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COUNTY OF SUFFOLK v. LONG ISLAND LIGHTING CO.

January 14, 1983

COUNTY OF SUFFOLK, in behalf of itself and all other ratepayers of the Long Island Lighting Company similarly situated, Plaintiff,
v.
LONG ISLAND LIGHTING COMPANY, GENERAL ELECTRIC CORPORATION, STONE & WEBSTER ENGINEERING CORP., COURTER & COMPANY INCORPORATED, DRAVO UTILITY CONSTRUCTORS, INC. and COMSTOCK-JACKSON, Defendants


John R. Bartels, United States District Judge.


The opinion of the court was delivered by: BARTELS

JOHN R. BARTELS, United States District Judge

This matter is before the Court on a motion to dismiss for failure to state a claim upon which relief can be granted, Fed.R.Civ.P. 12(b)(6). On October 27, 1982, this Court denied plaintiff's motion to remand the action to state court, holding that plaintiff's allegations of noncompliance by defendants with the safety regulations of the Nuclear Regulatory Commission (the "NRC") presented questions "arising under" the federal law. The question now presented is whether an action seeking common law, legal and equitable relief for defendants' alleged negligence, breach of contract and warranty, and misrepresentation and concealment relating to the design and construction of a nuclear power plant can survive under federal and state law.

 Background

 The Shoreham Nuclear Power Station ("Shoreham") emerged from the drawing boards of defendant Long Island Lighting Co. ("LILCO") back in 1967. The following year LILCO applied to the NRC's predecessor agency, the Atomic Energy Commission ("AEC"), *fn1" for a construction permit, as required under the Atomic Energy Act, as amended, 42 U.S.C. §§ 2011 et seq. (the "AEA"). In April, 1973, after review by the AEC staff and the Advisory Committee on Reactor Safety ("ACRS"), *fn2" and after three years of exhaustive adjudicatory proceedings before the Atomic Safety and Licensing Board ("ASLB"), the construction permit was issued. The construction phase of Shoreham activated the AEC's, and then NRC's, Inspection Program, a predefined, systematic program that continues to date and has involved 146 regular and 3 special inspections and the expenditure of approximately 1200 inspection man-days through May, 1982. A NRC resident inspector was permanently assigned to Shoreham for daily inspection purposes as of September 30, 1979, and in June, 1982, LILCO hired Torrey Pines Technology to make another separate inspection.

 In January, 1976, LILCO applied to the NRC for a license to operate Shoreham (NRC Docket No. 50-322(OL)). Plaintiff, the County of Suffolk, intervened in the operating license proceedings in 1977, and remains a participant in them, including the ongoing ASLB hearings that commenced in May, 1982. As things currently stand, construction of Shoreham is nearing completion, and LILCO hopes to undertake fuel loading sometime in 1983. In the meantime, LILCO's operating license application remains under consideration pending the outcome of the NRC's review procedures.

 The cost history of Shoreham has brought the phrase "cost escalation" to new heights. In 1969, LILCO projected that construction of Shoreham would cost $ 261 million. A mid-1982 LILCO estimate pushes Shoreham's price tag over the $ 2.5 billion mark. In order to alleviate this tremendous financial burden, LILCO has applied to the New York State Public Service Commission ("PSC") for the inclusion of part of the construction costs in LILCO's rate base prior to Shoreham's going on line. To date, the PSC has permitted inclusion of $ 355 million in Construction-Work-in-Progress ("CWIP") costs in LILCO's rate base, and is currently proceeding to establish the ratemaking principles that will govern absorption of the remainder of Shoreham's costs into the rate base once Shoreham goes into operation (Case No. 28252). In addition, the PSC is separately investigating responsibility for the steep escalation in Shoreham's costs (Case No. 27563). Plaintiff has been and continues to be an active participant in all these proceedings, and in one case unsuccessfully sought judicial reversal of the PSC's decision to include $ 200 million worth of CWIP in LILCO's rate base. See Consumer Protection Board v. Public Service Commission, 78 A.D.2d 65, 434 N.Y.S.2d 820 (3d Dep't 1980) ("Article 78" proceeding to review final determination of an administrative agency).

