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DANIEL J. SULLIVAN ET AL. v. COUNTY BUCKS AND NESHAMINY WATER RESOURCES AUTHORITY. NESHAMINY WATER RESOURCES AUTHORITY (10/11/85)

COMMONWEALTH COURT OF PENNSYLVANIA


decided: October 11, 1985.

DANIEL J. SULLIVAN ET AL.
v.
COUNTY OF BUCKS AND NESHAMINY WATER RESOURCES AUTHORITY. NESHAMINY WATER RESOURCES AUTHORITY, APPELLANT. NORTH WALES WATER AUTHORITY AND NORTH PENN WATER AUTHORITY V. NESHAMINY WATER RESOURCES AUTHORITY AND COUNTY OF BUCKS AND COUNTY OF MONTGOMERY AND PHILADELPHIA ELECTRIC COMPANY. NESHAMINY WATER RESOURCES AUTHORITY, APPELLANT. DANIEL J. SULLIVAN AND PHILADELPHIA ELECTRIC COMPANY, NORTH PENN WATER AUTHORITY AND NORTH WALES WATER AUTHORITY V. COUNTY OF BUCKS AND NESHAMINY WATER RESOURCES AUTHORITY. COUNTY OF BUCKS, APPELLANT

Appeals from the Orders of the Court of Common Pleas of Bucks County in case of Daniel J. Sullivan et al. v. County of Bucks et al., No. 84-8358, and in case of North Wales Water Authority et al. v. Neshaminy Water Resources Authority et al., No. 84-3273.

COUNSEL

Gordon W. Gerber, with him, John F. Flaherty, Jr., Fred T. Magaziner, Lois Reznick, Philip M. Kruger and George G. O'Brien, Dechert, Price & Rhoads, and Robert H. Yaroschuk, for appellant/appellee, Neshaminy Water Resources Authority.

Richard M. Rosenbleeth, with him, Glenn S. Gitomen, William E. Taylor, III, James W. McNamara and Robert J. Sugarman, for appellant/appellee, Bucks County.

Andrew C. Gay, with him, T. J. Scully, Gay and Chacker, for appellee/appellant, Daniel J. Sullivan et al.

Bernard Chanin, with him, Howard Gittis and Jeffrey Saltz, Wolf, Block, Schorr & Solis-Cohen, and Robert W. Valimont, Power, Bowen & Valimont, for appellee/appellant, Philadelphia Electric Company.

Frederick M. Wetz, for appellee/appellant, Montgomery County.

Jeremiah J. Cardamone, with him, Ann Thornburg Weiss, Timoney, Knox, Hasson & Weand, and Joseph Goldberg, Margolis, Edelstein, Scherlis, Sarowitz & Kraemer, for appellees, North Wales Water Authority and North Penn Water Authority.

President Judge Crumlish, Jr., and Judges Rogers, Craig, MacPhail, Doyle, Barry and Colins. Opinion by President Judge Crumlish, Jr. Judge Colins dissents. Judge Palladino did not participate in the decision in this case.

Author: Crumlish

[ 92 Pa. Commw. Page 216]

For our consideration and resolution herein are litigous challenges to the construction of facilities to supply water for cooling a nuclear generating station in Limerick, Montgomery County, Pennsylvania, and meeting the citizens' requirements of Bucks and Montgomery Counties.

This construction has inspired widespread public discussion and disagreement. Notwithstanding that vocal, philosophical and/or political dichotomy, we are obliged and intend to confine our consideration to the merits of the legal issues presented below.

Bucks County and the Neshaminy Water Resources Authority (NWRA) appeal a Bucks County Common Pleas Court order denying their exceptions

[ 92 Pa. Commw. Page 217]

    to its adjudication and decree nisi which entered a verdict against them and in favor of the Philadelphia Electric Company (PECO) and the North Penn (NP) and North Wales (NW) Water Authorities.

