Table of Contents
II. SECTIONS 271-273 RAISE NO BILL OF ATTAINDER CONCERN BECAUSE CONGRESS WAS EXERCISING ITS AUTHORITY TO MODIFY PROSPECTIVELY THE TERMS OF AN EXISTING JUDICIAL DECREE, AND BECAUSE THOSE DECREE MODIFICATIONS LEFT THE BOCS BETTER OFF THAN THEY WERE UNDER THE MFJ
III. EVEN IF THE HISTORICAL CONTEXT OF THE MFJ IS IGNORED, SECTIONS 271-273 CANNOT BE BILLS OF ATTAINDER BECAUSE THE BOCS CONSTITUTE A LEGITIMATE CLASS WARRANTING DISTINCT REGULATORY TREATMENT, AND THE REGULATORY MEASURES IMPOSED ON THEM ARE NOT PUNITIVE
The District Court, which had jurisdiction under 28 U.S.C. § 1331, entered final judgment on February 11, 1998, resolving all claims of all parties. Intervenors filed a notice of appeal on February 12, 1998. R. 2757. This Court has jurisdiction under 28 U.S.C. § 1291.
1. Whether §§ 271-273 of the Telecommunications Act of 1996 -- which substantially reduce the restrictions imposed on the Bell Operating Companies by a 1982 judicial consent decree, and impose no new restrictions -- constitute legislative punishment in violation of the Bill of Attainder Clause, U.S. Const. Art. I, § 9, because they apply to those companies by name?
2. Whether, in the unlikely event §§ 271-273 are found unconstitutional, they may be severed from § 601(a)(1) of the 1996 Act without transforming the substantive reach of the 1996 Act and completely changing its basic operation.
The district court invalidated, §§ 271-275 of the landmark Telecommunications Act of 1996 (the "1996 Act"), 47 U.S.C. §§ 271-275, on the wholly unprecedented ground that they violated the Bill of Attainder Clause, which prohibits Congress from inflicting legislative punishment on individuals or private groups. (Footnote 1)
Sections 271-273 are federal statutory provisions that modify portions of the restrictions contained in a 1982 antitrust consent decree (the Modification of Final Judgment or "MFJ") which broke up the Bell System. See United States v. American Tel. & Tel. Co., 552 F. Supp. 131 (D.D.C. 1981), aff’d mem. sub nom. Maryland v. United States, 460 U.S. 1001 (1983). The MFJ prohibited the divested Bell Operating Companies ("BOCs"), which operated local telephone networks, from providing long distance telephone services or from manufacturing telecommunications equipment until they could demonstrate that there was no substantial possibility they could use their monopoly control over the local networks to impede competition in these related markets. The district court in that case determined that the MFJ was in the public interest because it would establish an industry structure permitting the more certain development of long distance and manufacturing competition.
In the 1996 Act, Congress legislatively granted the BOCs substantial relief from the MFJ’s restrictions. Specifically, Congress: (1) narrowed the long distance and manufacturing restrictions to allow the BOCs to participate in many market sectors barred to them by the MFJ; (2) superseded the MFJ process entirely, transferring authority to remove the remaining restrictions from the MFJ court (which had rejected every significant BOC request to narrow or remove these restrictions) to the Federal Communications Commission ("FCC"); and (3) delineated substantive standards for deciding when the remaining restrictions could be removed. SBC Communications, Inc. ("SBC") and the other BOCs supported this legislation, and praised Congress effusively for passing it. See pages 17-18 infra.
Nevertheless, some 18 months after the 1996 Act became law -- and after failing in its first attempt to obtain FCC approval to provide long distance service -- SBC reversed itself, and attacked §§ 271-273 as legislative punishment that violates the Bill of Attainder Clause. The district court agreed, holding that it is "necessarily" punitive to prohibit the BOCs by name from engaging in activities that are permissible for other companies. R. 1811. (Footnote 2)
The district court’s decision rests on a pervasive misunderstanding of the events preceding the 1996 Act, as well as of the nature and purposes of that statute. Most importantly, the district court inexplicably failed to acknowledge that §§ 271-273 grant the BOCs important substantive and procedural relief from the MFJ and impose no burdens not already imposed by the MFJ. Because the validity of these statutory provisions cannot sensibly be adjudicated in a historical vacuum, that history will be set forth in some detail.
Originally, the BOCs were part of the Bell System, in which the BOCs provided local telephone service, Western Electric designed and manufactured telephone equipment, and AT&T provided long distance service and coordinated the entire system. The Bell System’s dominance rested on the BOCs’ control of ubiquitous local telephone networks, which provided telephone service to the vast majority of American homes and businesses -- networks no other firm could economically duplicate. Each local network consisted of cables and switches that connected all homes and businesses in a BOC’s local service area. That network was used to provide local telephone service (called local exchange service), but was also indispensable to long distance service (called interexchange service). A long distance call initiated by a customer first traveled on the BOC’s local network from the customer’s premises to a point where it was handed off to AT&T’s long distance facilities, which then transported the call to the recipient’s local network for completion. Without access to the local network to originate and terminate long distance calls (known as "exchange access"), no long distance carrier could provide service. BOC cooperation was therefore critical if companies such as MCI were to provide competitive long distance service. Competitive equipment manufacturers were in a parallel position. Unless a BOC provided nondiscriminatory access to the local network, nonaffiliated manufacturers were effectively foreclosed.
Historically, the BOCs exercised monopoly control over local telephone service in regions covering more than 80% of America’s homes and businesses, including almost all major urban and business centers. AT&T provided nearly 100% of all long distance service, and Western Electric manufactured the vast majority of telephone equipment.
In 1974, the United States filed an antitrust suit -- paralleled by more than 70 private antitrust actions -- premised on the anticompetitive effects of the Bell System’s control of the local network. The United States submitted evidence that the BOCs’ local monopolies were "essential facilities" for all competitors in the long distance and manufacturing markets, and that the Bell System had denied the new competitors reasonable access to those facilities. Seeking fundamental structural relief, the United States introduced evidence that the combination in a single enterprise of both local exchange monopolies and competitive long distance and manufacturing businesses would inherently operate as a substantial barrier to competition. In particular, the United States showed that the engineering and operation of local networks were so complex and dynamic, and so dependent on subjective judgments of the persons who manage them, that after-the-fact antitrust remedies for illicit favoritism toward affiliates in competitive markets could never prevent abuses of local monopolies. The United States contended that, to create more certain prospects for competition in long distance, manufacturing, and other related markets, AT&T should be required divest itself of the local BOC monopolies, and the BOCs should be prohibited from participating in those competitive markets so long as their local exchanges remained monopolies. (Footnote 3)
During the first ten months of the trial of that case, the Bell System claimed that all the challenged conduct resulted from legitimate efficiencies or good-faith attempts to comply with regulatory obligations. But the Bell System came to recognize that even if it prevailed on those defenses, it would be mired in endless future litigation because every Bell System success, and every failure of a competing firm, could be challenged as an intentional abuse of the local exchange monopoly. AT&T therefore consented to the decree on behalf of the BOCs (which then represented 70% of AT&T's assets). As AT&T explained at the time, all components of the Bell System benefited from eliminating the antitrust litigation and liabilities that arose when a single firm both owned local telephone monopolies and participated in competitive long-distance and manufacturing markets.
In a proceeding to determine whether the proposed decree was in the public interest, both the United States and AT&T stated that the MFJ did not represent a determination that the BOCs had violated the antitrust laws. Rather, the MFJ did something "far more important." It established an industry "structure" in which there could be "more certain" development of competition and in which incessant antitrust litigation, costly efforts to monitor BOC behavior, and inhibitions on competitive entry would not "re-emerge." (Footnote 4)) The BOCs’ exclusion from related competitive markets would eliminate any incentive to engage in anticompetitive favoritism towards BOC affiliates. The district court determined that the MFJ was in the public interest, and the Supreme Court summarily affirmed. United States v. American Tel. &Tel. Co., 552 F. Supp. 131 (D.D.C. 1982), aff’d mem. sub nom. Maryland v. United States, 460 U.S. 1003 (1983).
The MFJ broke up the Bell System by divesting AT&T of the BOCs, which were reorganized into seven regional holding companies. Under the MFJ, each BOC would continue to operate its local exchange monopoly, but could not enter the markets for long distance services, equipment manufacturing, information services (which included electronic publishing and alarm monitoring) or any nonregulated services. In addition, the MFJ imposed detailed equal access requirements designed to ensure that the BOCs did not discriminate among long distance or other competitors. See United States v. American Tel. &Tel. Co., 552 F. Supp. at 227-28, 231, 232-34.
The MFJ provided that in the future the BOCs could seek removal of the "line of business" restrictions. The restrictions would be removed "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." See MFJ Section 8(C); 552 F. Supp. at 194-95, 231; see United States v. Western Elec. Co., 673 F. Supp. 525, 533 (D.D.C. 1987) (explaining decree modification mechanism) aff’d in part and rev’d in part, 900 F.2d 283 (D.C. Cir. 1990). The Justice Department agreed to report to the court every three years as to the continuing need for the restrictions. United States v. American Tel. & Tel. Co., 552 F. Supp. at 195.
