# United States v. Western Electric Co.

> Court of Appeals for the D.C. Circuit · July 24, 1992 · 969 F.2d 1231

URL: https://www.frixlaw.com/law-library/cases/7862198

## Case

- **Full name:** United States v. WESTERN ELECTRIC COMPANY, INC. Bell Atlantic Corporation, Appellant UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC. US West, Inc., Appellant UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC. Ameritech, Appellant UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC. Pacific Telesis Group, Appellant UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC. BellSouth Corporation, Appellant UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC. Southwestern Bell Corporation, Appellant UNITED STATES of America v. WESTERN ELECTRIC COMPANY, INC., and American Telephone and Telegraph Company NYNEX Corporation
- **Court:** Court of Appeals for the D.C. Circuit
- **Decided:** July 24, 1992
- **Citations:** 969 F.2d 1231; 297 U.S. App. D.C. 231
- **Precedential status:** Published
- **Opinion:** Dissent by Williams
- **Judges:** Sentelle, Silberman, Williams
- **Cited by:** 4 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/7862198

## Opinion text

STEPHEN F. WILLIAMS, Circuit Judge,
dissenting:
The 1982 consent decree resolving the Department of Justice’s protracted antitrust suit against the Bell System included so-called “line of business” restrictions. See Section 11(D) of the decree. United States v. American Tel. & Tel. Co., 552 F.Supp. 131 (D.D.C.1982), decree published, id. at 226-34 . These bar each of the Bell Operating Companies (the “BOCs”) from entering specified sections of the telecommunications industry. Hitherto, so far as I know, Section 11(D) has not been recognized as a market-allocation agreement between the separate firms into which the Bell System was split — new AT & T (which I call simply AT & T, referring to the predecree entity as the Bell System) and the BOCs. The court’s present decision gives Section 11(D) that effect.
Narrowly conceived, the issue is which of three possible standards established by our decision in United States v. Western Elec. Co., 900 F.2d 283, 305-07 (D.C.Cir.1990) (“Triennial Review ”), should govern a request by the BOCs to relax the line of business restrictions when the United States Department of Justice, sole plaintiff in the original antitrust suit, favors the change: (A) For “uncontested” modifications, the “public interest” standard of the Tunney Act ( 15 U.S.C. § 16 (b)-(h) (1988)) controls, calling for approval if the change is “within the reaches of the public interest”. See Maj.Op. at 239. (B) For “contested” modifications there are two alternatives. Changes in the BOC “line of business” restrictions are governed by Section VIII(C), requiring the applying BOC to *244 show that there is “no substantial possibility that it could use its monopoly power to impede competition in the market it seeks to enter”; other contested changes are governed by United States v. Swift & Co., 286 U.S. 106, 119 , 52 S.Ct. 460, 464 , 76 L.Ed. 999 (1932), requiring “a clear showing of grievous wrong evoked by new and unforeseen conditions”. As the proposed changes are in the definition sections that give meaning to Section II(D)’s “line of business” provisions, the real choice here is between the “public interest” standard and Section VIII(C). See Maj.Op. at 236-37. Under Triennial Review, Section VIII(C) controls only if the change is “contested” within the meaning of that opinion.
The majority here rules that AT & T’s opposition is enough of a “contest” to make a line-of-business change “contested” even when the Department of Justice approves. Thus the rump of the original defendant, a firm that has no institutional interest in favoring competition in interexchange markets, simply by crying nyet can displace the standard normally governing changes that are not contested by the original plaintiff. While it is of course true that the “line of business” restrictions originated in the Justice Department’s belief that they were necessary to facilitate competition, the Department believes that the modifications here proposed “would promote inter-exchange competition”. Brief of United States at 38. The upshot is that restraints originally devised in the name of enhancing competition have now become a private anti-competition agreement between potential competitors (AT & T and the BOCs), to be cheerfully enforced by the courts at the behest of a private party that (naturally) resists intrusion on its turf.
* * *
The starting place for any possible AT & T entitlement to shift the applicable standard is obviously the agreement itself. The only material language — apart from the substantive provisions themselves — is in Section VII:
Retention of Jurisdiction
Jurisdiction is retained by this Court for the purpose of enabling any of the parties to this Modification of Final Judgment, or, after the reorganization specified in section I, a BOC to apply to this Court at any time for such further orders or directions as may be necessary or appropriate for the construction or carrying out of this Modification of Final Judgment, for the modification of any of the provisions hereof, for the enforcement of compliance herewith, and for the punishment of any violation hereof.
