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Applicants' Joint Reply Brief.Board Should View Conduct of Each Applicant Separately.Applicants Accused of Inconsistencies by Virtue of Size & Demonstrated Interest in Nuclear Generation.Certificate of Svc Encl
	ML19319B287
Person / Time
Site:	Davis Besse, Perry
Issue date:	09/15/1976
From:	Reynolds W, Reynolds W, Zahler R; SHAW, PITTMAN, POTTS & TROWBRIDGE, TOLEDO EDISON CO.
To:	;
References
	NUDOCS 8001150711
	Download: ML19319B287 (965)
	v • d • e

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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION Before the Atomic Safety and Licensing Board In the Matter of )

THE TOLEDO EDISON COMPANY and ) THE CLEVELAND ELECTRIC ILLUMINATING ) Docket No. 50-346A

COMPANY ) (Davis-Besse Nuclear Power Station, ) Unit 1) )

THE CLEVELAND ELECTRIC ILLUMINATING ) COMPANY, ET AL. ) Docket Nos. 50-440A (Perry Nuclear Power Plant, ) 50-441A

   -              Units 1 and 2)                       )
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THE TOLEDO EDISON COMPANY, ET AL. ) (Davis-Besse Nuclear Power Station, ) Docket Nos. 50-500A {~ Units 2 and 3) ) 50-501A APPLICANTS' JOINT REPLY BRIEF

 .-           Of Counsel:
 -             ALAN P. BUCHMANN                        WM. BRADFORD REYNOLDS SQUIRE, SANDERS & DEMPSEY            ROBERT E. ZAHLER DONALD H. HAUSER                       SHAW, PITTMAN, POTTS & TROWBRIDGE

_ VICTOR F. GREENSLADE, JR. 1800 M Street, N. W.

                                           .              Washington, D. C. 20036 The Cleveland Electric Illuminating Company Counsel for Applicants MICHAEL M. BRILEY ROGER P. KLEE FULLER, HENRY, HODGE & SNYDER The Toledo Edison Company DAVID McN. OLDS

['L JOSEPH A. RIESER, JR. ' REED SMITH SHAW & McCLAY Duquesne Light Company TERENCE H. BENBOW

STEVEN.A. BERGER STEVEN.B. PERI _ WINTHROP, STIMSON, PUTNAM

                  & ROBERTS Ohio Edison Company and L.                   . Pennsylvania Power Company 3-

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j l l I UNITED STATES OF AMERICA l NUCLEAR REGULATORY COMMISSION Before the Atomic Safety and Licensing Board

In the Matter of )

THE TOLEDO EDISON COMPANY and ) THE CLEVELAND ELECTRIC ILLUMINATING ) Docket No. 50-346A COMPANY ) (Davis-Besse Nuclear Power Station, ; Unit 1) )

THE CLEVELAND ELECTRIC ILLUMINATING ) COMPANY, ET AL. ) Docket Nos. 50-440A (Perry Nuclear Power Plant, ) 50-441A

m. Units 1 and 2) )

THE TOLEDO EDISON COMPANY, ET AL. ) (Davis-Besse Nuclear Power Station, ) Docket Nos. 50-500A Jnits 2 and 3) ) 50-501A APPLICANTS' JOINT REPLY BRIEF On September 8, 1976, the Department of Justice I" ("DOJ"), the Legal Staff of the Nuclear Regulatory Commission

("NRC Staff") and the City of Cleveland (" Cleveland") served on Applicants their post-hearing Proposed Findings of Fact _ and Conclusions of Law, together with the Briefs in Support 1/

   -        thereof.        Applicants' similar filings were delivered to the L

1/ Throughout this Reply Brief, the post-hearing filings e- by the parties will be referenced as follows: I "D-Br.": Findings Of Fact And Conclusions Of Law Of The United States De- [ partment of Justice L "S-Br.": Proposed Findings Of Fact And Con-clusions Of Law Of NRC Staff "C-Br.": Proposed Findings Of Fact And Con-

  -                                 clusions Of Law And Brief In Support Thereof Of City Of Cleveland "A-Br.":   Applicants' Joint Brief In Support Of Their Proposed Findings Of Fact And Conclusions Of Law
                                                                  ~

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i other parties at the same time. While Applicants continue _ to believe that this Board must view the conduct by each of them separately in the absence of an independent showing of some unlawful combination or conspiracy (which showing has not been made), we are, for the convenience of the Board, including our 2spective responses to our adversaries' argu-ments in this single joint filing, rather than answering

    -             in separate reply briefs.

As for the arguments made by our adversaries, they

contain no real surprises. The position taken with regard to all the allegations, whether stated explicitly or put forth by clear implication, is that the Applicants in this m_ proceeding, simply by virtue of their size and their demon-p- strated interest in nuclear generation, are presumed to

have acted in a manner inconsistent with the antitrust laws, and it is incumbent upon them to disprove an alleged anti-trust inconsistency rather than it being the proponents'

. _              burden to prove their accusations. It is obvious why our r             adversaries have taken such a stand. They, too, now realize that the expansive charges which apparently sounded so con-vincing when initially formulated had insufficient eviden-tiary support to sustain them when the record was finally closed. Thus, their only alternative is to argue that the burden-of proof be shifted to the Applicants.

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    ~

We have already addressed this matter in our Sup- l: _ porting Brief (A-Br. pp. 209-14), and no useful purpose is served by rehashing here the legal authority that forecloses

the result our adversaries urge. We would add only that,

s
-

while the Chairman has been careful to note on occasions during the hearing that Applicants technically are not "de-

,_              fendants" in this administrative context, it cannot be j;-             denied that they presently are appearing before this Board i-              as the parties who stand accused of unlawful conduct.                       The            4 fact that those making the accusations have chosen this

forum in which to raise their antitrust charges, rather than

._ a district court, provides no legitimate reason to deny to 'L the Applicants the presumption of innocence that ordinarily

r- attaches to " defendants" charged with violating the anti-

' ~ ~ trust laws. It would make a mockery of our jurisprudential I system to give the choice of forum such significance. If that had been the congressional intent underlying Section 105c,

L surely the legislature would have so stated at the time it 7- delegated to the Commission antitrust review responsibility

with-respect-to the licensing of nuclear facilities. Its l} silence in this regard can only mean that no antitrust over-

tones were intended to attach to the filing of an application

!I 'l for a nuclear license (see Sec. 7, APA, 5 U.S.C. 556 (d) ) . ir It therefore follows that, if antitrust review is invoked, i6-i Le i= lC r

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L the initiating parties carry the burden of proving their

    ~.         claims. See Consumers Power Co. (Midland Plant, Units 1 & 2),

LBP-75-39, NRCI-75/7, 29, 45 (July 18, 1975).

