Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-29-2005

USA v. 6.45 Acres of Land
Precedential or Non-Precedential: Precedential

Docket No. 03-2305




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                                     PRECEDENTIAL

    UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT


                  No. 03-2305


       UNITED STATES OF AMERICA,
                            Appellant

                        v.

  6.45 ACRES OF LAND, more or less, situated
    in Cumberland Township, Adams County,
        Commonwealth of Pennsylvania;
HANS G. ENGGREN; CHRISTINA A. ENGGREN,
  Husband and Wife, their Heirs and/or assigns;
 UNKNOWN OWNERS; UNKNOWN LESSEES


   Appeal from the United States District Court
     for the Middle District of Pennsylvania
      (D.C. Civil Action No. 99-cv-02128)
   District Judge: Honorable Sylvia H. Rambo


              Argued June 30, 2004

         Before: AMBRO, ALDISERT
        and STAPLETON, Circuit Judges

         (Opinion filed: April 29, 2005)
Thomas L. Sansonetti
  Assistant Attorney General
Todd S. Aagaard, Esquire (Argued)
Robert Oakley, Esquire
Marc Gordon, Esquire
United States Department of Justice
Environment & Natural Resources Division
P.O. Box 23795
L’Enfant Plaza Station
Washington, DC 20026

      Attorneys for Appellant

Lawrence R. Wieder, Esquire (Argued)
David E. Lehman, Esquire
NcNees, Wallace & Nurick
100 Pine Street
P.O. Box 1166
Harrisburg, PA 17108-1166

John C. Goodchild, III, Equire (Argued)
Catherine E. Gillespie, Esquire
Marisel Acosta, Esquire
Timothy D. Mygatt, Esquire
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103

Irwin W. Aronson, Esquire
Willig, Williams & Davidson
212 Locust Street, Suite 400
P.O. Box 11997
Harrisburg, PA 17108

      Attorneys for Appellees

                               2
                 OPINION OF THE COURT


AMBRO, Circuit Judge

        The United States appeals from the District Court’s
judgment awarding         compensation to Overview Limited
Partnership (“Overview”) and Hans and Christina Enggren (the
“Enggrens”) pursuant to the Government’s taking of 6.45 acres
of land in the Gettysburg National Military Park. The
Government asserts that the District Court impermissibly failed
to apply the “unit rule” of valuation in determining the fair
market value of the condemned land (instead valuing separate
interests rather than the aggregate interests as a single unit).
Moreover, the Government contends that in so doing the District
Court awarded compensation to Overview and the Enggrens that
exceeded, in aggregate, the amount the United States could
fairly be obliged to pay. In essence, the Government argues that
the District Court strayed from the clear path of the unit rule
and, mired in a jungle of valuations of partial interests, “double
counted” a key component of its estimate of the land’s value, in
effect charging the Government twice. Because we agree, we
reverse the judgment of the District Court and remand for
further proceedings.



                                3
I.        Facts and Procedural History

         A.    The Condemned Properties

       On December 12, 1999, the United States filed a
complaint in condemnation to acquire approximately 6.45 acres
of land within the boundaries of the Gettysburg National
Military Park. The condemned land consisted of (1) two fee
simple interests, designated Tract 4-203 and Tract 4-204, and (2)
multiple right-of-way easements in three tracts of land,
designated Tract 4-108, Tract 4-109, and Tract 4-220
(collectively, the “Condemned Properties”).

       Tract 4-203 was owned in fee simple by the Enggrens.1
In 1972, the Enggrens leased this parcel, which was unimproved
at the time, to Overview for a term of 99 years.2 Overview
intended to build on Tract 4-203 an observation tower
overlooking the Gettysburg Battlefield and to operate the tower
as a tourist attraction. Accordingly, the lease provided that
Overview would own, insure, and pay all applicable taxes with
respect to the proposed tower. At the end of the lease term, the
Enggrens would retake possession of the land and would also


     1
    The right-of-way easement over Tract 4-220, which was
appurtenant to Tract 4-203, was also owned by the Enggrens.
     2
     The initial parties to the lease were the predecessors-in-
interest to the parties before us.

                               4
take ownership of the tower. Construction of the 307-foot
observation tower was completed in 1974.

