Matter of Dianet Communications LLC v Franchise & Concession Review Comm. of City of N.Y.

[*1] Matter of Dianet Communications LLC v Franchise & Concession Review Comm. of City of N.Y. 2008 NY Slip Op 52605(U) [22 Misc 3d 1106(A)] Decided on December 18, 2008 Supreme Court, New York County Rakower, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 18, 2008
Supreme Court, New York County

In the Matter of the Application of Dianet Communications, LLC, Petitioner,

against

Franchise and Concession Review Committee of the City Of New York, MICHAEL R. BLOOMBERG, as Mayor and Chair of the Franchise and Concession Review Committee, NEW YORK CITY DEPARTMENT OF INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS, THE CITY OF NEW YORK, NEXT G NETWORKS OF NEW YORK, INC., and LEXENT METRO CONNECT, LLC, Respondents.



Dianet Communications, LLC, Plaintiff,

against

The City of New York Defendant.



107805/08



Gibson, Dunn & Crutcher, LLP

Attorneys for Petitioner

Davis Wright Tremaine, LLP

Attorneys for Defendant NextG Networks, Inc.

Michael A Cardozo

Corporation Counsel of the City of New York

Attorney for City Defendants

Tunstead & Schechter

Attorney for Defendant Lextent Metro Connect

Eileen A. Rakower, J.

Petitioner Dianet Communications, LLC ("Dianet") brings this Article 78 petition seeking to annul defendant the City of New York's ("City") franchise award to NextG Networks of New York, Inc. ("NextG") and Lextent Metro Connect, LLC ("Lextent"). Dianet also brings a breach of contract action and an action for breach of implied covenant of good faith and fair dealing against City and moves for an order granting expedited discovery. City opposes and moves to dismiss the Third, Fourth, Fifth and Sixth causes of action (for breach of contract, breach of implied covenant of good faith and fair dealing and for declaratory relief) pursuant to CPLR 3211(a)(1) and (7). Dianet opposes City's motion. Defendant NextG Networks of New York, Inc. ("NextG") opposes Dianet's petition and moves to dismiss. Defendant Lextent Metro Connect, LLC ("Lextent") also opposes Dianet's petition.

Dianet is a telecommunications company that was awarded a non-exclusive City franchise on July 15, 2004, for a term of fifteen years. The franchise was awarded to Dianet after it fully responded to a Request for Proposals ("RFP") that was issued on February 9, 2004. NextG and Lextent are also telecommunications companies and NextG was awarded a franchise on February 8, 2008, after a July 19, 2007 RFP. Lextent holds a franchise issued in 2007.

Dianet, in support of its petition submits the following: the Affidavit of Eric Mercer, CEO of Dianet, with the following exhibits annexed: (1) several email correspondences between Mr. Mercer and the Department of Information Technology and Communications ("DoITT"), (2) a copy of the Fiber Optic Lease Agreement; and (3) a copy of City's Request for Proposals ("the 2007 RFP") dated July 19, 2007; the Affirmation of Randy M. Mastro, Counsel for Dianet, with the following exhibits [*2]annexed: (1) a copy of the Transcript of the February 6, 2008 "Meeting of the Franchise and Concession Review Committee" ("FCRC"), (2) a copy of a document titled "the Council of the City of New York Resolution No. 957" ("No. 957"), (3) a copy of the "New York City Department of Information Technology & Telecommunications Mobile Telecom Franchises Handbook" ("Franchise Handbook") for September 2007, (4) a copy of the U.S. District Court Civil Docket for the case of NextG Networks of NY, Inc. v. City of New York et al ("the NextG lawsuit"), (5) a letter written from Dianet to the DoITT dated October 5, 2007, (6) a letter written from the DoITT to Dianet dated January 4, 2008, (7) a letter from Dianet to the DoITT dated January 15, 2008, (8) a memorandum from the DoITT dated March 7, 2008, (9)Dianet's response to the DoITT memorandum dated March 14, 2008, (10) a response to Dianet's letter regarding the memoradum from the City Law Department dated March 17, 2008, (11) an email from DoITT to several parties with the "pole reservations" schedule, (12) a copy of a document titled: Petitioner's Request for the Production of Documents to the City ("request for documents"), (13) a request for documents from NextG, (14) a request of documents from Lextent, and (15) a notice to depose Jeffrey Earle.