Daniel J. Sullivan, a taxpayer, appeals a Bucks County Common Pleas Court order granting the preliminary objections of Bucks County and NWRA and dismissing his third amended complaint.

The purpose of the Point Pleasant water diversion project is to construct a system by which Delaware River water could be withdrawn by the Point Pleasant Pumping Station and pumped through a combined transmission main to the Bradshaw Reservoir and Pump House (Bradshaw) where (1) water for public use by Bucks and Montgomery Counties would flow through the north branch transmission main and along the Neshaminy Creek to the north branch water treatment plant where it would be pumped, in part, to NP and NW and (2) supplemental cooling water for PECO's Limerick nuclear generating station would be pumped through the east branch transmission main and flow along the Perkiomen Creek to the Perkiomen Pump House where it would be withdrawn and pumped to Limerick. Supplemental cooling water is necessary because PECO is prohibited from using Schuylkill River water for several months each year.

PECO and NWRA entered into a Construction and Operation Agreement by which NWRA agreed to construct and maintain the Point Pleasant Pumping Station and combined transmission main, PECO assumed responsibility for constructing Bradshaw (where it agreed to store and release water to flow through the north branch transmission main, at no cost to NWRA) and NWRA assumed sole responsibility for the north branch transmission main. The agreement provides that the project's ultimate capacity

[ 92 Pa. Commw. Page 218]

    is to be 95 million gallons per day (mgd), 49 mgd for NWRA and 46 mgd for PECO. To the extent necessary to insure operation and maintenance of the Point Pleasant Pumping Station and combined transmission main, this agreement provides for assignment by NWRA to Bucks County. The agreement was executed by the required majority of the Bucks County Commissioners.

NWRA, Bucks County and Montgomery County entered into a Water Sales Agreement by which Bucks County agreed to construct (or cause to be constructed by NWRA) the Point Pleasant Pumping Station and combined transmission main and NWRA agreed to construct the north branch transmission main. This agreement provides that 46 mgd is reserved for PECO, in accordance with the Construction and Operation Agreement, while 29.4 mgd is reserved for Montgomery County and 19.6 mgd is reserved for Bucks County. The trial court found that the water reserved for Montgomery County was intended primarily for the benefit of NP and NW, both of which entered into contracts for the water with Montgomery County simultaneously with the execution of the Water Sales Agreement. Montgomery County itself operates no water treatment or delivery facilities.

Later, Bucks County purported to terminate its Construction and Operation Agreement with PECO, demanded that NWRA stop construction of the Point Pleasant Pumping Station and combined transmission main and purported to terminate its obligation to supply water to Montgomery County. Construction recommenced after a thirty-day moratorium. However, the Bucks County Commissioners next passed Ordinance No. 59 which purported to require NWRA to convey the Point Pleasant project to Bucks County (apparently so that they could stop the project).

[ 92 Pa. Commw. Page 219]

Thereafter, the NWRA ordered a second suspension of construction and passed a resolution questioning the validity of the Construction and Operation and Water Sales Agreements. Finally, Bucks County passed a resolution directing NWRA to delete the project from its water supply system.

The trial court's adjudication ordered that (1) NP and NW be assigned ownership of and complete the north branch transmission main and water treatment plant and that portion of the western transmission facilities necessary to transport water to them and that NP and NW reimburse Bucks County and NWRA for all properly incurred costs of these facilities, (2) NWRA complete construction of the Point Pleasant Pumping Station and the combined transmission main and (3) Bucks County comply with its contractual obligations, under the Construction and Operation and Water Sales Agreements, to insure completion of the Point Pleasant Pumping Station and the combined transmission main.

Our scope of review in equity matters is limited to a determination of whether the Chancellor committed an error of law or abused his discretion. Sack v. Feinman, 489 Pa. 152, 413 A.2d 1059 (1980). We will not disturb his findings unless they are unsupported by the evidence or demonstrably capricious. Harrisburg School District v. Pennsylvania Interscholastic Athletic Association, 453 Pa. 495, 309 A.2d 353 (1973).

