New York Telephone Co. v. Public Service Com'n of State of N.Y.

• Decision Date: 04 December 1998
• Citation: 179 Misc.2d 301,684 N.Y.S.2d 829
• Parties: , 1999 N.Y. Slip Op. 99,017 In the Matter of NEW YORK TELEPHONE COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the STATE of NEW YORK et al., Respondents. In the Matter of Black Radio Network, Inc., et al., Petitioners, v. Public Service Commission of the State of New York et al., Respondents. In the Matter of Arthur Evans, Individually and as a Member and Representative of the Ad Hoc Committee of Independent Information Providers et al., Petitioners, v. Public Service Commission of the State of New York et al., Respondents.
• Court: New York Supreme Court

Page 829

684 N.Y.S.2d 829

179 Misc.2d 301, 1999 N.Y. Slip Op. 99,017

In the Matter of NEW YORK TELEPHONE COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the STATE of NEW YORK et al.,

Respondents.

In the Matter of Black Radio Network, Inc., et al., Petitioners, v. Public Service Commission of the State of New York et al.,

Respondents.

In the Matter of Arthur Evans, Individually and as a Member

and Representative of the Ad Hoc Committee of

Independent Information Providers et

al., Petitioners, v. Public Service Commission of the State of New York et al.,

Respondents.

Supreme Court, Albany County.

Dec. 4, 1998.

Davis, Polk & Wardwell, New York City, for New York Telephone Company.

Roland, Fogel, Koblenz & Carr, Albany, for Black Radio Network, Inc., and another.

Arthur Evans, petitioner pro se.

Samuel A. Cherniak, New York City, and Levy, Gutman, Goldberg & Kaplan, New York City (Jeremiah S. Gutman of counsel), for Arthur Evans and another, petitioners.

Lawrence G. Malone, Albany (Diane T. Dean of counsel), for Public Service Commission of State of New York, respondent.

Bressler, Amery & Ross, Morristown, New Jersey, for Phone Programs, Inc. and another, respondents.

Karen S. Burstein, New York City, for Statistical Phone Philly and others, respondents.

GEORGE B. CERESIA, Jr., J.

At issue in these three combined CPLR Article 78 proceedings is a May 29, 1997 determination of the Public Service Commission ("PSC") concerning New York Telephone's ("NY Tel") Mass Announcement Services ("MAS"), a service utilized by many different Information Providers ("IP's") to offer to the public recorded information messages accessed by calling the specific "976" number assigned to the IP (see, PSC Opn. No. 97-7). The "976" recorded messages of approximately one minute's duration offer information regarding weather, time, financial news, horoscopes, lottery results, sports and entertainment, inter alia. Calls to "976" exchanges incur a fixed charge (.40cents at the time of the determination), and the per-call revenues are collected by N.Y. Tel and divided equally between N.Y. Tel and the IP called, pursuant to the governing tariff filed with the PSC. N.Y. Tel is required to provide billing and collection services to the IP's for "976" calls, and to tabulate call volumes or counts for each IP. These numbers provide the basis for N.Y. Tel's tariff-based obligation to pay the IP's for each completed call billed and collected.

From 1984 to 1990, N.Y. Tel used a system called Autrax or Audiochron to tabulate the "976" call volumes for purposes of paying the IP's. The Autrax System experienced call counting errors on a regular basis, requiring N.Y. Tel employees to manually "adjust" the call counts. In 1990, N.Y. Tel transferred or "cutover" the "976" calls to the Ericsson Switch to tabulate "976" calls. The cutover was attended by a variety of problems. For clarification, the original system is referred to as the pre-cutover Autrax System, and the replacement system is called the Ericsson post-cutover system.

After the cutover to the Ericsson Switch, various IP's complained to the PSC that the new switch was not completing or counting all calls with the result that their call counts dropped significantly from their pre-cutover call counts, causing them to lose revenues and business. They sought compensation from N.Y. Tel in amounts which ranged up to $15.6 million for these claimed losses. The IP's also raised many other complaints concerning "976" service, including dissatisfaction with compensation levels and allocation of revenues, system reliability and shortcomings, and inaccuracies in call counting. The IP's suggested alternatives to enable them to offer their services more competitively in view of emerging competition from other types of information providers. Many of the IPs' concerns were addressed by N.Y. Tel or by prior PSC proceedings, but many more remained to be resolved.

