The Deal of the Century

by Coll, Steve;

  The climax to all this back-channel lobbying and gamesmanship came on the hot and steamy afternoon of Monday, July 27, the day before the scheduled cabinet council meeting at which Baxter’s support for S.898 was supposed to be formally ratified. At 3:30 P.M., all of the main players gathered in Ed Meese’s office in the West Wing of the White House. Meese was there, as were Bill Baxter, Jonathan Rose, Malcolm Baldrige, Bernie Wunder, Sherman Unger, Jim Baker, and David Gergen, the White House’s communications director and a so-called moderate ally of Baker’s. The assembly was called to set the agenda for the next morning’s cabinet council meeting as well as to resolve the question of whether U.S. v. AT&T had to be dismissed if S.898 was to have a reasonable chance to pass.

  On dismissal, the split was an even four against four. Baxter, Rose, Baker, and Gergen argued against; Meese, Baldrige, Wunder, and Unger argued in favor.

  “If I pull the plug on the case,” Baxter said, “AT&T’s support for the legislation would change to opposition. What I want to do is pursue parallel tracks.”

  That argument appealed to Baker, who the Commerce officials were by now referring to as “Mr. Caution.” “I don’t like the idea of sweeping the thing away,” he said. For one thing, Baker said he was concerned that Peter Rodino, the fiercely partisan, Democratic chairman of the House antitrust subcommittee, would launch a major investigation into how the decision to dismiss was made, and that the President, and possibly Attorney General Smith, would have to endure a spate of bad publicity.

  “But they’ll be looking for a Dita Beard,” Bernie Wunder countered, referring to the woman who broke the ITT antitrust scandal in the Nixon administration. “And this thing is as clean as a hound’s tooth. There are no hotel keys in anybody’s desk drawer.” Wunder and Baldrige reminded the group that the Commerce officials had kept contemporaneous summaries of every meeting and phone call pertaining to dismissal. “Some kind of investigation is inevitable, yes. But this is not a backroom deal. It’s a reasoned policy decision.”

  “It will interfere with the President’s program,” Baker said. “The priorities of the administration are the tax bill, the budget, foreign policy, et cetera. That’s what we should be focusing on. All this peripheral stuff is only going to get us in trouble.”

  “What kind of case do you have?” Meese asked Baxter. “How good is the case?”

  “I think the chances of winning are fifty-fifty,” Baxter answered. “It’s not the best case I’ve ever seen, and it’s not the worst, either.”

  Again, the debate was at an impasse, mainly because of Baker’s resistance to dismissal. Baker liked Baxter’s idea about “parallel tracks,” but there was no getting around the point that as long as the case was active, it would be virtually impossible to pass legislation in Congress. And legislation, everyone agreed, was the ideal way to define the future of the telecommunications industry.

  Once again, it was Baxter who broke the deadlock, this time with a proposal that was as cunning as it was preposterous. Baxter insisted that if U.S. v. AT&T was dismissed, Bell would abandon its support for S.898 because it would no longer have any reason to compromise with its industry competitors. But he accepted, at least outwardly, the point that active prosecution of AT&T doomed the telecommunications bill. So why not ask Judge Greene to suspend the trial, “continue” it, in legal terminology, for a period long enough to give Congress and the administration time to pass legislation—say, about a year? With the case in a state of suspended animation, AT&T and Congress both would have incentives to pass acceptable legislation. If the bill passed, Baxter would drop the case. If it didn’t pass, the trial would resume next summer.

  “The case would be put on ice,” Baxter explained.

  “Is there any chance Judge Greene would agree to such a proposal?” Baxter was asked.

  “We’ve got a good chance. There’s a real shot at it,” he said.

  The proposal served Baxter’s strategy in three important ways. First, on the surface at least, it appeared that the Antitrust chief was once again offering a major compromise. Just a few months earlier, he had talked of litigating “to the eyeballs,” and now, for the sake of unity in the administration, he was willing to suspend the case for a year and possibly abandon it altogether. Second—and Baxter did not admit this to his rivals from Commerce—the continuance request itself would serve as a kind of political trial balloon testing Baldrige’s assertion that the public would react indifferently if the case was dismissed. How Congress and the press responded to Justice’s attempt to suspend the AT&T case would provide an accurate reading of the public’s attitude. Baxter suspected, as he had said all along, that there would be a great commotion about it, so great that Baker and the President would decide once and for all that dismissal was a politically flawed idea. And finally, if Judge Greene turned down the request, Baxter would be in a position to say to Baker, Meese, and the Commerce officials, “Look, I’ve stretched a long way. Dismissal just isn’t tenable. Let’s go back to my amendments and pursue the parallel tracks.”