Dianet argues that City's granting of a telecommunications franchise to NextG in 2007 was done by way of a fundamentally unfair competitive process that had a predetermined outcome and thus, the franchise award should be annulled. Dianet argues that the unfair process caused it to lose a large contract with MetroPCS Communications, Inc. ("MetroPCS"), a wireless company with which it claims that it was negotiating a contract to provide equipment in the New York City area. Specifically, Dianet argues that Jeff Earle, Director of Mobile Telecom Franchise at DoITT gave Steve Mauro, Director of Project Management for MetroPCS, assurances that NextG should not have a problem getting the franchise. Dianet asserts that this conversation allegedly occurred during the active RFP procurement process. Additionally, Dianet contends that City deliberately slowed down the pole selection process for existing franchisees so that NextG could participate and thereby secure MetroPCS's business. On October 5, 2007, Dianet filed a complaint with the DOI regarding DoITT's conduct in issuing and administering the 2007 RFP and alleging that DoITT was deliberately delaying Dianet's ability to exercise its existing rights under the franchise agreements.

City, in opposition to Dianet's petition, submits: a copy of the New York City Charter Chapter 13: Procurement §328 Registration of Contracts by the Comptroller [*3]("§328"); a copy No. 957, Adopted August 11, 1999 ("957"); a copy of the February 9, 2004 RFP; a copy of the Franchise Agreement between Dianet and City; a copy of the New York City Council Resolution Number 519 adopted March 23, 2005 ("519"); a copy of the July 19, 2007 RFP; a copy of the March 7, 2008 memorandum; a letter from DoITT to NextG dated March 5, 2008, informing it that it has won a franchise; a copy of the pole reservations email; and a copy of the City of New York Department of Investigation report regarding: "DoITT RFP for Franchises Allowing the Installation of Telecommunications Equipment on Top of City-Owned Street Poles and Certain Utility Poles" ("DOI Investigation Report").

City initially claims that Dianet does not have standing to challenge DoITT's decision as Dianet fails to show that its affected interest is within the zone protected by the relevant statute and that a competitive injury, by itself, will not confer standing. City also asserts the petition is untimely with respect to Dianet's allegations regarding the issuance, the requirements and the administration of the 2007 RFP. Moreover, City points out that the 2004 RFP makes clear that it is granting a "non-exclusive" franchise to Dianet, and that allocation of the pole locations among multiple franchises is determined based on the amount of compensation offered by competing companies. The relevant portions of the 2004 RFP state:

Section 2. NON-EXCLUSIVITY; RESERVATION OF AUTHORITY: Any franchise awards by DoITT from among the proposals submitted pursuant to this RFP will be non-exclusive . . . DoITT reserves, to the fullest extent permitted by law, the right to select no proposals, one proposal or multiple proposals. DoITT also reserves the right to issue additional RFPs of the same or similar effect in the future.

Section 1: INTRODUCTION, Footnote 2:

Allocation of sites among multiple applying franchisees, where all applications cannot be practically accommodated, will likely rely in significant part on the compensation being offered by competing applicants, and proposers may wish to consider such likelihood in developing their compensation proposals . . .

Further, City disputes Dianet's claim that DoITT did anything improper during the RFP Process or that the decision to award a franchise to NextG was predetermined. City submits the DOI's summary report and points out that DOI, after conducting a full investigation, concluded that there was no impropriety or illegal action by DoITT. [*4]

NextG, in opposition to Dianet's petition and in support of its own motion to dismiss, submits the following items, not duplicative of Dianet's or City's submissions: a letter form Gino P. Menchini, of the DoITT to Robert L. Delsman, Vice President of Government Relations for NextG dated April 30, 2004; a response letter from Mr. Delsman to Agostino Cangemi, General Counsel for NextG dated May 5, 2004; a letter from Mr. Cangemi to Mr. Delsman dated July 12, 2004; a letter from Mitchel Ahlbaum, General Counsel of DoITT to Mr. Delsman dated April 27, 2007; the "Declaration of Agostino Cangemi; a copy of a transcript of the oral arguments in the NextG federal lawsuit against City dated February 23, 2006; a copy of a document titled "Addendum No.1" amending the requirements of the 2007 RFP dated July 31, 2007; a letter from DoITT to NextG dated August 31, 2007; a copy of the Franchise Agreement between City and Nextg; a copy of the resolution adopted by the Franchise and Concession Review Committee ("FCRC") dated February 6, 2008; and a letter from DoITT to Mr. Delsman dated March 5, 2008.

