The Deal of the Century

by Coll, Steve;

  Chapter 24

  A Judicial Temperament

  On Monday, August 3, when Gerry Connell and George Saunders returned to Judge Greene’s courtroom to resume the five-month-old trial of U.S. v. AT&T, only a handful of people in and out of the Reagan administration knew that dismissal of the case by the President was now highly unlikely. And for various reasons, those few people were keeping the information to themselves.

  Over at Malcolm Baldrige’s Commerce department, for instance, the compromise forged with Baxter during the last days of July was not being loudly lauded as a victory. True, since the Antitrust chief now publicly supported S.898 there was a better chance than before that Congress, and not the federal courts, would decide the future of the telecommunications industry. But the widespread public perception that Baxter had been forced against his will to offer amendments and back the legislation undermined the value of his support. There was some hope among Commerce’s political appointees that the Quagmire II negotiations might lead to a nondivestiture settlement even if S.898 failed in Congress, but after Sherman Unger explained the Quagmire II idea to Howard Trienens, there was no role for Commerce in those discussions; any deal would have to be made solely between Justice and AT&T. Baldrige himself was disappointed by the way things had turned out. Among other reasons, the cowboy cabinet secretary felt that he had personally failed to achieve the relatively simple objective he had laid out the previous spring: dismissal of a bothersome and destructive antitrust case. So distraught was Baldrige that on Thursday, July 30, he made a personal appointment to see President Reagan to try to persuade him one last time that outright dismissal was the only sensible course for the administration, even though by now the compromise with Baxter seemed impossible to change.

  “The President would say, ‘If it ain’t broke, don’t fix it,’” Baldrige told one of his aides before he met with Reagan. “He has common sense.”

  But Reagan also had an acute sense about politics. The President told Baldrige that for him, a deciding factor was what effect dismissal would have on his friend and attorney general, William French Smith. Reagan said he was worried that if the case was dropped, Congress and the press might think that Smith had a hand in the decision, even though Smith was recused from the case for conflict-of-interest reasons. The previous March, when Cap Weinberger had ignited a furor by saying that the AT&T case should be dropped, a rumor had circulated in the media and on Capitol Hill that it was really Bill Smith who had put Weinberger up to it. Although precautions had been taken by Baldrige in anticipation of a congressional investigation, Reagan was concerned that they would not be enough to protect Smith.

  Despite this seemingly final decision by Reagan, neither Baldrige nor his subordinates were ready yet to advertise that dismissal had been ruled out by the administration. The continuance request by Baxter and widespread rumors that the case might still be dropped served as a kind of threat to Congress, urging it to move legislation along quickly. Besides, there was still the chance that Reagan might change his mind; nothing would be gained for Commerce or AT&T by a public surrender to Baxter. The Antitrust chief, too, was tight-lipped about the success of his finesse play. The Quagmire II negotiations had to be conducted in secret, and there was no reason for him to stop “pushing on all fronts,” as he put it. The victory in the administration might only be temporary. Anyway, the taciturn Antitrust chief shared the details of his battles with Commerce with only one or two of his front office aides. For the most part, Gerry Connell and the Justice trial team were kept uninformed.

  And so, of course, was Judge Harold Greene, with whom the fate of AT&T once again rested as George Saunders began to present his defense in early August. Before Saunders called his first witness on Monday, August 3, Greene announced to the courtroom, “All I know about the government’s position in this case is what Mr. Connell and his colleagues tell me in this courtroom. What other people may say in other places, either to the Congress or to the newspapers or anybody else, is not my concern. The government’s position is stated right here by the attorneys representing the government.”

