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Appellate Division holds that Town may be third-party beneficiary of a provision limiting the generator’s right to appeal property tax assessments

Appellate Division holds that Town may be third-party beneficiary of a provision limiting the generator’s right to appeal property tax assessments in a supply agreement between an energy generating company and a power authority.

In June 1997, Long Island Lighting Company entered into a “Power Supply Agreement” with Long Island Power Authority, whereby the Company agreed to sell and deliver to the Authority energy produced from its power generating facilities in Nassau and Suffolk Counties, including certain facilities located in the Town of Huntington. Under § 21.16 of the agreement, the Company was only entitled to challenge property tax assessments on its “Generating Facilities … if the assessment on any such challenged facilities is increased not in an appropriate proportion to the increase in value related to taxable capital additions affixed to the tax parcel between the last two tax status dates.” In October 2010, during the term of the Agreement, the Authority commenced a tax certiorari proceeding to challenge tax assessments levied against “the Northport facilities” which were located within the Town.

In May 2011, the Town commenced this action to recover damages for breach of contract against the Authority and the Company. The Town alleged that it was an intended third-party beneficiary of the Agreement, and the Authority was precluded from bringing the tax certiorari proceeding because the specific condition stated in that section of the Agreement was not applicable. The Authority and the Company moved to dismiss, on the basis that any benefit accruing to the Town from that provision was merely incidental.

In support of their motion, the Authority and the Company submitted the Agreement, which they contended established as a matter of law that the Town was not an intended third-party beneficiary. In opposition, the Town submitted an affidavit from the Town Supervisor stating that the Supervisor had discussions with the Chairman of Authority prior to the issuance of the Agreement regarding his concerns “about the potential of the Authority filing tax certioraris,” that the Chairman had “promised to work with the Town … to make sure [it] w[as] protected in the Agreement,” and that § 21.16 of the Agreement was included “for the direct benefit of the Town” based on those discussions. This affidavit incorporated by a reference a letter dated August 6, 1997, in which the Chairman advised the Supervisor that upon the issuance of the Agreement, “all pending certiorari proceedings against the Town … will be withdrawn,” with no challenge to any tax assessments “[i]n the future,” except under certain circumstances not here relevant.

The Court held that in the absence of any language in the Agreement expressly negating enforcement by third parties, it could not be said that the documentary evidence submitted by the defendants “utterly refutes” the Town’s allegation, and affirmed the denial of the motion to dismiss.

Town of Huntington v Long Island Power Authority, 12 N.Y.S.3d 912, 2015 N.Y. Slip Op. 06332 (July 29, 2015).

Note: The Supreme Court, Appellate Division, reached a similar conclusion in Board of Education of Northport – East Northport Union Free School District v. Long Island Power Authority, 130 A.D.3d 953, 14 N.Y.S.3d 450, 320 Ed. Law Rep. 355, 2015 N.Y. Slip Op. 06304 (July 29, 2015), where it denied a motion to dismiss a school district’s breach of contract claim that a utility’s commencement of a tax certiorari proceeding violated the terms of a power supply agreement between the utilities, to which theschool district was an intended third-party beneficiary.

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