The district court established a multi-stage procedure for deciding requests to remove or modify the MFJ’s restrictions. A BOC was required first to submit a waiver request to the Justice Department. If the Department concluded that the BOC had met its burden of proof under the "no substantial possibility" test of the MFJ, it was to submit a proposed order to the court, which would be granted unless an interested party objected or the court raised questions, in which case a hearing would be held. If the Department did not approve the request, it was to submit the request to the court with any material it had gathered, and the court would hold a hearing. No deadlines governed this process. See United States v. Western Elec. Co., Inc., 592 F. Supp. 846, 873 (D.D.C. 1984). (Footnote 5)
"Almost before the ink was dry on the decree, the [BOCs] began to seek the removal of its restrictions." United States v. Western Elec. Co., 673 F. Supp. at 601. Although the district court eventually removed the restrictions on information services and unregulated businesses, (Footnote 6) it rejected all significant BOC requests to remove or narrow the long distance and manufacturing restrictions. For example, in 1987, and again in 1991, the MFJ court rejected a BOC request for authority to provide long distance services to customers of their cellular, paging, and other mobile radio services, all of which faced some competition. 673 F. Supp. at 551 (denying waiver); United States v. Western Elec. Co., 890 F. Supp. 1 (D.D.C. 1995) (granting waiver only on conditions the BOCs could not subsequently meet). The MFJ court also refused a BOC request to provide long distance services originating outside the States where they had local bottleneck monopolies. See United States v. Western Elec. Co., 673 F. Supp. at 543-45. BOC efforts to narrow the scope of the manufacturing restrictions were likewise rejected. See United States v. Western Elec. Co., 894 F.2d 1387 (D.C. Cir. 1990) (affirming rejection of BOC request for authority to engage in design and development of equipment); United States v. Western Elec. Co., 12 F.3d 225 (D.C. Cir. 1993) (affirming rejection of BOC request for authority to finance development of equipment by independent companies in exchange for royalties).
The MFJ court also rejected arguments that the BOCs should automatically be allowed to provide long distance service in any State that had removed legal barriers to local competition, such as exclusive franchises. The courts held that because the local exchange had historically been held to be a natural monopoly, the long distance restriction could not be removed on the basis of such regulatory changes unless and until they led to actual widespread local competition. United States v. Western Elec. Co., 673 F. Supp. at 544-46 (D.D.C. 1987), aff’d on this ground, 900 F.2d 283, (D.C. Cir. 1990). (Footnote 7)
Precisely because the BOCs had no near-term prospect of gaining general access to the long-distance and manufacturing markets through the MFJ court, they vigorously sought legislative relief. The BOCs were insistent that authority for administering the MFJ be transferred to the FCC, and that specific standards and time deadlines be imposed on the process. (Footnote 8)
As early as 1986, the BOCs testified in support of legislation (H.R. 3800) -- applying only to the BOCs -- that would have transferred from the MFJ court to the FCC the responsibility for deciding whether the BOCs could enter the information and manufacturing businesses. (Footnote 9) In the 103rd Congress, the BOCs similarly supported legislation (H.R. 3626) -- again applying only to them -- that contained a framework for removing the long distance and manufacturing restrictions much like the one eventually enacted in 1996. After criticizing the MFJ process as "too slow, too cumbersome and too expensive, not to mention too unreliable and unpredictable," SBC’s Chairman, Edward Whitacre testified that SBC supported H.R. 3626 because it "established a new legal process for determining whether the Bell Operating Companies will be allowed to enter the manufacturing and long distance markets," "puts implementation of that process in the hands of expert Government agencies," and "sets a time limit in which the Government must act." (Footnote 10)
In the 104th Congress, BOC representatives again testified in favor of a BOC-specific approach to reforming the MFJ, (Footnote 11) and the BOCs never advanced any constitutional objections to provisions like §§ 271-273. (Footnote 12) Further, in 1990, Professor Tribe had expressly told Congress that it had ample authority under Articles I and III of the Constitution to adopt a "legislative substitute" for the MFJ that "single[s] out the parties to the AT&T legislation" if it did not "impos[e] more burdensome restrictions." (Footnote 13) It was not until after this case was brought that Professor Tribe tried to repudiate this statement.
In the 1996 Act, the BOCs finally obtained the legislative relief they had long sought. The 1996 Act contains far-reaching amendments to the Communications Act of 1934, that affect telecommunications, cable television, satellite, the Internet, and other sectors of industry. As the Court of Appeals for the D.C. Circuit recently explained (in the case in which SBC chose not to raise a constitutional objection to §§ 271-273):
SBC Communications, Inc. v. FCC, 1998 WL 121492 (D.C. Cir. Mar. 20, 1998) at * 2 (emphasis added).
Congress decided to eliminate the historic monopolies the BOCs and other local carriers enjoyed in local markets. To that end, §§ 251-254 eliminate legal entry barriers and require incumbent carriers to permit competing providers to use the existing local network in a variety of ways. These provisions apply to all local telephone companies, BOC and non-BOC alike.
Congress also responded to many of the BOCs’ longstanding requests for prospective modification of the MFJ. Congress granted the BOCs’ principal demand that authority over the MFJ’s restrictions be transferred from "a single unelected federal judge" to the FCC. In § 601, Congress directed that the MFJ be effectively terminated:
Pub. L. No. 104-104, § 601(a)(1), 110 Stat. 143 (1995). Section 601 thus substituted §§ 271-273 for the MFJ’s "restrictions and obligations," and (together with §§ 271 and 273) transferred from the MFJ court to the FCC the authority to decide when the remaining line of business restrictions would be removed.
Sections 271-273 modified the MFJ’s provisions in several ways. Section 271(a) prohibits each BOC from providing long distance service that originates in its region. Section 271(c) provides for removal of the restriction in a particular state when the FCC finds that the BOC has implemented the specific steps set forth in § 251 to open its local exchange to competition, and that it is otherwise in the public interest. Section 271(d) places the FCC under strict time deadlines to decide BOC applications for authority to enter the restricted businesses. Section 272 establishes regulatory safeguards that apply to certain authorized services, including future long distance services. Section 273 continues the MFJ’s manufacturing restriction, but removes it when the BOCs may enter long distance markets pursuant to § 271. Section 273 also establishes regulatory safeguards for manufacturing operations.
Sections 271-273 give the BOCs immediate substantive relief from the MFJ’s restrictions -- relief the MFJ court had refused to give them. Section 271(b)(2) unconditionally authorizes the BOCs to provide long distance services originating outside their local monopoly regions, overruling United States v. Western Elec. Co., 673 F. Supp. at 543-45. Section 271(b)(3) enables the BOCs to provide "incidental interLATA services" such as commercial mobile services (e.g., cellular) within their regions, without any of the restrictions previously imposed on the provision of those services by the MFJ. Compare § 271(g)(3), with United States v. Western Elec. Co., 890 F. Supp. at 7-11. (Footnote 14) Section 273(b) allows the BOCs to engage in "close collaboration" with manufacturers regarding design and development of equipment, to engage in "research activities related to manufacturing," and to enter into "royalty agreements" with manufacturers. Compare 47 U.S.C. §273(b), with United States v. Western Elec. Co., 894 F.2d 1387 (denying authority for design or development activities); United States v. Western Elec. Co., 12 F.3d 225 (denying authority for royalty arrangements).
The BOCs vigorously supported enactment of this legislation. Indeed, members of Congress repeatedly invoked the BOCs’ support as a reason for voting for it. (Footnote 15) After the Act was passed, the BOCs lavishly praised it. For example, SBC’s Chairman lauded the Act as "landmark legislation" that would allow SBC to "immediately provide long-distance service outside our . . . region and to our cellular customers everywhere," (Footnote 16) and that created "clear and reasonable pathways" for SBC to obtain authority to provide long distance service within its region -- "pathways that we’re happy with." (Footnote 17) The other BOCs were equally enthusiastic. (Footnote 18) No BOC complained that §§ 271-273 were punitive.
Shortly after the 1996 Act was passed, all the parties to the MFJ (the BOCs, AT&T and the Department of Justice) agreed that in light of § 601(a), the MFJ should be prospectively vacated. Relying on the 1996 Act, the district court vacated the MFJ in a brief order, while retaining jurisdiction over pre-enactment activities. United States v. Western Elec. Co., 1996 WL 255904 (D.D.C. Apr. 11, 1996).
In that proceeding, the BOCs never questioned the constitutionality of the provisions of the 1996 Act singling them out for distinctive treatment -- including § 601(a). Had any BOC raised a constitutional issue, Intervenor AT&T would never have agreed to the MFJ’s termination, and (along with the other Intervenors here) would have vigorously opposed terminating the MFJ. Nor could the MFJ court then have terminated the decree without determining whether §§ 271-273 are constitutional and, if not, whether they are severable from § 601(a).
On April 11, 1997, SBC applied to the FCC pursuant to § 271 for authority to provide in-region long distance service in Oklahoma. The FCC denied the application on June 26, 1997, because SBC had not made the threshold showing required by § 271. SBC appealed that ruling to the D.C. Circuit, as the 1996 Act permits, but raised no constitutional challenge to § 271. The D.C. Circuit affirmed the FCC’s order. SBC Communications Inc. v. FCC, 1998 WL 121492 (D.C. Cir. Mar. 20, 1998).