  Privately, however, Greene was far from uninterested in the reports about the Reagan administration’s deliberations. He had been appalled and angered by the continuance request from Baxter. When the Antitrust chief had called to set up the appointment, Greene and his clerks had assumed that they were about to be presented with a settlement or dismissal proposal, and they had discussed whether Greene could exert any control over the case if Justice tried to drop it outright. There was a law known as the Tunney Act, which provided for judicial review of government antitrust settlements under certain conditions. Greene wanted to know if he could invoke the Act, which was designed to protect the public interest in settlement deals, even if the prosecution was dropped and no consent decree was entered with the court. The clerks had discussed with him various tactics he might employ. One idea they agreed on was that if Baxter tried to dismiss the case, Greene would refuse to accept the dismissal filing, at least until he held a hearing to investigate whether the Tunney Act applied. When Baxter had instead requested an eleven-month continuance, Greene was incredulous. How could the government even contemplate such a proposal? Greene asked his clerks. None of them could understand it.

  And despite his pronouncements that he didn’t care what the newspapers said, Greene immediately made plain in court his attitude about the administration’s meddling in the AT&T case, his case, about which he was already delivering didactic lectures at prestigious bar association and antitrust conferences around the country. During the first week of his defense case, George Saunders offered for admission into evidence a package of documents that included a Defense department position paper outlining why Secretary Weinberger thought the AT&T case should be dropped. The paper had been written earlier in the summer during the debate over Baldrige’s dismissal proposal. Saunders offered it as “an admission by the plaintiff,” the executive branch of the government. It was one of a number of documents that Saunders hoped would persuade Greene that there was a sharp disagreement inside the administration about the case. While Greene was reading the paper, a story broke in the Washington Star alleging that AT&T executives involved with the country’s defense communications systems had helped draft Weinberger’s brief. Greene was furious: he thought such collusion between the phone company and the government augured a repeat of the 1956 settlement scandal, and he was determined to investigate. Two weeks into Saunders’ defense presentation, Greene suspended the trial and called for evidentiary hearings about the document’s origins. Half a dozen Defense officials were called to the stand and grilled about their contacts with AT&T employees during the time the paper was written. It turned out that the phone company had indeed contributed technical information to the paper, but it was unclear whether the information had influenced Secretary Weinberger’s conclusions, which reflected the longstanding views of career Defense department officials. Crystal clear to both the Justice and AT&T attorneys, however, was that the fanfare about the document was intended to demonstrate Greene’s own powerful indignation over the Reagan administration’s ongoing interference in the AT&T case. In courtroom speeches, the judge made plain his cynicism about the motives of both the Pentagon and the Bell System in the internal Reagan administration debate about the lawsuit.

  Before the trial, lawyers on both sides of U.S. v. AT&T had heard through the Washington legal grapevine that Judge Greene tended to make up his mind about a case before all the evidence was in, and that once his mind was made up, it was difficult, if not impossible, to change his opinion. Even before they had called a dozen witnesses for the defense, the phone company’s lawyers were beginning to wonder seriously if the trial was now just a formality, a doomed charade. It wasn’t just Greene’s outburst about the Defense document, or his remarks before recess about how “respectable” the Justice case was, that gave rise to these doubts. It was the judge’s full demeanor in court that August, his mood, the questi
ons he asked and didn’t ask of witnesses, the irritation he now increasingly displayed toward representatives of the Bell System. During Gerry Connell’s case, Greene had been mostly silent, reticent, attentive but uninvolved in the daily questioning. But as soon as the AT&T witnesses were called by Saunders, the judge seemed suddenly active, skeptical, at times almost a substitute cross-examiner for the government. Greene said later that this was because early in the case, during Connell’s presentation, he was not yet well acquainted with the complex facts and issues in U.S. v. AT&T and so he had held his tongue. By the time Saunders began to call his witnesses, Greene felt well schooled enough to take a more active role in court. The AT&T lawyers had considered this explanation, but they did not accept it. It seemed to them that there was something openly hostile about the judge’s attitude toward their defense case.

