Case Name: Advanced Refractory Technologies, Inc., et al., Appellants, Michael C. O'Laughlin, Plaintiff, v. Power Authority of the State of New York, Respondent
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1993-10-12
Citations: 81 N.Y.2d 670
Docket Number: 
Parties: Advanced Refractory Technologies, Inc., et al., Appellants, Michael C. O’Laughlin, Plaintiff, v Power Authority of the State of New York, Respondent.
Judges: 
Reporter: New York Reports
Volume: 81
Pages: 670–680

Head Matter:
[623 NE2d 6, 603 NYS2d 285]
Advanced Refractory Technologies, Inc., et al., Appellants, Michael C. O’Laughlin, Plaintiff, v Power Authority of the State of New York, Respondent.
Argued September 1,1993;
decided October 12, 1993
POINTS OF COUNSEL
Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo (Victor T. Fuzak, Richard F. Campbell and Kevin M. Kearney of counsel), and Douglas J. Crowley, Corporation Counsel of Niagara Falls (Thomas M. O’Donnell of counsel), for appellants.
I. The dismissal of appellants’ plenary action is in clear contravention of controlling law. (Matter of Cromwell Towers Redevelopment Co. v City of Yonkers, 41 NY2d 1; Matter of First Natl. City Bank v City of New York Fin. Admin., 36 NY2d 87; Matter of Golornb v Board of Educ., 92 AD2d 256; Long Is. Coll. Hosp. v Axelrod, 118 AD2d 177; Press v County of Monroe, 50 NY2d 695; International Paper Co. v Sterling Forest Pollution Control Corp., 105 AD2d 278; Matter of Allied Sanitation v Aponte, 142 AD2d 511, 72 NY2d 810; Matter of Lakeland Water Dist. v Onondaga County Water Auth., 24 NY2d 400.) II. The dismissal of appellants’ breach of contract causes of action is patently erroneous. (Dolman v United States Trust Co., 2 NY2d 110; Matter of Havemeyer, 17 NY2d 216; Taylor v Muss, 13 AD2d 245, 11 NY2d 685; Arrigoni v Consolidated Rail Corp., 155 AD2d 357, 75 NY2d 1004; Kasen v Morrell, 6 AD2d 816; New York Higher Educ. Assistance Corp. v Woods, 43 AD2d 763, 38 NY2d 831.) III. The dismissal of appellants’ contract claims is directly contrary to previous decisions of the Fourth Department itself involving these parties and this contract. (Airco Alloys Div., Airco, Inc. v Niagara Mohawk Power Corp., 65 AD2d 378; New Era Elec. Range Co. v Serrell, 252 NY 107.) IV. The dismissal of the promissory estoppel claims was erroneous and is in conflict with established law. (Planet Constr. Corp. v Board of Educ., 7 NY2d 381; Matter of Carney v Newburgh Park Motors, 84 AD2d 599; Bender v New York City Health & Hosps. Corp., 38 NY2d 662; La Porto v Village of Philmont, 39 NY2d 7; Safeway Steel Prods. v Craft Architectural Metals Corp., 183 AD2d 452; Matter of Rudey v Landmarks Preservation Commn., 182 AD2d 61; Eden v Board of Trustees, 49 AD2d 277; Matter of 1555 Boston Rd. Corp. v Finance Adm’r, 61 AD2d 187; Matter of Young v Supervisor of Town of Lloyd, 159 AD2d 828, 76 NY2d 761.) V. The order dismissing the plenary action should be reversed and judgment granted that the charge for replacement power must be cost limited. VI. The mandate of Niagara Redevelopment Act is clear. (Perrin v United States, 444 US 37; Reiter v Sonotone Corp., 442 US 330; Ferres v City of New Rochelle, 68 NY2d 446; People v Ryan, 274 NY 149; Matter of Petterson v Daystrom Corp., 17 NY2d 32; Metropolitan Transp. Auth. v Federal Energy Regulatory Commn., 796 F2d 584; Matter of Association of Surrogates & Supreme Ct. Reporters v Evans, 102 Misc 2d 883, 86 AD2d 870; Matter of Schinasi, 227 NY 252; Shoreham-Wading Riv. Cent. School Dist. v Town of Brookhaven, 107 AD2d 219.) VII. In peremptorily adopting the erroneous