The Deal of the Century

by Coll, Steve;

  “Had Bill Smith not been on the Pacific Telephone board, this case would be dropped,” Baldrige lamented frequently to his top staff in the weeks after the cabinet meeting. The irony, however, was that as the debate over dismissal intensified in the last weeks of June, Smith indirectly made certain that Baldrige would have a tough time getting his proposal approved by the White House.

  If Smith was privately committed to freeing AT&T from the government antitrust suit, he “could have fed Baxter to the sharks,” as Jonathan Rose put it later, without creating any conflict of interest problems for himself. There was no question that Baxter lacked any real clout in the administration; he had not been selected for his job because of his political savvy or connections. If Smith stood by and did nothing that June, if he let the acerbic, academic Baxter go it alone against the likes of Weinberger, Baldrige, and Meese, the future of U.S. v. AT&T would be dim. Smith, though, for reasons having more to do with bureaucratic territorial imperatives than the merits of telephone competition issues, was unhappy about the way Justice had been summarily excluded by Baldrige and Meese from participating in the cabinet council task force that drafted the dismissal recommendation for the President. Smith felt that Justice had been stepped on by Commerce and Defense. Conservatives like Smith and Rose rejected the Carter administration notion that Justice, as a matter of principle, should “independently” enforce the law against a company such as AT&T; they felt that a President was just as entitled to make legal policy as he was to make farm or defense policy. But Smith was determined to defend his turf; as a matter of integrity and policy both, he felt it was wrong for Justice to be left out of such an important decision. So without indicating whether he supported dismissal or not, Smith strongly encouraged Rose to help Baxter navigate the treacherous political waters at the White House. Rose was an old Washington hand; his Office of Legal Policy had been created precisely for controversies such as this; and Rose was much better equipped than Baxter to consider the political, as opposed to the economic and philosophical, consequences of dismissing the case. Neither Smith nor Rose wanted Justice to be discredited as a result of the White House’s decision.

  So while Baxter continued to press the technical and economic arguments against dismissal to anyone at Commerce or in the White House who was still willing to listen to him, Rose began to work the political back channels of the administration. His objective was to change the nature of the debate, to inject it with political doubt. Rose knew that, to Jim Baker and other top White House staff, Baldrige’s dismissal proposal was just one agenda item of many. No doubt they were sympathetic to the proposal, because to them the equation was simple: On one side were two cabinet secretaries who felt very strongly about the issue, while on the other was a mere assistant attorney general too arrogant to consider a compromise.

  “We don’t have time to get into the details,” Rose was told by one cabinet-level supporter of Baldrige. “A powerful section of American industry wants this case dropped. Academic arguments shouldn’t stand in the way. We don’t think one man should stand in the way.”

  “This isn’t what you’re being asked to decide, that Cap and Baldrige are right and Baxter is wrong,” Rose countered. “You’re being asked to discontinue a seven-year-old antitrust case, provoke a hostile congressional antitrust committee—all to allegedly gain a legislative leg up. In fact, you’ll only complicate things. You’re asking the President to take on controversy in aide of an objective he won’t even obtain. Hadn’t you better let the string out a bit on this?”

  Rose had been in the Nixon White House during the early 1970s scandal that erupted after it was learned that a Justice decision to drop an antitrust case against the multinational ITT Corporation might have been linked to illegal payoffs by the company. Rose reminded Reagan’s staff that even though, so far as anyone knew, there was no smoking gun in Baldrige’s proposal to drop the AT&T case, Democrats in Congress and “liberals” in the media would likely go all out searching for a way to embarrass the President over his decision. “Let’s face it,” Rose said. “The executives of AT&T are friendly with some administration officials.”

  Baxter, too, pressed the argument that if the suit was dismissed, a great hue and cry would follow, and he told Commerce officials that a number of lawyers on the Justice trial team might publicly resign in protest. Baxter also predicted to Sherman Unger, Bernie Wunder, and others that AT&T would withdraw its support from the Senate telecommunications bill so cherished by Commerce. Once the phone company got what it wanted from Reagan, Baxter said, it would have no reason to work with Congress to resolve the issues of phone industry competition.

  The question, What’s in it for the President? struck a responsive chord among all of Reagan’s top White House aids. As Rose told Baxter, “If you’re a White House staffer, you want to deliver to the President the best result, the least damage, and the best policy—sometimes in that order.” The general rule at Jim Baker’s White House, Rose said, was that if something was going to hurt the President, “they want to get it out of there and take it on over to Defense or Justice or OMB or wherever—just get it away from the President.” In the case of Baldrige’s dismissal proposal, however, there was no place to hide it, except at Justice, where Baxter wouldn’t have it; if the suit was going to be dropped, the order would have to come directly from Reagan.

