Cahill v. Public Service Com'n

• Decision Date: 19 December 1986
• Citation: 69 N.Y.2d 265,506 N.E.2d 187,513 N.Y.S.2d 656
• Parties: , 506 N.E.2d 187, 55 USLW 2364 In the Matter of Joseph CAHILL, Respondent, v. PUBLIC SERVICE COMMISSION et al., Appellants, and Central Hudson Gas and Electric Corporation, Intervenor-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 656

513 N.Y.S.2d 656

69 N.Y.2d 265, 506 N.E.2d 187, 55 USLW 2364

In the Matter of Joseph CAHILL, Respondent, v. PUBLIC SERVICE COMMISSION et al., Appellants and Central Hudson Gas and Electric Corporation, Intervenor-Appellant.

Court of Appeals of New York.

Dec. 19, 1986.

Certiorari Denied Oct. 5, 1987. See 108 S.Ct. 100, 101.

David E. Blabey, Lawrence G. Malone and Leonard Van Ryn, Albany, for Public Service Com'n, appellant.

John M. Clarke, Gerald M. Oscar and Thomas J. Farrelly, New York City, for New York Telephone Co., appellant.

Walter A. Bossert, Jr., Davison W. Grant and Thomas C. Hutton, New York City, for intervenor-appellant.

Richard Emery, New York City, for respondent.

OPINION OF THE COURT

HANCOCK, Judge.

We hold that acts of the New York State Public Service Commission (PSC) in setting rates which compel a utility customer to pay for charitable contributions made by the utility constitute governmental conduct giving rise to a cognizable claim by that customer that his rights under the First Amendment of the United States Constitution have been violated.

I

In a CPLR article 78 proceeding against the PSC and New York Telephone Company (New York Tel.), petitioner, a customer of New York Tel., seeks to annul two actions of the PSC:

(1) The policy adopted by the PSC in 1970 whereby charitable contributions by utilities are allowed as "proper operating expenses" (New York Tel. Co., case 25155, 10 NY PSC 345, 378, 84 PUR3d 321, 349 [July 1, 1970] ) ¹ and

(2) The PSC "Opinion and Order Determining Revenue Requirement and Rate Structure" dated June 22, 1984 (opinion No. 84-16) specifically authorizing New York Tel. to charge its ratepayers, including petitioner, for charitable donations of approximately $3,000,000 in 1984, and establishing rates to be paid by customers for service which are based on the inclusion of these contributions as operating costs.

Petitioner, a Catholic, alleges that as a consequence of the PSC policy and rate order he is compelled to contribute to "religious institutions" espousing beliefs inconsistent with his own, to charities supporting "the right to an abortion" contrary to his "moral and religious" beliefs and to causes which he finds objectionable on "personal and political grounds". "No matter how small a portion of his bill is affected", he says, he opposes these contributions "as a matter of principle" and he asserts that the PSC has denied him his constitutional rights under the free speech, free exercise and establishment clauses of the First Amendment of the Federal Constitution, citing Abood v. Detroit Bd. of Educ., 431 U.S. 209, 97 S.Ct. 1782, 52 L.Ed.2d 261.

In lieu of answering the petition, respondents ² moved to dismiss (CPLR 7804[f]; 3211[a][7] ) contending, among other things, that the utilities' actions in passing along the cost of charitable contributions were essentially private decisions and that the government's limited involvement was an insufficient basis for finding a violation of petitioner's First Amendment rights, citing Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95 S.Ct. 449, 42 L.Ed.2d 477, and Blum v. Yaretsky, 457 U.S. 991, 102 S.Ct. 2777, 73 L.Ed.2d 534. Special Term rejected respondents' arguments (128 Misc.2d 510, 490 N.Y.S.2d 90) and the Appellate Division, with a divided court, affirmed, holding that petitioner had adequately stated a "threshold claim of 'State action' " by "alleging that the PSC adopted a policy which permitted the costs of charitable donations to be passed along to ratepayers" (113 A.D.2d 603, 606, 498 N.Y.S.2d 499). The dissenters found that this case fell "squarely under" Blum and Jackson and that petitioner had failed to allege a sufficient nexus between the challenged acts and the State (id., at p. 609, 498 N.Y.S.2d 499).

The Appellate Division granted respondents permission to appeal to our court and certified the following question: "Did this court err, as a matter of law, in affirming Special Term's order which denied respondents' motions to dismiss the petition?" For reasons which will appear, we hold that the question should be answered in the negative and that the order of the Appellate Division affirmed, 113 A.D.2d 603, 498 N.Y.S.2d 499.

