SHERMAN M. WOLF & another [Note 1] vs. DEPARTMENT OF PUBLIC UTILITIES & others. [Note 2]

ABRAMS, J. 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, Section 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,

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Section 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. [Note 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 [Note 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

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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

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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, Section 5, is limited, although not perfunctory. [Note 5] See Costello v. Department of Pub. Utils., 391 Mass. 527, 533 (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,] Section 14 (7)." Zachs v. Department of Pub. Utils., 406 Mass. 217, 219-220 (1989). See Martorano v. Department of Pub. Utils., 401 Mass. 257, 261 (1987). "General Laws c. 25, Section 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, Section 14." Costello, supra at 533.

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.

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c. 159, Section 12B, [Note 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. Section 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. [Note 7]

Wolf correctly notes that telephone utilities such as NET are excluded from the application of Section 12B, see G. L. c. 159, Section 12D, and that telephone utilities are excluded from the definition of "radio utility" in both G. L. c. 159, Section 12A, and

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the transfer regulation, 220 Code Mass. Regs. Section 35.02 (8). [Note 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, Section 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 proposed is appropriate and in the public interest'" (emphasis supplied by Wolf). Wolf concludes that the department should have applied the "public interest" standard.

At the outset, we note that Wolf's argument makes much of a supposed distinction between the "public convenience and necessity" and the "public interest." We have stated, however, that "the phrase `public convenience and necessity' is a term of art that stands for the general notion of `public interest.'" Zachs v. Department of Pub. Utils., supra at 224. "The common theme running through our cases in this regard is that, since the mission of the agency is to regulate in the public interest, this is the overriding meaning of the term `public convenience and necessity.'" Id. at 223. Applying the "public convenience and necessity" standard then would satisfy any "public interest" requirement. [Note 9] Cf. id. at 224 (concluding

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"that it was not error for the department to use the concept of `public interest' in determining that [the] application satisfied the `public convenience and necessity' test").

The department argues that here it could use the standard embodied in the regulation even if that regulation did not technically apply. We agree with the department. Wolf concedes that review is governed by G. L. c. 159, Section 12; [Note 10] however, that statute does not specifically address transfers of radio utility assets by telephone utilities nor does it prescribe a particular standard for reviewing such a transfer. Indeed, there are no statutes or regulations governing the transfer of radio assets by telephone utilities. Thus, the decision regarding what standard to apply in that situation is left to the department's discretion. "In reviewing administrative agency decisions, this and all other courts are required 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.' G. L. c. 30A, Section 14 (8)." Dohoney v. Director of Div. of Employment Sec., 377 Mass. 333, 337 n.3 (1979), quoting Raytheon Co. v. Director of Div. of Employment Sec., 364 Mass. 593, 595-596 (1974). "Like any administrative agency, the [department] may, at its discretion, announce and apply new rules and standards in an adjudicatory proceeding." Brookline v. Commissioner of the Dep't of Envtl. Quality Eng'g, 387 Mass. 372, 379 (1982).

We find no error in the application of the "public convenience and necessity" standard here. Although Section 12B does not expressly apply to NET, it does apply to RTS, and as a result, in order to operate a mobile utility system, RTS was

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required to apply for and obtain a certificate of public convenience and necessity. See G. L. c. 159, Section 12B; 220 Code Mass. Regs. Sections 35.03-35.07. In order to grant such a certificate, the department had to make a finding of public convenience and necessity. See, e.g., Zachs, supra at 220.

2. Burden of proof. Relying on Deacon Transp., Inc. v. Department of Pub. Utils., 388 Mass. 390, 394 (1983), Wolf claims that "[t]he party seeking a certificate of public convenience and necessity bears the burden of producing affirmative evidence to justify its application. . . . The applicant cannot rely on the failure of opponents to produce countervailing evidence." Wolf argues that the department's use of the public convenience and necessity standard erroneously shifted to Wolf the burden of showing "that there was no adverse impact to the public interest, rather than requiring NET and RTS to prove affirmatively that the transfer is in the public interest." There was no legal error. NET and RTS were required to show only "that the transfer [would] not adversely effect the public convenience or necessity." 220 Code Mass. Regs. Section 35.08. Moreover, nothing in the record before us nor in the department's decision suggests that the department placed that burden on Wolf. The department asserts that its "decision turned upon the fact that NET employed a sufficient bidding process in an arm's-length transaction, resulting in a price adequately related to market value. Showing these facts met [NET's] burden." The department argues that, because it "decided, in D.P.U. 86-17, to rely upon market value `as determined through a competitive bidding process . . . ,' [i]t can hardly be surprising, then, that the Department chose to rely upon the characteristics of the transaction to meet NET's prima facie case."

