65 F.

3d 374

UNITED STATES of America, Plaintiff-Appellee,

v.
BANISADR BUILDING JOINT VENTURE, DefendantAppellant,
and
98,856 Gross Square Feet of Space Consisting of Three (3)
Buildings and Their Appurtenances That Make Up the
Derey Engineering Building Located at
1860 Wiehle Avenue, Reston,
Virginia, Defendant.
UNITED STATES of America, Plaintiff-Appellant,
v.
BANISADR BUILDING JOINT VENTURE, DefendantAppellee,
and
98,856 Gross Square Feet of Space Consisting of Three (3)
Buildings and Their Appurtenances That Make Up the
Derey Engineering Building Located at
1860 Wiehle Avenue, Reston,
Virginia, Defendant.
Nos. 93-2492, 94-1015.

United States Court of Appeals,

Fourth Circuit.
Argued July 10, 1995.
Decided Sept. 20, 1995.

ARGUED: Jahangir Ghobadi, Fairfax, VA, for appellant. Joan M. Pepin,

United States Department of Justice, Washington, DC, for appellee. ON
BRIEF: Lois J. Schiffer, Assistant Attorney General, Robert L. Klarquist,
John O. Holm, United States Department of Justice, Washington, DC;
William T.K. Dolan, Office of General Counsel, General Services
Administration, Washington, DC, for appellee.

Before ERVIN, Chief Judge, MURNAGHAN, Circuit Judge, and

PHILLIPS, Senior Circuit Judge.
Affirmed by published opinion. Judge MURNAGHAN wrote the opinion,
in which Chief Judge ERVIN and Senior Judge PHILLIPS joined.
OPINION
MURNAGHAN, Circuit Judge:

We are presented here with various challenges to the district court's decision to
adopt the findings of a court-appointed commission in calculating the amount
of "just compensation" owed by the United States Government for a "taking" of
a building in Reston, Virginia. We affirm throughout, finding no error in the
district court's decision.

Factual Background and Procedural History

2

In 1970, Appellee/Cross-Appellant, the United States Government

("Government"), entered into a five-year rental lease with three options for
five-year renewals, with Gulf Reston, Inc. for the Derey Engineering Building
in Reston, Virginia. The lease term commenced on March 1, 1971. In 1976,
Appellant/Cross-Appellee, Banisadr Building Joint Venture ("Banisadr"),
purchased the building from Gulf Reston, and succeeded to its rights and duties
under the lease.

The Government exercised all three of its five-year renewal options during the
following years. As the end of the lease term approached, the Government
attempted to negotiate a new lease with Banisadr, but the parties were unable to
reach a satisfactory agreement. After the lease expired on February 28, 1991,
the Government continued to occupy the building as a holdover tenant, and
continued to make monthly rental payments to Banisadr.

On October 29, 1991, the Government filed a complaint for condemnation and
a declaration of taking in the United States District Court for the Eastern
District of Virginia. The declaration of taking specifically stated:

5 estate taken is for a term of three (3) years beginning March 1, 1991, with full
The
payment for the balance due, being made to the court together with the right to
remove within a reasonable time after the expiration of the term, any and all fixtures,
additions, signs, improvements, and any structures put in place by or for The United

States.
6

The Government posted a total sum of $1,100,000 as compensation for the

three-year taking term. This amount included $197,080 in interim monthly
payments made in accordance with the pre-taking lease (for rental payments
from March 1, 1991 to September 30, 1991, the period during which the
Government occupied the premises as a holdover tenant), and $902,920
deposited to the registry of the district court on the day on which the
declaration of taking was filed.

Banisadr filed its answer on November 27, 1991. The Government filed a
motion for summary judgment on March 6, 1992, and Banisadr filed a crossmotion for summary judgment on March 9, 1992. At the summary judgment
hearing on March 27, 1992, Banisadr moved for appointment of a commission
pursuant to Rule 71A(h) of the Federal Rules of Civil Procedure. With the
Government's consent, the court granted Banisadr's motion, and appointed a
commission to determine the appropriate amount of just compensation due.

