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

• Decision Date: 10 July 1980
• Citation: 76 A.D.2d 68,430 N.Y.S.2d 179
• Parties: AIRCO ALLOYS DIVISION, AIRCO INC., Airco Speer Carbon Graphite Division, Airco Inc., The Anaconda Company-Brass Division, Atlas Steel Casting Company, Dunlop Tire & Rubber Corporation, Republic Steel Corporation, Appellants, and Buffalo Color Corporation, Donner-Hanna Coke Joint Venture, Dresser Transportation Equipment Division, Dresser Industries, Inc., General Abrasive Division, Dresser Industries, Inc., E. I. DuPont DeNemours & Co., Inc., Great Lakes Carbon Corporation, SKW Alloys, Inc., City of Niagara Falls, Plaintiffs-Intervenors-Appellants, v. NIAGARA MOHAWK POWER CORPORATION, Power Authority of the State of New York, Respondents and The Carborundum Company, Defendant-Intervenor-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 179

430 N.Y.S.2d 179

76 A.D.2d 68

AIRCO ALLOYS DIVISION, AIRCO INC., Airco Speer Carbon Graphite Division, Airco Inc., The Anaconda Company-Brass Division, Atlas Steel Casting Company, Dunlop Tire & Rubber Corporation, Republic Steel Corporation, Appellants and Buffalo Color Corporation, Donner-Hanna Coke Joint Venture Dresser Transportation Equipment Division, Dresser Industries, Inc., General Abrasive Division, Dresser Industries, Inc., E. I. DuPont DeNemours & Co., Inc., Great Lakes Carbon Corporation, SKW Alloys, Inc., City of Niagara Falls, Plaintiffs-Intervenors-Appellants, v. NIAGARA MOHAWK POWER CORPORATION, Power Authority of the State of New York, Respondents and The Carborundum Company, Defendant-Intervenor-Appellant.

Supreme Court, Appellate Division, Fourth Department.

July 10, 1980.

Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo, for appellants and plaintiffs-intervenors-appellants; Victor Fuzak, Buffalo, of counsel.

Jaeckle, Fleischmann & Mugel, Buffalo, for respondent Niagara Mohawk Power Corp.; John Stenger, Buffalo, of counsel.

Thomas R. Frey, New York City, for respondent Power Authority of State of New York; Howard Stevens, New York City, of counsel.

Carl E. Mooradian, Corp. Counsel, Niagara Falls, for plaintiff-intervenor-appellant City of Niagara Falls; Bernard Sax, of counsel.

Aular & Woodbury, Dunkirk, for defendant-intervenor-appellant The Carborundum Co.; Robert Woodbury, of counsel.

Before CARDAMONE, J. P., and SIMONS, CALLAHAN, DOERR and MOULE, JJ.

MOULE, Justice.

The United States, pursuant to treaties with Canada, is permitted to divert portions of the flow of the Niagara River for the purpose of generating hydroelectric power. The Federal Power Commission (FPC) authorized the Niagara Mohawk Power Corporation (Niagara Mohawk) by license to utilize a portion of the river flow for power generation at certain generating stations on the Niagara River known as Federal Power Commission Project 16 (Project 16) with a capacity of 445,000 kilowatts.

On June 7, 1956 a rock slide destroyed the generating station which was the principal source of this power. As a consequence, the United States Congress enacted Public Law 85-159 (71 U.S.Stat. 401, U.S.Code, tit. 16, § 836), known as the Niagara Power Project Act (Act), which authorized the FPC to issue a license to the Power Authority of the State of New York (PASNY) to construct and operate a power project with capacity to utilize so much of the Niagara River as was permitted under treaties with Canada.

The Act required that PASNY, as a condition of the license, provide Niagara Mohawk with 445,000 kilowatts of low cost power, equivalent to the amount produced by Project 16 prior to June 7, 1956, for resale generally to the industries which had purchased power produced by Project 16, 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. PASNY thereafter constructed power generation facilities and entered into a contract on February 10, 1961 with Niagara Mohawk (Contract NS-1) concerning the sale of replacement power to industries formerly served by Project 16. Initially, Niagara Mohawk allocated all 445,000 kilowatts it received as replacement power to local industries. Although some of the industries receiving replacement power were not originally customers of Project 16, Niagara Mohawk's allocation scheme was approved by PASNY. Subsequently, some of these industries either discontinued or reduced their usage of replacement power by an approximate total of 110,000 kilowatts, and Niagara Mohawk used this relinquished replacement power in its general system requirements.

On March 29, 1978 plaintiffs, six industrial customers of Niagara Mohawk, commenced this action against Niagara Mohawk and PASNY. Plaintiffs alleged that Niagara Mohawk was in breach of Contract NS-1 in that Niagara Mohawk utilized relinquished replacement power for general system requirements. They also alleged that, as industries currently receiving replacement power, they were entitled to all or a significant portion of the relinquished replacement power and claimed irreparable harm and damage from Niagara Mohawk's refusal to sell relinquished replacement power to them. Plaintiffs further alleged that they were third party beneficiaries of Contract NS-1.

