Court Opinion

ID: 9640474
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:06:46.331409+00
Date Added: 2024-06-11T18:10:29.961203
License: Public Domain

HUXMAN, Circuit Judge
(dissenting).
It is only where a board to whom has been delegated the duty of making a valuation acts arbitrarily or fraudulently or adopts fundamentally erroneous methods of valuation that a court may interfere. Valuing property is a difficult task. It involves the exercise of sound judgment and discretion. Where a board is created for that purpose, within the sphere of its jurisdiction, except as above noted, its judgment is as final as is that of a court of law within its jurisdiction.
We may not set aside such a judgment because of inequality or even if a mistake has been made. In Chicago G. W. Ry. v. Kendall, 266 U.S. 94, 45 S.Ct. 55, 57, 69 L.Ed. 183, Chief Justice Taft said:
“It is not enough, in these cases, that the taxing officials have merely made a mistake. It is not enough that the court, if its judgment were properly invoked, would reach a different conclusion as to the taxes imposed. There must be clear and affirmative showing that the difference is an intentional discrimination and one adopted as a practice.”
This court said, in Pleasant v. Missouri-Kansas-Texas R. Co., 10 Cir., 66 F.2d 842, 845:
“Mistakes will be made, whether the valuation be made by a Commission, a jury, or a court. Courts therefore do not supervise the actions of assessing bodies, nor sit to correct their errors of judgment. Where the assessing body has failed to follow a legislative mandate, or where it has pursued a systematic course of in*227tentional discrimination, or has been guilty of fraud, or arrived at value by the use of fundamentally erroneous principles, recourse may be had to the courts. But proof of mistake or inequality is not enough.”
See, also, In re State Railroad Tax Cases, 92 U.S. 575, 23 L.Ed. 663; Pittsburgh, C., C. & St. L. R. Co. v. Backus, 154 U.S. 421, 14 S.Ct. 1114, 38 L.Ed. 1031; Iowa-Des Moines Nat. Bank v. Bennett, 284 U.S. 239, 52 S.Ct. 133, 76 L.Ed. 265. In Chicago, B. & Q. R. Co. v. Babcock. 204 U.S. 585, 598, 27 S.Ct. 326, 329, 51 L.Ed. 636, Justice Holmes said:
“The board was created for the purpose of using its judgment and its knowledge. [In re] State Railroad Tax Cases, 92 U.S. 575, 23 L.Ed. 663; State v. Savage, 65 Neb. 714, 768, 769, 91 N.W. 716; In re Cruger, 84 N.Y. 619, 621; San Jose Gas Co. v. January, 57 Cal. 614, 616. Within its jurisdiction, except, as we have said, in the case of fraud or a clearly shown adoption of wrong principles, it is the ultimate guardian of certain rights. The state has confided those rights to its protection and has trusted to its honor and capacity as it confides the protection of other social relations to the courts of law. Somewhere there must be an end.”
There is no charge here that the Board acted arbitrarily or fraudulently. It therefore remains only to see if it employed fundamentally erroneous methods of valuation.
Where the consideration for the sale or exchange of property consists of both cash and other property, the amount realized is the cash plus the value of the property received. What we seek is the true or actual value of the property. Value cannot be established to a certainty. At best, it can only be approximated by the exercise of sound judgment. Experience has taught us that what a willing purchaser will give and a willing vendor will take comes as near to establishing the true value of property as any other criterion we can employ. No doubt that is the reason Congress adopted fair market value as the gauge by which to ascertain what we seek — true value.
Fair market value implies, however, that sales of the class of property being considered have been sufficiently numerous to establish a criterion by which to fix value. If the property under consideration is not sold on an open market or if only an occasional such sale is recorded, there is no fair market value to which we may look to establish the true value of the property under consideration. Nor can value in such case be established by opinion testimony of experts. How can even an expert offer opinion testimony as to what a willing purchaser would give and a willing vendor would take when there is no experience upon which an opinion may be bottomed? In such a case we discard fair market value and seek other methods to establish true value.
Many classes of property may be valued by the reproduction cost new less depreciation method. Ordinarily men will not pay more for property than it will cost to reproduce it. Transportation systems, such as railroads, pipe lines and telephone systems, are however not generally bought and sold on an open or free market. There is, therefore, no experience from which fair market value may be determined. Neither is the physical or reproduction cost new less depreciation necessarily a proper method to establish true value of such a property. A railroad costing $50,000,000 having a prosperous, established business, and showing healthy net profits over a number of years, certainly has a greater value than another road, just completed and costing the same amount, but having neither good will, net income, nor established business. Good will or going concern value constitutes value in addition to physical value.
