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United States v. Consolidated Edison Co.

decided: June 26, 1978.


Appeal from a judgment of the United States District Court for the Southern District of New York, Lawrence W. Pierce, Judge, awarding $1,576,595 in damages on theories of contract, quasi-contract, and equitable estoppel. Affirmed as modified.

Waterman and Oakes, Circuit Judges, and Wyzanski,*fn* District Judge.

Author: Oakes

OAKES, Circuit Judge:

This is an appeal by Consolidated Edison Co. of New York, Inc. (appellant or Con Edison), and a cross-appeal by the United States (appellee or Government), from a September 20, 1977, judgment of the United States District Court for the Southern District of New York, Lawrence W. Pierce, Judge, awarding damages to the United States in a contract action. After a two-week bench trial, the court found that Con Edison was estopped from denying the existence of a contract to reimburse the Government for costs which the Atomic Energy Commission (AEC) incurred when it made available 200 megawatts (MW) of electric power to Con Edison during a serious Con Edison power shortage in the summer of 1970. The district court further premised liability on two-quasi-contractual theories - the "emergency assistance" doctrine and a theory of unjust enrichment resulting from the AEC's conferral of a benefit on Con Edison. Damages were awarded in the sum of $1,576,595, all three theories of liability producing the same ultimate result. Because we are satisfied both that liability is properly imposed under the emergency assistance doctrine and that the AEC would achieve its maximum damages award under that theory, we affirm the district court's imposition of liability without deciding the correctness of its equitable estoppel or unjust enrichment theories or its dismissal of the Government's contract claim on statute of frauds grounds. However, we find the district judge's treatment of the damages issue improper in one respect and accordingly modify the damages award.

I. Facts

In the spring of 1970, the Government was rightfully concerned that the nation's public utilities might be unable to satisfy peak public demands for electrical power during the coming summer. An interagency task force established by the Executive Office of the President, therefore, adopted a plan of emergency power assistance (May 5 plan) in which the AEC was to play a major role. After studying the problem and considering the impact of a reduction in power consumption on the operations of the AEC's gaseous diffusion plants,*fn1 that agency determined that it could reduce consumption of power at these plants by up to 450 MW if there were critical shortages of electricity in the commercial sector. In late June, 1970, the AEC executed modifications of its requirements contracts then in force with the three utilities which supplied electricity to these plants to reduce the AEC's overall power consumption by 450 MW for the duration of the summer. Thereafter, in early June, 1970, the released power was wheeled from the supplying utilities to utilities facing anticipated shortages in Chicago and other areas in the Midwest and East.

On July 21, 1970, Con Edison suffered a major power crisis with the outage of its Ravenswood Plant ("Big Allis") resulting in a loss of 1,000 MW.*fn2 Charles Luce, Con Edison's chairman and chief executive officer, and his staff immediately began the search for new sources of electrical power.

Concurrently, the gravity of the New York situation had come to the attention of government officials as well. On July 22, David Freeman of the Office of Emergency Preparedness (OEP) in Washington, D.C., telephoned Con Edison and indicated that the Government might be of assistance. On July 23, 1970, Luce himself called Freeman who explained that although the AEC had already made one power reduction, he believed that a further power release to Con Edison might still be possible. Luce indicated that Con Edison wanted the power; Freeman directed Luce to get in touch with George Quinn, then assistant general manager in charge of production at the AEC, in order to "work out the details." 452 F. Supp. 638 (S.D.N.Y. 1977). The district judge specifically found that the Luce/Freeman conversation constituted "only preliminary discussions."

Luce also telephoned Fred Chambers, a Tennessee Valley Authority (TVA) official, to inquire about the availability of power from TVA and to determine what TVA knew of the AEC's ability further to reduce its power from TVA. Chambers was uncertain. After the phone call, Chambers conferred with his staff to determine whether TVA could assist; he called the manager of the AEC's gaseous diffusion plant at Oak Ridge, who later told Chambers that a further power reduction would cause the AEC severe efficiency losses - which could be estimated in the neighborhood of three to seven mills per kilowatt hour (PKH). Chambers then called back Luce, informing him that the TVA could not assist and that if the AEC ultimately determined that it could release additional power, the cost would be quite high. He specified that actual costs of the power itself and the efficiency loss surcharge would likely be in the twelve to fourteen mills PKH range, although a final determination of the price would have to attend AEC calculations.*fn3

On July 24, 1977, Quinn spoke with Luce on the telephone:

Quinn stated that he wanted to discuss the terms and conditions of the release and that the AEC was now in the position to offer 200 MW to Con Edison. Quinn informed Luce that AEC had made a previous reduction of some 450 MW, and that while AEC would prefer not to make a further reduction, they were willing to do so. It is undisputed that Quinn informed Luce that in the event the release was effected, the AEC would look to Con Edison for reimbursement of its additional costs. Luce stated that Con Edison was still studying their end of the transmission problem and that he was not yet in a position to request the power. Apparently unconcerned with the possibility of a surcharge, Luce stated that Con Edison would be willing to pay whatever surcharge had been paid by the recipients of the previous 450 MW reduction. Quinn did not inform Luce that the recipients of the 450 MW had not been asked to pay any surcharge.

