfall to the condemnee. /18/ Thus, here, just as in Lutheran Synod, even if use of the fair market value standard of just compensation departs from the indemnity principle in any respect, its use is "justified by the necessity for a workable measure of valuation" (441 U.S. at 516-517), and is "consistent with the 'basic equitable principles of fairness,' United States v. Fuller, 409 U.S. 488, 490 (1973), underlying the Just Compensation Clause" (441 U.S. at 517). CONCLUSION The judgment of the court of appeals should be reversed. /19/ Respectfully submitted. REX E. LEE Solicitor General F. HENRY HABICHT, II Assistant Attorney General LOUIS F. CLAIBORNE Deputy Solicitor General ANTHONY C. LIOTTA Deputy Assistant Attorney General JOSHUA I. SCHWARTZ Assistant to the Solicitor General RAYMOND N. ZAGONE DIRK D. SNEL THOMAS H. PACHECO Attorneys JUNE 1984 /1/ The operation of 40 U.S.C. 258a is described in Kirby Forest Industries, Inc. v. United States, No. 82-1994 (Feb. 22, 1984), slip op. 2-3. /2/ The government's witnesses all testified that a market for landfills existed in the area, and testified to fair market value appraisals of respondent's landfill site ranging from $160,410 to $190,000, based upon comparable sales data (Tr. 208, 218-229, 249-250, 276, 295-297, 298-310, 345-353, 360). Appraisers Carl Mash and R. Edwin White, who testified for respondent, agreed that a market existed for landfill properties in the area, and, based upon sales they deemed comparable, offered valuation appraisals of $370,000 and $367,583, respectively (Tr. 140, 173-178, 182, 189-190). /3/ The substitute facilities measure of compensation was defined for the jury as follows (Pet. App. 15a): By cost of substitute facilities is meant that compensation due the City of Duncanville for the taking of its public facilities measured by the reasonable cost of supplying substitute facilities reasonably necessary to enable it to serve its constituents in approximately the same way as it would had the condemnation not occurred. It is a method of compensation by substitution. You are to determine the reasonable cost of construction of a functionally equivalent substitute sanitary landfill. Simply stated, the cost of substitute facilities represents that amount of just compensation in money to be awarded which will sufficiently allow the City of Duncanville to provide for the replacement of the property and their public facility taken by the Government. /4/ The district court assumed that, as respondent contended, the 6% interest rate on such deficiencies prescribed by the Declaration of Taking Act, 40 U.S.C. 258a, must be regarded as a floor, rather than a ceiling on the interest to be awarded, lest the discrepancy between the statutory rate and a market interest rate render the statute unconstitutional (Pet. App. 26a-27a). See Kirby Forest Industries, Inc. v. United States, slip op. 9 n.16. But because respondent had presented no evidence from which an appropriate interest rate could be determined, the court declined to award interest in excess of the statutory rate (id. at 27a). See pages 10-11, note 6, infra. /5/ The court of appeals recognized (Pet. App. 11a) that in United States v. South Dakota Game, Fish & Parks Dep't, 329 F.2d 665 (8th Cir.), cert. denied, 379 U.S. 900 (1964), the Eighth Circuit had "apparently reached a different conclusion," holding that the cost of substitute facilities was an improper measure of compensation for the taking of publicly owned property where the market value of that property was ascertainable. But the court below insisted that its decision "creates no conflict" because it believed that the district court's finding in South Dakota Game, Fish & Parks Dep't that it was necessary to replace the property taken there, was "highly suspect" (Pet. App. 12a). In addition, the court below believed that language in an intervening Eighth Circuit decision, United States v. 3,727.91 Acres of Land, 563 F.2d 357, 359 n.2, 360 (1977) (Elsberry Drainage District), cast doubt upon the Eighth Circuit's continued adherence to the rule reflected in its earlier decision (Pet. App. 12a). (For the reasons stated in our petition at pages 20-23, we believe that the court of appeals' attempt to reconcile its decision with Eighth Circuit precedent is unsuccessful.) /6/ The court suggested that one permissible method of making this adjustment would be to deduct from the cost of substitute facilities a fraction of the total equal to "'one minus the ratio that the remaining useful life of the condemned (property) bears to the useful life expectancy of the substitute facility'" (Pet. App. 15a n.9, quoting United States v. Certain Property in the Borough of Manhattan, 403 F.2d 800, 804 n.11 (2d Cir. 1968)). Also remanded for redetermination was the question of the interest rate to be paid upon any deficiency ultimately determined to be due. The court of appeals reasoned that, because a remand was in any event necessary, respondent should be allowed another