At that time, the parties were additionally in dispute over whether the
Government would be liable for restoration costs for the building. The original
lease between the Government and Gulf Reston had provided that at the end of
the lease, the Government would, at its option, either (1) restore the premises to
its 1971 condition, ordinary wear and tear beyond the Government's control
excepted, or (2) pay the lessor a sum representing either the diminution in fair
market value of the building due to the Government's failure to restore, or the
actual cost of restoration, whichever was less. When the lease expired, the
Government had not restored the premises to its 1971 condition. On April 10,
1992, the district court held a hearing to resolve the parties' dispute as to
whether the property should be appraised, for condemnation purposes, in its
existing condition or as if it had been restored. The court issued a ruling
holding that the property would be valued as if it had been restored to its 1971
condition.

The district court scheduled the matter for trial before the Commission on May
6, 1993 to determine the issue of just compensation. At the trial, Mr.
Lauterbach, Banisadr's expert appraiser, testified on direct examination that just
compensation for the three-year taking of the building would be $4,585,000.
He arrived at that figure using the "before and after" method of evaluation
typically employed in cases of partial takings, and using a 12 percent discount
rate. The Government's expert, David Lennhoff, by contrast, valued the
property at a lower figure, on the assumption that Banisadr would have to spend
at least $2 million for restoration, and using a discount rate of 16 percent; that

lower valuation was based on Lennhoff's conclusion that the property was
unleasable "as is" and that the property would have to be refit by Banisadr
before any new tenant could occupy it.
10

On May 26, 1993, the Commission filed its trial report with the district court.
The report reviewed the testimony of the two expert appraisal witnesses, but
did not accept the findings of either expert in their entirety. In particular, the
Commission took issue with the Government's conclusion that the building was
unleasable "as is" and that $2 million would need to be spent to make it
competitive; likewise, the Commission took issue with Banisadr's conclusion
that the building would be immediately leasable. Ultimately, the Commission
calculated that the property could attract a tenant within six months, and would
generate a rent of $3.30 per square foot. The Commission accordingly arrived
at a total just compensation figure of $978,674.40 for the three-year taking
period.

11

On June 7, 1993, both the Government and Banisadr filed objections to the
Commission's report. The Government objected to the Commission's failure to
discount the future rental income stream to present value, alleging that the
proper discount rate should be 16 percent. Banisadr, too, filed three objections:
(1) that the report assumed incorrectly that the property was regular office
space rather than specialized "high-tech" space, (2) that the award of net rent
should have been increased to include taxes and insurance, and (3) that the
Commission failed to include in its award compensation for the period of time
it would take Banisadr to find a new tenant at the end of the taking. Banisadr
withdrew its third objection before the district court ruled.

12

On July 19, 1993, the Commission filed an answer in which it found that the
Government should bear the burden of the taxes and insurance. The
Commission also stated that the rent payments should not be discounted over
time, but rather that Banisadr should be paid in a timely manner in a lump sum;
the Commission concluded, however, that if directed by the court to come up
with a proper discount rate for the future income stream, the rate would be 4
percent--the approximate inflation rate of recent years. Again, the Government
filed an objection as to the Commission's calculation of the discount rate.

13

The objections were heard on October 12, 1993, and based on the hearing, the
district court entered its final order on October 22, 1993, awarding Banisadr a
gross amount of $1,321,225.35 as just compensation for the taking. In so
holding, the district court adopted the Commission's recommendation of a 4
percent discount rate, and adopted the Commission's valuation of the property
at $3.30 per square foot. The court also ruled that the Government was entitled

to a credit against the gross amount for interim payments of rent and for the
deposit posted at the commencement of the case. The court accordingly
subtracted the Government's deposit of $1,100,000 from the award amount, and
ordered the Government to pay $221,227.35 as of November 1, 1993, plus
interest until paid.
14

Banisadr filed a notice of appeal on November 19, 1993. The Government filed
a notice of cross-appeal on December 20, 1993. We are presented with three
primary issues on appeal and cross-appeal: (1) whether the district court erred
in adopting the Commission's valuation of the subject property; (2) whether the
district court erred in applying a 4 percent discount rate to the stream of future
income in computing the award of just compensation; and (3) whether the
district court erred in refusing to permit Banisadr to put forth its claim that the
Government breached a contractual duty under the preceding lease to restore
the premises to its prior condition. We affirm throughout.