Within days of the FCC’s denial of its application, SBC filed the instant action in the U.S. District Court for the Northern District of Texas. Before the time for answering the complaint had run, SBC moved for summary judgment. The United States cross-moved for summary judgment. The parties submitting this brief intervened to defend the constitutionality of §§ 271-273.
On December 31, 1997, the district court issued an opinion invalidating §§ 271-275 as bills of attainder on the ground that they singled out the BOCs for regulatory burdens not borne by all other competitors in the markets for local and long distance services. R. 1811. The court harshly criticized Congress’ economic policy choices, describing the Act’s substantive requirements for opening local markets (§ 251-253) as "extremely onerous," and "burdensome," and deriding the § 271 process as "tainted with indefiniteness and replete with arbitrary standards." R. 1818. According to the court, the BOCs’ "plight" was that new competitors could now take advantage of §§ 251-253 to enter the BOCs’ previously monopolized local markets, whereas the BOCs could not enter the long distance markets. R. 1815. Without citing any record evidence, the court asserted that the BOCs face "the likelihood of enormous losses of existing business" because their competitors can "offer ‘one-stop shopping’" -- i.e. combined local and long distance service -- while "offer ‘one-stop shopping’" -- i.e. combined local and long distance service -- while the BOCs at present can offer those customers only local service.
The court held that "under a historical analysis" any statute "preventing select individuals or groups from engaging in specified employments or vocations" is an "impermissible sanction" that automatically qualifies as "punishment," and therefore violates the Bill of Attainder Clause. R. 1812, 1814. The court concluded that §§ 271-273 "necessarily constitute punishment" because they are the equivalent of banning an individual from pursuing a profession. R. 1814. In reaching this result, the court found that §§ 271-273 "strip the BOCs of their ability to enter new markets," "foreclose . . . immediate entry" into these markets, and "impose affirmative disabilities on the BOC." R. 1815, 1818. The court did not address the undisputed fact that §§ 271-273 expressly authorized the BOCs to enter market sectors they could not have entered under the MFJ and did not deprive the BOCs of any rights previously enjoyed under the MFJ.
The court also held that §§ 271-273 do not further any "nonpunitive legislative purposes." R. 1819. According to the court, §§ 271-273 are "necessarily" punitive because Congress could have achieved its policy goals "through other provisions of the Act such as § 251," and because "[t]he evils that Congress is predicting and attempting to prevent amply are addressed by the antitrust laws of this country." Id. The court did not explain how legislation could constitute punishment when the "punished" entities actively sought and subsequently praised it.
The court acknowledged that §§ 271-273 could not have been deemed legislative punishment had they been applied to all local carriers. R. 1820 ("If the sections were statutes of general applicability this Court’s ruling would be different"). The court did not explain how regulatory legislation that would have been appropriate had it applied to all local carriers could become "necessarily" punitive (R. 1818) when applied to the BOCs, which comprise more than 80% of the industry. Nor did the court address the evidence that Congress had a reasonable foundation for treating the BOCs differently from GTE and other local exchange carriers. The court simply asserted that the BOCs and other carriers were "similarly situated." R. 1811. Finally, the court did not address the question whether §§ 271-275 were severable from the remainder of the 1996 Act -- presumably because plaintiffs had not sought a ruling on this issue.
On January 2, 1998, Intervenors sought a stay from the district court. The court did not rule on that request for more than 6 weeks. Nor did the court issue a final judgment pursuant to Fed. R. Civ. P. 58 during that period. On January 1, 1998, however, counsel for the BOCs sent a "fax memo" to the district court arguing for the first time that §§ 271-275 should be severed from the remainder of the 1996 Act -- and in particular from § 601(a), which directed that the MFJ be effectively terminated. The fax memo explained that the plaintiffs sought this additional relief to prevent the U. S. District Court for the District of Columbia, which had jurisdiction over the MFJ proceedings, from reimposing the MFJ. The fax memo suggested that the issue of severability could be resolved by the expedient of inserting a single sentence into the final judgment stating that "[t]he Special Provisions codified at 47 U.S.C. Secs. 271-275 are hereby severed from the remainder of the Telecommunications Act of 1996." (Footnote 19) The Government and Intervenors objected, pointing out that severability was a critically important question which had not previously been raised, much less briefed. Record Excerpts at Tab 10, 11; R.___ . They requested an opportunity for briefing and offered to make themselves available for a hearing at the court’s convenience. Id. The court took no action on that request.
On February 11, 1998, the district court issued a final judgment implementing its earlier opinion. Without including any rationale, the court also held that "the unconstitutional ‘Special Provisions’ [§§ 271-275] are severable from the remainder of the Telecommunications Act of 1996 and the Communications Act of 1934." (R.2756). In a separate order, the court granted motions of the Government and Intervenors for a stay pending appeal. R. 2754-55.
SUMMARY OF ARGUMENT
Sections 271-273 of the 1996 Act are not bills of attainder. The Bill of Attainder Clause has been "consistently regarded . . . only as protection for individual persons and private groups, those who are peculiarly vulnerable to non-judicial determinations of guilt." South Carolina v. Katzenbach, 383 U.S. 301, 324 (1966) (emphasis added). It has never before been applied, as the district court applied it here, to invalidate regulatory legislation simply because some large corporations (which collectively dominate an industry) are directly affected while others are not.
Even if powerful companies such as the BOCs could claim the protection of the Clause in some circumstances, the BOCs cannot challenge §§ 271-273 on this ground. Indeed, the district court committed fundamental legal error in holding that these provisions constitute impermissible "trial by legislature" because they single out the BOCs for restrictions not imposed on all other telephone companies. It is not, and has never been, the law that legislation imposing burdens on named persons is presumptively invalid. "While legislatures usually act through laws of general applicability, that is by no means their only legitimate mode of action." Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 239 n.9 (1995). To the contrary, "the mere specificity of [a] law does not call into play the Bill of Attainder Clause" even if the law "disadvantages an individual or identifiable members of a group." E.g., Nixon v. Administrator of Gen. Servs., 433 U.S. 425, 471 n.33 (1977).
Much more must be proven before legislation will be invalidated as a bill of attainder. Specifically, legislation must single out persons or private groups in a way that is not justified by distinctive characteristics of the class that would justify the distinctive legislative treatment Congress has imposed, Nixon, 433 U.S. at 472 (Clause not violated if Congress identifies a "legitimate class"), and it must punish those singled out -- not merely regulate them. Id. Accord Selective Service System v. Minnesota Public Interest Research Group, 468 U.S. 841, 851 (1984) ("That burdens are placed on citizens by federal authority does not make those burdens punishment").
Sections 271-273 do not even remotely fit that description. Congress’ decision to make §§ 271-273 applicable to the BOCs by name is entirely explained by the fact that §§ 271-273 were intended to modify prospectively the terms of a judicial decree -- the MFJ -- that applied only to the BOCs to begin with, and that had effectively set forth a national regulatory structure for telecommunications markets. Such a law plainly constitutes a legitimate form of legislative regulation. Indeed, the BOCs’ counsel, Professor Tribe, testified that it was entirely constitutional for Congress to enact legislation that "single[d] out the parties to the AT&T litigation . . . [b]ecause such parties have already been singled out through the enforcement activity of the executive branch, in litigation supervised by the judicial branch." (Footnote 20) Therefore, this was plainly a case where, "viewed in context, the focus of the [congressional] enactment can be fairly and rationally understood." Nixon, 433 U.S. at 472.
Furthermore, whatever the case with §§ 274 and 275, it is impossible to characterize §§ 271-273 as punishment. To be punitive, legislation must, at a minimum, deprive specified individuals of a preexisting right. See United States v. Brown, 381 U.S. at 448. Sections 271-273, however, grant the BOCs considerable authority the MFJ had denied them, including the authority to provide long distance service originating anywhere in the country outside the BOC’s home region. To be sure, §§ 271-273 continued the core of the MFJ’s long distance and manufacturing restrictions, but that left the BOCs no worse off than if there had been no legislation. And §§ 271-273 granted longstanding BOC demands to transfer authority for lifting the restrictions to the FCC, to impose deadlines for deciding removal requests, and to set forth clear and reasonable criteria for removal. The simple fact is that the BOCs would be far worse off were the MFJ still in place. That is why the BOCs lobbied hard for the 1996 Act, and praised Congress for passing it.
Even if the 1996 Act were evaluated as though there had never been an MFJ, §§ 271-273 would nonetheless be constitutional. Congress could reasonably have concluded that the BOCs -- which dominate local markets in more than 80% of the country, and in a far higher percentage of major urban and business centers -- are a "legitimate class" that should be regulated in a manner different from other local exchange carriers. See Nixon, 433 U.S. at 471. Furthermore, §§ 271-273 are classic economic regulations -- not punishment. Their self-evident purpose is to protect existing competition in the long distance and manufacturing markets, to enhance the possibility of future competition in local markets, and to provide a clear and reasonable pathway for BOC entry into the in-region long distance and manufacturing markets when the structural risks of their entry have dissipated.