 The Complaint

 Plaintiff commenced this putative class action in the Supreme Court of the State of New York, Suffolk County, on June 23, 1982. On July 12, 1982, defendants LILCO, General Electric Corp. ("G.E."), Stone & Webster Engineering Corp. ("S&W"), Dravo Utility Constructors, Inc. ("Dravo"), and Comstock-Jackson ("C-J") removed the action to this Court on the ground that the complaint set forth claims arising under federal law, to wit, the AEA. Thereafter, plaintiff moved to remand the action to state court, contending that the complaint set forth state-based common law claims only. On October 27, 1982, this Court denied plaintiff's motion, holding that federal jurisdiction existed in view of the complaint's critical reliance on violation of NRC-promulgated regulations in establishing plaintiff's right to relief. Thereafter, on November 17, 1982, defendants gave notice of their motion to dismiss, and extensive oral arguments were held thereon.

 The Court outlined in its October 27th opinion *fn3" the structure and substance of the complaint. To summarize, the complaint contains numerous allegations of deficiencies in Shoreham's design and construction, most of them bottomed on non-compliance with the AEA's implementary regulations. Four causes of action are set forth, denominated as negligence, strict liability/breach of warranty, breach of contract, and misrepresentation/concealment. The relief sought includes an injunction against commencement of Shoreham's operation pending the outcome of a proposed court-supervised design review and physical inspection, and recovery of electric rate "overcharges" reflecting increases in Shoreham's construction costs.

 Defendants argue that the complaint seeks to ensure the radiological safety of a nuclear facility, and as such is preempted by the AEA and its regulatory scheme, which entrusts adjudication of such claims to the NRC in the first instance. In support of their argument, defendants point to the inspection and operating suspension sought as relief, contending that such relief is solely and necessarily designed to establish whether Shoreham is free of safety defects that would endanger the lives and property of Long Island residents. *fn4" In fact, defendants maintain that plaintiff's assertion that the inspection is needed to quantify damages arising primarily from negligence is nothing more than an attempt to "bootstrap" its allegations into a court-supervised inspection of Shoreham to determine its radiological hazards and safety. Defendants also characterize the complaint as attempting to assert a private cause of action under the AEA, something that both sides agree does not exist. Finally, defendants contend that plaintiff's claim for damages based on the costs of design and construction defects is simply a challenge to PSC ratemaking, and as such can only be adjudicated before the PSC in the first instance.

 In reply, plaintiff insists that the complaint sets forth a "pocketbook" action for damages due to unnecessary and extravagant increased costs of construction that only incidentally relates to the radiological safety of Shoreham. It adds that the inspection and operating suspension during the interim which it seeks merely constitute a first, essential step in gathering information for the purpose of quantifying damages. Plaintiff denies that the complaint either attempts to set forth a private cause of action under the AEA, or sets forth claims that are preempted by the AEA. It cites the Price-Anderson Act, 42 U.S.C. § 2210, and its legislative history for the propositions that the AEA left state tort and contract law intact except in the narrow case of an extraordinary nuclear occurrence, and that tort and contract actions may be maintained between private parties in disputes involving the construction and operation of nuclear facilities. Finally, plaintiff argues that neither the NRC nor the PSC has jurisdiction to adjudicate "damage claims" between itself and the defendants.

