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Matter of Amerivest Partners LLC v Public Serv. Commn. of State of N.Y. 2013 NY Slip Op 30726(U) April 11, 2013 Supreme Court, Albany County Docket Number: 246-12 Judge: George B. Ceresia Jr Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication.

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STATE OF NEW YORK SUPREME COURT

COUNTY OF ALBANY

In The Matter of the Application of
AMENVEST PARTNERS LLC,

For A Judgment Pursuant to &-tide 78 of the Civil Practice Law and Rules,
Petiti oner,
-against-

PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK and VERIZON NEW YORK, mc.,
Respondents.
Supreme Court Albany County Article 78 Term Hon. George B.Ceresia, Jr., Supreme Court Justice Presiding RJI # 01-12-ST3306 Index No. 246-12

Appearances:

Louis J. Castellano, Jr., P.C. Attorney For Petitioner 85 Boathouse Lane Bayshore, NY I 1706
Peter McGowan General Counsel Attorney For Respondent Public Service Commission of the State of New York Three Empire State Plaza Albany, NY 12223-1350

Keefe 3. Clemons, Esq. Richard C. Fipphen, Esq. Attorneys For Respondent Verizon New York Inc.
140 West Street

New York, N 10007 Y

DECISIONIORDERIJUDGMENT
George B. Ceresia, Jr., Justice

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The petitioner is a member of the American Stock Exchange (hereinafter "AMEX").
On December 2,2002 AMEX, on behalf of itself and its members, entered into a contract with defendant Verizon New York, Inc. ("Verizon") whereby they would purchase

communication service (voice and data transmission) from Verizon. By the terms of the
contract, referred to as a "Limited Service Offering" (L`LSU')', Verizon was to provide
private line service by means of what is referred tu as a "SOWET Ring".l Two AMEX

ofices (one in Brooklyn, New Yo& and one in Manhattan) were to be located on the SONET
ring, which was routed through (and connected with) seven Verizon facilities. A M E X and

its individual members (including the petitioner) were charged a discounted rate fbr use of

the SONET: $21.75 per month per DSO circuit and $150.68 per month per DSI Circuit?
While the two AMEX offices were to be located on the SONET ring, AMEX members (such
as the petitioner) were not.

On November 5 , 2007 the petitioner filed a complaint with the New York State
`As described in the PSC Determination Dated April 23,2012 (and discussed under the heading "Verizon's Billings For Tail Currents", infral an LSO is used to provide s p e d services to customers with particularized needs not otherwise addressed by the applicable tdff.

*"SONET(Synchronous Optical NETworkk) is a ` f d l y of fiber optic transmission rates, h m 5 1.84 million bits per second to 39.8 12 gigabits ...per second [or higher]. created to provide the flexibility needed to transport many digital signals with different capacities...' The term SONET ring refers to the fact that `SONET transmission systems ideally are laid out in a physical ring for purposes of redundancy' [J ." (PSC Determination dated September 19,20 1 I, p. 2, footnote 5, quoting Newton's Telecom Dictionary 119th ed., 2003j).

%SO

(ur DS-0) stands for Digital Signal, level zero; DS1 or (DS-1) stands for D i g i d

Si@, Level one. A DSO line (or circuit) is a voice-gradecharnel of 64,000bits per second, which is `the worldwide standard of speed for digitizing one wise conversation using Pdse Code Modulation (PCM).' DS I, or Digital Si&, level I, supports 24 voice-grade conversations." (PSC Determination dated September 19,201 1, p. 2, footnote 4, quoting Newton's Telecom Dictionary [I. 9 h ed., 20031). t 2

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Department of Public Service C`PSC" or "Commission"), Office of Consumer Services

concerning Verizon's billing practices. The issue there was whether the petitioner was
entitled to a retroactive rate reduction (and refund) in accordance with the favorable LSO

billing rate. Verizon, in that proceeding, maintained that the petitioner was not entitled to
the LSO billing rate, because it had not submitted confirmation orders (as expressly directed

in the LSO) to request that circuits be connected to the SONET ring. In an informal hearing decision dated March 25, 2009 the complaint was denied. The petitioner appealed the determination to the full Commission, and on February 16, 20 10 the determination was

reversed, and the complaint upheld.