DOJ, the NRC Staff and Cleveland appear in the w final analysis to be arguing that this burden can be met simply by showing that each Applicant is the dominant utility , p_ in generation and transmission of electric energy in its ser-l

   '           vice area, and is planning to add nuclear generation to its p           overall system (D-Br. , pp. 44-45; S-Br. , C/L pp. 23-26; C-Br. , pp.118-24) .

L. This is not to suggest that no other arguments are made by our adversaries, but the additional contentions have in all material respects been anticipated and heretofore fully an-2/

  -            swered by Applicants in their earlier brief.-                What is most
 'r            striking about the filings against us, however, is how little
  ~

the legal analysis depends upon these other allegations. It C is as though our opponents were totally oblivious to the com-mercial realities of the electric utility industry and knew L nothing of its economic characteristics and regulatory con-straints. Thus, they all ultimately wind up relying on a f

statistical rationale to conclude that each Applicant's dom-r inance gives it " monopoly power" (D-Br., p. 44; S-Br. , C/L p. 23; C-Br. , p. 120) , the normal and natural growth of which, so it is

       ,i m_

2/ For the Board's convenience, we have prepared a list . of cross-references identifying the portions of Applicants' Supporting Brief which are responsive to particular arguments made by our adversaries. That listing is appended hereto as Exhibit A.

                                                                 -r N= 4

i 1 1 argued, is subject to antitrust condemnation under United

     -        States v Aluminum Company of America, 148 F.2d 416 (2d Cir.

1945).-3/ In this regard they go even a step further than Judge Learned Hand did in Alcoa, since there apparently is not even a need to find an unlawful scheme (compare A-Br., 4/ [. pp. 98-103) or some unlawful conduct.- p- Moreover, the nexus concept is all but forgotten.

'L           It is thus thought to be enough that our adversaries can

[ point to the truism of "the integration of * *

nuclear t_

power into Applicants' system * * *" (D-Br., p. 141; and see S-Br., C/L, p. 3), notwithstanding the Commission's own _ cautionary note in Waterford II against relying on such a

             " commingling" rationale to meet the nexus requirement. See
     ~

Louisiana Power & Light Company (Waterford Steam Generating t_

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   ~

3/ See D-Br., p. 45; S-Br., C/L, pp. 23-26, 32-35, 48; C-Br., pp. 98-101, 118-124. 4/ The NRC Staff even argues that it is not necessary for

    '-       this Board to find a " reasonable probability" of contravention of the antitrust laws, but only that it look for a reasonable probability of an antitrust inconsistency. Thus, the Staff
 ,_          would be content to fault Applicants under some sort of double incipiency standard, i.e., the finding of a tendency toward an incipient violation In the future .(see S-Br. , C/L, pp. 16-19).

This cannot be what Congress intended under Section 105c by use of the term " inconsistency." Its reference in the Com-mittee Report to the reasonable probability standard is ob-li viously intended as an evidentiary rule relating to the quan-

;s.          tum of proof necessary to make out a showing of " inconsistency."

The Staff's suggestien that this reference can be construed to dilute the antitrust proscriptions down to virtually nothing -- ^ ~ so.that the mere conjecture of the possibility that an incipient a'ntitrust " inconsistency" might develop in the future -- is both conceptually and analytically unsound. 9 h M

4

    ~
   \

Unit 3), CLI-73-25, 6 AEC 619, 621 (Saptember 28, 1973).-5/ _ If this Board permits such faulty legal analysis to carry the day, every investor-owned utility in this r country of a size and financial capability to be in a po-sition to add duelear generation will have to factor into its decision to embark on such a program the inevitability ._ that its nuclear activities will be found to be " inconsistent L with the antitrust laws" under Section 105c. Indeed, our adversaries' position would eliminate altogether the need L for an antitrust hearing. For, the applying utility's ob-u. vious " dominance," coupled with the anticipated expansion of its facilities and the inevitable integration or commingling u of nuclear energy into the overall system, according to our r opponents' basic tiesis, is a sufficient indicia of "anticom-petitive" conduct to be dispositive of the antitrust inquiry, I L_ 5/ The NRC Staff does nothing more than rephrase the com-mingling argument by defining " activities under the license" L to include "the totality of activities which are related to or affected by the planning, building, and/or operation of r the nuclear facility ac well as the integration of such a facility into the applicants' bulk power supply system" (S-Br., C/L, p. 3). Then, in open disregard of the Commission's own position, the Staff boldly argues: "It is this totality of f activities, taken as a whole, which must be considered in de- ._ termining whether the ' activities under the license' would create or maintain a situation inconsistent with the antitrust '{ laws" (id.). Interestingly, Cleveland does not even address the " matter of nexus in its brief. Nowhere does it so much as try to argue that its allegations of misconduct are linked to the licensed activities. We suspect that the reason for this ob-vious omission is that Cleveland's counsel has finally recog-nized that no legitimate tie to the nuclear facilities can in good conscience be advanced as a credible argument. 3 i-

r-

                                                    -y-r l             no matter what'the actual behavior of the applicant has been
     ,.           or may be.

Had this been the congressional intent in 1970, we are hard pressed to understand the need for Section 105c.

                 'The natural monopoly structure of the industry was not un-

[ known to the legislative branch of the federal government

 ,  r-(see Waterford II, supra, 6 AEC at 620).         That the construc-l tion of nuclear generation and its attendant extra-high-voltage 7            transmission could and would be undertaken only by those dom-
     ~

inant utilities in the industry capable of taking advantage

,~

u i of the scale economies involved was fully anticipated (id.). --

   ,              Nor was anyone so naive as to believe that the nuclear energy
  , L            would not be commingled with all other energy on the appli-

{ cant utility's system at the time the units commenced com-

mercial operation (id. at 621). If such facts had been con-sidered as alone sufficient to sustain a finding of antitrust inconsistency, why did Congress adopt legislation calling u for an inquiry into whether the licensed activities would

-)

r in fact " create or maintain a situation inconsistent with the antitrust laws" (42 U.S.C. 2135 (c) ) ?-6/ if

  -y                  ,

6/- As the Joint Committee made clear in its Report ac-

!{              companying the legislation, this Commission was to focus on 4            .the antitrust implications of "the activities under the license when the license is issued or thereafter" (3 U.S.

e r Code Cong, & Admin. News, at p. 4994). And see Brebbia, i~ Antitrust Problems in the Licensing and Permit Authority of The United States Nuclear Regulatory Commission, 26 Mercer L. Rev. 749, 759 (1975). .n l

                           ,,m                 ---,     n. , -,        ,       -,    , . , . . - r..,

>r . 'l Was it simply to waste the taxpayers' money on [ the sort of charade that DOJ, the NRC Staff and Cleveland

 .._             have been acting out in this proceeding for the past two r

years, only to have them come in at the end and in essence

point to nothing more than Applicants' " dominance" and the >! i applications for nuclear licenses as the essential predicate ,I for finding a violation? Did Congress really intend Sec- _.. tion 105c to be used by government lawyers to bring witnesses

to Washington from such far-off places as American Samoa at e- considerable expense and inconvenience for no discernible b

reason whatsoever (see Eppard 5450-89)? Was it truly the .r-legislators' desire to have counsel for the NRC Staff fran- { .. e-

                 .tically trying to drum up interest among municipalities in

_ nuclear generation when intervenors failed to come forward p- to request nuclear access (see, e.g. , A-137) ? i.

