<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 5, 1994
McCAW CELLULAR COMMUNICATIONS, INC.
A Delaware Commission File I.R.S. Employer
Corporation No. 1-9854 No. 91-1379052
5400 Carillon Point, Kirkland, Washington 98033
Telephone Number (206) 827-4500<PAGE>
<PAGE> 2
Item 5. Other Events.
On April 5, 1994, the United States District Court for the
District of Columbia issued an Order in the case entitled United
States of America vs. Western Electric Company, Inc. (Civil
Action No. 82-0192 (HHG)) granting in part and denying in part
BellSouth Corporation's motion for a declaratory ruling that
American Telephone and Telegraph Company's ("AT&T") proposed
acquisition of McCaw Cellular Communications, Inc. ("McCaw")
would violate Section I(D) of the Modification of Final Judgment
("MFJ"), United States v. American Telephone and Telegraph Co.,
552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom, Maryland v.
United States, 460 U.S. 1001 (1983). The Court determined that
AT&T's acquisition of McCaw's interest in cellular properties
controlled by a Bell Operating Company would violate Section I(D)
of the MFJ, that AT&T must seek a modification or waiver of the
decree to proceed, and that, inasmuch as AT&T had not to date
addressed in sufficient detail the factors that must ultimately
be considered in determining whether a waiver is justified, and
the other parties have had no meaningful opportunity to present
their views in response, the record before the Court was
insufficient to support a waiver. Accordingly, the Court
declined to grant such a waiver without prejudice to a renewed
request by AT&T, and noted that its ruling does not absolutely
foreclose the waiver or modification. Rather, the Court held
that AT&T must satisfy the legal standard for a decree
modification which it has thus far failed to meet.
There can be no assurance as to whether the Court will grant
any waiver, or if granted when that will occur.
See the full text of the Court's decision included herein as
Exhibit 99(a).
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits.
Exhibit
Number
99(a) Opinion, dated April 5, 1994.
<PAGE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
McCAW CELLULAR COMMUNICATIONS, INC.
ANDREW A. QUARTNER
Andrew A. Quartner
Senior Vice President-Law
Date: April 6, 1994<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number
99(a) Opinion, dated April 5, 1994.
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, )
)
Plaintiff, )
) Civic Action No. 82-0192
v. ) (HHG)
)
WESTERN ELECTRIC COMPANY, )
INC., et al., )
Defendants.
OPINION
Before the Court are a number of motions generated by the
announcement of the proposed merger of AT&T and McCaw Cellular
Communications ("McCaw"), the nation's largest single provider of
cellular telephone service.(1) Although the various motions
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(1) The instant motions have arrived in four waves.
Initially, BellSouth Corporation ("BellSouth") filed a motion
requesting a declaratory ruling that the proposed merger would
violate Section I(D) of the decree entered in this case. See
United States v. American Telephone and Telegraph Co., 552 F.
Supp. 131 (D.D.C. 1982), aff'd sub nom, Maryland v. United
States, 460 U.S. 1001 (1983). The motion also argued that any
waiver request from AT&T should only be considered in conjunction
with a request filed by the Regional Companies for generic
wireless relief, currently pending before the Department of
Justice (the "Department"). Responses were received from various
parties, including the Department and AT&T.
Apparently sensing the need to expand the scope of the
issues presented in the first set of motions, AT&T initiated a
new round of filings with its request for an expedited ruling
that Section I(D) is inapplicable to the proposed merger or, in
the alternative, for an expedited waiver of any violation of the
decree resulting from the merger. Responses were again received.
<PAGE>
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attempt to frame the issues requiring resolution in slightly
different terms and raise a number of peripheral issues, at
bottom only two questions need be answered: (l) would the
proposed merger violate Section I(D) of the decree and (2) if so,
should the Court grant a modification or waiver of that section?
I
At the time the Federal Communications Commission ("FCC")
initially began cellular licensing, prior to the AT&T
divestiture, two licenses were awarded in each Metropolitan
Statistical Area ("MSA") and Rural Statistical Area ("RSA"). One
of these licenses, the "B Block" license, was generally awarded
to the Bell System. The other license in each area, the "A Block"
license, was initially awarded to firms unaffiliated with
exchange carriers.(2) At divestiture, the wireless operations of
the Bell System, consisting of "B Block" licenses, were assigned
to and they are now held by the various Regional Companies.
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A third set of motions were initiated with BellSouth's
request that the Court strike AT&T's motion. Thankfully, no
parties felt any compunction to respond. As a result, however,
BellSouth did take the opportunity to notify the Court that the
its motion to strike should be treated as conceded.
