Town of Huntington, Northport-East Northport and Port Jeff school districts lose third-party lawsuits
By Sara-Megan Walsh & Alex Petroski
A New York State Supreme Court judge has ruled Long Island Power Authority “made no promises” to the Town of Huntington, Northport-East Northport school district and Port Jefferson School District not to challenge the taxes levied on its power stations.
Judge Elizabeth Emerson dismissed the lawsuits brought forth by the Town of Huntington and the two school districts Aug. 16 which alleged LIPA broke a promise by seeking to reduce the power plant’s taxes by 90 percent.
“The court’s decision affirms our customers’ right to pay reasonable taxes on the power plants,” LIPA said in a statement from spokesman Sid Nathan. “We remain committed to reaching a fair settlement for both the local communities and our 1.1 million customers to put an unsustainable situation back on a sustainable path.”
The judge’s ruling is a big victory for LIPA as it allows tax certiorari cases to continue to trial, rather than being dismissed, and could have a widespread impact across Long Island for other municipalities with similar disputes against the utility.
“Obviously, we disagree with this decision and plan to appeal,” Northport Superintendent Robert Banzer wrote in a letter to district residents. “Please understand that Justice Emerson’s decision is not the end of our fight in this case.”
Port Jeff school district also responded to the development.
“While this decision is not the outcome the district was hoping for, we vow to continue to explore our options as we work to protect our school district’s financial future and the needs of our community,” the district said in part in a statement. “The district will work to keep the community apprised of any updates on the matter.”
In her 24-page decision, Emerson denied any notion that chapter 21, section 16 of the 1997 Power Supply Agreement signed by LIPA when it took over Long Island Lighting Company — which has been referred to as the 1997 Promise – was intended to benefit the school districts by preventing LIPA from challenging the tax-assessed value of its power plants.
Rather, she found it was to ensure other parties, including LILCO and GENCO, which owned the plants at the time, could not start initiating tax claims during the takeover process.
She also dismisses all claims that town governments or school districts were intended third-party beneficiaries of the contract.
“The Power Supply Agreement is clear and unambiguous and that it does not bestow any enforceable third-party-beneficiary rights on the plaintiff,” Emerson wrote.
The judge pointed to the PSA saying it “does not expressly name” either the town or school districts as a third-party beneficiaries.
“She applied contract law, not third-party beneficiary law,” said John Gross, the attorney representing Northport-East Northport school district. “That’s what we think she the mistake on.”
Gross said New York State law allows entities, like the school districts, to be recognized as third-party beneficiaries based on third-party conversations, letters, and promises. The school districts have filed thousands of pages of documents with the courts, according to Gross, that include official correspondence and records of conversations former LIPA chairman Richard Kessel had with school administrators and Huntington Town officials allegedly promising not to challenge the tax assessment of its power plants.
The judge ruled these “extra-contractual promises” made largely by Kessel “were gratuitious promises for which there was no consideration.” As such, the former chairman’s words “did not contractually bind LIPA.”
Gross said the school’s status as a third-party beneficiary “was wrongly decided.”
This recent decision could have large and profound impact not only on Huntington, Northport-East Northport and Port Jeff schools, but for all other municipal government and school districts that are LIPA’s power plants.
On Page 18 of her decision, Emerson wrote not only did the PSA contract not protect the Town of Huntington, Northport or Port Jeff school district taxpayers but “other similar situated school districts and municipalities.”
“This result was to a very large extent expected by the village, and that’s why the mayor and the board of trustees very early, initiated and drove settlement discussions with LIPA to resolve the issue,” Port Jefferson Village Attorney Brian Egan said.
The village board of trustees and Mayor Margot Garant in April passed a resolution approving “settlement concepts,” and the two sides are exchanging details of terms, expected to reach conclusion “at any time,” Egan said.
“When we’re a taxing jurisdiction and we’re going to subject ourselves to the back taxes on a longshot, that is not what we do with taxpayer dollars,” Garant said. “We have an obligation to not gamble, so to speak.”
“Please understand that Justice Emerson’s decision is not the end of our fight in this case.”
— Robert Banzer
Huntington town attorney Nick Ciappetta said the town plans to file an appeal of the judge’s decision.
“We believe there’s only one logical and legal way to interpret that provision,” he said. “That provision was there for the benefit of the taxpayers of Huntington.”
The town, Northport and Port Jefferson school districts will have 30 days to file an appeal once the decision is officially entered into court records, according to Ciappetta. He estimated an appeal of the decision could take 18 to 24 months.
“The decision does not affect the pending tax certiorari case between the Town of Huntington and LIPA scheduled for trial in December, nor do we expect it will impact the parties’ willingness to proceed with mediation,” Banzer wrote to the community.
Gross confirmed that Northport school district is still looking forward to sitting down for the first mediation session with the Town of Huntington, LIPA, National Grid and third-party neutral attorney Marty Scheinman slated for Sept. 26.
Officials in Brookhaven’s Town Attorney’s office could not be immediately reached for comment, though the town has also said it is nearing a settlement in its case. Egan speculated settlements for municipalities attempting to resolve cases out of court might be held up by mediation in Northport and Huntington Town’s case.
This post was updated Aug. 17 to include a statement from Port Jefferson School District, and to attribute LIPA’s statement to Sid Nathan.