By Order Instituting Proceeding (May 29, 1993), the PSC commenced an omnibus proceeding to address in a single consolidated proceeding all issues not already resolved relating to "976" MAS Service including rates, charges, rules and regulations. Interested members of the industry were invited to participate, and were encouraged to develop alternative approaches and mutually acceptable resolutions of the issues. By Opinion and Order Concerning MAS, the PSC approved in part a Joint Proposal filed by N.Y. Tel and 12 IP's to resolve many of the issues in contention (see, PSC Opn. No. 94-14--Opinion and Order Concerning MAS [6-1-94], on reconsideration, modified in part by PSC Opn. 95-10 [8-2-95] ). Pursuant to the Administrative Law Judge's subsequent Procedural Ruling, MAS-related issues not resolved by the approved Joint Proposal were to be addressed in Phase II of these proceedings. Extensive hearings and motion practice were conducted during 1996 in Phase II resulting in a record of over 5000 pages and 175 exhibits. During the hearings, as the evidence and testimony developed, the scope of the inquiry expanded considerably from the harm the IP's claimed due to N.Y. Tel's misconduct related to the cutover to the Ericsson Switch and N.Y. Tel's liability therefor, to include N.Y. Tel's recently revealed conduct in manually adjusting the erroneous pre-cutover Autrax call counts and concealment of these adjustments, and the IPs' entitlement to compensation for Autrax call counting problems.

The Administrative Law Judge issued a comprehensive recommended Decision ("RD") of 189 pages on January 17, 1997. As pertinent to this special proceeding and detailed infra, the Administrative Law Judge found that N.Y. Tel had been grossly negligent and had engaged in willful misconduct in connection with the September 1990 installation and cutover to the new Ericsson Switch used to provide "976" service to the IP's. The mishandling of the cutover caused the IP's to lose a large volume of calls and, consequently, customers. While recognizing that the PSC has no authority to award conventional negligence damages and that N.Y. Tel's liability to the IP's under the governing tariff is limited in a court action to gross negligence/willful misconduct, the Administrative Law Judge recommended that IP's be awarded "refunds" from N.Y. Tel totaling $25.2 million, which took into consideration the harm suffered by the IP's due to N.Y. Tel's defective service. The Administrative Law Judge determined that the Ericsson Switch was not a suitable vehicle for counting "976" calls and set forth a new call counting procedure for N.Y. Tel to follow until the switch was properly replaced.

...

The PSC essentially adopted the findings and recommendations of the Administrative Law Judge with a few exceptions, as relevant herein (see, PSC Opn. No. 97-7 [5-29-97] ). The PSC agreed with the Administrative Law Judge's finding concerning N.Y. Tel's conduct both before and after the cutover, and with the conclusion that N.Y. Tel committed gross negligence and engaged in deliberate misconduct in connection with the 1990 transfer of "976" service to the Ericsson Switch (id. at 8-9, n. 1, 15).

...

NY Tel and several IP's thereafter instituted three separate article 78 proceedings challenging various aspects of the PSC's May 29, 1997 determination. These proceedings were consolidated by Order of October 24, 1997.

...

I. The PSC's Gross Negligence/Willful Misconduct Declaration

NY Tel's first cause of action alleges that the PSC's declaration that it was guilty of "gross negligence" and "willful misconduct" in connection with the Ericsson Switch cutover is in excess of the PSC's statutorily conferred jurisdiction, because this finding is relevant only to the issue of damages, i.e. N.Y. Tel's liability to the IP's, which the PSC lacks the power to award. Thus, N.Y. Tel contends the PSC lacks the authority to make a declaratory finding relevant solely to the issue of damages under the applicable tariff. The PSC refutes this contention arguing that it has jurisdiction to make findings of fact on liability provisions in the tariffs it approves and supervises when such findings are made in connection with its statutory authority to regulate rates, terms and utility services. Likewise, the IP's argue that the PSC finding on liability falls within its authorized powers to investigate complaints, assure safe and adequate service, oversee telephone utilities' conduct and operations, impose penalties and take corrective action, and issue related findings.

The court's initial analysis must focus on the context in which the gross negligence/willful misconduct issue was raised before the PSC and in which that finding was made by the Administrative Law Judge and PSC, and its relevance, if any, to issues other than damages. The PSC instituted this omnibus proceeding to address myriad complaints filed by IP's. These complaints generally related to dissatisfaction with compensation levels, alleged system shortcomings and inaccuracies in call counting. The PSC in its Order Instituting Proceedings directed the convening of interested members of the MAS industry "to consider the rates, charges, rules and regulations affecting the [MAS] portion of the information provisioning industry in New York Telephone's service territory". In the proceedings Phase I, N.Y. Tel and 12 IP's negotiated a Joint Proposal resolving some points of contention, which was approved (see, PSC Opinion 94-14 ¹). Meanwhile, Phase II was commenced for consideration of MAS-related issues not covered by the Joint Proposal. Voluminous discovery, extensive hearings and motion practice ensued. The Administrative Law Judge issued a procedural ruling outlining the issues remaining for administrative resolution, and they included N.Y. Tel's "liability, if any, to "976" providers due to its handling of the cutover to the Ericsson Switch", as well as the accuracy of past and current call counts. NY Tel's liability for damages arising...