Zachs v. Department of Public Utilities

• Decision Date: 11 December 1989
• Citation: 406 Mass. 217,547 N.E.2d 28
• Parties: Henry ZACHS 1 et al. 2 v. DEPARTMENT OF PUBLIC UTILITIES.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 28

547 N.E.2d 28

406 Mass. 217

Henry ZACHS ¹ et al. ² v. DEPARTMENT OF PUBLIC UTILITIES.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Sept. 14, 1989.

Decided Dec. 11, 1989.

John A. Weber, Jr., Norwood (Patricia A. McDaniels, Boston, with him) for plaintiffs.

Lisa A. Levy, Asst. Atty. Gen., for defendant.

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

LYNCH, Justice.

The plaintiffs, Henry Zachs, doing business as Massachusetts-Connecticut Mobile Radio Telephone Company, and Airphone Company, Inc., intervened in a proceeding before the Department of Public Utilities (department) brought by T-Com, Inc., which was seeking a certificate of public convenience and necessity to operate a mobile radio paging system in the Springfield area. The department granted the certificate and the plaintiffs sought review under G.L. c. 25, § 5 (1988 ed.), ³ in the Supreme Judicial Court for Suffolk County. The plaintiffs claim that the department's decision in favor of T-Com was arbitrary and capricious, unsupported by substantial evidence, and therefore an abuse of its discretion, and that its denial of their request to reopen the hearings violated the department's own regulations. At the request of the parties, a single justice reserved and reported the matter to the full court without decision. We affirm the decisions of the department.

The following facts are from the department's opinion. ⁴ Two years prior to these proceedings, T-Com entered the radio paging business in Michigan. In an effort to expand out of State, the company applied to the Federal Communications Commission (FCC) for paging licenses in thirty-eight markets nationwide. It had already secured the necessary licenses and construction permits in a number of these markets, including Springfield, when it filed with the department its application for a certificate of public convenience and necessity under G.L. c. 159, § 12B (1988 ed.). T-Com is a wholly owned subsidiary of CC & S Systems, Inc., a Michigan corporation that is a holding company for a number of independent telephone companies operating in Michigan and Ohio.

In June, 1985, three months after the department closed hearings in the T-Com case, and after the parties had submitted and exchanged both briefs and reply briefs, the plaintiffs moved to reopen hearings. Zachs and Airphone argued that T-Com had violated c. 159, § 12B, by proceeding, in April, 1985, after the close of hearings, with construction of its proposed Springfield radio paging facility before the department had rendered a decision on whether to grant it a certificate of public convenience and necessity. T-Com acknowledged that it had indeed begun construction. But the department found that T-Com began construction only days before its FCC construction permit--on which it had already once applied for and been granted an extension--was to expire. It also found that T-Com had not begun operations out of the facility; that it had no intention to do so until a certificate was granted; and that it would dismantle the facility in the event of a denial. On that basis, the department declined to reopen the hearings.

The department then decided that T-Com had demonstrated the requisite "financial, managerial and technical ability for certification and that the public convenience and necessity will be served by the proposed Springfield operation," and granted T-Com's application.

Our review of both of the department's decisions is governed by standards set forth in G.L. c. 30A, § 14(7) (1988 ed.). 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 § 14(7).

1. The decision to grant the certificate of public convenience and necessity. In determining whether a certificate should be granted, the department looks at the applicant's managerial, financial, and technical ability to provide quality service to the public, as well as the public need for the service. 220 Code Mass. Regs. §§ 35.05(2), 35.15 (1986). The plaintiffs challenge the issuance of a certificate of public convenience and necessity on three grounds: (a) the department lacked substantial evidence to make the finding of public convenience and necessity; (b) the department's equating of the standard of "public convenience and necessity" with "public interest" was arbitrary and capricious; and (c) the department both lacked substantial evidence and was arbitrary and capricious in deciding T-Com had the managerial, financial, and technical wherewithal to operate a mobile radio utility system in Springfield. These arguments fail for the reasons discussed below.

a. Lack of evidence for finding of public convenience and necessity. General Laws c. 30A, § 1(6), defines "[s]ubstantial evidence" as "such evidence as a reasonable mind might accept as adequate to support a conclusion." In assessing whether "substantial evidence" existed for the department's finding on public convenience and necessity, the court is required by c. 30A, § 14(7), to "give due weight to the experience, technical competence, and specialized knowledge of the agency, as well as to the discretionary authority conferred upon it." We conclude the department had substantial evidence on this issue.