        Tract 4-204 was owned in fee simple by Overview.3 On
this land, which lay adjacent to Tract 4-203, Overview owned
and operated a gift shop, restaurant, and parking lot. These
improvements were operated in conjunction with the tower as a
tourist attraction. Overview generated revenue from the gift
shop and restaurant, and through fees for admission to the tower.
Overview also received rent from two cellular phone companies
for space on the tower subleased for cellular antennae.

          B.   Trial Proceedings

       The Declaration of Taking, which transferred title in the
Condemned Properties to the United States, was filed by the
Government on May 17, 2000.4 The Government thereafter
deposited with the registry of the District Court an estimate of
just compensation for the Condemned Properties–$3 million.
Because the Enggrens and Overview contested the fairness of
the Government’s estimated payment, a bench trial was set for


  3
    Overview also owned the two right-of-way easements over
Tract 4-108 and Tract 4-109. These easements were appurtenant
to Tract 4-204 and provided access to the tower.
      4
    The improvements on the Condemned Properties were
demolished on July 3, 2000.

                               5
the sole purpose        of   determining    and   awarding     just
compensation.

        Prior to trial, the parties submitted briefing on the
appropriate methodology5 for valuing the Condemned
Properties. As a result of that briefing, the District Court issued
a pretrial order on April 13, 2001, which stated in relevant part:

        The highest and best use evaluation for the
        properties at issue can be determined in either of
        the two following ways:

        a) as a single unit together with their appurtenant
        easements, or


    5
       Appraisal “methodology” can mean two things in the
context of this litigation. The first kind of methodology, which
is not in dispute on appeal, pertains to one of the accepted
theories of valuation. This choice varies with the nature of the
property under appraisal, and experts may reasonably disagree
over which will yield the most accurate estimate in any
particular case. The second meaning of ‘methodology’ pertains
to the legal procedure by which an award of just compensation
for the United States’ taking is determined. This second type of
methodology implicates the unit rule, which is the subject of this
appeal. To avoid confusion, we refer to the unit rule not as a
methodology but as a “procedure,” because the determination as
to its applicability is one made by a court as a matter of law
rather than by an appraiser.

                                6
       b) two appraisals – one covering tract 4-203 and
       another appraisal covering Tract 4-204, each with
       their appurtenant easements . . . .

       A three-day bench trial was held in November 2001, at
which three expert appraisers testified to the fair market value
of the Condemned Properties: David Lennhoff for the
Government, Robert Von Ancken for Overview, and William
Siverling for the Enggrens. Lennhoff and Von Ancken, in
accordance with the first option available under the District
Court’s pretrial order, offered appraisals that valued the
Condemned Properties as a single unit. Siverling purported to
take the second option, but rather than offer an appraisal of
Tract 4-203 (with its appurtenant easement), he appraised only
the value of the Enggrens’ legal interest in that parcel.

       Lennhoff testified that the most reliable methodology by
which to appraise the Condemned Properties was the income
capitalization approach.6 Using this approach, Lennhoff


  6
     Under the income capitalization approach, the net income
that a tract of land can produce in a typical year is divided by a
factor called a “capitalization rate.” The capitalization rate is a
ratio representing the relationship between the land’s annual net
income and its value. According to Lennhoff, this ratio
indicates how many times the annual net income a potential
buyer would pay for the land. The quotient of these figures,
Lennhoff testified, represents the fair market value of the land.

                                7
testified that the Condemned Properties could generate an
estimated annual net operating income of $227,878. He then
divided this amount by an estimated capitalization rate of 10.5%
in order to conclude that the fair market value of the Condemned
Properties was approximately $2.2 million. Lennhoff also
valued the Condemned Properties using a cost approach.7
Applying this alternative approach, he testified that the fair
market value of the Condemned Properties would be $2.9
million. Finally, Lennhoff compared the income capitalization
approach with the cost approach and determined that the former
method was a more reliable indicator of the value of the
Condemned Properties. Nonetheless, he adopted a value that
represented a “reasonable rounding” between the two
approaches, yielding a final conclusion that the Condemned
Properties were worth $2.5 million.

      Overview’s appraiser, Von Ancken, testified that the cost
approach, and not the income capitalization approach, was the
more appropriate methodology for calculating the value of the


See generally Jacques B. Gelin & David W. Miller, The Federal
Law of Eminent Domain § 4.1 at 200, 205-06 (1982) (“Gelin &
Miller”).
     7
       The cost approach (also known as the reproduction
approach), according to Lennhoff, values a tract of land by
estimating the value of the land as vacant, adding the cost of the
improvements, and then deducting any depreciation in the
improvements. See generally 

214-18.