The major contentions of Bucks County and NWRA are that (1) the Construction and Operation and Water Sales Agreements are invalid, not binding and unenforceable, (2)(a) PECO is not a third-party beneficiary to the Water Sales Agreement, despite its relationship to the Construction and Operation Agreement, and therefore has no standing to enforce

[ 92 Pa. Commw. Page 220]

    it and (b) NP and NW are not third-party beneficiaries to the Water Sales Agreement and therefore have no standing to enforce either agreement, (3) Bucks County and NWRA have breached neither agreement, (4) specific performance is not the appropriate relief, (5) NP and NW are not entitled to assume ownership of and complete the north branch transmission main and water treatment plant and that portion of the western transmission facilities necessary to transport water to them and (6) President Judge Garb improperly refused to recuse himself.

Sullivan argues that the common pleas court erred by granting Bucks County and NWRA's preliminary objections and dismissing his third amended complaint.

We will examine each legal issue seriatim.*fn1

Validity

Bucks County and NWRA contend that the project will predominantly serve the private interests of PECO,*fn2 allowing it to thwart the public interest of Bucks County. However, we agree with the trial court's holding that the agreements serve important and legitimate public purposes, specifically supplying water to Bucks and Montgomery Counties, and therefore are not invalid or ultra vires under the Municipality

[ 92 Pa. Commw. Page 221]

Authorities Act of 1945 (Act),*fn3 because they benefit the public, and not primarily a private endeavor. See Price v. Philadelphia Parking Authority, 422 Pa. 317, 333, 221 A.2d 138, 147 (1966) (the parking authority was empowered to act only for the public benefit and could not employ its resources for the primary and paramount benefit of a private endeavor). Bucks County and NWRA rely heavily on Price to support their position that PECO would receive the primary benefits of the project. In that case, Philadelphia was barred from the joint construction of a parking garage with an apartment building developer because the developer, not the public, was receiving the primary benefit. However, this case is distinguishable from Price. Here, the amount of water reserved for PECO (46 mgd) is less than that to be used by Bucks and Montgomery Counties.*fn4 Moreover, the sale of water to PECO is critical to the viability of Bucks County's entire water management program.*fn5 Finally, unlike the developer in Price, PECO operates in the public sector. Even the water received by PECO would be devoted to generating electricity for use of the general public.

Bucks County and NWRA also argue that the agreements grant PECO, NP and NW an improper

[ 92 Pa. Commw. Page 222]

    loan. Again, we agree with the trial court's holding that the agreements are predominantly for public purposes and, therefore, do not violate the constitutional prohibition, against a government's use of its credit to finance a private entity.*fn6

Bucks County and NWRA further contend that the Construction and Operation Agreement, in effect, allows PECO to exercise governmental powers. We hold, however, that while it allows PECO limited input*fn7 concerning the implementation of Bucks County's

[ 92 Pa. Commw. Page 223]

"proprietary" contracts,*fn8 it permits no interference with discretionary governmental functions and, therefore, constitutes no improper delegation of governmental authority as proscribed in PA. CONST. art. III, § 31.*fn9

[ 92 Pa. Commw. Page 224]

We hold that both the Construction and Operation and the Water Sales Agreements are valid, binding and enforceable.*fn10

Standing

We hold that PECO, NP and NW have third-party beneficiary standing to enforce both interrelated agreements under the concepts of Guy v. Liederbach, 501 Pa. 47, 459 A.2d 744 (1983).