Quinn stated that the amount of the surcharge was under study and that he could not fix a price at that time. However, Quinn did give Luce examples of the type of costs the AEC would incur, such as the shut down of certain equipment. Luce testified that Quinn referred to efficiency losses. On cross-examination . . . and in response to questions by the Court . . ., Charles Luce stated that Quinn had explained to him that the 200 MW reduction would result in higher costs to AEC than did the 450 MW reduction, since the incremental losses were greater when the plants were required to reduce consumption to as low as 1,350 MW. The conversation ended*fn4 with Quinn's advice to Luce that if Con Edison wished to receive the power it should make arrangements with AEC's supplier utilities, TVA and OVEC.

452 F. Supp. at 645 (citations omitted). This telephone conversation was the last direct AEC/Con Edison contact before the 200 MW of released power began to flow on Monday, July 27, 1970.

By Tuesday, July 28, 1970, the controller's office of the AEC calculated a surcharge of 5.41 mills, or.0541 cents PKH on the power released to Con Edison. Quinn reviewed this calculation and discussed it with his supervisor who approved it. On July 29, 1970, Quinn directed officials at the Oak Ridge diffusion facility to initiate contract modification discussions with the AEC's supplier utilities. On August 3, 1970, the AEC executed formal contract modifications with its supplier utilities by which the AEC released its rights to 200 MW of power for the remainder of the summer. These agreements provided for the utilities to collect the 5.41 mills PKH surcharge from Con Edison through the billing chain. Con Edison was not specifically informed of the terms of the modifications.

Con Edison first learned of the magnitude of the surcharge on August 6, 1970. Luce immediately objected and directed Louis Roddis, president of Con Edison, to ascertain the amount of the surcharge paid by the recipients of the 450 MW reduction. Roddis learned that the 450 MW utilities had paid no surcharge at all. Roddis telephoned Quinn to inquire whether the surcharge had the support of the AEC Commissioners and to suggest that the surcharge might cause political embarrassment for the AEC and the White House. The district court found that Roddis at no point suggested that Con Edison might terminate its receipt of AEC released power.

On August 10, 1970, Bertram Schwartz, then a Con Edison vice president, met with Quinn and among other things asked why the AEC had imposed no surcharge upon the recipients of the prior reduction. Quinn told him that it was an oversight and that the AEC was seeking to renegotiate the agreements with the 450 MW recipients to include a surcharge. The negotiations to reopen the written contracts ultimately proved fruitless.

In the meantime, Con Edison continued to assert that the only payment it would make was a surcharge equivalent to what the recipients of the 450 MW power release had paid. This position was reiterated in a meeting between Quinn and Luce on September 1, 1970. Despite Con Edison's protestations throughout the summer at having to pay a surcharge different from what had been imposed on the 450 MW utilities, no Con Edison official ever intimated that it preferred not to take the power.

By letter dated September 30, 1970, after compromise attempts had failed, Luce informed the AEC that Con Edison would not pay the surcharge. On the next day, October 1, 1970, Con Edison released the 200 MW of power back to the TVA for return to the AEC. The district court found:

Defendant never advised the AEC that it would refuse to pay a surcharge altogether [until September 30, 1970,] nor did Con Edison ever state that it would stop accepting the power. It is clear from the record that during this period Con Edison knew that AEC was demanding compensation for its increased costs; indeed, it knew as early as August 6, 1970, only ten days after the power had begun to flow, the magnitude of the surcharge sought by AEC.

452 F. Supp. at 650.

The district judge then went on to find that "the July 24, 1970 [oral] conversation between Luce and Quinn was sufficiently definite to form an agreement," but that it was unenforceable by virtue of the statute of frauds. Accordingly, he dismissed the Government's contract claim.*fn5 Nevertheless, he upheld the Government's equitable estoppel and quasi-contract theories.*fn6

II. Liability

We agree with Judge Pierce that Con Edison is liable for the AEC's costs under the emergency assistance doctrine. Recovery on this theory affords the Government the greatest amount of damages to which it could rightfully lay claim under any of the theories that it advances.*fn7 Accordingly, we see no reason to decide these other interesting, but unnecessary, issues which have been presented, and therefore confine our discussion to Con Edison's liability under the emergency assistance doctrine.