The Commission found that submission of a

confirmation order had been waived by Verizon, and therefore was not required. Rather,
when the petitioner was requesting service under the LSO, submission by the petitioner of
a different document, referred to as a cornmication permit, was ~ufficient.~The

Commission directed Verizon to recalculate its charges and provide refunds, where

applicable. By petition filed on March 18, 2010 Verizon sought a rehearing. The

Commission, in a determination dated June 2 1,20 10, granted the rehearing only to the extent
of clarifying the February 16,ZO 10 determination, which was otherwise confirmed.
By letter dated April 7,20 10 and subsequent letterss,the petitioner sought clarification

4Specifically,it found that the petitioner (together with other AMEX members) and Verizon M effectively modified the LSO by adopting a "standard procedure" whereby AMEX, on behalf of its members, could request service under the LSO through submission of a communication permit, rather than a confirmation order.

5SeePSC Determination dated September 19,201 1, page 5 , footnote 10.

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of the February 16, 20 10 determination. Several new issues were raised, which the PSC
grouped into three broad classifications. The first related to the petitioner's assertion that
LSO pricing should apply to what are referred to as tail circuits (circuits which are not on
the SONET ring, which connect AMEX members to the SONET ring). The second related

to petitioner's contention that circuits which preexisted the date of the LSO should benefit

from LSO pricing. The third related EO the petitioner's contention that LSU pricing should
apply to all circuits installed after the LSO went into effect. In a determination dated
September 19, 201 1 the PSC largely rejected the various arguments advanced by the

petitioner.

On October 16,201 1 the petitioner submitted to the PSC a request for a rehearing.
Thereafter, on January 12, 2012, the petitioner commenced the instant CPLR Article 78
proceeding. The PSC made a motion to dismiss the petition, in part, on grounds that the

CPLR Article 78 petition was premature, since the PSC had not yet ruled on the October 16,
20 11 petition for a rehearing. In the alternative, the respondents requested a stay of the

proceeding until the PSC issued an administrativedetermination with regard to the rehearing.

The Court, in a decision-order dated April 24, 2012 stayed the proceeding for thirty (30)
days. Unbeknownst lo the Court, the PSC had, on April 23,20 12, issued its decision denying
a rehearing. Each ofthe respondents served answers to the petition in late May, 20 12.

Oral

argument was held on July 9,2012. During the appearance on July 9,2012 the petitioner

made m oral motion to amend the petition to include the April 23,20 12 PSC determination.
AIthough initiaIIy opposing the amendment, the respondents ultimately gave their consent,
with all parties stipulating that they were resting on the papers already submitted. The Court,
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granted the motion as stipulated by the parties.
Notably, the Court's role in reviewing an administrative determination is not to
substitute its judgment for that of the agency, but simply to ensure that it is not made in

violation of lawful procedure or affected by an error of law, and was not arbitrary and
capricious or an abuse of discretion ( CPLR 7803 [3]; Matter of Peckham v CaloEero, 12 s

W 3 d 424,43 1 [2009]; In the Matter of Terrace Court, LLC v. New York State Division of
Housing and Community Renewal, 18 NY3d 446,454 [20 121; Matter of Warder v B o d of
Regents, 53 NY2d 186,194; Matter of Flacke v Onondaga Landfill SYs., 69 NY2d 355,363;
Akpan v Koch, 75 NY2d 56 1,570; Matter of Prestige Towing & Recovery, inc. v State of
New Yo& 74 AD3d 1606 [3d Dept., 20 lo]). "An action is arbitrary and capricious when it

is taken without sound basis in reason or regard to the facts" (Matter of Peckham v Calogeru,
suma), citing Matter of Pel1 v Board of Educ., 34 W 2 d 222,23 I [ 19741; Matter of Prestige
Towing & Recovew. hc. v State of New York, supra).
"It is [also] well seteled that when an agency acts within its area of expertise i n interpreting statutes it is responsible for administering, its construction of those statutes is

to be upheld if its decision is not irrational or unreasonable" (In the Matter of Transitional
Services of New York for Long Island. Inc. v N Y S Office of Mental Health, 13 NY3d 80 1,
802 120091, citing Matter of Brooklyn Assembly Halls of Jehovah`s Witnesses. Inc. v
Department of Envtl. Protection of City of N.Y., 1 1 W 3 d 327,334 [2008J; see Matter of