The district court also improperly held that §§ 271-273 are severable from § 601(a) of the Act, which directed that the MFJ be terminated. Because § 601 expressly replaces the MFJ with new "restrictions and obligations" adopted in the 1996 Act, a decision that invalidates those "restrictions and obligations" necessarily requires that § 601(a)(1) be invalidated as well. Congress made it explicit that it would not have directed that the MFJ be terminated unless the structural provisions of §§ 271-273 were in place. The district court’s severability ruling striking down §§ 271-273 without reinstating the MFJ thus completely rewrites the "compromise" struck by Congress and creates a regulatory structure that Congress expressly rejected. See SBC Communications Inc. v. FCC, 1998 WL 121492 at * 2.
I. STANDARD OF REVIEW
The standard of review on the appeal from a grant of summary judgment is de novo. United States v. Bailey, 115 F.3d 1222, 1225 (5th Cir. 1997). This standard governs all issues on appeal.
II. SECTIONS 271-273 RAISE NO BILL OF ATTAINDER CONCERN BECAUSE CONGRESS WAS EXERCISING ITS AUTHORITY TO MODIFY PROSPECTIVELY THE TERMS OF AN EXISTING JUDICIAL DECREE, AND BECAUSE THOSE DECREE MODIFICATIONS LEFT THE BOCS BETTER OFF THAN THEY WERE UNDER THE MFJ.
A bill of attainder exists only where a law singles out a specific individual or group for punishment. The district court held §§ 271-273 were bills of attainder because they make specific reference to the BOCs and restrict them, at least temporarily, from certain lines of business. But that ruling simply ignored the factual context. The constitutional prohibition has no application here for the simple reason that §§ 271-273 do nothing more than modify prospectively the terms of the MFJ -- an existing judicial decree which applied only to the BOCs to begin with, and which set forth a nationwide regulatory structure -- in ways that benefit the BOCs enormously.
To begin with, it makes little sense to say that §§ 271-273 singled out the BOCs. They had already been singled out for distinctive treatment by the MFJ. That decree effectively established a national telecommunications policy framework because by its terms it applied to the companies that controlled the local telephone networks in more than 80% of the country, and in a far higher percentage of urban and business centers. Any comprehensive overhaul of the nation’s telecommunications laws would have had to address the existence of the MFJ. Thus, in establishing a new national policy framework, Congress merely took into account the pervasive reality of the existing MFJ structure, modifying it in ways consistent with Congress’ new policy objectives. Congress may, of course, modify prospectively the effects of a judicial decree, and that is all §§ 271-273 do. See Robertson v. Seattle Audubon Soc’y, 503 U.S. 429 (1992). Indeed, the BOCs’ counsel, Professor Tribe, told Congress it had the power to "single out" the BOCs in precisely this way in an exercise of its Article I power to carry into execution the decree of an Article III court. See note 12 supra. In this context, there was nothing remotely suspicious about Congress’ decision to apply §§ 271-273 to the BOCs by name. Congress was simply defining a "legitimate class" for regulation, not illegitimately singling out individuals for legislative punishment. See Nixon, 433 U.S. at 472.
Furthermore, the way §§ 271-273 deals with the BOCs does not violate the Bill of Attainder Clause because that Clause forbids "not merely singling out but also punishment," and there is none here. See Plaut, 514 U.S. at 239 n.9 (emphasis added). At the very minimum, an Act of Congress cannot qualify as "punishment" unless it deprives someone of a right "previously enjoyed." See United States v. Brown, 381 U.S. 437, 448 (1965); Cummings v. Missouri, 71 U.S. 277, 320 (1866). In replacing the MFJ with §§ 271-273, Congress made matters much better for the BOCs and deprived them of nothing. In any event, for the statute to be punitive, it must at a minimum be very clear that the BOCs are substantially worse off, and that is plainly not the case here.
In particular, § 271 removed the MFJ’s restrictions on the BOCs’ ability to provide long distance service to customers outside their home regions, to provide long distance service to their cellular customers, and to engage in a range of other activities. Thus, in the vast majority of the country, each BOC now has the right (which the MFJ had denied it) to offer long distance service. Indeed, anywhere outside its home region (where it controls the local network), each BOC has the same right as AT&T, MCI or any other competitor to offer "one-stop shopping" -- that is, both long distance and local service -- because each BOC can take advantage of the market-opening requirements of §§ 251-253 to compete in local markets outside their regions.
Congress also granted the BOCs extremely important (and long sought) changes in the way the remaining MFJ restrictions would be administered. Congress directed that the MFJ be terminated (§ 601(a)(1)), thereby providing that the authority to decide when to remove the remaining restrictions would be exercised solely by the FCC under § 271's tight time deadlines. That change was critical to the BOCs. Whereas the FCC had historically opposed the restrictions, the MFJ court (often after lengthy proceedings) had rejected every significant BOC attempt to eliminate or modify the long distance and manufacturing restrictions during the 12 years they were in effect, and those rulings were upheld by the D.C. Circuit. Furthermore, if the FCC denies an application, the BOCs can challenge the FCC’s decision in the D.C. Circuit -- as SBC did with respect to its Oklahoma application. As SBC’s Chairman stated in praising the 1996 Act, these provisions created "clear and reasonable pathways" for BOC entry into long distance. Because the Act leaves "open perpetually the possibility of qualifying" for a right or benefit, it "does not fall within the historical meaning of forbidden legislative punishment." Selective Service, 468 U.S. at 853; see also Nixon at 481-82 (the availability of judicial review "belie[s] any punitive interpretation").
The district court never came to grips with the dispositive point that §§ 271-273 significantly improved the status quo for the BOCs. The very premise of the district court’s analysis -- that §§ 271-273 "foreclose the BOCs from immediate entry" into the long distance and manufacturing markets, "impose affirmative disabilities on the BOCs" and "strip the BOCs of their ability to enter [these] new markets" R. 1815, 1818 (emphasis added) -- is completely wrong. Sections 271-273 remove disabilities and open new markets to the BOCs. That is doubtless why the district court supported its holding that "the Special Provisions take from the BOCs certain rights previously enjoyed" R. 1816 only with a reference to §§ 274 and 275 of the Act, which reimposed (in substantially narrowed form), restrictions that had been previously lifted by the MFJ court. Whatever the issue respecting §§ 274-275, the court’s discussion of those provisions cannot justify invalidating §§ 271-273.
Indeed, the district court’s analysis reflects a basic confusion about the way the 1996 Act affects the BOCs. The court believed that the compromise Congress struck in the 1996 Act did not give enough to the BOCs because it allowed competitors to enter the BOCs’ historically monopolized local markets, while denying the BOCs the immediate opportunity to enter long distance markets in their home regions. R. 1807 ("the proverbial carrot has been removed but they are still receiving the stick"). But that result is not caused by §§ 271-273. It is the product of §§ 251-253, which open all local markets to competition. Had Congress simply enacted those provisions alone, without making any changes to the MFJ, the BOCs would have been in a far worse position than they are under the 1996 Act, because their local markets would have been forced open and they would not, under the MFJ, have been able to enter the long distance and manufacturing markets under the conditions authorized by § 271.
It is doubtless for this reason that the BOCs belatedly sought to have § 601(a)(1) of the 1996 Act severed from the provisions invalidated by the district court. Were § 601(a)(1) struck down along with §§ 271-273, the BOCs would be in precisely the position that would have obtained had only §§ 251-253 been enacted. But the provisions opening local markets (§§ 251-253) are laws of general application to which no plausible bill of attainder or equal protection challenge could be brought. Thus, the district court’s conclusion presupposed that legislation incorporating and partially alleviating a judicial decree should be considered a bill of attainder because Congress simultaneously imposed a separate burden through a generally applicable law. That cannot be correct.
The only rationale suggested by the district court for striking down §§ 271-273 even though they improve the status quo is that the Bill of Attainder Clause categorically forbids Congress from transferring the terms of a consent decree "from the judicial and executive realm to the legislative realm." R. 1816. But that is wrong as a matter of law. The Supreme Court has expressly held that Congress may constitutionally single out individuals or groups, and may impose restrictions on those named, so long as the restrictions do not qualify as "punishment" within the Bill of Attainder Clause. Nixon, 433 U.S. at 472. Whenever Congress makes a judgment that particular restrictions should be imposed on named entities, such action could pejoratively be described (in the way the district court described §§ 271-273) as "adjudicat[ing] the rights or liabilities" of those entities and "impos[ing] corresponding sanctions." R. 1816. But so long as it does not impose a "punishment," Congress is free to regulate specific entities, using its superior capacity to make empirical and predictive judgments about "regulatory schemes of inherent complexity and about the likely interaction of industries undergoing rapid economic and technological change." Turner Broadcasting System, 117 S. Ct. 1174, 1189 (1997). Moreover, contrary to the suggestion of the district court, the fact that the law here followed and replaced a civil injunctive decree cannot limit Congress’ regulatory power. After all, a civil injunction is not itself punitive -- it is regulatory. The same must be true of a law that supplants such a decree.
The district court’s finding that §§ 271-273 are bills of attainder is thus wrong as a matter of law.
III. EVEN IF THE HISTORICAL CONTEXT OF THE MFJ IS IGNORED, SECTIONS 271-273 CANNOT BE BILLS OF ATTAINDER BECAUSE THE BOCS CONSTITUTE A LEGITIMATE CLASS WARRANTING DISTINCT REGULATORY TREATMENT, AND THE REGULATORY MEASURES IMPOSED ON THEM ARE NOT PUNITIVE.