Finally, BellSouth filed its conditional motion requesting
that in the event the Court provided any of the relief requested
by AT&T, all decree restrictions be removed from the provision of
wireless services.
(2) Other than the distinction made for the purpose of
initially processing applications and awarding the licenses,
however, the licenses were and are identical. <PAGE>
<PAGE> 3
Notwithstanding this initial bifurcation, the FCC announced
in 1986 that the Regional Companies would be allowed to purchase
interests in "A Block" cellular licenses outside their own
exchange region. Although this Court had previously construed the
decree as prohibiting these companies from providing
extraregional exchange services, and consequently from purchasing
such interests, United States v. Western Elec. Co., 627 F. Supp.
1090, 1106 (D.D.C. 1986), the Court of Appeals took a contrary
view. See United States v. Western Elec. Co., 797 F.2d 1082,
1089-92 (D.C. Cir. 1986). As a result, the various Regional
Companies began aggressively purchasing interests in "A Block"
licenses outside their own exchange regions.
Meanwhile, McCaw and its affiliates were among a number of
firms that originally and subsequently pursued the "A Block"
licenses that had been reserved for non-exchange carriers. Either
directly or through partnerships with other entities, McCaw
acquired interests in a number of these licenses -- holding
majority interests in some of the systems and minority interests
in others.
It was probably inevitable, based upon the foregoing, that
the various Regional Companies would eventually purchase from
McCaw partners certain ownership interests in "A Block"
franchises, creating de facto partnerships between McCaw and the
various Regional Companies. Indeed, in some instances, the
Regional Companies acquired controlling interests. It is the
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joint ownership of these cellular properties that creates the
issue before the Court because if the AT&T-McCaw merger is
consummated, AT&T will succeed to the ownership interest of McCaw
and thus become a partner with the Regional Companies in many
cellular properties controlled by the latter.
II
The Court's threshold inquiry is simply whether the proposed
merger would violate the decree. If the answer is no, the paper
deluge has been for naught and AT&T would need to seek no further
relief from this Court.(3) However, in the Court's view, there
can be no serious doubt that the merger would indeed violate the
plain and express language of the decree.
Interpretation and construction of the decree, as always,
requires the application of ordinary principles of contract law.
United States v. Western Elec. Co., 894 F.2d 430, 434 (D.C. Cir.
1990); United States v. Western Elec. Co., supra, 797 F.2d at
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(3) The Court notes that the proposed merger is undergoing
the antitrust scrutiny of the Department under Hart-Scott-Rodino
and the Clayton Acts in the normal course of the Department's
antitrust enforcement responsibilities. Notwithstanding the fact
that certain filings have strayed into arguing the competitive
merits of the AT&T-McCaw merger, see Response of U S West, Inc.
to AT&T's Motion for an Expedited Ruling that Section I(D) is
Inapplicable to the AT&T-McCaw Merger or for an Expedited Waiver,
at 3-5; Opposition of Nynex Corp., Pacific Telesis Group, and
Southwestern Bell Corp. to AT&T's Motion for an Expedited
Modification of Section I(D~, at 11, that issue is not before
this Court. The Court therefore stresses that resolution of the
decree issues presented in this Memorandum is in no way intended
to express any opinion with respect to the propriety or legality
of the proposed merger under the antitrust laws themselves.
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1089. It follows, of course, that the meaning of the decree is
discerned, in the first instance, from "within its four corners."
United States v. Armour & Co., 402 U.S. 673, 682 (1971). Because
the Court is not here faced with uncertainty surrounding the
"technical meaning" of decree terms, United States v. Western
Elec. Co., supra, 894 F.2d at 434, or with terms undefined within
the decree itself, the court need not look beyond the language of
the decree.
Section I(D) of the decree provides that "[a]fter the
reorganization specified in paragraph I(A)(4), AT&T shall not
acquire the stock or assets of any BOC." 552 F. Supp. at 227
(emphasis added). Section IV(C) of the decree then defines "BOC"
as "the corporations listed in Appendix A attached to this
Modification of Final Judgment and any entity directly or
indirectly owned or controlled by a BOC or affiliated through
substantial common ownership." Id. at 228 (emphasis added.)