[ 92 Pa. Commw. Page 225]

Our Supreme Court, in Spires v. Hanover Fire Insurance Co., 364 Pa. 52, 70 A.2d 828 (1950), held that to be a third-party beneficiary entitled to recover on a contract, both parties to the contract must so intend and must indicate that intention in the contract. However, in Guy, our Supreme Court recognized that it is unlikely that a beneficiary of a will could ever bring suit under the Spires requirements. Spires was overruled by Guy "to the extent that it states the exclusive test for third party beneficiaries." Guy, 501 Pa. at 60, 459 A.2d at 751 (emphasis added). Referencing the RESTATEMENT (SECOND) OF CONTRACTS § 302 (1979), our Supreme Court in Guy set forth a "two part test for determining whether one is an intended third party beneficiary: (1) the recognition of the beneficiary's right must be 'appropriate to effectuate the intention of the parties,' and (2) the performance must 'satisfy an obligation of the promisee to pay money to the beneficiary' or 'the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.'" Id. This alternative test, rather than requiring a mutual intention manifested in the contract, "leaves discretion with the trial court to determine whether recognition of third party beneficiary status would be 'appropriate.'" Id. 60-61, 459 A.2d at 751.

With respect to the Water Sales Agreement, the Spires test has been met because the parties mutually intended, as manifested in the agreement, that NP and NW would be beneficiaries of Montgomery County's water purchase (in which it had no direct interest)*fn11

[ 92 Pa. Commw. Page 226]

    and that PECO would be a major water purchaser. Moreover, the alternative Guy test has also been met because the trial court determined that recognition of the third-party beneficiary status of PECO, NP and NW was appropriate and the circumstances indicate that the promisee (Montgomery County) intended to give them the benefit of the promised performance.*fn12

[ 92 Pa. Commw. Page 227]

With respect to the Construction and Operation Agreement, the Spires test has been met because the parties mutually intended, as manifested in the agreement, that NP and NW would be beneficiaries.*fn13 Further, the alternative Guy test has also been met because the trial court determined that recognition of the third-party beneficiary status of NP and NW was appropriate and the circumstances indicate that the promisee (PECO) intended to give them the benefit of the promised performance.*fn14

The standing of PECO, NP and NW to enforce these agreements clearly follows from their third-party beneficiary status. See Fitzgerald v. Kwaterski, 318 Pa. 494, 178 A. 385 (1935). See also RESTATEMENT (SECOND) OF CONTRACTS § 307 (1979).

[ 92 Pa. Commw. Page 228]

Breach

Initially, Bucks County contends that its execution of the Construction and Operation Agreement, providing for assignment to insure operation and maintenance of the project, does not obligate it under that agreement's construction provisions or effect a present assignment. We agree. The trial court held that Bucks County is bound only to the extent that its acceptance of the assignment obligated it to do certain things under the provisions of the agreement. Its adjudication merely orders Bucks County to do all things which it is contractually obligated to do so that the project, as contemplated by the agreement, may be completed. Nonetheless, to the extent that the NWRA is its creature,*fn15 Bucks County has a duty not only to resist any impediment to NWRA's contractual obligations*fn16 but also to insist on the means to carry out the Construction and Operation Agreement. These duties are especially clear given Bucks County's obligations under the Water Sales Agreement.

It is abundantly clear that Bucks County and NWRA breached both agreements by virtue of their failure to proceed expeditiously and their declared intention not to complete the project.*fn17

[ 92 Pa. Commw. Page 229]

Although clouded by a myriad of procedural and preliminary contentions, the major argument of Bucks County and NWRA is that they undertook the project in their governmental capacity and, therefore, have the right to withdraw from or terminate the project. Their theory is that a government of the people must be able to respond to the changing will of the people. However, we are more persuaded by the contention that we must presently recognize the need for the reliability and certainty of contractual relations required to insure the very stability of government. "A municipality is not at liberty to avoid its contractual obligations merely because it deems it to be for the benefit of its citizens to do so." Allegheny County v. Pennsylvania Public Utility Commission, 192 Pa. Superior Ct. 100, 114, 159 A.2d 227, 234 (1960) (emphasis added). As early as 1790, this concept was recognized by Alexander Hamilton, then Secretary of the Treasury, who observed that "[e]very breach of the public engagements, whether from choice or necessity, is, in different degrees, hurtful to public credit" and that "fundamental principles of good faith . . . dictate that every practical exertion ought to be made, scrupulously to fulfil the engagements of the Government."

