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UNITED STATES v. WESTERN ELEC. CO.

December 28, 1983

UNITED STATES OF AMERICA, Plaintiff,
v.
WESTERN ELECTRIC COMPANY, INC. AND AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Defendants; UNITED STATES OF AMERICA, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al., Defendants



The opinion of the court was delivered by: GREENE

 On December 22, 1983, AT&T moved for an order requiring Bell Atlantic, one of the Regional Operating Companies, to cease and desist from performance of a contract it had entered into with the General Services Administration (GSA), a federal government agency.

 Bell Atlantic has responded, asserting that its contract with GSA and its plans with respect thereto are in violation neither of the decree nor of the plan of reorganization; that factual disputes exist regarding AT&T's policies and their impact on Bell Atlantic; and that there is no basis for judicial inference with its contract with GSA.

 In view of the urgency of AT&T's request, and Bell Atlantic's concurrence that an early decision by the Court was required, the Court convened an immediate hearing at which counsel for the two protagonists as well as counsel for the government presented legal argument. *fn1"

 I.

 The decree in this case provides for the division of the Bell System's assets, liabilities, functions, and personnel between AT&T and the various Operating Companies as of the time of divestiture. Specifically, section I(A)(2), (4) requires that the "facilities, personnel and books of account . . . relating to . . . the provision of customer premises equipment" shall at that time be retained by AT&T (as distinguished from their assignment to the Operating Companies). See United States v. AT&T, 552 F. Supp. 131, 192 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S. Ct. 1240, 75 L. Ed. 2d 472 (1983). It is clear from these provisions that, as of January 1, 1984 -- less than three weeks from the date of Bell Atlantic's contract with GSA and less than one week from today -- Bell Atlantic would have no power to make any disposition regarding the CPE and CPE-related services and personnel at issue here: all of them will from that date on be exclusively AT&T's. The question here is whether there is any reason why Bell Atlantic could not sell or otherwise dispose of these assets, and to enter into contracts regarding these services and that personnel, in advance of that date.

 Except for unrelated matters, the only specific provision regarding CPE in the decree itself is that referred to above. There is no reference in the decree to the ownership, the power of disposition, or the assignment of CPE or CPE-related functions or personnel prior to divestiture -- for good reason, as will be seen below. However, the plan of reorganization, approved by the Court on July 8, 1983, ( United States v. Western Electric Co., 569 F. Supp. 1057 (D.D.C. 1983), aff'd., 464 U.S. 1013, 104 S. Ct. 542, 78 L. Ed. 2d 719 (1983)), does contain several clauses which have relevance to the present dispute. That plan assigns to AT&T, not the Operating Companies, the CPE assets and related accounts, the CPE installation and maintenance functions, and virtually all personnel performing such functions. *fn2"

 What about the sale of CPE itself, apart from maintenance contracts and personnel assignments? Initially, it is not at all clear that the contract with GSA can be neatly separated into its various component parts as the Department of Justice, for one, has advocated. If the provisions for maintenance of the CPE by Bell Atlantic personnel are inconsistent with the decree and therefore cannot be implemented -- as the Department appears to concede -- it may well be that the entire contract fails. Beyond that, however, there is no sound basis for Bell Atlantic's position that it is free to sell CPE prior to divestiture against the wishes of AT&T.

 As indicated, the decree does not explicitly prohibit such sales. That is not particularly surprising. The decree fails to regulate Operating Company conduct at the pre-divestiture stage in all or almost all respects, for good reason. Prior to divestiture, these companies have no independent discretion vis-a-vis AT&T; to the contrary, they are subject to AT&T's ultimate control just as they have been for a hundred years. It would have been redundant for the decree to prohibit the Operating Companies from engaging in activities objected to by AT&T with respect to a period of time when they were and are under AT&T's legal and practical control and supervision. Thus, if no provision is made in the decree to guard against the sale or dissipation by the Operating Companies of the assets which under the decree are assigned to AT&T it obviously is because prior to divestiture AT&T could always prevent such activities by a stroke of the pen. The decree's silence on this issue therefore does not permit the drawing of the inference that the Operating Companies may do with CPE as they wish.

 Bell Atlantic, with some support from the Department of Justice, argues that it has authority from AT&T to sell CPE, and it points in that regard to AT&T's failure to object to, indeed its support of, the sale by the Operating Companies of single-line telephones to the public. But such sets are being sold pursuant to explicit authority from AT&T in the form of a memorandum from its president and its vice-chairman of the board. *fn4" Moreover, whatever AT&T may or may not have objected to in the past, *fn5" it is clear that it does object to the present sale to GSA. Until January 1, 1984, Bell Atlantic and the other Operating Companies are not independent of AT&T, *fn6" and upon the registration of such an objection -- absent contrary decree provisions (see infra) -- the Court hears AT&T's voice rather than that of Operating Companies. *fn7"

 To be sure, the Court has encouraged the Operating Companies to give it their candid views (and they have done so) and to assert their independence from AT&T in negotiations regarding the plan of reorganization and the implementation of the divestiture generally (and they have done that). But it does not follow that when, prior to divestiture, there is a dispute between AT&T and an Operating Company with respect to a matter on which the decree and the plan of reorganization either supports the former or is, at best, silent, the Court would be justified in adopting the Operating Company position over that of AT&T. Bell Atlantic is simply wrong in its assumption that it is AT&T's obligation to find provisions in the decree which are inconsistent with the Bell Atlantic position. *fn8" In view of Bell Atlantic's subordinate role prior to January 1, 1984, it is its burden to point to decree or plan provisions affirmatively sustaining its position if it wishes to prevail over the objections of its parent.

 In sum, considering solely the narrow legal issues arising under the decree, the plan of reorganization, and the AT&T corporate structure, *fn9" the Bell ...


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