Sections 271-273 could not be condemned as bills of attainder even if the MFJ had never existed. "[O]ne who complains of being attainted must establish that the legislature’s action constituted punishment and not merely the legitimate regulation of conduct." Nixon, 433 U.S. at 478 n.40. Here, it is obvious that Congress was engaged in the legitimate regulation of conduct. Congress had ample basis for treating the BOCs as a "legitimate class" the size and concentration whose operations warranted distinctive regulatory treatment. And the restrictions imposed by §§ 271-273 are forward-looking regulations designed to preserve and enhance competition in future telecommunications markets, not to punish the BOCs for alleged antitrust violations.
Even absent the MFJ, §§ 271-273 cannot be invalidated as Bills of Attainder on the basis of the district court’s conclusion that those provisions "single out by name specific business entities and restrict their ability to conduct lawful business, and do not do so for other similarly situated entities." R. 1811.
The "singling out" criticized by the district court is entirely unobjectionable. In Nixon, the Supreme Court upheld a law applying burdens to one named person. 432 U.S. at 476. And federal courts of appeals have routinely upheld laws that apply by name to particular corporations. E.g., Maine Central R.R. Co. v. Brotherhood of Maintenance of Way Employees, 813 F.2d 484, 490 (1st Cir. 1987) (legislative burden applied to single named railroad); Atonio v. Wards Cove Packing Co., 10 F.3d 1485, 1494 (9th Cir. 1993) (law narrowing legal claims of single identified class of claimants); Central States, Southeast & Southwest Areas Pension Fund v. Lady Baltimore Foods, Inc., 960 F.2d 1339 (7th Cir. 1992) (legislation voiding a single firm’s withdrawal liability under ERISA); Fresno Rifle & Pistol Club, Inc. v. Van de Kamp, 965 F.2d 723, 727 (9th Cir. 1992) (legislation imposing burdens on specific named gun manufacturers); Springfield Armory, Inc. v. City of Columbus, 805 F. Supp. 489 (S.D. Ohio 1992) (upholding assault weapon ordinance that applied to specific manufacturers by name), reversed on other grounds, 29 F.3d 250 (6th Cir. 1994).
Indeed, it is not at all unusual for Congress to legislate respecting specific companies when their operations are so encompassing that their activities effectively present a problem of nationwide impact. See ITT World Communications v. FCC, 635 F.2d 32 (2d Cir. 1980) and Western Union Int’l, Inc. v. FCC, 544 F.2d 87 (2d Cir. 1976) (construing line of business restriction that only applied to Western Union and that was adopted by Congress in recognition that Western Union would have a domestic monopoly over telex services that could be used to impair competition in other markets); Rail Reorganization Cases, 419 U.S. 102 (1974) (upholding transfer of rail properties of eight identifiable bankrupt railroad companies to Government-organized corporation).
The reason such laws are routinely upheld, as the Supreme Court explained, is that the Bill of Attainder Clause "was not intended to serve as a variant of equal protection doctrine, invalidating every Act of Congress . . . that legislatively burdens some persons or groups but not all other plausible individuals," and does not "limit Congress to the choice of legislating for the universe, or legislating only benefits, or not legislating at all." Nixon, 433 U.S. at 471. The very point of that holding is that regulatory legislation cannot be challenged as a bill of attainder when the allegedly punitive character of the legislation arises only from the fact that it does not apply to all similarly situated entities.
Yet that is the essence of the district court’s objection to §§ 271-273. Had those provisions applied to all local carriers, they could not be challenged as bills of attainder. Indeed, it would make no sense to conceive of them as "punishment" of the entire industry, rather than appropriate regulation. The restrictions, in other words, are not intrinsically punitive. For this reason, the district court stressed that it would not have invalidated §§ 271-273 had the restrictions applied to all local carriers. R. 1818. But that is nothing more than an argument that §§ 271-273 "legislatively burden some persons or groups but not all other plausible individuals." See Nixon, 433 U.S. at 472. It cannot, in principle, be a basis for invalidating a law under the Bill of Attainder Clause.
In any event, the BOCs are a "legitimate class" that Congress could reasonably have concluded warrants the distinctive regulatory treatment Congress has chosen to impose. Nixon, 433 U.S. at 472. They are massive corporations with more than $100 billion in annual revenues. They have state franchises that have historically given them monopoly control in regions containing more than 80% of the nation’s local telephone facilities, including the overwhelming majority of urban and business centers. Their operations and market power thus present a generic problem of national scope. Compare Nixon, 433 U.S. at 471 (upholding statute that applied to "legitimate class of one"). By contrast, although the nation’s remaining local telephone companies are also monopolies, they have operations that are dispersed, serve overwhelmingly rural and suburban areas, or are far smaller. For these reasons, federal courts and the Department of Justice have long concluded that the BOCs should be treated differently from all other local carriers, based on the common sense perception that the BOCs’ massive, concentrated monopoly facilities gave them an ability to discriminate and cross-subsidize not shared by other local carriers -- including GTE, which (though large) has widely scattered operations.
Congress had before it ample testimony supporting the conclusion that the BOCs should be regulated in a manner different from all other local carriers. See, e.g., Competitive Status of the Bell Operating Companies, Hearing Before the Subcomm. on Telecommunications, Consumer Protection, and Finance of the House Comm. on Energy and Commerce, 99th Cong., at 86 (Mar. 13, 1986) (testimony of Douglas H. Ginsburg, Assistant Attorney General) ("The GTE telephone subscribers are not only many fewer in number than those of the RBOC’s, but they are scattered geographically around the country . . . .") R. ___; Telecommunications: The Role of the Department of Justice, Hearing Before the House Committee on the Judiciary, 104th Cong., at 66 (May 9, 1995) (testimony of Anne K. Bingaman, Assistant Attorney General) ("The potential incentive and ability of a BOC, which controls nearly one-seventh of the country, to disadvantage a competing long distance competitor is far greater than for other companies that offer both local and long distance service. Even GTE, the largest of the independent companies, generally serves non-urban areas, and its local operations are geographically dispersed. That is why the BOCs were subject to the line-of-business restrictions while GTE was allowed to offer long distance services through a separate subsidiary") R. ___; H.R. Rep. No. 102-850, at 94 (1992) ("‘Congress can surely conclude that the RBOCs present unique problems. Each RBOC controls essential local exchange facilities in all, or virtually all, the major metropolitan areas in its geographic region.’") (quoting Memorandum of Professor Henry P. Monaghan dated May 27, 1992).
Congress’ decision to draw the line at the BOCs was also consistent with prior judicial determinations. The district court administering the MFJ approved a consent decree allowing GTE to buy a long distance company, concluding that GTE "lacks the vast market domination . . . that would enable it to engage in anticompetitive practices irrespective of injunctions and separate affiliate provisions." United States v. GTE Corp., 603 F. Supp. 730, 753 (D.D.C. 1984); see id. at 737 ("Each of the Bell regional companies has a very strong, dominant position in local telecommunications in the area in which it serves; GTE's operations, by contrast, are widely scattered."). The court also noted that GTE's customer base and physical network was considerably different from that of the BOCs, for "while the Bell Operating Companies serve the vast majority of the high-density, heavily-populated metropolitan areas (the areas most attractive to the interexchange carriers which are the potential long distance competitors), the GTE Operating Companies serve primarily the nation's rural and suburban areas." Id. at 734; see id. at 737 ("the Regional Holding Companies also have the facilities to provide all the intercity and inter-LATA traffic throughout their regions, while the GTE Operating Companies control little by way of intercity facilities, and what facilities they do have are by and large of the entrance type which do not cover the areas in which the companies operate"). This fact was particularly significant because it meant that long distance carriers often did not interconnect directly to GTE’s local network, and so subject themselves to discriminatory treatment, but instead interconnected to BOC networks, which then handed long distance traffic to GTE for completion. The MFJ court also expressly rejected the argument that it should remove the line of business restrictions from the BOCs because they were indistinguishable from GTE, which was not similarly restricted. United States v. Western Elec. Co., 673 F. Supp. 525, 549 (D.D.C. 1987), aff’d in part and rev’d in part on other grounds, 900 F.2d 283 (D.C. Cir. 1990).
It is entirely permissible for Congress to legislate respecting specific named entities if the list of names is equivalent to enumerating the characteristics with which Congress is concerned. See Laurence Tribe, American Constitutional Law, § 10-4, at 646 (2d ed. 1988); see United States v. Brown, 381 U.S. 437, 454 & n.29 (1965). That is all Congress did here. Naming the BOCs was merely a shorthand way of identifying the group of companies the size and concentration of whose networks make them the most serious threats to competition should they be permitted to enter the long distance and manufacturing markets. It should make no constitutional difference that Congress achieved the same result through the shorthand of identifying the BOCs by name.
Indeed, had Congress applied §§ 271-273 to all local exchange carriers, and then exempted GTE and all other smaller carriers by name, the provisions could not be attacked as a bill of attainder, because the purportedly restrictive elements of the law would apply on the basis of neutrally defined criteria. Equal Protection principles would supply the only possible basis for attacking such a law, and the only question would be whether Congress had a rational basis for exempting a named entity from the generally applicable provisions.
