Plaintiff, National Fuel Gas Distribution Corporation, has applied, pursuant to section 3212 of the Civil Practice Law and Rules ("CPLR"), for summary judgment. Defendant, Erie County Medical Center Corporation, has cross-moved, pursuant to CPLR §3212, Public Authorities Law ("PAL") §§ 2879 and 3628, and General Municipal Law ("GML") §§103 and 103a, for summary judgment.

Plaintiff is a natural gas utility corporation organized under the laws of the State of New York, and regulated by the New York State Department of Public Service (the "Department") and Public Service Commission ("PSC"), pursuant to Article 4 of the New York Public Service Law ("PSL"). Plaintiff sells and/or transports natural gas through a local distribution system to customers in Western New York and Northwestern Pennsylvania.

Defendant is a Public Benefit Corporation created, pursuant to PAL §3625, et. seq., to own certain assets of, and operate, the former Erie County Medical Center Health Care Network, which included the Erie County Medical Center, located in the City of Buffalo and the Erie County Home, located in the Town of Alden (the "County Home").

Section 65(1) of the PSL requires Plaintiff to set rates and terms for its supply and transportation services that are "just and reasonable." Plaintiff's rates are subject to oversight by the Department and the PSC. In this regard, Plaintiff maintains a Tariff with the PSC, which sets forth its standard rates, terms, and conditions of service. However, the Tariff permits Plaintiff to agree to different rates, terms, and conditions with certain customers under certain circumstances.

For example, the Tariff permits Plaintiff to consider negotiating a lower-than-Tariff rate with a transportation customer that is considering leaving Plaintiff's distribution system for a bypass alternative. A bypass alternative typically consists of tapping into a gas pipeline outside of Plaintiff's system.

At all times relevant to this action, Defendant owned the County Home, a skilled nursing facility. Prior to 2008, Defendant had a transportation-only account with Plaintiff for the County Home, and the Home's annual transportation volume was approximately 95,000 Mcf.^[FN1]

In the summer of 2008, Defendant informed Plaintiff that it was considering whether to leave Plaintiff as a customer and bypass Plaintiff's transportation facilities by taking gas directly from a transmission line owned by non-party, Tennessee Gas Pipeline Company ("TGPC"). In response, and pursuant to authority provided by the Tariff, Plaintiff sought to negotiate its rates for transportation services with Defendant to retain Defendant as an ongoing customer.

Ultimately, Plaintiff and the County Home (not Defendant) reached an agreement that gave the County Home a 40% rate discount, in exchange for a ten-year service term and "Minimum Annual Volume" of 80,000 Mcf. The terms were memorialized in a Transportation Service Agreement, signed by Plaintiff on November 12, 2008 and by the County Home on October 29, 2008 (the "Agreement"). The ten-year term of the Agreement commenced on November 1, 2008.

There is nothing in the record on the motion and cross-motion to indicate that the Agreement was reviewed or approved by Defendant's Director of Corporate Compliance or its General Counsel. Likewise, there is no evidence that the Agreement was approved by Defendant's Board of Directors, or that it was let for public bidding.

Moreover, it is undisputed that in order to have made use of the TGPC pipeline to bypass Plaintiff's distribution system, Defendant would have had to have first incurred the cost of building its own service pipeline system to interconnect with TGPC's pipeline, then contract with another company to maintain and operate it to transport natural gas from TGPC to the County Home. Plaintiff estimates that in 2008 the cost to Defendant to construct such a service pipeline would have exceeded $300,000, and that Defendant would have incurred an additional approximate $26,500 in annual repair and maintenance costs. Defendant did not submit any evidence regarding construction, repair, and maintenance costs.

The Agreement provides, in relevant part, that in any year the County Home failed to [*2]receive the Minimum Annual Volume, it would pay Plaintiff "the difference between the Minimum Annual Volume and [Defendant's] actual transportation during such term, multiplied by the prevailing . . . rate set forth in [Plaintiff's] then current tariff" (Agreement, Attachment A).

Plaintiff provided gas transportation services to the County Home, without incident, until early 2013, when Defendant closed the County Home. At the time of the closing, Defendant ceased heating the County Home, and the gas transportation volume was reduced to zero.