opportunity to present evidence on the interest issue (Pet. App. 18a-19a). Applying its prior decision in United States V. 329.73 Acres of Land, 704 F.2d 800, 812 (1983) (en banc), the panel also ruled that interest was not to be limited to the 6% rate specified in the Declaration of Taking Act. See Kirby Forest Industries, Inc. V. United States, slip op. 9 n.16; compare pages 5-6 note 4, supra. And reasoning that "the proper interest rate is an element of 'just compensation,'" the court of appeals directed that the interest rate issue be submitted to the jury upon remand (Pet. App. 19a). /7/ This Court has declined to review respondent's contention that the court of appeals committed procedural error by remanding the case for a new trial rather than directing entry of judgment upon the jury's alternative verdict. City of Duncanville v. United States, No. 83-714 (cert. denied Feb. 21, 1984). /8/ Property owned by state and local governments is subject to the federal power of eminent domain. Block v. North Dakota, No. 81-2337 (May 2, 1983), slip op. 17 n.26; Oklahoma ex rel. Phillips V. Guy F. Atkinson Co., 313 U.S. 508, 534 (1941); see United States V. Carmack, 329 U.S. 230, 242 (1946). In relation to the United States as condemnor, such property is considered to be "private property" for which compensation must be paid under the Fifth Amendment. See e.g., United States V. South Dakota Game, Fish & Parks Dep't, 329 F.2d 665 (8th Cir.), cert. denied, 379 U.S. 900 (1964); Jefferson County V. TVA, 146 F.2d 564 (6th Cir.), cert. denied, 324 U.S. 871 (1945); Town of Bedford V. United States, 23 F.2d 453 (1st Cir. 1927). /9/ The very structure of the Fifth Amendment strongly suggests that transferable value, measured by the fair market value standard, satisfied the mandate for just compensation. As the Court observed in Monongahela Navigation Co. V. United States, 148 U.S. 312, 326 (1893): (J)ust compensation, it will be noticed, is for the property, and not to the owner. Every other clause in this Fifth Amendment is personal. "No person shall be held to answer for a capital, or otherwise infamous crime," etc. Instead of continuing that form of statement, and saying that no person shall be deprived of his property without just compensation, the personal element is left out, and the "just compensation" is to be a full equivalent for the property taken. /10/ When there is an active market in property of the sort condemned, market value is readily established by evidence of the sale of comparable properties. Toronto, Hamilton & Buffalo Navigation Co., 338 U.S. 404 ("(I)n the valuation of readily salable articles, price at the market nearest the taking is, at least in the usual case, a practical rule of thumb, and one that is most likely to place the claimant in the pecuniary position he occupied before the taking.") But when the condemned property is of a kind seldom bought and sold, "resort must be had to other data to ascertain its value." United States V. Miller, 317 U.S. at 374. Value may be established by capitalization of net income from the property, or the cost to reproduce the condemned property minus depreciation. See 4 Nichols on Eminent Domain Sections 12.32 (3)(b)-12.32(3)(c) (rev. 3d ed. 1977). Such evidence "may have relevance -- but only, of course, as bearing on what a prospective purchaser would have paid." Toronto, Hamilton & Buffalo Navigation Co., 338 U.S. at 402. Thus, ordinarily, even when "the property is of a kind seldom exchanged," so that "it has no 'market price'" in some literal sense, compensation due under the Fifth Amendment is only the estimated value of the property to a hypothetical purchaser in a free market transaction: "only that value which is capable of transfer from owner to owner and thus of exchange for some equivalent." Kimball Laundry Co. V. United States, 338 U.S. at 5-6. /11/ The market from which the market value of condemned property may be determined need not be a particularly active one to support application of the fair market value standard. Lutheran Synod, 441 U.S. at 513-514. /12/ See also the cases cited by the court of appeals at Pet. App. 6a. /13/ As this Court observed in Lutheran Synod, 441 U.S. at 509 n.3, "(t)his Court has not passed on the propriety of substitute-facilities compensation for public condemnees." And the Court declined to do so in Lutheran Synod itself. Although certain language in Brown V. United States, 263 U.S. 78, 82-83 (1923), is often cited as the source of the substitute facilities doctrine respecting comepnsation for public property, that case did not, in fact, address the measure of just compensation requisite under the Fifth Amendment. Lutheran Synod, 441 U.S. at 509 n.3. As indicated in the text, however, we acknowledge that an alternative to the market value standard is required when the market value of public property simply is not reasonably determinable, and that a properly framed substitution cost measure may be appropriate in such cases. Compare page 19 