-

We are confident it was not. Rather, Congress I j I plainly contemplated that Section 105c would be used to as- l iL~ ; certain whether any conduct associated with the planning, , l construction and operation of nuclear facilities would, of l

itself, create an undesired antitrust situation, or, alter-natively, would maintain such a " situation" which could be proved to be already in existence.-7/

.lj~ And, to that end, it

U directed this Commission to examine the licensed activities

,7 7/ See A-Br., at pp. 674-91; and see Applicants' Pre-hearing' Legal Brief, at pp. 121-43. It_ , l

f e ( of applicants for a nuclear license, mindful of the indus-trial setting in which they operate, to determine if there was a reasonable probability that issuance of a license would , have antitrust implications. [ We have described in our Supporting Brief the f economic characteristics of the industry which eliminate L in large measure the possibility of there ever being any I [ real competition at the retail or wholesale levels among c private and public utilities (see A-Br., pp. 122-34). In ad-i ,o dition, we have explained the local, state and federal regu- { latory restraints that control pricing and marketing activ-L ities of these Applicants in connection with the generation, I transmission and distribution of electric energy (see A-Br. pp. 134-50). In the face of these commercial realities, the .i_ u simplistic statistical analysis of our adversaries for sus-

taining their Section 2 claims is legally deficient (A-Br.,

pp. 66-87). Also wrong as a matter of law is their commingling argument as a basis for finding nexus (see A-Br., pp. 679-85). Furthermore, DOJ's suggestion that nuclear generation can be

 -            said to " maintain" the existing situation (whatever it is t

claimed to be) because it confers an economic advantage upon Applicants which is not available to other electric entities .a in Applicants' service areas (D-Br., pp. 143-44) is unsound

 . ~ -

h

I ' on its facts. The installation of nuclear units increases _ Applicants' average embedded costs (Kampmeier 6042(19-25), 1 6044(12-19); Hughes 3660-61; A-105). To be sure, that in-I crease is less in the long run than it would be if Appli-cants were to build, instead, similarly-sized fossil plants J (Gerber 11542(10-17)). However, the savings which Appli-

     .        cants realize by virtue of this lower cost factor will be passed through equally to all of Applicants' wholesale cus-I           tomers in the wholesale rate (Hughes 3697(4-11), 3732(14-19);

A-190(Pace) 10). Indeed, on any sort of economic comparison, the wholesale customer fares far better than the Applicant, since the former receives his nuclear power at Applicant's

L average cost whereas the Applicant-supplier must incur the higher incremental cost of constructing the new nuclear fa-

cility (Kampmeier 6042-44). Thus, the lower long-term costs I which encourage construction of large-scale nuclear generation

 ,            do not give Applicants any economic advantage over other s-.

electric entities (Pace 11731(6-10)). Even as to those en- l p tities which choose to participate in the nuclear plants l

directly by a unit power purchase or by ownership, the econ-7 omies do not favor Applicants. Those making a unit power purchase will have the same incremental costs; and those t

 ;            choosing ov*.ership participation will even gain an economic      ;

~ advantage over Applicants by reason of their lower cost of money ( A-190 (Pace) 17 (3-9) ; Gerber 11570(4-8)). L e

I ,( I It is, of course, clear on this record that Appli-cants are prepared to grant to requesting electric entities I such access to the subject nuclear facilities on the terms I set forth in A-44. That is the present " situation." No reasonable argument has or can be made that the licensed ( activities, when considered in light of A-44, will create

   ..          or maintain any antitrust " situation" (see A-Br., pp. 674-92).

1 Nor do the various allegations of misconduct which are as-I cribed to Applicants by our adversaries undermine that con-L clusion in any respect, whether they be viewed individually or in a bundle. This is not only because the " logical con- _ nection" to the nuclear facilities is missing, but also be-cause there is insufficient evidentiary support to sustain I the charges made. We have already exposed the fundamental t weaknesses of the various antitrust contentions in our Suppxting I

  ,           Brief, as the references in Exhibit A hereto will conclusively
  ,           demonstrate. The only additional discussion necessary at L             this point relates to those arguments made which find so

[ 9 little evidentiary support that we believe they deserve special

mention so as to alert the Board to the manner in which our adversaries have chosen to distort and misuse the record to 8/ draw unwarranted and impermissible conclusions.- I C 8/ In view of the one-week limit on filing Applicants'

~~

Joint Reply Brief, we obviously were unable to check all of our adversaries' record citations. The following represen-tative sampling should be more than enough, however, to caution 1 the Board against taking at face value the record references in our opponents' filings.

i' .- i I' e 'l r .I 1. For example, the NRC Staff makes the argument

   -          that the long lead time for withdrawing from CAPCO acts as I
   ~

a barrier to entry into CAPCO (see S-Br., F/F, pp. 131-32). Such a contention simply provides further confirmation of the Staff's insistence upon according preferential treatment r [ ,to non-Applicant CCCT entities. Membership in CAPCO is not

      -       simply a card-carrying privilege. The CAPCO companies are
   '          actively engaged in the planning, construction and operation I          of large-scale generation and transmission facilities on a L

one-system basis. In order to participate in such a program, I electric entities must be prepared to assume long-term re-g, y- sponsibi)tties that are associated with the extended lives 3 of the facilities being built. Perhaps the NRC Staff sees

nothing wrong with small municipal entities abandoning their ,L responsibilities with respect to the maintenance and repair .(- of their own generation, transmission and distribution fa-L ._ cilities (see A-Br., pp. 82-83, n.56). To suggest, however, 'I 4- that it is somehow inappropriate to ask them to make a . [' long-term commitment not to approach CAPCO membership with L the same cavalier attitude, is truly astounding. None of the present CAPCO members can abandon their pool responsi-bilities so conveniently or so abruptly. Nor would CAPCO 'I

(. have any real chance of surviving if the situation were other-

~'

wise. A

t e-( If, as the NRC Staff seems to imply, a long-term

     -          commitment of the sort CAPCO requires imposes a hardship

(~ on small municipal entities, that is nothing more than a I reflection of the inappropriateness of tardag to force such systems into a situation which they are engineeringly and financially incapable of handling. The six fundamental char-

        -       acteristics of the electric utility industry (A-Br., p. 123),

which our adversaries prefer to ignore, are precisely why I long-term commitments are necessary in connection with the l construction of highly capital-intensive equipment. For the NRC Staff to argue that small municipal systems should,

    ..          simply by virtue of their size, be relieved of the obliga-tions that these characteristics impose on all other electric F              entities underscores the extreme naivety of the Staff's L

overall position. It is clearly not in the public interest I to force such entities into a " competitive" position with i .~. Applicants where natural economic forces make it clear that L- there exists no realistic opportunity for competition. In-li' deed, recognition of this point is exactly why the industry

is so heavily regulated (see A-Br., pp. 72-84, 201-09).