Aides At Home,Inc. v State ofNew York Workers' Compensation Board, 76 AD3d 727 [` 3
Dept., August 5,20 101).

The Court observes that the PSC determination dated April 23?20 I2 did not address
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all o f the issues discussed in the September 19, 201 1 determination, and/or give equa
attention or weight to such issues (most likely by reason of how the issues were framed by
the petitioner in its application for a rehearing). Where appropriate here, the Court has

referenced portions of each determination in this decision.

Petitioner's Contention That The LSO Did Not Require The Petitioner T o Be Connected To The SONET Ring

The petitioner advances the following arguments: "there is absolutely no condition
that the [LSO] rate of $2 I .75 is conditioned upon herivest making any connection to any

Sonet." (petition 718); "whatever has to be done in this connection must be done by Verizon" (petition 7 2 2); "[ilt is the contention of the petitioner that the contract itself [the
LSO] can not impose any duty or obligation on Amerivest, a non-party to the contract to
connect the circuit to the sonet ring" (petition 7 23); "the contention of Verizon that
petitioner must connect the circuit to the sonet to quality for the LSO rate is not supported

by the contract or any other evidence before the Commission." As relevant here, the LSO includes the following language:
"Services. Customer, acting for it self and as agent for its member brokerage firms (`Member' or `Members') hereby requests and agrees to purchase from the undersigned Verizon company (`Verizon') on behaif of its Members the sewices identified in Exhibit A to this Agreement and as further described i Verizon's applicable tariffs (the `Services') [I." n

CI
Exhibit A
"1. Services and Quantity Commitments. Customer agrees to
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purchase the following Services from Verizon New York (`Verizon') at the rates set forth below and i quantities set forth n below. Such Services are provided under the authority of Verizon's P.S.C. No. 7 Tariff asa Limited Servicing Offering (`LSO"), as well as Verizon's P.S.C.No. 1Tariff for Telephone Services. Any other work, services or facilities required will be provided subject to prevailing tariff rates and charges, or if no
tariff is applicable, at Verizon's then-current retail rates.

"The Services shall consist of DSO and DSI circuits delivered
over a diverselyrouted Sonetplatfom betweem Customer's two locations and the seven Verizon central office iC.0) locations set forth below, and also indicated on the diagrarh on Exhibit C. Members will connect to the Service at the Verizon CO locations set forth below. Customerand members shall pay the applicable monthly charge set forth below for each DSO and DS 1 circuit. DSO circuits will be aggregated and handed off at Customer's locations as DS 1 circuits.

"Verizon will install and maintain the network facilities of
Verizon used to provide the Services up to the demarcation

point between Vaizon's net work and Customer's premises equipment and facilities, in accordance ~ t Verizon's h applicable tariffs as shown on Exhibit C. Customer and Members shall provide at its cost, any conduit, pathways, and building entrance facilities that may be required on private property, and suitable and secure space, with suitable environmental conditions,power, and access at its premises for placement of any equipment or facifities to be used by Verizon to provide the Services.
``Verizon will assign appropriate personnel necessary to implement the Sonet platform. []

"4. Charges. Customer and Members shall pay a monthly charge for each DSO and DS 1circuit at the rates set forth below from date each circuit is activated. The monthly rate set forth below for a DSO circuit includes DSO to DSI Central Office Muxing. Each circuit ordered after the initial order is placed will be subject to a $56.00 service order charge.
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.

..

