Matter of Coastal Communication Serv. Inc. v New York City Dept. of Info. Tech. & Telecom.

[*1] Matter of Coastal Communication Serv. Inc. v New York City Dept. of Info. Tech. & Telecom. 2006 NY Slip Op 51313(U) Decided on July 5, 2006 Supreme Court, New York County Stallman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 5, 2006
Supreme Court, New York County

In the Matter of Application of Coastal Communication Service, Inc. and Telebeam Telecommunications Corporation, Petitioners, For a Judgment Pursuant to Article 78 of the Civil Practice Law and Rules,

against

The New York City Department of Information Technology and Telecommunications, Respondent.



112312/05



For Petitioner:

David Jacoby

Schiff, Hardin, LLP

632 Fifth Avenue, 28th Floor

New York, New York 10023

(212) 753-5000

For Respondent:

Michael A. Cardozo, Esq.

Corporation Counsel of the City of New York

100 Church Street, Room 3-143

Paula Van Meter, of Counsel

New York, New York 10007

(212) 442-4050

Michael D. Stallman, J.

Petitioners Coastal Communication Service, Inc. and Telebeam Telecommunications Corporation seek a judgment declaring that the adoption and application by the New York City Department of Information Technology and Telecommunications (DoITT) of Section 6-06 (c) to Title 67 of the Rules of the City of New York were ultra vires; declaring that Section 6-06 (c) is void; and declaring that DoITT's adoption of Section 6-06 (c) was irrational, arbitrary and capricious. Petitioners seek an order permanently enjoining DoITT from enforcing and applying Section 6-06 (c), and granting petitioners attorney's fees, costs and disbursements, and restitution in the form of money damages.

Background

DoITT is charged under the New York City Charter with responsibility for, among other things, administering certain City franchises created under the City Charter by the New York City Council. Petitioners are New York corporations with principal places of business in Queens, New York.

Local Law 68 for the year 1995 (passed by the City Council on August 17, 1995, and approved by the Mayor on September 1, 1995) amended the City Charter and Administrative Code by repealing Section 19-128 of the Administrative Code, and adding a new Chapter 4, codified as Section 23-401 et seq. Its stated purpose was: "To amend the New York city charter and administrative code of the city of New York, in relation to the issuance of permits for the installation, operation and maintenance of public pay telephones upon the streets and other inalienable property [*2]of the city, and in relation to protecting such public pay telephones against graffiti and illegal postings and to repeal section 19-128 of such administrative code."

Among its provisions, Section 23-403 (3) (b) grants DoITT authority to promulgate rules relating to, among other things, standards governing the location of public pay telephones (PPTs) to ensure that pay telephones will not unreasonably interfere with the public's use of the street and the abutting property. The local law defines the term "public pay telephone" to include "any pedestal or telephone bank supporting one or more such telephones, associated enclosures, signage and other associated equipment" (emphasis added) (Administrative Code of City of NY § 23-401). Significantly, Section 23-405 provides that a "permit issued under this chapter shall not constitute an authorization to place advertising upon a public pay phone."

In September 1995, the City Council passed the "New York City Payphone Franchise Authorizing Resolution," known as Resolution No. 439-A, subsequently amended in 1997 by Authorizing Resolution No. 2248 (together, Payphone Authorizing Resolutions). The Payphone Authorizing Resolutions grant DoITT authority to issue non-exclusive franchises for the provisioning of public pay telephone service on the "Inalienable Property" (i.e., streets, sidewalks, roads, highways, and waters controlled by the City).

On January 27, 2004, DoITT published a notice of a proposal to make changes to its rules, including rules relating to advertising on PPTs. Thereafter, in October 2004, DoITT adopted amendments to its rules relating to advertising, promulgated as Section 6-06 (c) of Title 67 of the Rules of the City of New York, which became effective on December 4, 2004.

Section 6-06 (c) provides: "The display of advertising on any enclosure installed pursuant to a notice to proceed issued after the effective date of this rule shall be prohibited in the following Community Districts of Manhattan: 1, 2, 3, 4, 5, 6, 7, and 8."

