U.S. v. Consolidated Edison Co. of New York, Inc.

• Decision Date: 26 June 1978
• Docket Number: No. 672,D,672
• Citation: 580 F.2d 1122
• Court: U.S. Court of Appeals — Second Circuit
• Parties: 4 Fed. R. Evid. Serv. 316 UNITED STATES of America, Plaintiff-Appellee-Cross-Appellant, v. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Defendant-Appellant-Cross-Appellee. ocket 77-6168.

Page 1122

580 F.2d 1122

4 Fed. R. Evid. Serv. 316

UNITED STATES of America, Plaintiff-Appellee-Cross-Appellant, v. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. Defendant-Appellant-Cross-Appellee.

No. 672, Docket 77-6168.

United States Court of Appeals Second Circuit.

Argued March 10, 1978.

Decided June 26, 1978.

Werner L. Polak, New York City (Thomas M. Geisler, Jr., and Shearman & Sterling, New York City, of counsel), for defendant-appellant.

Gary G. Cooper, Asst. U. S. Atty., New York City (Robert B. Fiske, Jr., U. S. Atty., S. D. N. Y., Louis G. Corsi, Asst. U. S. Atty., New York City, of counsel), for plaintiff-appellee.

Before WATERMAN and OAKES, Circuit Judges, and WYZANSKI, ^* District Judge.

OAKES, Circuit Judge:

This is an appeal by Consolidated Edison Co. of New York, Inc. (appellant or Con Edison), and a cross-appeal by the United States (appellee or Government), from a September 20, 1977, judgment of the United States District Court for the Southern District of New York, Lawrence W. Pierce, Judge, awarding damages to the United States in a contract action. After a two-week bench trial, the court found that Con Edison was estopped from denying the existence of a contract to reimburse the Government for costs which the Atomic Energy Commission (AEC) incurred when it made available 200 megawatts (MW) of electric power to Con Edison during a serious Con Edison power shortage in the summer of 1970. The district court further premised liability on two-quasi-contractual theories the "emergency assistance" doctrine and a theory of unjust enrichment resulting from the AEC's conferral of a benefit on Con Edison. Damages were awarded in the sum of $1,576,595, all three theories of liability producing the same ultimate result. Because we are satisfied both that liability is properly imposed under the emergency assistance doctrine and that the AEC would achieve its maximum damages award under that theory, we affirm the district court's imposition of liability without deciding the correctness of its equitable estoppel or unjust enrichment theories or its dismissal of the Government's contract claim on statute of frauds grounds. However, we find the district judge's treatment of the damages issue improper in one respect and accordingly modify the damages award.

I. Facts

In the spring of 1970, the Government was rightfully concerned that the nation's public utilities might be unable to satisfy peak public demands for electrical power during the coming summer. An interagency task force established by the Executive Office of the President, therefore, adopted a plan of emergency power assistance (May 5 plan) in which the AEC was to play a major role. After studying the problem and considering the impact of a reduction in power consumption on the operations of the AEC's gaseous diffusion plants, ¹ that agency determined that it could reduce consumption of power at these plants by up to 450 MW if there were critical shortages of electricity in the commercial sector. In late June, 1970, the AEC executed modifications of its requirements contracts then in force with the three utilities which supplied electricity to these plants to reduce the AEC's overall power consumption by 450 MW for the duration of the summer. Thereafter, in early June, 1970, the released power was wheeled from the supplying utilities to utilities facing anticipated shortages in Chicago and other areas in the Midwest and East.

On July 21, 1970, Con Edison suffered a major power crisis with the outage of its Ravenswood Plant ("Big Allis") resulting in a loss of 1,000 MW. ² Charles Luce, Con Edison's chairman and chief executive officer, and his staff immediately began the search for new sources of electrical power.

Concurrently, the gravity of the New York situation had come to the attention of government officials as well. On July 22, David Freeman of the Office of Emergency Preparedness (OEP) in Washington, D. C., telephoned Con Edison and indicated that the Government might be of assistance. On July 23, 1970, Luce himself called Freeman who explained that although the AEC had already made one power reduction, he believed that a further power release to Con Edison might still be possible. Luce indicated that Con Edison wanted the power; Freeman directed Luce to get in touch with George Quinn, then assistant general manager in charge of production at the AEC, in order to "work out the details." 452 F.Supp. 638 (S.D.N.Y.1977). The district judge specifically found that the Luce/Freeman conversation constituted "only preliminary discussions."