In City of New Orleans v. Dukes, 427 U.S. 297 (1976), the Supreme Court upheld an ordinance banning all but two named pushcart vendors from the French Quarter. In so doing, the Court expressly overruled Morey v. Doud, 354 U.S. 457 (1957), which had declared unconstitutional a state statute exempting the American Express Company from regulations restricting the issuance of money orders, on the ground that it created an impermissible closed class. As this Circuit has recognized, "[u]nder Dukes, legislative classifications which amount to the creation of a closed class by the singling out of a . . . named company, can withstand scrutiny under the rational basis test." See Apache Bend Apartments Ltd. v. United States, 964 F.2d 1556, 1564 (5th Cir. 1992), superseded on standing grounds, 987 F.2d 1174 (5th Cir. 1993).
A law applying §§ 271-273 to all carriers but exempting named entities, is, in substance and effect, identical to §§ 271-273 as written. There is no reason why Congress’ decision to treat the BOCs differently from GTE should be subjected to greater scrutiny under the Bill of Attainder Clause than under the Equal Protection Clause. Because the district court’s decision to invalidate §§ 271-273 is nothing more than a misplaced equal protection analysis, it must be reversed.
Furthermore, even if enacted de novo, the restrictions imposed by §§ 271-273 would not qualify as punishment. Restrictive legislation is not punishment where "the source of the legislative concern can be thought to be the activity . . . from which the individual is barred, . . . even though it may bear harshly upon one affected." Flemming v. Nestor, 363 U.S. 603, 617 (1960).
The analysis is not, as the district thought, simply a mechanistic process of deciding whether a restriction resembles historic forms of legislative punishment. Rather, the Supreme Court has identified three factors, each of which must be considered in assessing whether a particular legislative restriction rises to the level of punishment: "(1) whether the challenged statute falls within the historical meaning of legislative punishment; (2) whether the statute, viewed in terms of the type and severity of burdens imposed, reasonably can be said to further nonpunitive legislative purposes; and (3) whether the legislative record evinces a congressional intent to punish." Selective Service System, 468 U.S. at 852 (quotation omitted). Thus, "[e]ven where a fixed identifiable group . . . is singled out and a burden traditionally associated with punishment -- such as permanent exclusion from an occupation -- is imposed, the enactment may pass scrutiny under bill of attainder analysis if it seeks to achieve legitimate and nonpunitive ends and was not clearly the product of punitive intent." Dehainaut v. Pena, 32 F.3d 1066, 1071 (7th Cir. 1994); De Veau v. Braisted, 363 U.S. 144 (1960) (upholding against a bill of attainder challenge a New York statute prohibiting convicted felons from holding any office in a waterfront labor organization). Because all three of these criteria weigh decisively against the conclusion that §§ 271-273 inflict legislative punishment, the district court’s decision must be reversed.
The district court erred in holding that §§ 271-273 fall into the category of historical punishments barred by the Bill of Attainder Clause. See R. 1814-18. Historically, bills of attainder imposed sentences of death, forfeiture or banishment upon "members of a political group thought to present a threat to the national security." Brown, 381 U.S. at 453. To be sure, "legislative bars to participation by individuals or groups in specific employments or professions" have sometimes been found suspect under the Bill of Attainder Clause. See Selective Service System, 468 U.S. at 852 (emphasis added). The Supreme Court has made clear, however, that even for individuals or private groups, such disqualifications from employment are at the outer edge of the constitutional proscription, and may or may not be deemed punishment "depending on the circumstances attending and the causes of the deprivation." Cummings, 71 U.S. at 320. Such deprivations have been held to be punishment only when they fit the historical pattern -- that is, when they are inflicted on subversives or traitors. Compare Cummings, (invalidating restriction on Confederate veterans holding certain positions), and Brown, 381 U.S. 437 (1965) (invalidating restriction on Communists holding government positions), with DeVeau v. Braisted, 363 U.S. 144 (1960) (upholding ban on felons being employed on the New York waterfront). Here, "the circumstances attending and the causes of the deprivation," Cummings, 71 U.S. at 320, make clear that Congress’s goal was to regulate telecommunications markets for the benefit of the public, not to punish the entities subject to the restrictions.
Moreover, no court has ever held that the Clause is even implicated by legislation dealing with economic issues posed by massive corporations such as the BOCs. That is because a line of business restriction imposed on a group of corporations is fundamentally different from a law disqualifying an individual from pursuing his or her livelihood. Line of business restrictions are classic economic regulation. They impose no badge of shame on the regulated entities, and inflict nothing like the sort of harm that results when an individual is denied the right to pursue his or her calling. Indeed, Congress routinely enacts legislation restricting entities engaged in one line of business from participating in others, based on the perceived risk that the restricted entity has a conflict of interest or may exploit its position in one line of business to achieve unfair dominance in the restricted line of business. See, e.g., Board of Governors v. Agnew, 329 U.S. 441 (1947) (discussing § 32 of Banking Act of 1933 which prohibits members of firms that underwrite securities from serving as officers of National Banks); FCC v. National Citizens Comm. for Broad., 436 U.S. 775 (1978) (upholding, under heightened first amendment scrutiny, FCC rules banning broadcast licensee from owning newspaper in same market); Public Utility Holding Company Act, 15 U.S.C. § 79 et seq. (restricting activities of public-utility holding companies). Had Congress made §§ 271-273 applicable to all local exchange carriers, it would have been nonsensical to describe the provisions as "punishment" of the entire industry. Such unobjectionable economic regulation is not converted into unconstitutional punishment merely because Congress chose to apply such regulation to 80% of the industry rather than to every local exchange carrier. See ITT World Communications v. FCC, 635 F.2d 32 (2d Cir. 1980); Western Union Int’l v. FCC, 544 F.2d 87 (2d Cir. 1976).
Sections 271-273 are in all events constitutional because they "reasonably can be said to further nonpunitive legislative purposes." Nixon, 433 U.S. at 475-76; Selective Service System, 468 U.S. at 852. The critical inquiry is "whether the legislative aim was to punish that individual for past activity, or whether the restriction of the individual comes about as a relevant incident to a regulation of a present situation." De Veau v. Braisted, 363 U.S. 144, 160 (1960) (emphasis added). Even if "a burden traditionally associated with punishment -- such as permanent exclusion from an occupation -- is imposed," there is no attainder so long as the law "seeks to achieve legitimate and non-punitive ends." Dehainaut v. Pena, 32 F.3d 1066, 1071 (7th Cir. 1994).
Here, legitimate forward-looking justifications for the Act are readily apparent, and refute the district court’s potpourri of contradictory speculation that "Congress has adjudicated the BOCs guilty of [past or future] antitrust violations," or future violations of § 251 of the 1996 Act. R. 1819. In enacting §§ 271-273, Congress sought to encourage competition in the local telephone markets while protecting the competition that had previously developed in the long distance and manufacturing markets. Sections 271-273 were not based on a legislative determination that the BOCs were guilty of any past antitrust violations -- nor was the MFJ, as the court wrongly supposed. R. 1819. The MFJ was adopted purely as a prospective measure to establish a market structure in which competition would be "more certain" because there would be no potential for the kinds of controversies and concerns about discrimination that had imposed costs on the whole industry in the past. See page 7 supra. Likewise, §§ 271-273 brought into play Congress’ assessment of the current physical and economic realities of the local telecommunications market -- a market in which a few entities have monopoly control of bottleneck facilities in virtually all of the nation’s major urban and key business centers -- and its understanding of how such exclusive control over essential facilities creates the ability and incentive to engage in conduct injurious to the public interest.
That §§ 271-273 serve nonpunitive purposes is confirmed by the fact that they apply not to specifically named corporations or their management, but rather to the franchised local monopolies that constitute the BOCs and whatever firms are affiliated with or succeed them. See 47 U.S.C. §§ 271(a) (applicable to any BOC or affiliate); 153(4)(B) (definition of BOC "includes any successor or assign . . . that provides wireline telephone exchange service"). For example, if SBC were to sell its local exchange monopolies to another entity, that firm would then be subject to the same restrictions that now govern SBC -- and SBC would be free of them -- just as it is even now free to compete in long distance markets in any State where it does not control monopoly facilities. Because the restrictions follow the monopoly facilities and not their present corporate owners, and because the BOCs are freed from the long distance restrictions anywhere they do not control monopoly facilities, it cannot be said that §§ 271-273 punish the BOCs because of who they are. These provisions are directed to particular assets and activities, not to punishment of individuals.
Against this background, there is no possible basis for a holding that §§ 271-273 are punitive. They certainly do not "determine" that the BOCs will unlawfully monopolize the long distance market, as the district court asserted, and make no judgment about the proclivities of the management of any of the BOCs. See R.1819. These provisions serve the regulatory and palpably nonpunitive purpose of promoting local competition while safeguarding long-distance and manufacturing competition. Any suggestion that Congress was judging the BOCs guilty of antitrust violations, and punishing them for such violations, is all the more implausible in light of the many benefits the 1996 Act conferred on them. If Congress believed the BOCs were antitrust violators, it certainly would not have narrowed the scope of preexisting MFJ restrictions, thereby allowing the BOCs into more markets immediately. Nor would it have established clear and reasonable pathways for removal of the remaining MFJ restrictions. The simple fact is that §§ 271-273 regulate the use of monopoly facilities; they do not punish any entities.