Occidental decision, the Fourth Department violated elemental principles of statutory interpretation. (Occidental Chem. Corp. v Power Auth., 786 F Supp 316; City of New York v New York City Ry. Co., 193 NY 543; Shoreham-Wading Riv. Cent. School Dist. v Town, of Brookhaven, 107 AD2d 219, 65 NY2d 990; Power Auth. of State of N. Y. v Federal Energy Regulatory Commn., 743 F2d 93; Matter of Bliss v Bliss, 66 NY2d 382; New York State Bridge Auth. v Moore, 299 NY 410; Allen v Stevens, 161 NY 659; Orange & Rockland Utils, v Amerada Hess Corp., 59 AD2d 110; Matter of Anderson v Board of Educ., 46 AD2d 360, 38 NY2d 897; Matter of Capital Cities Communications v State Tax Commn., 65 AD2d 25.) VIII. Without analysis, reason or response to appellants’ arguments, the Fourth Department summarily held section 1005 (5) of the Public Authorities Law to be inapplicable.
Arthur T. Cambouris, Charles M. Pratt, Sarah J. Berger, Ann M. Quigley and Michael A. Oxman, New York City, for respondent.
I. The Court below correctly found that the Niagara Redevelopment Act does not mandate that replacement power be sold at cost. (Occidental Chem. Corp. v Power Auth., 786 F Supp 316; Sega v State of New York, 60 NY2d 183; People ex rel. Harris v Sullivan, 74 NY2d 305; Power Auth. of State of N. Y. v Federal Energy Regulatory Commn., 743 F2d 93; People v Boston, 75 NY2d 585; Doctors Council v New York City Employees’ Retirement Sys., 71 NY2d 669; Uniformed Firefighters Assn. v Beekman, 52 NY2d 463; Garcia v United States, 469 US 70; Zuber v Allen, 396 US 168; Consumer Prod. Safety Commn. v GTE Sylvania, 447 US 102.) II. The Court below correctly found that Public Authorities Law § 1005 (5) does not mandate a replacement power rate set at cost. (Auer v Dyson, 110 Misc 2d 943, 125 Misc 2d 274, 112 AD2d 803.) III. The Fourth Department’s nonfinal order of March 8, 1991 does not "necessarily affect” the final judgment of that Court and is not reviewable by this Court under CPLR 5501 (a) (1). (People ex rel. Vega v Smith, 66 NY2d 130.) IV. The Court below properly found that any rights petitioners may have stem from statute rather than contract. (Lupinski v Village of Ilion, 59 AD2d 1050; Shields v School of Law of Hofstra Univ., 77 AD2d 867; Dolman v United States Trust Co., 2 NY2d 110; Airco Alloys Div., Airco, Inc. v Niagara Mohawk Power Corp., 65 AD2d 378.) V. Petitioners’ challenge to the Authority’s rates was cognizable in and properly converted to a CPLR article 78 proceeding. (Press v County of Monroe, 50 NY2d 695; Long Is. Coll. Hosp. v Axelrod, 118 AD2d 177; Matter of First Natl. City Bank v City of New York Fin. Admin., 36 NY2d 87; Matter of Cromwell Towers Redevelopment Co. v City of Yonkers, 41 NY2d 1; Matter of Krumsiek v Regan, 91 AD2d 1134.) VI. The causes of action for promissory estoppel were correctly dismissed because the Authority was acting in its governmental capacity when it modified the replacement power rate and two essential elements of an estoppel claim have not and cannot be demonstrated. (D’Angelo v Triborough Bridge & Tunnel Auth., 111 Misc 2d 231, 106 AD2d 128, 65 NY2d 714; Matter of Daleview Nursing Home v Axelrod, 62 NY2d 30; Matter of City of New York v City Civ. Serv. Commn., 60 NY2d 436; Granada Bldgs. v City of Kingston, 58 NY2d 705; Matter of Hamptons Hosp. & Med. Ctr. v Moore, 52 NY2d 88; Bender v New York City Health & Hosps. Corp., 38 NY2d 662; Parochial Bus Sys. v Board of Educ., 60 NY2d 539; Matter of Nationwide Cellular Serv. v Public Serv. Commn., 180 AD2d 24; Murray, Hollander, Sullivan & Bass v HEM Research, 111 AD2d 63.)