  The example constantly remarked on by Saunders and his partners late that summer was Greene’s unsettling outburst during the testimony of Marvin Wooten, a relatively innocuous state utility commissioner from North Carolina. Wooten was called early in the defense case, on Wednesday, August 26, to testify about the relationship between AT&T’s state regulators and its federal regulators at the FCC. During the early 1970s, the states had far less contentious dealings with Bell than did the FCC, mainly because of AT&T’s system of local service subsidies, which made it possible for the politically appointed or elected state regulators to keep local phone rates low. The state commissioners did not want to see that subsidy system disrupted, and so they joined with AT&T in opposing the FCC’s decisions authorizing phone equipment and long-distance competition. Wooten testified about how in 1973 the North Carolina commissioners had decided to challenge the FCC’s Carterfone decision by banning phone equipment interconnection in their state.

  “We didn’t think we had the legal authority to do it,” Wooten explained, “but it was … designed to do away with interconnection of all kinds and was as broad as we could possibly structure it. We wanted to give notice to the world that we were studying this entire matter, and we wanted all comers, everywhere, to take us on about this rule, so that we could come to some conclusions [in court] as to what was a reasonable route.”

  Suddenly, Greene interrupted the examination. “This was after the FCC had decided that there could be interconnection?” he asked.

  “Yes, sir. This was in 1973, sir.”

  “You were going to overrule the FCC?”

  “No, sir. That was not our intent.”

  “Somewhat like Governor Wallace and Governor Barnett, who decided at the same time to overrule the civil rights laws of this country?”

  “No, sir. That was not our intent. Our intent, sir, was to notice the public. What we were really doing was trying to develop a record on which we could convince the FCC that these things needed to be gone into, because as we perceived it, we had pleaded with them to go into it, and they declined to do so.”

  But Greene would not let up. “I noticed on page four of your written testimony, you talk about the North Carolina commission putting pressure on Bell to assure that Bell would not knuckle under to the FCC.”

  “Yes, sir.”

  “Is it your understanding … that when an entity follows proper regulatory decisions, that it is ‘knuckling under’?”

  “No, sir. That’s not the intent of what I meant …”

  When the shaken North Carolina regulator stepped down, Saunders and the rest of the AT&T attorneys were in a lather. They felt that Greene had cross-examined their witness with personal vindictiveness. No matter what his role in the civil rights revolution, it was an “outrage” that Greene would compare Marvin Wooten, whom he had never met and about whom he knew very little, to the reactionary Alabama governor George Wallace. Telephone industry competition was not a racial issue. The conflict between state regulators and the FCC was not a social policy battle disguised as a dispute over “states’ rights” versus federal authority. It was a legal matter, a debate over economic and regulatory policy. Greene’s declarations had shaken Saunders’ abiding faith in the judge’s essential, personal fairness. And it was with more than a little vengeful self-satisfaction that, immediately after Wooten’s testimony, the AT&T lawyers called to the stand, as planned, a state regulator from Illinois who would testify on the same subject as Wooten. The Illinois commissioner happened to be black.

  The Wooten episode was only a symptom, the AT&T lawyers feared. Perhaps, they told themselves at their nightly caucuses in George Saunders’ Madison Hotel suite, the basic problem was that Greene could never be comfortable with the phone company’s gargantuan size. Perhaps the judge’s jokes about “the well-oiled machine” genially masked a deeply held suspicion about huge, centrally managed organizations. Although he never dwelled on it, Greene had seen during his childhood in Nazi Germany the extreme consequences of manipulated, concentrated power, and perhaps the experience, understandably, had left an indelible impression. Or maybe the judge’s changed attitude more reflected the personal game of “chicken” that Greene had decided to play with the Reagan administration. The more questions Greene raised about AT&T’s defense and the more enthusiasm he expressed for Gerry Connell’s Justice case, the higher he raised the stakes. Both of these explanations for Greene’s behavior were plausible to the AT&T attorneys. That Greene might have preemptively decided that the weight of the evidence favored Justice was a possibility the phone company’s lawyers preferred not to contemplate.

