Mid-Texas Communications Systems, Inc. v. American Tel. and Tel. Co.

• Decision Date: 01 May 1980
• Docket Number: MID-TEXAS,No. 79-1221,79-1221
• Citation: 615 F.2d 1372
• Parties: , 1980-2 Trade Cases 63,314 COMMUNICATIONS SYSTEMS, INC., et al., Plaintiffs-Appellees, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY et al., Defendants, Southwestern Bell Telephone Company, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1372

615 F.2d 1372

59 A.L.R.Fed. 211, 1980-2 Trade Cases 63,314

MID-TEXAS COMMUNICATIONS SYSTEMS, INC., et al., Plaintiffs-Appellees, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY et al., Defendants Southwestern Bell Telephone Company, Defendant-Appellant.

No. 79-1221.

United States Court of Appeals, Fifth Circuit.

May 1, 1980.

Rehearing and Rehearing En Banc Denied May 27, 1980.

Walter E. Workman, David P. Cotellesse, James M. Shatto, Houston, Tex., George L. Saunders, Jr., Chicago, Ill., for defendant-appellant.

McGinnis, Lochridge & Kilgore, George D. Byfield, David L. Orr, Austin, Tex., Butler, Binion, Rice, Cook & Knapp, Louis B. Paine, Jr., Houston, Tex., for Mitchell Energy, etc., et al.

Appeal from the United States District Court for the Southern District of Texas.

Before AINSWORTH, INGRAHAM and GARZA, Circuit Judges.

AINSWORTH, Circuit Judge:

This is an antitrust action by Woodlands Telecommunications Corporation (WTC) for damages against Southwestern Bell Telephone Company (Bell) based on alleged violations of sections 1 and 2 of the Sherman Anti-trust Act, 15 U.S.C. §§ 1 & 2. WTC, a new corporation formed for the purpose of providing telephone service within a new residential development outside of Houston, Texas, known as The Woodlands, based its suit principally on the refusal of the defendant to provide toll interconnection of the proposed telephone facility with the Bell System. The case was submitted to a jury on special interrogatories resulting in a verdict in favor of WTC against Bell for $18,369,827 damages which was trebled by the court in a final judgment for $55,109,481. ¹ Defendant's motion for judgment n.o.v. or, in the alternative, for a new trial was denied. Bell has appealed from the judgment and asserted several grounds of error in the trial which raise novel questions of the proper accommodation of the antitrust laws with the regulation of the telecommunications industry. We reverse and remand for a new trial for reasons we shall detail.

I. Introduction

a. The Pertinent Facts

We set forth an outline of those facts necessary to our decision. During the early 1970's Mitchell Energy & Development Corporation (Mitchell) began the planning of a new community to be located about 28 miles north of Houston. Eighteen thousand acres of vacant land was acquired by it for the building of a proposed city of an ultimate population of 150,000 persons by the 1990's. This community, to be known as The Woodlands, was to be developed by Mitchell's wholly owned subsidiary, The Woodlands Development Corporation. It qualified under the Urban Growth and New Community Development Act of 1970, 42 U.S.C. § 4501 et seq., which provides for government guarantees of the bonds of private new community developers up to a maximum of $50,000,000, and the Secretary of Housing and Urban Development granted the developers a bond guarantee for the maximum amount. 42 U.S.C. § 4514.

In early 1971 Mitchell's representatives met with those of various utility companies to investigate possible means of providing basic services to The Woodlands. Mitchell attempted to obtain financial assistance in the form of payments or percentage of revenues from these companies in return for the right to serve The Woodlands. Subsequently, representatives of Mitchell and Bell met to discuss the providing of telephone services in the proposed development. Bell expressed its willingness to furnish the telephone services required, but objected to giving financial assistance because it would be inconsistent with Bell's obligations as a regulated common carrier, and with general company policy. Mitchell then began investigating the possibility of establishing a new independent telephone company to serve The Woodlands.

In order for an independent telephone company to do business it was essential that its local lines interconnect with the existing Bell System interstate network so that its customers would have long-distance service. It was also necessary that an independent company have central office three-digit numbers known as NNX codes which are assigned and coordinated by the Bell System operating companies.

