Airco Alloys Division, Airco, Inc. v. Niagara Mohawk Power Corp.

• Decision Date: 15 December 1978
• Citation: 411 N.Y.S.2d 460,65 A.D.2d 378
• Parties: AIRCO ALLOYS DIVISION, AIRCO, INC., Airco Speer Carbon-Graphite Division, Airco, Inc., the Anaconda Company-Brass Division, Atlas Steel Casting Company, Donner-Hanna Coke Corporation, Dunlop Tire & Rubber Corporation, E. I. DuPont De Nemours & Co., Inc., Republic Steel Corporation, Respondents, v. NIAGARA MOHAWK POWER CORPORATION, Power Authority of the State of New York, Appellants.
• Court: New York Supreme Court — Appellate Division

Page 460

411 N.Y.S.2d 460

65 A.D.2d 378

AIRCO ALLOYS DIVISION, AIRCO, INC., Airco Speer Carbon-Graphite Division, Airco, Inc., the Anaconda Company-Brass Division, Atlas Steel Casting Company Donner-Hanna Coke Corporation, Dunlop Tire & Rubber Corporation, E. I. DuPont De Nemours & Co., Inc., Republic Steel Corporation, Respondents, v. NIAGARA MOHAWK POWER CORPORATION, Power Authority of the State of New York, Appellants.

Supreme Court, Appellate Division, Fourth Department.

Dec. 15, 1978.

Jaeckle, Fleischmann & Mugel, Buffalo, for appellant Niagara Mohawk (John Stenger, Buffalo, of counsel).

Lewis R. Bennett, New York City, for appellant Power Authority (Vito Cassan, New York City, of counsel).

Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo, for respondents (Victor T. Fuzak, Buffalo, of counsel).

Aular & Woodbury, Dunkirk, for intervenor respondent Carborundum Corp. (Robert C. Woodbury, Dunkirk, of counsel).

Before CARDAMONE, J. P., and DILLON, SCHNEPP and WITMER, JJ.

OPINION

SCHNEPP, Justice:

This is an appeal from an order at Special Term denying motions of Niagara Mohawk Power Corporation ("Niagara Mohawk") and Power Authority of the State of New York ("PASNY") to dismiss the complaint or in the alternative to stay all further proceedings. Plaintiffs, major industrial facilities in Western New York and purchasers of electric power from Niagara Mohawk, who claim rights as third-party beneficiaries under the terms of a contract ("Contract NS-1") between Niagara Mohawk and PASNY relating to the sale of electric power generated on the Niagara River, seek a mandatory injunction and money damages arising from Niagara Mohawk's alleged breach of the contract.

From the complaint and moving papers it appears that the United States was permitted, pursuant to certain treaties with Canada, to divert portions of the flow of the Niagara River for the purpose of generating hydroelectric power. Niagara Mohawk by virtue of a license issued by the Federal Power Commission ("FPC") utilized a portion of the river flow for power generation purposes at certain generating stations on the Niagara River (Federal Power Commission Project 16) with a capacity of 445,000 kilowatts until June 7, 1956 when a rock slide destroyed the generating station which was the principal source of this power. Thereafter, the Congress of the United States enacted Public Law 85-159, also known as the Niagara Power Project Act ("Act"), which authorized the FPC to issue a license to PASNY to construct and operate a power project with capacity to utilize all of the share of the water of the Niagara River which was permitted to be used by the United States under its treaties. As a condition of the issuance of the license to PASNY and in order to restore low-cost power to Western New York industries, the Act provided that:

"(3) The licensee shall contract, with the approval of the Governor of the State of New York, pursuant to the procedure established by New York law, to sell to the licensee of Federal Power Commission project 16 for a period ending not later than the final maturity date of the bonds initially issued to finance the project works herein specifically authorized, four hundred and forty-five thousand kilowatts of the remaining project power, which is equivalent to the amount produced by project 16 prior to June 7, 1956, for resale generally to the industries which purchase power produced by project 16 prior to such date, or their successors, 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 . . ." (U.S. Code, tit. 16, § 836(b)(3) ).

After the FPC issued the license, PASNY constructed generation and related facilities on the Niagara River, and on February 10, 1961 entered into Contract NS-1 with Niagara Mohawk as required by the terms of the Act and its license. Contract NS-1 defines "replacement power" as power made available "pursuant to Public Law 85-159 to replace power formerly produced by . . . (Niagara Mohawk) . . . .", and provides that it be sold by Niagara Mohawk to industrial customers "in accordance with Public Law 85-159". Article 22 of the PASNY license contains the exact statutory language of the Act, quoted above, which is incorporated by reference in Contract NS-1. Allegedly as mandated by the Act and Contract NS-1 the 445,000 kilowatts were allocated to industries which purchased power produced by Niagara Mohawk prior to June 7, 1956, including plaintiffs and intervenors. For various reasons, however, certain of those industries either discontinued or reduced their usage of replacement power, resulting in the return of approximately 110,000 kilowatts which have been distributed by Niagara Mohawk to satisfy its general system requirements.

