2005 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-29-2005

USA v. 6.45 Acres of Land

Precedential or Non-Precedential: Precedential

Docket No. 03-2305

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 03-2305

 

UNITED STATES OF AMERICA,

 Appellant

v.

6.45 ACRES OF LAND, more or less, situated

in Cumberland Township, Adams County,

Commonwealth of Pennsylvania;

HANS G. ENGGREN; CHRISTINA A. ENGGREN,

Husband and Wife, their Heirs and/or assigns;

UNKNOWN OWNERS; UNKNOWN LESSEES

 

Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. Civil Action No. 99-cv-02128)

District Judge: Honorable Sylvia H. Rambo

 

Argued June 30, 2004

Before: AMBRO, ALDISERT 

and STAPLETON, Circuit Judges

(Opinion filed: April 29, 2005)
2

Thomas L. Sansonetti

 Assistant Attorney General

Todd S. Aagaard, Esquire (Argued)

Robert Oakley, Esquire

Marc Gordon, Esquire

United States Department of Justice

Environment & Natural Resources Division

P.O. Box 23795

L’Enfant Plaza Station

Washington, DC 20026

Attorneys for Appellant

Lawrence R. Wieder, Esquire (Argued)

David E. Lehman, Esquire

NcNees, Wallace & Nurick

100 Pine Street

P.O. Box 1166

Harrisburg, PA 17108-1166

John C. Goodchild, III, Equire (Argued)

Catherine E. Gillespie, Esquire

Marisel Acosta, Esquire

Timothy D. Mygatt, Esquire

Morgan, Lewis & Bockius

1701 Market Street

Philadelphia, PA 19103

Irwin W. Aronson, Esquire

Willig, Williams & Davidson

212 Locust Street, Suite 400

P.O. Box 11997

Harrisburg, PA 17108

Attorneys for Appellees
3

 

OPINION OF THE COURT 

 

AMBRO, Circuit Judge

The United States appeals from the District Court’s

judgment awarding compensation to Overview Limited

Partnership (“Overview”) and Hans and Christina Enggren (the

“Enggrens”) pursuant to the Government’s taking of 6.45 acres

of land in the Gettysburg National Military Park. The

Government asserts that the District Court impermissibly failed

to apply the “unit rule” of valuation in determining the fair

market value of the condemned land (instead valuing separate

interests rather than the aggregate interests as a single unit).

Moreover, the Government contendsthat in so doing the District

Court awarded compensation to Overview and the Enggrens that

exceeded, in aggregate, the amount the United States could

fairly be obliged to pay. In essence, the Government argues that

the District Court strayed from the clear path of the unit rule

and, mired in a jungle of valuations of partial interests, “double

counted” a key component of its estimate of the land’s value, in

effect charging the Government twice. Because we agree, we

reverse the judgment of the District Court and remand for

further proceedings. 
 The right-of-way easement over Tract 4-220, which was 1

appurtenant to Tract 4-203, was also owned by the Enggrens.

 The initial parties to the lease were the predecessors-in- 2

interest to the parties before us. 

4

I. Facts and Procedural History

A. The Condemned Properties

On December 12, 1999, the United States filed a

complaint in condemnation to acquire approximately 6.45 acres

of land within the boundaries of the Gettysburg National

Military Park. The condemned land consisted of (1) two fee

simple interests, designated Tract 4-203 and Tract 4-204, and (2)

multiple right-of-way easements in three tracts of land,

designated Tract 4-108, Tract 4-109, and Tract 4-220

(collectively, the “Condemned Properties”). 

Tract 4-203 was owned in fee simple by the Enggrens.1

In 1972, the Enggrens leased this parcel, which was unimproved

at the time, to Overview for a term of 99 years. Overview 2

intended to build on Tract 4-203 an observation tower

overlooking the Gettysburg Battlefield and to operate the tower

as a tourist attraction. Accordingly, the lease provided that

Overview would own, insure, and pay all applicable taxes with

respect to the proposed tower. At the end of the lease term, the

Enggrens would retake possession of the land and would also
 Overview also owned the two right-of-way easements over 3

Tract 4-108 and Tract 4-109. These easements were appurtenant

to Tract 4-204 and provided access to the tower.