 Federal Preemption

 Jurisdiction over this case arises under 28 U.S.C. §§ 1331 and 1337. As heretofore stated, plaintiff has cast its complaint into four causes of action - negligence, breach of warranty, breach of contract, and misrepresentation. The alleged cause of action for negligence seems to be the predominant claim, although they all are subject to the attack of preemption. Therefore the threshold issue is whether these alleged causes of action are preempted under the Atomic Energy Act of 1954, as amended, 42 U.S.C. §§ 2011 et seq. The preemption doctrine is founded on article 6, clause 2, of the United States Constitution, the "supremacy clause," and expressly makes the Constitution and the laws of the United States the supreme law of the land binding upon judges in every state. See Pennsylvania v. Nelson, 350 U.S. 497, 100 L. Ed. 640, 76 S. Ct. 477 (1956); Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 91 L. Ed. 1447, 67 S. Ct. 1146 (1947). Preemption may occur in a number of ways including by express statutory language, Jones v. Rath Packing Co., 430 U.S. 519, 51 L. Ed. 2d 604, 97 S. Ct. 1305 (1977); legislative history, Rice v. Santa Fe Elevator Corp., supra; or by reason of conflict between federal and state regulations when compliance with both is impossible, Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 10 L. Ed. 2d 248, 83 S. Ct. 1210 (1963). Even when federal law is found to be preemptive, state law is invalid only to the extent that it clearly has been preempted. Pacific Legal Foundation v. State Energy Resources Conservation & Development Commission, 659 F.2d 903 (9th Cir. 1981), cert. denied, 457 U.S. 1133, 102 S. Ct. 2959, 73 L. Ed. 2d 1350, cert. granted in Pacific Gas and Electric Co. v. State Energy Resources Conservation & Development Commission, 457 U.S. 1132, 102 S. Ct. 2956, 73 L. Ed. 2d 1348 (1982).

 Since the allegations of the complaint involve the construction and operation of a nuclear reactor, they concern radiological hazards and safety, a field that the AEA's legislative history and judicial construction indicate is preempted by federal law. A brief reiteration of the authorities is sufficient. The landmark and leading case on the subject is Northern States Power Co. v. Minnesota, 447 F.2d 1143 (8th Cir. 1971), aff'd, 405 U.S. 1035, 31 L. Ed. 2d 576, 92 S. Ct. 1307 (1972). There, the State of Minnesota imposed certain conditions regulating radiation levels for a waste disposal permit of a nuclear utilization facility substantially more stringent than those imposed by the AEC. The Eighth Circuit thoroughly analyzed the legislative history of the AEA and its amendments, as well as the pervasive federal regulatory schemes covering the construction and licensing of atomic energy plants. Although dual compliance with both AEC and state regulations was possible, the court found that the federal regulation was exclusionary. It specifically held that Congress, by its 1959 amendments to the AEA, 42 U.S.C. § 2021(b), (c), and (k), expressed an intent to deprive the states of any authority to regulate radiation hazards associated with the construction and operation of nuclear facilities except when a state entered an agreement with the AEC pursuant to § 2021(b), and then only transferring to the state authority over byproduct, source, and special nuclear material in quantities insufficient to form a critical mass. This preemption analysis has been applied in a number of cases involving atomic energy plants. See, e.g., Simmons v. Arkansas Power and Light Co., 655 F.2d 131 (8th Cir. 1981) (a private litigant cannot shut down a nuclear plant pending development of an emergency plan for dealing with reactor accidents); Liesen v. Louisiana Power and Light Co., 636 F.2d 94 (5th Cir. 1981) (a private litigant cannot enjoin construction of a nuclear power plant claiming violations of AEA standards and regulations); Susquehanna Valley Alliance v. Three Mile Island Nuclear Reactor, 619 F.2d 231 (3d Cir. 1980), cert. denied, 449 U.S. 1096, 101 S. Ct. 893, 66 L. Ed. 2d 824 (1981) (private litigants cannot enjoin nuclear plant operators based upon allegations of a plan to release radioactive water into the Susquehanna River); Lower Alloways Creek Township v. United States Nuclear Regulatory Commission, 481 F. Supp. 443 (D.N.J. 1979) (private action to restrict the utility's proposed expansion of waste storage capacity denied); United States v. City of New York, 463 F. Supp. 604 (S.D.N.Y. 1978) (the New York City Health Code requiring a city license concerning a nuclear reactor preempted by the AEA); City of Cleveland v. Public Utilities Commission of Ohio, 64 Ohio St.2d 209, 414 N.E.2d 718 (1980) (Public Utilities Commission preempted by AEA from ordering shutdown of a nuclear plant to prevent charging ratepayers the costs of operating that particular plant); New Jersey Department of Environmental Protection v. Jersey Central Power & Light Co., 69 N.J. 102, 351 A.2d 337 (1976) (operator of ...


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