I. District Court's Adoption of the Commission's Valuation of the Property

15
16

Banisadr first alleges on appeal that the district court clearly erred in adopting
the Commission's valuation of the disputed property at $3.30 per square foot. In
particular, Banisadr contends that the Commission's finding that the
condemned property was a regular office space leasable only at a low rent was
in direct conflict with the evidence that the property was of a specialized nature
adaptable to high-tech computer use. See Appellant's Brief at 27-28.
Additionally, Banisadr argues that the Commission should have valued the
property using a "before and after" approach rather than a capitalization of
income approach. Because the Commission's findings were not clearly
erroneous, we affirm. See United States v. Payne, 368 F.2d 74, 76 (4th
Cir.1966) ("Unless the findings of the commission be shown to the district
court to be 'clearly erroneous' they must be accepted, and unless this court, in
turn, finds error in the acceptance or rejection by the district court, the decision
must be affirmed.") (citations omitted); United States v. Certain Interests in
Property, 296 F.2d 264, 269 (4th Cir.1961) ("The District Judge has the
authority and duty to review the findings of the commission, and such findings
must be accepted by him unless he considers them clearly erroneous.")
(emphasis added).

17

First, it is well settled that in the event of a "partial taking"-- i.e., a case in
which the Government has taken one part of a larger tract, leaving the
remainder to the landowner--the measure of just compensation is the difference
between the fair and reasonable market value of the land immediately before
the taking and the fair and reasonable market value of the portion that remains

after the taking. See United States v. Werner, No. 93-1738, 1994 WL 507461,
at * 5-6, 1994 U.S.App. LEXIS 25933, at * 19 (4th Cir.1994) (unpublished),
citing to United States v. 2.33 Acres of Land, 704 F.2d 728, 730 (4th Cir.1983).
Banisadr claims that the district court erred in the instant case by not using this
"before and after" approach in valuing the Derey Building. In so arguing,
however, Banisadr confuses a partial taking with a temporary taking. In the
instant case, the Government did not engage in a partial taking--that is, it did
not take only a part of the premises; rather, as the Government correctly argues,
it engaged in a temporary taking of Banisadr's total property. Thus, the district
court did not err in rejecting Banisadr's "before and after" approach to its
calculation. Indeed, it is well established that when the Government takes
property only for a period of years, such as in the case before us, it essentially
takes a leasehold in the property. Thus, the value of the taking is what rental the
marketplace would have yielded for the property taken. See Kimball Laundry
Co. v. United States, 338 U.S. 1, 7, 69 S.Ct. 1434, 1438, 93 L.Ed. 1765 (1949)
(finding that "the proper measure of compensation is the rental that probably
could have been obtained"). See also United States v. Right to Use & Occupy
3.38 Acres of Land, 484 F.2d 1140, 1144 (4th Cir.1973) (finding that where the
Government condemned a short term leasehold in premises which were the
subject of a longer private lease, the correct standard for determining just
compensation was the annual rental value measured as though the premises
were rented in the open market). Accordingly, the district court did not err in
using a method of valuation based on what it considered to be a fair market
rental value for the property, rather than following Banisadr's suggested "before
and after" approach.
18

Second, neither the district court nor the Commission erred in finding that the
highest and best use of the building was for regular office space at a low-end
rent, rather than for a specialized high-tech use. Indeed, it was wholly within
the Commission's proper discretion for it to conclude, after weighing all of the
evidence presented, that Banisadr's testimony regarding the alleged specialized
"high tech" nature of the building was neither credible nor convincing. See
United States ex rel. Tennessee Valley Authority v. Powelson, 319 U.S. 266,
273, 275-76, 63 S.Ct. 1047, 1051, 1052-53, 87 L.Ed. 1390 (1943) (finding that
the burden is on the landowner to show that his suggested "highest and best
use" is reasonably probable and that it has a real market value). Indeed,
although Banisadr's expert witness testified that the building's features would
make it attractive to high-tech companies, particularly defense contractors,
neither his testimony nor his report contained any data supporting his statement.
In stark contrast, the Government witness's report provided a detailed analysis
of leases on several buildings comparable to the Derey Building in support of
its valuation of the property as a regular office space. See United States v.

