United States v. Virginia Electric and Power Company/Opinion of the Court

by Potter Stewart

United States Supreme Court

365 U.S. 624

United States  v.  Virginia Electric and Power Company

 Argued: Nov. 10, 1960. --- Decided: April 3, 1961

In 1944 Congress authorized the construction of a dam and reservoir on the Roanoke River in Virginia and North Carolina. For purposes of that project the Government acquired by condemnation a flowage easement over 1840 acres of fast lands adjacent to the Dan River, a navigable tributary of the Roanoke. This 1840-acre tract was part of a 7400-acre estate. The respondent owned a perpetual and exclusive flowage easement over 1540 acres within the easement taken by the Government. The only question presented by this case concerns the compensation awarded to the respondent for the destruction of its easement.

The respondent's easement had been purchased from the owner of the estate and had been conveyed to the respondent's predecessors in title by various deeds over a period of many years, beginning in 1907. Along with the easement the fee owner had also expressly granted by deed the release of all claims for damage to the residue of the estate resulting from the exercise of rights under the easement.

In 1951, after extended negotiations, the owner of the estate agreed to convey to the Government a flowage easement over the 1840-acre tract in return for the payment of one dollar. ^[1] This agreement was expressly made subject to 'such water, flowage, riparian and other rights, if any,' as the respondent owned in the tract. The agreement also provided that the Government could elect to acquire its easement by a condemnation proceeding, in which event the agreed consideration of one dollar would be 'the full amount of the award of just compensation inclusive of interest.' Exercising this election, the Government instituted condemnation proceedings in the District Court to acquire a flowage easement over the 1840 acres in question, depositing one dollar as the estimated just compensation for the property to be taken. The fee owner acknowledged the settlement contract previously made and agreed to the one dollar compensation. The respondent, whose easement was to be destroyed, intervened in the proceedings to contest 'the issue of just compensation.'

The District Court made a substantial award to the respondent as compensation for the taking of its flowage easement. The judgment was affirmed by the Court of Appeals for the Fourth Circuit, on the authority of that court's decision in United States v. Twin City Power Co., 215 F.2d 592. United States v. 2979.72 Acres of Land, More or Less, etc., 218 F.2d 524. After the judgment in the Twin City case was reversed by this Court, 350 U.S. 222, 76 S.Ct. 259, 100 L.Ed. 240, we vacated the judgment in this litigation and remanded the case to the Court of Appeals for further consideration in the light of our Twin City decision. 350 U.S. 956, 76 S.Ct. 345, 346, 100 L.Ed. 832. The Court of Appeals in turn remanded the case to the District Court with instructions that, in computing the amount of compensation to be awarded for the taking of the respondent's easement, there should be eliminated 'any element of value arising from the availability of the land for water power purposes due to its being situate on a navigable stream.' 4 Cir., 235 F.2d 327, 330, rehearing denied 237 F.2d 165.

On remand the District Court proceeded in accordance with these directions. Commissioners were appointed and given detailed instructions to follow in computing the compensation to be awarded the respondent. These instructions included an explicit direction to exclude from the computation any element of value arising from the availability of the land for water power purposes attributable to its location on a navigable stream. ^[2] The Commissioners found that, under the criteria imposed by the court, the value of the respondent's easement was $65,520. The district judge accepted these findings, and in accordance with them awarded the respondent that sum. On appeal the judgment was affirmed 270 F.2d 707.

We granted certiorari to consider the Government's claim that the respondent's easement had no compensable value when appropriated by the United States. United States v. Virginia Electric and Power Co., 362 U.S. 947, 80 S.Ct. 862, 4 L.Ed.2d 866. For the reasons that follow we reject that argument in the extreme form it has been presented, but we have concluded that the judgment must nonetheless be set aside for a redetermination of the compensation award.