                                8
Condemned Properties. According to Von Ancken, the cost
approach resulted in an $11.13 million valuation of the
Condemned Properties. While that estimate was appropriate in
Von Ancken’s opinion, he nonetheless engaged in an income
capitalization analysis for the limited purpose of calculating (for
use under the cost approach) certain depreciation amounts with
respect to improvements on the Condemned Properties. Von
Ancken’s income capitalization “modification” to his appraisal
resulted in an estimated fair market value of $11.5 million. Von
Ancken explicitly testified that his calculations, using both the
cost and income capitalization approaches, represented the total
fair market value of the Condemned Properties as a single unit.8


  8
    At the outset of the trial, Overview also sought to bring to
the attention of the District Court its allegation that in 1994 the
Government engaged in negotiations with Overview to acquire
the Condemned Properties. Overview claimed that during these
negotiations the United States apparently relied on an appraisal
valuing the Condemned Properties at $6.6 million. The United
States moved in limine to exclude mention of the earlier
appraisal because there was no evidence of its existence and
because it would be extremely prejudicial to the United States.
Overview indicated that it wished to discuss, at trial, the earlier
negotiations that may have preceded an oral purchase offer by
the United States. The Government denied that any oral offer
was made. The District Court took the matter under advisement.
Assuming the appraisal mentioned by Overview exists, it does
not appear to have been entered into evidence or relied upon by
the Court. We therefore do not consider it on appeal. See Fed.

                                9
        Siverling, the Enggrens’ expert, did not value the
Condemned Properties as a single unit. Nor did he calculate the
total value of Tract 4-203 (with its appurtenant easement) as a
unit. Rather, he testified that his appraisal consisted of the value
of the Enggrens’ lease with Overview. He did so using two
methods. First, he estimated the amount of the annual rent
payments the Enggrens would receive from Overview during the
year halfway through the 99-year lease period (the 45th year)
and capitalized that income using a capitalization rate of 10%.
This yielded a value of $2.7 million. Second, he calculated the
net present value of the cash flow to the Enggrens under the
remaining years on the lease using a discount rate of 9.5%. This
alternative calculation resulted in a value of $2.5 million.
Siverling then averaged the results of the two methods and
concluded that the Enggrens’ legal interest in Tract 4-203 and its
appurtenant easement was worth $2.6 million.

       C.      District Court’s Findings

       The District Court weighed the testimony of all three
expert appraisers and decided that the income capitalization
approach used by Lennhoff was the most appropriate method of
valuation. However, the Court opined that, contrary to
Lennhoff’s own testimony, the income capitalization approach
did not actually result in the fair market value of the Condemned
Properties as a whole. Rather, the Court stated its belief that


R. App. P. 10(a).

                                10
“[w]hile the United States and Overview purported to value the
property as a whole, their capitalization of income approach was
based only on the value that a hypothetical buyer would expect
to earn from operating the . . . [t]ower, or Overview’s interest.”
In accordance with that belief, the Court stated that it would use
Lennhoff’s approach to calculate the value of Overview’s
interest in the Condemned Properties (i.e., the value of
Overview’s fee simple interest in Tract 4-204 and its
appurtenant easements plus the value of Overview’s leasehold
interest in Tract 4-203) and that it would calculate separately the
value of the Enggrens’ interest based on Siverling’s testimony.
According to the Court, this procedure was consistent with its
April 13, 2001 order that allowed the parties to value the
Condemned Properties either as a single unit or as two different
units of land.

       With respect to its calculation of the value of Overview’s
interest, the District Court made factual determinations
regarding the projected income and expenses attributable to the
Condemned Properties using a combination of both Lennhoff’s
and Von Ancken’s testimony.                Applying Lennhoff’s
methodology, the Court concluded that the value of Overview’s
interest in the Condemned Properties was $3.932 million. The
Court then proceeded to calculate separately the value of the
Enggrens’ interest. In so doing, it determined that the best way
to do this was to use the income capitalization approach to
calculate the present value of the future income the Enggrens
could expect to receive from their lease to Overview. Using this

                                11
approach, the Court concluded that the value of the Enggrens’
interest in the Condemned Properties was $2.7 million.