  Of course, the proposal was a red herring. Baxter and Rose were the only two people in Meese’s office that afternoon who understood just how unlikely it was that Greene would grant a year-long continuance of the case. Some of the Commerce officials read the daily trial transcripts, but they did not understand that since 1978, when he took over the case, Greene had said repeatedly that U.S. v. AT&T was going to be a model of efficiency for the federal court system. Yes, it was technically possible that Greene would agree to a suspension—a continuance was legally permissible. But realistically, Baxter knew well that barring some bizarre turn of events, the chances were almost nil that Greene would accede to such a request, especially when it was coming from the Reagan administration at a time when rumors about an imminent dismissal decision were still rife in Washington. For Greene, granting a continuance would be giving the administration an easy way out of its dilemma, and in his courtroom speech a few weeks earlier, the judge had already made it plain that he was going to do all he could to raise the stakes for the President should he choose to drop the suit. Nonetheless, in the context of the internal administration debate among Commerce, Justice, and the White House (Weinberger and his Defense staff had stayed out of the detailed talks once their focus shifted from outright dismissal to a compromise on legislation), Baxter’s proposal was attractive. The consensus was that it was at least worth a try.

  On that note, the meeting in Meese’s office broke up. The next morning at the White House, the Cabinet Council on Commerce and Trade ratified Baxter’s proposal and authorized him, on behalf of the administration and the President, to seek an eleven-month continuance of U.S. v. AT&T from Judge Greene. If granted, the case would be suspended until June 1982. By then, the cabinet council hoped, S.898 would be passed by Congress and signed by President Reagan. Then the antitrust case would be formally dropped.

  When Baxter got word that afternoon that the cabinet had signed off on his proposal, he called Howard Trienens at AT&T headquarters in New York to see if Trienens would be willing to seek the continuance jointly with the Justice department.

  AT&T’s general counsel thought that Baxter’s proposal was absurd. To Trienens, it was yet another example of what he described as the administration’s “failure of will.” But there was no reason for Trienens to oppose the request: perhaps this proposal was really just a last ditch effort by Baxter to stave off dismissal. Perhaps, if the request was denied, the administration would act to drop the case immediately. Trienens did not ask Baxter where the continuance proposal had come from. He assumed that Baxter had been ordered by the administration to present it to Greene.

  “Judge Greene will kick you in the teeth,” Trienens told Baxter.

  “I have strong teeth,” Baxter replied.

  Baxter then called Judge Greene’s chambers and made an appointment to see him the next day, Wednesday, at noon.

  On Wednesday morning, Baxter called Gerry Connell at the Justice tri
al staff offices on 12th Street. “I’ve been told to go over and ask for a postponement of the trial from Judge Greene,” Baxter said. He explained the details of the continuance request. “Do you want to go along?”

  “If you don’t care, I’d just as soon not,” Connell said. He explained to Baxter that since the trial was in recess and the air conditioning in the trial staff offices was erratic, he had not worn a suit to work that day. Baxter accepted this explanation. In fact, Connell thought the continuance proposal was doomed and he had no desire to sully his reputation with Greene by being an active party to it. When Baxter hung up, Connell told the Justice trial staff about the call. The consensus among the staff was that Baxter had resorted to this desperate move because it was his only chance to prevent outright dismissal. They expected that once Greene turned him down, the case would be dropped. Baxter had said nothing to Connell to contradict that impression. If the trial staff was outraged by the request and its implications, it would only help prove his point that the political consequences of dismissal would be severe.

  At the appointed hour, Trienens and Baxter arrived at Greene’s chambers on the second floor of the U.S. District Courthouse. Trienens had persuaded George Saunders to accompany him: it might help the cause if Greene saw a united front from AT&T. But Saunders, like Connell, and for that matter Trienens himself, thought the continuance request was preposterous. During the discussion with the judge, Saunders sat off to one side, as if to distance himself physically from the proposal. Trienens and Baxter sat in the chairs directly in front of Judge Greene’s desk.

  “Your Honor, we are here to ask you to continue the case until June 30th, 1982,” Baxter began abruptly. “I am urging the motion on you. I can assure you that I am speaking not just for the Antitrust Division of the Department of Justice, but for the administration and the President.

  “The administration has concluded that there is no realistic possibility of moving the legislation, which is now usually known as S.898—a very comprehensive reshaping of the telecommunications industry—through the Congress unless, in some sense, this case is put on ice.

  “I was, myself, rather difficult to convince of that point, not because I have any particular expertise about Congress, which I certainly do not, but because I did not view S.898 as an adequate substitute for the relief we are seeking in the case.

  “In the last several weeks, we have worked out an amendment to S.898, which addresses itself to what I viewed as a primary weakness in that legislation. We have checked it out with the Bell company, and the administration is wholly in support of it. That enabled us to come to you today with complete agreement, I think, throughout the administration and ask you to do that.”

  “I am not sure I understand that,” Greene said, visibily agitated. “What does all of that mean? You mean the legislation is going to be passed before then? Then the case will not go forward, or the case will go forward in June, or …”

  “If the legislation passes with the amendments that have been worked out, it would be the administration’s intention to discontinue the litigation,” Baxter explained.

  “Is there anything more you wish to add to that rather summary-cryptic communication?” Greene asked, annoyed.

  “There is really nothing else I would like to add, Your Honor, although I would be happy to make it less summary and less cryptic at any particular point you would care to explore,” Baxter said.