 The improvements on the Condemned Properties were 4

demolished on July 3, 2000.

5

take ownership of the tower. Construction of the 307-foot

observation tower was completed in 1974.

Tract 4-204 was owned in fee simple by Overview. On 3

this land, which lay adjacent to Tract 4-203, Overview owned

and operated a gift shop, restaurant, and parking lot. These

improvements were operated in conjunction with the tower as a

tourist attraction. Overview generated revenue from the gift

shop and restaurant, and through fees for admission to the tower.

Overview also received rent from two cellular phone companies

for space on the tower subleased for cellular antennae. 

B. Trial Proceedings

The Declaration of Taking, which transferred title in the

Condemned Properties to the United States, was filed by the

Government on May 17, 2000. The Government thereafter 4

deposited with the registry of the District Court an estimate of

just compensation for the Condemned Properties–$3 million.

Because the Enggrens and Overview contested the fairness of

the Government’s estimated payment, a bench trial was set for
 Appraisal “methodology” can mean two things in the 5

context of this litigation. The first kind of methodology, which

is not in dispute on appeal, pertains to one of the accepted

theories of valuation. This choice varies with the nature of the

property under appraisal, and experts may reasonably disagree

over which will yield the most accurate estimate in any

particular case. The second meaning of ‘methodology’ pertains

to the legal procedure by which an award of just compensation

for the United States’ taking is determined. This second type of

methodology implicates the unit rule, which is the subject of this

appeal. To avoid confusion, we refer to the unit rule not as a

methodology but as a “procedure,” because the determination as

to its applicability is one made by a court as a matter of law

rather than by an appraiser.

6

the sole purpose of determining and awarding just

compensation.

Prior to trial, the parties submitted briefing on the

appropriate methodology for valuing the Condemned 5

Properties. As a result of that briefing, the District Court issued

a pretrial order on April 13, 2001, which stated in relevant part:

The highest and best use evaluation for the

properties at issue can be determined in either of

the two following ways: 

a) as a single unit together with their appurtenant

easements, or 
 Under the income capitalization approach, the net income 6

that a tract of land can produce in a typical year is divided by a

factor called a “capitalization rate.” The capitalization rate is a

ratio representing the relationship between the land’s annual net

income and its value. According to Lennhoff, this ratio

indicates how many times the annual net income a potential

buyer would pay for the land. The quotient of these figures,

Lennhoff testified, represents the fair market value of the land.

7

b) two appraisals – one covering tract 4-203 and

another appraisal covering Tract 4-204, each with

their appurtenant easements . . . .

A three-day bench trial was held in November 2001, at

which three expert appraisers testified to the fair market value

of the Condemned Properties: David Lennhoff for the

Government, Robert Von Ancken for Overview, and William

Siverling for the Enggrens. Lennhoff and Von Ancken, in

accordance with the first option available under the District

Court’s pretrial order, offered appraisals that valued the

Condemned Properties as a single unit. Siverling purported to

take the second option, but rather than offer an appraisal of

Tract 4-203 (with its appurtenant easement), he appraised only

the value of the Enggrens’ legal interest in that parcel.

Lennhoff testified that the most reliable methodology by

which to appraise the Condemned Properties was the income

capitalization approach. Using this approach, Lennhoff 6
See generally Jacques B. Gelin & David W. Miller, The Federal

Law of Eminent Domain § 4.1 at 200, 205-06 (1982) (“Gelin &

Miller”).

 The cost approach (also known as the reproduction 7

approach), according to Lennhoff, values a tract of land by

estimating the value of the land as vacant, adding the cost of the

improvements, and then deducting any depreciation in the

improvements. See generally id. at 200, 214-18. 