Because it is undisputed that Regional Companies, as successors
of the BOCs, own controlling interests in several of the cellular
properties in which AT&T will acquire ownership interests as a
result of the proposed merger, the plain language of Sections
I(D) and IV(C) compels the conclusion that the merger would
violate the prohibitions of Section I(D).(4)
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(4) In fact, even AT&T does not dispute that the cellular
properties in which Regional Companies own a controlling interest
are BOCs. It has long been understood that such properties are
BOCs and are subject the restrictions imposed upon the BOCs by
<PAGE>
<PAGE> 6
AT&T nevertheless refuses to concede the implications of
this decree language. Relying on selected quotations from this
Court's prior decisions and the Competitive Impact Statement
filed by the Department attending the initial entry of the
decree, AT&T attempts to restrict the scope of the cited decree
provisions. Foremost in this attempt, AT&T contends that the
decree prohibits only the "reacquisition" of divested assets.
Because the "A Block" licenses were not divested -- only "B
Block" licenses had been owned by the Bell System -- AT&T
contends that the decree is not implicated. Of course, the
answer to this argument is that the language of the decree
prohibits AT&T from "acquir[ing]" stock or assets of BOCs -- not
from "reacquiring" such interests.(5)
AT&T also complains that it has been blindsided by a change-
of-position by the Department with respect to its interpretation
of Section I(D). However, AT&T's accusations prove too much.
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the decree. See AT&T's Reply to Oppositions to Its Motion for an
Expedited Ruling that Section I(D) is Inapplicable to the AT&T
McCaw Merger or for an Expedited Waiver, at 2-5.
(5) Careful consideration of AT&T's position reveals its
most basic flaw. If the decree prohibited only the reacquisition
of those assets actually divested, Section I(D) would surely be a
paper tiger. AT&T's reading is at odds with the incontrovertible
proposition that it was foreseen at divestiture that the Regional
Companies would acquire new assets in their operations that were
subject to the decree's restrictions, and that those assets would
in turn be subject to the restrictions and become BOCs under the
definition provided in the decree. Under AT&T's interpretation,
it presumably could acquire exchange service and exchange access
facilities so long as they were constructed by a Regional Company
after divestiture.
<PAGE>
<PAGE> 7
AT&T relies upon a Department non-enforcement position taken in
response to AT&T's proposed purchase of certain CPE maintenance
assets from a Regional Company in 1991. It is obvious that the
Department could not have intended its no-action letter to
provide any far-reaching decree interpretation. Moreover, even
assuming that this argument had some footing, the Department's
interpretation would not bind the Court. Nor would it persuade
the Court to ignore the plain language of the decree.
For these reasons, the Court concludes that AT&T's
acquisition of McCaw's interests in cellular properties
controlled by Regional Companies would violate Section I(D) of
the decree.(6)
III
In light of the foregoing determination, the Court must
proceed to consider the merits of AT&T's motion for a
modification or waiver of the acquisition prohibition contained
in Section I(D) of the decree. Before reaching that question,
however, the Court will briefly address two peripheral issues
raised by the parties.
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(6) Because of the posture in which the instant dispute has
come to the Court and the manner in which it has been briefed, an
important and potentially equally troublesome issue has not been
fully explored by the parties -- whether AT&T's acquisition of
interests in cellular properties in which a Regional Company owns
a r.on-controlling interest would also represent a violation of
the decree. Under the circumstances presented, however, the Court
need not reach that issue.
<PAGE>
<PAGE> 8
First, the court rejects the argument made by several
Regional Companies that the court should not consider the AT&T
waiver request absent simultaneous consideration of the Regional
Companies' request, currently pending before the Department, for
a generic waiver of the decree as it applies to the provision of
wireless telephone services.(7) This Court long ago established
procedures for seeking waivers of the decree's line of business
restrictions. Notwithstanding the Regional Companies'
opportunistic attempts to end-run those procedures and _
resolution of their request to a decision on the instant motions,
the Court will adhere to its prior course. There has been no
demonstration of why the Court should deviate from its
established procedures simply because the instant waiver request
involves some issues arguably common to the request pending
before the Department. Moreover, the degree to which the two
issues may in fact be related has been overstated.(8)
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(7) The Regional Companies originally filed their request
for a generic wireless waiver with the Department in December
1991 in compliance with the Court's previously issued procedural
Orders. See United States v. Western Elec. Co., No. 82-0192
(D.D.C. July 30, 1991); United States v. Western Elec. Co., No.
82-0192 (D-D-C- March 13, 1986); United States v. Western Elec.
Co., 592 F. Supp. 846 (D.D.C. 1984). After public comment, the
Regional Companies submitted a modified request to the Department
in September 1993. That request remains pending before the
Department.