The emergency assistance doctrine is a form of quasi-contractual relief. As recognized in several cases, including a recent case of this circuit,*fn8 the doctrine is embodied in Section 115 of the Restatement of Restitution:

A person who has performed the duty of another by supplying things or services, although acting without the other's knowledge or consent, is entitled to restitution from the other if

(a) he acted unofficiously and with intent to charge therefor, and

(b) the things or services supplied were immediately necessary to satisfy the requirements of public decency, health, or safety.

The basis for recovery in this case is that the AEC performed Con Edison's duty to acquire and maintain adequate supplies of electrical power under emergency conditions with the clear intent that it be reimbursed for its costs.*fn9 See Peninsular & Oriental Steam Navigation Co. v. Overseas Oil Carriers, Inc., 553 F.2d 830 (2d Cir.) (liability under Section 114 of Restatement of Restitution, the private assistance analogue of Section 115's public assistance statement), cert. denied, 434 U.S. 859, 98 S. Ct. 183, 54 L. Ed. 2d 131, 46 U.S.L.W. 3218 (1977).

Con Edison challenges recovery under this doctrine on a number of grounds. It asserts that Con Edison had no absolute duty to supply electricity to its New York area customers; it challenges the scope of the doctrine and whether a true emergency in the Section 115 sense existed; and it attempts to distinguish the leading Second Circuit authority, Peninsular & Oriental, supra, by limiting that case not only to its admiralty context but also to its precise facts. We are unpersuaded by Con Edison's contentions.

Con Edison's claim that it has no absolute duty to supply electricity to New York area customers misconceives both the nature of the duty which must be implicated to fall within the purview of Section 115 and the nature of the duty which the AEC performed in this case. Con Edison asserts in this regard that it is liable for damages to its customers only from intentional wrongful cutoffs or accidental cutoffs when it has acted with gross negligence.*fn10 However, Section 115 of the Restatement certainly does not require either by its terms or under the case law interpreting it, that a duty must be absolute to fall within its parameters. Duty is a flexible concept. Its existence depends on calibrating legal obligations to factual contexts. One may have only a duty to avoid gross negligence, but that is a duty nonetheless and one potentially cognizable by the emergency assistance doctrine.

Peninsular & Oriental is a good illustration of a situation where less than an absolute duty was held governable by the emergency assistance doctrine. In that case, a sailor on the Overseas Progress was stricken with a heart attack. The Overseas Progress did not have a doctor or the necessary facilities to give the sailor proper medical attention and therefore sent a radio message seeking assistance from other ships in the vicinity. The S.S. Canberra responded, changing course to intercept the Overseas Progress. The rescuing ship, which had an on-board hospital, took the heart attack victim on board and increased its speed and thus its fuel consumption as it plied toward New York.*fn11 This court found that when the seaman took ill the Overseas Progress "became obligated to make reasonable efforts to provide him with swift medical care. . . . On vessels that do not carry a surgical staff, the ship's master has a duty, in the sound exercise of his judgment and depending on the circumstances, to have the seaman taken speedily to a hospital or the nearest port where surgical care may be obtained." Id. at 834. While the Overseas Progress did not have an absolute duty to provide the sailor with medical attention, it had a "manifest duty" to do so. Id. at 835.

Similarly, Con Edison had, if not an absolute, at least a manifest, duty to provide its customers with electricity. See, e.g., Park Abbott Realty Co. v. Iroquois Natural Gas Co., 102 Misc. 266, 168 N.Y.S. 673 (Sup. Ct. 1918) (utility must use best efforts), aff'd, 187 App. Div. 922, 174 N.Y.S. 914 (4th Dep't 1919). And as the district court found, based on the testimony of Con Edison's own officials, Con Edison has a general responsibility to provide electricity, one founded in its monopoly and the public service nature of its business. See Wolff Packing Co. v. Industrial Court, 262 U.S. 522, 535-36, 67 L. Ed. 1103, 43 S. Ct. 630 (1923); Munn v. Illinois, 94 U.S. 113, 124-30, 24 L. Ed. 77 (1876). Moreover, under the statutory law of New York Con Edison has a duty to "furnish and provide such service, instrumentalities and facilities as shall be safe and adequate and in all respects just and reasonable. . . ." N.Y. Pub. Serv. Law ยง 65(1) (McKinney 1955). Distinguishing its general duty to provide service from an absolute legal duty to pay damages to individual customers in particular circumstances would be hypertechnical and would ignore Con Edison's overriding responsibilities to the public. See People ex rel. Cayuga Power Corp. v. Public Service Commission, 226 N.Y. 527, 532, 124 N.E. 105, 106 (1919) (Cardozo, J.) (emphasizing that "the duty to serve the public goes hand in hand with the privilege of exercising a special franchise. . . ."). Since Con Edison was willing to pay a surcharge of the magnitude ultimately imposed by the district judge if the other utilities had paid an identical surcharge, it is clear that Con Edison itself believed that incurring such costs was well within the parameters of its manifest duty to provide electrical power to its customers.