8

testified that the Condemned Properties could generate an

estimated annual net operating income of $227,878. He then

divided this amount by an estimated capitalization rate of 10.5%

in order to conclude that the fair market value of the Condemned

Properties was approximately $2.2 million. Lennhoff also

valued the Condemned Properties using a cost approach.7

Applying this alternative approach, he testified that the fair

market value of the Condemned Properties would be $2.9

million. Finally, Lennhoff compared the income capitalization

approach with the cost approach and determined that the former

method was a more reliable indicator of the value of the

Condemned Properties. Nonetheless, he adopted a value that

represented a “reasonable rounding” between the two

approaches, yielding a final conclusion that the Condemned

Properties were worth $2.5 million. 

Overview’s appraiser, Von Ancken, testified that the cost

approach, and not the income capitalization approach, was the

more appropriate methodology for calculating the value of the
 At the outset of the trial, Overview also sought to bring to 8

the attention of the District Court its allegation that in 1994 the

Government engaged in negotiations with Overview to acquire

the Condemned Properties. Overview claimed that during these

negotiations the United States apparently relied on an appraisal

valuing the Condemned Properties at $6.6 million. The United

States moved in limine to exclude mention of the earlier

appraisal because there was no evidence of its existence and

because it would be extremely prejudicial to the United States.

Overview indicated that it wished to discuss, at trial, the earlier

negotiations that may have preceded an oral purchase offer by

the United States. The Government denied that any oral offer

was made. The District Court took the matter under advisement.

Assuming the appraisal mentioned by Overview exists, it does

not appear to have been entered into evidence or relied upon by

the Court. We therefore do not consider it on appeal. See Fed.

9

Condemned Properties. According to Von Ancken, the cost

approach resulted in an $11.13 million valuation of the

Condemned Properties. While that estimate was appropriate in

Von Ancken’s opinion, he nonetheless engaged in an income

capitalization analysis for the limited purpose of calculating (for

use under the cost approach) certain depreciation amounts with

respect to improvements on the Condemned Properties. Von

Ancken’s income capitalization “modification” to his appraisal

resulted in an estimated fair market value of $11.5 million. Von

Ancken explicitly testified that his calculations, using both the

cost and income capitalization approaches, represented the total

fair market value of the Condemned Properties as a single unit.8
R. App. P. 10(a).

10

Siverling, the Enggrens’ expert, did not value the

Condemned Properties as a single unit. Nor did he calculate the

total value of Tract 4-203 (with its appurtenant easement) as a

unit. Rather, he testified that his appraisal consisted of the value

of the Enggrens’ lease with Overview. He did so using two

methods. First, he estimated the amount of the annual rent

payments the Enggrens would receive from Overview during the

year halfway through the 99-year lease period (the 45th year)

and capitalized that income using a capitalization rate of 10%.

This yielded a value of $2.7 million. Second, he calculated the

net present value of the cash flow to the Enggrens under the

remaining years on the lease using a discount rate of 9.5%. This

alternative calculation resulted in a value of $2.5 million.

Siverling then averaged the results of the two methods and

concluded that the Enggrens’ legal interest in Tract 4-203 and its

appurtenant easement was worth $2.6 million.

C. District Court’s Findings

The District Court weighed the testimony of all three

expert appraisers and decided that the income capitalization

approach used by Lennhoff was the most appropriate method of

valuation. However, the Court opined that, contrary to

Lennhoff’s own testimony, the income capitalization approach

did not actually result in the fair market value of the Condemned

Properties as a whole. Rather, the Court stated its belief that
11

“[w]hile the United States and Overview purported to value the

property as a whole, their capitalization of income approach was

based only on the value that a hypothetical buyer would expect

to earn from operating the . . . [t]ower, or Overview’s interest.”