  “Well,” Greene replied, “I obviously have to think about it, but the case has been pending for seven years. We have heard the government’s evidence. We are ready to proceed to hear the defendant’s evidence starting next Monday. If the Congress passes legislation that moots the case in some way or other, that is one thing, but the mere fact that legislation may be pending, that may or may not be enacted, doesn’t seem to be a very good basis for truncating a case and recessing it for, what are you talking about, a year?”

  “Eleven months.”

  “Well, I have to think about it. But I can tell you right now that my immediate reaction is that it is not a good idea.”

  “It is an unusual motion,” Baxter conceded.

  “While I am not opposed to either unusual or innovative matters, this … well … I don’t regard it as a very constructive proposal. Mr. Trienens?” Greene asked, looking to AT&T’s counsel for some explanation.

  “The pendancy of this case does, in fact, as Mr. Baxter said, get in the way of resolving the structure of this industry through legislation.… Everything is hung up with no answer.”

  “I don’t understand the Congress,” Greene said. “If you think legislation is the appropriate way to go, why can’t Congress pass legislation regardless of what happens here?”

  “Your logic is impeccable,” Trienens conceded. “There is no question about it. The tensions, the jurisdictions between the two committees, the Judiciary Committee, and the Commerce Committee—it is just a complication that gets in the way of getting anything done. It shouldn’t be. I agree, thoroughly, but it does get in the way.”

  “Well, I am sorry the judicial process is a complication,” Greene answered facetiously. “But I can say, just like Mr. Saunders, ‘I am just a simple country boy.’ I don’t know about these kinds of high political matters.… All I can do is sit here. I didn’t file the lawsuit. I didn’t pursue the lawsuit since September or November, whenever it was, 1974. I wasn’t even on this court at that time.

  “The case came here. The case was pursued by the department of Justice. The department of Justice and the administration have seen fit not to dismiss it. It is here.

  “Now, I am also ready to have the parties settle it. Don’t misunderstand me: I am not eager to take this masochistic punishment of being here every day and absorbing a great deal of technical, economic, and legal information, day after day, even as much as I like the lawyers in the case.”

  “I thought you were enjoying it, Judge,” George Saunders said.

  “To an extent. To an extent …”

  “I certainly understand your reaction,” Baxter said. And a few minutes later, the Antitrust chief ended the conference with Judge Greene.

  A few hours later, Greene issued a terse order denying the continuance request.

  Late in the afternoon, the administration players involved in the case met again in Ed Meese’s West Wing office. The question was, “Where do we go from here?”

  Dismissal was not an option, at least for the time being. Baxter’s “compromise” continuance proposal had decided that question for Jim Baker on Monday. Besides, press and congressional reaction to the request was already lending credence to Baxter’s and Rose’s thesis that the political consequences of dropping the case were unacceptable. Reporters were deluging Justice with phone calls about the meeting that day with Greene; on Thursday, headlines across the country would trumpet news about a possible dismissal of the AT&T case. The Republican-controlled Senate Judiciary Committee was planning hearings for the next Wednesday to investigate the origins and circumstances of Malcolm Baldrige’s original proposal to dismiss. The political trial balloon, it seemed, had been blasted out of the sky.

  But the Commerce officials had one last proposal, an idea that had been inadvertently suggested by Baxter’s finesse strategy. If the Antitrust chief was willing to support S.898, as amended by Baxter I and Baxter II, then shouldn’t he also accept a negotiated settlement of the antitrust case if it mirrored the Senate legislation? By compromising on the bill, Baxter had acknowledged that it was possible, in his view, to solve the problems of phone industry competition without any divestiture by AT&T. Clearly, it was the view of the President and his top advisers that any settlement acceptable to Baxter should be pursued. Would the Antitrust chief be willing to negotiate with AT&T a consent decree, identical to S.898, that would settle U.S. v. AT&T out of court?

  Baxter agreed that the idea was logical. While he still believed that divestiture of the operating companies was by far the most attractive solution, he really h
ad no choice but to accept the Commerce proposal. Sherman Unger said that he would contact Howard Trienens as soon as possible to arrange the initial negotiations, which would soon be dubbed by AT&T “Quagmire II,” the sequel to the phone company’s nickname for the Crimson Sky deal. Baxter told Unger that he would assign two of his Antitrust front office assistants, Richard Levine and Ron Carr, to handle the day-to-day talks with AT&T.

  Since Quagmire II would be a nondivestiture, immensely complex injunctive settlement, there was no reason to hope that it could be concluded in a few weeks, or even a few months. But from Baxter’s tactical vantage, there was no harm in opening negotiations between Justice and AT&T: the talks would be an element of the “parallel tracks” idea that Baxter had so effectively sold to the administration.

  And meanwhile, on Monday, August 3, the trial would resume before Judge Greene, where the lawyers would again pore over the history of telephone competition in the early 1970s in an effort to decide the industry’s future. As Peter Kenney of the Justice trial team was heard to remark in the weeks following Baxter’s continuance request, “We on the trial staffs are like the grunts in Vietnam. We do the other guys’ dirty work.”