The Deal of the Century

by Coll, Steve;

  So Anderson mainly kept his distance. He was unhappy with the strategy that Verveer had developed for the case. He believed it was too academic, too broad, too much by the book. Verveer had hired a number of “expert” witnesses to develop complex economic arguments for the case—about utility prices, economies of scale, and so on—and Anderson considered these professors to be utterly worthless. No case like this was going to be won by some tweed-coated expert spouting interpretive economic theories. In Anderson’s view, litigation battles were won or lost in the trenches, where the two sides wrestled over disputed facts like soldiers struggling for a bayonet. Verveer was not running the case like a ruthless field marshal; his approach was closer to that of a law school dean. Still, Verveer was in charge of the case day to day, and Anderson did not force his strategy ideas on him. Anderson felt that whenever he went near Verveer, the lawyer “got his nose out of joint.”

  Early in 1977, as part of the Antitrust division’s routine budget process, Phil Verveer drew up a plan for expanding his team of attorneys, paralegals, and support staff once the stay on discovery was lifted and the case resumed in earnest. The plan reflected Verveer’s approach to the lawsuit: expansive in scope, thorough, detailed, and somewhat unfocused. Verveer recalled later that it called for about twenty-five attorneys and perhaps 100 paralegals full-time; lawyers in the Antitrust front office remembered the numbers as being even higher. Either way, it was an ambitious program, and hauntingly similar in approach to the IBM case. Verveer sent the budget up through the division bureaucracy. He was nervous about the attitude of his section chief—he didn’t think Anderson displayed much of a grasp of the factual and legal details of the case—but he assumed that Shenefield, the Antitrust chief, would approve the plan.

  From a variety of sources—Hugh Morrison, Ken Anderson, front office lawyers Joe Simms and Bill Swope—Shenefield began to hear grumblings about Verveer’s approach to the case and questions about whether Verveer was really the right lawyer to run it. Anderson had suggested cutting the large retainers earned by some of Verveer’s expert witnesses, but no one told Verveer what was being contemplated.

  One morning in early summer, Verveer was called to a meeting in Shenefield’s office with the Antitrust chief, Morrison, and Anderson. For the first time, Verveer was told that he would have to pare down his plans and adopt the strategic approach advocated by Anderson. “You’re not giving me enough support,” Verveer argued. “Look, this is what you have to expect. There are millions of pages of documents. If we’re right that there are millions of pages that have to be looked through, we’re going to need these people to do it.”

  The front office lawyers heard Verveer out but did not answer his demands.

  The next day, Hugh Morrison called Anderson and told him to report to Shenefield’s office. “Here’s what we’ve decided,” Anderson was told. “Verveer’s off the case and you’re on.” As section chief, Anderson would have to convey the bad news to Verveer.

  “Phil, I didn’t fuck ya,” Anderson tried to explain when he saw Verveer. “Your friends fucked ya, or the guys who you thought were your friends.”

  Verveer didn’t know how it had happened, and to an extent, he didn’t care. Anderson, Morrison, Shenefield, Swope, and Simms were all involved, he thought. But it was the way it happened—the dishonest conspiracy behind his back, the cowardly failure to involve him in the strategy debate, the unilateral decision to put Anderson, who probably hadn’t even read all the government’s contentions in the case, in charge—that led him to resign his job with the Justice department almost immediately. Within nine months, the core of the original team of attorneys that had worked to develop U.S. v. AT&T—notably Tom Casey and Bill Barrett—had also quit, partly in protest over how Verveer had been treated.

  Alone in charge, Ken Anderson would have to manage one of the biggest antitrust cases in Justice department history on his own. Which, of course, suited Anderson just fine.

  From Justice’s point of view, the best thing to come from Verveer’s resignation and Anderson’s ascension was that it put the fear of God into AT&T. Anderson might be a loose cannon, but after so many years of quiet, professional stewardship by Verveer, perhaps it was time now to blast a few holes in the phone company’s complacency.

