Opinion
Argued April 22, 1955
Decided July 8, 1955
Appeal from the Supreme Court, Appellate Division, First Department, CORCORAN, J., DI FALCO, J.
Harry J. Halperin, Bernard Buchwald and Edmund B. Hennefeld for appellant.
Frank A. Fritz, Ralph W. Brown, Arthur P. West, Anthony T. Antinozzi, Frank A. Fritz, Jr., Eric B. Nelson and Philip Wagner for New York Telephone Company, respondent. Peter Campbell Brown, Corporation Counsel ( Morris L. Heath, Stanley Buchsbaum and Charles M. Fox of counsel), for City of New York, respondent.
These two actions challenge the propriety of the billing method in use by the New York Telephone Company (hereinafter called the Company) since 1950. At that time, following hearings before the Public Service Commission (hereinafter called the Commission), the Company extended its New York City dial system into Nassau and lower Westchester counties, and thereafter, in pursuance of its duty to collect the New York City sales tax, billed plaintiff, and other subscribers similarly situated, 3% on concededly nontaxable calls dialed to points outside the city limits as well as on admittedly taxable local city calls, due to the inability of the Company's equipment to differentiate between such calls.
In the first action, the Company, under rule 106 of the Rules of Civil Practice, and the City of New York (hereinafter called the City), under rule 212 of the Rules of Civil Practice, moved to dismiss plaintiff's complaint. Both motions were granted without leave to amend, and the Appellate Division affirmed. We all agree that this complaint was properly dismissed.
The second action was commenced on a new and broader complaint designed to remedy the deficiencies of the first complaint. In the present pleading, plaintiff sought by way of relief (1) a judgment pursuant to section 473 of the Civil Practice Act, declaring "the rights and other legal relations" of the parties; (2) to restrain the Company from charging 3% on suburban calls, from paying any of the challenged charges to the City, and to restrain the City from requiring payment of said charges; (3) to compel the Company to install new equipment, systems and procedure that will differentiate local from suburban calls; (4) for an accounting from defendants; and (5) for temporary injunctive relief and counsel fees.
Both defendants again moved, this time under rules 106 and 107 of the Rules of Civil Practice, to dismiss plaintiff's complaint, which motions Special Term denied. The Appellate Division unanimously reversed and dismissed the complaint under rule 106. It did so "without prejudice to any action or proceeding plaintiff may be advised to institute after the Public Service Commission (on its own motion or on complaint), in the first instance, has made a determination on the reasonableness, propriety, adequacy and sufficiency of the practices and services herein involved". The Appellate Division, moreover, modified on the law, a direction of Special Term that, while an injunction pendente lite would be "denied", the " status quo of the funds is to be maintained" pending the determination of the issues in a trial; plaintiff's motion was thus denied "unqualifiedly", instead of "qualifiedly".
We agree with the well-reasoned unanimous opinion of the Appellate Division. The Company, in extending its dial system with the approval of the Commission, was nevertheless mandated by the sales tax law of the City to collect sales taxes. Recognizing that to a comparatively small extent it was collecting excess charges in its compliance with the sales tax law, the Company arranged to make appropriate refunds to subscribers upon application. Plaintiff concedes that these moneys were not collected "as tax" but only "as an inevitable incident and concomitant of its actual tax collection". There is thus in no event any basis for an accounting decree here, since the Company, an acknowledged debtor, has at all times been willing to refund to any subscriber-creditor upon simple application therefor the amount he claims to be due.
Nor is there any justiciable controversy here. If, by plaintiff's demand for declaratory judgment, the court is being asked merely to declare what both defendants admit, namely, that suburban calls are not taxable and that the Company has no right to keep any moneys not properly chargeable, the requisite "actual controversy" is lacking and no declaratory judgment may be had ( New York Operators v. State Liq. Auth., 285 N.Y. 272, 276; James v. Alderton Dock Yards, 256 N.Y. 298, 305; 5 Carmody on New York Practice, § 1960; Borchard on Declaratory Judgments [2d ed.], pp. 33-48). The situation is thus quite unlike Kovarsky v. Brooklyn Union Gas Co. ( 279 N.Y. 304) for there the company claimed it had the right to collect and retain for itself service charges which were expressly prohibited by law, and there were none of the drastic consequences here involved. Furthermore, even if the declaration sought by plaintiff is to the effect that the Company may not utilize the particular system in question to collect 3% on all dialed calls and provide for refunds to subscribers who are thus overcharged, then the court below was entitled to refuse to entertain the application in its discretion under section 473 of the Civil Practice Act, and rule 212 of the Rules of Civil Practice — whether or not motion was made therefor — until after plaintiff first sought relief provided for elsewhere, specifically, before the Commission in a determination of "the reasonableness, propriety, adequacy and sufficiency of the practices and services herein involved". Where such an "adequate remedy is already provided", and there is thus no real need for resorting to a declaratory judgment, the court, in its discretion, may decline to accept jurisdiction and deny such relief ( Bareham v. City of Rochester, 246 N.Y. 140, 143; James v. Alderton Dock Yards, supra, p. 305).
