Village of Solvay v. Onondaga County Water Auth., 23 N.Y.2d 405 (1968)

An Article 78 proceeding is not the proper mechanism to review a rate-making decision of a public authority when the governing statute does not require notice or a hearing; however, such a proceeding can be converted to a declaratory judgment action, allowing judicial review of the rate increase for arbitrariness, discrimination, or violation of statutory standards.

Summary

The Village of Solvay and Lakeland Water District challenged a 64% water rate increase imposed by the Onondaga County Water Authority, arguing it was excessive. They initiated Article 78 proceedings. The Court of Appeals held that because the Public Authorities Law doesn’t provide for notice or a hearing regarding rate changes, an Article 78 proceeding was inappropriate. However, the Court also held that the proceeding should be converted to a declaratory judgment action, allowing the petitioners to challenge the rate increase on grounds such as arbitrariness or discrimination and allowing discovery.

Facts

The Onondaga County Water Authority, a public benefit corporation, raised water rates for the Village of Solvay and Lakeland Water District by 64% in August 1966. The Village and the Water District considered the increase excessive and arbitrary.

Procedural History

The Village and Water District filed Article 78 proceedings in the Supreme Court to challenge the rate increase. Special Term granted their motions for examination of the Water Authority’s officers and records, and for a hearing. The Appellate Division affirmed, but concluded that an Article 78 proceeding was not the correct procedure, holding that the court was authorized to treat the proceeding as an action for a declaratory judgment under CPLR 103(c). The Water Authority appealed to the Court of Appeals.

Issue(s)

1. Whether an Article 78 proceeding is the proper method to challenge the water rate increase imposed by the Onondaga County Water Authority.
2. Whether, if an Article 78 proceeding is inappropriate, the court can convert the proceeding to a declaratory judgment action under CPLR 103(c).

Holding

1. No, because the Public Authorities Law does not provide for notice or a hearing in rate-making decisions, making the Authority’s action a legislative act not subject to Article 78 review.
2. Yes, because CPLR 103(c) allows a court to convert an improperly brought civil judicial proceeding to the proper form if the court has jurisdiction over the parties, and a declaratory judgment action is a proper procedure to review a quasi-legislative act of an administrative agency.

Court’s Reasoning

The Court reasoned that Article 78 proceedings are generally not used to review legislative actions, and an administrative agency’s order fixing rates is considered a legislative act if no notice or hearing is required. Here, the Public Authorities Law expressly states that the Public Service Commission has no jurisdiction over the Water Authority’s rate-making decisions. Therefore, without a quasi-judicial proceeding for review, the rate increase is a legislative act not subject to Article 78. The court stated, “Neither the public service commission nor any other board or commission of like character, shall have jurisdiction over the authority in the management and control of its properties or operations or any power over the regulation of rates fixed or charges collected by the authority” (§ 1153, subd. 6).

However, the Court emphasized that the petitioners were not without recourse. They could challenge the rate increase on grounds that the Authority acted beyond its authority, disregarded statutory standards, violated due process, or acted in a discriminatory manner.

Addressing the conversion to a declaratory judgment action, the Court cited CPLR 103(c), which states that a civil judicial proceeding should not be dismissed solely because it was not brought in the proper form. Since the Supreme Court had jurisdiction and the proceeding was civil and judicial, it could be converted. The Court noted that a declaratory judgment action is a ‘proper procedure’ to review a quasi-legislative act. The Court found that the petitioners’ allegations that the rate increase was ‘excessive, arbitrary and capricious’ were sufficient to support a cause of action for declaratory judgment. Further, the court authorized discovery, stating that state agencies must provide disclosure as if they were a private person. However, the court found ordering a hearing before the Water Authority answered the complaint was premature.