The effect of this regulation is to prohibit advertising on public telephones installed after its effective date in community districts of Manhattan one through eight, comprising the area south of 110th Street on Manhattan's Westside and south of 96th Street on Manhattan's Eastside.

Each petitioner has been granted a non-exclusive franchise to operate, install, and maintain PPTs on the Inalienable Property of the City. DoITT issued to petitioners "Notices to Proceed," dated June 7, 2005, that granted them conditional permits for the installation of public pay telephones in the community districts at issue, but advised them that they were prohibited from placing advertising on the installations (see Exhibits D and E to Petition).

Petitioners challenge the validity of these restrictive Notices to Proceed, as well as the right of DoITT to have adopted Section 6-06 (c). Petitioners allege that DoITT adopted Section 6-06 (c) with an awareness and intent that it primarily would affect petitioners' PPT applications. Moreover, they claim that Section 6-06 (c) now prohibits them from placing advertising on PPTs that they have been authorized to install, whereas Verizon is, and has been, permitted to maintain advertising on its curbside PPTs since at least March 1998, and Verizon's PPTs are located in the same area where petitioners' PPTs will be installed.

DoITT argues that its adoption and application of Section 6-06 (c) was proper, and does not deprive petitioners of any constitutionally protected property interest or due process rights. [*3]According to DoITT, it adopted the regulation because of an over-saturation of PPT advertising in those eight community districts of Manhattan. Comments submitted in support of the rule change noted (1) problems of sidewalk congestion caused by the proliferation of PPTs with enclosures enlarged for advertising purposes, (2) negative impact from the over-saturation of advertising displays attached to PPTs in the community districts at issue, including a negative business impact, and (3) public safety concerns pertaining to the large backlit advertising enclosures.

DoITT also contends that the petition is barred by the statute of limitations, in that DoITT finally adopted Section 6-06 (c) on December 4, 2004, but petitioners did not commence this proceeding until September 1, 2005, beyond the four-month period required by CPLR 217.

Petitioners are also plaintiffs in an action pending in the United States District Court for the Eastern District of New York against DoITT and the City, docket number 02 CV 2300 (Federal Action), alleging that DoITT's and the City's delay and denial of petitioners' PPT permit applications violate the federal Telecommunications Act of 1934, as amended in 1996, 47 USC § 151 et seq. On December 14, 2004, petitioners sought to amend and supplement their pleading in the Federal Action to add claims concerning Section 6-06 (c), including an Article 78 claim, but the federal court declined to exercise supplemental jurisdiction. Shortly thereafter, they commenced this proceeding.[FN1]

I.

DoITT finally adopted Section 6-06 (c) on December 4, 2004. To be timely pursuant to CPLR 217, petitioners were required to commence this proceeding within four months from the date that the regulation became final and binding (Matter of Comptroller of the City of New York v Mayor of the City of New York, ___ NY3d ___, 2006 WL 1763537, 2006 NY LEXIS 1763 [June 29, 2006], citing Matter of Best Payphones, Inc. v Department of Info. Tech. and Telecom. of City of NY, 5 NY3d 30, rearg denied 5 NY3d 824 [2005]; Matter of Village of Westbury v Department of Transp., 75 NY2d 62 [1989]; see New York City Health and Hosp. Corp. v McBarnette, 84 NY2d 194, 205 [1994]["[T]here are certainly cases in which even a nonindividualized, generally applicable quasi-legislative act such as a regulation . . . can be challenged as being affected by error of law,' arbitrary and capricious' or lacking a rational basis"]). Assuming that the four-month period began on December 4, 2004, then, within that period, petitioners made a motion in the Federal Action for leave to amend and supplement their pleading therein to add a Section 6-06 (c) claim. On August 2, 2005, the court in the Federal Action denied petitioners' request (see Exhibit F to Petition). [*4]Thereupon, petitioners commenced this proceeding 30 days later, on September 1, 2005.