To obtain summary judgment, the moving party must make a prima facie showing of entitlement to judgment as a matter of law (Ferluck AJ v. Goldman Sachs & Co., 12 NY3d 316 [2009]). This requires sufficient evidence to shift the burden to the opposing party to produce evidentiary proof sufficient to establish the existence of genuine issues of material fact (Id at 320; see also, Villager Construction, Inc. v. J. Kozel & Son, Inc., 222 AD2d 1018 [4th Dept 1995] ). "Mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to defeat summary judgment (Gilbert Frank Corp. v. Fev. Ins. Co., 70 NY2d 966, 967 [1988] [citation omitted]).

Moreover, factual issues raised by the opposing party must be genuine, as opposed to speculative (Trahwen LLC v. Ming 99 Cent City No.7, Inc., 106 AD3d 1467, 1468).

It is well settled that the elements of a breach of contract claim are the formation of a contract between the parties, plaintiff's performance, defendant's failure to perform, and resulting damages (Niagara Foods, Inc. v. Ferguson Elec. Service Co., Inc., 111 AD3d 1374 [4th Dept 2013]).

Plaintiff has made a prima facie showing of entitlement to judgment as a matter of law within the meaning of Ferluck AJ, supra. It is undisputed that Plaintiff and the County Home (for which Defendant is responsible) entered into the Agreement; Plaintiff performed under the Agreement by delivering and/or being ready and able to deliver natural gas to the County Home at all times; Defendant (through the County Home) breached the Agreement by failing to both meet the Agreement's Minimum Annual Volume requirement and make the concomitant shortfall deficiency payments; and Plaintiff sustained calculable and specific damages. Accordingly, the burden shifted to Defendant to produce evidentiary proof sufficient to establish the existence of genuine issues of material fact (to defeat Plaintiff's motion), or make a prima facie showing of its own regarding its cross-motion for summary judgment (Id., 12 NY2d at 320).

Defendant contends that the Agreement is void as against public policy, because it is either a "public work" contract or a "purchase contact", within the meaning of GML §103, thus requiring that it be let for public bid.

In 2008, GML §103 provided, in relevant part, as follows:

[A]ll contracts for public work involving an expenditure of more than twenty thousand dollars and all purchase contracts involving an expenditure of more than ten thousand dollars, shall be awarded by the appropriate officer, board or agency of a political subdivision or of any district therein including but not limited to a soil conservation [*3]district to the lowest responsible bidder furnishing the required security after advertisement for sealed bids in the manner provided by this section . . . .

Defendant failed to assert GML §103 as an affirmative defense in its Answer, dated March 2, 2015. It also failed to identify GML §103 in its responses to Plaintiff's interrogatories, nor did it raise the application of GML §103 at a deposition. Accordingly, Defendant waived GML §103 as a defense to the action (see CPLR §3018[b] ["A party shall plead all matters which if not pleaded would likely take the adverse party by surprise . . . such as . . . facts showing illegality either by statute or common law"); Vrooman v. Vil. of Middleville, 91 AD2d 833, 834 [4th Dept 1982] [a defense based on a "failure to comply with the statute is an affirmative defense under the criteria of CPLR 3018 (subd. [b]) and thus defendant's failure to plead it constitutes a waiver"].

In the event Defendant had not waived the application of GML §103 as an affirmative defense to this action, the Court would not have considered it as a bar to Plaintiff's claims, because it does not apply to regulated utilities, like Plaintiff (Harlem Gaslight Co. v. City of New York, 33 NY 309, 324-25 [1865] [requiring city to pay for gas lighting, despite that sealed bids were not submitted for gas service]; see also, Williams v. Bryant, 53 AD2d 229, 232 [4th Dept 1976] [telephone company's monthly service charge for "use of its lines and facilities" is not subject to GML §103].

The purpose of GML §103 is to "prevent[ ] . . . fraud, favoritism or corruption in the awarding of public contracts" (Citiwide News, Inc. v New York City Tr. Auth., 62 NY2d 464, 472 [1984] [license agreement not subject to GML §103]). However, the Legislature has expressly dealt with these same concerns with respect to public utilities by enacting PSL §65(1) (utility rates must be "just and reasonable"), PSL §65(2) (ban on utilities giving special rates and kickbacks), PSL §65(3) (ban on utilities providing preferential treatment), and PSL §72 (authorizing the PSC to enforce these restrictions). Given these statutory restrictions on the rates Plaintiff and other utilities can charge, and the PSC's enforcement authority thereof, the legislative concerns behind GML §103 do not arise in the context of the Agreement.

