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County of Suffolk v. Long Island Lighting Co.

decided: January 25, 1984.

COUNTY OF SUFFOLK, ET AL., PLAINTIFF-APPELLANT,
v.
LONG ISLAND LIGHTING COMPANY, GENERAL ELECTRIC COMPANY, STONE & WEBSTER ENGINEERING CORPORATION, COURTER & COMPANY, INC., DRAVO UTILITY CONSTRUCTORS, INC., AND COMSTOCK-JACKSON, DEFENDANTS-APPELLEES



Appeal from an order and judgment of the United States District Court for the Eastern District of New York, John R. Bartels, Judge, dismissing pursuant to Fed. R. Civ. P. 12(b)(6) appellant's class action seeking injunctive and rate relief.

Kearse, Cardamone and Winter, Circuit Judges.

Author: Cardamone

CARDAMONE, Circuit Judge:

On this appeal we consider the dismissal by the United States District Court, 554 F. Supp. 399, for the Eastern District of New York of Suffolk County's complaint, instituted on behalf of the county's electric utility ratepayers, against the operation by Long Island Lighting Company of its Shoreham Nuclear Power Facility. The uncertainty about whether such a power plant can be operated safely has stirred deep public concern. Shoreham's critics contend that as the beauty of the Acropolis symbolizes the Golden Age of ancient Greece, an unsightly, deserted nuclear power plant will symbolize Twentieth Century America. Its defenders claim that a safe-working nuclear plant producing electricity, as in France, Britain, Japan and Germany, will free America from dependence on foreign oil and symbolize the triumph of technology over the loss of natural resources. We are not called upon to answer these questions involving large benefits and risks within which this appeal arises, but to decide whether the district court properly dismissed plaintiff's complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. We affirm Judge Bartel's decision.

I -- BACKGROUND

On behalf of a class of approximately 800,000 ratepayers, plaintiff County of Suffolk (Suffolk) seeks injunctive and rate relief against Long Island Lighting Company (LILCO) and several major contractors involved in the construction of the Shoreham Nuclear Power Facility (Shoreham). Grounded in common law tort and contract principles, the complaint alleges that defendants' negligence caused serious defects in the design and construction of Shoreham and that those defects, in turn, caused unreasonable escalations in the cost of the facility. Accordingly, plaintiff asked the trial court to order an inspection of the facility, enjoin its operation, enjoin LILCO from including in its rate base costs attributable to the alleged defects and order LILCO to refund payments that correspond to prior increases in its rate base. The district court concluded that plaintiff's claims were preempted by federal and state law and therefore dismissed the complaint, leaving plaintiff to its administrative remedies.

In 1967 the defendant Long Island Lighting Company designed the Shoreham Nuclear Power Station. The following year LILCO applied to the Atomic Energy Commission (AEC) -- predecessor of the Nuclear Regulatory Commission (NRC) -- for a construction permit as required by the Atomic Energy Act of 1954, as amended, 42 U.S.C. ยงยง 2011 et seq. (the AEA or the Act). After two years of review by the AEC staff and the Advisory Committee on Reactor Safety, and three years of adjudicatory hearings before the Atomic Safety and Licensing Board, a construction permit issued.

The construction of Shoreham has been an incredibly costly endeavor. In 1969 LILCO projected total construction costs of $261 million. Cost escalations and overruns have pushed Shoreham's pricetag to 15 times the original estimate or over $4 billion. To alleviate its financial burden, LILCO applied to the New York State Public Service Commission (PSC) for part of these construction costs to be included of $355 million in construction work-in-progress costs. And it is presently considering the ratemaking principles that will govern the absorption of Shoreham's remaining costs into LILCO's rate base. In addition, the PSC launched an investigation into the dramatic escalation of Shoreham's costs. Appellant Suffolk has been a party in these administrative proceedings and, in fact, already suffered one setback in state court when it unsuccessfully sought to overturn part of the PSC's inclusion -- some $200 million -- of costs in LILCO's rate base. Consumer Protection Board v. Public Service Commission, 78 A.D.2d 65, 434 N.Y.S. 2d 820 (3d Dep't 1980), motion for leave to appeal denied, 53 N.Y.2d 607 (1981).

