34 36 indicated that as far as he was concerned, he was still at the divorcement issue. And at a further and lengthy conference in his office on November 4, 1954, A. T. & T. counsel made a "full-dress presentation in opposition to divorcement." 35 At that time, Judge Barnes, according to a memorandum prepared by A. T. & T. counsel, indicated that while the system is a lawful organization as a public utility, there is a monopoly in supplying it with equipment. In addition, he challenged the right of a service organization to decide at will to make rather than buy its equipment where the result is monopoly in the supplying industry. Apart from that, he declared that Western Electric's monopoly extended beyond technical manufacturers into procurement or manufacture of standard commercial products. With respect to arguments advanced by defense counsel concerning uniqueness, the need for integration, and the benefits of collaboration, Judge Barnes replied that the defendants had ignored the benefits of competition which they had not tried and that other industries-for example, railroads, airlines, and television-had efficient and progressive suppliers. He also made it clear that if contributions to the military effort were to be a defense to a violation of the antitrust laws, this would lie outside his field and would have to be decided by the President or the National Security Council. Lastly, replying to the contention that Western's prices to the Bell operating companies are subject to indirect regulation, Judge Barnes pointed out that State commissions lack staffs and ability to deal with Western Electric's accounting and practices and that the National Association of Railroad & Utility Commissions (NARUC) was an inadequate instrument for the purpose sought. In view of these developments, A. T. & T. felt that it would be helpful to elicit once more the aid of the Defense Department in getting the case disposed of on a favorable basis. On November 4, upon completion of their conference with Judge Barnes, Mr. T. Brooke Price and his associate, Mr. J. E. F. Wood, went to the Pentagon to see Mr. Wilber M. Brucker then the General Counsel of the Department of Defense, because they "had some intimation *** that Governor Brucker, who was comparatively new in this position as counsel to the Defense Department, wanted an opportunity to get the feel of this case, wanted to inform himself about it ***9 37 With another meeting scheduled with Judge Barnes on December 10, 1954, for further discussion of the divorcement issue, Messrs. Price and Wood again on December 3 saw Governor Brucker, who advised them that he would try to talk to Judge Barnes on the following Monday or Tuesday.38 Mr. Price stated under interrogation at the hearings that he saw nothing unusual in having the General Counsel for the Defense Department ask him at this meeting what the Department of Justice's attitude had been in the past. Nor was there any question in his mind as to the propriety of having such discussions with the Department Hearings, pp. 2119, 2120. 85 Hearings, p. 2127, 30 Hearings, pp. 2121-2123. hearings, pp. 2123-2125. Hearings, p. 2126. "Hearings, pp. 2127-2129. For a more extensive memorandum of this meeting see of Defense counsel without anyone present from the Department of Justice. To quote from the testimony: 39 Mr. HOLTZMAN. Didn't you think it was somewhat unusual to have the counsel to the Department of Defense ask you what the Department of Justice's attitude had been in the past? Mr. PRICE. I don't think so. He was simply trying to find Mr. McCULLOCH. I would like to ask a question there. Mr. McCULLOCH. That was never discussed among you Mr. PRICE. This was merely a matter of our informing Governor Brucker of what had happened in the case so that he would understand the situation if he was going to move into it, as he indicated he might. No, this wasn't a triangular debate or negotiation involving the Department of Justice in any way. Mr. McCULLOCH. No. I didn't mean to imply that it was, Mr. Price. I just raised the question whether you gentlemen ever considered the propriety of such an informative discussion with no one present from the Department of Justice. Mr. PRICE. No. It never occurred to us that there was the slightest question of propriety in those meetings. Three days later, on December 6, 1954, Governor Brucker formally interceded in a letter to Judge Barnes which adopted the A. T. &. T. position in toto and urged on the basis of defense considerations disposition of the case without breaking up the Bell System "into separate packages." He suggested in his letter, however, as had A. T. & T., that correction might be in order as to "arrangements and practices that may exist between Western Electric and others respecting licenses, patents, sales of apparatus, and the like.40 41 The committee shares the concern about this letter that was expressed by the chairman at the hearings. It was an extravagant, but otherwise typical, example of the responsiveness with which high Defense officials met every request to help A. T. & T. On the first 39 Hearings, pp. 2130, 2131. 