At the outset, we reject the plaintiffs' contention that there was no evidence in this record to merit a finding of public convenience and necessity. T-Com introduced evidence of the specific services it planned to offer Springfield area customers, the public need for these services, as well as the public demand for more options in radio paging services as a whole. The plaintiffs, who vigorously cross-examined the T-Com witnesses on other issues, did not challenge these assertions nor did they offer testimony to contradict the T-Com evidence.

However, the department did rely on a finding of the benefits of increased competition in the radio paging market it had made in a prior decision. MCI Airsignal, Inc., D.P.U. No. 1563 (1985). In T-Com, Inc., D.P.U. No. 84-104 (1985), the department cited its general policy that competition tended to result in lower prices, more diverse services, and greater choices for the consuming public. It then stressed its specific findings in MCI Airsignal regarding the existing level of competition in the radio paging market and the further benefits expected to enure to the public from opening that market to still greater competition. The plaintiffs argue that, because there was no examination of the competition issue during the T-Com hearings, ⁵ the department was precluded from going outside the record to findings made on that issue in MCI Airsignal. ⁶ We do not agree.

The department's findings on the advantages to the public of increased competition fall into the category of nonadjudicative, policy-making judgments, rather than party-specific fact finding. See 3 K.C. Davis, Administrative Law § 15.3, at 142-145 (1980). Administrative agencies may establish policy through either adjudicatory proceedings or rulemaking. Commonwealth Elec. Co. v. Department of Pub. Utils., 397 Mass. 361, 369, 491 N.E.2d 1035 (1986). Arthurs v. Board of Registration in Medicine, 383 Mass. 299, 312-313, 418 N.E.2d 1236 (1981). NLRB v. Seven- Up Bottling Co., 344 U.S. 344, 349, 73 S.Ct. 287, 290, 97 L.Ed. 377 (1953). The choice of which process to utilize belongs to the agency. Arthurs v. Board of Registration in Medicine, supra 383 Mass. at 313, 418 N.E.2d 1236. Policies announced in such adjudicatory proceedings may then serve as precedents in future cases. Id.

In MCI Airsignal, the department heard conflicting testimony, challenged by rigorous cross-examination, on the issue of the competitive state of the radio paging market and the potential benefits and disadvantages of increasing competition by certifying another entrant to that market. In two 1984 cases, it had also taken extensive testimony on competition in the telecommunications field in general, including the impact of the recent Federal policy shift in favor of deregulation. ⁷ The department was entitled in the T-Com case to use the cumulative experiences gleaned in these proceedings, together with its expertise in the field to make a nonadjudicative fact finding without a full-blown relitigation of the issue on the T-Com record.

Since, in MCI Airsignal and in other recent decisions, the department has made public its policy favoring heightened competition, the plaintiffs were on notice of the department's policy on this question. ⁸ G.L. c. 66, § 6 (1988 ed.). If they wished to challenge the department's position, they had the burden of introducing evidence to establish its invalidity. Neither Zachs nor Airphone did so. The department's decision on public convenience and necessity cannot, therefore, be assailed as lacking a basis in substantial evidence.

b. The equating of "public interest" with "public convenience and necessity." The plaintiffs contend that the department supported its decision in favor of T-Com by a finding of "public interest," rather than "public convenience and necessity," and thus caused the decision to be "arbitrary and capricious." G.L. c. 30A, § 14(7)(g ).

The department found that "there is a public need for the service proposed by T-Com," and concluded that "the public convenience and necessity will be served by the proposed Springfield operation." The plaintiffs, however, ignore these passages, and focus exclusively on the department's findings that it was "reasonable to expect that the public would both be protected by and benefit from more vigorous competition in the paging industry," and that "the public interest will be served by further competition in the paging industry." These statements, they argue, reveal that the department arbitrarily invoked a different standard from ...