The filing of a motion for leave to amend a complaint is sufficient to toll the statute of limitations if the filing includes a copy of the proposed supplemental summons and amended complaint (Perez v Paramount Communications, 92 NY2d 749 [1999]), and this type of toll is applicable in Article 78 proceedings (see Lodge v D'Aliso, 2 AD3d 525 [2d Dept 2003], lv denied 2 NY3d 702 [2004]). Petitioners do not claim, however, that they filed a copy of the proposed amended pleading in the Federal Action.[FN2] Instead, they state that they "circulated a draft proposed amended complaint to the defendants' counsel" (Petitioners' Memorandum of Law, at 31). Providing opposing counsel with a draft of the proposed amended pleading is not the same as including a copy of the actual proposed amended pleading with the filing of the motion for leave to amend, the requirement set forth by the Court of Appeals. (See Lodge v D'Aliso, 2 AD3d 525, supra [statute not tolled because petitioners did not include a copy of the proposed supplemental notice of petition and petition with the application). Hence, the challenge to the adoption of Section 6-06 (c), which became finally adopted on December 4, 2004, is time-barred.

Petitioners also challenge the issuance to them of the Notices to Proceed, dated June 7, 2005, that granted conditional permits for the installation of public pay telephones in the community districts at issue, but advised petitioners that they were prohibited from placing advertising on the installations. A determination generally becomes binding when an aggrieved party is notified of the adverse action, which starts the running of the period within which to commence the proceeding (see Matter of Village of Westbury v Department of Transp., 75 NY2d at 71; Matter of Biondo v New York State Bd. of Parole, 60 NY2d 832 [1983]). Hence, to the extent that this proceeding challenges the propriety of the Notices to Proceed dated June 7, 2005, the proceeding commenced on September 1, 2005 is timely.

Nevertheless, the Court will consider the larger issues raised by the challenge to Section 6-06 (c) itself, because such consideration is necessary to fully consider the narrower challenge to the Notices to Proceed.

II.

In September 1995, the City enacted Local Law 68, and, that same month, the City Council passed the Payphone Authorizing Resolutions, upon which petitioners primarily stake their claim that DoITT did not have authority to adopt Section 6-06 (c). The Payphone Authorizing Resolutions, enacted in September 1995 and subsequently amended in 1997, must be considered in pari materia with Local Law 68, which provides that: "[a] permit issued under this chapter shall not constitute an authorization to place advertising upon a public pay phone"

(Administrative Code § 23-405; McKinney's Cons Laws of NY, Book 1, Statutes § 221). Therefore, there is no merit to petitioners' assertion that DoITT was without power to restrict advertising on new public pay telephone installations in eight of the City's 59 community districts.

Furthermore, although petitioners claim that neither the City Charter, nor the Payphone Authorizing Resolutions, granted DoITT the authority to have adopted Section 6-06 (c), a fair [*5]reading of the statute and resolutions indicates otherwise.

An agency's jurisdiction consists of the powers granted to it by statute, and thus, a determination by it is void where it has been made without statutory authority, or in excess of the authority granted to it (Abiele Contr. v New York City School Constr. Auth., 91 NY2d 1 [1997]). DoITT's powers are set forth in Chapter 48, § 1070 et seq. of the City Charter. Section 1072 provides that DoITT shall have the power, among other things, to "administer all franchises and revocable consents relating to telecommunications" (NY City Charter § 1072 [c]). Pursuant to that authorization, DoITT regulates payphone operations on city streets (Matter of Best Payphones, Inc., 5 NY3d 30).

Contrary to petitioners' implied assertion (see Affirmation of David Jacoby, Esq., dated January 6, 2006 [Jacoby Affirmation], ¶ 13), DoITT is not solely charged with merely issuing franchises to maximize revenues, without regard to the impact that such franchises may have on the community. Section 23-403 (3) (b) of Local Law 68 grants DoITT authority to promulgate rules relating to, among other things, standards governing the location of public pay telephones to ensure that such telephones will not unreasonably interfere with the public's use of the street and the abutting property.