It is indisputable, as the Government acknowledges, that a flowage easement is 'property' within the meaning of the Fifth Amendment. See United States v. Welch, 217 U.S. 333, 30 S.Ct. 527, 54 L.Ed. 787; Panhandle Eastern Pipe Line Co. v. State Highway Commission, 294 U.S. 613, 618, 55 S.Ct. 563, 565, 79 L.Ed. 1090; Western Union Tel. Co. v. Pennsylvania R. Co., 195 U.S. 540, 570, 25 S.Ct. 133, 141, 49 L.Ed. 312. Similarly, there can be no question that the Government's destruction of that easement would ordinarily constitute a taking of property within the meaning of the Fifth Amendment. See Pumpelly v. Green Bay Co., 13 Wall. 166, 181, 20 L.Ed. 557; United States v. Cress, 243 U.S. 316, 327-329, 37 S.Ct. 380, 384-385, 61 L.Ed. 746; United States v. Kansas City Life Ins. Co., 339 U.S. 799, 809-811, 70 S.Ct. 885, 890-892, 94 L.Ed. 1277. Nevertheless, it is argued that the Government cannot be required to pay compensation for the destruction of the easement in the present case because the easement was subject to the overriding navigational servitude of the United States.

This navigational servitude-sometimes referred to as a 'dominant servitude,' Federal Power Commission v. Niagara Mohawk Power Corp., 347 U.S. 239, 249, 74 S.Ct. 487, 493, 98 L.Ed. 686, or a 'superior navigation easement,' United States v. Grand River Dam Authority, 363 U.S. 229, 231, 80 S.Ct. 1134, 1136, 4 L.Ed.2d 1186-is the privilege to appropriate without compensation which attaches to the exercise of the 'power of the government to control and regulate navigable waters in the interest of commerce.' United States v. Commodore Park, 324 U.S. 386, 390, 65 S.Ct. 803, 805, 89 L.Ed. 1017. The power 'is a dominant one which can be asserted to the exclusion of any competing or conflicting one.' United States v. Twin City Power Co., 350 U.S. 222, 224-225, 76 S.Ct. 259, 260 261, 100 L.Ed. 240; United States v. Willow River Power Co., 324 U.S. 499, 510, 65 S.Ct. 761, 767, 89 L.Ed. 1101. A classic description of the scope of the power and of the privilege attending its exercise is to be found in the Court's opinion in United States v. Chicago, M., St. P. & P.R. Co.:

'The dominant power of the federal Government, as has been repeatedly held, extends to the entire bed of a stream, which includes the lands below ordinary high water mark. The exercise of the power within these limits is not an invasion of any private property right in such lands for which the United States must make compensation. (Citing cases.) The damage sustained results not from a taking of the riparian owner's property in the stream bed, but from the lawful exercise of a power to which that property has always been subject.' 312 U.S. 592, 596-597, 61 S.Ct. 772, 775, 85 L.Ed. 1064.

Since the privilege or servitude only encompasses the exercise of this federal power with respect to the stream itself and the lands beneath and within its high-water mark, the Government must compensate for any taking of fast lands which results from the exercise of the power. This was the rationale of United States v. Kansas City Life Ins. Co., 339 U.S. 799, 70 S.Ct. 885, 94 L.Ed. 1277, where the Court held that when a navigable stream was raised by the Government to its ordinary high-water mark and maintained continuously at that level in the interest of navigation, the Government was liable 'for the effects of that change (in the water level) upon private property beyond the bed of the stream.' 339 U.S. at pages 800-801, 70 S.Ct. at page 886. See also United States v. Willow River Power Co., 324 U.S. 499, 509, 65 S.Ct. 761, 767, 89 L.Ed. 1101.

But though the Government's navigational privilege does not extend to lands beyond the high-water mark of the stream, the privilege does affect the measure of damages when such land is taken. In United States v. Twin City Power Co., 350 U.S. 222, 76 S.Ct. 259, 100 L.Ed. 240, we held that the compensation awarded for the taking of fast lands should not include the value of the land as a site for hydroelectric power operations. It was pointed out that such value, derived from the location of the land, is attributable in the end to the flow of the stream-over which the Government has exclusive dominion. 350 U.S. at pages 225-227, 76 S.Ct. at pages 261-262. Thus, just as the navigational privilege permits the Government to reduce the value of riparian lands by denying the riparian owner access to the stream without compensation for his loss, United States v. Commodore Park, 324 U.S. 386, 390-391, 65 S.Ct. 803, 805, 89 L.Ed. 1017; Scranton v. Wheeler, 179 U.S. 141, 162-165, 21 S.Ct. 48, 56-58, 45 L.Ed. 126; Gibson v. United States, 166 U.S. 269, 276, 17 S.Ct. 578, 580, 41 L.Ed. 996, it also permits the Government to disregard the value arising from this same fact of riparian location in compensating the owner when fast lands are appropriated.

