Town of Huntington v Long Is. Power Auth.

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[*1] Town of Huntington v Long Is. Power Auth. 2013 NY Slip Op 50862(U) Decided on May 21, 2013 Supreme Court, Suffolk County Emerson, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 21, 2013
Supreme Court, Suffolk County

Town of Huntington, Plaintiff,





Attorneys for Plaintiff

825 East Gate Blvd., Suite 202

Garden City, New York 11530


Attorneys for Defendants Long Island Power Authority and Long Island Lighting Company d/b/a LIPA

926 RXR Plaza

Uniondale, New York 11556


Attorneys for Defendants National Grid US8., National Grid Generation LLC formerly known as KeySpan Generation LLC, National Grid PLC, KeySpan Corporation, National Grid Electric Services LLC, National Grid Energy Trading Services LLC, and The Brooklyn Union Gas Company

One Metrotech Center, 14th Floor

Brooklyn, New York 11201

Elizabeth H. Emerson, J.

Upon the following papers numbered 1-21 read on this motionto dismiss ; Notice of Motion and supporting papers 1-7 ; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers 8-20 ; Replying Affidavits and supporting papers 21 ; and after hearing oral argument in support of and in opposition to the motion it is,

ORDERED that the motion by the defendants for an order dismissing the complaint is granted as to the fourth, fifth, and sixth causes of action; and it is further

ORDERED that the motion is otherwise denied.

In 1986, the New York State Legislature enacted the Long Island Power Authority Act (Public Authorities Law, art 5, tit 1-A), which created LIPA, a not-for-profit public corporation with broad powers to effectuate the legislation's purposes. Those purposes were primarily to close the Shoreham nuclear power plant, to replace the Long Island Lighting Company ("LILCO") as the provider of electric power on Long Island, and to reduce electric power costs for Long Island ratepayers (Public Authorities Law §§ 1020-a, 1020-c, 1020-f, 1020-g, 1020—h; Matter of Citizens for an Orderly Energy Policy v Cuomo, 78 NY2d 398, 407). Thus, LIPA was authorized, among other things, to acquire all or any part of the stock or assets of LILCO (Public Authorities Law § 1020-h [2]; Matter of Town of Islip v Long Island Power Authority, 301 AD2d 1, 4).

In March 1997, LIPA and LILCO entered into an Agreement in Principle in which LIPA agreed to acquire LILCO's electric transmission and distribution facilities as well as its retail operations (Matter of Suffolk County v Long Island Power Auth., 248 AD2d 226, 228). LILCO's remaining assets, including its gas and distribution assets and its non-nuclear generation facilities were sold to a newly formed company from whom LIPA would purchase energy. Additional agreements between LIPA and LILCO resolved various ancillary issues, and the final acquisition of LILCO by LIPA was consummated in 1998 (Id.).

On June 26, 1997, LIPA and LILCO executed two agreements: the Power Supply Agreement ("PSA") and the Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the PSA, LILCO agreed to sell and deliver to LIPA all of the capacity and energy that it produced from its generating facilities in Nassau and Suffolk counties. The initial term of the PSA was 15 years, commencing on the closing date. The PSA was binding and effective upon and inured to the benefit of LIPA, LILCO, and their successors or assignees. Article 21.16 of the PSA provided, in pertinent part, that after June 26, 1997, LILCO would not challenge any property tax assessment on its generating facilities unless the assessment was increased "not in an appropriate proportion to the increase in value related to taxable capital additions affixed to the tax parcel between the last two tax dates." Substantially the same language was included in [*2]the Merger Agreement, which also provided as follows:

This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person or persons any rights, benefits or remedies of any nature whatsoever.

The foregoing language was not included in the PSA.

On May 2, 1997, the Chairman of LIPA, Richard Kessel, sent a letter to the Nassau-Suffolk School Boards Association in which he made the following statements:

Let me also guarantee you that LIPA will immediately drop all tax certiorari cases against all municipalities and school districts on all of its properties immediately following the takeover. Furthermore, LILCO will drop all of its remaining tax suits at the same time and neither LIPA nor LILCO will initiate any further tax certiorari cases on any of their respective properties at any time in the future unless a municipality abusively increases its assessment rate. Traditional increases in local taxes and assessments along with any capital improvements will not represent a change in this promise. By the way, this language is specifically spelled out in the definitive agreements between LIPA/LILCO and Brooklyn Union.

On August 6, 1997, Kessel sent the following letter to the Supervisor of the Town of Huntington:

Thank you for your July 21st letter regarding certain provisions of the LIPA/LILCO agreement.

Your understanding of the LIPA/LILCO agreement and our commitments resulting from the agreement is accurate. Once the transaction closes, all pending certiorari proceedings against the Town of Huntington will be withdrawn. In the future, there will be no appeal or litigation of any assessment on the Northport facility unless Huntington Town singles out LIPA, LILCO, or Brooklyn Union Gas property for reassessment, thus increasing the assessment separate and apart from other properties located within the town.