NextG, in support of its motion, points to the findings of the DOI in order to refute Dianet's allegations of any wrongdoing on the part of either it or the City with regards to Dianet. NextG also asserts that, pursuant to DoITT's RFP process, it pays a higher amount per pole than Dianet, yet it is always below Dianet in the pole reservation priority list. Thus, NextG claims, there is no basis for Dianet's claims that NextG was favored by DoITT and the petition should be dismissed. Lextent adopts NextG's arguments in opposition.

As a threshold issue, "A CPLR article 78 proceeding against a public body must be commenced within four months after the determination to be reviewed becomes final and binding upon the petitioner.'" (Rocco v. Kelly 20 AD3d 364, 365-366 [First Dept. 2005], citing Matter of Yarborough v. Franco, 95 NY2d 342 [2000]; see also CPLR §217[1].) "An administrative determination becomes final and binding' when the petitioner seeking review has been aggrieved by it." (Id. at 366, citing Yarborough).

In order "to determine when the statute of limitations is triggered, the Court must first ascertain what administrative action petitioners seek to review." (Ousmane v. City of New York 7 Misc 3d 1016(A) [Sup. Ct. NY Cty. 2005], citing Young v. Board of Trustees, 89 NY2d 846, 848 [1996]). Here, Dianet's First Cause Action alleges: [*5]

The acts of the City respondents in awarding franchises to NextG and its subcontractor, Lextent, and administering the 2007 RFP were arbitrary, capricious, irrational and contrary to law because the RFP was issued solely to favor NextG, in contravention of the law requiring a fair and unbiased RFP process; this RFP process was a sham whose outcome was predetermined in NextG's favor, to the detriment of other competition such as Dianet, whose existing legal rights as franchisees the City Respondents ignored and/or violated and the irregularities here, referred to DOI for investigation, were so fundamental that they should have compelled the FCRC to (I) deny NextG and Lextent's franchise applications, and (ii) reject this RFP process as untenable and invalid.

The Court of Appeals, in Edmead v. McGuire (67 NY2d 714 [1986]), identifies an administrative determination as having become final and binding when it "has impact upon the petitioner who is thereby aggrieved" (Id.)The petition is timely as Dianet was not aggrieved by the process until NextG, in contravention of what Dianet asserted would have been a fair outcome, was officially awarded a franchise on February 6, 2008. The instant petition was filed on June 5, 2008, within the four month statute of limitations period. The court notes that Dianet's contract claims as against City are also timely as the six year statute of limitations has not yet expired (see, CPLR §213[2]).

City next asserts that Dianet lacks standing to bring this proceeding. In order to establish that a petitioner has standing to bring a proceeding under Article 78, the claims are subject to a two-part test. First, a showing must be made that "the administrative action will in fact have a harmful effect on the petitioner" and, second, that the "interest asserted is arguably within the zone of interest to be protected by the statute." (Dairylea Cooperative, Inc. v. Walkley, 38 NY2d 6[1975]).The harmful effect, or "injury in fact" that petitioner must show needs to be distinct from the public at large and must be more than mere conjecture. (New York State Association of Nurse Anesthetists v. Novello, 2 NY3d 207[2004]).

While a competitive injury, in and of itself, will not confer standing (Id. at 11), that is not the case here. Dianet does not challenge DoITT's grant of a franchise to NextG merely because it lost out on a bid. Rather, if Dianet's allegations are taken as true, it challenges the award based on an unfair proposal process, which resulted in a substantial economic loss to Dianet. Specifically, Dianet alleges that it was damaged because, but for the City's interference, Dianet would have entered into a [*6]contract with MetroPCS worth more than $160 million. Whether or not those allegations have merit is irrelevant to the standing determination. (Society of Plastics Industry, Inc. v. County of Suffolk, 77 NY2d 761[1991]). Additionally, Dianet, as a competitor in the RFP process, has an interest in the fairness of that process, regardless of the ultimate outcome. (see generally, Jerkens Truck & Equipment, Inc. v. City of Yonkers, 174 AD2d 127[2nd Dept. 1992]).

