Court Opinion

ID: 9443883
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:33:10.382328+00
Date Added: 2024-06-11T17:29:38.153619
License: Public Domain

CLARK, -Circuit Judge
(dissenting).
When a ship costing $904,360 in October, 1939, is valued at $2,082,000 on its sinking three years later — an increase making the total over 230% of the original, or 225% if the gyroscopic compass is thrown in— and this in a market where by law all enhancement due to the war needs is excluded, the result is sufficiently surprising as to suggest suspicion of error. Examination of the record leads to the conclusion that not one but a series of errors occurred. It turns out as a matter of fact that the valuation was not made by a judge, but by an admiralty proctor; and it has since been-accepted by the several judges substantially because valuation is too vague and unsubstantial a matter to be really susceptible to rules definite enough to justify reversal,. That is not the approach of the Supreme Court. United States v. Toronto, Hamilton & Buffalo Navigation Co., 338 U.S. 396, 70 S.Ct. 217, 94 L.Ed. 195, reversing-a valuation below. And it seems to me undesirable, reducing the process to a kind of compulsory arbitration. I do not object to that as such when it is the law or the parties’ contract; I do protest its being regarded as judicial process, and so treated, for the purpose of review.
Thus I regard as the initial and conditioning error the reference of this case at its beginning to a commissioner or a special master. In this I do not intend to. criticize the commissioner personally; I have not the honor of his acquaintance or knowledge of him beyond the fact that he-*657is a distinguished member of the admiralty-bar. And he seems to have carried out the task set before him with professional competence. When a bishop is assigned to try Satan, we surely cannot object to a finding of guilt made with professional skill and directness. But we can question the assignment. The Supreme Court has long made known its objections in civil actions to the depriving of litigants of judicial adjudication through the process of reference to masters; and the principle has been embodied in the civil rules and often applied by us and other courts. F.R. 53 (b); McCullough v. Cosgrave, 309 U.S. 634, 60 S.Ct. 703, 84 L.Ed. 992; Newman & Bisco v. Realty Associates Securities Corp., 2 Cir., 173 F.2d 609, and cases cited at 611; Prudence-Bonds Corp. v. Prudence Realization Corp., 2 Cir., 174 F.2d 288. The same principle is held to apply in admiralty, at least to the initial and policy-settling adjudications of a case, as distinguished from the settling of details of damage, once the policy and method are established. United States v. Kirkpatrick, 3 Cir., 186 F.2d 393. That principle would seem particularly pertinent here, where the rules accepted for himself by the commissioner absolutely conditioned the result.
Of these rules the basic one, which actually led to the over-all so generous result, was, as the record clearly demonstrates, the use of the principle of “cost of reproduction new less depreciation.” As is now well known, the use of this principle by the Supreme Court in testing the constitutionality of governmental utility and railroad rate regulation led to the famous attacks upon it by Justice Brandéis and scholars for its artificiality and unreality. So devastating were these attacks that the Supreme Court eventually retreated, Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333, and the principle has fallen into substantial disuse in the field of its origin. See Note, Original Cost Rate Regulation and Inflation, 66 Harv.L.Rev. 1274; United States v. Toronto, Hamilton & Buffalo Navigation Co., supra, 338 U.S. at page 403, 70 S.Ct. at page 221. The concepts here necessary for the rule’s application that this Italian built vessel was to be rebuilt, in America and at the height of war prices, seem to me to involve even more unreality than that attacked in the operation of the original rule. Of course no vessels were thus built; the rigid governmental controls prevented any building of ships except by the Maritime Commission. So this method of valuation seems to me sheer guesswork — at the height of the market therefor. And if this is not enough of itself, the result should be held vitiated in any event because the experts whose evidence as to the cost of reproduction was relied on testified frankly that they had taken no account of the depressing effects of governmental controls. So the figures are surely out of never-never land.
As the figures themselves demonstrate, the process was that these high values of the experts were accepted as basic; they were then subject to a deduction for depreciation at a moderate rate; and thereafter a further deduction of $140,000, of vague and indefinite purpose, was made to reach tile final result. This last deduction is apparently the saving grace which is relied on to make the general result palatable. Surely without it the result could not possibly have been sustained. But it has so little connection with any apparent reality, as not merely to make natural the protective appeal libellant has based upon it, but also to render its use ineffective to sustain the result. I do not think it can be held to operate at all as meeting the requirements of the statute prohibiting enhancement of value for war causes, 46 U.S.C. § 1242(a), or the Rules of the Advisory Boards on Just Compensation. .See United States v. Cors, 337 U.S. 325, 69 S.Ct. 1086, 93 L.Ed. 1392; United States v. Toronto, Hamilton & Buffalo Navigation Co., supra, 338 U.S. at page 405, 70 S.Ct. at page 222; and our opinions in American-Hawaiian S. S. Co. v. United States, 2 Cir., 191 F.2d 26, certiorari denied United States v. American-Hawaiian S. S. Co., 342 U.S. 941, 72 S.Ct. 553, 96 L.Ed. 700. No attempt at even approximating exactness or specific figures is made; the results suggest a reduction of 12 or 13 per cent in the over-all enhance*658ment for governmental controls. This would seem entirely inadequate both in amount and in method as a means of discounting war values.
As the opinion discloses, the commissioner rejected the values shown by sales of comparable vessels made very close to the time in question by the Maritime Commission under subsidy agreements and restrictions as well as of sales made in 1941 at cost. This would seem clear error under Rule 3 of the Advisory Board on Just Compensation and the cases cited above; and National Bulk Carriers, Inc., v. United States, 3 Cir., 169 F.2d 943, is contrary. Whether the market was thus government-controlled or not, it was the one and the only one then actually existent. To reject these values for cost of reproduction new less depreciation is to reject fact for fiction. These values should have been considered for at least moderately persuasive effect, although I am bound to believe that a more nearly accurate course under the circumstances here would have been to have taken the original cost of the vessel as a sound starting point, to be increased by the amount of the general rise in price level, excluding, of course, the peculiar increase in shipping costs due to the war exigencies, to find the final result. Compare 66 Harv.L.Rev. 1274, cited above.
In my dissent in American-Hawaiian S. S. Co. v. United States, supra, 2 Cir., 191 F.2d at pages 29-31, I expressed the view that the decisions were substantially setting aside the statute prohibiting war enhancement of value, 46 U.S.C. § 1242(a), supra, perhaps in part because of serious doubts of its constitutional validity, and that a decision clarifying its operation beyond United States v. Cors, supra, 337 U. S. 325, 69 S.Ct. 1086, 93 L.Ed. 1392, was necessary. I reiterate and incorporate by reference here the views there stated. The fact that the Supreme Court there denied certiorari, while not conclusive, as we are often told, makes further emphasis rather unprofitable at the moment. And what seem to me the other extensive errors here present makes reliance on these views less important in the present case. I would reverse for a new valuation.