       Accordingly, the District Court entered a final judgment
against the United States in the amount of $6.632
million—$3.932 million in favor of Overview and $2.7 million
to the Enggrens. The Government timely appealed.9

II.       Discussion

        The Government contends that the District Court
committed legal error when it purported to determine its award
of just compensation by separately valuing the distinct legal
interests of Overview and the Enggrens in the Condemned
Properties. According to the Government, the Court should
have followed the “unit rule,” calculating the fee simple value
of the Condemned Properties (as if in single ownership) without
regard to the constituent legal interests. The Government
further argues that the District Court’s valuation, by its own
terms, was clearly erroneous.

      We exercise plenary review over the District Court’s
conclusions of law and its application of the law to the facts.


      9
     The District Court exercised jurisdiction pursuant to 28
U.S.C. §§ 1331 and 1345 because the United States was the
plaintiff under authority granted to it by federal law. We
exercise appellate jurisdiction under 28 U.S.C. § 1291.

                              12
Louis W. Epstein Family P’ship v. Kmart Corp., 

,
766 (3d Cir. 1994). We review the District Court’s factual
findings for clear error. Int’l Ass’n of Machinists & Aerospace
Workers v. US Airways, Inc., 

, 259 (3d Cir. 2004).10




       “The United States has the authority to take private
property for public use by eminent domain, . . . but [it] is obliged
by the Fifth Amendment to provide ‘just compensation’ to the
owner thereof.” Kirby Forest Indus., Inc. v. United States, 

, 9 (1984) (citing Kohl v. United States, 

, 371
(1876)).11 In general, “just compensation” means “the fair


  10
      “Factual findings are clearly erroneous if the findings are
unsupported by substantial evidence, lack adequate evidentiary
support in the record, are against the clear weight of the
evidence or where the district court has misapprehended the
weight of the evidence.” United States v. Roman, 

,
140 (3d Cir. 1997) (internal quotation omitted). A finding of
fact is also considered “clearly erroneous when although there
is evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a
mistake has been committed.” Estate of Spear v. Commissioner,

, 114-15 (3d Cir. 1994) (citing United States v. U.S.
Gypsum Co., 

, 395 (1948)).
  11
   “The guiding principle of just compensation . . . is that the
owner of the condemned property ‘must be made whole but is

                                13
market value of the property on the date it is appropriated.” 

“Under this standard, the owner is entitled to receive
what a willing buyer would pay in cash to a willing seller at the
time of the taking.” 

omitted). While this
rule may be comparatively easy to apply when the property
condemned by the United States is owned in fee simple by a
single owner, that is not our case. Here the taking was of
discretely held legal interests. Thus, do multiple interests in this
case justify the District Court’s departure from the general unit
rule of valuation? We hold that they do not. Neither the District
Court opinion nor the record presents extraordinary
circumstances that justify the exceptional valuation
methodology employed. For this reason, it cannot stand.

        It is well-established that “[a] condemnation proceeding
is a proceeding in rem.” United States v. 25.936 Acres of Land,

, 279 (3d Cir. 1946); see United States v.
Dunnington, 

, 352-53 (1892); Eagle Lake



not entitled to more.’” United States v. 564.54 Acres of Land,

, 516 (1979) (emphasis in original) (quoting Olson
v. United States, 

, 255 (1934)); see also United
States v. L.E. Cooke Co., Inc., 

, 341 (6th Cir. 1993)
(“[O]vercompensation is as unjust to the public as
undercompensation is to the property owner, and the landowner
bears the burden of proving the value of the land.” (citing
United States v. 69.1 Acres of Land, 

, 292 (4th Cir.
1991))).

                                14
Improvement Co. v. United States, 

, 184 (5th Cir.
1947). “It is not a taking of rights of persons in the ordinary
sense but an appropriation of the land or property itself.” 25.936
Acres of 

. When the United States
exercises its power of eminent domain, it “takes all interests [in
the property] and as it takes the res is not called upon to specify
the interests that happen to exist.” A.W. Duckett & Co., Inc. v.
United States, 

, 151 (1924).12 In fact, an exercise
of eminent domain extinguishes all interests in the condemned
land and establishes a new title in the United States. Id.; 25.936
Acres of 

. Accordingly, an award of just
compensation takes the place of the condemned land and the
various legal interests in the land are “treated as though
transferred to the award.” 25.936 Acres of 

(citing, inter alia, 

); see also
Meadows v. United States, 

, 752, 753 (4th Cir.
1944) (“The value of the property once being determined in a
proper proceeding, the sum so determined stands in the place of
the property and can be distributed upon the adjudication of the
value of the respective interests.”).

