The opinion of the court was delivered by: Weinstein, Senior District Judge.
MEMORANDUM, FINDINGS OF FACT, CONCLUSIONS OF LAW, ORDER, AND
I INTRODUCTION _________________________________________________ 189
II FACTS ________________________________________________________ 189
III JURISDICTION _________________________________________________ 191
IV INTERPRETATION OF THE STIPULATION ____________________________ 192
V STATUTE OF LIMITATIONS _______________________________________ 195
VI LAW OF THE CASE ______________________________________________ 195
VII INTEREST _____________________________________________________ 196
VIII ATTORNEYS' FEES ______________________________________________ 196
IX CONCLUSION ___________________________________________________ 196
The Class seeks a declaration interpreting the judgment and
stipulation of settlement of a RICO class action and False Claims
action ("Stipulation"). See County of Suffolk v. Long Island
Lighting Co., 710 F. Supp. 1428, 1452-66 (E.D.N.Y. 1989)
(Stipulation appended). It contends that the Long Island Lighting
Company and its successors, including Keyspan Corporation
("LILCO"), are required to pay the Class approximately $21.5
million more than LILCO intends to pay. Additionally requested
are interest on past due amounts and attorneys' fees.
LILCO responds that the $21.5 million is being provided to
ratepayers in the form of reduced taxes on their electric bills.
Essentially, LILCO contends that the tax benefits reaped by the
Class as a result of rate reductions resulting from the RICO
class action are appropriately included in the $390 million
aggregate settlement LILCO agreed to pay.
The Class is entitled to the relief it seeks.
A decade ago LILCO was in serious financial trouble as a result
of its construction of the Shoreham nuclear power plant.
Ratepayers had brought a class action alleging that LILCO and
those associated with it had fraudulently obtained rate increases
from the New York State Public Service Commission (PSC) by making
deliberate misrepresentations to the PSC respecting Shoreham.
Extensive litigation followed. See, e.g., County of Suffolk v.
Long Island Lighting Co., 710 F. Supp. 1428 (E.D.N.Y. 1989)
[LILCO I] (approving settlement); County of Suffolk v. Long
Island Lighting Co., 710 F. Supp. 1487 (E.D.N.Y. 1989) [LILCO
II] (final judgment); County of Suffolk v. Long Island Lighting
Co., 710 F. Supp. 1387 (E.D.N.Y. 1989) (dismissing claims by
Suffolk County), aff'd as modified, 907 F.2d 1295 (2d Cir.
1990); County of Suffolk v. Long Island Lighting Co.,
685 F. Supp. 38 (E.D.N.Y. 1988) (standing to bring suit); see also
County of Suffolk v. Long Island Lighting Co., 14 F. Supp.2d 260
(E.D.N.Y. 1998) (rejecting modifications of Stipulation to allow
acceleration of payments); County of Suffolk v. Long Island
Lighting Co., Civ. No. 87-0646, 1995 WL 761828 (Dec. 19, 1995)
(extending life of Citizens Advisory Panel), aff'd sub nom,
County of Suffolk v. Stone & Webster Engineering Corp.,
106 F.3d 1112 (2d Cir. 1997) [LILCO III].
Faced with the substantial possibility that it would be liable
to pay a judgment for billions of dollars — resulting in
bankruptcy — LILCO settled the suit. LILCO agreed to pay "the sum
of Three Hundred Ninety Million Dollars ($390,000,000) in the
form of (i) rate reductions, and (ii) payments to Former
Ratepayers." Stipulation ¶ 2(a). The $390 million figure was
arrived at after intense negotiations by the parties with the aid
of the court-appointed Special Master.
Payments were to be made over a ten year period, with the
largest payments ballooning in the latter years. The amount and
terms of the payments were fixed at a level that it was believed
the stock and capital markets would recognize as reasonable, thus
avoiding further injury to LILCO's financial standing. There was
a concern that setting the aggregate settlement payment too high
would result in a "boomerang effect," that is to say, a higher
settlement would have unsettled the financial markets causing
LILCO to pay exorbitant interest on needed loans, in turn
requiring LILCO to charge higher electric rates to cover these
costs. As the decision approving the settlement put it:
higher payments in the RICO settlement would present
a serious danger to LILCO by threatening investor
confidence in the financial health of the utility.
This would lead to higher interest rates if LILCO's
bonds were not certified as of investment quality.
The higher interest rates would, in turn, under
standard PSC practice, be charged back to ratepayers
as allowable utility costs. These additional costs
would then, the experts for the PSC concluded, more
than outweigh any increased level of payments above
the schedule set out. . . .
LILCO I, 710 F. Supp. at 1434.
The settlement worked. LILCO has prospered.
The Stipulation, settlement and judgment are specific about the
amount that was to be paid by LILCO to ratepayers.
LILCO shall pay to the Ratepayer Class . . . the
sum of Three Hundred Ninety Million Dollars
($390,000,000) in the form of . . . rate reductions.
. . . (Stipulation ¶ 4(a)).
The annual rate reductions required by the
Stipulation shall be accomplished in accordance with
the following schedule, commencing on the month and
June 1990 ---- $20 million
June 1991 ---- $20 million
June 1992 ---- $20 million
June 1993 ---- $30 million
June 1994 ---- $30 million
June 1995 ---- $40 million
June 1996 ---- $50 million
June 1997 ---- $60 million
June 1998 ---- $60 million
June 1999 ---- $60 million
[Total = $390 million]
Instead of paying the sums due under the schedule, LILCO has
paid less, leading to a deficit that will amount to more than
$21.5 million by May 31, 2000. The following table sets out the
monthly installments made by LILCO, the resulting monthly tax
"reduction," and the total monthly bill "reduction" to the Class.
Class Settlement Amounts
Claimed as Payments by LILCO
(1) (2) (3)
Base Rate Savings to Aggregate
Reduction Ratepayers Reduction
paid by from Revenue in Ratepayers'