(8) The fact that BellSouth, in the latest round of filings,
has requested relief from this Court which exceeds that most
recently sought from the Department speaks volumes. In September
1993, when the Bell Companies presented their modified wireless
waiver request to the Department, they withdrew their earlier
<PAGE>
<PAGE> 9
Second, the Court rejects the argument of the Regional
Companies that the instant waiver request must be referred to the
Department for review prior to consideration by this Court.(9)
This argument ignores the primary purpose underlying the Court's
referral of line of business waivers to the Department in the
first instance. The decree specifically provides in Section
VIII(C) the standard for modifications of the line of business
restrictions imposed by Section II(D).(10) Consideration of
requests under this standard obviously requires a competitive
analysis which the Department is particularly qualified to
perform in the first instance. This and other considerations led
the Court to establish the requirement for initial review by the
Department on line of business waiver requests.(11)
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request for the removal of the equal access restrictions of the
decree and sought only the removal of interexchange restrictions.
BellSouth now seeks from this court a waiver removing both
restrictions.
(9) "The Court should also reject AT&T's attempt to jump the
queue, ahead of the BOCs' generic wireless request." Opposition
of Nynex Corporation, Pacific Telesis Group, and Southwestern
Bell Corporation to AT&T's Motion for an Expedited Modification
of Section I(D), at 13.
(10) Section VIII(C) requires that a petitioning Regional
Company demonstrate "that there is no substantial possibility
that it could use its monopoly power to impede competition in the
market it seeks to enter."
(11) "In order to encourage informal negotiation and
resolution, to avoid inundation of the Court with requests, and
to make use of the expertise of the Department of Justice, all
such requests will be initially referred to the Department of
Justice . . . ." United States v. Western Elec. Co., supra, 592
F. Supp. at 873.
<PAGE>
<PAGE> 10
In contrast, although this is the first time the Court has
been presented with a modification request pertaining to Section
I(D), it is clear that waiver requests under that section are
made pursuant to Section VII of the decree and are merely
governed by the appropriate common law standard. See United
States v. Western Elec. Co., 969 F.2d 1231, 1235 (D.C. Cir.
1992); Part V infra. Modifications requested under the Court's
general retention of jurisdiction in Section VII of the decree
may come in any number of forms and deal with varied issues. Any
blanket requirement that such requests be automatically referred
to the Department in the first instance strikes the Court as
unwarranted. For this reason, the Court has never mandated such
referral across the board.(12) Of course, the Court would not
hesitate to use the referral mechanism where warranted.
IV
AT&T's effort to persuade the Court that a modification or
waiver is justified has been concentrated on its argument that
the particular circumstances warrant the grant of a "summary
waiver" of Section I(D).(13) AT&T contends that the literal
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(12) The Court just recently considered without referral a
non-Section II(D) waiver requests by a Regional Company. See
United States v. Western Elec. Co., No. 82-0192 (D.D.C. Dec. 17,
1993) (denying BellSouth's motion for waiver of Section II(B)
non-discrimination provision).
(13) In fact, AT&T asks the Court to forego even addressing
the interpretive issue of whether a waiver is required and simply
grant a summary waiver. In support of this argument, AT&T cites a
prior Order of this Court. United States v. Western Elec. Co.,<PAGE>
<PAGE> 11
interpretation of the decree must give way to its primary purpose
- -- the prevention of the Regional Companies' bottleneck exchange
monopolies integrating with long distance and manufacturing
capabilities. AT&T insists that the purchase of the "A Block"
interests do not recreate these combinations because the Regional
Companies with which AT&T will become a partner have no monopoly
exchange power in the areas in which the cellular properties are
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C.A. No. 82-0192 (D.D.C. Nov. 6, 1987). However, the Court's
decision in that instance provides little support for AT&T's
request.
That Order dealt with an interpretive issue stemming from
potential bidding on FTS 2000, a telecommunications network
dedicated to federal government employees. The specific issue was
whether "tandem switching" represented prohibited interexchange
traffic routing. For a number of reasons the Court determined it
appropriate not to address that question. Chief among these was
the extremely close interpretive question presented, the absence
of a textual answer in the decree itself, the urgency for a
decision, and the lack of a complete factual record before the
Court. In contrast, in the instant motion, the plain language of
the decree has provided the Court with an unambiguous answer to
the interpretive question.