Opinion:
OPINION OF THE COURT
Smith, J.
The primary issue on this appeal is whether 16 USC § 836 (the Niagara Redevelopment Act) and the contracts entered into pursuant to that act, as well as Public Authorities Law § 1005 (5), require the Power Authority of the State of New York (PASNY) to sell 445,000 kilowatts of replacement power produced by the Niagara Project at the cost of producing that power. We hold that nothing in the plain language of the Niagara Redevelopment Act, the contracts entered into pursuant to that act, or Public Authorities Law § 1005 (5) compels PASNY to sell that replacement power at cost.
Pursuant to a 1909 treaty between the United States and Canada, it was agreed that the United States could divert some of the flow of the Niagara River waters for the purpose of generating electric power. By its terms, that 1909 treaty was valid until 1971. Pursuant to a Federal Power Commission (FPC) license, the Niagara Falls Power Company, the predecessor to the Niagara Mohawk Power Corporation (Niagara Mohawk), used that flow for a power project development, Project 16, at Niagara Falls. Project 16 consisted of the Schoellkopf and Adams stations and related facilities, which, together, produced approximately 445,000 kilowatts of power. The Niagara Falls Power Company, and later, Niagara Mohawk, sold the power produced by Project 16 to industries in the western New York area.
Another treaty between the United States and Canada made additional flow of the Niagara River waters available for use by the United States for power production. In 1941, the FPC granted the Niagara Falls Power Company the right to use that additional flow at the Project 16 facilities.
In 1950, the United States and Canada entered into yet another treaty with respect to the use of the flow of the Niagara River waters. That treaty authorized the diversion of additional flow by each country for the production of electric energy. Based on the provisions of the various treaties between the United States and Canada, the Niagara Falls Power Company sold approximately 445,000 kilowatts of hydroelectric power generated at Project 16 to various industries in the BufFalo-Niagara Falls area.
On June 7, 1956, the cliff face above the Schoellkopf station of Project 16 collapsed, causing a rockslide that substantially destroyed that station. All hydroelectric generation at Project 16 was interrupted and many of the industries lost their primary source of inexpensive power. The next year, in an attempt to redevelop the Niagara River water flow for generation purposes, Congress enacted the Niagara Redevelopment Act.
The Niagara Redevelopment Act authorizes the Federal Energy Regulatory Commission, formerly the FPC, to issue a license to PASNY to construct and operate a power project to replace the 445,000 kilowatts of power produced by Niagara Mohawk prior to the destruction of the Schoellkopf station. As a condition of issuing the license, and in order to restore low-cost power to western New York industries, the act provides:
"The licensee shall contract to sell to the licensee of Federal Energy Regulatory Commission project 16 four hundred and forty-five thousand kilowatts of the remaining project power in order as nearly as possible to restore low power costs to such industries and for the same general purposes for which power from project 16 was utilized" (16 USC § 836 [b] [3]).
Pursuant to that authorization, on February 10, 1961, PASNY constructed generating facilities on the Niagara River and entered into Contract NS-1 with Niagara Mohawk. PASNY agreed to sell to Niagara Mohawk 445,000 kilowatts of replacement power to restore the 445,000 kilowatts that Niagara Mohawk once produced at Project 16 and sold to the western New York industries.