Upper Potomac Properties Corp., 448 F.2d 913, 918 (4th Cir.1971) (finding
that comparable sales are the best evidence of value). Thus, the Commission
did not err in finding that the office space was better evaluated as ordinary
office space, rather than as a specialized computer facility space.
19

Third, it was not clearly erroneous for the Commission to reject Banisadr's
expert's unsupported conclusion that the building could be rented for $14.50 per
square foot, and instead to accept more completely the valuation testimony of
the Government witness in coming up with its final $3.30 figure. The
Commission clearly found that the testimony of the Government's witness was
the "most thorough and best researched." Such credibility determinations
should not be disturbed on appeal. See United States v. 9.20 Acres of Land, 638
F.2d 1123, 1128 (8th Cir.1981) (finding that it is the function of the
commission, and not an appellate court, to make credibility determinations and
to assess the weight to be given to each witness's testimony).

20

Last, Banisadr, without merit, argues that the Commission impermissibly

applied its own expertise in calculating the just compensation figure, instead of
relying on the evidence, when it described as "common knowledge" the poor
condition of the Reston, Virginia area real estate market. Because Banisadr did
not raise this objection before the district court, it is precluded from doing so on
appeal. Agra, Gill & Duffus, Inc. v. Benson, 920 F.2d 1173, 1176 (4th
Cir.1990).

21

For the foregoing reasons, we find that the district court did not err in adopting
the Commission's valuation of the property for purposes of calculating the
proper just compensation figure.

II. Application of a Four Percent Discount Rate

22
23

Second, Banisadr alleges that the district court erred in applying a discount rate
to the stream of future rental income; the Government cross-appeals on the
same issue, alleging that the district court erred in adopting the Commission's
suggested 4 percent discount rate rather than the 16 percent rate submitted by
the Government or the 12 percent rate submitted by Banisadr. Because the
district court erred neither in applying a discount rate nor in adopting the
Commission's recommended 4 percent discount rate, we affirm.

24

First, we initially dispose of Banisadr's allegation on appeal that the district

court erred in applying any discount rate to the future stream of rental income
expected from the Government. In the proceedings below, Banisadr conceded

before the district court that a discount rate was applicable, and suggested that
the only question at issue was what specific rate to apply. Therefore, Banisadr
cannot now contest the district court's decision to apply a discount rate. The
basic principles of judicial economy dictate that a theory not raised at trial
cannot be raised on appeal. Agra, Gill & Duffus, 920 F.2d at 1176.
25

Second, we likewise reject the Government's attempt, on cross-appeal, to

challenge the Commission's (and the district court's) calculation of the
appropriate discount rate at 4 percent. In particular, the Government contends
that the 4 percent discount rate was not supported by the evidence because
neither party suggested that the discount rate should be that low. In essence, the
Government contends that because the 4 percent figure was not in the range
between the 12 percent figure suggested by Banisadr and the 16 percent figure
suggested by the Government, the 4 percent figure runs counter to the
evidence.

26

The argument is unavailing, however, because the Commission was in no way

obligated to accept either of the party's theories on the appropriate rate of
discounting. Indeed, this Court has noted, albeit in dicta, that falling within a
range of testimony adduced at a hearing does not necessarily provide
conclusive support for a Commission's calculations. United States v. 452.876
Acres of Land, 667 F.2d 442, 445 (4th Cir.1981). There is no requirement that
the Commission must accept some discount rate between the figures offered by
the parties.

27

Moreover, the 4 percent figure is not clearly erroneous when viewed in light of
the purposes of discounting. The purpose of applying a discount rate is to
reflect the degree of risk in the undertaking involved and to reflect the rate of
return in comparable investments. United States v. Whitehurst, 337 F.2d 765,
772 (4th Cir.1964). In the instant case, the Commission chose the inflation rate-4 percent--as a proper measure of such risk. Because the 4 percent figure was
not clearly erroneous--it did not run contrary to the evidence, but only ran
contrary to the positions of both parties--the figure should be affirmed on
appeal.