LILCO applied to the NRC in January 1976 for a license to operate Shoreham. As with the PSC hearings, Suffolk subsequently intervened in the NRC licensing proceedings and is currently a participant. At the time of this appeal, the construction of Shoreham is not yet completed, although LILCO had hoped to begin fuel loading during 1983. In the meantime, LILCO's operating license application remains under consideration before the NRC.

Despite Suffolk's ongoing involvement in the state and federal administrative proceedings, it initiated this putative class action in New York State Supreme Court on June 23, 1982. Defendants immediately removed the action to the United States District Court for the Eastern District of New York on the ground that plaintiff's claim arose under federal law -- the Atomic Energy Act. Plaintiff sought a remand to the state court, but the district court retained jurisdiction holding that plaintiff's right to relief hinged on whether LILCO had violated NRC-promulgated regulations. County of Suffolk v. Long Island Lighting Co., 549 F. Supp. 1250 (E.D.N.Y. 1982). On November 17, 1982 defendants moved to dismiss the complaint for failure to state a claim upon which relief can be granted, Fed. R. Civ.P. 12(b)(6). On January 14, 1983 Judge Bartels granted the motion in a published opinion. County of Suffolk v. Long Island Lighting Co., 554 F. Supp. 399 (E.D.N.Y. 1983).

To say that Suffolk's 33 page complaint is comprehensive would be an understatement. Briefly summarized, it alleges negligence, strict liability, breach of contract, and misrepresentation and concealment on the part of all the defendants involved in the construction and supervision of Shoreham. The specifics of these allegations, too numerous to detail, run the gamut from managerial neglect to conspiracy to industrial sabotage. The gist of Suffolk's complaint is that defendants have caused such serious defects in the Shoreham facility as to have posed a substantial risk to the public safety and to have contributed to the unreasonable cost escalations that plaintiff class will eventually bear in higher electric rates. For relief Suffolk seeks: a physical inspection of all systems of Shoreham essential to safety, reliability and economy of operation; retroactive and prospective rate relief in the form of money damages for past overcharges and an injunction against the inclusion in LILCO's rate base of any construction costs attributable to design or construction defects; and an injunction against commencement of Shoreham's operation pending an inspection and final judicial disposition of these proceedings.

The district court offered three alternative justifications for its dismiss of Suffolk's complaint. It found that plaintiff's claims were essentially safety based and thus preempted by the NRC's regulatory authority under the Act. Further, the rate relief was subject to the exclusive jurisdiction of the PSC and consequently preempted under New York statutory law. Finally, the district court declared as a matter of law that even were federal and state preemption not applicable, the facts alleged in the complaint did not support any of plaintiffs' claimed common law causes of action.

II. ANALYSIS

Contending that the trial court erroneously dismissed its complaint, Suffolk seeks to refute each of the three grounds upon which dismissal was predicated. First, it argues, the Atomic Energy Act does not preempt its tort and contract claims because those claims are not directed at radiological safety hazards -- an area concededly reserved to the NRC -- but rather at the "pocketbook" issue of unreasonable and excessive cost. Second, appellant asserts that the New York Public Service Law does not preempt its claims because these same tort and contract actions fall outside the PSC's jurisdiction. Hence, the argument continues, absent an available administrative remedy, the courts should entertain appellant's claims. Third, appellant urges that its common law causes of action for negligence, strict liability, breach of contract, and misrepresentation and concealment are legally sufficient.

We shall deal with each of these arguments in turn. Because the complaint was dismissed for failure to state a claim, we accept as true all material factual allegations of the complaint and construe its terms in favor of the plaintiff. Scheuer v. ...


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