Best Payphones, Inc.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	:
: 	Chapter 11
BEST PAYPHONES, INC., 	: 	Case No. 01-15472(SMB)
:
Debtor. 	:
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OPINION AND ORDER
REGARDING DoITT CLAIM
FOR INTERIM REGISTRY FEES
A P P E A R A N C E S:
CHARLES H. RYANS, ESQ.
Attorney for Debtor
1674 Broadway – 7 th Floor
New York, New York 10019
MICHAEL A. CARDOZO
Corporation Counsel for the
City of New York
Attorney for Department of Information
Technology & Telecommunications
100 Church Street
New York, New York 10007-2601
STUART M. BERNSTEIN
Chief United States Bankruptcy Judge
The 	New 	York 	City 	Department 	of 	Information 	Technology 	&
Telecommunications 	(“DoITT”) 	filed 	two 	proofs 	of 	claim 	in 	this
confirmed 	chapter 	11 	case, 	seeking 	fees 	and 	fines 	in 	connection
with the debtor’s operation of public pay telephones (“PPTs”). 	The
debtor objected to the claims. 	DoITT recently withdrew its claim
for fees, and maintains that the withdrawal mooted the portion of
the 	objection 	relating 	to 	the 	fees. 	The 	debtor 	apparently
disagrees. 	I write, primarily for the benefit of any other court
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1 After filing this case, the debtor sold its assets to a third party, and confirmed a
100% plan.
2
that may have to consider this matter, to explain why I agree with
DoITT’s self-evident proposition.
The 	relevant 	facts 	are 	set 	forth 	in 	In 	re 	Best 	Payphones,
Inc., 	279 	B.R. 	92 	(Bankr. 	S.D.N.Y. 	2002). 	I 	assume 	familiarity
with 	that 	opinion, 	and 	highlight 	only 	the 	facts 	that 	concern 	the
current 	matter. 	The 	debtor 	formerly 	operated 	PPTs 	in 	New 	York
City. 1 	Its 	authority 	was 	derived 	from 	its 	listing 	on 	an 	interim
registry maintained by the City. 	The interim registry was created
to bridge the gap between an existing and newly-enacted regulatory
scheme. 	In 	essence, 	it 	“grand 	fathered” 	existing 	operators, 	and
allowed them to operate until they qualified under the new scheme.
To qualify, the PPT operator had to execute a franchise agreement
with 	the 	City. 	The 	City 	imposed 	fees 	on 	the 	operators 	listed 	on
the interim registry, and DoITT administered the regulations.
DoITT 	sent 	the 	debtor 	a 	franchise 	agreement, 	but 	the 	debtor
refused 	to 	sign 	it. 	DoITT 	took 	the 	position 	that 	the 	refusal 	to
sign 	the 	franchise 	agreement 	terminated 	the 	debtor’s 	right 	to
operate the PPTs under the interim registry. 	As a consequence, it
began 	to 	remove 	the 	debtor’s 	PPTs 	and 	issue 	fines 	on 	the 	theory
that 	the 	debtor 	was 	operating 	the 	PPTs 	without 	authority. 	The
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2 The debtor (or its affiliate, New Phone Company, Inc.) pressed similar claims
elsewhere. In fact, they filed eight overlapping complaints against DoITT in the United States
District Court for the Eastern District of New York, challenging DoITT’s regulation of PPTs.
3
debtor 	nevertheless 	continued 	to 	pay 	its 	interim 	registry 	fees
until March 2001.
The 	debtor 	filed 	this 	case 	in 	October 	23, 	2001. 	DoITT
subsequently 	filed 	two 	proofs 	of 	claim 	based 	on 	the 	debtor’s
failure to pay interim registry fees and the fines arising from the
unauthorized operation of the PPTs. 	The first, dated Feb. 1, 2002,
related 	to 	the 	pre-petition 	period. 	It 	aggregated 	$60,048.15,
split between unpaid interim registry fees ($37,048.15) and fines
($23,000). 	(Declaration 	of 	Michael 	Chaite 	[etc.], 	dated 	Apr. 	1,
2005, 	Ex. 	D)(ECF. 	Doc. 	# 	395.) 	The 	pre-petition 	fines 	were 	the
subject 	of 	the 	Court’s 	earlier 	opinion. 	The 	second 	claim, 	dated
Nov. 13, 2002, covered the post-petition period. 	It sought interim
registry fees in the sum of $69,789.35, and fines in the amount of
$36,000. 	(Id., Ex I.)
The 	debtor 	filed 	a 	series 	of 	objections 	to 	these 	claims,
culminating in the Amended Objection to Proof of Claim of [DoITT],
dated 	July 	17, 	2003 	(“Amended 	Objection”)(ECF 	Doc. 	# 	273.) 	The
Amended 	Objection 	generally 	challenged 	the 	City’s 	scheme 	for
regulating 	PPTs 	and 	DoITT’s 	enforcement 	activities. 	It 	raised 	a
host of issues ranging from the constitutional to the statutory to
the procedural. 2
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The unnecessary burden imposed by these complaints led Judge Gleeson to enjoin the debtor and
its affiliate from filing any new actions relating to the City’s regulation of PPTs without leave of
the court. 	(See ECF Doc. # 435, Ex. A.)
4
The Amended Objection also contended that the claims for fees
and fines were mutually exclusive. 	If the debtor was listed on the
interim registry, it might owe the fees but could not be fined for
illegally operating the PPTs. 	Conversely, if it was taken off of
the interim registry, it might owe the fines but could not owe the
fees. 	(Id., 	at 	¶ 	1.) 	The 	Amended 	Objection 	also 	asserted
counterclaims, but they had nothing to do with the overpayment of
fees or fines. 	(See id., at ¶¶ 91-93.)
By letter dated October 7, 2005, DoITT confirmed its earlier
statement made on the record that it was withdrawing its claims for
pre-petition and post-petition interim registry fees. 	(ECF Doc. #
438.) 	DoITT 	contended 	that 	the 	withdrawal 	mooted 	the 	debtor’s
objection to the fees, and limited the claim and objection to the
fines.
In two letters, both dated October 14, 2005 (ECF Doc. ## 441,
442), the debtor took a different view. 	The debtor argued, for the
first time, that it held a claim for the payment (or overpayment)
of approximately $75,000 of pre-petition interim registry fees that
should 	never 	have 	been 	paid. 	It 	announced 	its 	intention 	to 	seek
authority to amend its objection to assert this claim as a set off
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against DoITT’s claim for fines.
Any 	debt 	for 	pre-confirmation 	fees 	was 	discharged 	by 	the
confirmation 	of 	the 	plan. 	See 	11 	U.S.C. 	§ 	1141(d)(1). 	DoITT’s
ability 	to 	collect 	was 	limited 	to 	distributions 	on 	its 	proofs 	of
claim. 	By withdrawing its claims for fees, DoITT surrendered any
ability to recover those fees in this case. 	The withdrawal of the
claim for fees mooted the objection to the claim for fees because
there is no longer any claim for fees.
So ordered.
Dated: 	New York, New York
October 21, 2005
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
Chief United States Bankruptcy Judge
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