Opinion
No. 24125–02.
2010-06-3
COUNTY OF SUFFOLK, individually and on behalf of the rate payers of the County of Suffolk, Plaintiff, v. LONG ISLAND POWER AUTHORITY, Richard M. Kessel, as Chairman of the Long Island Power Authority, Defendants.
Reilly, Like & Tenety Esqs., Babylon, Attorneys for Plaintiff. Rivkin Radler LLP, Uniondale, Attorneys for Defendants.
Reilly, Like & Tenety Esqs., Babylon, Attorneys for Plaintiff. Rivkin Radler LLP, Uniondale, Attorneys for Defendants.
ELIZABETH H. EMERSON, J.
ORDERED that the motion by the defendants for partial summary judgment and for a protective order is granted; and it is further
ORDERED that the cross motion by the plaintiff for summary judgment on the issue of liability and partial summary judgment on the issue of damages is denied.
On January 11, 2000, the Long Island Power Authority (“LIPA”), the Long Island Lighting Company (“LILCO”), the County of Suffolk, the County of Nassau, the Town of Brookhaven, the Shoreham–Wading River Central School District, the Wading River Fire District, and the North Shore Library District entered into the Shoreham Settlement Agreement (the “Settlement Agreement”), which resolved various issues and litigation involving the Shoreham nuclear power plant (the “Shoreham Plant”). The history of events leading up to the Settlement Agreement, which is the subject of this action, are found in the per curiam opinion of the Appellate Division, Second Department, in the Matter of Town of Islip v. Long Island Power Authority (301 A.D.2d 1):
In 1986, the New York State Legislature enacted the Long Island Power Authority Act (Public Authorities Law, art 5, tit 1–A [the “LIPA Act”] ), 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 Plant, to replace 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 N.Y.2d 398). 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] ). LIPA acquired the Shoreham Plant in 1992, and in 1998 LIPA's final acquisition of LILCO was consummated.
The LIPA Act exempts LIPA from taxation (Public Authorities Law § 1020–p). In recognition of the local taxing authorities' loss of property tax revenues resulting from LIPA's acquisition of LILCO's property, the LIPA Act provides for LIPA to make payments in lieu of taxes (“PILOTs”) equal to the taxes and assessments that the local taxing jurisdictions would have received had LILCO's property not been acquired by LIPA (Public Authorities Law § 1020–q [1]; Long Is. Power Auth. v. Shoreham–Wading Riv. Cent. School Dist., 88 N.Y.2d 503, 509). However, with regard to the Shoreham Plant, the PILOTs were to be reduced annually until they equaled the taxes and assessments that would have been levied on the plant in a nonperative state (Public Authorities Law § 1020–q [1] ).
Prior to its acquisition by LIPA, LILCO commenced various tax certiorari proceedings challenging the property tax assessments of the Shoreham Plant. It succeeded in reducing the assessments for the tax years 1976–1977 through 1983–1984 (excluding the 1979–1980 tax year), and the County of Suffolk paid approximately $81 million to LILCO pursuant to a judgment entered June 28, 1993 (Matter of Long Is. Light. Co. v. Assessor for Town of Brookhaven, 202 A.D.2d 32). In March 1997, LILCO obtained a second judgment in its favor in the amount of $868 million for the tax years 1984–1985 through 1991–1992. That judgment was affirmed in Matter of Long Is. Light. Co. v. Assessor for Town of Brookhaven (246 A.D.2d 156).
In July 1992, LIPA and LILCO commenced tax certiorari proceedings to challenge the assessment of the Shoreham Plant for the 1992–1993 tax year, which was the base year for determining the PILOTs to be paid by LIPA (Public Authorities Law § 1020–q [1] ). Between 1992 and 1999, LIPA entered into a series of interim PILOT agreements in which it agreed to pay PILOTs to the local taxing jurisdictions based on the assessment of the Shoreham Plant for the 1991–1992 tax year, the year before LIPA acquired it. Those agreements preserved LIPA's right to seek a refund if the property tax assessment for the 1992–1993 tax year was ultimately determined to be excessive. In accordance therewith, LIPA made PILOT payments of more than $350 million.