Having recognized Dianet's standing to challenge the franchise awards, the court now turns to the merits of Dianet's Article 78 action. It is well settled that the "[j]udicial review of an administrative determination is confined to the facts and record adduced before the agency'." (Matter of Yarborough v. Franco, 95 NY2d 342, 347 [2000], quoting Matter of Fanelli v. New York City Conciliation & Appeals Board, 90 AD2d 756 [1st Dept. 1982]). The reviewing court may not substitute its judgment for that of the agency's determination but must decide if the agency's decision is supported on any reasonable basis. (Matter of Clancy -Cullen Storage Co. v. Board of Elections of the City of New York, 98 AD2d 635,636 [First Dept. 1983]). Once the court finds a rational basis exists for the agency's determination, its review is ended. (Matter of Sullivan County Harness Racing Association, Inc. v. Glasser, 30 NY2d 269, 277-278 [1972]). The court may only declare an agency's determination "arbitrary and capricious" if it finds that there is no rational basis for the determination. (Matter of Pell v. Board of Education, 34 NY2d 222, 231 [1974]).

The process followed by City in issuing and administering the RFP is as follows: §383 of the New York City Charter grants City the right to issue franchises with respect to its inalienable property. Charter §363 sets out the terms and procedures for those issuances: §363 states, in relevant part:

a. Franchises shall be awarded only in accordance with the provisions of an authorizing resolution adopted by the council pursuant to the provisions of this section.

b. An initial determination of the need for franchises of a particular type shall be made by the head of the agency . . .Upon making such a determination, such agency . . . shall prepare a proposed authorizing resolution for that type of franchise and shall submit such . . . resolution to the mayor. Such . . . resolution shall set forth the nature of the franchise . . . the public service to be provided, the terms and conditions of the franchise . . . the method by which proposals will be solicited . . . [*7]and the criteria to be used in evaluating the proposals submitted in response to such a solicitation.

NYC Charter §371 requires that a public hearing be held on any proposed agreement "memorializing the terms and conditions of each proposed franchise . . .before final approval of the proposed franchise . . .within thirty days of the filing with the committee by the . . . agency of a proposed agreement containing the terms and conditions of the proposed franchise."

In 1999, at DoITT's request, the City Council issued No. 957, an authorizing resolution, allowing DoITT to grant non-exclusive franchises for the installation of equipment and facilities for the provision of mobile telecommunications services "on, over and under the inalienable property of the City." The stated purpose of the resolution is to: Promote the public interest, enhance the health, welfare and safety of the public and stimulate commerce by assuring the widespread availability of reliable mobile telecommunications services.

The resolution further mandates that, prior to the grant of any such franchise, DoITT was to issue an RFP, or other solicitation.[FN1] On February 9, 2004, DoITT issued an RFP. Nine, companies, including Dianet and NextG responded to the 2004 RFP. By an agreement dated July 15, 2004, the City awarded Dianet a franchise. The Franchise Agreement granted Dianet:

...the right and consent to install, operate, repair, maintain, remove and replace cable, wire, Fiber (or other transmission medium that may be used in lieu of cable, wire or Fiber) and related equipment and facilities on, over and under the Inalienable Property of the City, for the provision of Mobile Telecommunications Services . . .

Authorizing resolution No. 519 was adopted on March 23, 2005, also pursuant to [*8]§363, and on July 19, 2007, DoITT issued a new RFP. On August 23, 2007, Dianet, NextG, Lexent and an existing franchisee Mobilitie submitted responses to the 2007 RFP, and on February 6, 2008 the FCRC approved the grant of a franchise NextG.

City has shown that it followed its own procedures in issuing both the 2004 and the 2007 RFP's, which were seeking proposals for the grant of non-exclusive telecommunication franchises. Further, the DOI summary includes a review of the communications examined and testimony taken by the DOI regarding contact between DoITT and MetroPCS, as well as its investigation of the timing of the pole reservation phase, cancellation of pole reservations and the City's purported rationales for same. The DOI further found no intent on the part of DoITT to disadvantage Dianet. When challenging an award of a public contract, it is petitioner's burden to demonstrate that there was "actual impropriety, unfair dealing or some other violation of the statutory requirements." (Matter of Acme Bus Corp. v Board of Educ. of Roosevelt Union Free School Dist., 91 NY2d 51, 55 [1997]). Indeed, when challenging an award based on an RFP, the burden is even greater as it is well settled that an "RFP is a more flexible alternative to competitive bidding." (Madison Square Garden, L.P. v. New York Metropolitan Transp. Authority, 19 AD3d 284,286 [1st Dept. 2005]).