It is evident from the heading of this provision and its first six words that it was inserted to ensure that the district court would have jurisdiction over all disputes arising under the decree. It thus rejected the usual rule that the court of the original decree has no special position as to such disputes, Washington Hospital v. White, 889 F.2d 1294, 1299 (3d Cir.1989), doubtless to achieve litigation economies for all participants. The balance of the sentence is aimed at assuring that all disputes arising under the decree could end up in the district court, and not just some. Thus the provision does not address the narrow issue of whether AT & T was to be considered “a formal party to the entire decree”, Maj.Op. at 238 (emphasis in original), or (if it were) what specific rights AT & T thereby secured.
Nor is Section III of any help: “The Provisions of this [decree] applicable to each defendant, shall be binding upon said defendants and BOCs, their affiliates, successors and assigns____” The section is carefully phrased to make sure that the burdens imposed on then-present entities— and only those burdens — should reach any later components or offspring of the burdened firms. It says nothing about who is allowed to enforce any specific element of the decree. Compare Maj.Op. at 238-39 & n. 12.
Some parts of the decree directly burden AT & T, such as Section 1(D), barring post-divestiture AT & T acquisition of stock or assets of any of the BOCs. Some parts provide AT & T with clear entitlements, such as Section VIII(G)’s rule on how to resolve conflicts over the allocation of as *245 sets used before divestiture by both AT & T and a BOC, and Section II(B)’s ban on BOCs’ discriminating between AT & T and others. (While doubtless arising out of concern about pro-AT & T discrimination, it is phrased so as to run both ways and no reason appears why it should not.) The substance of these burdens and benefits is such that we may safely infer that the parties intended that AT & T would be a party to their enforcement in every sense of the word. For these, AT & T’s role as party scarcely depends on Section VII.
The logic of the line-of-business restrictions is quite different. They originated, as the majority correctly notes, Maj.Op. at 238, in the Justice Department’s belief that the Bell System had used its local service monopoly to achieve market power in adjacent fields and its concern that the BOCs would do likewise. As such, the restrictions seek, perhaps ironically, to enhance competition by restricting competitive entry. Obviously such a device is rather delicate, even in the hands of the Justice Department or courts, as competitive values are on both sides of the issue. But as an agreement between private firms, the line-of-business restrictions of Section 11(D) are simply an agreement of potential competitors to divide the market — i.e., a per se violation of the Sherman Act, see United States v. Topco Associates, Inc., 405 U.S. 596 , 92 S.Ct. 1126 , 31 L.Ed.2d 515 (1972). We should be slow to give the section a role in such obvious tension with the purposes of the antitrust laws. Nothing in Section VII justifies our doing so. 1
Of course the Department of Justice might conceivably have put its imprimatur on an agreement by which Bell divided itself and provided that all of the new firms would have contractual rights against competitive threats from each other. As the text of the decree suggests no such purpose, one might find it in the structure of the relations of the parties, and I gather that is the majority’s purpose in its discussion of the Bell System’s pre-break-up goals. Maj.Op. at 239. As the majority correctly observes, before divestiture the Bell management’s duty and, presumably, intention were to maximize the System’s value; with divestiture in prospect, this meant maximizing the combined value of the future AT & T and of the BOCs. See id. at 239. The majority apparently assumes that that must have entailed supporting enforcement power for AT & T, for it concludes that as it “presume[s] that the negotiators fulfilled their duty”, there is no need to look at what was actually said about future AT & T’s rights in the restrictions. Id.
In fact, however, there is no special reason to believe that the Bell System management would have been likely to think that the future AT & T’s gain from any increment in restrictions would be enough to offset the BOCs’ loss. Equally so for post-decree modifications; if the Bell management expected that relaxations would on a net basis decrease the value of the aggregate, it would have tried to give the future AT & T the special hold over VIII(C) changes that the court here finds; otherwise not. Either result is theoretically possible, depending on the relative abilities of the different Bell components to exploit the competitive advantages they enjoy in their own markets. But without detailed information about those advantages, there is nothing inherent in the predivorce structure of the Bell System that gives us a reason to impute to it a desire to secure such a special position for AT & T.
In one respect, the majority’s view is in obvious contradiction with the structure of the Bell System as divestiture approached. Under the majority’s view that the language of Section VII unambiguously gives AT & T rights to enforce and preserve the line-of-business rules, its reading must sweep in the BOCs as well. Thus each BOC is entitled to insist on the Section VIII(C) standard as to a line-of-business change sought by any other BOC, such as *246 Ameritech's seeking some relaxation of restrictions that would enlarge the scope of its competition with NYNEX. But it is hard to see how such veto proliferation could be in any of the parties’ interests— either the Department of Justice’s interest in competition, or the Bell System’s interest in maximizing its aggregate value.