Also in 1992, shortly after the first interim PILOT agreement was signed, LIPA commenced an action for a judgment declaring its rights and obligations under the LIPA Act with regard to the PILOTs. Ultimately, the Court of Appeals determined, inter alia, that LIPA's PILOT obligations commenced with the December 1, 1992–November 30, 1993 tax year and not on March 1, 1992, the day after the Shoreham Plant was transferred to LIPA. The Court of Appeals also determined that LIPA could seek refunds of PILOTs that it had overpaid due to an overassessment of the Shoreham Plant ( Long Is. Power Auth. v. Shoreham–Wading Riv. Cen. School Dist., supra ). Consequently, if LIPA and LILCO were successful in reducing the assessment for the 1992–1993 tax year, LIPA would be entitled to a significant refund of the payments that it had made pursuant to the interim PILOT agreements. LIPA subsequently commenced an action against the local taxing jurisdictions for a refund of excess PILOTs.
In addition to the aforementioned tax certiorari proceedings involving the Shoreham plant, LIPA commenced numerous other proceedings challenging the assessments of various non-Shoreham properties. Those proceedings, as well as other litigation, were pending on January 11, 2000, when the Settlement Agreement was executed, resolving the pending actions and proceedings. Pursuant to the Settlement Agreement, LIPA waived its claim for a refund of PILOTs in the amount of approximately $350 million and agreed to make future PILOT payments in specified amounts. LIPA also released and reduced the local taxing jurisdictions' obligations under the $868 million judgment to $620 million. The reduced judgment was to be held by LIPA as security until the local taxing jurisdictions satisfied their settlement obligations. To assist them in funding their settlement obligations, LIPA agreed to issue bonds, and a surcharge was imposed on Suffolk County ratepayers to pay the debt service, related charges and obligations incurred in connection with the bonds. The funds received by LIPA pursuant to the Settlement Agreement were to provide rebates and credits to ratepayers in Suffolk County, Nassau County, and the Rockaway sections of Queens, the areas served by LIPA. In addition, LIPA agreed to provide additional rebates and credits to ratepayers from its own funds. The Settlement Agreement was so-ordered by the Supreme Court on May 2, 2000. The Town of Islip challenged the legality of a portion of the Settlement Agreement, which was upheld by the Second Department on October 7, 2002 ( Matter of Town of Islip v. Long Island Power Authority, supra ).
To ensure Nassau County's acquiescence with the Settlement Agreement, LIPA entered into a separate agreement with Nassau County on January 13, 2000 (the “Nassau Agreement”). Pursuant to the Nassau Agreement, LIPA agreed to provide additional rebates in the amount of $25 million to ratepayers in Nassau County and the Rockaways (the “Additional Nassau County Rebates”) and to provide Nassau County with a grant from LIPA's Clean Energy Fund in the amount of $25 million. The Nassau Agreement was approved by the LIPA Board of Trustees on February 3, 2000, at the same meeting at which the Settlement Agreement was approved. There were no challenges to the Nassau Agreement.
On September 27, 2002, the County of Suffolk, on behalf of itself and all Suffolk County ratepayers, commenced this action against LIPA and its Chairman, Richard Kessel (collectively “LIPA”). The gravamen of the complaint was that LIPA had anticipatorily breached the Settlement Agreement by providing excess credits and rebates to non-Suffolk County ratepayers, including the Additional Nassau County Rebates. The first cause of action for breach of contract alleged that, by November 2002, the total amount of rebates and credits given to non-Suffolk County ratepayers would exceed the amount fixed in the Settlement Agreement and that LIPA's continuing practice of providing excess bill credits to non-Suffolk County ratepayers would exhaust the proceeds from the tax settlement bonds by January 2003. The second cause of action alleged that LIPA breached a duty imposed on it by the LIPA Act to administer the rebates and credits provided for the in Settlement Agreement in a just, reasonable, and nondiscriminatory manner. The third cause of action alleged that LIPA violated a duty imposed by the Public Services Law to fix and receive rates that were just, reasonable, and nondiscriminatory. The fourth cause of action alleged that LIPA deprived Suffolk County ratepayers of their property interests and denied them equal protection in violation of the Federal and State Constitutions. The fifth cause of action alleged that LIPA violated the civil rights of Suffolk County ratepayers and sought redress under 42 USC § 1983. The sixth cause of action, entitled “Abuse of Official Power,” alleged that LIPA intentionally caused and continues to cause injury to Suffolk County ratepayers in the amount of more than $2.4 million per month. The seventh cause of action sought an accounting of the bill credits provided by LIPA as of the date the action was commenced; the balance remaining, if any, of the proceeds of the settlement bonds; and the source of the funds, other than the settlement bonds, used to pay such credits. The eighth cause of action sought a judgment declaring that the action does not constitute a challenge to the Settlement Agreement in violation of paragraph 11.5 thereof, which provides that the parties will not directly or indirectly challenge any of the provisions of the Settlement Agreement.