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Monthly Recurring
Circuit

Charge Per Circuit
$21.75

DSO

DS1

$150.68"

In its September 19,2011determinationthe PSC found that the discounted billing rate
under the LSO was applicable only to circuits, o portions of circuits using the SONET ring, r

Circuits for portions) not using the SONET ring were not entitled to the LSO billing rate.

This finding is well supported in Exhibit A of the LSO whkh recites "[tlhe services shall
consist of DSO and DS 1 circuits delivered over a diversely routed Sonefplaformbetween
Customer's two locations and the seven Verizon central office (CO) locations

[I"

(LSO,

Exhibit A, paragraph 1, supra, emphasis supplied). The mechanism for implementing the

foregoing (which, as noted above, was found by the PSC to have been modified by the
parties) was for AMEX to submit a communicationpermit to Verizon requesting such sewice

on behalf of its members pursuant to the LSO. As such, the Court detemines that PSC's

finding dated September 19,201 I, that a circuit had to utilize the SONET ring in order to
receive the discounted LSO rate, had a rational bask6

Circuits Installed Prior To The Date Of The LSO
Some ofthe circuits at issue were in existence prior to the signing of the LSO. The

petitioner contends that it is entitled to re-billing at the LSO rate for such circuits, from the
Contrary to an argument advanced by the petitioner, the record discloses no suggestion that the petitioner was obligated or required to perform the physical work necessary to connect its circuits to the SONET. AI1 that was required was that a communication permit containing such a
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request be submitted to Verizon by AMEX. It would then be Verizon's responsibility to reconfigure the circuit to the SONET ring.

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date the SONETring became available. The PSC found i its determination dated September n 19,201I that unless and until a pre-existing circuit was reconfigured to utilize the SONET,
the circuit would properly continue be billed at the prior rate. Specifically, the determination

recited, in part, as follows:

"The service provided by such previously existing circuits was not the service to which t!ae LSO rate applied, There is no language in the LSO that states, or even intimates, that Verizon had any reason to reconfigure such circuits to utilize the SONET ring without a request from Amerivest or onh e r i v e s t ' s behalf.

"However, to the extent that, after the SONET ring became availab1e, pre-existing circuits were subsequently reconfigured on the SONET ring, the appropriate pricing should apply from the date that occurred." (PSC Determination dated September 19, 201 I, at 24).
Thus PSC rejected petitioner's assertion that such circuits automatically receive the

discounted LSO rate from the date the SONET ring became available.

Much of the evidence before the PSC with respect to this issue took the form of
spreadsheets submitted by both the petitioner and Verizon. The PSC found that petitioner's
spreadsheets failed to provide information with regard to when pre-existing circuits were

reconfigured to connect to the SONETring. The PSC concluded that petitioner'sspreadsheet

provided %O useful information about when circuits were first configured on the SONET
ring, or about which charges were for service over the SONET ring, and which were for tail

circuits." (PSC Determination dated September 19, 201 1, at 27).

A review of the

spreadsheets submitted by both the petitioner and Verizon supports PSC's findings. The Court finds that the PSC's determination on this point had a rational basis.

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Circuits Installed After The LSO Went Into Effect
The petitioner complains that a number of circuits installed after the date of the LLSO
did not receive the benefit of the lower LSO billing rata The PSC determined that unless and

untiI the new circuits were added to the SONET, they were not entitled to the benefit of the

LSO billing rate; m that in order to be added to the SONET,the petitioner needed to make d
a request to Verizon that this be done &PSC Determination dated September I9,20 11,2830). The PSC made reference to the foIlowing language found in the LSO: "Customer shall

order Services on behalf of members who communicate to Customer their request to purchase Services from Verizon under the terms of this Agreement." @SO, Exhibit A,

paragraph 8 [fl). The PSC found that this language "contradicts herivest's claim that it

was not permitted to request services pursuant to the LSO" @ PSC Determixlation dated
September 19,201 1,29). The Court finds that the PSC determination on this point has a rational basis i the record, since the petitioner had the ability to request service over the n

SONET,through AMEX.

