Global Network Communications v. City of New York

• Decision Date: 21 July 2006
• Docket Number: Docket No. 05-3298-cv.
• Citation: 458 F.3d 150
• Parties: GLOBAL NETWORK COMMUNICATIONS, INC., Plaintiff-Appellant, v. CITY OF NEW YORK and City of New York Department of Information Technology and Telecommunications, Defendants-Appellees, Gino O. Menchini, in his official capacity, Stanley Shor, in his official capacity, Defendant.
• Court: U.S. Court of Appeals — Second Circuit

458 F.3d 150

GLOBAL NETWORK COMMUNICATIONS, INC., Plaintiff-Appellant, v. CITY OF NEW YORK and City of New York Department of Information Technology and Telecommunications, Defendants-Appellees Gino O. Menchini, in his official capacity, Stanley Shor, in his official capacity, Defendant.

Docket No. 05-3298-cv.

United States Court of Appeals, Second Circuit.

Argued October 31, 2005.

Decided July 21, 2006.

Amended July 28, 2006.

Robert G. Scott, Jr., Washington, DC (T. Scott Thompson, Maria C. Moran, Cole, Raywid & Braverman, LLP, Washington, DC; J. Michael Gottesman, New York, New York) of counsel, for Plaintiff-Appellant.

Bruce Regal, New York, New York (Michael A. Cardozo, Corporation Counsel of the City of New York, Pamela Seider Dolgow, Diana M. Murray, John Hogrogian, New York, New York) of counsel, for Defendants-Appellees.

Joel Marcus, Washington, D.C. (Samuel L. Feder, General Counsel, Daniel M. Armstrong, Associate General Counsel, Federal Communications Commission, Washington, DC), of counsel, filed a brief on behalf of the Federal Communications Commission as amicus curiae.

Before: WALKER, Chief Judge, FEINBERG and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge.

Plaintiff Global Network Communications, Inc. (Global, plaintiff, or appellant) appeals from a judgment of the United States District Court for the Southern District of New York (Stanton, J.) dated and entered June 14, 2005, dismissing its complaint against defendants City of New York (City) and City of New York Department of Information Technology and Telecommunications (Department) (collectively defendants), for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). Global contends the district court, having considered matters outside the pleadings, committed reversible error by failing to convert defendants' Rule 12(b)(6) motion into a Rule 56 motion for summary judgment.

The district court perhaps understandably granted the City's motion to dismiss plaintiff's complaint because the papers before it contained serious allegations questioning whether it would be in the City's best interest to grant a pay phone franchise to plaintiff. But, in dismissing the complaint, the district court erred by considering matters outside the pleadings. We must therefore vacate the district court's judgment and remand the case to it.

BACKGROUND

A. Facts

Global is one of the largest independent providers of pay phones in New York City. Since 1990 it has installed and operated about 1,000 of them on the City's sidewalks and other public rights-of-way. In 1995 the City began to regulate pay phone providers by requiring that they obtain a franchise from the Department, which is the City's regulatory agency for telecommunications, if they wanted to continue doing business on the City's rights-of-way. As of 2002 there were 65,793 pay phones in New York City, of which about half were subject to City franchise and permit requirements. The other half, located on private—not City-owned—property, such as stores, lobbies, parking lots, malls, schools, hospitals, etc., do not require a permit from the City.

In 1996 Global began complying with the City's regulations and applied for a franchise. In May 2000 the Department issued a final decision denying Global's application on the ground that its sole shareholder and president, Ronald Massie, had been arrested by the FBI in March 2000 for engaging in extortion and organized crime with the Bonnano crime family and had used Global as a vehicle to launder money. Global successfully challenged the Department's denial in state court on due process grounds. The state court vacated and remanded the case with instructions to the Department to cure the procedural deficiencies. On remand in February 2003 the Department issued a preliminary decision that again denied Global a franchise. The Department observed that even if Massie's criminal activities were unrelated to Global's business, it would, in the exercise of its discretion, deny Global a franchise.