[ 92 Pa. Commw. Page 230]

    equitable doctrine. Where, as here, parties proceed in good faith reliance upon the other parties' contractual obligations, the doctrine will preclude the other parties from denying their obligations. The fact that Bucks County is a governmental agency, and NWRA is its creature, is irrelevant. See Fidelity-Philadelphia Trust Co. and Henry Shenk Co. v. Erie Co., 319 Pa. 100, 178 A. 662 (1935). A municipality, like a private corporation, is subject to the doctrine of estoppel. Albright v. The City of Shamokin, 277 Pa. Superior Ct. 344, 419 A.2d 1176 (1980).

Where there is good faith reliance on valid agreements, we must draw the line between governmental adaptability and contractual certainty in such a way as to shield such agreements from political pressure and uphold the will of the people, as delegated by them to their duly-elected representatives, declared at the time the agreements were made. This is the heart of the democratic process.

Remedy

Bucks County and NWRA contend that damages are the appropriate relief because reasonable alternatives to the project existed and that delay and/or cancellation of the project will not further jeopardize a Limerick operating permit.

However, a decree of specific performance may properly be entered if damages are not reasonably ascertainable or are inadequate. Clark v. Pennsylvania State Police, 496 Pa. 310, 436 A.2d 1383 (1981).*fn19

[ 92 Pa. Commw. Page 232]

We agree with the trial court's holding that specific performance is appropriate in this case because the damages suffered by PECO, NP and NW are not reasonably ascertainable*fn20 and because damages are inadequate due to the uncertain availability of alternative water sources*fn21 and the resulting difficulty in receiving licensure.*fn22

[ 92 Pa. Commw. Page 233]

We further hold that, due to time limitations and unavailability, the failure of PECO, NP and NW to seek alternative water sources works no waiver of their legal rights. President Judge Garb expressed the apparent dilemma inimitably when he wrote that they "put all their eggs in one basket because it was the only basket they had." The time-consuming and rigorous nature of the regulatory permitting process, alone, is sufficient to absolve PECO, NP and NW from any obligation to seek alternative water sources if indeed they were available prior to the resolution of this controversy. Moreover, it is the burden of the breaching party to show that losses could have been avoided by the reasonable efforts of the damaged party. State Public School Building Authority v. W.M. Anderson Co., 49 Pa. Commonwealth Ct. 420,

[ 92 Pa. Commw. Page 234410]

A.2d 1329 (1980). We hold that Bucks County and NWRA failed to sustain their burden of showing that PECO, NP and NW could have mitigated their damages (secured alternative water sources) by reasonably diligent efforts.*fn23

Bucks County and NWRA further contend that their failure to build would cause PECO no consequential damages because of regulatory problems with Limerick's operation. However, we hold that, although resulting damages might be difficult to calculate, it cannot be said that the failure to build would not damage PECO. Moreover, the argument that a degree of specific performance should await resolution of pending regulatory matters is untenable. Obviously, a project of this magnitude has to be built one step at a time. If every permit and requirement were a sine qua non to the other, it could never be built. The parties obviously contemplated that all permits would not be in place at the time of construction in light of the Construction and Operation Agreement's provisions regarding withdrawal in the event necessary permits are not issued.*fn24

[ 92 Pa. Commw. Page 235]

Assumption of Ownership of North Branch

The trial court held that, under paragraph 5, page 7 of the Water Sales Agreement, NP and NW are entitled to assume ownership of and complete the north branch transmission main and related facilities. Bucks County argues that, according to the agreement's terms, only Montgomery County had the option, upon failure of Bucks County and NWRA to pursue the project, to (1) terminate the agreement and (2) complete that portion of the project necessary to supply it with water. It further contends that President Judge Garb abused his discretion by ordering specific performance in addition to the partial takeover. We disagree. Having determined that NP and NW have standing to enforce the agreement, we further hold that they may acquire the rights of Montgomery County to complete the portion of the project intended primarily for the benefit of their consumers. Moreover, we hold that the contractual remedy, while available, is not exclusive because such an intention is not clearly set forth in the agreement. See Bettinger v. Carl Berke Assoc., Inc., 455 Pa. 100, 314 A.2d 296 (1974).

