Court Opinion

ID: 6893064
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:46:40.179859+00
Date Added: 2024-06-11T16:05:53.550463
License: Public Domain

On Rehearing
MARIS, Chief Judge.
By order dated July 9, 1945 and upon petition of the Price Administrator this court vacated its judgment entered June 25, 1945 and granted a rehearing of the case. That judgment was based in large part upon the results of a November, 1944 survey of the operating experience of 1,642 structures containing 50,101 rental units in New York City for the calendar years 1939 through 1943 and for the six months period ended June 30, 1944. Upon rehearing a large amount of additional evidence was submitted by both the complainants and the Administrator. Included in the additional evidence submitted by the Administrator were the results of a survey dated June 20, 1945 covering substantially the same units as in the November, 1944 survey but including in addition their operating experience for the full calendar year 1944. The Administrator also submitted the results of a survey, dated April 22, 1946, of the operating experience of 4,630 units in 97 structures in New York City with an average monthly rental of $100 or more which included their operating experience for the full calendar year 1945. The results of these two surveys may be summarized in index number form as follows:
Operating Experience of 50,129 Units in 1,615 Structures in New York City as Shown by June 20, 1945 Survey (INDEX 1939=100)
SUMMARY REPRESENTING ALL RENTAL RANGES
1939 1940 1941 1942 1943 1944
Scheduled Income 100.0 99.8 99.1 98.7 98.4 98.2
Net Rental Income 100.0 98.8 96.8 97.6 99.9 103.3
Total Expense 100.0 101.0 101.7 102.1 104.7 103.9
Net Operating Income 100.0 95.4 89.0 90.6 92.5 102.3
The Same Classified by Rental Ranges
Average Rentals under $39 per month (8,661 units in 413 structures)
Scheduled Income 100.0 100.4 100.5 101.0 100.8 100.6
Net Rental Income 100.0 100.4 99.0 97.6 94.7 96.3
Total Expense 100.0 100.5 99.3 102.4 104.9 107.9
Net Operating Income 100.0 100.2 98.7 89.4 77.5 76.8
Average Rentals from $39 to $PP.PP per month (39,906 units in 1,152 structures)
Scheduled Income 100.0 99.9 99.3 99.1 98.9 98.8
Net Rental Income 100.0 98.7 97.1 98.4 101.3 104.6
Total Expense 100.0 101.3 102.2 102.5 104.8 104.2
Net Operating Income 100.0 94.9 89.5 92.3 96.0 105.2
Average Rentals of $100 and over per month (1,562 units in 50 structures)
Scheduled Income 100.0 98.2 96.3 94.1 92.0 91.5
Net Rental Income 100.0 98.2 92.5 91.5 93.6 98.7
Total Expense 100.0 99.3 100.8 99.2 103.3 98.9
Net Operating Income 100.0 95.7 74.0 74.2 71.8 98.1
*996Operating Experience of Apartments in New York City Having Average Rentals of $100 and Over Per Month as Shown By April 22, 1946 Survey (INDEX 1939=100)
¡1,532 Units in 48 Structures1
1939 1940 1941 1942 1943 1944 1945
Scheduled Income 100.0 98.4 96.6 94.3 92.2 91.7 92.3
Net Rental Income 100.0 98.2 92.5 91.5 93.3 98.4 100.2
Total Expense 100.0 98.8 100.7 98.6 102.6 98.8 97.6
Net Operating Income 100.0 96.8 74.6 75.9 72.9* 97.5 105.8
4,630 Units in 97 Structures 2
Scheduled Income 100.0 98.3 96.4 94.2 91.3 90.4 90.5
Net Rental Income 100.0 96.5 92.8 89.4 88.7 97.3 100.8
Total Expense 100.0 100.2 101.1 97.8 102.6 101.3 98.7
Net Operating Income 100.0 86.2 69.6 65.4 49.7 85.8 106.8
It will thus be seen that the city-wide average net operating income of New York City landlords, which for the year ended June 30, 1944 was only 95.48% of the return which they had enjoyed in the year 1939,3 as indicated in our original opinion, had risen to 102.3% of the 1939 figure for the full calendar year 1944. Accordingly the latest figures, if taken at their face lvalue, do not sustain the complainants’ contention that the regulation is not generally fair and equitable because it prevents landlords from realizing their prewar net return. The complainants, however, renew their contention that the figures may not be accepted at face value but are subject to adjustment for a number of reasons, which they again advance. We, therefore, proceed to reconsider this contention.
The complainants assert that the citywide average figures shown by the June, 1945 survey are statistically inaccurate and they argue that those figures must be weighted in order to give effect to the results for each rental range of housing accommodations4 in strict proportion to the frequency of its units in the area. Their point is that the sample of housing accommodations surveyed included a smaller proportion of both substandard and luxury accommodations, as contrasted with the medium priced group, than actually exist in the area. They say that since the operating experience of these two marginal groups was not as favorable to landlords as that of the medium priced group the results of the survey as a whole necessarily reflected a more favorable average operating result than would have been shown if the number of units of these two marginal groups studied had been in strict proportion to their frequency in the area. A similar contention was advanced at the original hearing as to the figures shown by the November 1944 survey but we found it unnecessary to consider it at that time.
*997Whatever may be its theoretical advantage in achieving ideal statistical accuracy -sve think that on the evidence now before us the weighting advocated by the complainants would not aid in determining the question for decision which is whether the regulation is generally unfair and inequitable because it is operating to prevent the rental housing industry in New York City generally from realizing its prewar return. For the reasons stated in our original opinion it is quite clear that factors wholly unrelated to rent control have been responsible for the low net return received from the substandard type of accommodations. The discussion of that point need not be repeated. It is sufficient to point out that to incorporate into the city-wide average figures the operating experience of more of these substandard accommodations than are presently included would not help us in determining whether the regulation is generally fair and equitable in its operation but rather would distort the data and confuse the picture.