In accordance with that belief, the Court stated that it would use

Lennhoff’s approach to calculate the value of Overview’s

interest in the Condemned Properties (i.e., the value of

Overview’s fee simple interest in Tract 4-204 and its

appurtenant easements plus the value of Overview’s leasehold

interest in Tract 4-203) and that it would calculate separately the

value of the Enggrens’ interest based on Siverling’s testimony.

According to the Court, this procedure was consistent with its

April 13, 2001 order that allowed the parties to value the

Condemned Properties either as a single unit or as two different

units of land.

With respect to its calculation of the value of Overview’s

interest, the District Court made factual determinations

regarding the projected income and expenses attributable to the

Condemned Properties using a combination of both Lennhoff’s

and Von Ancken’s testimony. Applying Lennhoff’s

methodology, the Court concluded that the value of Overview’s

interest in the Condemned Properties was $3.932 million. The

Court then proceeded to calculate separately the value of the

Enggrens’ interest. In so doing, it determined that the best way

to do this was to use the income capitalization approach to

calculate the present value of the future income the Enggrens

could expect to receive from their lease to Overview. Using this
 The District Court exercised jurisdiction pursuant to 28 9

U.S.C. §§ 1331 and 1345 because the United States was the

plaintiff under authority granted to it by federal law. We

exercise appellate jurisdiction under 28 U.S.C. § 1291.

12

approach, the Court concluded that the value of the Enggrens’

interest in the Condemned Properties was $2.7 million. 

Accordingly, the District Court entered a final judgment

against the United States in the amount of $6.632

million—$3.932 million in favor of Overview and $2.7 million

to the Enggrens. The Government timely appealed.9

II. Discussion

The Government contends that the District Court

committed legal error when it purported to determine its award

of just compensation by separately valuing the distinct legal

interests of Overview and the Enggrens in the Condemned

Properties. According to the Government, the Court should

have followed the “unit rule,” calculating the fee simple value

of the Condemned Properties (as if in single ownership) without

regard to the constituent legal interests. The Government

further argues that the District Court’s valuation, by its own

terms, was clearly erroneous.

We exercise plenary review over the District Court’s

conclusions of law and its application of the law to the facts.
 “Factual findings are clearly erroneous if the findings are 10

unsupported by substantial evidence, lack adequate evidentiary

support in the record, are against the clear weight of the

evidence or where the district court has misapprehended the

weight of the evidence.” United States v. Roman, 121 F.3d 136,

140 (3d Cir. 1997) (internal quotation omitted). A finding of

fact is also considered “clearly erroneous when although there

is evidence to support it, the reviewing court on the entire

evidence is left with the definite and firm conviction that a

mistake has been committed.” Estate of Spear v. Commissioner,

41 F.3d 103, 114-15 (3d Cir. 1994) (citing United States v. U.S.

Gypsum Co., 333 U.S. 364, 395 (1948)).

 “The guiding principle of just compensation . . . is that the 11

owner of the condemned property ‘must be made whole but is

13

Louis W. Epstein Family P’ship v. Kmart Corp., 13 F.3d 762,

766 (3d Cir. 1994). We review the District Court’s factual

findings for clear error. Int’l Ass’n of Machinists & Aerospace

Workers v. US Airways, Inc., 358 F.3d 255, 259 (3d Cir. 2004).10

“The United States has the authority to take private

property for public use by eminent domain, . . . but [it] is obliged

by the Fifth Amendment to provide ‘just compensation’ to the

owner thereof.” Kirby Forest Indus., Inc. v. United States, 467

U.S. 1, 9 (1984) (citing Kohl v. United States, 91 U.S. 367, 371

(1876)). In general, “just compensation” means “the fair 11
not entitled to more.’” United States v. 564.54 Acres of Land,

441 U.S. 506, 516 (1979) (emphasis in original) (quoting Olson

v. United States, 292 U.S. 246, 255 (1934)); see also United

States v. L.E. Cooke Co., Inc., 991 F.2d 336, 341 (6th Cir. 1993)

(“[O]vercompensation is as unjust to the public as

undercompensation is to the property owner, and the landowner

bears the burden of proving the value of the land.” (citing

United States v. 69.1 Acres of Land, 942 F.2d 290, 292 (4th Cir.