[ 92 Pa. Commw. Page 236]

Recusal

The major procedural contention of Bucks County and NWRA is that President Judge Garb erred in denying their petitions for recusal.*fn25 Their petition

[ 92 Pa. Commw. Page 237]

    for permission to appeal this refusal*fn26 was denied by this Court, and our Supreme Court subsequently denied their petition for plenary jurisdiction.

Our Supreme Court has held that if, upon a review of the record, an appellate court determines that a fair and impartial trial was had, the alleged disqualifying factors of the trial judge become moot. Reilly v. SEPTA, 507 Pa. 204, 489 A.2d 1291 (1985). Bucks County and NWRA argue that the ownership of PECO stock by the estate of President Judge Garb's father from December 24, 1983 to July 13, 1984 and President Judge Garb's service as chairman of the interim Board of Elections of Bucks County has deprived them of a fair and impartial trial. We disagree. Obviously, any interest President Judge Garb may have had in the PECO stock owned by his father's estate could not have affected his impartiality because the stock was sold prior to the trial's conclusion and, therefore, he could not have received

[ 92 Pa. Commw. Page 238]

    any related benefit from a decision favorable to PECO.

There is nothing in the record to indicate that President Judge Garb's service on the Board in any way affected his fairness and impartiality. President Judge Garb served on the Board pursuant to Section 301(c) of the Pennsylvania Election Code,*fn27 the Board's decision to place a non-binding referendum question regarding construction of the project on the ballot was made in response to various citizens' petitions and the referendum was written in neutral terms.*fn28

[ 92 Pa. Commw. Page 239]

Sullivan's Complaint

Sullivan contends that he is a third-party beneficiary, as a taxpayer, to the Construction and Operation and Water Sales Agreements and therefore entitled to sue for recovery of damages to Bucks County (costs of attempting to stop the project, litigation and construction already completed) from its Commissioners and the NWRA Board members and/or completion of the project and the acceptance by Bucks County of the benefit originally contemplated. The trial court granted the preliminary objections of Bucks County and NWRA to Sullivan's third amended complaint, which raised its failure to state a cause of action, and dismissed it in its entirety. The court, however, recognized Sullivan's standing as a taxpayer with respect to this lawsuit and allowed him to be considered a party to the complaints of PECO, NP and NW to the extent that he seeks the same relief.

We agree with the trial court's conclusion that despite his standing to bring an action, Sullivan failed to state a separate cause of action in his third amended complaint.*fn29

[ 92 Pa. Commw. Page 240]

"The right to amend should not be withheld where there is some reasonable possibility that amendment

[ 92 Pa. Commw. Page 241]

    can be accomplished successfully." Otto v. American Mutual Insurance Co., 482 Pa. 202, 205, 393 A.2d 450, 452 (1978). However, there are some "cases where it is clear that amendment is impossible and where to extend leave to amend would be futile." Id. Although, unlike PECO, NP and NW, Sullivan seeks recovery from the Bucks County Commissioners and the NWRA Board members, it does not appear that his complaint could be amended to state a cause of action for this special relief.*fn30 We, therefore, hold that the trial court did not abuse its discretion by ordering that Sullivan be considered a party to the complaints of PECO, NP and NW.

We hold that there is substantial evidence in the record to support the trial court's findings and that it committed no abuse of discretion or error of law in its adjudications.

Affirmed.

[ 92 Pa. Commw. Page 242]

Order

The orders of the Court of Common Pleas of Bucks County, No. 83-8358 dated February 27, 1985 and No. 83-8358-05-5 dated May 29, 1984, are affirmed.

Judge Colins dissents.

Judge Palladino did not participate in the decision in this case.

Disposition

Affirmed.


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