LIPA moved for an order dismissing the complaint, and Suffolk County cross moved for partial summary judgment. By an order dated June 30, 2003, this court (Lifson, J.) dismissed the second and third causes of action alleging violations of the LIPA Act and the Public Services Law, respectively, and the sixth cause of action entitled “Abuse of Power.” The court denied as premature Suffolk County's cross motion for partial summary judgment and granted the County leave to renew its cross motion within 20 days after the joinder of issue. Without obtaining leave of court, Suffolk County served an amended complaint seeking monetary, declaratory, and injunctive relief. The amended complaint contained additional factual allegations based on an audit report prepared by the County's utility expert and forensic accountant. It also asserted causes of action for breach of contract, violations of the Federal and State Constitutions, civil rights violations under 42 USC § 1983, and an accounting. LIPA did not object to the amended complaint and duly served an answer thereto.
In response to Suffolk County's discovery requests, LIPA produced nearly 14,000 pages of documents and two witnesses for depositions, i.e., its former Chairman and Chief Financial Officer. The County then subpoenaed several non-party witnesses who had participated in transactions related to the sale of the Shoreham settlement bonds. LIPA contends that Suffolk County seeks to depose these non-party witnesses regarding issues that are wholly irrelevant to the subject matter of this action. In particular, LIPA contends that Suffolk County seeks disclosure on the following unpleaded causes of action: (1) Suffolk County's claim that LIPA was not permitted to fund the Additional Nassau County Rebates with the investment earnings of the bonds issued by LIPA to fund the Settlement Agreement, (2) Suffolk County's claim that official statements for the sale of the bonds contained a misrepresentation regarding the use of the bond proceeds, and (3) Suffolk County's claim that LIPA acted illegally when it provided a Clean Energy grant to Nassau County, which used it for budgetary purposes. LIPA moves for partial summary judgment dismissing these unpleaded causes of action and for a protective order quashing the subpoenas issued by Suffolk County to depose non-party witness in connection therewith. Suffolk County opposes LIPA's motion and cross moves for summary judgment on the issue of liability and for partial summary judgment on the issue of damages in the amount of $26 million.
The First Unpleaded Cause of Action
As part of the comprehensive settlement of the pending litigation involving LIPA and the Shoreham Plant, LIPA agreed to provide an additional rebate in 2000 to ratepayers in Nassau County and the Rockaway sections of Queens in the amount of $50 per customer metered account for a total of $25 million (the Additional Nassau County Rebates). Suffolk County contends that LIPA's payment of the Additional Nassau County Rebates violated the Settlement Agreement and/or negatively impacted Suffolk County through the Settlement Agreement surcharge. Specifically, Suffolk County claims that, pursuant to federal income tax laws and regulations, LIPA was not to permitted to use the interest earned on the bond proceeds (the investment earnings) to fund the Additional Nassau County Rebates and that the investment earnings should have been used to reduce the Shoreham debt.
When parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms ( see, W.W.W. Assocs. v. Gianconieri, 77 N.Y.2d 157, 162;Automotive Mgmt. Group v. SRB Mgmt. Co., 239 A.D.2d 450;Matter of Ajar, 237 A.D.2d 597). In the absence of any ambiguity, there are only documents to interpret, and the issue is one of law to be determined by the court ( see, Automotive Mgmt. Group v. SRB Mgmt. Co., supra ). Nothing in the Settlement Agreement required LIPA to use the investment earnings to reduce the Shoreham debt. In fact, the Settlement Agreement vested in LIPA complete discretion regarding its use of the investment earnings. The Settlement Agreement provided in pertinent part, “The proceeds from any Tax Settlement Bonds shall be invested by [LIPA] and any earnings therefrom shall be applied, at [LIPA's] discretion.” The court finds that this language is not reasonably susceptible to more than one interpretation and that it is, therefore, unambiguous ( see, Chimart Assoc. v. Paul, 66 N.Y.2d 570). Accordingly, the court finds that LIPA has established, prima facie, that its use of the investment earnings to fund the Additional Nassau County Rebates did not violate the Settlement Agreement.