2. Another argument made by our adversaries that is particularly noteworthy is their contention that, pursuant L

i. to the CAPCO agreements, Applicants " wheel" power for one another (see S-Br., F/F, p. 129 & n.33a; D-Br., pp. 23-24;

     ;        ..
     ~

_14_ ( C-Br., pp. 17-18). This is simply not so. Obviously, the _ physical transportation of energy from one system to another is going to be the same whatever the particular terms and F conditions under which that transfer takes place. Whether or not it is a " wheeling" transaction, therefore, must turn on the nature of the contractual arrangement and the basis _. of compensation. In our earlier brief, we spelled out in b considerable detail why it is that the CAPCO agreements do I not contemplate " wheeling" transactions as the industry uses L that term (A-Br., pp. 275-80 & n.286). r [ The most startling aspect of our adversaries' con-trary view is that it depends on record authority which re-L futes, rather than supports, the argument being made. The r deposition testimony of Mr. Rudolph should be specially noted L by the Board (see D-558(Rudolph) 213-14), since it describes f the CAPCO transmission arrangements exactly as Applicants have advised in their brief, i.e., as something other than L " wheeling." Nor does Mr. Masters' deposition contradict this { reading (see D-567 (Masters) 44-45). Rather, given the open-

   ~                                                                              '

ended definition of " wheeling" which Mr. Masters was asked y to comment upon -- which embraced within its terms buy / sell arrangements of the sort engaged in by the CAPCO companies 't it (D-567 (Masters) 43-44) -- any other response to the question p he was' asked would have been surprising. Applicants have 4 W

4

     ;                                               r
     /         never disputed that they transmit power to and from one another on a buy / sell basis (see A-Br., pp. 395-96; and b

see D-381 for an instructive analysis of buy / sell pricing I 9/ principles).-

3. On the basis of Warren Hinchee's testimony i_

      ;         (see Hinchee 2702-06, 2781-82, 2807-11), it is argued that 7        in early 1971 Cleveland made an oral request to CEI for b:      participation in the Davis-Besse Unit 1 facility, which was I       refused (D-Br., pp. 70-71; S-Br., F/F, p. 43; C-Br., p. 70).--10/

L: Conveniently overlooked, however, is that Cleveland's July 6, r [ 1971 petition to intervene made no mention whatsoever of such a request or retusal. Cleveland's other two interven-tion petitions are similarly silent with regard to this

 'F          matter. And, DOJ's July 9, 1971 advice letter in Davis-Besme L

No. 1 explicitly refutes the argument (see 36 Fed. Reg. 17889 (the City "has made no such request to either CEI or Toledo

    ,,       Edison nor formulated the terms of a proposal for such par-lk          ticipation")).      Moreover, Warren Hinchee testified that his p        purported oral request was confirmed by a written request
    ~

h 9/ DOJ lists a number of additional references in support of Its "CAPCO wheeling" contention. We welcome the Board to look at each of them to see for itself how inappropriate

 -p          they are. None of those references contradints Applicants' t, ,     position.

r 10/ The NRC Staff's claim that Cleveland orally requested

 ~-          access to the Beaver Valley and Perry nuclear units, as well as membership in CAPCO, is not even supported by Mr. Hinchee's

, testimony (see Hinchee.2702). l l-

( ( l 7 I ( l l I from Director Gaskill (see Hinchee 2702-03(25 & 1, 22-23), . /. _ 2705-06(24-25 & 1-4), 2807(10-21), 2810(16-24)). Yet, Cleveland had to admit aftt" a thorough file search that 1 F it could fi.nd no such written request (A-192; A-193; A-194).

4. Mr. Hinchee's credibility is further under-mined by his testimony that AMP-O had secured a commitment for PASNY hydroelectric power which had been allocated by PASNY for the eventual use of Cleveland (Hinchee 2677-78).

I Both DOJ and the NRC Staff rely on this testimony (D-Br., L 11/ pp. 72-73; S-Br., F/F, p. 37).-- However, when Hinchee was r' pressed on cross-examination on this point, he insisted that L the PASNY " commitment" was in writing in the form of a letter '\

  ~         of intent (Hinchee 2839(16-23)), which he presumed had been r-         executed by Mr. Berry for PASNY (Hinchee 2840(6-11)) and by L

Mr. Engle for AMP-O (Hinchee 2813(20-22)). Yet, no such f letter was ever produced, and, in response to a subpoena seeking copies of the document, PASNY advised that it L had "not been able to locate any such document in the files of the Power Authority, nor * *

any document in the Author-

{

           .ity's files which could reasonably be considered to fit

{ [that] description" (A-191, p. 1). Moreover, letters from PASNY to AMP-O on February 13 f(; and April 13, 1973 (A-191, items 4 & 5), and from AMP-O to I 11/ Cleveland, on the other hand, asserts that AMP-O received " indications" that the PASNY power would be allo-cated for delivery to Cleveland (C-Br., p. 59). me

O d

 'l 1

t PASNY on January 19, January 29, May 10, and October 1, 1973 (D-8; A-191, items 1, 3 & 6) , indicate that AMP-O L never received any " indication" (see n.11, supra), let alone r a commitment, from PASNY as to the allocation of the 30 mw. In fact, both Vermont and Pennsylvania had filed competing applications (A-191, item 4). Mr. Hinchee attempted to brush these facts aside by testifying that Vermont's appli-L cation was not filed while he was at Cleveland (Hinchee [- 2841(17-19)). That is simply not true (A-191, item 4). He

further stated that Allegheny had agreed to make the 30 mw available to AMP-O (Hinchee 2840-41(20-25 & 1-5)). In fact,

 >i that arrangement was not reached until October 8, 1974 i

c- (C-166), well after the tima Mr. Hinchees left Cleveland. See also A-Br. , pp.185-91, 450-56. 4"

5. For some inexplicable reason, both DOJ and Cleveland claim that, during the operation of the load trans-fer service, CEI made no attempt to obtain power for MELP r

C from other utilities (see D-Br., p. 70; C-Br., p. 54). The g record reference is to the testimony of Donald Hauser (Hauser 10700-04). This is but one example of why we urge t II the Board to look carefu?i at the other parties' citations. L What Mr. Hauser actually stated is (Hauser 10700(13-15), [, 10704(3-10)): l- Again, if we could, either through outside purchases by CEI, or our own x . m+