40 Hearings, pp. 2132-2136. The text of this letter is set forth as appendix IX, infra, p. 343. One of the grounds urged for disposition on this basis was that "preparational phases for a trial would consume many, many months of the time of all key personnel of that organization who are now in Government work." Even if it be conceded that preparation of trial for the case might require diversion of A. T. & T. personnel from the defense effort, this at most would require only deferment of trial. It is difficult to perceive how this consideration would make necessary settlement of the case without severance of We pp. 2134, 2135. business day after what appears to have been his earliest significant contact with the case, 4 days preceding a meeting he knew had been scheduled between Judge Barnes and A. T. & T. representatives, and without consultation of any kind with Justice Department officials, Mr. Brucker again threw the Defense Department's weight behind the defendants' opposition to divestiture. 43 Following this there was a further conference at the Department of Justice on December 10, 1954,42 presided over by Mr. Edward A. Foote, an attorney who had become associated with the Department 6 months before as confidential assistant to Judge Barnes. Although lacking in antitrust experience,** Mr. Foote was assigned in the latter part of 1954 to take charge of the settlement negotiations subject to the direction of the Assistant Attorney General and the Attorney General.45 At the December 10 meeting, the Government requested A. T. & T. to prepare and submit a report making a breakdown of Western's Bell System manufactures by categories and analyzing why it was necessary to retain manufacture of such categories. Mr. Victor H. Kramer explained that the purpose of the request was to explore the possibility of injunctions prohibiting the system from manufacturing specific product lines or requiring it to get rid of certain plants." 47 48 In accordance with the request, A. T. & T. submitted to the Department on January 29, 1955, a Report Regarding Equipment Manufactured by Western for the Bell System 8 listing 17 categories of equipment so manufactured 49 and setting forth reasons why the Bell System believed it necessary to have each such category manufactured by Western rather than purchased from independent concerns. The 1955 negotiations In the early part of January 1955, there took place a meeting between Mr. Foote and Mr. Price with the latter characterized as "a very interesting little chapter." 50 Mr. Price testified: 51 Foote came into this thing cold from the outside. He did not know anything about our case and he did not know anything much about the Antitrust Division either. *** When he came into it he was thrown into these large meetings, 7 or 8 people and he indicated to us he would like to get a more informal down to earth contact with this case and get really an opportunity to talk it out in an informal way. 42 For a detailed memorandum prepared by A. T. & T. counsel summarizing this conference, see hearings, pp. 2138-2142. 43 In the following June, Mr. Foote was promoted to the position of first assistant in the Antitrust Division. Hearings, p. 3586. 44 See hearings, pp. 3587-3588, 3648. 45 Hearings, p. 3648. 40 Mr. Kramer was Chief of the Division's General Litigation Section and, in that position, responsible for general supervision of the case. See hearings, p. 3572. 47 See hearings, pp. 2139, 2141. Mr. Foote was reported as saying at the conference that "there were four things the Department could do with this case-dismiss it, prosecute it, postpone it, or settle it," and that "he assumed that we would be better off with a settlement than with a dismissal, since the latter would certainly not silence such people as Senator Kefauver." See hearings, pp. 2139, 2142, 3665. 48 Hearings, pp. 3887-4078. 49 The 17 categories are: Switching equipment; carrier, repeater, and other transmission equipment; exchange and toll cable; switchboard cable and wire coaxial cable; rubber-covered wire; copper line wire; steel wire and strand: cable terminals: loading coils and cases; tubes and allied products; telephone sets; cords; coin collectors; telephone booths; pole line hardware; and protectors and protection equipment. 50 Hearings, p. 2143. 51 Ibid. See also hearings, p. 3670. And with that in mind, he invited me to go and have dinner with him. Well, I talked that over with my associates, and we concluded that it would be all right if Judge Barnes knew about it, and did not have any objection. Well, we got assurance that that was so, that Judge Barnes knew that Mr. Foote was inviting me to dinner and that it was all right; and so I went and I had dinner with Mr. Foote and Mrs. Foote and their son out at their home here in Washington, one night in-oh, I think it was probably January 1955, a cold winter night. *** I remember waiting for the taxi. And we had a nice dinner and after dinner he and I sat down for an hour, maybe an hour and a half and we talked about this case and really we gossiped about it. That is, I can say that because when I left there I sat down with a pencil and scratched down a lot of things that we had said, just to sort of keep them in mind for my own purposes and that very rough and perhaps slightly indiscreet set of notes stayed in the file, and you have it. The "set of notes" referred to in the foregoing testimony set