At the original hearing the evidence indicated that landlords were not receiving their normal prewar return from the luxury group of accommodations and we concluded that this result was due, in part, at least, to the impact of the regulation. The evidence now before us, however, indicates a greatly changed situation. The figures for 1944, as disclosed by the June, 1945 survey, show that in the calendar year 1944 the net operating income realized from the luxury group of accommodations was 98.1% of the 1939 return, while in 1945, according to the figures of the April, 1946 survey, the net operating income realized from this group of accommodations rose to over 105% of the prewar return. In view of the fact, which the evidence just mentioned discloses, that the regulation is no longer preventing the owners of the luxury class of accommodations from realizing their prewar return, it is obvious that complainants’ case will not be helped by the inclusion of more of these accommodations in the general city-wide average figures.
The parties agree that the 50,129 rental units in 1615 structures which were covered by the June, 1945 survey, representing as they do approximately 4% of the rental units in the defense-rental area, constitute a statistically adequate sample of the units in the area. We concur in this view and conclude for the reasons already stated that weighting the results of this survey in the manner urged by the complainants would not assist us in determining the issue raised by the complaint.
The complainants again contend that the figures shown by the surveys must be adjusted to make allowance for the anticipated cost of maintenance and repairs which have been deferred by reason of war conditions. As we said in our original opinion there doubtless has been some deferment of essential maintenance work during the war period and to the extent that the deferment of such work involves deterioration of the structure and thus imposes a cumulative burden on the landlord allowance should be made for it. But the evidence does not disclose the extent of the deferment of maintenance and repair work of this kind as contrasted with work the deferment of which merely imposes inconvenience upon the occupants of the housing accommodation. Whether the amount of the former kind of deferment is substantial may well be doubted in view of the large amounts actually expended for maintenance and repairs in each year studied. For it would seem fair to presume that a landlord would first apply his available funds to repair those defects which were likely to cause deterioration in the structure itself before he attended to those which would merely inconvenience his tenants.
Certainly a great deal of the maintenance and repair of rented housing accommodations is of such a character that its deferment would merely inconvenience the occupants but would impose no cumulative burden of expense on the landlord. This is obviously true of most interior painting and decorating, which is normally a large item of expense, and it is equally true of the replacement of equipment such as cooking stoves and refrigerators. Thus if a landlord defers for fifteen years the replacement of a refrigerator which has a useful life of but ten years the tenant may well have difficulty in storing perishable *998food products during the last five years of that period. The landlord, however, will have lost nothing since the new refrigerator will have its full useful life ahead of it when it is actually acquired. In fact the landlord will have had five years during which he did not have to amortize the cost of a refrigerator out of current rents. To grant the landlord an amortization allowance during this period, which is in reality what complainants’ contention involves, is clearly not called for.
The complainants further urge that the figures should also be adjusted to take account of increased expenses which have been imposed on landlords since 1944 by reason of wage increases granted to building service employees and increased real estate taxes. The evidence shows that there was a wage increase in 1945 but it is conflicting as to the effect of the increase upon the net operating income of landlords. The complainants’ evidence indicates that the wage increase would substantially reduce their net income while that of the Administrator tends to show that the increase would be largely offset by a reduction in hours worked. The only definite evidence on this point is the report of the April, 1946 survey of the luxury type of rental housing accommodations. This shows that payroll expenses in 1945 were 5.5% greater than in 1944 but that nevertheless net operating income increased in the two years 24.5%. While this increased income may have been largely due to the increase in occupancy of these accommodations in 1945 and may, therefore, not be typical of the New York City rental housing industry as a whole the figures clearly do not corroborate the complainants’ contention that the increase in payroll expense would prevent the industry from realizing in 1945 its prewar return. There is no evidence as to the extent or effect of the tax increase which the complainants assert took place in 1946.
As stated in our original opinion, general increases in operating expenses, including taxes, áre factors which, if they result in a general reduction of net operating income below the normal prewar level, must be taken into account by the Administrator in fixing maximum rents. Whether these factors have had that result in 1945 and 1946 will doubtless be shown by surveys which the Administrator is currently engaged in making and we must assume that the Administrator will make any adjustments in the present level of maximum rents which are called for by the results of his surveys and of any other relevant evidence which is before him. Upon the evidence before us in this case, however, we are compelled to conclude that the Administrator was justified in finding that these factors have not yet had the effect of rendering the regulation generally unfair and inequitable.