Section 23-403 (3) (b) also grants the agency responsibility for implementing "standards and procedures governing the installation, removal, operation, cleaning and maintenance of public pay telephones . . . ." Thus, the promulgation of Section 6-06 (c) is consistent with the relevant local law. Although the local law does not expressly authorize the challenged regulation, an agency may adopt a regulation that goes beyond the text of the enabling legislation so as to "fill in the interstices in the legislative product" (Matter of General Elec. Capital Corp. v New York State Div. of Tax Appeals, Tax Appeals Trib., 2 NY3d 249, 254 [2004]).[FN3]

III.

Petitioners assert that the Payphone Authorizing Resolutions require DoITT to grant franchises for the installation and operation of PPTs, and to grant franchisees the same rights to advertise on PPTs as was granted to Verizon (under its prior name New York Telephone Company) when it entered into the "New York City New York Telephone Company Advertising Panel Franchise Agreement," dated July 1, 1993 (1993 Franchise Agreement). One purpose of the Payphone Authorizing Resolutions was to promote competition in the public pay phone industry (see Resolution 439-A), and, petitioners contend, Section 6-06 (c) will stifle competition. In challenging the regulation, petitioners rely on Page 5, Section 8, of Authorizing Resolution 2248, which provides, in relevant part: "there shall be provisions to allow franchisees to sell or lease advertising space on [*6]its public pay telephones which are located in commercial and/or manufacturing zoning districts and zoning districts where commercial and/or manufacturing uses are permitted. To the maximum extent feasible, the Department shall ensure that such provisions for the sale or lease of advertising space on public pay telephones be consistent with the provisions of the franchise agreement entered into by and between the City of New York and New York Telephone on July 1, 1993" (emphasis added).

As discussed above, this resolution ought not to be interpreted as meaning that petitioners have the absolute right to display payphone telephone advertising everywhere throughout the city. Furthermore, although this resolution provides that DoITT is to lease advertising space on public pay telephones in a manner consistent with the 1993 Franchise Agreement, the petition fails to allege, must less substantiate, a claim that Verizon itself (i.e., New York Telephone) is not subject to Section 6-06 (c). That Verizon may currently maintain a greater number of public pay telephones with advertising than its competitors in the community districts at issue is beside the point. Resolution No. 439-A acknowledged a need to "promote competition in the public pay telephone industry in the City," and to assure "the widespread availability of reliable public pay telephone service," but it did not mandate that the number of installations belonging to each competitor be made equal.

Petitioners contend that the Payphone Authorizing Resolutions are consonant with Section 253 of the federal Telecommunications Act of 1996, codified at 47 USC § 151 et seq., that "bars states and municipalities from creating economic and operational impediments to competition in the telecommunications market and sharply confines local regulatory authority" (see Petitioners' Memorandum of Law, at 2). This same claim is made in the prior-commenced Federal Action, in which petitioners assert that the federal court has jurisdiction, because, among other reasons, it raises a federal question. Therefore, this Court declines to consider this issue here and defers to the federal court.

It does bear noting that Section 6-06 (c) applies to all companies, including petitioners and Verizon, and apparently it would not prevent petitioners from maintaining their current public pay phone installations throughout the city, together with appurtenant advertising, nor will it prevent petitioners, Verizon, or other franchisees, from installing additional public pay telephones with advertising in all districts in the city except for the eight districts subject to the regulation. Significantly, Section 6-06 (c) is applicable to all companies, including Verizon. Petitioners have not demonstrated that the regulation places petitioners at a competitive disadvantage in installing reliable public pay telephone service, a stated purpose of Resolution No. 439-A.

Petitioners argue that there is no provision in the 1993 Franchise Agreement that permits a ban on advertising rights alone in an area or areas independently of the termination of the right to operate pay phones. However, the 1993 Franchise Agreement requires Verizon to comply with all rules and regulations, and Section 9.4 of that agreement provides that: "To the full extent permitted by applicable law either now or in the future the City reserves the right to adopt or issue such rules, regulations, orders or other directives governing PPT Services that it finds necessary or appropriate in the lawful exercise of its powers, including but not limited to its police powers, and the Company [*7]expressly agrees to comply with all such lawful rules, regulations, orders or other directives" (emphasis added).