1991))). 

14

market value of the property on the date it is appropriated.” Id.

at 10. “Under this standard, the owner is entitled to receive

what a willing buyer would pay in cash to a willing seller at the

time of the taking.” Id. (internal quotations omitted). While this

rule may be comparatively easy to apply when the property

condemned by the United States is owned in fee simple by a

single owner, that is not our case. Here the taking was of

discretely held legal interests. Thus, do multiple interests in this

case justify the District Court’s departure from the general unit

rule of valuation? We hold that they do not. Neither the District

Court opinion nor the record presents extraordinary

circumstances that justify the exceptional valuation

methodology employed. For this reason, it cannot stand.

It is well-established that “[a] condemnation proceeding

is a proceeding in rem.” United States v. 25.936 Acres of Land,

153 F.2d 277, 279 (3d Cir. 1946); see United States v.

Dunnington, 146 U.S. 338, 352-53 (1892); Eagle Lake
 Of course, the same cannot be said when the United States 12

takes less than the whole estate. See Nebraska v. United States,

164 F.2d 866, 868 n.7 (8th Cir. 1947). There the Government

does face an obligation to specify what it is taking.

15

Improvement Co. v. United States, 160 F.2d 182, 184 (5th Cir.

1947). “It is not a taking of rights of persons in the ordinary

sense but an appropriation of the land or property itself.” 25.936

Acres of Land, 153 F.2d at 279. When the United States

exercises its power of eminent domain, it “takes all interests [in

the property] and as it takes the res is not called upon to specify

the interests that happen to exist.” A.W. Duckett & Co., Inc. v.

United States, 266 U.S. 149, 151 (1924). In fact, an exercise 12

of eminent domain extinguishes all interests in the condemned

land and establishes a new title in the United States. Id.; 25.936

Acres of Land, 153 F.2d at 279. Accordingly, an award of just

compensation takes the place of the condemned land and the

various legal interests in the land are “treated as though

transferred to the award.” 25.936 Acres of Land, 153 F.2d at

279 (citing, inter alia, Dunnington, 146 U.S. at 351); see also

Meadows v. United States, 144 F.2d 751, 752, 753 (4th Cir.

1944) (“The value of the property once being determined in a

proper proceeding, the sum so determined stands in the place of

the property and can be distributed upon the adjudication of the

value of the respective interests.”). 

Recognizing that condemnations proceed in rem, we have

held that an award of just compensation under federal law
16

cannot be determined by separately valuing the various legal

interests in the land condemned. See 25.936 Acres of Land, 153

F.2d at 279. This settled principle, referred to as the “unit rule”

or “undivided fee rule,” embodies the idea that “when land in

which various persons have separate interests or estates is taken

by the United States for public use, the amount of compensation

to be paid must be determined as if the property was in a single

ownership and without reference to conflicting claims or liens.”

Id. (citing Meadows, 144 F.2d at 752, 753; United States v.

576,734 Acres of Land, 143 F.2d 408, 409 (3d Cir. 1944));

Bogart v. United States, 169 F.2d 210, 213 (10th Cir. 1948) (“A

condemnation proceeding is an in rem proceeding and when

land is taken in which separate interests or estates are owned by

two or more persons, as between the public and the owners, it is

regarded as one estate.”); Nebraska, 164 F.2d at 868 (“The

general federal rule of compensation for condemnation of a fee

is well settled. The measure of ‘just compensation’ under the

Fifth Amendment for the taking of property in fee simple

ordinarily is the fair market value . . . of the property in fee

ownership as of the time of taking irrespective of the number

and kind of interests existing in it.”). But see United States v.

