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Posted: August 26, 2018

Town’s Promissory Estoppel Claim Against LIPA Fails

On August 16, 2018, Justice Emerson of the Suffolk County Commercial Division issued a decision in Town of Huntington v. Long Island Power Authority, 2018 NY Slip Op. 51206(U), dismissing the Town of Huntington’s promissory estoppel claim against LIPA, explaining:

The plaintiff raises promissory estoppel as an alternative theory to its breach-of- contract and third-party-beneficiary claims to hold the defendants liable for their purported failure to honor the promises made in § 21.16 of the PSA and the Extra-Contractual Promises.

Promissory estoppel is a narrow doctrine designed to enforce a contract in the interest of justice when some contract formation problem, such as the statute of frauds or a failure of consideration, would otherwise prevent enforcement. It is reserved for a limited class of cases where it would be unconscionable not to enforce the agreement. Third parties who are not intended beneficiaries of a contract can assert a promissory-estoppel claim in only the rarest of situations. Promissory estoppel does not apply when, as here, a commercially sophisticated third party has already been found to lack standing to enforce, or rely on, the contract language upon which the promissory-estoppel claim is predicated.

In any event, the court finds that the plaintiff has failed to establish its promissory-estoppel claim as a matter of law. To succeed, the plaintiff must establish (1) a clear and unambiguous promise, (2) reasonable and foreseeable reliance, and (3) an unconscionable injury sustained in reliance on the promise.

The plaintiff has failed to establish that its reliance on § 21.16 was reasonable. The record reflects that the plaintiff was aware that the language of § 21.16 did not accurately reflect the Extra-Contractual Promises that had been made. The plaintiff received copies of Special Counsel Allan Hyman’s letter dated May 20, 1997, and Lorraine Deller’s memorandum dated May 23, 1997, advising the school districts, inter alia, that the language of § 21.16 did not adequately protect their tax base, that it did not preclude future tax challenges, and that they should expect large decreases in their tax receipts. The plaintiff also received copies of letters dated May 23 and 28, 1997, from the Superintendent of the Northport-East Northport School District to Seth Hulkower, LIPA’s Executive Director, expressing concern that the language of § 21.16 did not reflect the promises that had been made and seeking to get the language changed. Moreover, by a letter dated July 21, 1997, to Richard Kessel, the Huntington Town Supervisor sought confirmation that his understanding of the provisions of the LIPA-LILCO agreement relating to the assessment of the Northport power plant was correct. Those communications evince that the plaintiff knew it could not rely on § 21.16 as drafted.

Insofar as the plaintiff seeks to enforce the Extra-Contractual Promises, the court has already determined that those promises were too inconsistent and too indefinite to be enforceable. They, therefore, do not constitute a clear and unambiguous promise. Moreover, any reliance by the plaintiff on the Extra-Contractual Promises after 2010, and especially after 2013, was unreasonable. Once the first tax certioraris were filed in 2010, the plaintiff was put on notice that the defendants had changed their policy and that they would no longer abstain from challenging taxes on GENCO properties. After the PSA expired in 2013, the Amended PSA expressly provided that neither party had any obligation to third parties. The plaintiff even acknowledged in a letter dated November 9, 2010, to Michael Hervey, LIPA’s Chief Operating Officer, that the agreement between LIPA and National Grid to refrain from challenging taxes expired in 2013.

In view of the foregoing, the court finds that no unconscionable injury or injustice will result in allowing the defendants to proceed with their tax-certiorari claims.

(Internal citations omitted).

Promissory estoppel is a claim based on rights under a promise that, for whatever reason, did not result in a binding contract. As this decision shows, it is a narrow doctrine. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where there is a dispute over payment for work that was not covered by a contract.

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Posted in Commercial, Contracts
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