Wolf v. Department of Public Utilities

• Decision Date: 14 May 1990
• Citation: 553 N.E.2d 922,407 Mass. 363
• Parties: Sherman M. WOLF et al. 1 v. DEPARTMENT OF PUBLIC UTILITIES et al. 2
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 922

553 N.E.2d 922

407 Mass. 363

Sherman M. WOLF et al. ¹ v. DEPARTMENT OF PUBLIC UTILITIES et al. ²

Supreme Judicial Court of Massachusetts Suffolk.

Argued Jan. 10, 1990.

Decided May 14, 1990.

Jerry E. Benezra, Melrose, for plaintiffs.

George Michaels (Alan J. Bouffard, Boston, with him) for Radio Telephone Systems, Inc.

Bartlett L. Thomas, Boston, for New England Telephone and Telegraph Co.

Douglas H. Wilkins, Asst. Atty. Gen., for Dept. of Public Utilities.

Before LIACOS, C.J., and ABRAMS, LYNCH, O'CONNOR and GREANEY, JJ.

ABRAMS, Justice.

We review, on reservation and report by a single justice of this court, the appeal of Sherman M. Wolf and Cybertel Corporation (Wolf) from the decision and order of the Department of Public Utilities (department) in Radio Telephone Syss., Inc., D.P.U. No. 88-221/88-235. See G.L. c. 25, § 5 (1988 ed.). At issue is the decision of the department to approve the transfer of certain radio utility assets from New England Telephone and Telegraph Company (NET) to Radio Telephone Systems, Incorporated (RTS). Wolf argues that, in approving the transfer, the department committed legal error by (1) applying the wrong standard of review; (2) reversing the burden of proof; (3) deferring a determination of the fair market value of the assets to a future rate setting case. We conclude that the department erred in approving the transfer without first determining whether RTS's offer represented the fair market value of the assets. We reverse that portion of the decision and order approving the transfer. We remand to the single justice for remand to the department for a determination whether RTS's offer represents the fair market value of NET's radio utility assets.

In November, 1988, RTS filed an application with the department for a certificate of public convenience and necessity to operate a mobile radio utility system and filed a proposed tariff of rates and charges. At the same time, NET filed a request with the department to withdraw its mobile telecommunications service tariff, subject to the department's approval of the transfer of its radio assets to RTS. The department consolidated the two proceedings. The department granted leave to Wolf to intervene, but only on the issue whether the department should approve the transfer of assets.

After hearing, the department issued a decision and order approving the transfer of assets; granting RTS a certificate of public convenience and necessity; and approving RTS's proposed tariffs. See Radio Telephone Syss., Inc., D.P.U. 88-221/88-235. Wolf filed a petition for appeal, see G.L. c. 25, § 5, challenging only the approval of the asset transfer, and filed a motion for stay of the department's transfer order pending appeal. NET and RTS filed petitions to intervene in this appeal, to which Wolf assented. After hearing, the single justice granted the stay and reserved and reported the matter to the full court without decision. ³

We summarize the facts. In 1985, NET sought the department's approval to transfer its radio utility assets to a subsidiary of NYNEX Mobile Communications Company (NYNEX Mobile), which is itself affiliated with NET. The department found that the proposed transfer was not in the public interest, in part because of the long-term anticompetitive implications ⁴ of that proposed transfer, and denied approval for the transfer. See New England Tel. & Tel. Co., D.P.U. 86-17. The department concluded that decision by stating that it "would not be opposed to [the transfer of NET's assets if it] was at fair market value as determined through a competitive bidding process or through an independent appraisal, since such a transfer would eliminate our concerns about the anticompetitive impact and the negative effects upon NET's remaining customers."

In August, 1986, NET employed Arthur D. Little Valuations, Inc. (ADLV), to conduct an independent appraisal of the assets. ADLV concluded that their fair market value was $866,389. NYNEX Mobile subsequently decided that it was no longer interested in the assets. NET then directed NYNEX Corporation Planning and Marketing Department (NYNEX Planning) "... to negotiate the sale of its radio service business at the highest price possible through a competitive bidding process." NYNEX Planning identified potential buyers of the assets, consisting of parties who previously had indicated interest in purchasing NYNEX Mobile's radio utility assets in New York; other businesses currently offering paging or related mobile services in the Northeast; parties suggested by brokers and investment bankers familiar with the industry; and persons who previously expressed to NET an interest in the business.