The majority assumes that just because the Department of Justice and AT & T are parties to the same contract, and both have interests in the line-of-business restrictions (one acting for the public, the other for its shareholders), it follows that they must have identical rights in relation to those restrictions. It is clear, however, that in multiple-party contracts not every party will necessarily have a right to enforce every duty of every other party; lines of entitlement may be single, not multiple. The general point about separate right-duty relations typically arises in a slightly different context, with a single obligee claiming that multiple obligors’ duties are joint, so that it may enforce all its rights against either. In that context, courts do not create the kind of duty sprawl that the majority indulges here; the rights and obligations of each party may be several as well as joint, to whatever extent the parties intend. See Restatement (Second) of Contracts §§ 10, 288 & comment d (1981) (“if one party promises one performance, and another promises a different performance, each may be bound independently of the other and the promisee may be entitled to both performances”); 4 Corbin, Contracts §§ 926, 940 (1951). Compare Over the Road Drivers, Inc. v. Transport Ins. Co., 637 F.2d 816 (1st Cir.1980), which held that an insurer could not offset its debt to one of several insureds under a single policy by moneys owed to it by the other insureds. Even though there was a single policy and the insureds were closely related, the court found their rights and obligations distinct. It would follow that if one of the insureds had wanted to modify its obligations under the contract, the others would have no power to convert such an uncontested modification to a contested one (governed by Swift if the agreement were a consent decree)— even if in some way these others would be incidentally injured by the modification (for example, if the modification would turn the insured that sought it into more of a competitive threat to the others). More generally, if various obligors (AT & T and the BOCs) are bound independently to one or more obligees (the Department of Justice, as well as each other), even in a single contract, each obligation runs only to those whom it was intended directly to benefit (and similarly the right to seek or oppose a modification of an obligation). An obligation will not run automatically to every party that might incidentally derive a benefit.
To the extent that the text and structure leave doubt, we should turn to “contemporaneous statements of [the decree’s] objectives”. Triennial Review, 900 F.2d at 306 (citations omitted). In fact, Bell expressed only hostility to the restrictions. Counsel for the Bell System told the district court prior to approval of the decree that the Bell System was “against restrictions” on the BOCs, and that it agreed to them only “because Justice required it as a part of the bargain.” Joint Appendix (“J.A.”) 181-82; see also American Tel. & Tel. Co., 552 F.Supp. at 186 n. 227. Bell also told the FCC that the restrictions were not “our idea. We’d be happy to have [the BOCs] unrestricted”. See J.A. at 126-27. The statements that AT & T throws against these, and which the majority says demonstrate “more affirmative interest in the prohibitions”, Maj.Op. at 239, are quite weak. In one set of comments to the district court Bell affirmed its commitment to the restrictions, but “as part of its overall bargain for the Decree”, J.A. at 145, stressing that the Department of Justice promised periodic reviews, id. at 146 . AT & T points to one filing with the court in which Bell defended the decree against the contention that the BOCs would not be viable. Id. at 166-77 . But this defense came right after a statement that Bell “has acknowledged the importance of [the] restrictions to the Justice Department’s theory of this Decree____ [This] discussion[] will not be repeated here.” Id. at 166 . That Bell signed and defended the Decree, in the *247 interest of avoiding the costs and risks of litigation, does not mean that it desired the restrictions, or even that it thought they mitigated the break-up. The contemporaneous evidence shows, on the contrary, that Bell was at least ambivalent and probably hostile to the restrictions.
The contract language, and the structure and history of the negotiation, do not support an inference that every one of the parties was given the right to obtain, through opposition to a change, application of the VIII(C) standard. That being so, we may search for default rules. The common law has addressed a cognate problem— whether those who acquire portions of a burdened estate may sue each other to enforce an equitable servitude benefiting a third party. The answer is no, unless the estate was subdivided pursuant to a common plan or scheme. See Korn v. Campbell, 192 N.Y. 490 , 85 N.E. 687 (1908); American Law of Property § 9.34 (1952). Analogously, there is no reason to infer a power in AT & T (and each of the BOCs) to enforce the line-of-business restrictions. The policy in both cases is to deny strangers the legal means to interfere with each other’s private affairs in the absence of a clear directive. More narrowly, by limiting the flow of the beneficial interest to successors of the original beneficiaries, it prevents the benefit from going to unintended parties; it thus enhances flexibility by allowing the obligor to secure changes through negotiation with a relatively narrow class of parties — only those with a genuine expectation or reliance interest.