Moreover, Defendant's challenge of the Agreement raises questions of justiciability (Porr v. NYNEX Corp., 230 AD2d 564, 572 [2d Dept 1997] [refusing to consider collateral attacks on rates charged by utility]). Defendant's challenge of the Agreement's terms would "subvert the primary jurisdiction granted to an administrative agency [i.e., the PSC] to set rates and thereby undermine the regulatory scheme established by the legislature" (Mont York Assoc., LP v. Consol. Edison Co. of New York, 49 Misc 3d 1201(A), 2015 WL 5554553, at *2 [Sup. Ct. Kings Cnty. Sept. 21, 2015] [dismissing challenge to utility rates], citing, inter alia, Porr, 230 AD2d at 572]).

Moreover, the Agreement is neither a "contract for public work", nor a "purchase contract", within the meaning of GML §103.

Neither GML §103, nor its legislative history define "contract for public work" or "purchase contract". However, courts should "not extend the coverage of the statute into areas unintended by the Legislature," because "competitive bidding statutes constitute a substantial imposition on the activities of municipal governments" (Citiwide News, Inc. v. New York City Transit Authority, 62 NY2d 464, 472 [1984]).

"Public work" for purposes of GML §103 is confined

to the various kinds of manual labor, which may properly be the subject of general competition, and can be safely awarded to the lowest bidder (Smith v. Flagg, 17 NY 584, 586 [1857]).

The Agreement is purely a transportation agreement, and does not require Plaintiff to engage in "manual labor" associated with the installation of additional infrastructure. Moreover, even if the Agreement contemplated installation of equipment, it would not be construed as a public work contract, because utility work is private - not public - work (Diamond Asphalt Corp. v. Sander, 92 NY2d 244 [1998]).

The Agreement is not a "purchase contract" for purposes of GML §103, because it does not require Defendant to acquire title to any property (Exley v. Village of Endicott, 51 NY2d 426 [1980]; cf., Albion Indus. Ctr. v. Town of Albion, 62 AD2d 478, 481 [4th Dept 1978] [for purposes of GML §103, purchase contracts relate to the purchase of "materials, supplies, equipment or apparatus", which does not embrace utilities like electricity and natural gas]).

In the fall of 2008, at the time the parties entered into the Agreement, TGPC was the only other entity that owned a natural gas pipeline in the proximity of the County Home (the "TGPC Pipeline"). However, TGPC is not a New York public utility authorized to provide natural gas distribution service to the County Home. Rather, the TGPC Pipeline is an interstate transmission system regulated by the Federal Energy Regulatory Commission. Accordingly, TGPC does not maintain a tariff with the PSC that would enable it to bid on the transportation services Defendant required for the County Home.

Moreover, at the time the parties entered into the Agreement, Defendant had not yet built the service pipeline that would have been required to interconnect with TGPC's pipeline. Accordingly, in the fall of 2008, Defendant had no option to purchase natural gas for the County Home from anyone other than Plaintiff.

Defendant contends that the Agreement should be rendered null and void, because it failed to comply with certain of its internal Procurement Contract Guidelines (the "Guidelines"), that were in place in the fall of 2008. The Guidelines required that all contracts must be reviewed and approved by the Director of Corporate Compliance and Defendant's General Counsel and that contracts in excess of $500,000 must be approved by Defendant's Board of Directors.

Defendant's General Counsel has stated under oath that he did not review or approve the Agreement before Defendant signed it. However, Defendant has not submitted a similar affidavit from its then Director of Corporate Compliance or from any of the then members of Defendant's Board of Directors.

However, assuming arguendo, that Defendant failed to comply with its own internal, unpublished Guidelines, such non-compliance would not render the Agreement void. The Guidelines apply to Defendant - not Plaintiff, and Defendant's failure to comply with them are not attributable to Plaintiff (cf., D'Angelo v. Cole, 67 NY2d 65, 68 [1986] [village barred from recovering its expenses incurred under a contract where it failed to follow competitive bidding requirements]).

Moreover, the following facts are undisputed: the Agreement was executed by Defendant's CEO before a notary public; Defendant's CEO "acknowledged himself to be CEO"; "that he, as CEO" was authorized to execute the Agreement; and that Defendant accepted discounted gas transportation services under the Agreement for nearly five (5) years without incident or protest. Under these circumstances, Defendant is estoppel from seeking to void the Agreement based on its (not Plaintiff's) failure to comply with its internal, unpublished Guidelines (see Marfia v. T.C. Ziraat Bankasi, NY Branch, 100 F3d 243 [2d Cir 1996]).