Furthermore, the agreement provides that routine increases in assessment for all properties and increases in assessment on various utility facilities, including Northport, as a result of capital improvements would not warrant certiorari challenges. Finally, it is important to note that this policy will apply to all facilities owned and/or operated by LIPA, LILCO or Brooklyn Union Gas within the Town of Huntington. I hope that this letter answers the various concerns you've had regarding the LIPA/LILCO transaction.

On March 22, 2007, LIPA and LILCO entered into an agreement with KeySpan Corporation and National Grid USA, among others, in connection with the merger of KeySpan [*3]and National Grid (the "Agreement and Waiver").[FN1] The Agreement and Waiver provided, in pertinent part, as follows:

Notwithstanding any provisions to the contrary in the PSA or the June 26, 1997 Agreement and Plan of Merger, between the KeySpan parties and LIPA, for the term of the PSA National Grid and Genco [FN2] hereby agree that unless directed to do so by LIPA, they shall not initiate any tax certiorari proceedings with respect to any Genco "Generating Facilities", as such term is defined in the PSA.

At a press conference following the merger of KeySpan and National Grid, the defendants announced that they would not challenge any tax assessments unless the conditions found in the parties' earlier agreements had been met.

On October 15, 2010, LIPA and National Grid commenced tax certiorari proceedings in the Supreme Court, Suffolk County, against the Assessor of the Town of Huntington, among others, challenging the property tax assessments on the Northport power- generating facilities, which are located in the Town of Huntington. It is undisputed that the assessments for the properties in question had not been increased disproportionately to the assessments for any other properties in the Town of Huntington.

The Town of Huntington commenced this action against LILCO, LIPA, Brooklyn Union Gas, KeySpan and National Grid. The Town contends that it is an intended third-party beneficiary of the 1997 Power Supply Agreement between LIPA and LILCO. The complaint contains six causes of action for money damages and for declaratory and injunctive relief. The first cause of action seeks a judgment declaring, inter alia, that the defendants violated the PSA by commencing the aforementioned tax certiorari proceedings. The second cause of action seeks money damages for breach of the PSA. The third cause of action seeks an injunction enjoining LIPA and National Grid from prosecuting the tax certiorari proceedings. The fourth through sixth causes of action seek money damages for fraudulent representation, fraud, and negligent misrepresentation, respectively. The defendants move to dismiss the complaint pursuant to CPLR 3211 (a) (1), (3), (7), and/or (8). In support of their motion, the defendants contend, inter alia, that the Town of Huntington has no legal capacity or standing to maintain this action and that it is not an intended third-party beneficiary of the PSA.

On a motion to dismiss pursuant to CPLR 3211, the sole criterion is whether the pleading states a cause of action and if, from its four corners, the factual allegations, taken together, manifest any cause of action cognizable at law (Guggenheimer v Ginzburg, 43 NY2d 268, 275). The court is to liberally construe the complaint, accept the alleged facts as true, and give [*4]the plaintiff the benefit of every possible favorable inference (Leon v Martinez, 84 NY2d 83, 87). The court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint (Id. at 88, citing Rovello v Orofino Realty, 40 NY2d 633, 635). When evidentiary material is considered, the inquiry turns from whether the complaint states a cause of action to whether the plaintiff actually has one. Unless it can be shown that a material fact as claimed by the plaintiff is not a fact at all and that no significant dispute exists regarding it, the complaint should not be dismissed (Guggenheimer v Ginzburg, supra).

One may not maintain a cause of action for breach of contract in the absence of privity (LaBarte v Seneca Resources Corp., 285 AD2d 974, 975), but a third-party may sue to enforce a contract made for its benefit (see, Port Chester Elec. Constr. Corp. v Atlas, 40 NY2d 652, 655). In order to maintain an action to recover as the third-party beneficiary of a contract, the third-party must establish that it was the intent of the contracting parties to benefit the third-party (Id. at 655; see also, Amin Realty v K & R Constr. Corp., 306 AD2d 230). A third-party who is only an incidental beneficiary to a contract may not sue to enforce it (see, Port Chester Elec. Constr. Corp. v Atlas, supra at 655; Amin Realty v K & R Constr. Corp., supra at 232). In determining third-party-beneficiary status, the court must examine the intent of the parties as revealed in their agreement and in the surrounding circumstances (Septembertide Publ. B.V. v Stein & Day, 884 F2d 675, 679 [2nd Cir]; see also, Aievoli v Farley, 223 AD2d 613, 614; Trans-Orient Mar. Corp. v Star Trading & Mar., 925 F2d 566, 573 [2nd Cir]). Moreover, it is well settled that the obligation to perform to the third-party beneficiary need not be expressly stated in the contract (see, Aievoli, supra; Trans-Orient, supra).