Nor can §§ 271-273 be invalidated on the theory that the existing antitrust laws could remedy any anticompetitive action by the BOCs were they allowed into long distance. R. 1818. Congress routinely acts prophylactically where market participants control essential facilities and have "a built-in economic incentive" to discriminate against competitors. Turner Broadcasting Sys. v. FCC, 512 U.S. 622, 646 (1994) (describing provisions of 1992 Cable Act requiring cable television operators to carry programming of their broadcast competitors); ITT World Communications v. FCC, 635 F.2d 32 (2d Cir. 1980); Western Union Int’l v. FCC, 544 F.2d 87 (2d Cir. 1976). The Supreme Court has emphatically rejected constitutional challenges based on arguments that the availability of antitrust remedies makes legislative restrictions unnecessary, because "Congress could conclude . . . that the considerable expense and delay inherent in antitrust litigation . . . would make these remedies inadequate substitutes." See Turner Broadcasting Sys.. v. FCC, 117 S. Ct. 1174, 1202 (1997). It is, therefore, beyond dispute that §§ 271-273 "can reasonably be said to further nonpunitive legislative purposes." Nixon, 433 U.S. at 475-76.
Indeed, statutes far closer to traditional punishment have been upheld when the statutes had a forward looking public purpose. See De Veau v. Braisted, 363 U.S. at 160. In De Veau, the Court upheld a law that prohibited convicted felons from serving in any office in a waterfront labor organization because the statute’s purpose was "not to punish ex-felons, but . . . to devise what was felt to be a much-needed scheme of regulation of the waterfront." Id. Similarly, the Seventh Circuit upheld a policy of indefinitely barring from reemployment former air traffic controllers who had been discharged for striking because the policy was "explained as a nonpunitive, prophylactic measure to protect the efficiency of the FAA’s operations and the safe and effective performance of the nation’s air traffic control system." Dehainaut v. Pena, 32 F.3d 1066, 1071-72 (7th Cir. 1994) (internal quotes omitted); see also Laurence H. Tribe, American Constitutional Law § 10-5, at 655 (2d ed. 1988) ("Even measures historically associated with punishment -- such as permanent exclusion from an occupation -- have been otherwise regarded when the nonpunitive aims of an apparently prophylactic measure have seemed sufficiently clear and convincing.").
Finally, the district court was unable to point to any evidence of punitive intent, much less the "unmistakable evidence" required to invalidate a statute as an attainder. Selective Service, 468 U.S. at 855 n.15; Flemming v. Nestor, 363 U.S. 603, 617 (1960). Instead, the court inferred an intent to punish from Congress’ references to the MFJ, which the court found "are not so innocent as the FCC urges this Court to believe" because the MFJ was "born out of alleged antitrust violations by AT&T." R. 1820. But the MFJ’s provisions were not punitive, and Congress’ intent was ultimately to release the BOCs from the MFJ’s constraints.
Sections 271-273 do not even remotely pose the "major concern of the bill of attainder prohibition," namely, "the fear that the legislature, in seeking to pander to an inflamed popular constituency, will find it expedient openly to assume the mantle of judge -- or, worse still, lynch mob" and attack politically vulnerable persons or groups. Nixon, 433 U.S. at 480. In United States v. Lovett, 328 U.S. 303, 314 (1946), for example, the Court invalidated legislation cutting off salary for three individual federal employees, after concluding that the purpose of the statute was "to ‘purge’ the then existing and all future lists of Government employees of those whom Congress deemed guilty of ‘subversive activities.’" Similarly, in United States v. Brown, 381 U.S. 437, 460 (1965), the Court struck down a statute making it a crime for a member of the Communist Party to serve as an officer or employee of a labor union, concluding that "the purpose of the statute . . . is to purge the governing boards of labor unions of those whom Congress regards as guilty of subversive acts and associations." In the remaining Supreme Court decisions involving the Clause, the Court -- responding to "excited actions of the States" in the wake of the Civil War -- invalidated legislation that required citizens, as a condition to pursuing their trade or calling, to take an oath that they had never been associated with the Confederacy. See Cummings, 71 U.S. at 325; Ex Parte Garland, 71 U.S. (4 Wall.) 333, 376 (1866); Pierce v. Carskadon, 83 U.S. (16 Wall.) 234, 237-38 (1872).
Unlike the persons and groups subject to the legislation at issue in those cases, the entities to which §§ 271-273 apply collectively have more than $100 billion in revenues, employ hundreds of thousands of people, control exclusively the local telephone networks serving more than 80% of Americans, and are quite capable of inflicting massive political retribution when it suits their interests. It is simply not plausible to suggest that the BOCs were the powerless victims of a congressional effort to pander to inflamed popular sentiments. To the contrary, the BOCs aggressively pursued their interests in the legislative process, and §§ 271-273 are part of a legislative "compromise" that benefitted the BOCs. See SBC Communications, Inc. v. FCC, 1998 WL 121492, (D.C. Cir. Mar. 20, 1998) at * 2. Rather than "excited action" consequent to a civil or cold war, the 1996 Act dealt with Congress’ conventional responsibilities to legislate respecting economic interests in a complex society.
For all these reasons, §§ 271-273 are not "punishment" within the meaning of the Bill of Attainder Clause.
The district court’s opinion is, in the final analysis, nothing more than an inappropriate effort to second-guess Congress’ economic policy judgments. The court found the 1996 Act unfair to the BOCs because it imposed market-opening requirements (§§ 251 and 252) the court thought were "extremely onerous" and it created a process for removing the remaining MFJ restrictions the court thought was "tainted with indefiniteness and replete with arbitrary standards." R. 1818. Indeed, the court opined that Congress had jeopardized the BOCs’ "existing business" while denying them a fair chance to increase their revenues in new markets. R. 1815. These conclusions are baseless. But more fundamentally, it is not the province of the federal courts to second-guess Congress on these economic policy choices. See Turner Broadcasting System, Inc. v. FCC, 512 U.S. at 665-66.
The Supreme Court has emphasized that federal courts exceed their proper role in our constitutional structure when they second guess Congress "in the field of national economic policy." Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984). That is true when courts consider equal protection challenges. FCC v. Beach Communications, Inc., 508 U.S. 307, 313 (1993); Nixon, 433 U.S at 471 n.33; Williamson v. Lee Optical of Okla., 348 U.S. 483, 489 (1955). It is equally true when courts adjudicate due process challenges to economic legislation. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976). These principles should apply with equal force when a court considers a Bill of Attainder Clause challenge to economic regulation. In failing to respect these principles, it was the district court -- not Congress -- violated the separation of powers.
IV. THE DISTRICT COURT’S RULING THAT SECTIONS 271-273 ARE SEVERABLE FROM THE REMAINDER OF THE 1996 ACT WAS BOTH PROCEDURALLY IMPROPER AND WRONG ON THE MERITS.
In the unlikely event that this Court finds §§ 271-273 unconstitutional, the Court should reverse the district court’s judgment to the extent it severs those provisions from Section 601 of the 1996 Act.
Severability is "a question  of legislative intent: Would Congress still have passed [the provision] had it known that the remaining provision[s were] invalid?" Denver Areas Educ. Telcoms. Consortium, Inc. v. FCC, 116 S. Ct. 2374, 2397 (1996) (quotation omitted). "[T]o hold one part of a statute unconstitutional and uphold another part as separable, they must not be mutually dependent on one another." Carter v. Carter Coal Co., 298 U.S. 238, 313 (1936). Here "it is evident that Congress would not have enacted those provisions which are within its power independently of that which is not." Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 685 (1987).
To begin with, the text of § 601(a)(1) makes clear that provision is not severable from §§ 271-273. Section 601(a)(1) provides that "Any conduct or activity that was, before the date of enactment of this Act, subject to any restriction or obligation imposed by the AT&T Consent Decree [the MFJ] shall, on and after such date, be subject to the restrictions and obligations imposed by this Act, and shall not be subject to the restrictions and obligations imposed by such Consent Decree" (emphasis added). The plain language of this provision makes clear that Congress intended to substitute the "restrictions and obligations" of §§ 271-273 for those formerly imposed by the MFJ.
The 1996 Act’s legislative history confirms that §§ 271-273 and § 601(a)(1) are interdependent provisions. The Conference Report discusses the effect of § 601(a)(1) in the part of the report explaining § 271. Conference Report No. 104-458, Telecommunications Act of 1996, 104th Cong., 2d Sess. at 149-50 (1996). As Senator Hollings, the ranking Member of the Senate Commerce Committee that considered the Act, explained: "the bill transfers jurisdiction over the [MFJ] from the courts to the FCC." 104 Cong. Rec. S688 (Feb. 1, 1996). See 142 Cong. Rec. S687, S688 (Feb. 1, 1996) (statement of Sen. Hollings) ("I share the concern of many consumers that the RBOCs should not be permitted to enter the long-distance market while they retain a monopoly over local telephone service. . . . I am pleased that the conference agreement recognizes that the RBOCs must open their networks to competition prior to their entry into long distance."). Because allowing § 601(a)(1) to remain in force without §§ 271-273 "alters the substantive reach of the statute" and completely changes "its basic operation," by doing what Congress flatly rejected -- allowing immediate BOC entry into long distance -- those provisions are inseverable. United States v. Jackson, 390 U.S. 570, 586 (1968). Put simply, "the statute created in [their] absence is legislation that Congress would not have enacted," Alaska Airlines, 480 U.S. at 685.