The nature of Con Edison's duty to its customers aside, Con Edison also misperceives the nature of the duty which the AEC actually performed in this case. Con Edison improperly focuses exclusively on the Con Edison-customer relationship rather than on the Con Edison-AEC relationship. While Con Edison may be liable to its customers for damages from wrongful intentional cutoffs or accidental cutoffs when it has acted with gross negligence, that limitation on Con Edison's duty relates solely to damage claims between Con Edison and its customers for failure to supply electricity; it does not foreclose liability arising from a relationship between Con Edison and its supplier of electricity. The generalized duty to furnish electricity that flows from Con Edison's status as a government-regulated public service company imposes upon it the additional duty to make reasonable efforts to acquire additional electricity in time of need. This duty of acquisition, even if the ultimate object were to fulfill the separate duty of supplying its individual customers, is an independent obligation of Con Edison.

Con Edison's actions, moreover, belie its claim of no duty. Company officials went to significant (and we may say commendable) efforts to secure additional power. Luce and Chambers testified that Con Edison actively explored reactivation of an obsolete, expensive TVA steam generation system. The district court found: "In three days of frenzied activity by its highest officers, Con Edison sought out all possible sources of power and accepted 200 MW from the federal government in the face of AEC's clear indication that the AEC would seek recovery of its costs." 452 F. Supp. at 656.

In sum, then, we conclude that Section 115, with the gloss of Peninsular & Oriental, is not limited to cases of absolute duty, that in any event the proper focus here is on the Con Edison-AEC relationship rather than the Con Edison-customer relationship and that Con Edison had a manifest duty to acquire electrical power. We, therefore, reject Con Edison's contention that the AEC did not perform Con Edison's duty.*fn12

Con Edison's second principal objection to the Government's recovery under the emergency assistance doctrine is that recovery here improperly widens the concept of emergency. The thrust of Con Edison's contention is that while Con Edison confronted a very serious problem, it was not a problem of emergency dimensions within the contemplation of Section 115.

Specifically, Con Edison points out that Section 115 requires that the lack of electricity pose a threat to "public decency, health, or safety." Con Edison faced just such a threat during the summer of 1970. Even though Con Edison received 200 MW of AEC-released power which, as the district court found, constituted three per cent of Con Edison's peak load requirements, there were still "fourteen separate days during the summer of 1970" when "Con Edison reduced voltage by between three and five per cent." Bertram Schwartz testified in this regard that "when a voltage reduction goes as far as eight per cent, Con Edison's contingency plan is to begin load shedding."*fn13 On "six separate days between July 27, 1970 and September 28, 1970, Con Edison's reserve capacity was well under 200 MW. Indeed even with the 200 MW Con Edison was compelled to engage in eight per cent voltage reductions on three different days, and on September 22, 1970, Con Edison did in fact shed load." An eight per cent voltage reduction is no light matter. Load shedding is the equivalent of designated area blackouts.

Charles Luce testified that the situation confronting Con Edison was the most serious in his ten years with the company. The district judge stated:

Indeed, . . . if the situation were not an emergency, then Con Edison simply could have disconnected customers. Instead, in three days of frenzied activity by its highest officers, Con Edison sought out all possible sources of power. . . . Had the matter not been a true emergency to public welfare and safety, Con Edison could have simply "shed load." Thus, the Court finds the arguments presented on behalf of defendant to be at odds with the actions of its officers during the time at issue.

452 F. Supp. at 656. It is easy with the aid of hindsight to say that nothing serious happened. But this ignores the fact that Con Edison operated with 200 MW of AEC released power. When the decision to accept that power was made all officials concerned recognized that the situation was grave indeed. Con Edison's argument is a little like saying that, because the seaman in Peninsular & Oriental did not die of his heart attack, there was no need for emergency assistance at the time the request for aid was made. We therefore conclude that Con Edison faced an emergency within the meaning of Section 115.*fn14

Con Edison's attempt to limit the Peninsular & Oriental rationale to maritime situations and to its facts is similarly unpersuasive. As Chief Judge Kaufman's opinion made clear in that case, it was not applying some peculiarly maritime rule. On the contrary, the court took a more general equitable doctrine and applied it to a maritime context, using ...

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