II

The critical issue is whether petitioner's CPLR article 78 proceeding involves private conduct of a utility in which the State has merely acquiesced, as respondents and the dissenters contend, or governmental conduct of an agency of the State itself. Because it involves the latter we hold that under the controlling authority of Abood v. Detroit Bd. of Educ., 431 U.S. 209, 97 S.Ct. 1782, 52 L.Ed.2d 261, supra, the petition states a cognizable claim that the 1970 policy decision and the 1984 rate order of the PSC violate petitioner's rights under the First and Fourteenth Amendments of the United States Constitution. In Abood, plaintiffs, nonunion teachers, challenged the validity of a union shop clause in the collective bargaining agreement between their employer and the teachers' union because dues they were compelled to pay were being used by the union for legislative lobbying and for the support of political candidates. The Supreme Court, in holding that plaintiffs' rights were infringed by being forced to pay a portion of these contributions under threat of loss of their jobs, stated, at pp. 235-236, 97 S.Ct. at pp. 1799-1800:

"[T]he freedom of belief is no incidental or secondary aspect of the First Amendment's protections:

" 'If there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.' West Virginia Bd. of Ed. v. Barnette, 319 U.S. 624, 642 [63 S.Ct. 1178, 1187, 87 L.Ed. 1628].

"These principles prohibit a State from compelling any individual to affirm his belief in God, Torcaso v. Watkins, 367 U.S. 488 [81 S.Ct. 1680, 6 L.Ed.2d 982], or to associate with a political party, Elrod v. Burns, supra; see 427 U.S. [347], at 363-364, n. 17 [96 S.Ct. 2673, 2684-2685, n. 17, 49 L.Ed.2d 547], as a condition of retaining public employment.

* * *

"We do not hold that a union cannot constitutionally spend funds for the expression of political views, on behalf of politic candidates, or toward the advancement of other ideological causes not germane to its duties as collective-bargaining representative. Rather, the Constitution requires only that such expenditures be financed from charges, dues, or assessments paid by employees who do not object to advancing those ideas and who are not coerced into doing so against their will by the threat of loss of governmental employment." (Emphasis added.)

There is no basis for distinguishing Abood. The acts giving rise to the claims here and in Abood were not the private decisions of the utilities and the union to make charitable and political contributions but the governmental actions in compelling the utility customer here and the nonunion teachers in Abood to pay for them. In Abood the coercion came from the State-sanctioned union shop clause under which nonunion members could be discharged for nonpayment. In this proceeding, the coercion results from the fact that the State establishes the rate that the customer must pay and the rate includes an allowance for the objected to contributions. Because the utility is a monopoly the customer must pay or be deprived of his right to utility service.

The dissent points to no difference between the coercive effect of the PSC rate directives and the coercive effect of the union shop clause in Abood. Instead, for purposes of its argument, it constructs a model of a utility which omits the utility's distinguishing characteristic as a legalized monopoly--public control. The dissent then analyzes the utility's behavior "without any governmental intervention at all" (dissenting opn., 69 N.Y.2d at pp. 278-279, 513 N.Y.S.2d 662-663, 506 N.E.2d 193-194 as though it were a private company and readily concludes that "utility companies, like most unregulated business concerns, would simply include in the price for their services the cost of whatever charitable donations they might choose to make", and that "the PSC has done no more than merely refuse to interfere with what is essentially a private decision." (Dissenting opn., at p. 279, 513 N.Y.S.2d 663, 506 N.E.2d 194.) To reach these conclusions, it must be emphasized, the dissent has assumed the validity of two propositions: that "the regulatory powers of the State [are] not involved in the rate-setting process" (dissenting opn., at p. 279, 513 N.Y.S.2d 663, 506 N.E.2d 194) and that the charitable contributions reflected in the rates are "charges in which the PSC has, in the truest sense of the word, merely 'acquiesced' " (dissenting opn., at p. 278, 513 N.Y.S.2d 664, 506 N.E.2d 195). But these assumptions find no support in law or fact.

A public utility is franchised by the State (Public Service Law §§ 68, 99) to provide services to the public at just and reasonable rates (Public Service Law §§ 65, 91) in exchange for a proper return on its investment (see, Public Service Law § 97; Matter of Village of Boonville v. Maltbie, 272 N.Y. 40, 4 N.E.2d 209. Operating as a monopoly (see, People ex rel. New York Edison Co. v. Willcox, 207 N.Y. 86, 93-94, 100 N.E. 705, it is subject to regulation by the PSC (Public Service Law §§ 66, 94). The PSC oversees the utilities for the public good as an exercise of the State's police powers (People ex rel. New York Elec. Lines Co. v. Squire, 145 U.S. 175, 12 S.Ct. 880, 36 L.Ed. 666) and has exclusive authority to determine just and reasonable rates (Public Service Law § 66[12]; § 92[2] ). It establishes maximum rates which may not be exceeded (Public Service Law § 65[1]; § 91[1] ). In fact, no utility may charge more or less than the rates established by the PSC (see, Public...