IV.

Petitioners contend that DoITT's adoption of Section 6-06 (c) was irrational, arbitrary and capricious, and an abuse of discretion, which would require the Court to nullify the agency's actions (Matter of Hughes v Doherty, 5 NY3d 100 [2005]; Matter of Pell v Board of Educ., 34 NY2d 222 [1974]).

As an administrative agency, DoITT is afforded discretion in its actions, and judicial review of its determinations is limited to whether there was a rational basis for the agency's conclusion (Matter of Hughes v Doherty, 5 NY3d 100, supra). As discussed above, it was within DoITT's power to adopt Section 6-06 (c), because the management of public telephone advertising falls within the statutory authority granted to DoITT. Adoption of the regulation was rationally based, because it is supported by, among other things, a report complied by DoITT dated October 5, 2004 (DoITT Report) on the then-proposed regulation (see Matter of Multiverse Real Estate, Inc. v New York State Div. of Hous. and Community Renewal, 261 AD2d 250 [1st Dept 1999]). The DoITT Report found that there were 8,160 advertising panels located on PPTs in City streets within the eight community districts, representing more than 72% of all the advertising panels throughout the City's 59 community districts, even though those eight community districts comprise only 4% of the City's geographic area. In addition, at least 4,170 PPT advertising panels in community districts one through eight were added in the five years preceding the date of the issuance of the DoITT Report (see Exhibit M to Answer, at 22).

Moreover, at a public hearing pertaining to Section 6-06 (c), held on February 26, 2004, numerous persons representing a variety of entities and citizen groups testified in support of the regulation, including Manhattan Community Boards 4, 5, and 7, the Municipal Arts Society, Landmark West!, the Madison Avenue Business Improvement District, the Historic Districts Council, and the Downtown Alliance.

Nearly as many speakers opposed the proposed regulation. Of these, all but one represented public telephone companies.[FN4] All but one of the opponents of Section 6-06 (c) had a direct financial interest in defeating adoption of the regulation. Petitioners rely on the testimony of former City Council member Lawrence Warden, who, they assert, voted in favor of the Payphone Authorizing Resolutions, but opposed the adoption of Section 6-06 (c) (see Petition, ¶13; Jacoby Affirmation, ¶ 9). The record establishes, however, that Warden cannot be regarded as an independent and impartial witness, because he functioned as a paid lobbyist on behalf of petitioner Telebeam Telecommunications Corporation to oppose the regulation (see Affirmation of Paula Van Meter, Esq., dated February 23, 2006, ¶ 8, Exhs. A, B). On this record, there is no issue of fact as to the adequacy of the agency's determination (Affleck v Buckley, 96 NY2d 553 [2001]).

Petitioners also assert that the proper solution to the over-saturation problem of public pay telephone advertising would be for the City Council to amend the legislation, but not for DoITT to usurp the City Council's powers. Because this Court does not find that DoITT acted in derogation [*8]of statutory authority, this suggestion is tantamount to seeking the City Council's involvement in DoITT's agency functions regarding the management of PPTs. The involvement of the Council in DoITT's rulemaking powers would be improper, in that the 1989 Charter Revision Commission created a new statutory scheme for franchises and, as such, can be seen as designed to limit the involvement of the City Council in the execution of the administrative agency's functions and to maintain a division of powers between these entities (see Matter of Council of City of New York v Public Serv. Commn. of State of NY (99 NY2d 64 [2002]). In Matter of Council of City of New York v Public Serv. Commn. of State of NY, the Court of Appeals held that the power given to the City Council to pass an authorizing resolution does not contain within it the right to be involved in either the selection of a franchisee or in the renewal of franchises pursuant to the authorizing resolution. The Court noted that Section 363 (c) of the City Charter gives the City Council the power to pass an authorizing resolution, and the next subdivision limits the authority conferred by providing that the Council may not use an authorizing resolution to involve itself in the franchise-awarding process.