Here, Dianet merely shows that there was an appearance of impropriety in DoITT's conversations with MetroPCS, but falls short of showing that the City was guilty of actual impropriety which led to the harm it alleges in its petition. As DOI stated in its summary report, limitations on communications applied to proposers only. MetroPCS was not a proposer. Nor was the information allegedly conveyed confidential; it was merely a statement of fact that if NextG complied with the terms of the RFP, it would be approved for a franchise. As such, City's decision to grant franchise awards to NextG and Lextent was not arbitrary, capricious or irrational and Dianet's petition seeking the annulment of franchises to NextG and Lextent and the annulment of their pole selections is denied.

City moves, pursuant to CPLR §3211(a)(1) and (7), to dismiss Dianet's contract claims, as well as its claim that City breached the implied covenant of good faith and fair dealing. Dianet alleges that City respondents explicitly breached their contract with Dianet in two ways: (1) by requiring Dianet to respond to the 2007 RFP in order to extend Dianet's rights to include the option to place telecommunications equipment [*9]on privately owned utility poles located on City land; and (2) by permitting NextG and Lexent to select poles in all three zones during the third reservation phase and invading Dianet's contractual property rights. Additionally, Dianet contends that, by deliberately delaying Dianet's ability to select poles under the franchise agreement that City respondents "...hindered Dianet from exercising the fruits of its contract and thwarted the purpose of the agreement..." in contravention of the covenant of good faith and fair dealing implied in Dianet's franchise agreement.

As to to the third cause of action, City argues that the 2004 Franchise Agreement contradicts Dianet's allegation that the franchise gave it the right to place its equipment on privately owned utitlity poles. Thus, City argues, the contract was not breached by City requiring Dianet to respond to the newly issued 2007 RFP in order to acquire that right.

CPLR 3211 states, in relevant part:

(a) a party may move for judgment dismissing one or more causes of action asserted against him on the ground that:

(7) the pleading fails to state a cause of action &

(1) A defense is founded upon documentary evidence.

On a motion to dismiss pursuant to CPLR 3211(a)(1) "the court may grant dismissal when documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." (Beal Sav. Bank v. Sommer, 8 NY3d 318, 324 [2007]) (internal citations omitted)."Where a written agreement unambiguously contradicts the allegations supporting a litigants cause of action for breach of contract, the contract itself constitutes documentary evidence warranting dismissal of the complaint pursuant to CPLR 3211(a)(1)" (150 Broadway NY Assoc., L.P. v. Bodner, 14 AD3d 1,4[1st Dept. 2004]).

Section 2.3.1 of the franchise agreement states, in relevant part: [*10]

Nature of Franchise. (a) the City hereby grants the Company, commencing on the Effective Date and thereafter for the period of the Term . . . a nonexclusive franchise providing the right and consent to install, operate, repair, maintain, remove and replace cable, wire, Fiber . . . and related equipment and facilities on, over, and under the Inalienable Property of the City, for the provision of Mobile Telecommunications Services, provided however, that such grant is expressly limited to the locations, facilities and services described in Section 2.4.2 hereof and Appendix A hereto. (emphasis added).

Section 2.4.2 states:

Construction of Facilities. (a) The Company is only authorized, under the franchise granted pursuant to this Agreement, to install, within the Franchise Area and in all cases subject to the terms and conditions of this Agreement:

(I) Base Stations on Street Poles, and

(ii) for purposes of connecting Base Stations installed on Street Poles to one another or to a supporting telecommunications system . . . cable, wire or optical fiber . . . on, over or under the Inalienable Property of the City within the Franchise Area . . .

Appendix A, states:

This Agreement does not authorize the placement of Base Stations on sites, structures or facilities other than SLPs [City owned street light poles], TLPs,[City owned Traffic Light Poles], and HSSPs [City owned Highway Sign Support Poles],except as such placement may be expressly authorized by DoITT and DOT [FN2] pursuant to procedures established by DoITT and DOT. (emphasis added).