                                                               --           ,,y.

f I

generation, we would have pro-vided the service. '

      ~                             And as I said before, when either our system requirements called for it or it was needed to supply the customers of the Municipal Light Plant, we would buy power and transmit it and deliver it over the 11 kV.

r--

                                    ***    [We] would either, on l-our own resources, or other sources of power, obtain power

[' that was required to meet our b needs as well as the Municipal System's. [ Emphasis added.]l2/ r o

6. DOJ charges CEI, and all Applicants, with a

,   \
                " deplorable lack of candor" because of an assumed conflict t

between Applicants' Proposed License Conditions (A-44) and [m CEI's insistence in D-192 on a right of first refusal should L L. Cleveland have any surplus nuclear energy (D-Br., p. 72, n.32). However, A-44 clearly provides that " [i] nterconnec-tion agreements will not embody provisions which impose lim-L. itations upon the use or resale of capacity and energy sold

 . p:         or exchanged pursuant to the agreement except as may be neces-b urry to protect the reliability of Company's system" (A-44, m

y p. 5; emphasis added). As explained in Applicants' earlier a 13/ brief (see A-Br. , pp. 393-94, n . 2 31 ) ,-- CEI found it neces-b ' C. . r- 12/ See also A-Br., pp. 432-36. 13/ There are two typographical errors in footnote 231, page 393: (1) at 1. 4, change "D-197" to "D-192"; (2) at 1 1. 18, insert after "CEI has" the phrase, " offered to make available to Cleveland nuclear power from CEI's". l .~ e

I ( sary to ask for a right of first refusal only because Cleve- _ land's request for accesc was tardy, and any export of sur-plus power would degrade system reliability. That clearly I falls within the exception contempl.ited by A-44. In any event, it is difficult to understand on what basis DOJ can regard a right of first refusal, which is pegged to terms

  ,_           similar to those Cleveland may negotiate with a third party L

14/ (Hauser 10588(1-11)), as imposing any real limitation on use or resale of the nuclear power.

7. Cleveland and Da7 allege the CEI's " promotional al-e lowances" are a form of cutthroat competition (see D-Br.,

., p. 61; C-Br., p. 43). The support for this charge comes '\ only from a mischaracterization of the deposition testimony

p of Messrs. Rudolph and Wyman and of the hearing testimony of L

Mr. Bingham. What those witnesses testified to was that CEI

I standardized service to new customers in conformity with its

,_ tariff (Bingham 10323-25; D-558(Rudolph) 13(14-15)) in order u . to " meet competition" from MELP (D-558 (Rudolph) 16-17(25 & 1); {~ Bingham 10325(1-6)), or because MELP "was going to provide certain things" (D-566(Wyman) 61(18-21)). Such conduct is i not inconsistent with the antitrust laws. Cf. Robinson-Patman L 't. 14/ Mr. Mayben's testimony that the right of first re-fusal would be priced at Cleveland's cost and not at the most advantageous price Cleveland could negotiate with a third

"~

party (Mayben 7612-13; see C-Br., p. 74), was based on his

              " recollection" that the right of first refusal was specifi-cally so priced in the participation agreement (Mayben 7617           l 5             (13-18); see also id. at 7616-17 (22-25 & 1-3)). That is not          ;

the case, however Tsee D-192, S 1.3).

m 7

         .-                                                                           l
     '                                                                                ;

2 7 i i ,

n S 2(b), 15 U.S.C. S 13(b) (meeting competition defense). _ 8. One final point as to the CEI-MELP " situation" i which warrants special mention is cleveland's marginal r-reference to its request for disqualification of Squire, Sanders & Dempsey oII the basis of some trumped-up conflict of in-terest charge. See C-Br., p. 57 n.l. The identical claim has now been fully litigated and finally adjudicated in the Federal District [ Court for the Northern District of Ohio. As anticipated, r Judge Krupansky found it to be utterly without merit. A copy of his decision is attached hereto as Exhibit B.

 .r-
    ,e

9. With regard to the City of Painesville, our adversaries all take the position that CEI has not offered access to nuclear generation (D-Br., pp. 77-78; S-Br., F/F

(- pp. 62-68; C-Br., pp. 76-77). Applicants have already an-l- swered this allegation in their Earlier brief ( A-Br. , pp . 462-64). Apparently, the rationale relied upon by the other side is the one spelled out by the NRC Staff. It advances m the argument that the sufficiency of an offer for nuclear

 ;-
.;

access in an antitrust proceeding is to be measured by the criteria formulated under the law of contracts (S-Br., F/F jf p. 68, C/L pp. 38-39 nn.109 & 110). Thus, if CEI's " offer"

;L of access to Painesville does not contain " definite terms,"

r

  ,_        so that acceptance by Painesville would, then and there, establish an enforceable contract, the Staff's view is that no " offer" in 'che antitrust sense has been made.                        i

{ H

I 1 Applicants know of no legal support for such a novel antitrust concept. Acceptance of such a proposition would effectively require the total abandonment of any nego-tiating process to arrive at access terms which would be mutually beneficial to the parties. While the antitrust laws probably require that CEI not take any action wnich would frustrate Painesville's ability to negotiate terms L of nuclear access -- and the record demonstrates that CEI [' has been particularly helpful to Painesville in this regard y by promptly supplying necessary technical information (A-43) and contract forms (A-138) -- those laws do not require CEI actually to draft contract terms for Painesville. Nor is CEI in any position to undertake such a task, since it does not know what it is that Painesville in d fact desires. Moreover, based on the NRC Staff's irrespon- .(-

t. sible position with respect to the Ohio Tdison-WCOE nego-Liations, CEI would presumably have been taken to task as i- vehemently by the Staff if it had proposed " definite terms" r as it now is for failing to do so.