Applying these principles to the facts of this case, the court finds that the Town of Huntington's opposition to the defendants' motion is sufficient to raise an issue as to whether the Town is an intended third-party beneficiary of Article 21.16 of the Power Supply Agreement (see, Aievoli, supra). As the defendants' correctly contend, the overall purpose of the PSA is the purchase and delivery of power, which benefits the parties to the contract and LIPA's ratepayers. Article 21.16, however, benefits neither the parties to the contract nor the ratepayers. Moreover, the Town of Huntington has produced evidence to support its contention that Article 21.16 was included in the PSA to benefit the Town by protecting it tax base. The court, therefore, cannot conclude as a matter of law that the Town is merely an incidental beneficiary and not an intended third-party beneficiary of the Power Supply Agreement.

The defendants contend that the Town lacks standing to maintain this action because it cannot allege an injury in fact. However, there is no requirement that the harm necessary to confer standing be actual and in the present, rather than potential and in the future, as long as it is reasonably certain that the harm will occur if the challenged action is permitted to continue (see, Police Benevolent Assn. of NY State Troopers, Inc. v Division of NY State Police, 29 AD3d 68, 70). The court finds that it is reasonably likely that the Town will lose substantial tax revenues and that its bond rating will be negatively affected if the tax certiorari proceedings are not resolved in the Town's favor. Accordingly, the court finds that the Town has standing to maintain this action. [*5]

The defendants also contend that the Town lacks the capacity to maintain this action. Capacity to sue is a threshold matter allied with, but conceptually distinct from, the question of standing (see, Matter of Vil. of Chestnut v Ramapo, 45 AD3d 74, 80). As a general matter, capacity concerns a litigant's power to appear and bring its grievance before the court (Id.) Governmental entities, being artificial creatures of statute, have neither an inherent nor a common-law right to sue. Their right to sue, if it exists at all, must be derived from the relevant enabling legislation or some other concrete statutory predicate (Id.). Town Law § 65 (1) authorizes a town to institute an action or legal proceeding for the benefit or protection of the town in any of its rights or property. Contrary to the defendants' contention, this action is not a taxpayer action instituted by the Town on behalf of its citizenry. The Town of Huntington commenced this action to enforce its rights as a purported third-party beneficiary of the Power Supply Agreement. It is, therefore, an action authorized by Town Law § 65 (1). Accordingly, the court finds that the Town has the capacity to maintain this action.

In view of the foregoing, the court declines to dismiss the first cause of action for declaratory relief, the second cause of action for breach of contract, and the third cause of action for injunctive relief.

The fourth and fifth causes of action sound in fraud. A cause of action premised on fraud cannot lie when it is based on the same allegations as the plaintiff's breach-of-contract claim (Yenrab, Inc. v 794 Linden Realty, LLC, 68 AD3d 755, 757). When a fraud claim is based on an alleged breach of contractual duties and the supporting allegations do not concern representations that are collateral or extraneous to the terms of the contract, a cause of action sounding in fraud does not lie (Id.). A misrepresentation of an intent to perform a contract is insufficient to sustain a cause of action for fraud (Id. at 758). The fourth and fifth causes of action are based on the same allegations as those underlying the second cause of action for breach of contract. Moreover, the allegation that the defendants misrepresented to the Town that they would not commence a tax certiorari proceeding is nothing more than an allegation that the defendants misrepresented their intent to perform under the PSA (Id.). Accordingly, the fourth and fifth causes of action are dismissed.

The sixth cause of action is for negligent misrepresentation. A claim for negligent misrepresentation requires, inter alia, the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff (Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 180). A special relationship may be established by persons who possess unique or specialized expertise or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified (Id.). The special relationship requires a closer degree of trust than an ordinary business relationship (see, Wright v Selle, 27 AD3d 1065, 1066). The record reflects that nothing more than an ordinary business relationship existed between the Town of Huntington and the defendants (Id.; see also, H & R Project Assocs., Inc. v City of Syracuse, 289 AD2d 967, 969). Moreover, like the fraud causes of action, this cause of action is not based on circumstances extraneous to the Power Supply Agreement (Auble v Doyle, 38 AD3d 1264, [*6]1266), and the alleged misrepresentation is merely an expression of future expectation, which is not actionable (see, Dunlevy v New Hartford Cent. School Dist., 266 AD2d 931, 933). Accordingly, the sixth cause of action is also dismissed.

Dated:May 21, 2013

J.S.C. Footnotes

Footnote 1:In the interest of brevity, the court will refer to the various KeySpan and National Grid entities as "KeySpan" and "National Grid," respectively.

Footnote 2:Genco is Keyspan Generation LLC.