City of New York, 165 F.2d 526, 528 (2d Cir. 1948) (calling into

doubt the existence of the unit rule). In prescribing this rule, we

have explained that “the value of the separate interests cannot

exceed the worth of the whole.” 25.936 Acres of Land, 153 F.2d
 Overview seizes upon this language in 25.936 Acres of 13

Land, and insists that the unit rule is therefore nothing more than

a proscription against the double-counting of interests in land

when determining just compensation. Given the weight of

authority, as well as our express statement of the unit rule in

25.936 Acres of Land, we cannot accept Overview’s proposition.

To the contrary, we have applied the unit rule as the legal

procedure by which just compensation is to be determined and

apportioned. 

17

at 279 ; see also United States v. 131.68 Acres of Land, 695 13

F.2d 872, 875 (5th Cir. 1983) (“[T]he so-called ‘undivided fee

rule’ . . . provides that the division of a fee into separate interests

cannot increase the amount of compensation that the condemnor

has to pay for the taking of the fee.”).

Under the unit rule, the role of the United States, as

condemnor, ends once the total amount of just compensation is

determined. Only after the total award is determined is it

apportioned among the holders of various legal interests in the

condemned property. See United States v. 1.377 Acres of Land,

352 F.3d 1259, 1269 (9th Cir. 2003) (“The ‘undivided fee rule’

essentially operates by permitting the governmental authority to

condemn property by providing just compensation, then

allowing the respective interest holders to apportion the award

among themselves, either by contract or judicial

intervention . . . . Once the government provides just

compensation for the condemned property, its role is at an end
18

. . . .” (internal citations omitted)); Eagle Lake Improvement Co.,

160 F.2d at 184 (“The sum determined to be due for the taking

is apportioned between the claimants, but, as between the

condemnor and the condemnee, the property is valued as a

whole.” (internal quotation omitted)); Nebraska, 164 F.2d at 868

(“[T]he guarantee of the Fifth Amendment is regarded as being

satisfied generally where the cash value of property taken in fee

is substituted for it and the cash is allocated or apportioned

among the respective estates or interests on the basis of their

relative values.”); Meadows, 144 F.2d at 753 (“The value of the

property once being determined in a proper proceeding, the sum

so determined stands in the place of the property and can be

distributed upon the adjudication of the value of the respective

interests.”); Carlock v. United States, 53 F.2d 926, 927 (D.C.

Cir. 1931) (“It is a fundamental principle, governing

condemnation proceedings, where several interests are involved,

such as estates for life, or in remainder, or leaseholds, or in

reversion, in the property to be condemned, all should be

combined in determining the value of the fee, after which the

total value of the fee can be subdivided in satisfaction of the

values fixed upon the various interests involved.”).

This does not mean that the fact of divided ownership in

condemned property is to be wholly disregarded. When the

value of constituent legal interests in property is relevant to the

factfinder’s determination of the value of the land as a whole (as

if in single ownership), such evidence may be considered. Cf.

United States v. 158.76 Acres of Land, 298 F.2d 559, 561 (2d
19

Cir. 1962) (“[I]f the condemned land contains a mineral deposit,

. . . it is proper to consider this fact in determining the market

value of the land as a whole, but it is not permissible to

determine separately the value of the mineral deposit and add

this to the value of the land as a unit.”); Meadows, 144 F.2d at

753 (noting that evidence of the value of a separate timber

interest in the condemned land may be properly considered in

determining the value of the land as a whole).

Nor do we hold that the unit rule is to be applied rigidly

in all cases. As the Supreme Court has noted in the eminent

domain context, “[e]xceptional circumstances will modify the

most carefully guarded rule . . . .” Mississippi & Rum River

Boom Co. v. Patterson, 98 U.S. 403, 408 (1878). The same can

be said with respect to application of the unit rule. See United

States v. 499.472 Acres of Land, 701 F.2d 545, 549 (5th Cir.