However, the argument would then have been that CEI's proposals imposed anticom- , .r L 1 petitive " restrictions" on what Painc3ville could study and , propose on its own. The fact that such a position is entitled i to no more credence under the antitrust laws (see A-Br., pp. 595-609) than the one misapplying hornbook principles of contract law does not seem to bother the Staff at all. y

1

10. The NRC Staff also makes the argument that

      .,        CEI thwarted consummation of an interconnectior agreement s

between Painesville and Diamond Shamrock (S-Br., pp. 54-56). The only evidentiary support for this allegation is the testimony of Mr. Pandy, admittedly based on a third-hand

     ,          account by a Diamond Shamrock works manager of a conversa-
     ,,         tion related to him by some unknown person which had pur-i-

portedly taken place earlier between CEI management and r- Diamond Shamrock management (see Pandy 3172(18-21)). Obvi-t ously, no probative weight can attach to such testimony. (. . i. The fact that the Staff was unable to come forward

   ,           with any evidence to even remotely substantiate such a charge t           reflects how truly empty the accusation is.        Indeed, there r-is every reason to believe that the so-called negotiations L

between Painesville and Diamond Shamrock never even reached a meaningful stage. Mr. Milburn, the principal negotiator r~ for Painesville, testified that he was not aware of any dis- ~.L cussion with Diamond Shamrock concerning a possible inter-(- connection; he also stated he had never spoken or corresponded with anyone at Diamond Shamrock (A-195 (Milburn) 28-31). I It is inconceivable that Mr. Milburn would have been so to-tu - i tally ignorant of such discussions if they had really ad-in 't l[ l vanced to the stage suggested by Mr. Pandy (gf. Pandy 3184 r ( 2-5 ))'. Certainly, the Painesville files would have been !b# t . m n wa

1 l 4 more revealing if conversations with Diamond Shamrock had progressed as far as suggested by the rumors Mr. Pandy was , l content to rely upon. Thus, in the final analysis, it must _ l be recognized that this is but another instance of a loose l e accusation which has no evidentiary backing to support it.

11. A similar conclusion is called for with respect to the claim by DOJ and Cleveland that TECO and Ohie Edison L-entered into the Buckeye arrangement to prevent the construc-F tion of a statewide transmission grid by rural electric co-operatives (see D-Br. , pp. 116-17; C-Br., pp. 29, 36-37). 15/

r-The sole support for this claim is a few carefully selected, unsponsored, internal memoranda of the Ohio Power Company L (not a party to this proceeding) which outline some concerns in the early 1960's of individuals in that company only, it Applicants objected to receipt of this material into evidence f~ j (following the close of the record but for a few isolated matters, of which this was not one), in part because Ohio m. Power's perceptions at the time in question (which predated {' the period on which the evidentiary hearing had until then

focused) could not be ascribed to TECO or Ohio Edison unless ,r j'il a conspiracy was first independently established. See " Min-i. utes of Conference Call of August 9, 1976," filed August 10, L. 1976, at 5-7. The memoranda were admitted, however, as to 1 l ,' l" 15/ Cleveland seeks to support its argument in this re-gard by reference to a document which the Board rejected from evidence, i.e., D-479 (see Tr. 6239). See C-Br., p. 29. DOJ makes even greater use of rejected evidence (D-Br., pp.116-17).

Ohio Power's perceptions, but with the understanding that r- the burden was on DOJ to show that TECO and Ohio Edison had knowledge of and participated in the so-called " conspiracy." Examination of the record demonstrates that DOJ totally failed to carry its burden. Thus, the only link between TECO and Ohio Power suggested by DOJ is the deposi-

    -          tion testimony of Mr. Keck (see D-576(Keck) 183-84).        Rather l

than proving the conspiracy, Keck's testimony is eloquent [" proof of its non-existence. He stated that he did not know ( why American Electric Power (i.e. , Ohio Power) was in favor

   .,         of the Buckeye Project and that he had never even discussed the question with Ohio Power personnel (M. at 183 (4-7) ) . Similarly, DOJ's reliance on the Mansfield deposition to establish the needed link between Ohio Edison and Ohio Power falls short (see
.t D-572(Mansfield) 118-19). As Mr. Mansfield stated (pd. at
.I i

119(4-7)):

.,                             * *

I guess I would have to say that [ Ohio Power's] argu-ment was not persuasive for us to join in with the other Ohio

'I companies in the arrangement

.. that they made with Ohio Power and Buckeye. 'r l[ Due to the lateness of the charge, TECO and Ohio

  ,           Edison had no opportunity to develop further the different

+1 ~L perceptions they had in the early 1960's with regard to rural l' electric cooperatives, as distinguished from Ohio Power's lL l l w#

        ~
      .c'
      ,          apparent (although unproven) attitude. However, the failure r-         of DOJ to develop a sufficient evidentiary record tc support a finding by this Board that TECO and Ohio Edison acquiesced in, or agreed with, Ohio Power's alleged perceptions, is dispositive of the conspiracy claim without the need for a r

i g further demonstration of TECO's and Ohio Edison's indepen-

p. dent views.

L 12. With respect to the so-called 90-day "restric-I tion" in the Buckeye agreement, Applicants have pointed out i already that the challenged provision had no greater restric-r tive impact on the cooperatives than was imposed by the state

     ,_         law of Ohio, and that it was on this basis that DOJ issued L          its favorable business review clearance (see A-248; A-289; r          R. C. S 4905.261; see also A-Br., pp. 137-39, 493-99, 610-13).--16/

m 16/ DOJ argues that the Buckeye contract provision has prevented a " number of municipal systems which are or have

   . .          been interested in securing bulk power from Buckeye" (D-Br.,

p. 118) from doing so. In support of this generalized state-

_. ment, it points to Cleveland, Newton Falls and Norwalk as among the only five municipalities it could find in Ohio e and Pennsylvania to support its argument (id.). However, none of these three municipal systems would have been affected by the 90-day disconnect requirement during the period in 7 question, since all were self generators providing their own full requirements (see A-284, p. 25). Thus, if they had really had a genuine interest in Buckeye power, as DOJ seems

to suggest, they could have easily arranged for such a pur-chase. Of course, as Applicants pointed out in their earlier _. brief (A-Br., pp. 195-97), the 100 percent demand ratchet in the Buckeye tariff was a risk which few municipalities , seemed willing to incur. This is certainly a more plausible l 1~ explanation for the failure of self-generating municipalities to purchase Buckeye power than the one offered by DOJ based on the 90-day disconnect provision which was not even appli-l cable, l-t

i

l P [ At the time this clearance.was given, DOJ indicated that, if state law should be further interpreted so as not to cover the wholesale transactions conts@latai by the Buckeye I Project, then the matter would be reconsidered (A-248). To i. Applicants' knowledge -- and DOJ has not indicated that it r r. has any contrary information -- the state law of Ohio has _ not yet been so interpreted. U However, that has not stopped the ingenuity of

counsel for DOJ. Based on case-law decided well prior to

Mr. Turner's clearance letter, and clearly within the knowl-r iL i edge of the Department at that time, DOJ now argues that i Ohio has no authority to raise barriers to wholesale com-iL petition on the basis of some legal theory akin to preemp-17/ tion (see D-Br., pp. 31-32 & p. 118 n.114). -- A clear { measure of the invalidity of the argument now being advanced ' j . is the failure of DOJ to raise such an objection in l'967. 4 r L. 17/ DOJ's argument is general in nature and has appl - cation not only to the Ohio anti-pirating statute, but al o n to Applicants' argument that by means of the PaPUC's.authe - [' ity over eminent domain, the PaPUC exercises de facto juris diction over the certification of wholesale territories ,b (see A-Br. , pp. 141-42). Prolonged analysis of DOJ's theory L in this area is unnecessary since case law directly in point holds that the FPC has not preempted the PaPUC's au-thority of transmission right-of-ways. Dunk v Pennsylvania '{t- Public Utility Commission, 435 Pa. 41, 257~A.2d 589 (1969), certiorari denied, 396 U.S. 839 (1969); see also In re Petitions of Public-Service Electric & Gas Co., 100 N.J. Super. 1, 241 A.2d 15, 23-24 (1968). These cases also ex-

pose the weakness in DOJ's simplistic-analysis of the pre-

emption doctrine. I I l

r- , ..

