Long Island Lighting Co. v. Mack

• Decision Date: 16 May 1988
• Citation: 529 N.Y.S.2d 502,137 A.D.2d 285
• Parties: LONG ISLAND LIGHTING COMPANY, et al., Plaintiffs, v. William L. MACK, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 502

529 N.Y.S.2d 502

137 A.D.2d 285

LONG ISLAND LIGHTING COMPANY, et al., Plaintiffs, v. William L. MACK, et al., Defendants.

Supreme Court, Appellate Division Second Department.

May 16, 1988.

Shea & Gould, New York City (Ronald H. Alenstein and Maurice N. Ross, of counsel Douglas Foster, New York City (Martin S. Kaufman, of counsel), for plaintiff Herbert Jaffe.

Robin F. Cohen on the brief) and Anthony F. Erley, Jr., Hicksville, for plaintiff Long Island Lighting Co.

Skadden, Arps, Slate, Meagher & Flom, New York City (Jonathan J. Lerner, George A. Zimmerman and Seth M. Schwartz of counsel; Gary Friedman on the brief), for defendants.

Robert Abrams, Atty. Gen., New York City (Ann Horowitz, of counsel), intervenor pursuant to Executive Law § 71.

Before THOMPSON, J.P., and BROWN, SPATT and SULLIVAN, JJ.

SPATT, Justice.

This is the latest in a series of cases involving the constitutionality of the Long Island Power Authority Act of 1986 (Public Authorities Law §§ 1020-1020-hh) which created the Long Island Power Authority (hereinafter LIPA) and authorized it, under certain circumstances, to acquire the Long Island Lighting Company (hereinafter LILCO) through either the purchase of its stock or the exercise of the power of eminent domain.

In 1987, Public Authorities Law § 1020-bb was enacted which provides that the trustees and officers of LIPA will not be subject to any personal or civil liability and will be indemnified for claims resulting from the exercise of their powers unless their conduct is determined to constitute "intentional wrongdoing". In this case, we are asked to decide whether these exculpation and indemnification provisions violate either the New York State or United States Constitution.

We hold that the provisions of Public Authorities Law § 1020-bb providing for the immunity, defense and indemnificati of the trustees and officers of LIPA from personal or civil liability resulting from carrying out the Authority's purposes do not violate N.Y. Constitution, article VII, § 8(1) proscribing the giving or lending of the credit of the State in aid of a public corporation. We further determine that there is no irreconcilable conflict between the aforesaid provisions of the Public Authorities Law and the Federal Securities Acts of 1933 and 1934. Consequently, pursuant to the well-established principles controlling the application of the Supremacy Clause of the United States Constitution, the provisions of the Federal Securities Acts relied on by the plaintiffs do not undermine the validity of the challenged statute.

BACKGROUND

This is a submission of a controversy directly to the Appellate Division, Second Department, pursuant to CPLR 3222 on stipulated facts to determine whether Public Authorities Law § 1020-bb violates the N.Y. Constitution article VII, § 8(1) and/or the U.S. Constitution, article VI, cl. 2, the Supremacy Clause. This case presents solely issues of constitutional law and no factual issues.

The plaintiff LILCO is a public service corporation engaged in the production, distribution and sale of electricity and natural gas in the Counties of Nassau and Suffolk and the Rockaway Peninsula in Queens County. The plaintiff Herbert Jaffe is a citizen of the State of New York and a resident of Freeport in Nassau County. The plaintiffs bring this action in their capacity as taxpayers of the State of New York.

This controversy arises as a result of the enactment on July 24, 1986, of Title 1-A of the Public Authorities Law which created LIPA (L. 1986, ch. 517, § 1). The Legislature expressly determined that the operation of LIPA is primarily "for the benefit of the people of the state of New York, for the improvement of their health, welfare and prosperity, and is a public purpose, and the authority shall be regarded as performing an essential governmental function" (Public Authorities Law § 1020-p[1]). LIPA was created because the Legislature specifically found that there was an emergency involving the "economic well-being, health and safety of the * * * [LILCO] service area" (Public Authorities Law § 1020-a) resulting from, among other things, the "[c]onstantly escalating and excessive costs of electricity" provided by LILCO and the "lack of confidence that the needs of the residents and of commerce and industry * * * for electricity can be supplied in a reliable, efficient and economic manner by [LILCO]" (Public Authorities Law § 1020-a). LIPA's purpose is to eventually acquire LILCO through either the purchase of its stock or the exercise of the power of eminent domain (Public Authorities Law § 1020-h). LILCO would then be transformed from an investor-owned utility to a publicly-owned power authority (Public Authorities Law § 1020-a). In creating LIPA, the Legislature declared it to be a "body corporate and politic and a political subdivision of the state, exercising essential governmental and public powers" (Public Authorities Law § 1020-c[1] ). Presently, LIPA consists of nine appointed trustees who will serve until December 31, 1991, when they will be replaced by elected officials (Public Authorities Law § 1020-d[1] ). Only the Chairperson of LIPA receives a salary; the other eight trustees are entitled only to "reimbursement for reasonable expenses in the performance of duties assigned" (Public Authorities Law § 1020-d[6] ).