In the FTS 2000 Memorandum, the Court instead issued a
summary waiver of any potential decree violation that allowed the
Regional Companies to provide tandem switching services for the
limited purpose of permitting Martin Marietta to bid on and
participate in the operation of the FTS 2000 system. The Court's
stated purpose in granting the waiver was to allow a second
bidder, in addition to AT&T, to bid on the FTS 2000 system. The
Court noted that absent the waiver, only AT&T would have been
capable of delivering the requirements of the FTS network and
that any other ruling would have had the effect of eliminating
all but one vendor from the bidding process. Finding that such a
result would clearly have been contrary to public policy and the
policies embodied in the decree, the Court issued the summary
waiver. However, the Court "strictly limited" the FTS 2000 Order
to the particular factual setting presented by that motion.
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located, i.e., the Regional Companies' interests are
extraregional.
In this regard, AT&T contends that as long as the requested
waiver is not in derogation of the primary objective of the
decree, but affects only "minor details," then it should be
summarily granted as long as the requesting party provides a
"reasonable basis" for the request. In support, AT&T cites Rufo
v. Inmates of Suffolk County Jail, 112 S. Ct. 748, 758 n.6, 760
n.7 (1992).
The Court disagrees with AT&T's attempt to apply its
expansive reading of Rufo to the circumstances of this case.
Even assuming AT&T were correct in arguing that Section I(D), as
applied here, does not go to the "basic purpose" of the decree,
that does not render Section I(D) a "minor detail" which should
be summarily waived.(14) It is cannot be reasonably disputed that
Section I(D) embodies one of the primary purposes of the decree.
See also, Part VI infra. Application of the Rufo "reasonable
basis" test does not depend on whether the waiver request is
insignificant or minor, but instead depends on whether the decree
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(14) The Supreme Court in Rufo cited "paint color" or
"design of a building's facade" as examples of the type of "minor
detail" that would be considered "extraneous" and might justify a
waiver on the mere showing of a reasonable basis for the request.
Id. at 760 n.7. It is patently obvious, at least to this Court,
that this standard is to be applied to only truly minor details
of a decree. In fact, it might be more appropriate to say that it
should be applied only to "minute" details in light of the
Supreme Court's obvious purpose in providing this exception -- to
remedy "overly detailed decree[s]." Id. <PAGE>
<PAGE> 13
provision to be waived is insignificant or minor. Therefore,
that standard cannot govern the Court's determination in this
case.
Throughout its many filings on the instant motions, but
particularly relevant to its attempt to provide a "reasonable
basis" for a waiver, AT&T relies heavily upon its argument that
if it had first acquired McCaw and its interests in "A Block"
licenses, and a Regional company had subsequently acquired a
controlling interest in those "A Block" licenses from an AT&T-
McCaw partner, the decree would not be implicated because it
would be the Regional Company making the acquisition, not AT&T.
In other words, AT&T argues that it was merely fortuitous that
its acquisition followed the Regional Companies' purchase of
interests in the "A Block" licenses and thus fell within the
prohibition against certain acquisitions by AT&T. Under such
circumstances, AT&T argues that application of the decree is
arbitrary and demonstrates that Section I(D) should not apply to
the facts in this case.(15)
It is the obligation of this Court to enforce the decree as
it is written. The Supreme Court has held that the mere fact that
a decree prohibits an acquisition of A by B, but not an
acquisition of B by A, even though either acquisition would have
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(15) It has been argued by the Department and certain
Regional Companies that even this sequence of events might
violate the decree. As noted below, however, the Court need not
address those assertions.
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<PAGE> 14
virtually identical results and would implicate the same anti-
competitive evils at the heart of the decree, does not alter the
requirement that the decree be enforced as it was written. See
United States v. Armour & Co., supra, 402 U.S. at 681. Absent an
appropriate showing that modification is warranted, discussed
below, the decree must be applied as it was written -- even where
hindsight might indicate that different language might have been
preferable to address fully the purposes of the parties to the
decree. Id.(16) The request for a summary waiver must therefore
be denied.
V
This brings the Court to the ultimate issue -- whether AT&T
has satisfied the appropriate common law standard for decree
modification such that the Court should grant a waiver. However,
upon reaching this point, the court finds that the record before
it is insufficient to support the requested waiver. Because the
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(16) "Consent decrees are entered into by parties to a case
after careful negotiation has produced agreement on their precise
terms. The parties waive their right to litigate the issues
involved in the case and thus save themselves the time, expense,
and inevitable risk of litigation. . . . Thus the decree itself
cannot be said to have a purpose; rather the parties have
purposes, generally opposed to each other, and the resultant
decree embodies as much of those opposing purposes as the
respective parties have the bargaining power and skill to
achieve. For these reasons, the scope of a consent decree must be
discerned within its four corners, and not by reference to what
might satisfy the purposes of one of the parties to it. . . .