  At first, AT&T’s lawyers saw the Verveer resignation as a welcome opportunity, and perhaps the end of their troubles with Justice. During the publicity that attended the Antitrust shake-up, lawyers on the Verveer team grumbled anonymously to reporters that the division’s front office was throwing in the towel, that it was unwilling to pursue the AT&T case seriously. “We’ve been sat on too many times over the past few years to make us starry-eyed believers that the department of Justice is going to prosecute this case properly,” one said.

  The Bell attorneys seized the opening quickly. Only weeks after Verveer had quit, Hal Levy, the AT&T staff lawyer who was then working closely with George Saunders, arrived at Anderson’s office wearing a white summer suit. Like Saunders, Levy smoked big black cigars, and he was more than a little overweight.

  “Look, there’s nobody on this case,” Levy told Anderson, and he was right. Because of the spate of recent resignations, there was only a handful of Justice attorneys assigned to the suit. With all the fuss over Verveer, Anderson had barely been able to keep up with the paperwork.

  “Maybe it’s time to talk about a solution to this thing,” Levy continued. Then he tried to sell Anderson on a vague, injunctive settlement. AT&T would agree to certain rules, negotiated with Anderson, governing interconnection arrangements with MCI and other long-distance carriers. The phone company would also take steps to buy more phone equipment from suppliers other than Western Electric. Otherwise, AT&T would be left alone and there would be no divestiture.

  Anderson heard Levy out, and then he said, “I’ll tell you one thing. This case is going to be a severed limbs case. We’re going to have severed limbs, AT&T limbs, on the table dripping blood. That’s the way this case is going to be settled. We’re not going to settle this thing with injunctive relief.”

  “You can’t expect me to go back to my board of directors and tell them something like that,” Levy answered.

  “That’s exactly what I want you to do,” said Anderson. “I want you to go back and tell them that the next time they send somebody down here to talk about settling, I want to see severed limbs on the table. In fact, if you want to come in the door, you’ve got to throw a couple of severed limbs in ahead of you, or you don’t even get in the door.”

  Such bravado no doubt sounded desperate even to Levy, but it was effective. Levy dutifully carried Anderson’s message to 195 Broadway. A few weeks later, Anderson received a strange phone call. An attorney for a private antitrust plaintiff suing AT&T told Anderson, “There’s a group of people inside AT&T, high up, who really understand what this thing is about and who are willing to talk about a realistic settlement. Would you be willing to meet with them?”

  “What do you mean?” Anderson asked. “Is this going to be one of these deals where I have to meet somebody in a parking garage?”

  “I am talking about some people who are very highly placed in the company,” the lawyer said. “I can tell you that there is a movement inside the company to be very realistic about this case. They want to talk to you.”

  “Well, then, why don’t they call me? To arrange it like this, I’ll have to talk with my supervisor.”

  Anderson told Hugh Morrison about the lawyer’s call. Morrison told him, “Go ahead, see what they want.”

  The meeting was arranged not in a parking garage but in a restaurant at 20th and L streets. The man who arrived from AT&T was Howard Trienens, the managing partner of Sidley & Austin, who had known Brown socially during the years when Brown was president of Illinois Bell. Eventually, Trienens would become vice-president and general counsel of AT&T under Charlie Brown. He would become a key member of AT&T’s blue team, and he was laying the groundwork for a new approach t
o AT&T’s antitrust problems even before John deButts’ resignation. In his meeting with Anderson, Trienens never formally discussed a settlement. It was an informational session, a chance for Trienens and Anderson to feel each other out. The Sidley partner wanted to know from Anderson, “What is it that you have in mind?”

  But Anderson felt that it was too early to discuss specifics. As he liked to put it, settlements of government antitrust suits don’t work until “the other guy can taste a little blood in his mouth.” At the moment, it was Justice that appeared to be negotiating from weakness, not AT&T.