Plaintiffs claim that they are entitled to all or a part of the relinquished replacement power and that Niagara Mohawk's conduct in this regard has been in violation, breach and derogation of plaintiff's rights under Contract NS-1 and the Federal Act. Thus, the action was commenced against Niagara Mohawk. PASNY was joined as a necessary party defendant. In lieu of answering, both defendants have submitted motions arguing that the New York State Supreme Court does not have jurisdiction over the subject matter because section 317 of Federal Power Act (U.S.Code, tit. 16, § 825p) grants exclusive jurisdiction to the District Courts of the United States. PASNY additionally asserts that it has petitioned the Federal Energy Regulatory Commission ("FERC"), successor to the FPC, for a declaratory order construing Article 22 of the license granted by the FPC for the Niagara Power Project, and that plaintiffs who have intervened in these proceedings have failed to exhaust their administrative remedies. Further, PASNY contends that FERC has primary jurisdiction since the interpretation of the license condition relating to replacement power is a subject matter that is peculiarly within the specialized field of FERC, which has been entrusted by Congress with the administration of these licenses, the Federal Power Act, and the Niagara Development Act, all of which are incorporated into Contract NS-1. Both defendants argue in the alternative that this action should be stayed pending a ruling by FERC upon PASNY's application. Additionally, Niagara Mohawk asserts that all necessary and indispensable parties have not been joined in this action. Plaintiffs reply that the suit is not one for violation of any federal law, rule, regulation or order, or brought to enforce any liability or duty created by or to enjoin any violation of any federal law. Rather, it maintains that the subject matter of the action is a common-law claim of nonperformance of a New York State contract, that the doctrine of primary jurisdiction has no application and that all necessary parties are before the court. We agree.

Section 317 of the Federal Power Act (U.S.Code, tit. 16, § 825p) grants to the District Courts of the United States exclusive jurisdiction of violations of the Federal Power Act and of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any violation of the Act or of any rule or regulation or order thereunder. The Federal Power Act which is specifically referred to in the Niagara Power Project Act (Public Law 85-159) was the source of FPC's power to issue the order granting the PASNY license which was authorized by the Act. Thus the order licensing PASNY to construct and operate the Niagara Power Project was an order issued under the Power Act and exclusive jurisdiction over any suit to enforce liabilities or duties created by the order would be in the District Courts of the United States. The replacement power would not exist except for the federal statutes and it is obvious that the scope of the rights eventually to be allocated by contract was federally defined. It does not follow, however, that the order by which PASNY was granted its license is the source of the rights asserted by plaintiffs.

It is clear that traditional common-law claims do not lose their character because it is common knowledge that there exists a related, and perhaps relevant, scheme of federal regulation (Pan American Corp. v. Superior Court of Delaware, 366 U.S. 656, 663, 81 S.Ct. 1303, 6 L.Ed.2d 584). Equally well established is the principle that exclusive jurisdiction provisions do not divest the state courts of the power to decide questions arising under the laws of the United States, but only "cases" arising under those laws (see Pratt v. Paris Gas Light & Coke Company, 168 U.S. 255, 259, 18 S.Ct. 62, 42 L.Ed. 458 (addressing, specifically, the exclusive jurisdiction provision of the U.S. patent laws); see also Pan American Corp. v. Superior Court of Delaware, supra, 366 U.S. p. 664, 81 S.Ct. 1303; American Harley Corp. v. Irvin Ind., 27 N.Y.2d 168, 174, 315 N.Y.S.2d 129, 133, 263 N.E.2d 552, 554, cert. den. 401 U.S. 976, 91 S.Ct. 1197, 28 L.Ed.2d 325; New Era Electric Range Co. v. Serrell, 252 N.Y. 107, 112, 169 N.E. 105, 107). In American Harley Corp. v. Irvin Ind. (Supra, 27 N.Y.2d p. 173, 315 N.Y.S.2d p. 132, 263 N.E.2d p. 554) the New York Court of Appeals, in a case concerning the analogous question of exclusive federal jurisdiction over cases arising under the patent laws, quoted approvingly from Koratron Co. v. Deering Milliken, Inc., 9 Cir., 418 F.2d 1314, 1317, cert. den. 398 U.S. 909, 90 S.Ct. 1692, 26 L.Ed.2d 68 where it was stated:

"According to these (Supreme Court) decisions, characterization of the action as a patent or nonpatent suit . . . turns on the form in which the plaintiff has chosen to cast his complaint: ' * * *...