[T]he instrument must be construed as it is written, and not as
it might have been written . . . ." Id. at 681-82 (emphasis in
original).
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<PAGE> 15
briefing has been largely devoted to the issues discussed above,
AT&T appears to have made no serious attempt to meet the common
law standard for decree modification.(17) For this reason, if for
no other, AT&T's request will have to be denied.
The Court reaches this conclusion even applying the
relatively relaxed and flexible decree modification standard
established by the Supreme Court in Rufo v. Inmates of Suffolk
County Jail, 112 S. Ct. 748 (1992). Compare note 19, infra.
Under that standard, a party seeking an opposed modification of a
consent decree "bears the burden of establishing that a
significant change in circumstances warrants revision of the
decree." Id. at 760. Such a change may be either a "significant
change in factual conditions or in law." Id. Modification may
also be appropriate when "enforcement of the decree without
modification would be detrimental to the public interest."
Id.(18)
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(17) Only in its most recent Reply has AT&T begun to address
in any detail the factors that must ultimately be considered in
determining whether a waiver is justified. This comes almost as
an afterthought. Moreover, the other parties, almost all of whom
have opposed the AT&T waiver request, including the Department,
have had no meaningful opportunity to present their views in
response to the somewhat expanded arguments set forth by AT&T in
its Reply.
(18) It must also be noted that "modifications should not be
granted where a party relies upon events that actually were
anticipated at the time it entered into a decree. If it is clear
that a party anticipated changing conditions that would make
performance of the decree more onerous but nevertheless agreed to
the decree, that party would have to satisfy a heavy burden to
convince a court that it agreed to the decree in good faith, made
<PAGE>
<PAGE> 16
It is not without considerable hesitation that the Court
concludes that application of Rufo to the decree in this case is
appropriate. Until now, this Court has assumed that modification
of the decree, except where a different standard was specifically
set forth in the decree, would require satisfaction of the
standard set forth by the Supreme court in United States v. Swift
& Co., 286 U.S. 106, 119 (1932). There, in a context strikingly
similar to that in this case -- an attempt to modify a decade-old
antitrust decree -- Justice Cardozo stated that "nothing less
than a clear showing of grievous wrong evoked by new and
unforeseen conditions should lead us to change what was decreed
after years of litigation with the consent of all concerned." Id.
This Court has not stood alone in its adherence to this standard.
Indeed, the Court of Appeals' most recent excursion into the
decree did, in a way, express a continuing reliance upon the
Swift standard. See United States v. Western Elec. Co., supra,
969 F.2d at 1235 n.7 (but referring to Rufo and noting that it
suggests a more lenient standard).(19)
In view of the lack of a definitive ruling by our Court of
Appeals on whether the appropriate standard is that set forth in
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a reasonable effort to comply with the decree, and should be
relieved of the undertaking under Rule 60(b)." Id. at 760-61
(citations omitted).
(19) Of course, if the court is in error in applying Rufo in
this instance, the error would have no impact on its decision.
Were the Court to apply the "grievous wrong" standard of Swift,
it would certainly have to deny the AT&T request.
<PAGE>
<PAGE> 17
Swift or in Rufo, the Court has examined the law in other
Circuits. This review reveals an apparent split of authority on
this issue. Following Rufo, it has been argued, not without
considerable force, that the relaxed standard set forth by the
Supreme Court in that case was intended only to apply to
institutional reform litigation such as that at issue in Rufo,
but not to the modification of decrees in general. This argument
finds substantial support in the text of the Rufo opinion, which
repeatedly reminds its reader that the requested modification is
of an institutional reform consent decree. See id. at 759-60.(20)
Seizing upon this distinction, at least one Court of Appeals has
rejected the Rufo standard as inapplicable to a consent decree
settling a dispute between two commercial litigants and has
retained the Swift standard under such circumstances. See W.L.
Gore & Assoc's. Inc. v. C.R. Bard. Inc., 977 F.2d 558, 562 (Fed.
Cir. 1992).
The Rufo opinion, however, provides ample fodder for those
inclined to read its holding more broadly. It must be remembered
that the application for modification in Rufo was made pursuant
to Rule 60(b) of the Federal Rules of Civil Procedure. Because
the Court held that a judicial decree is subject to the rules
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(20) In fact, at one point the Supreme Court actually
appears to limit application of the more lenient modification
standard: "The standard we set forth applies when a party seeks
modification of a term of a consent decree that arguably relates
to the vindication of a constitutional right." Id. at 760 n.7.
