Opinion ID: 474497
Heading Depth: 2
Heading Rank: 1

Heading: Applicability of the Consent Decree to the RHCs

Text: 20 Alone among the RHCs, US West argues that the consent decree does not bind the RHCs. US West advances two lines of analysis, either one of which it contends compels the conclusion that the RHCs are free to provide the services at issue in this case. First, it claims that application of the consent decree's restrictions to the RHCs and BOCs offends due process because the RHCs and BOCs were not parties to the underlying antitrust proceeding, did not have independent legal representation, and never actually consented to the decree. Second, it asserts that even if application of the decree to the RHCs and BOCs does not offend due process, the RHCs are nonetheless free from the decree's restrictions because the literal terms of the decree limit only the activities of the BOCs and do not purport to constrain the RHCs. We find neither of these arguments persuasive and hold that the RHCs and BOCs are subject to the restrictions of the consent decree. 4 21 U.S. West's due process argument fails because it ignores the facts that AT & T was a party to the antitrust proceeding and both the RHCs and the BOCs were wholly owned subsidiaries of AT & T at the time the consent decree was entered. This intimate corporate affiliation distinguishes the instant case from Sam Fox Publishing Co. v. United States, 366 U.S. 683, 81 S.Ct. 1309, 6 L.Ed.2d 604 (1961), and Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940), cited by US West, which held only that class members not adequately represented by class representatives may not be bound by judgments entered against the class. US West also cites Federal Trade Commission v. Exxon Corp., 636 F.2d 1336 (D.C.Cir.1980), which establishes that a company being acquired by another company may be entitled to independent legal representation. U.S. West cites no authority, however, for the remarkable proposition that a parent may not bind its wholly owned subsidiaries without affording them independent legal representation. It is self-evident that due process does not require such representation. Because the RHCs and BOCs were AT & T's privies in the antitrust proceeding, the consent decree is binding on the former AT & T subsidiaries even though they were not parties to the action. Southmark Properties v. Charles House Corp., 742 F.2d 862, 870 (5th Cir.1984). 22 U.S. West's related suggestion that AT & T breached a fiduciary duty owned to the RHCs and BOCs by consenting to onerous restrictions on its former subsidiaries is both specious and irrelevant. It is specious because the only duty owed by AT & T was to its shareholders, who were identical to the initial RHC shareholders. Even if US West is correct in asserting that AT & T agreed to restrictions on the RHCs and BOCs in order to free itself of restrictions, there was nevertheless no injury to the shareholders. AT & T was merely allocating Bell System assets and liabilities among different portions of the business in anticipation of divestiture. US West's fiduciary duty argument is irrelevant because even if US West could show that AT & T breached such a duty, this would at most demonstrate that the RHCs have a cause of action against AT & T. It would not follow that the RHCs are entitled to judicial relief from the obligations of the consent decree. 23 U.S. West's contention that the RHCs are not restricted under the literal terms of the consent decree also fails upon close examination of the decree. At least three provisions of the decree make clear that the RHCs, as well as the BOCs, are subject to the consent decree's line-of-business restrictions. First, section III of the decree states [t]he provisions of this [decree], applicable to each defendant and each BOC, shall be binding upon said defendants and BOCs, their affiliates, successors and assigns.... Section IV(A) defines affiliate to include any organization or entity, including defendant Western Electric Company, Incorporated, and Bell Telephone Laboratories, Incorporated, that is under direct or indirect common ownership with or control by AT & T or is owned or controlled by another affiliate. As the district court explained in its January 13 decision, because the RHCs were wholly owned subsidiaries of AT & T prior to the divestiture, they are affiliates within the meaning of section IV(A) and therefore are bound under section III of the decree. United States v. Western Electric Co., 627 F.Supp. at 1093 n. 2. 24 Second, section IV(C) defines the term BOC to include any entity directly or indirectly owned or controlled by a BOC or affiliated through substantial common ownership. Because the shareholders of the RHCs directly own the RHCs and indirectly own the BOCs, the RHCs and BOCs are affiliated through substantial common ownership. See Braun v. Insurance Co. of North America, 488 F.2d 1066, 1067 (5th Cir.1974). 25 Finally, in setting forth the consent decree's line-of-business restrictions, section II(D) states that no BOC shall, directly or through any affiliated enterprise [engage in conduct proscribed by the decree]. For the reasons stated above, the RHCs are affiliated with their subsidiary BOCs, and the RHCs are accordingly subject to the restrictions of section II(D). 26 We are not troubled by U.S. West's observation that the decree's expansive definition of a BOC results in broad application of the decree's restrictions to RHCs and other companies affiliated with BOCs. This result is consistent with the decree's objective of sharply limiting the ability of businesses with bottleneck control of local telephone service to utilize their monopoly advantages to affect competition in competitive markets. United States v. American Telephone and Telegraph Co., 552 F.Supp. at 142. It is also consistent with the Supreme Court's recent recognition that, under the antitrust laws, corporations and their wholly owned subsidiaries function as a single enterprise. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984). Moreover, the impact of the decree's restrictions on companies affiliated with BOCs is mitigated by section VIII(C), the decree's waiver provision, which requires that BOCs be granted the right to engage in activities otherwise proscribed upon a showing by the petitioning BOC that there is no substantial possibility that it could use its monopoly power to impede competition in the market it seeks to enter.