forth in detail Mr. Foote's comments to Mr. Price on the occasion of the latter's visit.52 In course of this informal after-dinner chat, Mr. Foote made it abundantly clear to his guest that he lacked confidence in the antitrust complaint and regarded it as "silly to consider trying" the case. Thus, Mr. Price testified: 58 53 Mr. MALETZ. Did Mr. Foote mention or state to you it was silly to consider trying the present case? Mr. PRICE. Yes. Mr. MALETZ. Did he say that the Department of Justice once had an idea, a wild idea of submitting the case on agreed facts? Mr. PRICE. I think he said he had individually. Mr. MALETZ. He? Mr. PRICE. May I comment on this? Mr. MALETZ. Please do. Mr. PRICE. That it was silly to think of trying the case. *** Because there I think I can add something. It was that he had come to recognize, and I think the others, too, had also, that this complaint was a monstrosity, it was badly drawn, it was full of perfect absurdities and you just could not go to trial on that kind of complaint. On the witness stand, Mr. Foote explained that "the reason for getting Mr. Price out to the house was to try to get some more in 52 Hearings, pp. 2153-2157. The text of this "set of notes" is set forth as appendix X, infra. pp. 344-345. 53 Hearings, p. 2145 Mr. Price's notes also state: "Foote had talked with Vic Cooley who gave him three reasons why W. E. costs were lower than any possible competitor-no selling expense, etc.". The person referred to is Mr. Victor E. Cooley, who had a long career in the Bell System. ending as president of the Bell Southwestern Telephone Co. Hearings, pp. 2146, 3656. After his retirement he became Deputy Director of the Office of Defense Mobilization. While serving in that capacity, he became acquainted with Mr. Foote and advanced to him at a luncheon in the latter part of 1954 "some arguments about the A. T. & T. case" that may have included, as Mr. Foote recalled, "three reasons" why Western Electric's costs were lower than any possible competitor's. Hearings, p. 3656. Mr. Foote testified that Mr. Cooley "would be a natural advocate" and that he therefore judged "the comments accordingly." Ibid. formation to find out what his point of view was. 99 54 He conceded the substantial accuracy of Mr. Price's notes,55 adding that "there was no indication on (his) part to Mr. Price that the Government had abandoned the idea of going to trial if (the parties) could not reach a satisfactory settlement.56 But his expressions of lack of confidence in the complaint, as recalled by Mr. Price, and his recorded comment that it would be "silly to attempt" a trial stand uncontradicted. These views, informally expressed by Mr. Foote, as chief Government negotiator, to his adversary did not jibe with those of more experienced Antitrust Division staff attorneys assigned to the case. Mr. Kramer, who had been with the Antitrust Division for almost 18 years, testified that no member of the Government trial staff thought that the suit was without merit or that the Government would lose it.57 Mr. Walter D. Murphy, the chief Government trial attorney on the case, who had been associated with the Division for 13 years, testified that the allegations generally in the complaint would, in his judgment, have been substantiated had the suit gone to trial.58 Apart from this, the Department's failure to dismiss the action would indicate that Mr. Foote's immediate superior did not share his misgivings as to the merits of the complaint. Thus, Judge Barnes testified before this committee in 1955: *** (I)f I had thought there had been no violation involved in the suit when we reviewed it, as I did each case that was pending at the time I took office, I would have dismissed the action. That I did not do.59 Even more important, Mr. Foote's disclosures necessarily had the effect of seriously undermining the Government's bargaining position at the negotiating table. It stands to reason that when the chief Government negotiator tells the other side that he has no sympathy with the case and that from his standpoint it is silly to consider trial, most unusual would be the defense counsel who, so forewarned, did not hold out for a more favorable settlement than he might otherwise be willing to accept. There is an additional consideration-whether in the circumstances described above and revealed in Mr. Price's notes, Mr. Foote's conduct comported with canon 37 of the Code of Professional Ethics of the American Bar Association which provides in part that "it is a duty of a lawyer to preserve his client's confidence." A further question is whether it was in accordance with this canon for Mr. Foote to have told opposing counsel, Mr. Price, as the latter's notes reveal, that Judge Barnes "never ruled (dismissal) out of his mind;" that "Kramer would rather dismiss than take a weak decree;" that "Barnes had not made up his mind divorcement unnecessary;" and that Judge Barnes had been "relieved of responsibility" in connection with the Attorney General's clearance for American oil companies to participate in the Iranian Oil Consortium. Asked why he told Mr. Price about these 54 Hearings, p. 3673. 55 Hearings, p. 3671. 56 Hearings, p. 3677. 57 Hearings, p. 3584. 58 Hearings, p. 3724. 50 Hearings, p. 2073. 33261-59-6 |