Capitalized net earnings, value of stocks and bonds, are among the approved methods sanctioned in valuing utility property. Capitalizing net earnings has been approved by the Supreme Court in a number of cases as a method of establishing value. Adams Express Co. v. Ohio State Auditor, 165 U. S. 194, 17 S.Ct. 305, 41 L.Ed. 683; Louisville & Nashville R. Co. v. Greene, 244 U. S. 522, 37 S.Ct. 683, 61 L.Ed. 1291, Ann.Cas. 1917E, 97; Illinois Cent. R. Co. v. Greene, 244 U.S. 555, 37 S.Ct. 697, 61 L.Ed. 1309; Southern R. Co. v. Com. of Kentucky, 274 U.S. 76, 47 S.Ct. 542, 71 L.Ed. 934. In Chicago & N. W. R. Co. v. Eveland, 8 Cir., 13 F.2d 442, 443, Judge Sanborn said:
“In determining the value of the property of a railway company for the purposes of taxation, several classes of evidence are admissible; but the net earnings of the property and the market value of its stocks and bonds for a reasonable period antecedent to the making of the assessment con*228stitute the most reliable and influential evidence of that value.”
Here we have no evidence of value of stocks and bonds to which to look, but we do have net earnings as reflected by the books of the company.
Petitioner’s contention is that evaluating utility property by capitalizing net' income is fundamentally erroneous. Its position is that physical value or reproduction cost new less depreciation is the only proper method to be employed in valuing its property. It rested its entire case before the Board on evidence tending to establish the physical value of the property.
The majority opinion states that the Board should have considered all available criteria rather than capitalized net income alone. Physical value is the only other criterion discussed in the opinion, unless the statement that the Board should have considered the effect of regulations by the Interstate Commerce Commission on the future earnings'of the company is held to be another criterion.
Where property has intangible or going concern value, the total value is obviously greater than the physical value alone. It follows then that the physical or lesser value disappears or becomes merged in the greater one. Property possessing intangible value does not have two values, one physical and the other intangible. Neither is it necessary to consider physical and intangible .value separately in evaluating such property. See Federal Power Commission and Illinois Commerce Commission v. Natural Gas Pipe Line Co. of America and Texorna Natural Gas Co., 62 S.Ct. 736, 86 L.Ed. -, decided by the United States Supreme Court March 16, 1942. Reproduction cost need not be taken into account in weighing property that has an additional intangible value. To illustrate: How shall we value a property which has a physical value of $5,000.00, but which, on account of its net earnings, reflects a reasonable value of $10,000.00? Must we add the two values and divide by two and reach a value of $7,500.00, or use some other percentage basis ? Manifestly not, because the property on the basis of net earnings is reasonably worth $10,000.00. All we can do in such case is consider both the physical value and the going concern value and then adopt the one which we consider most nearly reflects true value. That is what the Board did. It received the testimony and no doubt considered it. True, it rejected the reproduction cost theory of valuation in reaching its conclusion, but this it had a right to do if in its opinion it did not tend to reflect the true value of the property on account of its going concern value.
In the majority opinion, it is charged that the Board committed error because it did not take into account the effect of regulation by the Interstate Commerce Commission on future earnings. No such claim was made or advanced before the Board. No testimony was offered tending to show whether the effect of such regulation would be beneficial or detrimental to the earnings.
In reviewing a decision of the Board we may not predicate error on a ground which was not presented to the Board, nor may we make an inference of fact in conflict with the stipulations of the parties and the findings of the Board and without support in the record. General Utilities & Operating Co. v. Helvering, 296 U.S. 200, 56 S.Ct. 185, 80 L.Ed. 154. True, the valuation found by the Interstate Commerce Commission for rate making purposes was stipulated, but that was for the purpose of establishing value and not for the purpose of showing detrimental effect from future regulation.
Moreover, I do not believe we are justified in concluding that the earnings of the past will not be enjoyed in the future. This presumption is based on the conclusion that regulation will detrimentally affect rate of return. No testimony was offered on this point. Neither does it necessarily follow that regulation will lower income. A good argument can be made as to the beneficial effects thereof where unfair competition is removed. Transportation rates for pipe line companies must have reasonable relation to the rates charged by railroads and other common carriers. It may be that the sum total of the regulation will be beneficial and add to, rather than take from, the value of the property. In any event, I do not feel that we are justified in making such a presumption in the absence of any showing in the record to sustain it.
The mandate of the court is that the Board redetermine the value by giving consideration to all available criteria; that is, physical value, effect of regulation, and capitalized net return. What does that mean? Must the Board take them all into account and reach a composite result? If so, what percent of value must be derived from each of them? Suppose the Board, upon reconsideration, reduces the value to $10,750.00. *229Will we again remand and say, “You have not sufficiently considered all available criteria” ? How much reduction must the Board give before we conclude it has given proper consideration to all available criteria?
Neither do I believe that the Board is required to give consideration to all available criteria. In Federal Power Commission and Illinois Commerce Commission v. Natural Gas Pipe Line Co. of America and Texoma Natural Gas Co., supra [62 S.Ct. 743, 86 L.Ed. -], Chief Justice Stone said:
“The Constitution does not bind rate-making bodies to the service of any single formula or combination of formulas.”
In a special concurring opinion, Justices Black, Douglas and Murphy interpreted the majority opinion to mean that the valuing board was now free from the compulsion of admitting evidence on reproduction cost or giving any weight to that element of fair value.
The Board properly applied an accepted and recognized standard of valuation in valuing utility property. There is no charge of fraud or arbitrary conduct, and, in my view, the decision should be affirmed.
For these reasons, I am forced respectfully to dissent from that part of the decision which strikes down the valuation made by the Board.