Contract NS-1 incorporates the Niagara Redevelopment Act by reference and authorizes Niagara Mohawk to resell the replacement power to industrial customers, including appellants, under separate resale agreements between Niagara Mohawk and those industrial customers. Part E of Schedule NP-S1 of the contract states further that "[t]he rate schedules shall be subject to successive modification by the Authority through the promulgation of superseding rate schedules." The resale agreements between Niagara Mohawk and appellant industrial customers incorporate this rate provision.
On September 26, 1989, citing the declining value of the dollar, PASNY proposed to gradually increase the rate for the replacement power over a seven-year period. On December 21, 1989, PASNY resolved to increase the rates for replacement power for the years 1990 and 1991. On April 27, 1993, PASNY resolved to further increase the rates for replacement power for the remaining years.
Appellants and others commenced an action challenging the rate increases, alleging breach of contract and promissory estoppel causes of action. Appellants argued that the increased rates exceeded PASNY's operating costs, and, thus, violated the Niagara Redevelopment Act and the contracts entered into pursuant that act. Appellants also argued that Public Authorities Law § 1005 (5) prohibited PASNY from charging rates which generate revenue in excess of the cost of producing the replacement power. Supreme Court denied PASNY's motion to dismiss the action. The Appellate Division determined that estoppel was not available here against a government entity, and dismissed the promissory estoppel causes of action; the Court also dismissed the contract causes of action, concluding that the proper remedy for challenging PASNY's act of rate-making was a CPLR article 78 proceeding (171 AD2d 1031). Accordingly, the Appellate Division converted so much of the action as alleged breach of contract to an article 78 proceeding with leave to the parties to serve an appropriate petition. This Court dismissed, as nonfinal, appellants' motion for leave to appeal (see, 78 NY2d 949).
Appellants served their article 78 petition, maintaining that the Niagara Redevelopment Act, the contracts issued pursuant thereto, and Public Authorities Law § 1005 (5) require PASNY to sell the replacement power to them at cost, without a profit. Supreme Court determined that PASNY is obligated by the act to sell replacement power at cost, and is prohibited by section 1005 from charging rates which produce revenue in excess of cost. The court ordered a hearing to determine the cost to PASNY of producing replacement power. The Appellate Division reversed, on the law, and dismissed the petition, concluding that the Niagara Redevelopment Act does not require PASNY to sell replacement power at cost, and that Public Authorities Law § 1005 (5) creates no rate protection for industrial consumers (187 AD2d 1027). This Court granted leave to appeal, bringing up for review both Appellate Division orders (81 NY2d 704), and we now affirm.
At the outset, appellants contend that the Appellate Division erred in dismissing their breach of contract and promissory estoppel claims. Appellants assert that since Contract NS-1 and subsequent settlement agreements between PASNY and Niagara Mohawk incorporate by reference the terms of the Niagara Redevelopment Act, and the resale agreements incorporate the terms of Contract NS-1, PASNY breached those agreements by fixing new rates in excess of cost. Appellants argue further that their promissory estoppel claims should not have been dismissed because by selling replacement power pursuant to a contract, respondent was not engaged in a governmental function. We disagree.
The Appellate Division properly dismissed appellants' promissory estoppel causes of action. Absent an unusual factual situation, "estoppel is not available against a governmental agency engaging in the exercise of its governmental functions" (D'Angelo v Triborough Bridge & Tunnel Auth., 65 NY2d 714, 715-716; Matter of Daleview Nursing Home v Axelrod, 62 NY2d 30, 33). PASNY is a governmental agency existing pursuant to Public Authorities Law § 1002. "[A]n authority, in setting charges for the use of its facilities, [is] engaged in a governmental function" (Carey Transp. v Triborough Bridge & Tunnel Auth., 38 NY2d 545, 551). In setting rates for the sale of hydroelectric power, PASNY was engaged in a governmental function. We discern no unusual factual situation that would warrant a different result. Thus, we conclude that the doctrine of estoppel is not available in this case.