28

Last, the case at bar is not the type of case in which the Commission
improperly relied on its own expertise, rather than on the evidence presented, in
calculating the 4 percent figure as the proper inflation rate. See United States v.
Merz, 376 U.S. 192, 197, 84 S.Ct. 639, 642, 11 L.Ed.2d 629 (1964) (noting the
danger of commissioners using their own expertise). Indeed, both parties
agreed in court that the proper inflation rate would be in the 3-4 percent range.
The Commissioners therefore did not go beyond the evidence in calculating the

4 percent discount rate.

29

The district court did not err.

III. Exclusion of Claim for Restoration Costs

30

Last, Banisadr contends on appeal that the district court erred in refusing to
allow it to present evidence of the restoration costs that the Government
allegedly would owe Banisadr at the end of the three-year taking under the
original lease. Because the court correctly prevented Banisadr from introducing
such a contract-based claim into this condemnation action, and properly held
that Banisadr could not recover restoration costs for injuries that might occur
during the three-year taking, we affirm.

31

First, Banisadr, in arguing that restoration costs are always included in a

compensation award for a taking, again misconceives the instant case as
concerning a partial taking rather than a temporary taking. Indeed, Banisadr
mistakenly cites several cases for the proposition that restoration costs should
always be awarded in cases of partial takings in order to compensate for the
necessary severance of a particular piece of property during a partial taking. See
Appellant's Brief at 29. Because the instant case is not a case of partial taking,
however, as discussed in Section I supra, and thus because no severance of the
property was ever needed, those cases cited by Banisadr which suggest that
restoration costs must be included are simply inapposite. The case before us is
a case about the temporary taking of a property, and thus severance and any
accompanying restoration costs are not at issue here.

32

Second, and more important, the contractual nature of the Government's

obligation to provide restoration costs under its original lease renders it
inappropriate for disposition in a condemnation case. Indeed, the case law,
albeit sparse, suggests that Banisadr's contractual claim for restoration costs
cannot properly be asserted in a condemnation action. In United States v.
1440.35 Acres of Land, 438 F.Supp. 1070 (D.Md.1977), for example, the
Government had temporarily condemned a property which it had leased for 25
years. Under the terms of the lease, as in the instant case, the Government was
obligated to restore the premises to as good a condition as that existing at the
time of entering the lease, reasonable wear and tear excepted. 438 F.Supp. at
1071. As in the instant case, the Government had not complied with the lease
obligation to restore the property at the time of the taking. The landowner
accordingly asserted the restoration claim during the Government's
condemnation action. The district court held that the landowner's lease-based
counterclaim could not be asserted in the condemnation action because

F.R.C.P. 71A--which governs condemnation cases--provides that other than an

answer, no pleading or motion asserting any additional defense or objection
shall be allowed by the defendant. Id. at 1073-74. Accordingly, the court held
that a "counterclaim, which would otherwise seem to be an appropriate vehicle
for raising a claim that the government is actually taking a greater estate than
that described in the Declaration of Taking, is therefore not permitted by the
Federal Rules of Civil Procedure." Id. at 1074. Instead, the court held that such
a claim properly may be made only in a separate action filed under the Tucker
Act, and can generally be brought only in the Court of Claims. Id. See also
United States v. 21.54 Acres of Land, 491 F.2d 301 (4th Cir.1973).
33

Under that case law, it is clear that Banisadr cannot properly assert in this
condemnation action its lease-based contractual claim in which it alleges that
the United States has failed to comply with the restoration provision of the
lease. If Banisadr seeks to recover damages based on the Government's failure
to restore the premises in compliance with the restoration clause, its only
remedy is to file suit against the United States under the Tucker Act. Banisadr
cannot make such a contract-based claim in this condemnation action.

34

Last, Banisadr alleges on appeal, without merit, that it should have been able to
present evidence to the district court supporting its claim for restoration costs
which would be owed by the Government at the end of the three-year taking
period. As correctly noted by the Government, however, it would be impossible
for any court now to decide what hypothetical restoration costs, if any, may be
owed by the Government at the end of the three-year period. Thus, although
Banisadr could assert a claim for damages at the end of the three-year period if
necessary, to do so now would be inappropriate.
For the foregoing reasons, we

35

AFFIRM.