United States District Court, S.D. New York
June 9, 2005.
GLOBAL NETWORK COMMUNICATIONS, INC., Plaintiff,
CITY OF NEW YORK, CITY OF NEW YORK DEPARTMENT OF INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS, Defendants.
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
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
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
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.
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. 1988)
(citation omitted). "An Article 78 proceeding is adequate for due
process purposes even though the petitioner may not be able to
recover the same relief that he could in a § 1983 suit."
Hellenic, 101 F.3d at 881.
Therefore, Global's allegations that the City acted in an
arbitrary and capricious manner in the franchise denial and the
removal of the PPTs are dismissed for failure to exhaust state
law remedies under N.Y.C.P.L.R. Art. 78.
Global has expressed substantial claims that the City's earlier
actions against it were taken without proper notice to Global or
opportunity for it to rebut, but (perhaps because of the way the
case has evolved) has not directed any such claims (which would
raise constitutional due process issues) against the Final
Determination. It would be difficult to do so. New York State Supreme Court
Justice Louise Gruner Gans remanded, in an Article 78 proceeding,
an earlier franchise denial by the City and directed that DoITT
"must provide Global with the basic elements of procedural due
process, notice and a timely opportunity to be heard on the issue
of responsibility as a potential franchisee." Global Network
Communications, Inc. v. Dobrin, Index No. 120402/00 (Sup.Ct.
N.Y. County July 1, 2002) (Ex. L to Nov. 12, 2004 Murray affid.,
Since then Global has had, and used, ample opportunities to
present its case to DoITT. On February 28, 2003, the City issued
a formal "Notice of Opportunity to Oppose Commissioner's Proposed
Decision Not to Propose Award of a Public Pay Telephone Franchise
to Global Network Communications, Inc." It set out the City's
reasons for its proposed franchise denial, and invited Global to
submit its arguments and evidence why the decision should not be
rendered. Global replied at length in a letter dated March 28,
2003. On October 28, 2004, DoITT staff recommended that the
Commissioner not propose Global for a PPT franchise. Again, it
addressed the merits of the determination, and invited a response
from Global. Global again responded, by letter dated January 12,
2005. At the end of this process, and fully aware of Global's
views, DoITT issued its Final Determination on March 11, 2005.
The Final Determination explicitly addressed each of Global's objections, and DoITT's reasons for rejecting them.
The facts on which the City relied in reaching its decision are
primarily contained in Mr. Massie's own testimony in United
States v. Lombardozzi, and do not require an evidentiary
hearing. "Due process is flexible and calls for such procedural
protections as the particular situation demands." Mathews v.
Eldridge, 424 U.S. 319, 333-35, 96 S. Ct. 893, 902-03 (1976);
see also John Gil Constr., Inc. v. Riverso, 72 F. Supp. 2d 242,
254-55 (S.D.N.Y. 1999) ("The Due Process Clause does not demand
that the government provide a full evidentiary hearing each time
it infringes upon a party's property or liberty interest").
Global has not pleaded any cognizable constitutional claim
challenging the Final Determination.
Accordingly, whether based on a claim that the denial of the
franchise was arbitrary and capricious, or on a claim that Global
was denied due process, Global's attacks on the merits of the
Final Determination are dismissed without prejudice to asserting
whatever claims may be open to it under Article 78. 3.
Global's papers point to certain provisions in the City's
regulations and franchise requirements which might not survive
examination under the case law applying the TCA. Court decisions
have limited the scope of municipalities' rights of
administration under the safe harbor provision, holding them
narrowly to such matters as street construction, in order to
avoid local interference with nation-wide free competition.
Global also complains that some charges connected with the
franchise are not fair and reasonable, or competitively neutral,
or publicly disclosed. Global argues that some of the City's
inquiries into the business affairs of applicants exceed what is
allowed by the courts as necessary to proper administration, and
impede the TCA's policy favoring unfettered competition in the
provision of interstate and intrastate telecommunications
service. See, e.g., TCG New York, Inc. v. City of White
Plains, 305 F.3d 67 (2d Cir. 2002).
Those matters are immaterial here, for two reasons. First,
the City's refusal of a franchise to Global rests solidly on its
authority to obtain compensation for the use of its
rights-of-way, without need for further support under the City's
general right of administration or consideration of its scope.
Second, since Global has no franchise it is unaffected by such provisions, and has no standing to complain of them.
Global argues that the City's actions were unauthorized because
the Federal Communications Commission has passed a regulation
providing that: "Each state must review and remove any of its
regulations applicable to payphones and payphone service
providers that impose market entry or exit requirements."