note 10, supra. /14/ See page 9, supra. /15/ Like other courts of appeals, the court below declined to condition the availability of substitute facilities cost compensation upon a showing that replacement of the facility taken was legally necessary (Pet. App. 8a-9a n.6, 10a-11a). See Lutheran Synod, 441 U.S. at 515. /16/ Under provisions of the Uniform Relocation and Real Property Acquisition Policies Act of 1970, 42 U.S.C. 4601 et seq., Congress has provided several forms of supplemental assistance, not required by the Fifth Amendment, to certain persons displaced by acquisitions of real property for use in federal projects. Norfolk Redevelopment & Hearing Authority V. C&P Telephone Co., No. 81-2332 (Nov. 1, 1983), slip op. 6. These provisions include ones designed to facilitate acquisition of replacement housing by displaced homeowners and tenants. 42 U.S.C. 4623, 4624 and 4626. These provisions are not applicable to this case. /17/ But cf. Caporal V. United States, 577 F.2d 113, 117-118 (10th Cir. 1978); Mayor & City Council V. United States, 147 F.2d at 789-791. As the Eighth Circuit observed in Elsberry Drainage District, in those cases in which a local government has been limited to nominal compensation for the taking of its streets by the United States, "the public condemnee * * * held only a right of way easement in a public street or alley, and upon condemnation, * * * retained no (compensable) interest in the property" (563 F.2d at 359 (citing United States V. Streets, Alleys & Public Ways, 531 F.2d 882, 887 (8th Cir. 1976), United States V. City of New York, 168 F.3d 387, 389-390 (2d Cir. 1948), and Woodville v. United States, 152 V.2d 735, 736-737 (10th Cir.), cert. denied, 328 U.S. 842 (1946)). The Eighth Circuit explained: "This same reasoning does not apply, however, where the public body continues to own a fee interest in the condemned land." 563 F.2d at 359. /18/ Unsatisfactory results are particularly likely because the issue of just compensation is frequently tried to a jury. See Fed. R. Civ. P. 71A(h). When juries are employed in condemnation proceedings, they "should not be given sophistical and abstruse formulas as the basis for their findings nor be left to apply even sensible formulas to factors that are too elusive." Kimball Laundry Co. V. United States, 338 U.S. at 20. The record in this case confirms that unfairness to the United States is likely to result from the use of a substitute facilities measure of compensation, however it may be adjusted in an effort to prevent a windfall. The district court instructed the jury to determine respondent's substitute facilities cost "measured by the reasonable cost of supplying substitute facilities reasonably necessary to enable (respondent) to serve its constituents in approximately the same way it would had the condemnation not occurred." The jury was further directed "to determine the reasonable cost of construction of a functionally equivalent substitute sanitary landfill." Pet. App. 15a. See pages 5-6 note 3, supra. The court of appeals concluded that these instructions did not adequately "take into account the need to deduct for the benefits which Duncanville gained from the acquisition of the new fill" (Pet. App. 14a). We agree with that conclusion. It must nonetheless be acknowledged that the instruction given by the district court at least pointed the jury in the direction of deducting for such benefits. In the face of the district court's instruction, and evidence adduced at trial that clearly demonstrated the unreasonableness of the respondent's claimed substitution costs, the jury returned an alternative verdict under the substitute facilities instruction of $723,654.01, an amount that exceeded the fair market value verdict of $225,000 by almost one half million dollars. Even assuming that a more adequate substitute facilities instruction would have reduced this disparity, the result here leads us to question the sufficiency of instructions such as the court of appeals contemplated as a means of preventing the jury from bestowing a windfall upon a public condemnee. /19/ We note that the court of appeals' ruling that the rate of interest to be awarded upon the deficiency in estimated compensation should be determined by the jury rather than the court (see pages 10-11 note 6, supra) is open to question. Cf. United States V. Reynolds, 397 U.S. 14 (1970). In limiting our petition to the substitute facilities issue -- the question we deemed most worthy of review by this Court in the setting of this case -- we did not signal endorsement of the court of appeals' ruling on this point. Absent a congressionally fixed interest formula that will satisfy the Fifth Amendment requirement of just compensation, the government has maintained that in order to promote uniformity of result and fairness, reduce the costs and complexity of litigation, facilitate decision, and provide a predicate for future settlements, the district courts should determine the proper interest rate.