The Government's argument is that the rationale of Twin City makes payment of any compensation for the destruction of the respondent's easement unnecessary in the present case. This argument is based on the theory that the respondent's easement had no value save in conjunction with water power development. The respondent acknowledges that the courts below were correct in excluding any value of the easement derived from the availability of the land for water power purposes. It argues, however, that the easement had other value, derived from uses of the land not dependent upon the flow of the stream. If the easement did have such value, then the Government must compensate for the easement's destruction under the rule of Kansas City Life Ins. Co., supra, since the easement was a property right in fast lands. The basic issue is thus whether the respondent's easement might be found to have value other than in connection with the flow of the stream.

We think such a finding might be warranted. The evidence was that the highest and best use of the servient land (unconnected with riparian uses) was for agriculture, timber and grazing purposes. The respondent had an exclusive and perpetual property right to destroy those uses and the value which they created. This right was an attribute of a transferable, commercial easement with intrinsic value. It had been acquired for a valuable consideration. It had a marketability roughly commensurate with the marketability of the subservient fee. Only an adventurous purchaser would have acquired the underlying fee interest in the 1540-acre tract for any purpose whatever, without also purchasing the easement.

If easements to flood fast lands were worthless as a matter of law when taken by the United States, it would follow that when the Government took such an easement from the owner of an unencumbered tract of land, the Government would have to pay the owner nothing. That is not the law. United States v. Kansas City Life Ins. Co., 339 U.S. 799, 70 S.Ct. 885, 94 L.Ed. 1277. The Government itself acknowledges that it must pay such a landowner for the value of the property which does not stem from the flow of the stream, the value based upon the nonriparian uses of the property.

It follows that the Government must likewise compensate the easement owner for that aspect of the easement's value which is attributable not to water power, but to the depreciative impact of the easement upon the nonriparian uses of the property. The valuation of an easement upon the basis of its destructive impact upon other uses of the servient fee is a universally accepted method of determining its worth. See e.g., Olson v. United States, 292 U.S. 246, 253, 54 S.Ct. 704, 707, 78 L.Ed. 1236; Karlson v. United States, 8 Cir., 82 F.2d 330, 337; Jahr, Eminent Domain, 252 and n. 6 (collecting cases); 4 Nichols, Eminent Domain, § 12.41(2), n. 27 (collecting cases) (1951 ed.); 1 Orgel, Valuation under Eminent Domain, § 106, at 454 (2d ed.); Saxon, Appraising Flowage Easements, 24 Appraisal Journal 490, 494.

But the Government contends that the market value of the easement to those interested in developing the nonriparian uses of the fee can be ignored. It is claimed that, despite the general principle of indemnification underlying the Fifth Amendment, see Olson v. United States, 292 U.S. 246, 255, 54 S.Ct. 704, 708, 78 L.Ed. 1236, no compensation should be allowed for this value because it represents the 'destructive function' of the easement. Cf. Roberts v. City of New York, 295 U.S. 264, 283, 55 S.Ct. 689, 694, 79 L.Ed. 1429. It is argued that equitable principles prohibit compensation for such value. But equity works the other way. At the very least, the Government's argument would mean, in a case like this one, that compensation could be denied the fee owner because he had already conveyed the flowage easement, cf. United States v. Sponenbarger, 308 U.S. 256, 265-266, 60 S.Ct. 225, 228-229, 84 L.Ed. 230, and denied the owner of the easement because it was valueless against condemnation by the United States. The Government would thus destroy the entire property interest in fast lands without compensation. 'The word 'just' in the Fifth Amendment evokes ideas of 'fairness' and 'equity' * * *.' United States v. Commodities Trading Corp., 339 U.S. 121, 124, 70 S.Ct. 547, 549, 94 L.Ed. 707; see Monongahela Navigation Co. v. United States, 148 U.S. 312, 324-326, 13 S.Ct. 622, 625-626, 37 L.Ed. 463. The result contended for by the Government would hardly comport with those standards. The District Court and the Court of Appeals were correct in holding that a flowage easement over fast lands adjoining a navigable stream is property which cannot be appropriated without compensating the owner.