It follows from what has been said that the results of the June, 1945 survey may properly be taken at their face value in determining whether landlords in the New York City defense-rental area are being prevented by the rent regulation from receiving net operating income equal to that received by them in the prewar year 1939. As we have seen, the figures indicate that the rental housing industry in New York City generally in 1944 received a net return 2.3% in excess of that received in 1939. Accordingly the complainants’ contention that the'regulation'is generally unfair and inequitable on this ground cannot be sustained.
In our original opinion we indicated that the statistics then before us on their face appeared to sustain the complainants’ contention that the regulation was invalid because it prevented landlords generally from realizing their prewar return. We recognized, however, that the New York City rental housing accommodations fall into the three broad categories already referred to, and we concluded upon further analysis of the conditions existing in the area that only the luxury type had been adversely affected by the regulation. We accordingly limited relief to that group. On rehearing the Administrator strongly protests this division of the rental housing industry in New York City into three segments and urges that it is solely the impact of the regulation upon the industry as a whole which is to be considered in determining whether the regulation is generally fair and equitable. Moreover he urges that the luxury apartments represent merely a *999peripheral group on the fringe of the industry which in any case may not be treated as a special class. In the light of the evidence now before us which discloses that landlords as a whole are realizing their prewar return there is no need to decide whether, if the situation were otherwise, relief should be accorded only to those segments of the rental housing industry which were in fact adversely affected. Accordingly we leave that question open.
The complainants have reiterated the argument originally made by them that the regulation is invalid because it prevents the rental housing industry from receiving a fair return on its investment. In our original opinion we pointed out that there was no satisfactory evidence in the record as to the amount of the industry’s investment. Additional evidence, which while not wholly satisfactory, tends to show original cost and present value of a representative group of properties, has now been received. We have accordingly given full consideration to this contention.
We must begin our consideration of this question with the fact that the Emergency Price Control Act does not in terms require that maximum rents shall be so fixed as to assure an adequate fixed return on the investment in rental housing accommodations. The statutory requirement is only that maximum rents be “generally fair and equitable”.
In Wilson v. Brown, 1943, 137 F.2d 348, 352 we held that the Administrator was under no statutory or constitutional compulsion to provide that the maximum rents of each individual landlord afford him a fair return on the fair market value of his rental property. In that opinion we pointed out that principles derived from the law of eminent domain or public utility rate making are wholly inapposite. Rent regulation as promulgated under the act is wholly temporary and “is not designed ‘as a permanent substitute for the normal operation of competitive forces, but as a bridge over a period of emergency when the normal influences of the market place are temporarily distorted by war conditions’.” Moreover under the act there is neither appropriation of the landlord’s property nor compulsion upon him to continue his housing accommodations in the rental market.5
These observations apply with equal force when made as here in connection with the contention that the return from rental housing is not generally fair and equitable to landlords as a whole unless it affords them an adequate fixed rate of return on the investment of the industry as a whole. It is true that we have stated that the statutory standard contemplates that maximum rents must provide landlords with profits reasonably calculated to sustain the industry.6 But we have indicated that the criterion to be used in making this determination is whether the net return of the rental housing industry under the regulation is at the level enjoyed in the most recent period in which rents had not been influenced by defense activities.7 We think that this is all that the act requires and that the Administrator, under this temporary emergency act, is not required to consider and decide the difficult, involved and long debated problems of cost versus sound investment and of the adequacy of varying rates of return with which he would have to wrestle if he were under the duty to fix maximum rents at a level which would assure to landlords generally a fixed rate of return- on their investment.
A judgment will be entered dismissing the complaint.

 All 48 of these structures were among the 50 structures in this rental range included in the June 20, 1945 survey.

 These include the 48 structures involved in the table immediately preceding together with 49 additional structures submitted by the complainants to the Administrator.

 On rehearing the Administrator reiterated his contention that the average of the years 1939 and 1940 should be used as the prewar base for the purpose of testing the adequacy of the landlords’ current return. We have not been convinced, however, that we were wrong in concluding that in Now York City the year 1939 affords the appropriate base for this purpose. We, therefore, adhere to that conclusion for the reasons stated in our original opinion.

 In our original opinion we described ■the three categories — substandard (rentals under $30 per month), medium priced or competitive (rentals from $30 to $99.99 per month), and luxury (rentals of $100 and over per month) — into which the rental housing accommodations in New York City broadly fall.

 See also Taylor v. Bowles, Em.App. 1944, 145 F.2d 833.

 Madison Park Corporation v. Bowles, Em.App.1943, 140 F.2d 316.

 Equitable Trust Co. v. Bowles, Em. App.1944, 143 F.2d 735.