In opposition, Suffolk County relies, in part, on the opinion of Hodgson Russ, the County's bond expert, which is deficient in several respects. First, it is not in affidavit form, and the County has not proffered an acceptable excuse for its failure to produce evidence in admissible form ( see, Zuckerman v. City of New York, 49 N.Y.2d 557, 562). Second, the opinion is general, conclusory, and without specific analysis of the federal income tax laws and regulations upon which it is based ( see, Feliz v. Beth Israel Med. Ctr., 38 AD3d 396, 397;Tedone v. Success Homes, Inc., 31 AD3d 745, 746). Third, it fails to demonstrate Hodgson Russ's qualifications to render an opinion on tax matters ( cf., Gottfried v. Loh, 5 Misc.3d 592, 596, citing Mills v. Moriarty, 302 A.D.2d 436). Fourth, it does not indicate whether Hodgson Russ considered the fact that the Official Statement for the LIPA tax settlement bonds provides that the bonds are not subject to optional redemption, mandatory sinking fund redemption, or any other redemption prior to maturity.
The County has not identified any provision in the Settlement Agreement or in any other document (except the self-serving opinion of Hodgson Russ) that imposed on LIPA an obligation to prepay the underlying Shoreham debt. The Settlement Agreement and other evidence in the record reveal that the underlying Shoreham debt was not LIPA's obligation, but the obligation of the County of Suffolk, the Town of Brookhaven, the Shoreham–Wading River Central School District, the Wading River Fire District, and the North Shore Library District (the “Municipalities”). LIPA issued the bonds as an accommodation to the Municipalities, who would have suffered serious financial hardship had LIPA sought to enforce its $868 million judgment against them. As previously discussed, the Settlement Agreement allowed LIPA to use the investment earnings in its sole discretion. While LIPA's purported misuse of the investment earnings might have affected the tax-exempt status of the bonds, there is no evidence in the record that the bonds lost their tax-exempt status. Moreover, Suffolk County has failed to identify any contractual provision or theory of liability that would make it responsible for any adverse tax consequences on the bonds.
In view of the foregoing, the court finds that the County of Suffolk has failed to raise a triable issue of fact in opposition to LIPA's prima facie case that the use of investment earnings to fund the Additional Nassau County Rebates did not violate the Settlement Agreement. Accordingly, LIPA is entitled to judgment as a matter of law on the first unpleaded cause of action.
The Second Unpleaded Cause of Action
Suffolk County claims that the Official Statement for the sale of the bonds contained a misrepresentation regarding the use of the bond proceeds. Specifically, the County claims that LIPA misrepresented that the bond proceeds (i.e., the original principal amount) would be used to pay the Additional Nassau County Rebates. According to the County, the bond proceeds were insufficient to pay the credits and rebates authorized by the Settlement Agreement as well as the Additional Nassau County Rebates. Thus, the County contends that LIPA misrepresented that the bond proceeds would be used to fund the Additional Nassau County Rebates. LIPA contends in opposition that the Official Statement did not contain a misrepresentation because the proceeds of the bonds included the original principal amount plus the interest earned on its investment of the principal (the investment earnings). LIPA further contends that, even if there were a misrepresentation in the Official Statement, Suffolk County was not damaged thereby.
The Martin Act (General Business Law art 23–A), New York's blue-sky law, authorizes the Attorney General to investigate and enjoin fraudulent practices in the marketing of stocks, bonds, and other securities within or from New York State (Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 12 NY3d 236, 243). It prohibits a broad range of fraudulent and deceitful conduct in the advertisement, distribution, exchange, transfer, sale and purchase of securities (Caboara v. Babylon Cove Dev., LLC, 54 AD3d 79, 81). The Attorney General, who is vested with exclusive authority to enforce the Martin Act ( Id. at 81), need not allege or prove either scienter or intentional fraud to establish liability for fraudulent practices thereunder ( Id. at 81). There is no express or implied private right of action under the Martin Act (CPC Intl. v. McKesson Corp., 70 N.Y.2d 268, 276–277), and private plaintiffs are not permitted through artful pleading to press any claim based on the sort of wrong given over to the Attorney General (Whitehall Tenants Corp. v. Estate of Olnick, 213 A.D.2d, 200). Thus, a common-law fraud claim is not maintainable if it is based on alleged misrepresentations or omissions from filings required by the Martin Act and the Attorney General's implementing regulations ( Kerusa, supra at 246–247; Hamlet on Olde Oyster Bay Home Owners Assoc., Inc., v. Holiday Org., Inc., 65 AD3d 1284, 1287;Mandracchia v. 901 Stewart Partners, LLC, 2009 N.Y. Slip Op 32969[U], 2009 WL 5078846).