  Still, after his meeting with Trienens, Anderson continued on and off to meet with Hal Levy and George Saunders, mainly to talk about procedural issues having to do with the resumption of discovery early in 1978, when the United States Supreme Court finally ended AT&T’s quest to have the case thrown out of federal court. (The courts accepted the government’s argument that the FCC could not effectively regulate AT&T, and that the only way to resolve issues of phone industry competition was in antitrust court.) Anderson’s occasional outbursts about blood and limbs actually had a strange effect on Saunders and Levy—they endeared Anderson to the AT&T lawyers. Here, at least, was a character far different from the devout Phil Verveer, who seemed to view the phone company and its lawyers as evil incarnate. Anderson made it clear that he had no “moral” view about the government suit; he only cared about tactics.

  That was an attitude Saunders and Levy could respect. Anderson was a lawyer with a client. He had a job to do, and all his bellowing and ranting about goring the phone company was nothing more than the studied posturing of a well-trained litigator. Besides, Anderson had a sense of humor. Saunders and Levy would sit in his sparse Justice office and fill the room with smoke from their black cigars until Anderson would say, “You guys are really disgusting. You’re fat, smoking those cigars. The problem with you guys is that you don’t have enough roughage in your lives.” Then Anderson would open one of the brown paper sacks near his desk and pull out a handful of string beans from his farm. After he passed them out, the three stocky lawyers would continue their meeting, munching like overstuffed rabbits.

  They were the kind of lawyers who might enjoy trying a case against each other. And that was a good thing, because by the summer of 1978, one year after Phil Verveer’s resignation, it appeared that U.S. v. AT&T might move to trial faster than any antitrust case of its size in many decades.

  In part, that was because of Ken Anderson’s expedient methods. In part, too, it was because Charlie Brown’s team of executives, who would soon have full control over AT&T’s policies and strategies, wanted to resolve Bell’s antitrust problems as quickly as possible. They could see that deButts’ stand against competition had failed: MCI was a billion-dollar company now, and Japanese and other equipment makers were rapidly gaining market share at Western Electric’s expense. The challenge now was to free the phone company from its Washington quagmire and prepare for a competitive future, a future that Charlie Brown frequently referred to as the “information age.”

  To arrive there intact, AT&T would have to win, or favorably settle, the government antitrust case with all possible speed.

  Chapter 12

  The Answer Man

  One thing that John deButts, Charlie Brown, and other AT&T executives should have learned by the summer of 1978 was that it was difficult, if not impossible, for anyone in Washington to consider the largest corporation in the world to be, in any sense, a victim—whether of Bill McGowan’s deceptive competitive strategy, or of overzealousness by young lawyers at the FCC and the Justice department, or of a rapidly changing telecommunications industry complicated by contradictory and confusing regulations. To the politicians and bureaucrats who ruled the nation’s capital, AT&T would always be Ma Bell, the omnipotent and indefatigable matriarch of American business. (Charlie Brown hated the Ma Bell moniker, in part because it implied that the phone company was somehow invincible and immutable.) Thus it was only AT&T, not Congress, the Justice department, or the FCC, that viewed the assignment of the government antitrust suit to U.S. District Court Judge Harold H. Greene in August 1978 as the latest caprice of the fates in what by now had become, in the minds of the phone company’s top executives, a full-blown Elizabethan tragedy.

  George Saunders liked to say that Judge Joseph Waddy would have given the Justice department “the back of his hand” if he had presided over the trial of U.S. v. AT&T. As other events would prove, Saunders was not as good a fortune teller as he was a lawyer. Still, no one could disagree that, from AT&T’s standpoint, Waddy was a far more attractive judge than Greene, who took over the case when Waddy finally succumbed to cancer in July. At least Waddy had expressed some sympathy for AT&T’s position during the preliminary jursidictional arguments. About the only thing to recommend Greene to the phone company, it seemed, was that he was likely to move the case along with exceptional speed.

  It was a standard practice of Sidley & Austin to research thoroughly the background of a judge who was assigned to a case handled by the firm. The theory was that a detailed profile of the judge—his personal history, his legal and political biases, his courtroom demeanor—could help an attorney make his case and presentation more palatable. Some trial lawyers regard such “psychoanalyzing” as a treacherous and ultimately disruptive endeavor, because it can cause a lawyer to ignore the strengths of his case while pandering to the supposed prejudices of the judge. George Saunders’ attitude, though, was that in a case where there was as much at stake as there was in U.S. v. AT&T, it was important to play every angle.