  Judge Greene, however, was not going to allow them even that dubious luxury for long.

  Chapter 25

  Judgment Day

  By the end of that sultry Washington summer of 1981, it was not only AT&T’s trial lawyers ensconced nightly in the Madison Hotel who had begun to dissect and analyze the moods and prejudices of Judge Harold Greene. Two hundred and fifty miles to the north, at the phone company’s 195 Broadway headquarters, Charlie Brown and Howard Trienens were engaged in a similar exercise. Both had been closely involved in the drafting of AT&T’s 535-page motion to dismiss U.S. v. AT&T, which was now pending before Greene. In consultation with Saunders, Brown and Trienens had deliberately chosen to submit an unusually long and detailed motion to the judge in expectation that a definitive opinion from Greene would provide a guide not only for Saunders’ defense but also for the larger political and business strategy being devised by AT&T’s leaders.

  The various threads of Charlie Brown’s dilemma were becoming increasingly intertwined. In Congress, where Brown personally directed most of his hope and energy, S.898 was moving slowly through the Senate. A floor vote there could be expected by early October. On the House side, Colorado Democrat Tim Wirth, chairman of the renamed House Telecommunications Subcommittee, had made it clear that he would await a Senate telephone competition bill before making any move of his own. Brown and Trienens regarded Wirth as a powerful and hostile opponent; when news of Baldrige’s dismissal proposal had broken in the newspapers earlier that summer, Wirth had written a strong letter to the White House urging that the case against AT&T not be dropped. But if a comprehensive bill, supported by AT&T, its competitors, the Reagan administration, and Baxter, could be passed in the Senate, Wirth would be under pressure to cooperate.

  Meanwhile, at the Justice department offices ten blocks from Capitol Hill, AT&T attorneys Bob McLean and Jim Kilpatric were negotiating almost daily the Quagmire II deal with Baxter’s Antitrust front office assistants. The document was months from completion, and it grew thicker every time it was shipped to 195 Broadway for review by Brown and Trienens. Greene’s opinion on the motion to dismiss, whenever it came, could affect progress on both the legislative and settlement fronts. If the judge threw out large portions of the Justice case, the pressure on AT&T to negotiate would ease, and Saunders could aggressively pursue a vindicating courtroom victory. On the other hand, if he was so inclined, Greene was in a position now to tighten drastically the political vise grip on the phone company by writing an opinion that supported the
views of AT&T’s opponents in Congress and the Reagan administration.

  The day awaited by the phone company arrived, without warning or fanfare, on Friday, September 11, a sunny and steamy Friday in Washington. Saunders was now six weeks into his defense presentation before Greene; he intended to call dozens more witnesses than had Gerry Connell during the government’s case, and he expected the trial would last until early 1982. Aside from the judge’s temperamental displays, the big event in August had been the testimony of former AT&T chairman John deButts, which each side thought had gone reasonably well. Now the case had settled into a predictable rhythm and routine. Saunders examined few of the AT&T witnesses himself, though he was in court every day supervising the work of his partners and subordinates. Except for big witnesses like deButts, whom he personally cross-examined, Connell, too, had settled back into a supervisory role. Friday was to be a thoroughly ordinary trial day, dominated by the testimony of Jacob Schaefer, a Bell Labs executive called to discuss the history of two obscure pieces of AT&T phone equipment known as the Com Key 718 and the Com Key 1434.

  Before Schaefer took the stand, Saunders and Connell stepped to the matching wooden podiums facing Judge Greene to discuss, as usual, witness scheduling and other preliminary matters. After a brief and friendly talk, Greene interjected casually, “I have, for your enjoyment or edification, an opinion on the motion to dismiss.”

  “Thank you, sir,” said Connell.

  “Can we go home, Judge?” Saunders asked, taking the document.

  “No.”

  Saunders began to flip through the thick opinion. “While I read this, I think I should call Mr. Schaefer to the witness stand.”