In August 1987, the Legislature added section 1020-bb to the Public Authorities Law (L.1987, ch. 334, § 1). Public Authorities Law § 1020-bb, entitled "Exculpation", provides in subdivision (1) thereof that the trustees and officers of LIPA will not be subject to any personal or civil liability resulting from the exercise of their powers unless their conduct is determined to constitute "intentional wrongdoing". Public Authorities Law § 1020-bb(2) provides that the indemnification provisions of Public Officers Law § 17 shall apply to trustees and officers of LIPA. Public Officers Law § 17(3)(a) provides for indemnification of State officials, employees and others and for defense of such persons in civil actions or proceedings arising from any alleged act or omission which occurred while the person "was acting within the scope of his public employment or duties," except where "the injury or damage resulted from intentional wrongdoing". Also, Public Officers Law § 17 provides that the Attorney-General of the State of New York shall be responsible for providing legal representation or a legal defense for such persons.

Public Authorities Law § 1020-bb(3) provides that whenever the provisions of Public Officers Law § 17 do not apply, the provisions of § 18 thereof will be applicable. Public Officers Law § 18 permits a "public entity" such as LIPA to adopt a by-law or resolution conferring upon its employees the right to defense and indemnity in any civil action or proceeding, State or Federal, arising out of any alleged act or omission which occurred "while the employee was acting within the scope of his public employment or duties" (Public Officers Law § 18[4][a] ). However, Public Officers Law § 18(4)(b) does not permit a public entity to provide indemnity "where the injury or damage resulted from intentional wrongdoing or recklessness on the part of the employee". Under section 18, unlike section 17, the "public entity" (in this case LIPA), and not the State, is responsible for paying the cost of defense and indemnity. It is significant that neither section provides for indemnification or defense in cases of "intentional wrongdoing".

Finally, subdivision (4) of Public Authorities Law § 1020-bb provides that any costs incurred by the State in accordance with Public Authorities Law § 1020-bb(2) "shall be treated as advances by the state to the authority" which will eventually be repaid to the State without interest by LIPA, "at such times and on such conditions as the state and the authority mutually may agree upon".

A summary of all the provisions of Public Authorities Law § 1020-bb reveals the following: (1) the trustees and officers are immune from personal or civil liability from their acts in carrying out LIPA's purposes, except for acts of "intentional wrongdoing", (2) the only payments by the State or LIPA in this connection are for the expenses of defense with regard to their conduct not involving "intentional wrongdoing", (3) initially, their defense shall be conducted by the Attorney-General and any costs of defense will be advanced by the State, (4) when LIPA is in a financial position to do so, it shall itself pay for the cost of defending its trustees and officers for acts other than "intentional wrongdoing", (5) there is no immunity nor indemnity nor the right to a defense as to any acts which constitute "intentional wrongdoing", and (6) any "advances" made by the State shall be repaid by LIPA.

The legislative memorandum which accompanied the passage of Public Authorities Law § 1020-bb reflects the concern and reasoning of the Legislature that:

"[w]ithout indemnification protection, it may be extremely difficult to retain trustees who would be willing to serve given that one lawsuit has already been served on the trustees by LILCO, and that others could follow" (Memorandum in support of L.1987, ch. 334, § 1 [July 28, 1987], at 2).

Given the lack of financial remuneration to the trustees for their service, the legislative purpose in enacting Public Authorities Law § 1020-bb is consistent with similar treatment of other public corporations and authorities. Without immunity and indemnification, it is reasonable to assume that it would be difficult to obtain the services of the required competent and civic-minded trustees.

With regard to their New York State constitutional challenge, the plaintiffs allege that subdivisions two and four of Public Authorities Law § 1020-bb violate N.Y. Constitution, article VII, § 8(1), because they provide for a "gift or loan of state credit" in aid of private individuals and a public...