Although Suffolk County does not contend that LIPA misrepresented or omitted anything required by the Martin Act or the Attorney General's implementing regulations, it does not have a common-law fraud claim against LIPA based on the alleged misrepresentation. The essential elements of a cause of action for fraud are representation of a material existing fact, falsity, scienter, deception or reliance, and injury (New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318). Thus, Suffolk County must show that LIPA knowingly misrepresented that the bond proceeds (i.e., the original principal amount) would be used to pay the Additional Nassau County Rebates with the intention of depriving the County of a specific benefit, thereby deceiving and damaging the County ( see, Friedman v. Anderson, 23 AD3d 163, 166). The record fails to establish that Suffolk County relied on LIPA's alleged misrepresentation or that LIPA acted with an intent to deceive the County.
First, the court notes that Hodgson Russ, the County's bond expert, opined that the LIPA tax settlement bond proceeds included the original principal amount of the bonds plus any interest earned on the investment of the bond proceeds. Second, Suffolk County does not claim that it purchased any of the LIPA tax settlement bonds, nor is there evidence in the record that it otherwise relied on the alleged misrepresentation. Third, the record does not reveal that LIPA knowingly made the alleged misrepresentation with the intention of depriving the County of a specific benefit. Without evidence of reliance by the County and an intent to defraud by LIPA, the alleged misrepresentation is the sort of wrong given over to the Attorney General under the Martin Act ( see, Whitehall Tenants Corp. v. Estate of Olnick, supra at 200–201; see also, Vermeer Owners v. Guterman, 78 N.Y.2d 1114, 1116). Accordingly, LIPA is entitled to judgment as a matter of law on the second unpleaded cause of action.
The Third Unpleaded Cause of Action
As part of the comprehensive settlement of the pending litigation involving LIPA and the Shoreham Plant, LIPA agreed to provide Nassau County with a grant from LIPA's Clean Energy Fund (the “Clean Energy Grant”) in the amount of $25 million. Suffolk County contends that LIPA acted illegally in 2000 when it provided the Clean Energy Grant to Nassau County and that Nassau County improperly used it to reduce its budget deficit.
The Nassau Agreement, which included the Clean Energy Grant, was approved by a resolution of the LIPA Board of Trustees on February 3, 2000. Any challenge to the Clean Energy Grant should have been commenced within four months after the resolution was approved ( see,CPLR 217[1] ). This action was commenced on September 27, 2002. Therefore, any challenge to the propriety or legality of the Clean Energy Grant is untimely. Moreover, Suffolk County may not extend the statute of limitations by denominating the action as one for breach of contract, among other things. When, as here, the cause of action sounds as an Article 78 proceeding, the petitioner will be held to the four-month limitations period even though he does not assert his claim in the form of such a proceeding ( see, Broderick v. Board of Educ., Union Free School Dist., 253 A.D.2d 836, 837; 6 N.Y. Jur 2d, Article 78 § 174).
In any event, Suffolk County does not have standing to challenge Nassau County's purportedly improper use of the Clean Energy Grant. Suffolk County was not a party to the Nassau Agreement. Privity or its equivalent remains the predicate for imposing liability for a breach of contractual obligations (Smith v. Fitzsimmons, 180 A.D.2d 177, 180;Danica Plumbing & Heating v. Amoco Constr. Corp., 18 Misc.3d 1137[A] at *3). Moreover, Suffolk County is not a third-party beneficiary of the agreement between LIPA and Nassau County ( see, Aymes v. Gateway Demolition Inc., 30 AD3d 196). Accordingly, LIPA is entitled to judgment as a matter of law on the third unpleaded cause of action.
In view of the foregoing, additional discovery on the aforementioned unpleaded causes of action is unnecessary. Accordingly, the branch of the motion by LIPA which is for a protective order quashing subpoenas issued by Suffolk County to depose non-party witness is granted.
Turning to the cross motion, the court finds that triable issues of fact preclude the granting of summary judgment on the remaining issues. Accordingly, the cross motion is denied.