Subsequently, six additional customers intervened in the action as plaintiffs, and the City of Niagara Falls (City) also intervened as a plaintiff alleging that it was an industrial customer of Project 16 similarly entitled to replacement power.

The Carborundum Company (Carborundum), a customer of Niagara Mohawk under Project 16 as well as under Contract NS-1, intervened as a party defendant and cross-claimed against defendants Niagara Mohawk and PASNY, alleging that they breached the contract in refusing to sell relinquished replacement power to Carborundum. It further alleged that Contract NS-1 required that only those industries which were industrial customers of Project 16 and whose power requirements were a significant portion of their manufacturing costs were entitled to relinquished replacement power. Carborundum alleged that, if the relinquished replacement power was distributed to all current purchasers of replacement power, as plaintiffs requested, including those who were not purchasers of Project 16 power and including those to which power is not a significant portion of manufacturing costs, it would be in violation of Contract NS-1.

Niagara Mohawk and PASNY moved to dismiss the complaints on jurisdictional and other grounds. Special Term denied the motions and we affirmed (Airco Alloys Div., Airco, Inc. v. Niagara Mohawk Power Corp., 65 A.D.2d 378, 411 N.Y.S.2d 460). Niagara Mohawk and PASNY then served their answers and issue was joined.

Niagara Mohawk in its answer denied the material allegations of the complaint and set forth the following affirmative defenses: (1) that the court did not have jurisdiction; (2) that the complaint did not state a cause of action; (3) that the Statute of Limitations had run; (4) that necessary parties were not joined; (5) that the obligations under the contract had been fulfilled; (6) waiver and estoppel; and (7) laches.

PASNY denied the material allegations of the complaint and set forth the following affirmative defenses: (1) laches; (2) that necessary parties were not joined; (3) that the court did not have jurisdiction; (4) that another action was already pending between the parties on the same issues; and (5) federal pre-emption. It also cross-claimed against defendant Niagara Mohawk alleging breach of contract on the part of Niagara Mohawk in not allocating all of the replacement power to industry.

Plaintiffs moved for partial summary judgment: (1) on the issue of defendants' breach of Contract NS-1 by failing to reallocate to plaintiffs, third-party beneficiaries of the contract, all relinquished replacement power; (2) to dismiss all of defendants' affirmative defenses; (3) continuing the action on the issue of damages; and (4) for an injunction directing defendants to sell all 445,000 kilowatts of replacement power to eligible industries.

Carborundum cross-moved for partial summary judgment: (1) that Contract NS-1 obligated Niagara Mohawk to sell all 445,000 kilowatts of replacement power to eligible industries; (2) that Carborundum is a third-party beneficiary of Contract NS-1; (3) that an injunction issue directing Niagara Mohawk to sell all replacement power to such eligible customers; (4) that the action on the issue of damages be continued; and (5) that an injunction issue directing defendants to sell to Carborundum 13,000 kilowatts of replacement power.

PASNY cross-moved for partial summary judgment: (1) that an injunction issue directing Niagara Mohawk to make available to industrial consumers all 445,000 kilowatts of replacement power which it receives from PASNY; and (2) that plaintiffs' and Carborundum's complaints insofar as they seek other relief be dismissed.

Special Term granted plaintiffs' motion to strike Niagara Mohawk's affirmative defenses based upon lack of jurisdiction; failure to join necessary parties; and failure to state a cause of action. It granted plaintiffs' motion to strike PASNY's affirmative defenses based upon pendency of another action between the parties on the same issues. Special Term otherwise denied the motions. In a memorandum decision, Special Term held: (1) that neither the Act nor Contract NS-1 contained any provision specifically requiring the total allocation of all replacement power to industrial customers and, therefore, the intent of the parties to Contract NS-1 with respect to the use made of available replacement power was a material issue of fact; (2) that whether the plaintiffs had rights as third-party beneficiaries under Contract NS-1 depended upon the intent of the defendants to confer such rights and, since the defendants have denied any such intent, its determination is an issue of fact; and (3) that there were material issues of fact with respect to the affirmative defenses of waiver and estoppel, laches, Statute of Limitations, and preclusion of relief by service contracts. Neither Niagara Mohawk nor PASNY has appealed from the order.

Plaintiffs' first contention on appeal is that Special Term erred in denying the motion for summary judgment on the question of whether Niagara Mohawk breached Contract NS-1 by utilizing relinquished replacement power to serve customers other than local industries.

The major objective in the interpretation of a written contract is to ascertain the intent of the parties from the language employed (Hartford Acc. & Ind. Co. v. Wesolowski, 33 N.Y.2d 169, 171-172, 350 N.Y.S.2d 895, 305 N.E.2d 907). The rule "is well settled that the construction of a plain and unambiguous contract is for the court to pass on, and that...