Syracuse University sought to annul a determination by Project Orange Associates Services Corporation (POASC) authorizing condemnation of real property owned by the University on which a cogeneration facility and steam plant are located on the grounds that the purported public use of the acquisition is illusory. The New York appellate court agreed with the University, finding that the underlying basis for the exercise of eminent domain by POASC’s affiliate, is the result of an outdated business model. Specifically, the record revealed that the affiliate entered into a series of long term lease agreements with the University that allowed it to construct a cogeneration facility on the property owned by the University and to assume operation of two existing steam plants located there. In exchange, the University got the benefit of the steam produced and it sold its excess to neighboring non-profit entities. Also in play was a requirement that the public utility purchase electricity from the cogeneration facility, all of which supported POASC’s affiliate’s business model. Facing possible bankruptcy, the public utility renegotiated its lease with the affiliate to discharge its obligation to purchase electricity from them but at the same time it permitted them to provide the University with steam at a significantly reduced rate until July 2008. The affiliate then took steps to renegotiate its lease with the University, which is believed were unsustainable based on the new contractual relationship it had entered into with the public utility. In May 2008. POASC incorporated as an electric corporation under State Law, and about one year later provided notice of its intent to condemn the subject property.
The appeals court found that POASC’s actions were nothing more than the last in a series of attempts to free its affiliate from an unfavorable contractual agreement with the University, making the condemnor the sole beneficiary of a condemnation where the public benefit is incrementally incidental. Although the Court invalidated the condemnation on the public purpose ground, the Court also noted that steam distribution is not an articulated power of an electric corporation organized under the NY Transportation Corporations Law and that therefore POASC also lacked authority to acquire the subject steam plants.
Syracuse University v. Project Orange Associates Service Corporation, 71 A.D. 3d 1432 (4th Dept. 3/19/2010).
The opinion can be accessed at: http://www.courts.state.ny.us/ad4/court/Decisions/2010/03-19-10/PDF/0208.pdf