The above sections of the 2004 contract do not grant Dianet the right to install its equipment on any property other than that property explicitly stated in the agreement. [*11]However, Dianet asserts that the Seventh Whereas Clause on page one of the agreement does not prohibit it from using private property. That section states, in relevant part:

City-owned . . .property . . . are one, but not the only, or even the preponderant, type of location that can be used to locate mobile telecommunications facilities and equipment (indeed the telecommunications industry has largely developed to date using private property to locate facilities and equipment, access to which private property requires no authority pursuant to a City franchise) and the parties recognize that while it may be in the public interest for the City to make Street Poles and certain other City property available for the purpose described in this Agreement, any decision by the City not to make such property available to one or more entities, or to condition the availability of such property . . . would not be intended to prohibit or effectively prohibit any such entity from providing its services, which may be provided using private property (with respect to which no franchise is required).

Dianet has failed to state a cause of action for breach of contract based on City's requirement that it respond to the 2007 RFP in order to gain rights to place its equipment on private utility poles which are located on the inalienable property of the City. Dianet is urging the court to interpret the contract as meaning that in the absence of an express prohibition by City, Dianet had a contractual right to install its equipment on private utility poles, thereby relieving it of the duty to respond to the 2007 RFP. Such an interpretation would require the court to insert rights into the contract which are not contained within its four corners. "A court may not write into a contract conditions the parties did not insert by adding or excising terms under the guise of construction, nor may it construe the language in such a way as would distort the contract's apparent meaning." (Bottitta v. Bottitta, 194 AD2d 510, 513[2nd Dept. 1993]). Thus, City's motion to dismiss the third cause of action, for breach of contract, with respect to City requiring Dianet to respond to the 2007 RFP, is granted. The motion to dismiss as to the sixth cause of action, seeking a declaratory judgment that Dianet need not respond to the 2007 RFP, is also granted.

Dianet alleges, in its fourth cause of action, that City respondents violated the existing contract with Dianet by permitting NextG and Lexent to select poles during the third reservation phase in Zones "A" and "B", before they became registered franchisees, and after the phase for those zones was"closed" under the terms of the [*12]contract. Additionally, Dianet alleges that a provision in NextG's 2007 franchise agreement, permitting it to participate retroactively in an ongoing pole reservation process, violated Dianet's rights under its 2004 franchise agreement. Alternately, Dianet contends that, even if the third reservation phase were considered open, that NextG and Lexent's selections of poles in zones A and B clearly violated the terms of the franchise agreement.

City argues that there is nothing in the franchise agreement which states that after each eligible street pole franchisee has taken its turn in selecting poles, the Zone becomes "closed." Rather, the phase is only "considered completed" when all franchisees in all zones have finished selecting their poles. Further, City contends that the language contained in the 2007 Franchise Agreements, which allows for franchisees to participate in on-going New Reservation Phases, does not contradict or compromise any promise made to Dianet in the 2004 Franchise Agreement.

Dianet, in opposition, asserts that the Reservation Phase began on November 1, 2007 and that Dianet, as the last selector, completed its pole selections for Zones "A" and "B" on January 29, 2008. Thus, Dianet argues, NextG and Lextent would have had to file a Reservation Notice by February 2008. Dianet argues that NextG and Lextent failed to file their notices because their franchises were not even effective until March 15, 2008. Thus, even if the 2004 agreement did allow NextG and Lextent to begin the pole selection process on February 6, 2008, they failed to follow the required process. Dianet claims that, as another example of the City's favoring of NextG and Lextent, it allowed the companies to take part in the process anyway.

The portion of the contract that concerns allocation of pole sites among franchisees, found in Appendix A, Section II (B)(1)(a) states, in relevant part:

From time to time . . . the City will notify the Company and all other Street Pole Franchisees of the opening of a "New Reservation Phase." Not later than thirty (30) days after such notice, the Street Pole Franchisee that is the highest on the Priority List for each Zone may post . . . a list . . . of Street Poles in such Zone on which such . . . Franchisee seeks to site Base Stations . . . the Street Poles on such list shall become Reserved Poles, reserved to the Street Pole Franchisee that posted the list . . . Not later than thirty (30) days after the earlier of (I) posting of such [*13]Reservation Notice with respect to any particular Zone, or (ii) the expiration of the time period for the posting of such Reservation Notice, the Street Pole Franchisee that is second on the Priority List for such Zone may submit its own Reservation Notice, such list to again include no more than the maximum number of proposed Street Pole sites than is permitted . . . Thereafter, not later than thirty (30) days after each posting of a Reservation Notice . . . and such list not to include any Reserved Poles . . . with respect to any particular Zone, the Street Pole Franchisee next on the Priority List for that Zone may submit its own Reservation Notice . . . such process shall be repeated until each Street Pole Franchisees has had the opportunity to submit a Reservation Notice with respect to each Zone in its Franchise Area.On the date that all Street Pole Franchisees have filed a Reservation Notice for all Zones in their Franchise Areas, or the opportunity to file such a Reservation Notice has expired, the particular New Reservation Phase shall be considered completed.