Plaintiff alleges that the Company could overcome its present inability to differentiate between local and suburban calls by installing new equipment, systems and procedures — a not inconsequential undertaking, and a matter that is clearly within the jurisdiction of the Commission. The Appellate Division appropriately recognized that the latter body, created by law even as are the courts, is in a much better position, with its superior expert engineering staff and other facilities, to determine whether or not at the present time the Company may introduce a dial or other system which will differentiate local from suburban calls, and to make appropriate orders with far greater flexibility than the courts.
The injunctive relief sought here is sweeping; it might seriously interfere with the Company's duty to collect the sales tax concededly due; and the direction that the Company install an entirely new system, with all its consequences, is one that should not be made — at least until the Commission has acted. As to the restraint sought to be imposed upon the Company from paying to the City the amounts collected, this is an issue not presented by the pleadings and is not properly before us.
Under all the circumstances, we are of the opinion that the Appellate Division not only exercised sound judgment, but it had the power to do what it did in the exercise of discretion, both as to declaratory and injunctive relief, with which we have no right to interfere.
The judgments in both actions should be affirmed, without costs.
I agree that, as these cases come to us, we may ignore the first complaint, and examine, as to sufficiency, the complaint in Action No. 2, only. I agree, too, that, for several reasons, the cause of action for an accounting, being the sixth count in Complaint No. 2, is inadequate.
However, Complaint No. 2 does include a sufficient cause of action for a declaratory judgment and a sufficient cause of action for an injunction. The basic ground asserted for relief is that defendant telephone company, with the at least passive acquiescence of defendant city, has been carrying on for five years and intends to continue an illegal practice of collecting from the telephone subscribers taxes concededly not owed by the latter. That the company has no present method of distinguishing between taxable and nontaxable messages, explains but does not justify the illegality. The telephone company acts as to these taxes as the city's collecting agency only and holds as trustee for the city the tax moneys when collected as such (Administrative Code of City of New York, § N41-2.0; Matter of American Cyanamid Chem. Corp. v. Joseph, 308 N.Y. 259; New York City Comptroller's Sales Tax Regulations, art. 2). Nevertheless, the company has matched and followed its unlawful acts of collecting taxes on nontaxable telephone calls by an unlawful assumption of the role of a court or an administrative tribunal in refunding some of those taxes, at the company's own will and through procedures formulated by it. The long and short of it is: when this company or anyone else collects money as and for such local taxes, the collector's only duty or power is to turn the money over to the city. If there are to be refunds, the statute itself provides the procedure (Administrative Code, § N41-8.0).
Declaratory judgment relief has been denied to plaintiff by the courts below, not in the exercise of discretion (see Rules Civ. Prac., rule 212) but on the ground that there is no justiciable dispute between plaintiff and either defendant. All parties agree that the collection of these New York City local taxes on telephone calls to extra-city points is forbidden by the applicable statute (L. 1934, ch. 873, subd. 1, as last amd. by L. 1952, ch. 232). But from that it does not follow that there is no dispute for the courts to settle. Defendant telephone company, while admitting invalidity asserts necessity and tells us that there is no other way of charging for these calls, in the first instance, and that it intends, therefore, to continue its present practices. Thus, a justiciable controversy exists not as to whether Manhattan-Westchester calls are taxable but as to whether defendant telephone company may continue to force its subscribers to pay taxes not due and require those subscribers to submit to the company's private procedures as to refunds. Whether or not the courts will in the end enter a declaratory judgment, and, if so, what will be its terms, is not now before us on this motion to dismiss the complaint for insufficiency.
Similar reasons require the validation of the injunction count in Complaint No. 2. We are told that resort should first be had to the Public Service Commission on the theory that plaintiff's grievance is as to the adequacy of the company's service, equipment or practices (Public Service Law, § 97, subd. 2). Not so. The wrong plaintiff alleges is the illegal collection by the public utility of taxes not statutorily authorized. Kovarsky v. Brooklyn Union Gas Co. ( 279 N.Y. 304) established the rule in such situations that "direct application for relief may be made to the court". This is not a mere review of a Public Service Commission determination, since the commission has never authorized this tax collection procedure. Whether an injunction is in the end to be granted must await a trial, but it will not do to put plaintiff out of court without a trial.
In the view I take, it is unnecessary to decide whether this is an individually-brought or representative-type action.
In Action No. 1, the judgment appealed from should be affirmed, without costs.
In Action No. 2, the judgment appealed from should be modified so as to provide for the dismissal of the sixth cause of action only, without costs.
In Action No. 1: CONWAY, Ch. J., DESMOND, DYE, FULD and VAN VOORHIS, JJ., concur with FROESSEL, J.; BURKE, J., taking no part.
In Action No. 2: CONWAY, Ch. J., DYE and VAN VOORHIS, JJ., concur with FROESSEL, J.; DESMOND, J., dissents in an opinion in which FULD, J., concurs; BURKE, J., taking no part.
In Actions Nos. 1 and 2: Judgment affirmed.