Jack Faucett Associates, Inc. v. American Tel. and Tel. Co.

• Citation: 240 U.S.App.D.C. 103,744 F.2d 118
• Decision Date: 11 September 1984
• Docket Number: No. 83-1735,83-1735
• Parties: , 1984-2 Trade Cases 66,186 JACK FAUCETT ASSOCIATES, INC., et al. v. AMERICAN TELEPHONE AND TELEGRAPH CO., et al., Appellants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 118

744 F.2d 118

240 U.S.App.D.C. 103, 1984-2 Trade Cases 66,186

JACK FAUCETT ASSOCIATES, INC., et al. v. AMERICAN TELEPHONE AND TELEGRAPH CO., et al., Appellants.

No. 83-1735.

United States Court of Appeals, District of Columbia Circuit.

Argued March 13, 1984.

Decided Sept. 11, 1984.

George L. Saunders, Jr., Chicago, Ill., with whom Michael S. Yauch, Stewart A. Block, Ronald S. Flagg, Howard J. Trienens and Raymond Brenner, Washington, D.C., were on the brief, for appellants.

William Simon, with whom Alan M. Wiseman, Albert O. Cornelison, Jr., Jerry S. Cohen and Michael D. Hausfeld, Washington, D.C., were on the brief, for appellees. Robert G. Abrams, Washington, D.C., also entered an appearance for appellees.

Before TAMM, MIKVA and STARR, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKVA.

MIKVA, Circuit Judge:

We confront today several difficult issues concerning the applicability of offensive collateral estoppel or issue preclusion. The district court invoked offensive estoppel to estop American Telephone and Telegraph Co. (AT & T) from litigating its liability on certain alleged antitrust violations. We review this decision against a background in which some of the concerns normally associated with issue preclusion are heightened. The desire for judicial economy rings loudly since without issue preclusion, a long and difficult trial may ensue. Yet, notions of fairness are also heightened since crucial evidence was erroneously omitted from the prior case and since factors external to that case militate against the use of offensive estoppel.

We conclude that the district court abused its discretion in allowing the plaintiffs to utilize offensive estoppel to preclude any questions concerning the defendants' liability. On the record established and the reasons articulated by the district court, the application of offensive collateral estoppel fell below the minimum safeguards which must be present ere a party can be denied the right to present all of its defenses. Accordingly, we reverse and remand.

I. BACKGROUND

The underlying cause of action in the consolidated cases under review is a class action antitrust suit brought against AT & T and its several operating companies throughout the United States (collectively AT & T). Plaintiffs are seven businesses that, from 1968 through 1978, were required, as a condition to obtaining access to AT & T's network, to acquire interface devices from AT & T so as to connect customer-provided terminal equipment to the AT & T network.

The interface devices, a common type of which was the "protective connecting arrangement" (PCA), attached to the customer-provided telephone terminal equipment. Broadly speaking, business terminal equipment encompasses two distinct categories. "Key systems" allow a single telephone to connect several other telephones through the use of buttons on the telephones. "Private business exchanges" (PBX) utilize a central console or switchboard to allow the interconnection of numerous lines. See Litton Systems, Inc. v. AT & T, 700 F.2d 785, 791 (2d Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 984, 79 L.Ed.2d 220 (1984). Other items of terminal equipment include residential phones, answering devices, dialers, and computer terminals. See North Carolina Utilities Commission v. FCC, 552 F.2d 1036, 1040 (4th Cir.), cert. denied, 434 U.S. 874, 98 S.Ct. 222, 54 L.Ed.2d 154 (1977).

Plaintiffs represent a class of "all users of telephone terminal equipment who received bills from and made payments to any Bell system company for the installation or rental of interface devices between November 20, 1970 and July 1, 1978." Larkin General Hospital, Ltd. v. AT & T, Memorandum and Order at 3 n. 1 (D.D.C. June 21, 1983). 566 F.Supp. 296, 298. Plaintiffs allege that the interface device requirement, which AT & T imposed by a tariff filed with the Federal Communications Commission (FCC), violated the Sherman Act, Sections 1 and 2, 15 U.S.C. Secs. 1, 2. Plaintiffs allege that by requiring interface devices, AT & T intended to, and did obtain and perpetuate a monopoly in terminal equipment.

A. Regulatory Background.

The history of the interface device is lengthy, detailed, and controversial. See generally Litton Systems, Inc. v. AT & T, 700 F.2d 785 (2nd Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 984, 79 L.Ed.2d 220 (1984); United States v. AT & T, 524 F.Supp. 1336 (D.D.C.1981). For our discussion of issue preclusion, however, a broad framework suffices.