NYNEX Planning prepared an offering memorandum, which was distributed to between thirty and forty potential buyers. NET received six bids. On May 12, 1988, an affiliate of RTS offered to purchase all of the assets for $5 to $10 million subject to due diligence and further investigation. Following a due diligence review, RTS lowered its offer to $2.5 million, of which $2.1 million was for assets in Massachusetts. Of the five other bidders, NET conducted follow-up discussions with the next two highest bidders, Ram Broadcasting, which bid $750,000 for all of the radio common carrier (RCC) assets, and Message Center Beepers, which bid $750,000 for NET's improved mobile telephone service and some New York State radio services. On July 29, 1988, NET accepted RTS's offer and an agreement was executed on September 9, 1988.

In November, 1988, NET and RTS sought the department's approval for the transfer of assets. Testimony in the record shows that in November or December of 1988, Sherman Wolf and Cybertel Corporation, an Illinois corporation, engaged in the paging and cellular telephone business in the Midwest. Cybertel was not a competitor in the Northeast market. Neither Wolf nor Cybertel was on the radio common carrier service list maintained by the department. Cybertel and Wolf formed a partnership for the purposes of intervening in the department proceeding and, if successful in the intervention, subsequently to bid on NET's RCC assets. In January of 1989, the department allowed Wolf and Cybertel to intervene in the RTS transfer case.

Eleven days of evidentiary hearings were held, at which Wolf argued that the department should not approve the transfer on the grounds that NET's bidding process was inadequate and "that the proposed [sale] price was substantially below the fair market value for those assets." The record shows that three days before the hearing concluded, MassPage, Inc., a Massachusetts corporation organized by Wolf and Cybertel, made a $3.5 million "minimum bid" to NET, which it purported to guarantee with a photocopy of an irrevocable letter of credit payable to NET in the amount of $3.5 million if certain conditions precedent were met. Wolf offered the letter as evidence that $2.5 million did not represent a fair market value of the assets.

The department approved the proposed transfer, finding that it would "not have an adverse impact on the public convenience and necessity." The department deferred any determination whether RTS's $2.5 million offer represented the fair market value of the assets until NET's next general rate investigation.

Our review of petitions under G.L. c. 25, § 5, is limited, although not perfunctory. ⁵ See Costello v. Department of Pub. Utils., 391 Mass. 527, 533, 462 N.E.2d 301 (1984). "We will uphold the department's actions unless the plaintiffs can demonstrate that they are flawed by an error of law, lack support by substantial evidence, are arbitrary or capricious, or suffer from one of the other defects spelled out in [G.L. c. 30A,] § 14(7)." Zachs v. Department of Pub. Utils., 406 Mass. 217, 219-220, 547 N.E.2d 28 (1989). See Martorano v. Department of Pub. Utils., 401 Mass. 257, 261, 516 N.E.2d 131 (1987). "General Laws c. 25, § 5, allocates to [the plaintiffs] the burden of proving such error. This burden is a heavy one. We give great deference to the department's expertise and experience in areas where the Legislature has delegated to it decision making authority. G.L. c. 30A, § 14." Costello, supra 391 Mass. at 533, 462 N.E.2d 301.

1. Standard of review. Wolf argues that the department committed legal error by employing the wrong standard to review the proposed transfer of assets. Pursuant to G.L. c. 159, § 12B, ⁶ the department previously issued a regulation governing the transfer of radio utility assets, which provided in relevant part that "[n]o person holding a certificate shall transfer ownership or control of the facilities covered by said certificate unless the certificate holder has obtained approval by the Department upon a finding by the Department that the transfer will not adversely affect the public convenience or necessity." 220 Code Mass.Regs. § 35.08 (1986). In reviewing NET's application to sell its assets to RTS, the department applied the "public convenience or necessity" standard from that transfer regulation. Wolf claims that this "totally unexplained decision" constitutes an error of law. ⁷

Wolf correctly notes that telephone utilities such as NET are excluded from the application of § 12B, see G.L. c. 159, § 12D, and that telephone utilities are excluded from the definition of "radio utility" in both G.L. c. 159, § 12A, and the transfer regulation, 220 Code Mass.Regs. § 35.02(8). ⁸ Wolf argues that, because the transfer regulation on its face does not apply to NET, the proposed transfer of assets cannot be judged by that regulation's "public convenience and necessity" standard. Rather, Wolf maintains that "review is governed by G.L. c. 159, § 12, under which [the department] 'possesses general supervisory authority over common carriers'.... Exercising that criterion [in DPU 86-17] the [d]epartment held it 'must examine the proposed asset transfer ... to determine whether the transaction as...