The remaining question is whether the District Court's method of determining the amount of compensation to be awarded was correct. The court was clearly right in excluding all value attributable to the riparian location of the land. United States v. Twin City Power Co., 350 U.S. 222, 76 S.Ct. 259, 100 L.Ed. 240. There can be no quarrel either with the Court's procedure in directing the Commissioners to appraise first the easement taken by the Government, and then to apportion its value between the respondent and the owner of the subservient fee. ^[3] United States v. Dunnington, 146 U.S. 338, 343 345, 350-354, 13 S.Ct. 79, 80-81, 82-84, 36 L.Ed. 996. And the court adopted an acceptable method of appraisal, indeed the conventional method, in valuing what was acquired by the Government by taking the difference between the value of the property before and after the Government's easement was imposed. See Olson v. United States, 292 U.S. 246, 253, 54 S.Ct. 704, 707, 78 L.Ed. 1236. ^[4] For these reasons we think that the court followed an entirely acceptable procedure in valuing the totality of what was appropriated by the Government.

In apportioning the respondent's share of this value, however, we think that the court erred. ^[5] The court apparently was of the view that the subservient fee interest in the 1540 acres was without value, and accordingly awarded to the respondent the entire value of what the Government appropriated in that acreage. The respondent was thus compensated as thought it were the owner, not of an easement, but of an unencumbered fee, as the Court of Appeals recognized. 270 F.2d, at page 712. The record does not support such an apportionment.

The guiding principle of just compensation is reimbursement to the owner for the property interest taken. 'He is entitled to be put in as good a position pecuniarily as if his property had not been taken. He must be made whole but is not entitled to more.' Olson v. United States, 292 U.S. 246, 255, 54 S.Ct. 704, 708, 78 L.Ed. 1236. In many cases this principle can readily be served by the ascertainment of fair market value-'what a willing buyer would pay in cash to a willing seller.' United States v. Miller, 317 U.S. 369, 374, 63 S.Ct. 276, 280, 87 L.Ed. 336. See United States v. Commodities Trading Corp., 339 U.S. 121, 123, 70 S.Ct. 547, 549, 94 L.Ed. 707; United States v. Cors, 337 U.S. 325, 333, 69 S.Ct. 1086, 1090, 93 L.Ed. 1392. But this is not an absolute standard nor an exclusive method of valuation. See United States v. Commodities Trading Corp., supra, 339 U.S. at page 123, 70 S.Ct. at page 549; United States v. Cors, supra, 337 U.S. at page 332, 69 S.Ct. at page 1090; United States v. Miller, supra, 317 U.S. at pages 374-375, 63 S.Ct. at page 280; United States v. Toronto, Hamilton & Buffalo Nav. Co., 338 U.S. 396, 70 S.Ct. 217, 94 L.Ed. 195.

The record in the present case, as might be expected, contains no evidence of a market in flowage easements of the type here involved. In the absence of such evidence, the court valued the flowage easement as the equivalent of the value of the servient lands for agricultural, forestry, or grazing use. The court thus ascribed a maximum value to the respondent's easement, a value not supported by the record.

We think the correct approach to the problem of valuation in a case of this kind was formulated by the Court of Appeals for the Fifth Circuit in Augusta Power Co. v. United States, 278 F.2d 1. The basic issues in that case were virtually indistinguishable from those presented here. ^[6] We are content to adopt the language of Judge Rives' opinion with respect to the standard to be followed in valuing flowage easements of this character: 'Between the two extremes just illustrated, the respective values of the fee and of the easement would fluctuate from time to time depending on the probability or improbability of actual exercise of the easement by the * * * Power Company or its assigns. If all interested parties were before the Court, the maximum which the United States would be required to pay would be the value of the lands, not including their value for hydroelectric power purposes. That is, however, a maximum, and not necessarily the measure of what the United States would have to pay under any and all circumstances. * * *

'* * * It seems to us that the maximum compensation payable for the flowage easement under any conceivable circumstances is so much of the value of the lands for agricultural and forestry purposes and for any other uses, not including hydroelectric power value, as the easement owner has a right to destroy or depreciate. That maximum is more simply expressed in the criterion adopted by the Commission, i.e., 'the difference in the value of the land with and without the flowage easement.' Subject to that maximum, the actual measure of compensation payable for he flowage easement is the value of the easement to its owner. 'The question is, What has the owner lost? not, What has the taker gained?' 1 Orgel on Valuation Under Eminent Domain, p. 352.' Augusta Power Co. v. United States, 278 F.2d 1, 4-5. (Footnotes omitted.)