1983) (permitting departure from the unit rule in certain “rare

and compelling circumstances”); United States v. Corbin, 423

F.2d 821, 828 (10th Cir. 1970) (“[W]e recognize that departure

from the unit rule is permissible in unique situations.”);

Nebraska, 164 F.2d at 869 (“Of course, like any other, the [unit]

rule is not one that is autocratically absolute.”) (citing

Mississippi & Rum River Boom Co., 98 U.S. at 408)). 

In some instances, a departure may be necessary to avoid

grossly unjust results. See, e.g., United States v. Welch, 217

U.S. 333, 338 (1910) (in a taking of a servient tenement by the

United States, “the value of [an] easement [could] not be
 The District Court expressed its belief that this procedure 14

was permitted by its pretrial order of April 13, 2001, which

allowed the parties to present valuation evidence for the

Condemned Properties either as a single unit or as two different

units of land. According to the Government, this constituted a

20

ascertained without reference to the dominant estate to which it

was attached”); Boston Chamber of Commerce v. Boston, 217

U.S. 189, 195 (1910) (in a taking by the City of Boston, it was

not unconstitutional for a commonwealth court to disregard the

value of the unencumbered estate as a whole where there was a

great disparity between the value of the unencumbered whole

and the value of the estate in its actual state of title). In other

instances, departure from the unit rule may simply be a practical

necessity. See, e.g., Corbin, 423 F.2d at 828-29 (in the taking of

a fish farm by the United States, the topography of the land

made it impossible to appraise all aspects of value on the land by

any one appraisal methodology). “But it is to be emphasized

that the general [unit] rule . . . is a ‘carefully guarded’ one and

that only in rare and exceptional types of situations [should]

departures from it be[] permitted.” Nebraska, 164 F.2d at 869.

In this case, the District Court’s determination of just

compensation departed from the unit rule. As indicated above,

the Court decided that, rather than value the Condemned

Properties as if in single ownership, it would instead value the

separate interests of Overview and the Enggrens in the

Condemned Properties. The Court’s decision failed to 14
misinterpretation of the Court’s April 13th order insofar as the

order referred to two separate units (i.e., Tract 4-203 and Tract

Tract 4-204, each with appurtenant easements) and not two

separate interests. While we agree with the Government’s

position, we note that the proper construction of the order is

irrelevant to our ultimate conclusion that the valuation

procedure used by the District Court improperly ignored the unit

rule. That is, we assess the valuation procedure used

notwithstanding the existence of the April 13th order.

 We note that the District Court could have separately 15

valued Tract 4-203 and Tract 4-204 while still adhering to the

unit rule (valuing each unit as if it was held in fee simple

ownership). The unit rule prohibits deconstruction of the

interests in a “unit.”

21

describe the unit rule, its obligation to apply the unit rule by

default, or any reason to depart from the rule. The Court

certainly did not find an extraordinary circumstance justifying

its departure from the rule. Adherence to the unit rule here, to

repeat, would have meant the two-step process of valuing the

Condemned Properties as if in single ownership and thereafter

proceeding to apportion that award among the interest-holders

in the Condemned Properties. What the District Court could 15

not do, consistent with the unit rule, was determine the just

compensation owed by the United States by computing

separately the value of the various constituent legal interests in
 The Enggrens insist that the District Court did not, in fact, 16

value their legal interest in Tract 4-203, but rather valued the

parcel itself. Accordingly, they contend that the District Court’s

decision with respect to them was in accordance with the unit

rule, and they request that the judgment be affirmed. We note,

however, that Siverling, the Enggrens’ witness, expressly

testified that he appraised only the Enggrens’ interest in Tract 4-

203—in effect, the present value of Overview’s rent payments

under the lease. Moreover, the District Court’s opinion stated

explicitly that its award in favor of the Enggrens amounted to

the value of the Enggrens’ legal interest in the Condemned

Properties. Accordingly, we deem the Enggrens’ argument

unpersuasive.