Luce also telephoned Fred Chambers, a Tennessee Valley Authority (TVA) official, to inquire about the availability of power from TVA and to determine what TVA knew of the AEC's ability further to reduce its power from TVA. Chambers was uncertain. After the phone call, Chambers conferred with his staff to determine whether TVA could assist; he called the manager of the AEC's gaseous diffusion plant at Oak Ridge, who later told Chambers that a further power reduction would cause the AEC severe efficiency losses which could be estimated in the neighborhood of three to seven mills per kilowatt hour (PKH). Chambers then called back Luce, informing him that the TVA could not assist and that if the AEC ultimately determined that it could release additional power, the cost would be quite high. He specified that actual costs of the power itself and the efficiency loss surcharge would likely be in the twelve to fourteen mills PKH range, although a final determination of the price would have to attend AEC calculations. ³

On July 24, 1977, Quinn spoke with Luce on the telephone:

Quinn stated that he wanted to discuss the terms and conditions of the release and that the AEC was now in the position to offer 200 MW to Con Edison. Quinn informed Luce that AEC had made a previous reduction of some 450 MW, and that while AEC would prefer not to make a further reduction, they were willing to do so. It is undisputed that Quinn informed Luce that in the event the release was effected, the AEC would look to Con Edison for reimbursement of its additional costs. Luce stated that Con Edison was still studying their end of the transmission problem and that he was not yet in a position to request the power. Apparently unconcerned with the possibility of a surcharge, Luce stated that Con Edison would be willing to pay whatever surcharge had been paid by the recipients of the previous 450 MW reduction. Quinn did not inform Luce that the recipients of the 450 MW had not been asked to pay any surcharge.

Quinn stated that the amount of the surcharge was under study and that he could not fix a price at that time. However, Quinn did give Luce examples of the type of costs the AEC would incur, such as the shut down of certain equipment. Luce testified that Quinn referred to efficiency losses. On cross-examination . . . and in response to questions by the Court . . . , Charles Luce stated that Quinn had explained to him that the 200 MW reduction would result in higher costs to AEC than did the 450 MW reduction, since the incremental losses were greater when the plants were required to reduce consumption to as low as 1,350 MW. The conversation ended ( ⁴ with Quinn's advice to Luce that if Con Edison wished to receive the power it should make arrangements with AEC's supplier utilities, TVA and OVEC.

452 F.Supp. at 645 (citations omitted). This telephone conversation was the last direct AEC/Con Edison contact before the 200 MW of released power began to flow on Monday, July 27, 1970.

By Tuesday, July 28, 1970, the controller's office of the AEC calculated a surcharge of 5.41 mills, or .0541 cents PKH on the power released to Con Edison. Quinn reviewed this calculation and discussed it with his supervisor who approved it. On July 29, 1970, Quinn directed officials at the Oak Ridge diffusion facility to initiate contract modification discussions with the AEC's supplier utilities. On August 3, 1970, the AEC executed formal contract modifications with its supplier utilities by which the AEC released its rights to 200 MW of power for the remainder of the summer. These agreements provided for the utilities to collect the 5.41 mills PKH surcharge from Con Edison through the billing chain. Con Edison was not specifically informed of the terms of the modifications.

Con Edison first learned of the magnitude of the surcharge on August 6, 1970. Luce immediately objected and directed Louis Roddis, president of Con Edison, to ascertain the amount of the surcharge paid by the recipients of the 450 MW reduction. Roddis learned that the 450 MW utilities had paid no surcharge at all. Roddis telephoned Quinn to inquire whether the surcharge had the support of the AEC Commissioners and to suggest that the surcharge might cause political embarrassment for the AEC and the White House. The district court found that Roddis at no point suggested that Con Edison might terminate its receipt of AEC released power.

On August 10, 1970, Bertram Schwartz, then a Con Edison vice president, met with Quinn and among other things asked why the AEC had imposed no surcharge upon the recipients of the prior reduction. Quinn told him that it was an oversight and that the AEC was seeking to renegotiate the agreements with the 450 MW recipients to include a surcharge. The negotiations to reopen the written contracts ultimately proved fruitless.

In the meantime, Con Edison continued to assert that the only payment it would make was a surcharge equivalent to what the recipients of the 450 MW power release had paid. This position was reiterated in a meeting between Quinn and Luce on September 1, 1970. Despite Con Edison's protestations throughout the summer at having to pay a surcharge different from what had been imposed on the 450 MW utilities, no Con Edison official ever intimated that it preferred not to take the power.

By letter dated September 30, 1970, after...