Plaintiff challenged this decision in a letter dated March 28, 2003. Global contended in the letter that the City's regulatory scheme and the Department's denial of the franchise violated federal telecommunications law. Global also proposed—in an effort to ameliorate any misgivings the Department might have regarding Global's integrity—to separate Massie from the operations of the company and to place his ownership interest in an irrevocable family trust. The defendants, ignoring plaintiff's letter, instead requested the immediate removal of all Global pay phones from the City's sidewalks and the sale of its pay phone business to a holder of a valid franchise.

B. District Court Proceedings

Global responded to defendants' request by initiating the instant action in the Southern District on October 7, 2003. It alleged defendants' refusal to grant it a franchise violated, inter alia, the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56(Act). The Act, in sweeping terms, prevents local authorities from enacting any statute, regulation, or other legal requirement that "prohibit[s] or ha[s] the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." 47 U.S.C. § 253(a).

On November 12, 2004 the defendants moved to dismiss plaintiff's complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. They declared that their regulation of pay phones was not prohibited because another provision of the Act permits "local government[s] to manage the public rights-of-way" and "to require fair and reasonable compensation from telecommunications providers . . . for use of public rights-of-way on a nondiscriminatory basis." 47 U.S.C. § 253(c). In defendants' view, the denial of a franchise to Global was a permissible exercise of the City's authority under the Act to manage the public rights-of-way, such as city sidewalks where plaintiff's pay phones are placed. Defendants asserted, in addition, that Global's affiliation with Massie and its other past criminal activities demonstrated it could not be trusted to compensate the City in a timely manner and without fraud.

On March 11, 2005 while the parties were still briefing the motion to dismiss, the Department issued a final determination implementing its preliminary decision of February 2003 not to grant Global a franchise and thereby extinguishing plaintiff's prospects for offering pay phones on the City's streets. That same day, defendants filed their reply to Global's opposition to defendants' Rule 12(b)(6) motion, attaching as an exhibit to its papers the Department's final determination.

Three months later, on June 9, 2005, the district court rendered a decision granting defendants' motion to dismiss. 373 F.Supp.2d 378 (S.D.N.Y.2005). In arriving at its conclusions, the trial court quoted from Massie's testimony as a government witness in certain criminal proceedings and from the final determination issued in March 2005. None of the quoted material is mentioned in plaintiff's complaint. See id. at 380. In light of the allegations in defendants' moving papers, the district court found that Global's prior criminal activities, and its past practice of failing to deal honestly with the City for use of the City's rights-of-way, constituted valid reasons for denying the franchise, stating

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.

Id. at 382 (emphases in original). By finding the denial of the franchise a valid exercise of the City's authority to obtain compensation, the district court effectively disposed of most of Global's claims, which were by and large premised on the invalidity of the franchise denial.

C. Proceedings in this Court

Global appealed the district court's decision to this Court, declaring that the trial court committed procedural error by failing to convert the motion to dismiss into one for summary judgment, and that it had in fact stated a claim under the Act. Following oral argument of the appeal, we requested briefing from the Federal Communications Commission (FCC)—which had not been involved in this litigation—on the question of § 253's applicability to Global. In its amicus brief to us, the FCC expressed a view largely in accordance with that of the district court, stating that "if the City properly denied Global a franchise as a result of its owner's criminal activities, Global cannot receive a franchise even if some of the particular terms or conditions that the City imposes on such a franchise might be unlawful."

But the FCC declined to address the substantive issue regarding the interpretation of § 253 because it had not yet formally confronted the issue, and suggested the possibility of referring this matter to the Commission under the doctrine of primary jurisdiction. The federal agency also observed that "although the Commission has not itself addressed the question whether under § 253 State and local governments may take into account the character of franchise applicants, the Commission takes account of such matters in exercising its own regulatory authority." E.g. Contemporary Media, Inc. v. FCC, 214 F.3d 187 (D.C.Cir.2000).

On February 27, 2006 plaintiff moved, pursuant to Federal Rule of Appellate Procedure 8(a)(2), for a preliminary injunction to prevent the City from removing Global's pay phones from the City's rights-of-way, pending determination of this appeal. We granted the motion, even though Global had moved unsuccessfully for a similar injunction before a motions panel prior to oral argument.

DISCUSSION

I The Rule 12...