22

the Condemned Properties.16

This does not end our analysis, however, as we must

affirm the judgment of the District Court notwithstanding its

failure to adhere to the unit rule if we determine that this was

“harmless” (that is, if the award of compensation would have

been the same had it followed the rule). See 28 U.S.C. § 2111

(“On the hearing of any appeal . . . in any case, the court shall

give judgment after an examination of the record without regard

to errors or defects which do not affect the substantial rights of

the parties.”); Fed. R. Civ. P. 61 (“The court at every stage of

the proceeding must disregard any error or defect in the

proceeding which does not affect the substantial rights of the

parties.”). A non-constitutional legal error will be deemed

harmless “if it is highly probable that the error did not affect the
23

judgment.” Gen. Motors Corp. v. New A.C. Chevrolet, Inc., 263

F.3d 296, 329 (3d Cir. 2001). 

We cannot conclude that it is “highly probable” that the

District Court would have reached the same result had it adhered

to the unit rule. As we indicated above, one of the principles

underlying that rule is that “the value of the separate interests [in

condemned land] cannot exceed the worth of the whole.”

25.936 Acres of Land, 153 F.2d at 279. Our review of the

record leads us to conclude, however, that it is quite likely that

the sum of the District Court’s independent awards—its

assessment of “the value of the separate interests”—

substantially exceeded the value of the whole. 

Specifically, the District Court erroneously construed

Lennhoff’s appraisal of Tract 4-203 as having excluded the

Enggrens’ interest in that land, and, as a result, it “charged” the

Government for the Enggrens’ interest twice (once for Overview

and once for the Enggrens). This occurred as follows. Under its

chosen method for appraising Tract 4-203—the income

capitalization approach—the District Court applied a

capitalization rate to the land’s expected net income. The Court

arrived at the land’s expected net income by adding up the

sources of gross income and deducting expenses. When

determining the expenses, the Court considered the testimony of

both Lennhoff and Von Ancken. It concluded that Lennhoff’s

method, which estimated expenses as a flat 60% of the income

represented by admission to the tower, was the more sound.
24

Accordingly, the Court employed Lennhoff’s formula for

expenses when it deducted them from gross income.

In his testimony, Lennhoff explicitly stated that the 60%

of admission receipts formula he used for expenses did not

include lease payments. He explained that because he was

valuing the fee as a whole, lease payments were not considered

an expense but merely a transfer of funds between interest

holders that would cancel out under a unit valuation. Because

Lennhoff’s task was neither to appraise Overview’s interest nor

the Enggrens’ interest, but rather the composite value of all

interests, he did not count as an expense what was simply a

transfer of value between interest holders that had no bearing on

the land’s inherent capacity to generate income.

Despite Lennhoff’s representations, the District Court

construed his expense formula as “based only on the value that

a hypothetical buyer would expect to earn from operating the .

. . [t]ower, or Overview’s interest.” (Emphasis added.) Having

already veered off the unit rule path, with this construction of

Lennhoff’s analysis the District Court’s valuation reached a

dead end. Because Lennhoff did not deduct lease payments as

an expense to Overview (contrary to what the District Court

thought, he simply valued Trust 4-203 as a whole unit), his

appraisal methodology did not exclude—but rather

included—the value of the Enggrens’ interest in those payments.

By proceeding to add to its estimation of just compensation a

separate valuation of the Enggrens’ interest (in the form of a
 The Government convincingly argues that the District 17

Court’s $3.932 million valuation of Overview’s interest in the

Condemned Properties should actually have represented the

total value of the land. If so, the aggregate $6.632 million of

just compensation awarded includes “$2.7 million worth of

prejudice.”

25

capitalization of the income they could have expected to earn in

lease payments over the life of the lease), the Court doublecounted the substantial value of the lease. This error, resulting

(in our estimation) from the District Court’s failure to follow the

unit rule, was prejudicial.17

III. Conclusion

We reverse the judgment of the District Court and

remand for further proceedings consistent with this opinion.