       Recognizing that condemnations proceed in rem, we have
held that an award of just compensation under federal law


  12
    Of course, the same cannot be said when the United States
takes less than the whole estate. See Nebraska v. United States,

, 868 n.7 (8th Cir. 1947). There the Government
does face an obligation to specify what it is taking.

                                15
cannot be determined by separately valuing the various legal
interests in the land condemned. See 25.936 Acres of 

. This settled principle, referred to as the “unit rule”
or “undivided fee rule,” embodies the idea that “when land in
which various persons have separate interests or estates is taken
by the United States for public use, the amount of compensation
to be paid must be determined as if the property was in a single
ownership and without reference to conflicting claims or liens.”

144 F.2d at 752, 753; United States v.
576,734 Acres of Land, 

, 409 (3d Cir. 1944));
Bogart v. United States, 

, 213 (10th Cir. 1948) (“A
condemnation proceeding is an in rem proceeding and when
land is taken in which separate interests or estates are owned by
two or more persons, as between the public and the owners, it is
regarded as one estate.”); 

(“The
general federal rule of compensation for condemnation of a fee
is well settled. The measure of ‘just compensation’ under the
Fifth Amendment for the taking of property in fee simple
ordinarily is the fair market value . . . of the property in fee
ownership as of the time of taking irrespective of the number
and kind of interests existing in it.”). But see United States v.
City of New York, 

, 528 (2d Cir. 1948) (calling into
doubt the existence of the unit rule). In prescribing this rule, we
have explained that “the value of the separate interests cannot
exceed the worth of the whole.” 25.936 Acres of Land, 

at 279 13 ; see also United States v. 131.68 Acres of Land, 

, 875 (5th Cir. 1983) (“[T]he so-called ‘undivided fee
rule’ . . . provides that the division of a fee into separate interests
cannot increase the amount of compensation that the condemnor
has to pay for the taking of the fee.”).

       Under the unit rule, the role of the United States, as
condemnor, ends once the total amount of just compensation is
determined. Only after the total award is determined is it
apportioned among the holders of various legal interests in the
condemned property. See United States v. 1.377 Acres of Land,

, 1269 (9th Cir. 2003) (“The ‘undivided fee rule’
essentially operates by permitting the governmental authority to
condemn property by providing just compensation, then
allowing the respective interest holders to apportion the award
among themselves, either by contract or judicial
intervention . . . . Once the government provides just
compensation for the condemned property, its role is at an end


   13
      Overview seizes upon this language in 25.936 Acres of
Land, and insists that the unit rule is therefore nothing more than
a proscription against the double-counting of interests in land
when determining just compensation. Given the weight of
authority, as well as our express statement of the unit rule in
25.936 Acres of Land, we cannot accept Overview’s proposition.
To the contrary, we have applied the unit rule as the legal
procedure by which just compensation is to be determined and
apportioned.

                                  17
. . . .” (internal citations omitted)); Eagle Lake Improvement 

(“The sum determined to be due for the taking
is apportioned between the claimants, but, as between the
condemnor and the condemnee, the property is valued as a
whole.” (internal quotation omitted)); 

(“[T]he guarantee of the Fifth Amendment is regarded as being
satisfied generally where the cash value of property taken in fee
is substituted for it and the cash is allocated or apportioned
among the respective estates or interests on the basis of their
relative values.”); 

(“The value of the
property once being determined in a proper proceeding, the sum
so determined stands in the place of the property and can be
distributed upon the adjudication of the value of the respective
interests.”); Carlock v. United States, 

, 927 (D.C.
Cir. 1931) (“It is a fundamental principle, governing
condemnation proceedings, where several interests are involved,
such as estates for life, or in remainder, or leaseholds, or in
reversion, in the property to be condemned, all should be
combined in determining the value of the fee, after which the
total value of the fee can be subdivided in satisfaction of the
values fixed upon the various interests involved.”).