Prior to 1956, AT & T, through a tariff filed with the FCC, prohibited the attachment of all foreign devices to its telephone network. AT & T justified this prohibition as necessary to ensure the safe and effective operation of the national telephone network. Using the same rationale of operational concerns, the FCC, in 1955, prohibited the use of a sound shield that attached to a telephone's mouthpiece. Hush-A-Phone Corp., 20 F.C.C. 391 (1955). Indicating that actual harm to the network was to be the guiding principle, this court voided that FCC decision, finding the Hush-A-Phone ruling to be neither just nor reasonable. Hush-A-Phone Corp. v. United States, 238 F.2d 266 (D.C.Cir.1956). This case represented the initial erosion of AT & T's absolute bar against foreign attachments. In Use of the Carterphone Device in Message Toll Telephone Service, 13 F.C.C.2d 420, reconsideration denied, 14 F.C.C.2d 571 (1968), the FCC, applied the Hush-A-Phone rationale and declared unlawful the existing foreign attachment prohibition and ordered AT & T to file new tariffs.

In response to Carterphone, AT & T filed the so-called interface tariffs that are a focus of this litigation. In broad terms, the tariffs permitted the attachment of foreign devices to the telephone network so long as any electrical connections were through a PCA or other interface device provided by AT & T or its subsidiaries. The FCC permitted the tariffs to become effective, but did so without "giving any specific approval to the revised tariffs." AT & T "Foreign Attachment" Tariff Revisions, 15 F.C.C.2d 605, 610 (1968). For several years thereafter, the necessity of requiring the interface device was studied. In 1969, for example, the FCC convened a panel of the National Academy of Sciences to study the problem. And in May 1971, the FCC formed a "PBX Advisory Committee" to study the feasibility of connections to the network without the interface device. State regulatory commissions also investigated AT & T's interface tariffs. See, e.g., New York Telephone Co., 79 P.U.R.3d 410, 417 (N.Y. Pub. Serv. Comm'n 1969); Glusing v. C & P Telephone Co., 1974 Md. P.S.C. 377 (Md.Pub.Serv.Comm'n).

In 1972, the FCC instituted rulemaking proceedings to address the interconnection issues. During the proceedings the PBX Committee submitted a report that included a model certification program. Under a certification program, terminal equipment that met certain standards could connect to the AT & T network without any interface device. AT & T, whether motivated by a genuine desire to protect its network or by a desire to protect its alleged monopoly, opposed the certification standard by filing comments with the Commission and, allegedly, by taking other steps in opposition. Despite this opposition, the FCC, in late 1975, adopted regulations establishing certification standards. Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Service (MTS) and Wide Area Telephone Service (WATS), 56 F.C.C.2d 593, 599-613 (1975). Subsequently, the FCC applied its certification regulations to customer-provided terminal equipment. 58 F.C.C.2d 736 (1976). The Commission's order was affirmed on appeal. North Carolina Utilities Commission v. FCC, 552 F.2d 1036 (4th Cir.), cert. denied, 434 U.S. 874, 98 S.Ct. 222, 54 L.Ed.2d 154 (1977).

B. Other Cases.

The case sub judice does not represent the first time that the courts have had to address these facts. Of special importance to our offensive estoppel analysis are two earlier cases, United States v. AT & T, 524 F.Supp. 1336 (D.D.C.1981) (Greene, Harold, J.) (the government's case), and subsequently, Litton Systems, Inc. v. AT & T, 700 F.2d 785 (2d Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 984, 79 L.Ed.2d 220 (1984). We turn to these cases first.

1. The government case.

In 1979, the United States filed an antitrust action against AT & T, Western Electric Company, and Bell Telephone Laboratories. The government alleged that AT & T, through a variety of actions including the interface device requirement, had violated the Sherman Act. See generally Southern Pacific Communications Co. v. AT & T, 740 F.2d 1011, 1016-1017, (D.C.Cir.1984) (reviewing government action). While the case ultimately concluded by a settlement agreement between the government and AT & T, the rulings and record developed prior to that settlement were fully litigated and are highly relevant here. At the close of the government's case-in-chief, the defendants filed a motion to dismiss. Considering only the evidence adduced by the government, the district court, per Judge Harold Greene, largely denied the defendants' motion. United States v. AT & T, 524 F.Supp. 1336 (D.D.C.1981). The court noted that a decision on a motion to dismiss "is a 'tentative and inclusive ruling on the quantum of plaintiff's proof,' which does not preclude a court from making findings and conclusions at the close of the case that are inconsistent with its prior tentative ruling." Id. at 1343. In denying the defendants' motion, however, the court articulated certain conclusions highly relevant to our discussion today.

The government's allegations there concerned, at least in part, the same interconnection policies that are the subject of this case. In addressing those allegations, the court concluded:

[T]he evidence [submitted by the government] sustains the allegation that defendants have used their local exchange...