In a word, the value of the easement is the nonriparian value of the servient land discounted by the improbability of the easement's exercise. It is to be emphasized that in assessing this improbability, no weight should be given to the prospect of governmental appropriation. The value of the easement must be neither enhanced nor diminished by the special need which the Government had for it. United States v. Cors, 337 U.S. 325, 332-334, 69 S.Ct. 1086, 1090-1091, 93 L.Ed. 1392; United States v. Miller, 317 U.S. 369, 63 S.Ct. 276, 87 L.Ed. 336; Olson v. United States, 292 U.S. 246, 261, 54 S.Ct. 704, 711, 78 L.Ed. 1236; United States v. Chandler-Dunbar Water Power Co., 229 U.S. 53, 76, 33 S.Ct. 667, 677, 57 L.Ed. 1063. The court must exclude any depreciation in value caused by the prospective taking once the Government 'was committed' to the project. United States v. Miller, supra, 317 U.S. at pages 376-377, 63 S.Ct. at page 281; see United States v. Cors, supra, 337 U.S. at page 332, 69 S.Ct. at page 1090. Accordingly, the impact of that event upon the likelihood of actual exercise of the easement cannot be considered. As one writer has pointed out, '(i)t would be manifestly unjust to permit a public authority to depreciate property values by a threat * * * (of the construction of a government project) and then to take advantage of this depression in the price which it must pay for the property' when eventually condemned. 1 Orgel, Valuation under Eminent Domain, § 105, at 447 (2d ed.); see Congressional School of Aeronautics, Inc. v. State Roads Commission, 218 Md. 236, 249-250, 146 A.2d 558, 565.

The judgment is vacated, and the case remanded to the District Court for further proceedings consistent with this opinion.

It is so ordered.

Judgment vacated and case remanded with directions.

Notes

1. The record indicates that the owner was willing to accept this nominal amount because of her interest in developing the balance of the estate as a wild game preserve, a use which presumably would be enhanced by a contiguous artificial lake.
2. The detailed instructions were otherwise based upon a traditional method of valuing what the Government appropriated, i.e., the difference in the value of the servient land before and after the Government's easement was imposed.
3. The owner of the fee, having agreed to convey her interest for one dollar, would, of course, not receive any larger amount apportioned to her interest. See Albrecht v. United States, 329 U.S. 599, 67 S.Ct. 606, 91 L.Ed. 532.
4. In determining the value of the Government's easement, the court assumed its proportions to be limited to 1540 acres, rather than to the 1840 acres actually taken. This was entirely permissible. Since the owner of the fee was making no claim, the only objective of the proceedings in the District Court was to determine the amount of compensation to be awarded the respondent. It was quite logical, therefore, to appraise only that part of the Government's easement which conincided with the respondent's property interest, and thereafter to apportion to the respondent its share of what was taken by that much of the Government's appropriation.
5. The court did not err, however, in including in the award to the respondent an amount for damages to the residue of the estate. The respondent was the record owner of the right to damage the residue, a right which the owner had expressly conveyed by separate deed for a valuable consideration. This was a property right in the residue, measurable by a monetary award to cover damages to the same. The amount of this portion of the award would depend upon the probability of the respondent's easement being exercised. See accompanying text, infra.
6. In that case the Government had also argued upon the basis of our Twin City decision, that a private flowage easement over fast lands is valueless as a matter of law when taken by the Government for navigational purposes. The argument was unambiguously rejected: 'Very clearly, the United States is in error when is claims * * * that it 'has a dominant servitude which it can exercise in its discretion and without compensation." 278 F.2d at page 4.

'If (the) Power Company had been successful in assembling the necessary lands, and in securing approval of the Federal Power Commission, and thereafter had actually exercised its easements by permanently flooding the lands, their value for agricultural and forestry purposes would have been destroyed. If, with that status, the United States had condemned the lands, the compensation due would be payable to (the) Power Company. That compensation would not include the hydroelectric power value, but it would embrace (the Power Company's) property right to destroy the value of the lands for agricultural and forestry purposes.

'At the other extreme, if factors such as difficulty of assemblage of all necessary lands, the increasing economic advantage of steam plants over hydroelectric plants, the need for additional power in the particular area, etc., had made it certain that the flowage easements would never be exercised by the * * * Power Company or its assigns, excluding the United States, then such compensation as might be due would be payable to the owners of the fee title and nothing to the * * * Power Company.