Verizon's Billings For Tail Currents
Both the September 19, 2011 PSC Determination and the April 23, 2012 PSC

Determination discuss the issue of tail currents. A tail circuit is described by the PSC as a circuit used to connect a location off of the SONET ring to a location on the SONET ring7

lseeBSC Determination Dated September 19,20 1 I , 2 1-22; PSC Determination dated April
7Theexample given in the PSC Determination Dated September 19,2011, was a circuit which comected the petitioner, located on the SONET ring, with a client located off of the SONET ring & PSC D e t d a t i o n dated September 19,20 11,21). 10

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23,2012, 1I). The PSC found that tail circuits are not included in tke LSO, and therefore
do not benefit from LSO biIling rates.

By way of explanation, the PSC in the April 23,2012 determination indicated that an
LSO is not intended to provide for sewice reguIarly offered to and used by numerous

customers, which are provided through the utility's regular tariff (m PSC Determination
Dated April 23, 2012, 8). Rather, a LSO is designed to provide "services not available n
under the utilities regular tariff' (PSC Determination Dated<April23,2012, which the 8),

PSC found to be DSO and DS 1circuits delivered over the SONETring (A,quoting a portion
of the LSO, Exhibit A, paragraph 1). As a part of the foregoing, the PSC pointed out "the

special service provided by the LSO was the SONET Platform"; and that the LSO recited that

"`[mjernbers [such as h e r i v e s t ] will connect to the Service at the Verizon CO locations set
forth below [i.e.p central office Iocations on the SONET platform].'" (see id., 8-9). The the PSC also made reference to LSO Exhibit A, paragraph 8 ( e ) which recites:

"Tail Circuits - The tail circuits which are accessed fiom the Services above, including any usage therefore, are not included in the monthly recurring charges set forth above, and will be purchased by Customer and Members under other existing contracts or at tariffed rates, terms and conditions. Accordingly, if any such services are terminated, applicable termination charges as set forth i such contracts or tariff5 shall apply". n
The PSC concluded that only those circuits, or portions of circuits, which were on the

SONETring were entitled to LSO pricing; and that those circuits or portions of circuits that
connected to an off-ring location must be billed in accordance with the applicable tariff.*

*See PSC Determination dated April 23,2012, p. 9, footnote 13.

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The Court finds that the determination has a rational basis in the record, by reason that the
LSO clearly defmed the term "services" as DSO andDS 1 circuits delivered over a diversely
routed Sonet platform, while dso indicating that tail circuits wouId be governed by the applicabIe tariff. The fact that a single circuit was comprised of two portions, one on the

SONET (which received the LSO rate), and one which continued to a location off of the SONET (which did not receive the LSO rate), does not change the result.

I arguments which preceded issuance of the April 23,20 12 PSC determination, the n
petitioner m i t i e that the applicable tariff never mentions the term "tail circuit". The anand
PSC conceded that this was true, but indicated that
"the term `tail circuits' is not used i the LSO to refer to specific n circuits that can be found in the tariff under that name. Rather, the term is a colloquial reference to certain circuits for which the

tariff provides separate and distinct charges." Determination dated April 23,2012, at 10)
The Court finds the foregoing explanation satisfactory.

(mPSC

The Court further finds that there is nu evidence in the record to substantiate
petitioner's claim that Verizon waived payment for tail circuits, either through refunds given

to other customers (discussed below), or through Verizcm's preparation and delivery to
Amerivest of a spreadsheet which eliminated the charge for tail circuit charges (which was never carried out, and which Verizon subsequently indicated was furnished in error).

In view of the foregoing, the Court finds that the determinations with respect to Verizon's billing for taiI circuits have a rationaI basis.

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Discriminatory Refunds TOOther V e r h n Customers In Connection With Tail Circuits The Petitioner indicates that Verizon provided refunds to some members of AMEX
to eliminate charges for tail circuits i excess of the LSO billing rate, but did not do so for n
the petitioner. The petitioner maintains that this wa discriminatory, and in violation of the

provisions of PubIic Service Law

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