More acutely relevant is the antitrust standing doctrine, which requires an antitrust plaintiff to allege an “antitrust injury”, i.e., one “of the type the antitrust laws were designed to prevent and that flows from that which makes defendant’s acts unlawful.” Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 113 , 107 S.Ct. 484, 491 , 93 L.Ed.2d 427 (1986) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 , 97 S.Ct. 690, 697 , 50 L.Ed.2d 701 (1977)). Rushing in at the behest of one whose interest lies in diminished competition is likely to “chill the very conduct the antitrust laws are designed to protect”. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 594 , 106 S.Ct. 1348, 1359-60 , 89 L.Ed.2d 538 (1986) (addressing predatory pricing claims). If a BOC were really to reduce competition in interexchange services, so that output were restricted and price increased, AT & T as the largest carrier in that market would benefit, except to the extent that the business acquired by the entering BOC cut into AT & T’s. AT & T’s opposition is thus at least as easily chalked up to fear of enhanced competition as to any genuine concern for its reduction. Here, as in Cargill, AT & T is really objecting to a potentiality of later anticompetitive conduct, of misbehavior after entry rather than any antitrust injury that would flow from entry itself. To read the decree as assigning AT & T special rights against modifications of the line-of-business rules is to allow it just the sort of preemptive strike against competition that the Court rejected in Cargill. 2
Of course the fact that the parties occupy adjacent fields does not mean in itself that one cannot have antitrust claims against conduct of the other, such as MCI’s original “essential facilities” and predatory pricing claims against the Bell System. See MCI Communications Corp. v. American Tel. & Tel. Co., 708 F.2d 1081 (7th Cir.1983). Those are a far cry from the *248 simple market divisioh that AT & T seeks to enforce here. Compare Maj. Op. at 240.
The majority insists that here the modification would cause AT & T a genuine antitrust injury: the BOCs “are expanding the boundaries of their monopolies to render a portion of the interexchange market completely non-competitive.” Id. at 240 n. 16. But in fact the BOCs propose only to change the means of implementing the monopolies granted to them by state law, shifting to more efficient ways for handing off signals generated in their region to the interexchange carriers.
The majority also argues that its holding is required by precedent. Id. at 240-41. In Triennial Review and in United States v. Western Electric Co., 907 F.2d 1205 (D.C.Cir.1990) (“NYNEX Procurement’), this court applied (or directed the district court to apply) the Section VIII(C) standard to analyze decree modifications proposed by the BOCs and DOJ and resisted by AT & T. In neither case, however, was it argued that Section VII should apply to such modifications, cf. Maj. Op. at 241 (chiding BOCs for failure to raise point in earlier litigation), and so in both cases the court assumed that Section VIII(C) applied without deciding the issue. The BOCs’ reference on appeal in Triennial Review to AT & T’s lack of opposition to the modification of the information services ban did not “clearly focus[ ]” the court on the issue, cf. Maj. Op. at 241, as no party was arguing that this lack of opposition foreclosed application of Section VIII(C). It may be that “but for AT & T’s opposition, we would have reversed and remanded the manufacturing portion of Triennial [for application of Section VII] just as we did the information services portion”, Maj. Op. at 241 (emphasis in original), but that assumes we would have seized upon an unraised issue. Cf. Independent Ins. Agents of America v. Clarke, 955 F.2d 731 , 741-44 (D.C.Cir.1992) (dissent).
As the majority explains, the public interest standard — the common law standard for unopposed modifications of consent decrees — is quite relaxed. The proposed modification need only be “within the zone of settlements consonant with the public interest today.” See Triennial Review, 900 F.2d at 307 (emphasis in original). Because the district court has not yet applied the correct standard, and because we sit as a court of review, I would remand the case to the district court for application of the proper standard for uncontested modifications.
. By contrast, the decree in Missouri-Kansas Pipe Line Co. v. United States, 312 U.S. 502 , 61 S.Ct. 666 , 85 L.Ed. 975 (1914), "explicitly reserved certain rights" to Panhandle, id. at 504 , 61 S.Ct. at 667 , and these were the rights that Panhandle sought to vindicate in court, see id. at 509 , 61 S.Ct. at 669 . Thus the case is not relevant. Cf. Maj.Op. at 239 n. 14.
. The parties and this court seem to have assumed all along that AT & T has standing to challenge modifications in the line-of-business restrictions. Given its clear commercial interest, there seems little doubt that the Constitutional minimum is satisfied. See Warth v. Seldin, 422 U.S. 490, 498-502 , 95 S.Ct. 2197, 2204-07 , 45 L.Ed.2d 343 (1975). As the Tunney Act gives the district judge a great deal of discretion when making a public interest determination to include various entities as parties, intervenors, amici, or any other kind of participant, 15 U.S.C. § 16 (f)(3), prudential standing is also present. But to say that AT & T has standing to sue is not the same as saying that it has the power, by its opposition, to change the standard for approval of a modification.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/7862198. Public record. Not legal advice.