  And where was the President himself during this intensive internal policy debate about “a major section of American industry” late in June 1981? He was utterly uninvolved. Reagan’s personal administrative style, as it began to take shape in the first six months of his presidency, represented a policy of “constructive disengagement.” Rarely did the President get involved in the details or even the debate about a decision such as dropping the AT&T case. His easygoing personality was better suited to detachment: he let his top aides do battle with each other over an issue until they presented him with a firm consensus. The advantage of Reagan’s style was that on many issues, that consensus led to unity and strong, positive leadership within the administration. The disadvantage was that the President had a slim grasp of the questions being deliberated by his counselors and was thus unable to intervene when, as was the case early that summer, debate on a particular issue became skewed by personality clashes, turf wars, and internal White House politics.

  By the July 4th weekend, Jonathan Rose had succeeded: Jim Baker had effectively taken control of the Baldrige proposal. President Reagan was not going to dismiss U.S. v. AT&T unless Baker agreed that it was a good idea. Despite Baldrige’s continued insistence that neither the public nor the Congress would care if the President dropped the case, Baker had been persuaded by Rose, Baxter, and his own instincts that the decision should not be taken lightly. There were dozens of items on the President’s agenda of equal or greater importance. This one could wait. At the same time, Baker had made it clear to Baxter that if the Antitrust chief could see any acceptable way to settle this dispute without forcing divestiture by AT&T, the administration expected him to pursue that settlement.

  So far, though, no one had come close to changing Baxter’s mind about the importance of breaking up the phone company.

  Chapter 22

  Escalation

  Of all the arguments being pressed on President Reagan’s top advisors by Bill Baxter and Jonathan Rose in their combined effort to head off a dismissal decision, the one most demonstrably true that June was the claim that Justice staff lawyers trying the AT&T case before Judge Greene would react strongly, and probably publicly, if the administration dropped the suit in mid-trial.

  The gallows humor about dismissal intensified in the Justice trial staff offices on 12th Street as soon as some of the details of Baldrige’s proposal leaked to the newspapers in the aftermath of the June 12 cabinet meeting with President Reagan. There was half-joking talk about government lawyers blocking traffic in the street and burning their Justice identification cards en masse. The references, even in humor, to campus protest
methods of the late 1960s and early 1970s reflected both the young ages of many of the staff lawyers and their increasingly partisan view of the political forces now gathering behind a dismissal proposal. It was hard to avoid, for example, the parallels between the inclination of Reagan’s Republican cabinet to drop U.S. v. AT&T and the decision twenty-five years earlier by the Eisenhower administration to settle benignly, in scandalous circumstances, a structural antitrust suit between the same two parties. Was the relationship between the government and the phone company to become a never-ending cycle of lawsuits, settlements, scandals, and resentments? Many of the Justice trial staff that June suspected it was. Led by the staff’s “doomsayer,” Peter Kenney, a consensus among the trial team began to emerge. Reagan, like Eisenhower, would be loyal to his business friends and dismiss the case. Six years of preparations and four months of trial—not to mention the intense personal sacrifices and devotion by lawyers on both sides of the case—would be wasted. To the Justice staffers there was a sort of outrageous inevitability about it all.

  Of course, neither the trial staffers nor their boss, Gerry Connell, was aware of the back channel lobbying effort to save the case being pressed by Baxter and Rose. Relations between the Antitrust front office and the trial team were distant and often strained. In part, that was because Baxter’s cold manner precluded informal contacts with him. Also, Baxter’s overall conservative philosophy about antitrust enforcement tangentially implied that the workaday lawyers in the division—who developed and prosecuted so many of the cases Baxter considered “wacko”—were misguided liberals or, worse, just plain stupid. After the chilling introductory meeting between the trial staff and their new Antitrust chief, Connell himself talked with Baxter infrequently, and then it was only to report superficially on the progress of the trial. The trial staff perceived advantages in this arms-length relationship with the division’s political appointees. The last thing any of them wanted was to consult on trial strategy with Baxter or his front office assistants, none of whom had any solid litigating experience. It was better to be left alone with their case against George Saunders and AT&T, even if that case seemed increasingly to be doomed. For his part, Baxter believed that the internal deliberations of the Reagan administration were none of the trial staff’s business, and he told them next to nothing about the warfare between Justice, Commerce, Defense, and the White House. “I’m doing all I can on that front,” Baxter told the staff when they asked about the newspaper stories. “You are to win the case.”

  And day after day in Judge Greene’s courtroom, thirteen blocks down Pennsylvania Avenue from the White House, Gerry Connell and his staff were trying to do exactly that, as quickly as possible. In May and June, after the disastrous showing by Bill McGowan, morale on the Justice side had begun to go up again. Other MCI executives testifying about the company’s problems with AT&T during the early 1970s had done reasonably well, particularly Larry Harris, whose relentlessly detailed account of the early interconnection negotiations suggested that if McGowan was arrogant and devious, he was no more so than John deButts and other top phone-company executives. Equally important was the testimony of executives from long-distance companies other than MCI, who, even though they had been mainly on the sidelines during the important battles between McGowan and deButts, established that AT&T’s behavior and policies during the early 1970s affected more than just the personal fortune of MCI’s chairman. Judge Greene’s obvious interest in these witnesses—the numerous questions he asked, his positive tone of voice, his upbeat and aggressive mood—stirred the hopes of the Justice lawyers because it suggested that Greene’s dislike for McGowan had not tainted his view of the crucial intercity services section of the case. Slowly, Gerry Connell’s presentation was building on itself—after sixty days of trial, ninety-three witnesses, and more than 2,000 documents entered into evidence, could Judge Greene fail to see that the phone company was so large that it was beyond anyone’s control? Or had George Saunders, through his aggressive cross-examination, already convinced Greene that AT&T had been victimized by its regulators and competitors?