On March 17, 2008, DoITT advised NextG that it could select poles in all three zones as part of the Reservation Phase. Thus, NextG and Lextent began the pole selection process after March 15, 2008, the effective date of the agreement.

The next issue before the court is whether the 2004 franchise agreement conclusively establishes a defense to the breach of contract claim asserted by Dianet based on the allegation that City permitted NextG and Lextent to participate in the pole selection after the new reservation phase was "closed" (see Real Sav. Bank). The court finds that City has not met its burden pursuant to CPLR 3211(a)(1). While City explicitly states in the franchise agreement that it is granting a non-exclusive franchise, City also agrees, in Section 2.4.1. of the contract: "not to subsequently grant Street Pole Franchises in a manner that would unfairly and adversely affect the Company's pole allocation property as set forth in Section II (B) of Appendix A attached hereto." The contract language does not conclusively establish that City followed the pole selection process in a manner that did not "unfairly or adversely affect" Dianet.

Nor does City make a showing why Dianet's fourth cause of action warrants dismissal pursuant to CPLR 3211(a)(7). On a motion to dismiss under CPLR 3211(a)(7) "...the court's task is to determine only whether the facts as alleged, accepting them as true and according plaintiff every possible favorable inference, fit within any cognizable legal theory." (Ladenburg Thalmann & Co., Inc. v. Tim's [*14]Amusements, Inc.,275 AD2d 243, 245[1st Dept. 2000]). If Dianet's allegations are taken as true, as they must be on a motion to dismiss, the complaint states a cause of action for breach of contract based on City's actions in allowing the new franchisees to select poles in alleged contravention of Dianet's contractural rights.

Finally, Dianet's cause of action for Breach of Implied Covenant of Good Faith and Fair Dealing, based on the allegation that City deliberately delayed Dianet's selection of poles is dismissed as Dianet has identified no conduct by City that has "deprived [it] of the benefit of [its] bargain." (National Union Fire Insurance Co. v Red Apple Group, Inc., 281 AD2d 296, 297[1st Dept. 2001]). Encompassed within the pledge to act in good faith is the pledge that, where the contract "contemplates the exercise of discretion," there is an implied promise not to act arbitrarily or capriciously in the exercise of that discretion. (see, Dalton v. Educational Testing Service, 87 NY2d 384[1995]). Dianet's franchise agreement provides that: "from time to time (but not less frequently than once a year during the first three years after the Effective Date, the City will notify [the franchisee] and all other Street Pole Franchisees of the opening of a New Reservation Phase.'" The effective date of Dianet's franchise was Novemner 15, 2004. The third new reservation phase was initiated on November 1, 2007, which was timely with regards to Dianet. Thus, the timing of the third reservation phase was not arbitrary and was in keeping with the terms of the contract.

Wherefore, it is hereby

ORDERED that petitioner Dianet Communications, LLC's Article 78 petition is denied and dismissed as to all defendants; and it is further

ORDERED that the City defendants' motion is granted to the extent that petitioner Dianet Communications, LLC's Third, Fifth and Sixth Causes of Action are dismissed; and it is further;

ORDERED that City defendants shall serve an answer to the remaining fourth cause of action, if it has not already done so, within 20 days of receipt of a copy of this order with notice of entry; and it is further [*15]

ORDERED that Dianet Communications, LLC's motion for expedited discovery is granted to the extent that, upon the Court's receipt of City defendants' Answer and Dianet's Bill of Particulars, the matter is referred to the Case Management Office for the issuance of a Case Scheduling Order.

This constitutes the decision and order of the court. All other relief requested is denied.

Dated: December 18, 2008____________________________Eileen A. Rakower, J.S.C. Footnotes

Footnote 1: No.957, by its terms, expired on August 11,2004 and a new proposal, No. 519 was introduced and adopted on March 23, 2005.

Footnote 2: The New York City Department of Transportation