Finally, Defendant's reliance on PAL §2879 and GML §103a is misplaced.

Section §2879 imposes an obligation on public benefit corporations to develop procurement contract guidelines. However, it does not vest in such corporations a unilateral power to rescind contracts it enters into in violation of the terms of the guidelines it develops thereunder. Nor does §2879 impose on Plaintiff an obligation to investigate and ensure that Defendant complies with its own Guidelines.

The provisions of GML §103a are irrelevant to this action, because §103a was held to unconstitutional in 1973 (Lefkowitz v. Turley, 414 US 70 [1973]).

Finally, while the Court recognizes that Defendant no longer required natural gas to heat the County Home upon its closure in 2013, the Agreement does not provide Defendant with a unilateral right to terminate it. Rather, the Agreement requires Defendant to transport a Minimum Annual Volume under all circumstances, regardless of need. Defendant is a sophisticated public benefit corporation, which oversees millions of dollars of assets related to the Erie County Medical Center Healthcare Network, and it is bound by the deal it negotiated. Plaintiff's Damages

Plaintiff contends that as of April 22, 2016, it has been damaged in the aggregate amount of $649,905.73, consisting of the following components: (a) $349,617.19 (the annual shortfall deficiencies for the remaining term of the Agreement); (b) $30,400.71 (contractual late charges); (c) $51,915.00 (unpaid monthly minimum charges); and (d) $217,972.83 (wrongfully obtained discount), together with applicable statutory interest.

With respect to component (a), the Agreement provides that for each year Defendant fails to transport the Minimum Annual Volume to the County Home, it shall compensate Plaintiff at the contract rate of $0.79578 per Mcf. Plaintiff has incurred such charges for the final six (6) years of the Agreement, as follows:

With respect to component (b), Plaintiff's Tariff provides that it is entitled to late fees in the amount of 1.5% per month, which begin to accrue 23 days after a bill is mailed. Plaintiff contends that late charges amount to $30,400.71 as of April 22, 2016, and that such charges continue to accrue in the amount of $78.23 per day. Defendant does not dispute such figures. Accordingly, Plaintiff is entitled to late charges in the amount of $30,400.71, as of April 22, 2016, plus a per diem of $78.23 thereafter.

With respect to component (c), the Agreement requires Defendant to pay a Monthly Minimum Charge of $1,730.50, in addition to the applicable Transportation Charges and/or shortfall deficiency amounts. Plaintiff continues to bill Defendant each month for the Monthly Minimum Charges through an aggregating billing servicer (the "Billing Servicer").

As of the filing of its motion for summary judgment in April 2016, the Monthly Minimum Charges were paid in full. The record is unclear as to whether the Monthly Minimum Charges have been paid by Defendant or the Billing Servicer. In the event they were paid by Defendant and it stops paying them after April 2016, Plaintiff seeks damages in the amount of $51,915.00, composed of the Monthly Minimum Charge of $1,730.50 x 30 months (i.e., May 2016 through the end of the Agreement's term). On the other hand, in the event the Billing Servicer has been paying the Monthly Minimum Charges and later seeks reimbursement from Plaintiff, Plaintiff will seek indemnification from Defendant.

Based on the record before the Court, Plaintiff is entitled to receive a Monthly Minimum Charge from Defendant in the amount of $1,730.50, per month, but it is unclear whether any portion of such Charges is outstanding.

With respect to component (d), there is no support for Plaintiff's contention that Defendant disgorge the savings it received during the first approximate five (5) years of the Agreement in the form of the 40% discount from the prevailing Tariff rate. The Court has strictly enforced the terms of the Agreement, and there is no provision in it mandating such disgorgement. Moreover, the Agreement addresses the situation where, as here, Defendant fails to transport a Minimum Annual Volume to the County Home (see discussion regarding damages component [a] above).

In light of the foregoing, it is hereby

ORDERED, that Plaintiff's motion for summary judgment is granted, in part, as follows:

1. Plaintiff is hereby awarded $349,617.19 in the form of aggregate Monthly Annual Volume charges, plus applicable statutory interest; and

2. Plaintiff is hereby awarded $30,400.71, in the form of late charges as of April 22, 2016, together with a per diem amount of $78.23 thereafter, and applicable statutory interest; and it is further

ORDERED, that Defendant's cross-motion for summary judgment is denied.

This constitutes the Decision and Order of this Court. Submission of an order by the Parties is not necessary. The delivery of a copy of this Decision and Order by this Court shall not constitute notice of entry.