  The answer came at a most opportune time for the Justice trial staff, disheartened as it was by rumors of its own imminent demise. As soon as stories about Malcolm Baldrige’s dismissal proposal appeared in the press, George Saunders seized every opportunity in court to remind Greene—sometimes humorously, sometimes seriously—that the plaintiff in U.S. v. AT&T, the government, seemed to be of two minds about the merits of the case. At one point, Saunders, who was brimming over with confidence about the progress of his defense, suggested to Greene that he might want to change the scheduled briefings and hearings on Saunders’ “motion to dismiss.” As was common in trials such as U.S. v. AT&T, Saunders had announced that as soon as Gerry Connell was finished putting on his evidence, AT&T intended to move that Greene dismiss the case, arguing that it was inadequate on its face. Although anything was possible, no one seriously expected that Greene would throw out the whole case. But the judge might decide that some sections had not been sufficiently proved by the government, thus saving Saunders the trouble of refuting them. Ordinarily, both sides filed detailed, written briefs outlining why they thought each section of the case should or should not be dismissed before the defense’s case began. After that, oral arguments might be held before the judge issued his decision. What Saunders had casually suggested one day early in June was that Greene reverse the order and take oral arguments first. Saunders’ idea was that since Connell would be wrapping up the government case soon, after which there would be a three-week recess, it might be useful for Greene to mull over the arguments while he was on vacation, before he saw the written briefs. But Greene interpreted the suggestion another way. He thought Saunders was implying that written briefs weren’t even necessary, that the case should just be summarily dismissed on the basis of oral arguments. That idea made Greene very angry.

  Harold Greene read the newspapers. He even discussed the stories about Baldrige’s dismissal proposal with his law clerks. So on the scorching hot morning of Thursday, June 25, Greene knew that the proceedings in his court were under close scrutiny by the top officials of the Reagan administration, who, according to news accounts, might be just days away from a final decision to drop the AT&T case. Greene decided that Thursday morning to send those officials a message.

  “Before you proceed with what you have to say,” Greene announced testily as soon as he was seated at the bench, “let me proceed with what I have to say. I want to discuss briefly matters that the defendants have raised.

  “Let me deal first with the suggestion that the motions to dismiss should be argued now and perhaps briefed later … The first reason, as I gather it, is that the defendants are ready to argue immediately because the issues are clear and the government’s proof is patently inadequate. I think the case is hardly simple by any standard. We have heard four months of testimony, many witnesses and documents … As to the question of whether the government’s case is so patently inadequate that it can be disposed of by informal oral presentations, followed by a more or less off-the-cuff decision from the court, let me say this: Whatever the substantive merits of the motions and the case generally will ultimately turn out to be, I don’t believe the government’s evidence justifies such cavalier treatment. The government has presented a respectable case that the defendants have violated the antitrust laws … Defenses have been raised, but I certainly could not say it is self-evident that these defenses are valid and will prevail.

  “On the second point, which I think was made, that according to the press, ‘The government is very concerned about whether they are going to proceed with this case or not’ and therefore it is in the public interest for the court to decide it now, I haven’t heard from the government that they are concerned. In any event, I don’t propose to act on the basis of press reports or someone’s concerns unrelated to this lawsuit. The court has an obligation to deal with this lawsuit under existing antitrust laws, and
it will do so irrespective of speculation outside the judicial arena.”

  “I appreciate the things you have said,” Gerry Connell told Greene when his speech was over.

  “OK,” said the judge.

  “I guess I better leave it there,” Connell said. “There are some things I could say, but I just think they are better left unsaid. Thank you.”

  Greene, too, left something unsaid: that this would be the first of several attempts by the judge to raise the stakes in the Reagan administration’s debate over dismissal of the AT&T case. Until now, Greene had made no mention of how he regarded the overall presentation by Gerry Connell and the Justice trial team. Bernie Wunder and other Commerce officials reading the trial transcripts every day were telling cabinet secretaries and White House staffers that large sections of the government’s case were “a jumbled mess.” Now Greene was calling the evidence “respectable” and was accusing the AT&T defense lawyers of being “cavalier.” If Greene continued to speak out forcefully and frequently in support of Justice’s presentation, he would make it increasingly difficult for those in the administration who argued that “only a handful of antitrust lawyers will care” if the case was dropped.