r [ Similarly, the incongruity of DoJ's position is highlighted q- by the fact that it is now arguing that a pervasive scheme 'L of federal regulation preempts state legislation (compare .[~ Northern States Power Co. v Minnesota, 447 F.2d 1143, l. 1146-47 (8th Cir. 1971), aff'd, 405 U.S. 1035 (1972) (per-vasiveness of federal regulation a factor)), whereas through-out this hearing our adversaries have regularly insisted that there is no pervasive regulation of utilities by the [ FPC (see, e.g. , S-Br. , C/L, p. 27). 1 DOJ goes wrong in its legal analysis by over-L generalizing as to the scope of FPC regulation. That regu-l lation is all-pervasive as to the sale and purchase of L wholesale power, and the terms and conditions under which

such sales are made. Thus, as stated in Dunk V Pennsylvania Public Utility Commission, 210 Pa. Super. 183, 232 A.2d 231, F j_ 235 (1967), aff'd, 435 Pa. 41, 252 A.2d 589 (1969), certiorari

 ,           denied, 396 U.S. 839 (1969):

6 The real reason for the passage r~ of the [ Federal Power] Act was to fill the gap of unregulated whole- .lj sale _ sales of electric energy in interstate commerce. Its purpose was to regulate areas not closed to state control and to supplement, not supercede the regulatory powers of the states. Public Utility Com-

L p, mission of Rhode Island v. Attleboro Steam & Electric Co., 273 U.S. 83

^                                    (1927). "It is clearly the purpose of the entire act to regulate

,, only those matters which pertain to eese

  ~
  ;

the interstate exchange of whole-sale power." Northern Pennsylvania

  -                      Power Co. v. Pennsylvania P.U.C.,

l- 132 Pa. Super. 178, 200 A. 866 (1938). [ Emphasis added.] I But, such regulation does not deal with, and therefore can-not preempt, the power of a state to create a cause of action for one utility to sue another utility -- which is all R. C. r- S 4905.261 does -- pursuant to the state's general police 18/ power.

Courts have traditionally employed various tests to determine if federal regulation preempts state legislation. Measured by these tests DOJ's position plainly fails. Thus, _ both the anti-pirating statute and the Federal Power Act can

'-       be enforced "without impairing federal superintendence of f        the field" (see Florida Lime & Avocado Growers, Inc. v Paul, L

373 U.S. 132, 142-43 (1963) (test of physical impossibility)). Moreover, the Federal Power Act certainly evidences no ex-7 press declaration of Congress ousting state control over all i k bulk power activities of public utilities (see Rice v Santa Fe [ Elevator Corp., 331 U.S. 218, 230 (1947) (police powers of L state not superseded unless that was " clear and manifest pur-F [ pose of Congress")). Finally, there is no basis for an implied i 18/ Compare Huron Portland Cement Co. v City of Detroit, 362 U.S. 440, 445-46 (1960) (no preemption since no overlap r in scope of federal ship inspection laws, whose aim is to insure seagoing safety, and municipal pollution ordinance, whose aim is to protect health and enhance cleanliness of , ~1ocal community). L P

.~.

t*

                                                    ~29-preemption based on a finding that the bulk power activities of public utilities are " intimately blended and intertwined 1                                                                                                             !

with responsibilities of the national government" (see Hines v Davidowitz, 312 U.S. 52, 66 (1941); see also Northern States Power Co. v Minnesota, sut ra (Atomic Energy Act pre-i --

    !             empted state regulation of radioactive releases from nuclear
,-               power plants)). In short, DOJ's position suffers once again from a failure to take cognizance of the realities of the

[ electric utility industry in favor of a theoretical legal . argument having little application in the particular context I~ presented.

;-                          13. Turning to DOJ's contention relating to "ter-

-- ritorial agreercents" between TECO and other electric entities,

[ the suggestion is made that such agreements eliminated "com-

L l petition in supplying bulk power to * *

municipal and co-i-

{[ operative systems" (D-Br., pp. 109-10). We have already r. fully answered the allegations in this area in our earlier ' '. brief (A-Br., pp. 521-46; and see pp. 620-23). It is enough l{ ' to reiterate here simply that there is no room on this record to conclude that TECO ever entered into agreements with its

r

. neighboring electric entities having anything to do with , bulk power supply. The same is true with respect '.o the

t
U similar contention relating to Ohio Edison. Whatever maps: r may have been signed in 1965 pertained solely to distribution L

lL l l __ _ ~, _ _ __ _ _ _ _ , _. _

~-

[ facilities, and thus, if at all relevant, such maps were _ germane only to retail service (compare D-534; D-535; D-537;

;-

D-538; D-539; D-540). All of the accompanying memoranda

  ,       introduced by DOJ to support this charge also deal only with L

distribution facilities (see D-513 through D-517, D-533; and compare D-520; D-521; D-523 through D-531). No evi-dence exists to suggest anyone ever engaged in the exercise

1. of mapping transmission facilities, substation locations, 7 or generating facilities for the purpose of allocating whole-L

sale markets. Nor do the distribution-only." archive" docu-ments relied upon by DOJ allow any such inference to be drawn by this Board. _ 14. Another example of DOJ's penchant to misstate p the evidence of record can be seen in its reference to the L Village of Edgerton as being adversely affected by Para-graph 8 in its wholesale contract with TECO (D-Br., p. 124

          & n.128). The particular instance in question relates to L.       Edgerton's stated intention to serve a new industrial cus-r       tomer by passing "an ordinance bringing the land on which the new industry [would] be located into the corporate limits" (D-551). Contrary to DOJ's intimations, Paragraph 8 in the TECO wholesale contract imposed no restriction on such a r-P
.         step; to the contrary, it fully contemplated and explicitly
 -        provided for such municipal action (see S-115, 18, p. 3).

km b

r l To use this to exemplify Paragraph 8's chilling effect e on the expansion of retail service by municipalities is being less than candid with this Board.

15. One of the more surprising claims against TECO is DOJ's " price squeeze" contention to the effect that TECO i~

l has " sold power to its retail industrial customers below __ its costs" (D-Br., p. 123 n.124). Such an assertion can i only be the result of a total misunderstanding of the figures r contained in table TE 11-2 (S-158, p. TE-18 ) . First, as re-J flected in TECO's answer to Question No. 11 propounded by the Attorney General (see S-158, TE-16), the table depicts TECO's average costs in terms of retenues and sales during

 -            1973. It does not set forth an independent statement of TECO's actual costs, but only estimates those costs as measured L

by revenue received per unit of power sold. Thus, it is simply

not possible to conclude from the table -- computed in terms of sales -- that a utility was selling power below cost.