As for the claims originally alleged in contract, the Appellate Division correctly determined that they should be resolved in a proceeding commenced under CPLR article 78 (see, Press v County of Monroe, 50 NY2d 695, 701-702). The provisions of a Federal act, when incorporated by reference into a contract between the parties, are part of the agreement and, indeed, are controlling to the extent inconsistent with other provisions of the contract (Rodriguez & Co. v Moore-McCormack Lines, 32 NY2d 425, 433, n 2; see generally, 22 NY Jur 2d, Contracts, § 226). Appellants allege a violation of the Niagara Redevelopment Act, incorporated by reference into Contract NS-1 and subsequent agreements, but the act requires only "low power costs."
Appellants' reliance on Airco Alloys Div., Airco, Inc. v Niagara Mohawk Power Corp. (65 AD2d 378) is misplaced. In that case, the plaintiffs, major industrial facilities in western New York and purchasers of electric power from Niagara Mohawk, sought a mandatory injunction and money damages arising from Niagara Mohawk's alleged breach of Contract NS-1 between Niagara Mohawk and PASNY. The plaintiffs claimed rights as third-party beneficiaries under the terms of the contract, which incorporated by reference the Niagara Redevelopment Act, and alleged that Niagara Mohawk breached that contract by failing to sell to them all or part of approximately 110,000 kilowatts of replacement power that had been refused by other industries. Holding that New York State courts had jurisdiction over the matter, the Appellate Division stated:
"The language of the complaint describes violations of plaintiffs' rights under the Act as well as the contract, but the main thrust of the complaint is in contract, which is the basis for the primary relief sought. The claims relating to the contract are the only grounds alleged which would sustain an injunction and money damages, and mere references in the complaint to the Federal act do not divest the State court of its jurisdiction" (id., at 384-385).
Here, however, the focus of the controversy is on an agency's alleged violation of a Federal statute, not on a breach of an express contractual right, making article 78 an appropriate avenue of redress.
As to the merits of their article 78 proceeding, appellants contend that the plain meaning of the Niagara Redevelopment Act, its legislative history, and PASNY's actions in keeping the rates for replacement power equivalent to the cost of production for over 30 years require PASNY to limit the rates charged for replacement power to the actual cost of production. Appellants argue further that Public Authorities Law § 1005 (5) prohibits PASNY from generating excess revenue from the sale of the replacement power.
"When [a statute's] language is clear and unambiguous, it should be construed so as to give effect to the plain meaning of its words" (People ex rel. Harris v Sullivan, 74 NY2d 305, 309). Here, nothing in the plain language of the Niagara Redevelopment Act requires PASNY to sell the power at the cost of production. The statute provides only that PASNY should attempt to restore "low power costs" to industrial consumers in the Niagara Falls area. Similarly, the unambiguous language in the contract between PASNY and Niagara Mohawk and the resale agreements, issued pursuant to the Niagara Redevelopment Act, impose no such requirement. Rather, the contracts authorize PASNY to "successively] modif[y]" the schedule of rates charged for the replacement power through the promulgation of superseding rate schedules.
Nor does the plain language of Public Authorities Law § 1005 (5) prohibit PASNY from charging rates for replacement power which produce revenue in excess of PASNY's cost of producing that power. Section 1005 (5) provides, in part, that operation of the Niagara and Saint Lawrence hydroelectric projects "shall be considered primarily as for the benefit of the people of the state as a whole and particularly the domestic and rural consumers to secure a sufficiently high load factor and revenue returns at the lowest possible rates." No similar provision is made for industrial consumers. Moreover, although paragraph (f) provides that PASNY should set rates based on "accurate cost data" and paragraph (h) permits PASNY to change rates based on variations in "operating costs and fixed charges", nowhere does the statute mandate the sale of replacement power to industrial consumers at the cost of producing that power.
Accordingly, the order of the Appellate Division should be affirmed, with costs.
Chief Judge Kaye and Judges Simons, Titone and Bellacosa concur; Judges Hancock, Jr., and Levine taking no part.
Order affirmed, with costs.