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<PAGE> 18
generally applicable to other judgments and decrees, the Court's
opinion may be read to apply in any case in which "it is no
longer equitable that the judgment should have prospective
application." Fed. R. Civ. P. 60(b)(5). The Court, without
overruling Swift, took great pains to distinguish it and to point
to the Court's later opinions in which it had endorsed a more
flexible approach. See e.g., Board of Education v. Dowell, 111 S.
Ct. 630, 636-37 (1991); Railway Employees v. Wriqht, 364 U.S.
642, 650-51 (1961). Swift, the court held, was never intended to
take on a "talismanic quality." Rufo, supra, 112 S. Ct. at
758.(21)
At least two Circuits have now taken the position that
application of the more flexible Rufo standard is not limited to
decrees involving institutional reforms. In Matter of Hendrix,
986 F.2d 195, 198 (7th Cir. 1993), Judge Richard A. Posner
indicated that the "flexible standard" adopted in Rufo is equally
suitable to equitable cases which do not concern institutional
reform, such as the bankruptcy discharge at issue in that case.
Stressing that Rufo was intended to assimilate the standard of
Fed. R. Civ. P. 60(b)(5), Judge Posner wrote that "a court can
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(21) The Rufo Court makes numerous references to "consent
decrees" without adding qualifications limiting its applicability
to institutional reform decrees. See id. at 760 ("a party
seeking modification of a consent decree bears the burden of
establishing that a significant change in circumstances warrants
revision of the decree"; "Modification of a consent decree may be
warranted when changed factual conditions make compliance with
the decree substantially more onerous.").
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<PAGE> 19
modify an injunction that it has entered whenever the principles
of equity require it to do so." Id.
In an even more recent decision, Patterson v. Newspaper &
Mail Deliverers' Union of New York, 13 F.3d 33, 37-38 (2d Cir.
1993), Judge Jon O. Newman agreed that Rufo should not be limited
to those cases in which institutional reform is mandated by a
decree against a governmental entity. In a passage particularly
relevant to the instant motions, Judge Newman wrote that even
when a decree is not directed against a governmental entity:
The "institution" sought to be reformed need not be an
instrumentality of government. If a decree seeks pervasive
change in long-established practices affecting a large
number of people, and the changes are sought to vindicate
significant rights of a public nature, it is appropriate to
apply a flexible standard in determining when modification
or termination should be ordered in light of either changed
circumstances or substantial attainment of the decree's
objective.
Id. at 38.
On this basis, the Court concludes with some reluctance
that, notwithstanding the factual similarities between the decree
in this case and that in Swift, requests for modifications of the
decree governed by a common law standard should be considered in
light of the standard set forth in Rufo. The Court hastens to
add that this conclusion should not be viewed as opening a
modification or waiver floodgate.(22) Even applying the equitable
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(22) In this regard, to the extent that BellSouth implies
that the Court should entertain requests to lift the line of
business restrictions without meeting the specific standard set
forth in section VIII(C) of the decree, that argument is
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<PAGE> 20
discretion to modify the decree provided by Rufo, the Court will
remain wary of attempts to alter the agreement reached by the
parties, and it will therefore apply its discretion cautiously
and sparingly.
VI
As set forth above, the Court's decision to deny AT&T's
waiver or modification request is based on the failure of AT&T to
meet the standard set forth in Rufo. Among the factors
considered in Rufo is also the public interest.(23) On this
record, the Court is unable to find that AT&T's request would be
in the public interest.
Over ten years after the effective date of the decree, there
can no longer be any serious question that the decree, and the
competition in telecommunications it ushered in, have been
singularly effective. The parties to the lawsuit drafted the
decree, and many, including the Department of Justice and the
Court, expected that the public would benefit from the
competitive environment created in the wake of the destruction of
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rejected. See United States v. Western Elec. Co., 900 F.2d 283,
293 (D.C. Cir. 1990) ("the district court enjoys no equitable
discretion at all in applying section VIII(C)").
(23) As indicated supra, the Supreme Court expressly
referred in Rufo to a public interest test, noting that
modification of a consent decree may be appropriate when its
enforcement without modification would be detrimental to the
public interest. It is appropriate, therefore, to briefly explore
the issue of where the public interest lies and the degree to
which the decree as drafted has served that interest.
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<PAGE> 21
the Bell System monopoly. Yet actual experience has greatly
surpassed these expectations: the AT&T divestiture has
benefitted the American consumer, the American telecommunications
industry, and the American economy as a whole.