        This does not mean that the fact of divided ownership in
condemned property is to be wholly disregarded. When the
value of constituent legal interests in property is relevant to the
factfinder’s determination of the value of the land as a whole (as
if in single ownership), such evidence may be considered. Cf.
United States v. 158.76 Acres of Land, 

, 561 (2d

                                18
Cir. 1962) (“[I]f the condemned land contains a mineral deposit,
. . . it is proper to consider this fact in determining the market
value of the land as a whole, but it is not permissible to
determine separately the value of the mineral deposit and add
this to the value of the land as a unit.”); 

(noting that evidence of the value of a separate timber
interest in the condemned land may be properly considered in
determining the value of the land as a whole).

        Nor do we hold that the unit rule is to be applied rigidly
in all cases. As the Supreme Court has noted in the eminent
domain context, “[e]xceptional circumstances will modify the
most carefully guarded rule . . . .” Mississippi & Rum River
Boom Co. v. Patterson, 

, 408 (1878). The same can
be said with respect to application of the unit rule. See United
States v. 499.472 Acres of Land, 

, 549 (5th Cir.
1983) (permitting departure from the unit rule in certain “rare
and compelling circumstances”); United States v. Corbin, 

, 828 (10th Cir. 1970) (“[W]e recognize that departure
from the unit rule is permissible in unique situations.”);

(“Of course, like any other, the [unit]
rule is not one that is autocratically absolute.”) (citing
Mississippi & Rum River Boom 

)).

       In some instances, a departure may be necessary to avoid
grossly unjust results. See, e.g., United States v. Welch, 

, 338 (1910) (in a taking of a servient tenement by the
United States, “the value of [an] easement [could] not be

                               19
ascertained without reference to the dominant estate to which it
was attached”); Boston Chamber of Commerce v. Boston, 

, 195 (1910) (in a taking by the City of Boston, it was
not unconstitutional for a commonwealth court to disregard the
value of the unencumbered estate as a whole where there was a
great disparity between the value of the unencumbered whole
and the value of the estate in its actual state of title). In other
instances, departure from the unit rule may simply be a practical
necessity. See, e.g., 

(in the taking of
a fish farm by the United States, the topography of the land
made it impossible to appraise all aspects of value on the land by
any one appraisal methodology). “But it is to be emphasized
that the general [unit] rule . . . is a ‘carefully guarded’ one and
that only in rare and exceptional types of situations [should]
departures from it be[] permitted.” 

.

       In this case, the District Court’s determination of just
compensation departed from the unit rule. As indicated above,
the Court decided that, rather than value the Condemned
Properties as if in single ownership, it would instead value the
separate interests of Overview and the Enggrens in the
Condemned Properties.14 The Court’s decision failed to


  14
     The District Court expressed its belief that this procedure
was permitted by its pretrial order of April 13, 2001, which
allowed the parties to present valuation evidence for the
Condemned Properties either as a single unit or as two different
units of land. According to the Government, this constituted a

                                20
describe the unit rule, its obligation to apply the unit rule by
default, or any reason to depart from the rule. The Court
certainly did not find an extraordinary circumstance justifying
its departure from the rule. Adherence to the unit rule here, to
repeat, would have meant the two-step process of valuing the
Condemned Properties as if in single ownership and thereafter
proceeding to apportion that award among the interest-holders
in the Condemned Properties.15 What the District Court could
not do, consistent with the unit rule, was determine the just
compensation owed by the United States by computing
separately the value of the various constituent legal interests in




misinterpretation of the Court’s April 13th order insofar as the
order referred to two separate units (i.e., Tract 4-203 and Tract
Tract 4-204, each with appurtenant easements) and not two
separate interests. While we agree with the Government’s
position, we note that the proper construction of the order is
irrelevant to our ultimate conclusion that the valuation
procedure used by the District Court improperly ignored the unit
rule. That is, we assess the valuation procedure used
notwithstanding the existence of the April 13th order.
    15
       We note that the District Court could have separately
valued Tract 4-203 and Tract 4-204 while still adhering to the
unit rule (valuing each unit as if it was held in fee simple
ownership). The unit rule prohibits deconstruction of the
interests in a “unit.”