  The profile of Judge Greene assembled by Sidley’s lawyers and researchers offered Saunders little encouragement.

  There was no doubt that Greene was one of the hardest working, most intelligent judges in Washington and that he was an extraordinary and compassionate human being. A man of such depth and devotion, who had lived such a varied and interesting life, might be precisely the sort of judge who could not be psychoanalyzed easily. But there was no doubt, either, that on the surface, at least, Greene was exactly the wrong judge for AT&T. Indeed, Greene seemed akin in spirit to some of the young, idealistic Justice lawyers who had first developed the antitrust case against the phone company.

  Like Phil Verveer, for example, Greene had learned early and profoundly that “politics,” for some, was a matter of life and death, and the lesson had stayed with him. A Jew, Greene was raised in Germany during the 1920s and 1930s. His father owned a jewelry store, and in 1939, as the terror of Hitler’s Reich reached fever pitch, his family fled to Belgium, where it had relatives. Greene was just sixteen years old. When the Germans invaded Belgium, the Greenes fled again, this time to Vichy France. From there, they made their way to Spain, and later Portugal, before finally emigrating to the United States in 1943. Young Harold Greene was immediately drafted into the U.S. Army and was sent back to Europe with a military intelligence unit to work against the Nazis. He saw combat action in his former homeland, but he escaped injury. When the war was over he returned to Washington, D.C., where his family had settled.

  As a civilian, Greene took to his new country with an extraordinary passion. At night, he attended law school at George Washington University in Foggy Bottom, near the State department. Though English was a new language for Greene, he did exceptionally well, graduating in 1952 at the top of his class. His first job as a full-fledged lawyer was as a prosecutor with the Justice department. In a few years, he had transferred to the department’s Civil Rights division.

  When a man or woman’s talents, convictions, and ambitions coincide with the egress of an entire generation, there is the opportunity to make history, and such a blessing fell upon Harold Greene at the Justice department during the early 1960s. Robert F. Kennedy was attorney general, and for the first time in thirty years, the federal government was alive with energy and activity. Justice, especially, was invigorated with the vision of a Great Society to be forged by the rule of law. In the Civil R
ights division, the hope and excitement was daily palpable, and most of it derived from Bobby Kennedy’s personal style of leadership. Department lawyers who had served the government for twenty-five years without ever meeting an attorney general suddenly found themselves invited to Kennedy’s expansive fifth-floor office for informal discussions over beer or coffee. The attorney general would wander through the old Justice building’s cavernous hallways, stopping in randomly to compliment an attorney’s work or inquire into one of his cases. The Civil Rights division was like Kennedy’s favorite son, and Greene soon befriended the young attorney general and earned his confidence. The promise of Robert Kennedy, his commitment and his oft-repeated vision of America made great through justice and opportunity, was especially compelling to Harold Greene, a man who did not take his country or its ideals for granted. Greene was a pragmatist, not a visionary or an ideologue, but he nonetheless had a strong appreciation for the theory behind America’s system of checks and balances. As a teenager in Germany, he had seen the consequences of a government devoid of such controls. He believed that the power of the law, and its fair enforcement through the courts, could mitigate a society’s worst tendencies. And like Bobby Kennedy, he saw the attempt by white southerners to preserve segregation during the early 1960s as a kind of cancer on the nation. Working closely with Kennedy, Greene wrote the Civil Rights Act of 1964 and the Voting Rights Act of 1965, arguably the two most important pieces of legislation passed by Congress in twenty years. When Kennedy made his only appearance before the U.S. Supreme Court to argue a civil rights case, Greene was there with him, helping to put the finishing touches on the argument. As Kennedy himself put it at Greene’s Justice department going-away party, “Harold was the guy who had the answers.”