Wolf asserts that the "Department never once addresses any evidence offered by NET and RTS to meet their burden of proof. . . . [T]here was no evidence in the record that the Department could use to support a finding that this transfer was in the public interest. To the contrary, the Department specifically talked in terms of the failure of the record (presumably through evidence that would be offered by [Wolf]),

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to prove negatives." [Note 11] The department responds that "it made affirmative findings based upon evidence introduced by NET." We agree. Four witnesses testified on behalf of NET. The decision makes extensive citation to their testimony, as well as to documents offered by NET and RTS. Those factual findings were the basis for the department's analysis and its ultimate finding that the transfer was not adverse to the public convenience and necessity. To the extent that Wolf simply disagrees with the department's findings, "[t]he resolution of conflicting evidence is for the [department], not the courts. Borden, Inc. v. Commissioner of Pub. Health, 388 Mass. 707, 723 [, cert. denied sub nom. Formaldehyde Inst., Inc. v. Frechette, 464 U.S. 936] (1983). Courts do not substitute their judgment for that of the agency." Commonwealth v. B & W Transp., Inc., 388 Mass. 799, 805 (1983), and cases cited. See Martorano v. Department of Pub. Utils., 401 Mass. 257, 261 (1987).

The department argues that Wolf's "claim depends solely upon the fact that, as a matter of semantics, certain findings are stated in the negative. . . . The Department's findings that nothing in the record suggested an undue limitation on the bidding process or an anticompetitive impact simply

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demonstrated that the applicants' prima facie case had not been rebutted. This was not a shift in the burden of proof." We agree with the department that "[i]t is not surprising that, in rejecting [Wolf's challenges], the Department referred to the absence of evidence to support Wolf's contentions."

3. Deferral of fair market value determination. In approving the transfer here, the department found that "[i]t is sufficient for the purposes of this case that the RTS agreement was a bona fide arm's-length transaction between non-affiliates, that the Offering Memorandum sufficiently described the assets to be transferred and the proposed terms to permit a meaningful bid, and that the distribution of the Offering Memorandum was sufficiently widespread and targeted to potential bidders to call forth legitimate bids from entities in the target market."

In its decision, the department stated, however, that "[t]he evidence adduced in this case raises a concern about whether the $2.5 million offer by RTS represents the fair market value of the subject assets. Pursuant to our discussion supra, we need not make that determination in this proceeding. The issue of the fair market value of NET's radio utility assets is more appropriately determined within the context of a rate case. Should we find that a higher purchase price could reasonably have been received, NET would be required to account to the ratepayers for this additional value. . . . Accordingly, we shall defer any determination of the fair market value of NET's radio assets until the next general rate investigation conducted by the Department." D.P.U. 88-221/235 at 28-29.

In New England Tel. & Tel. Co., D.P.U. 86-17, the department stated 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." Wolf claims that D.P.U. 86-17 established the rule "that in a transfer of

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assets to an affiliated or unaffiliated company, a utility must obtain fair market value" for the assets. Wolf notes that "[n]owhere in this decision is there a finding that the RTS bid is at fair market value. All the Department says is that it was the result of a `bona fide' negotiation." Wolf maintains that the "[d]epartment's failure to find that the RTS offer was at fair market value pursuant to its prior decisions requires reversal."

The department argues that, in D.P.U. 86-17, it did not select a standard of "fair market value" in the abstract. Rather, it stated "that approval should be forthcoming `if the transfer of assets was at fair market value as determined through a competitive bidding process . . .`" (emphasis supplied by the department). D.P.U. 86-17 at 16. The department asserts that the "fact that the price was achieved through competitive bidding process suffices to carry NET's burden." As the department notes, D.P.U. 86-17 requires a determination that the bidding process is competitive. In a transfer case, it also is necessary to determine whether an offer represents the fair market value of the subject assets. Of course, if the bidding process, in fact, is competitive, the offer given should represent the fair market value of the assets being sold.

Wolf argues that a transfer at "fair market value" means a sale at the best or highest possible price and that it was error to approve the transfer at RTS's offer of $2.5 million where they were willing to pay at least $3.5 million. [Note 12] Wolf

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asserts that "even a perfect process could not justify sale of an asset at a price below what a buyer is willing to pay . . . . Even if [Wolf] came from Mars after NET had accepted the RTS offer and so could not conceivably have been located by NET in the offering process, . . . the Department was bound to consider that offer as demonstrating the inadequacy of the RTS price and the NET offering process. The issue here is primarily the adequacy of the price NET obtains, not merely the validity of the process it followed." We do not agree. Nothing in D.P.U. 86-17 required that the sale price be the highest that could possibly be obtained or that the bidding process be perfect. Nothing in D.P.U. 86-17 required the bidding process to remain open indefinitely with no closing date. All that is required is that the RTS's offer represent the "fair" value of the assets as determined by the market during a fair period of time. That a higher price might have been obtained from some other source more than one year later does not render RTS's offer or NET's bidding process unfair or inadequate.

Because the department failed to make the necessary determination of fair market value for the assets, we remand this matter to the single justice for remand to the department

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for a determination whether RTS's offer represents the fair market value of the radio assets. [Note 13]

So ordered.