                               21
the Condemned Properties.16

       This does not end our analysis, however, as we must
affirm the judgment of the District Court notwithstanding its
failure to adhere to the unit rule if we determine that this was
“harmless” (that is, if the award of compensation would have
been the same had it followed the rule). See 28 U.S.C. § 2111
(“On the hearing of any appeal . . . in any case, the court shall
give judgment after an examination of the record without regard
to errors or defects which do not affect the substantial rights of
the parties.”); Fed. R. Civ. P. 61 (“The court at every stage of
the proceeding must disregard any error or defect in the
proceeding which does not affect the substantial rights of the
parties.”). A non-constitutional legal error will be deemed
harmless “if it is highly probable that the error did not affect the


  16
     The Enggrens insist that the District Court did not, in fact,
value their legal interest in Tract 4-203, but rather valued the
parcel itself. Accordingly, they contend that the District Court’s
decision with respect to them was in accordance with the unit
rule, and they request that the judgment be affirmed. We note,
however, that Siverling, the Enggrens’ witness, expressly
testified that he appraised only the Enggrens’ interest in Tract 4-
203—in effect, the present value of Overview’s rent payments
under the lease. Moreover, the District Court’s opinion stated
explicitly that its award in favor of the Enggrens amounted to
the value of the Enggrens’ legal interest in the Condemned
Properties. Accordingly, we deem the Enggrens’ argument
unpersuasive.

                                22
judgment.” Gen. Motors Corp. v. New A.C. Chevrolet, Inc., 

, 329 (3d Cir. 2001).

       We cannot conclude that it is “highly probable” that the
District Court would have reached the same result had it adhered
to the unit rule. As we indicated above, one of the principles
underlying that rule is that “the value of the separate interests [in
condemned land] cannot exceed the worth of the whole.”
25.936 Acres of 

. Our review of the
record leads us to conclude, however, that it is quite likely that
the sum of the District Court’s independent awards—its
assessment of “the value of the separate interests”—
substantially exceeded the value of the whole.

       Specifically, the District Court erroneously construed
Lennhoff’s appraisal of Tract 4-203 as having excluded the
Enggrens’ interest in that land, and, as a result, it “charged” the
Government for the Enggrens’ interest twice (once for Overview
and once for the Enggrens). This occurred as follows. Under its
chosen method for appraising Tract 4-203—the income
capitalization approach—the District Court applied a
capitalization rate to the land’s expected net income. The Court
arrived at the land’s expected net income by adding up the
sources of gross income and deducting expenses. When
determining the expenses, the Court considered the testimony of
both Lennhoff and Von Ancken. It concluded that Lennhoff’s
method, which estimated expenses as a flat 60% of the income
represented by admission to the tower, was the more sound.

                                 23
Accordingly, the Court employed Lennhoff’s formula for
expenses when it deducted them from gross income.

       In his testimony, Lennhoff explicitly stated that the 60%
of admission receipts formula he used for expenses did not
include lease payments. He explained that because he was
valuing the fee as a whole, lease payments were not considered
an expense but merely a transfer of funds between interest
holders that would cancel out under a unit valuation. Because
Lennhoff’s task was neither to appraise Overview’s interest nor
the Enggrens’ interest, but rather the composite value of all
interests, he did not count as an expense what was simply a
transfer of value between interest holders that had no bearing on
the land’s inherent capacity to generate income.

         Despite Lennhoff’s representations, the District Court
construed his expense formula as “based only on the value that
a hypothetical buyer would expect to earn from operating the .
. . [t]ower, or Overview’s interest.” (Emphasis added.) Having
already veered off the unit rule path, with this construction of
Lennhoff’s analysis the District Court’s valuation reached a
dead end. Because Lennhoff did not deduct lease payments as
an expense to Overview (contrary to what the District Court
thought, he simply valued Trust 4-203 as a whole unit), his
appraisal methodology did not exclude—but rather
included—the value of the Enggrens’ interest in those payments.
By proceeding to add to its estimation of just compensation a
separate valuation of the Enggrens’ interest (in the form of a

                               24
capitalization of the income they could have expected to earn in
lease payments over the life of the lease), the Court double-
counted the substantial value of the lease. This error, resulting
(in our estimation) from the District Court’s failure to follow the
unit rule, was prejudicial.17

III.        Conclusion

      We reverse the judgment of the District Court and
remand for further proceedings consistent with this opinion.




       17
       The Government convincingly argues that the District
Court’s $3.932 million valuation of Overview’s interest in the
Condemned Properties should actually have represented the
total value of the land. If so, the aggregate $6.632 million of
just compensation awarded includes “$2.7 million worth of
prejudice.”

                                25