Indeed, retaining § 601(a)(1) radically alters the legislative bargain achieved by Congress. In assessing "whether the statute will function in a manner consistent with the intent of Congress," the Court must "evaluate the importance of the [invalid provision] in the original legislative bargain." Alaska Airlines, 480 U.S. at 685. Congress understood that incumbent local telephone companies would retain strong incentives to obstruct their prospective competitors' efforts to enter the local market. For that reason, Congress linked the removal of the line of business restrictions to the BOCs' compliance with the local competition provisions of the 1996 Act. The BOCs themselves have repeatedly admitted as much. As SBC recently argued, the 1996 Act establishes "a quid pro quo by which a BOC may provide interLATA services once the FCC finds it has taken specific steps to make local competition possible." (Footnote 21) SBC has likewise argued in an FCC filing that § 271 "represents a bargain by which the Bell Companies will be freed on a state-by-state basis from restrictions that previously attached to their former monopoly position, once they have taken the mandated steps to give up their monopoly . . ." (Footnote 22)
The existence of a severability clause in the Communications Act of 1934 (Footnote 23) does not save Section 601. To begin with, by its terms the provision is inapplicable. The 1934 Act clause provides that "If any provision of this Act . . .is held invalid, the remainder of this Act . . .shall not be affected thereby. But Section 601(a) was not codified as part of the amendment to the 1934 Act. Therefore, the 1934 Act provision simply does not apply. Moreover, a severability clause "is an aid merely; not an inexorable command." Dark v. Kansas, 264 U.S. 286, 290 (1924); 2 Sutherland, Statutory Construction § 44.08 (5th ed. 1992) (a severability clause is not dispositive). "[T]he ultimate determination of severability will rarely turn on the presence or absence of such a clause." United States v. Jackson, 390 U.S. at 585 n.27; Equal Employment Opportunity Commission v. Hernando Bank, Inc., 724 F.2d 1188, 1190 (5th Cir. 1984). "Rather, the court must inquire into whether Congress would have enacted [Section 601] in the absence of the invalid provision[s]." Id. As demonstrated, the answer to that question is clearly no.
For the foregoing reasons, the judgment of the district court should be reversed.
Donald B. Verrilli, Jr.
ATTORNEYS FOR INTERVENORS
III Morris Harrell
Thomas F. O’Neil
Counsel for MCI Telecommunications Corporation
Mark C. Rosenblum
Ronald D. Wells, P.C.
David W. Carpenter
Counsel for AT&T Corporation
Richard J. Metzger
Counsel for Association for Local Counsel for Telecommunications
Charles C. Hunter
Telecommunications Services Resellers Association
Daniel L. Brenner
Counsel for National Cable Television Association
David P. Murray, Esq.
Counsel for Sprint Communications Company, L.P.
Danny E. Adams
Counsel for Competitive Telecommunications Association
1. Intervenors were granted the right to intervene in the district court to defend the constitutionality of §§ 271-273. R. 1307. They took no position in the district court on §§ 274-275, and on appeal intervenors will likewise focus on §§ 271-273. (Return.)
2. Citations to the record are abbreviated "R." The record transferred from the district court is not complete. Intervenors have requested a supplemental record. Citations to documents not currently in the record on appeal are cited "R. ____" and will be provided later. (Return.)
3. See United States v. American Tel. &Tel. Co., 524 F. Supp. 1336 (D.D.C. 1981); Plaintiff’s Memorandum In Opposition to Defendants’ Motion For Involuntary Dismissal Under Rule 41(b) (August 16, 1981). (Return.)
5. Removal of the MFJ restrictions would not itself have entitled the BOCs to provide all long distance services. Under § 214 of the Communications Act, the BOCs would have continued to be prohibited from providing interstate long distance services until the FCC separately determined that it would be in the "public interest" for them to do so, and granted a certificate of public convenience and necessity. 47 U.S.C. § 214. (Return.)
6. See United States v. Western Elec. Co., 900 F.2d 283, 305-310 (D.C. Cir. 1990) (affirming removal of general restriction and portion of information services restriction); United States v. Western Elec. Co., 993 F.2d 1572, 1582 (D.C. Cir. 1993) (affirming removal of remaining information services restriction). (Return.)
7. Similarly, in 1993, Ameritech proposed that it be permitted to provide long distance service in each of its States upon the State’s removal of entry barriers and Ameritech’s implementation of market opening measures. The Justice Department would agree only to a "trial" in which Ameritech would provide long-distance services after those measures had resulted in actual local competition. See Memorandum of the United States in Support of Motion for a Modification of the Decree to Permit a Limited Trial of Interexchange Service by Ameritech, United States v. Western Electric Co. (No. 82-0192) (May 1, 1995), pp. 8-12. (Return.)
8. See U.S. Agency Plans to Challenge Court Jurisdiction Over Baby Bells, Wall Street Journal, Nov. 24, 1987 ("The federal court isn’t the proper forum for defining national telecommunications policy . . . .[Issues with] such broad social, economic, and international trade implications shouldn’t be determined by a single unelected individual") (Bell Company spokesman) R. ___; see also Competition Policy in the Telecommunications Industry: A Comprehensive Approach, Hearing Before the Subcommittee on Economic and Commercial Law of the Committee on the Judiciary, 100th Cong. 1st Sess. (1986), at 33 ("no single individual has sufficient wisdom or knowledge to keep pace with [the industry’s] proper evolution and deployment, We should not expect this from any one person, especially one of our federal judges") (testimony of Edward Whitacre, Chairman of SBC) R. ___. (Return.)
9. See Hearings on H.R. 3687 and H.R. 3800, On the Competitive Status of the Bell Operating Companies, Before the Subcomm. on Telecommunications, Consumer Protection and Finance of the Comm. on Energy and Commerce, 99th Cong., at 586-87 (March 1986) (testimony of Robert A. Dickemper, Southwestern Bell Corp.) R. ___. The FCC had consistently opposed the MFJ’s line of business restrictions. (Return.)
10. Hearings on H.R. 3626, Antitrust and Communications Reform Act of 1993, Subcomm. on Economic and Commercial Law of the House Comm. on the Judiciary, 103d Cong., at 149-50 (Feb. 2, 1994). R. __. (Return.)
11. E.g., Communications Law Reform, Subcomm. on Telecommunications and Finance of the Comm. on Commerce House of Representatives, 104th Cong., at 140 (May 10, 1995) (Testimony of Richard H. Brown, Vice Chairman, Ameritech) (Return.)
12. In earlier Congresses, the BOCs had raised some constitutional objections to different provisions. For example, when the Democrats were the majority party, the Chairman of the House Judiciary Committee had introduced a bill that would have reimposed the MFJ’s information services restrictions; the BOC’s counsel, Professor Tribe, then testified on their behalf that the legislative reimposition of MFJ restrictions that had already been judicially eliminated would be unconstitutional, and incidentally made some opaque statements that are now claimed by SBC to have related to circumstances in which existing MFJ restrictions might be codified.(Return.)
13. Professor Tribe testified that:
Hearings Before the Subcomm. of Telecommunications and Finance of the Comm. on Energy and Commerce, 101st Cong. at 416 (March 7 and April 18, 1990) (testimony of Laurence Tribe) (emphasis added), available in Westlaw at A&P Telecom. Hearings (26A), at * 416. (Return.)
14. Section 271 also gave the BOCs the right to provide long-distance services to connect to centralized gateways that provide information services, compare § 271(g)(4), with United States v. Western Elec. Co., 907 F.2d 160 (D.C. Cir. 1990) (denying waiver for gateway services), and to provide the long-distance signaling services that the courts had prohibited, compare §§271(g)(5), (6) with United States v. Western Elec. Co., 969 F.2d 1231, 1241-43 (D.C. Cir. 1992) (denying waiver for signaling services). (Return.)
15. The Act’s principal sponsor, Senator Pressler, noted that "we now have the regional Bell Companies supporting the bill and we have the long distance companies supporting the bill. That is an unusual, rare moment in American history." 142 Cong. Rec. S393 (daily ed. Jan. 26, 1996); see also id. at S703 (statement of Sen. Heflin); id. at S717 (statement of Sen. Hollings). (Return.)
18. The Chairman of PacTel (now part of SBC) "lauded the signing of landmark telecommunications reform legislation . . . saying it, ‘will unleash an extraordinary array of new services,’" and "congratulate[d] the Members of Congress and their staffs who made this bill happen." PacTel News Release, February 8, 1996, at 1 R. ___. NYNEX’s chairman "applaud[ed] Congress for making history," and NYNEX’s press release noted that the "bill sets the stage for real competition to develop in the local and long-distance [markets] . . . by removing legal and regulatory barriers to [competition]." NYNEX News Release, Feb. 1, 1996 R. ___. BellSouth’s Chairman hailed the Act as inaugurating "a new era of competition in communications services," and noted the "bipartisan and industry-wide support for the [Act]." PR Newswire, February 8, 1996 R. ___. (Return.)