47 C.F.R. § 64.1330(a).
In its Report and Order, the FCC elaborated on the meaning of
"market entry or exit requirements":
The competition we observe today, however, has been
significantly distorted by government regulation of
prices, regulatory barriers to entry and exit, as
well as by significant subsidies from other
telecommunications services. Regulated prices prevent
the market from operating efficiently to deploy
payphone facilities. Moreover, some states currently
prohibit the provision of payphone service by any
entity other than the incumbent LEC. Removing these
types of entry and exit restrictions is a necessary
step toward allowing competitive forces to guide both
the deployment of payphones and the setting of prices
for payphone services.
11 F.C.C.R. 20541, 20548 at ¶ 13 (1996).
The City's denial of a franchise to Global has nothing to do
with "government regulation of prices." Nor does it reflect the
type of "regulatory barriers to entry and exit" contemplated by
the FCC regulation. An isolated refusal to deal with an applicant known for payment defaults and the defrauding of payees
is not a "regulatory barrier to entry and exit." Nor did the
City's denial of the individual franchise have anything to do
with subsidies of other telecommunications services, or
preference for an incumbent provider of PPT service.
Since the final determination to deny Global the franchise
rested on Global's defaults on its obligations to the City and
its untrustworthiness to pay compensation honestly, it is
unaffected by the FCC regulation.
Global claims that the City's actions:
. . . violate Global's rights to provide truthful
commercial speech and non-commercial speech on its
PPT installations, because Defendants refuse to allow
Global to place advertising on its Curb-Line PPTs in
the manner that the Defendants allow advertising on
Curb-Line PPTs owned by those entities to which the
Defendants have awarded PPT franchises. . . .
First Am. Complaint at ¶ 254.
Since Global has not been awarded a PPT franchise, comparisons
with those who have been awarded such franchises are meaningless.
Global is not entitled to have PPT installations on the City's
public rights-of-way, so the question of what advertising it
could place on such installations (if it had them) does not
arise. Global also claims that the City has "retaliated against Global
for its prior litigation against the Defendants and commencement
of this litigation." Id. at ¶ 257.
Since the City's post-lawsuit actions are entirely consistent
with the City's earlier franchise denial, which was issued before
both the Article 78 proceeding and this litigation, Global has
not met its burden to make more than conclusory allegations that
the City acted with retaliatory intent. See Friedl v. City of
New York, 210 F.3d 79, 85-86 (2d Cir. 2000) ("To survive a
motion to dismiss, such claims must be `supported by specific and
detailed factual allegations,' not stated `in wholly conclusory
Accordingly, Global's claims of violation of its right to free
speech, and of retaliation for its litigation, are both
Global claims that, by denying it a franchise to install and
maintain PPTs on public rights-of-way, the City has
"substantially impaired Plaintiff's rights under its contracts
with third parties" in violation of the Contracts Clause,
U.S. Const. Art 1, § 10. First Am. Complaint at ¶ 237. Global had
entered into a contract to provide PPT services for Kinney System, Inc., a public parking garage operator, and "installed
numerous pay telephones pursuant to the Kinney Contract on City
sidewalks adjacent to parking garages operated by Kinney System,
Inc." Id. at ¶ 242.
The City's franchise denial does not discharge Global's
obligations under its contract with Kinney, nor Kinney's
obligations to Global. If Global is unable to perform, Kinney's
remedies for breach are unimpaired. It was Global's duty to be
able to perform its obligations, and it took the risk that it
might fail to obtain the franchise (or license) that it needed in
order to perform its obligations.*fn3 Nothing in the
contract between Global and Kinney, or any other private party,
could impose any duty upon the City to grant Global's franchise
application. As stated by Mr. Justice Holmes, "One whose rights,
such as they are, are subject to state restriction, cannot remove
them from the power of the state by making a contract about
them." Hudson Water Co. v. McCarter, 209 U.S. 349, 357,
28 S. Ct. 529, 531 (1908); see also Manigault v. Springs,
199 U.S. 473, 480, 26 S. Ct. 127, 130 (1905) (". . . parties by entering
into contracts may not estop the legislature from enacting laws
intended for the public good."); Knoxville Water Co. v. City of Knoxville, 189 U.S. 434, 438, 23 S. Ct. 531, 532 (1903) ("Some
argument was attempted as to the ordinance impairing the
obligation of the contracts between the company and its
consumers. But such contracts, of course, were made by it subject
to whatever power the city possessed to modify rates. The company
could not take away that power by making such contracts.")
Global proceeded at its own peril in light of the risk that it
might not obtain a franchise. Global's claim that its contract
was unconstitutionally impaired is dismissed.
Since Global makes no claim that the New York Public Service
Law limits the City's authority to require compensation for the
use of its public rights-of-way, its claims under that law are
Global's claims under 42 U.S.C. § 1983 are dismissed because
all the underlying claims have been dismissed. Conclusion
The Clerk will enter judgment dismissing this action, with
costs and disbursements to defendants according to law, without
prejudice to plaintiff's assertion of claims that may be open to
it in a proceeding in the Supreme Court of the State of New York
under Article 78 of the New York Civil Practice Law and Rules.