For example, the divestiture and the resulting
competition(24) have brought about a sharp decline -- by more
than one-half -- in long distance rates.(25) The direct impact on
virtually every business and residential telephone user is as
obvious as the long distance phone bill. Divestiture and
competition have also spawned numerous technical advances in the
telecommunications field(26) and have led to widespread
acceptance of numerous services directly useful to
subscribers.(27)
Moreover, the combination of these advances, spearheaded by
the lower long distance rates, has made economically feasible
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(24) E.g., the emergence on a substantial scale of MCI,
Sprint, and other long distance carriers, as well as of many
smaller carriers and manufacturers.
(25) Local rates, which are still controlled by the monopoly
Regional Companies, have not similarly declined. Indeed, they
have increased. However, the increase has been modest, that is,
somewhat less than the rate of inflation.
(26) These range from fiber optics which now carry the bulk
of long distance communications at lower cost and higher quality,
to digital switching, computerized network management systems,
common channel signalling, video conferencing, new 800 services,
virtual data network services, and a host of other innovative
technologies.
(27) Such services include call forwarding, call waiting,
caller identification, repeat dial, priority calling, and the
like.
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<PAGE> 22
such developments as nation-wide networks of automatic teller
machines, fax machines, computer modems, brokerage services, and
commercial computer information services, among others.
Notwithstanding the successes that have been achieved under
the umbrella of the decree, there are those -- usually the
Regional Companies but this time AT&T itself -- who challenge the
continued necessity for enforcement of several of the decree's
central provisions. Section I(D) is such a provision. The
section I(D) prohibition on the acquisition by AT&T of the stock
or assets of the Regional Companies was designed to prevent the
re-emergence of the telecommunications monopoly that was broken
up in 1982. Although the precise competitive impact on the
telecommunications industry of a partial or complete re-creation
of the Bell System obviously cannot be forecast with precision,
there is a real danger that at least some of the strides that
have been made in the last decade would be nullified or diluted.
The philosophical merit of issues beyond the decree such as
monopoly vs. competition, the public benefit of restrictions on
powerful corporate entities vs. the pooling of large capital
resources, and the impact of the evolving global
telecommunications market are legitimate subjects of debate.
However, the Court has no place in the general policy aspects of
that debate which is most appropriately addressed by the
political branches of our government (and indeed both the
Congress and the Executive Branch are wrestling with these issues
<PAGE>
<PAGE> 23
now). As far as the Court is concerned, it has in the past and
will continue in the future to perform its duty -- to enforce the
decree as it is written until such time as a party is able to
demonstrate its entitlement to a modification or waiver pursuant
to the proper legal standard, or until congress acts to relieve
this Court of its jurisdiction over the decree. As of this date,
neither has occurred.
The request for a waiver or modification in connection with
the merger of AT&T with McCaw is denied.(28)
April 5, 1994 HAROLD H. GREENE
United States District Judge
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(28) However, this ruling does not absolutely foreclose the
waiver or modification that AT&T requests. The Court holds only
that AT&T must satisfy the legal standard for a decree
modification -- a standard it has thus far failed to meet.
<PAGE>
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, )
)
Plaintiff, )
) Civic Action No. 82-0192
v. ) (HHG)
)
WESTERN ELECTRIC COMPANY, )
INC., et al., )
Defendants.
ORDER
Upon consideration of the submissions of the parties and the
entire record in this case, and for the reasons stated in the
Opinion accompanying this Order, it is this 5th day of April,
1994
ORDERED that BellSouth's motion for a declaratory ruling
that AT&T's proposed acquisition of McCaw would violate Section
I(D) of the decree be and it hereby is GRANTED IN PART and DENIED
IN PART; and it is further
ORDERED AND DECLARED that AT&T's acquisition of McCaw's
interests in cellular properties controlled by a BOC would
violate Section I(D) of the decree, and it is further
ORDERED that AT&T's motion for an expedited ruling that
Section I(D) is inapplicable to the AT&T-McCaw Merger or for an
expedited waiver be and it hereby is DENIED WITHOUT PREJUDICE;
and it is further
<PAGE>
<PAGE>
ORDERED that BellSouth's motion to Strike AT&T's motion for an
expedited ruling be and it hereby is DENIED; and it is further
ORDERED that BellSouth's conditional motion for a waiver of
the interexchange restriction in connection with wireless
services be and it hereby is DENIED.
HAROLD H. GREENE
United States District Judge