Bell claimed that in accordance with its published tariffs The Woodlands was located primarily in areas which were part of its Spring and Pinehurst exchanges. Twenty per cent of the site was in an exchange operated by Conroe Telephone Company, an independent. Mitchell negotiated with Mid-Texas Communications Systems, Inc. (Mid-Texas), an independent telephone company, which led to the formation of a new jointly owned independent to be known as Woodlands Telecommunications Corporation, plaintiff in this case. WTC then requested that Bell provide NNX codes and interconnection with the proposed new telephone system. Bell refused to interconnect voluntarily. It planned to serve the area itself. Bell contended that establishment of a new independent telephone company was contrary to the public interest and would be a wasteful duplication of facilities with those of Bell. Bell stated that it would interconnect with WTC only if ordered to do so by state or federal regulatory authorities.

Accordingly, on November 9, 1972, WTC filed an informal complaint with the Federal Communications Commission (FCC) seeking an order under authority of section 201(a) of the Communications Act of 1934, 47 U.S.C. § 201(a), to require Bell to interconnect with its proposed facilities. Bell responded on December 13, objected to interconnection, and stated its own intention to serve The Woodlands. On March 20, 1973, the parties attended a conference with FCC staff members about the pending complaint of WTC. Bell's attorney stated at the meeting that if interconnection was ordered by the FCC in connection with the proposed interstate service it would appeal the order to the courts. Intrastate connection would still require compliance with the Texas statutory procedure. Bell insisted upon a full evidentiary hearing on the record before the FCC but the Commission decided that such a hearing was not required in light of the need for expedited decision and thus the matter was to be determined by FCC on written submission of the parties. After further discussion between WTC and Bell representatives; WTC concluded on July 11 to discontinue its efforts to serve The Woodlands, thereby clearing the way for Bell to do so, and on August 2, a majority of WTC directors voted to withdraw the FCC complaint. The parties dispute the circumstances of the withdrawal of the complaint; WTC contends it was economically coerced by defendant Bell, which responds that the withdrawal was voluntarily made.

b. The Proceedings in the District Court

WTC filed this suit on November 19, 1973 against Bell and American Telephone & Telegraph Company (AT&T) alleging a conspiracy to monopolize and restrain trade in the furnishing of telecommunications services in The Woodlands in violation of the Sherman Antitrust Act. Bell counterclaimed against WTC and cross-claimed against Mid-Texas, Mitchell and Woodlands Development Corporation, also on Sherman Act grounds. Defendants' motion to dismiss the complaint on the basis that it was immune from antitrust action because of the provisions of the Communications Act of 1934 (47 U.S.C. § 151 et seq.) was denied by the district court. See Woodlands Telecommunications Corp. v. AT&T, 447 F.Supp. 1261 (S.D.Tex.1978). Thereafter, during the course of the trial AT&T was dismissed as a defendant. As previously indicated, the jury's verdict was in favor of WTC and Bell brought this appeal.

On appeal, Bell raises four principal issues. First, that the district court erred in applying the antitrust laws to an interconnection dispute which was subject to state and federal regulations, under a standard inconsistent with the antitrust standard of competition. Second, Bell contends that under the circumstances it is immune from antitrust liability because it is entitled to the protection provided by the doctrine enunciated in Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961) and United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965), the so-called Noerr-Pennington doctrine, which protects the rights of freedom of expression and resort to governmental processes. Bell's third issue is that the trial judge erroneously limited Bell's defense on the impact of regulation by refusing to give any instructions to the jury on the nature and effect of federal and state regulation of the telecommunications industry in connection with the issues before it. Bell also contends that the damages assessed were based upon a damage model improper as a matter of law. We discuss these issues in order. ²

II. Implied Immunity

Bell's primary contention is that the district court erred in applying the antitrust laws to an interconnection dispute which was subject to regulation both by state and federal authorities. Thus Bell asserts that antitrust liability cannot be imposed upon it for failure voluntarily to interconnect with WTC. The federal regulatory authority is found in section 201(a) of the Communications Act, 47 U.S.C. § 201(a), which reads as follows:

It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor; and, in accordance with the orders of the Commission, in cases where the Commission, after opportunity for hearing, finds such action necessary or desirable in the public interest, to establish physical connections with other carriers, to establish through routes and charges applicable thereto and the divisions of such charges, and to establish and provide facilities and regulations for operating such through routes.

Section 201(a) does not expressly exempt a carrier from antitrust liability for refusing a request to interconnect, ³...