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June 9, 2005.


The opinion of the court was delivered by: LOUIS STANTON, District Judge

Opinion and Order

Plaintiff Global Network Communications, Inc. ("Global") filed its complaint in this action on October 7, 2003, alleging that the City of New York's regulations governing public pay telephones ("PPTs") and its actions (including removal of Global's PPTs from their locations on the streets, and threatened denial of Global's application for a franchise) violated federal law and Global's constitutional rights. On November 12, 2004, defendants the City of New York and its Department of Information Technology and Telecommunications ("DoITT") moved to dismiss the complaint (the original and amended complaints are collectively referred to as the "complaint").

On March 11, 2005, during the briefing of this motion, DoITT issued a final "Notice of Commissioner's Final Determination To Not Propose Award of a Public Pay Telephone Franchise to Global Network Communications, Inc." (the "Final Determination"). Since the City's ordinances require that anyone who wishes to install and maintain PPTs on public rights-of-way must have a franchise to do so, see New York City Admin. Code §§ 23-402 and 23-403, the Final Determination ended Global's prospects of offering PPTs on City streets.

  Applying Global's claims to the present facts, the complaint is dismissed for failure to state a claim upon which relief may be granted, for the following reasons.


  The federal Telecommunications Act of 1996 ("TCA"), 47 U.S.C. § 253(a) in sweeping terms forbids any state or local statute, regulation or legal requirement that "may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." However, a special provision preserves untouched the right of State and local governments to require fair compensation for use of local public streets. Section 253(c) expressly excludes, and provides a safe harbor for, "the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers . . . for use of public rights-of-way. . . ."*fn1 The City's action in denying Global's application for a franchise fits comfortably within this safe-harbor exception. Inherently, the City's right to require compensation from telecommunications providers includes the reasonable expectation that its compensation will be paid accurately in full, on time, and without criminal involvement or fraud.

  Global, as a telecommunications provider, through its president and sole owner Ronald Massie (an "associate" of the Bonanno crime family) has a flagrant criminal record of using its Mafia connections and defrauding its customers. Members of the Bonanno crime family, including a "capo," were given commissions for providing locations where Global could put its pay telephones. These were profitable locations, from which Global derived approximately 20-30% of its business income (Massie's testimony in U.S. v. Lombardozzi, pp. 540-43). Massie was allowed to use the name of Frank Lino, a "made" member of the Bonanno organization, to "intervene in any problems that we came across in the course of [Global's] business." (id. p. 537) During 1997 through March of 2000 Global defrauded those who were entitled to commissions for allowing telephones to be placed in their establishments, out of about $1,800,000 (id. p. 526):
Q: Okay, Mr. Massie, you also told us that you pled guilty to mail fraud, correct? A: That's correct.
Q: What did you do in connection with your plea of guilty to mail fraud?
A: We mailed checks out to the people that receive commissions, based on the income of the company.
Q: Okay. What was fraudulent about that?
A: Instead of reporting all of the income, I skimmed money off the top, so it's not reported, thus, when we sent the commissions out, it wasn't based on the full amount of money collected.
Q: Mr. Massie, approximately how much money did you skim when you were making these computations on the telephone commission?
A: About a $1,800,000.
Q: Over what period of time?
A: From May of '97 through March of 2000.
Q: Did you pay taxes on the money that you skimmed?
A: I did not.
Q: What did you do with some of the money that you skimmed?
A: I diverted some of it offshore. I made loans with some of it.*fn2
  When the City commissioner declined to issue Global a franchise to place its PPTs on New York City property he stated, among other things: As set forth in detail below, there are multiple independent bases for not proposing the award of a franchise to Global to the Franchise and Concession Review Committee: (1) Global established a significant part of its business through its use of organized crime soldiers; (2) Global has defrauded property owners who authorized use of property for Global PPTs; and (3) Global has been repeatedly delinquent in the payment of registry fees and thus cannot be reliably trusted to timely pay franchise compensation and also has significant unpaid fines related to its payphone operations that remain payable to the City.

  . . .

The City has legitimate right-of-way management concerns that include, for example, whether users of the right-of-way are able to complain about some aspect of a street PPT without fear of intercession by organized crime figures, whether City personnel whose task it is to enforce management of rights of way requirements can perform their jobs without fear of organized crime action, and whether reasonable compensation for use of the rights-of-way will be accurately paid to the City.
(Final Determination: Ex. U to March 11, 2005 Murray affid.)

  No federal law or regulation should be construed to force the City to franchise Global to provide PPT services on New York City's public property and rights-of-way, when the record shows that Global cannot be expected to pay its obligations to the City in a timely or honest manner. Local governments as well as "Courts are free to assume that past misconduct is `highly suggestive of the likelihood of future violations.'" United States v. Carson, 52 F.3d 1173, 1184 (2d Cir. 1995) (quoting SEC v. Management Dynamics, Inc., 515 F.3d 801, 807 (2d Cir. 1975)). 2.

  A major thrust of plaintiff's argument is that the denial was wrong on the merits and lacked due process. One must consider separately claims that the refusal was erroneous, arbitrary or capricious and unfair (which must be determined in a New York Supreme Court Article 78 proceeding) from claims that the refusal systematically deprived Global of its due process rights (which raise constitutional issues and may be heard by this court without need for prior exhaustion of state remedies).


  To the extent that Global alleges the City acted erroneously, arbitrarily or capriciously in its franchise denial and the removal of Global's PPTs, Global has not exhausted its state law remedies under N.Y. Civ Pract. Law & Rules Art. 78.

  The Second Circuit has emphasized, citing Parrat v. Taylor, 451 U.S. 527 (1981), that "there is no constitutional violation (and no available § 1983 action) when there is an adequate state postdeprivation procedure to remedy a random, arbitrary deprivation of property or liberty." Hellenic American Neighborhood Action Comm. v. City of New York, 101 F.3d 877, 882 (2d Cir. 1996) (emphasis in original). "In reviewing state administrative proceedings, it is the function of the federal courts to determine only whether the state has provided adequate avenues of redress to review and remedy arbitrary action." Alfaro Motors, Inc. v. Ward, 814 F.2d 883, 888 (2d Cir. 1987). "Article 78 `provides the mechanism for challenging a specific decision of a state administrative agency.'" Campo v. New York City Employees' Ret. Sys., 843 F.2d 96, 101 (2d Cir. ...

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