As for the assertion that DoITT was aware when it adopted Section 6-06 (c) that it would disproportionately affect petitioners, in that petitioners had 76.7% of the then-pending permit applications in the eight community districts, petitioners themselves acknowledge Verizon's own opposition to the challenged regulation, presumably because it, too, is affected by Section 6-06 (c) (see Petitioners' Mem., at 8).

Petitioners contend that Verizon is unlawfully operating public telephones without a duly- issued permit, and thus, DoITT had a more reasonable means of curtailing the alleged overabundance of advertising, namely, directing that Verizon remove its unlawful telephones. The legality of Verizon's telephones is not a subject of the petition, but, rather, an issue that is apparently being addressed in the Federal Action (see Petitioners' Memorandum of Law, at 8). Verizon is not a party to this action, and this Court may not act in derogation of the rights of a non-party. Indeed, a non-party could not be bound by a judgment. Furthermore, the Court may not substitute its judgment for that of the administrative body, especially where the agency has a particular expertise in the subject matter of the regulation (Shubert Org. v Landmarks Preserv. Commn.,166 AD2d 115 [1st Dept], appeal denied 79 NY2d 1006 [1991], cert denied 504 US 946 [1992]).

V.

Petitioners' third and final argument is that Section 6-06 (c) violates the New York State Constitution, Article 1, § 6, in that it deprives them of due process of law, because they are arbitrarily denied advertising rights set forth in the Payphone Authorizing Resolutions. They claim that to deny petitioners' advertising rights substantially reduces the value of each PPT, and constitutes a substantial hardship. This claim fails because petitioners have not established a cognizable property interest, i.e., a vested property right to "more than a mere expectation or hope" as to the scope of the franchise (Bower Assoc. v Town of Pleasant Val., 2 NY3d 617 [2004]). As stated above, section 23-405 of Local Law 68 provides that a "permit issued under this chapter shall not constitute an authorization to place advertising upon a public pay phone." Moreover, the record establishes that petitioners were provided an opportunity to participate in the rulemaking process, and that they did so participate.

CONCLUSION

Accordingly, it is

ADJUDGED that the petition is denied and the proceeding is dismissed. [*9]

This constitutes the decision and judgment of this Court.

Dated: July 5, 2006

New York, New YorkENTER:

s/

J.S.C. Footnotes

Footnote 1: Petitioner's counsel, on consent, submitted a package of confidential documents: Affirmation of David Jacoby dated January 6, 2006, with Exhibits A-U; Memorandum of Law in Further Support of the Verified Petition, dated January 6, 2006; Affirmation of David Jacoby dated February 13, 2006; Affirmation of David Jacoby dated February 17, 2006, with Exhibits A and B; These documents are confidential pursuant to the order of the federal court, and were made available to this Court with permission of the federal court for purposes of deciding the Article 78 proceeding only. Although counsel requested that these documents be separately filed under seal, sealing is not practicable given state court practice and County Clerk procedures. Accordingly, this Court has kept these documents together as a separate package and returning them to counsel for petitioner upon filing of this opinion. Counsel for petitioner shall preserve them intact pending any appellate review.

Footnote 2: The Court does not address the issue of whether filing a motion in a federal action operates to toll the statute of limitations with respect to petitioners' state law claims.

Footnote 3: Although petitioners argue that DoITT does not have the authority to regulate advertising on public telephones, they do not challenge other sections of Title 67, promulgated by DoITT, that also pertain to the management of public pay telephones and advertising. For example, Section 6-06 (1) provides that advertising may not be displayed on a newly-erected public telephone until dial tone service from all public pay telephones to be installed within such location has commenced, or during any period in excess of 48 hours or two business days in which a telephone has been removed and not replaced with a functioning phone. Yet, those regulations might also be perceived as contrary to the goal of increasing advertising revenue.

Footnote 4: At the public hearing, Chris Collins, counsel to Gifford Miller, then Speaker of the City as the City Council, appeared on behalf of the Speaker.