'i Second, it is meaningless to compare an average cost figure with the revenues received from a particular tariff, since, by definition, the average necessarily contemplates both I higher and lower cost figures. Thus, it makes little sense L ever to look to the average cost as a comparative measurement r. I e for below-cost pricing. p Perhaps most telling, however, is the fact that the

L t

. L_

I t { __ .f table relied upon, as TECO's answer to Question No. 11 also

   -           shows (S-15 8, p. TE-16) , represents the average unit costs of wholesale power only, as sold at various delivery points.

I None of the information relevant to primary and secondary u . transmission relates to the cost of supplying power at re-r- [ tail. Thus, how DOJ can view this table as at all helpful _ to its " price squeeze" contention is mystifying. We would L add only that, had DOJ bothered to take the time to make any

sort of meaningful comparative analysis, it would have dis-covered that the revenue TECO receives from wholesale sales [ to Bowling Green (10.6 mills /kwh), for example (see S-168,

p. 413, 1. 8) -- which is the only municipal customer in b- TECO's service area with a load similar in size to its large

[- industrial customers -- is below the revenue it receives L from its large industrial customers (10.99 mills /kwh and r 12.48 mills /kwh) (see S-168, p. 414 (37 & 39)). But, then, such rudimentary facts are the sort which DOJ has pre-

b. ferred not to concern itself with throughout this proceeding.

p 16. Its " price squeeze" argument with respect to

Ohio Edison has been formulated with similar inattention to the realities of the situation (see D-Er., pp. 103-04 & n.86; L see also C-Br., pp. 31-33). Indeed, having failed to come .p. E forward with any study on its own to substantiate the charge made, DOJ attempts to satisfy its burden principally by at-i_ i i w. J

j

t tacking the study made by Applicants' witness, Mr. Wilson

 ,.        (see Wilson 11044-78). Cleveland does likewise. However, i

what emerges from both discussions is that, whatever might

  ,       be the appropriate rate analysie. the finding of a price e

squeeze cannot rest simply on a super *ficial look at rate differentials at the wholesale and retail levels, but de-pends at the very least on a careful evaluation of such fac-I tors as load diversity, comparative billing rates, cost of i- service, the company's rate base, and the like (see A-Br., pp. 565-71). No effort has been made by our adversaries in this proceeding to meet their burden of proving a price squ2eze u . on the basis of any such analysis. .L Nor will the record here support a finding to the contrary. For, what remains unrefuted is the fact that Ohio Edison's cost to serve its municipal wholesale customers is r j higher than its cost to serve its industrial customers by reason of the municipalities' greater contribution to Ohio r -L Edison's system peak (Wilson 11046-65). This higher cost of

r- service negates the price squeeze allegation both in fact

~~

and in theory, as DOJ's own expert witness, Dr. Wein, ac-knowledged (Wein 6664). -L

17. With regard to the matter of capacity limita-F

 ,_       tions in a wholesale contract, we can add very little to
;         the discussion in our earlier brief (A-Br., pp. 544-53) . Neither

.6

r- .- i DOJ (D-Br., pp. 101-02) nor the NRC Staff (S-Br., F/F pp.

102-08) bothered to address the question asked by the Chair-

    ;        man during the hearing (Tr. 12406).--19/ Rather, they re-ferred only to language in outdated contracts or early drafts i

of present contracts to support the general argument that capacity limitations are anticompetitive in intent and have a chilling effect on the ability of a municipality to com-

L pete for industrial loads. The purpose and effect of such , r- provisions are explained in our earlier discussion (A-Br., i pp. 544-53). Also set forth therein are the currect capacity limitations which DOJ, at least, seems to regard as appro-u priate "to protect [ Ohio Edison's] system without restricting municipal growth" (D-Br., p. 102 n.82). To the extent that

p. the NRC Staff remains dissatisfied with the provisions now I- on file with the FPC, we submit that the more appropriate

{ course for it to pursue would be to intervene as amicus curiae at the FPC, rather than trying here to fabricate an L antitrust claim on any such basis. 'r 19/ The Chairman stated:

There is one question I would like _, Staff to address, either now or in its proposed findings -- both sides can .r address this -- and that is whether ~~ there should be an obligation on Ohio Edison or any other utility to write an open-ended contract; whether in order to protect itself, the supplying utility doesn't have to have some lim-itation with respect to the amount of power it can be expected to provide. Y [d_

r . , ,(- 1

18. The NRC Staff's position with regard to Ohio

_ Edison's stand on the financing of new transmission facil-ities is no more convincing (S-Br., F/F pp. 89-102). In-p- deed, whatever force it may seem to have is totally dissi-pated when the record distortions are exposed. For example, the Staff states categorically that "OE would not alter the

       ,      terms of the contract (including OE's financing requirement)

b. when requested by Newton Falls" (S-Br., F/F p. 92). Staff's r own exhibit, S-81, belies the assertion, conveniently made

  )
  ~

without any record citation. The Staff's marginal reference to an "FPC investigation" is similarly disingenuous (S-Br., L F/F p. 94 n.22). All that was involved in this regard were P L several telephone calls as outlined in S-79. How the Staff r jumped from these phone calls to an "FPC investigation" into

  "'         the capacity limits of the 23 kv line between Ohio Edison and Newton Falls is something known only to Staff counsel; it clearly is not to be found anywhere in this record. Nor r

L is there any record support for Staff's untrue conclusory - statements following the quotation on page 95 (S-Br. , F/F

  '          p. 95), which is probably why citations have been omitted.

~r Equally misleading is the implication that Ohio Edison can L: be faulted for delaying the Newton Falls negotiations unnec-r:

  ,[         essarily. In point of fact, delay, if it can be attributed to anyone, most appropriately rests on Newton Falls' shoulders m

m W

I

in these negotiations (see S-71; S-72; A-28; A-30; A-32; Firestone 11199-203). The crowning blow comes with the

Staff's assertion that Ohio Edison failed to send Newton [~ Falls a draft contract -- permitting the City to provide, (. own and operate the contemplated new transmission line -- until " December 12, 1975 * *

three months after Mr. Craig

_ had testified as an NRC Staff witness in this proceeding." I s- (S-Br. , F/F p. 95 n.23). Simply to set the record straight,

we would point out initially that Mr. Craig's testimony here i~ began on January 6, 1976. In any event, as reflected in 4 S-81 and S-88, the referenced offer was made by the company 20/ well before December 12, 1975.--

s. 19. The treatment our adversaries give to Ohio Edison's wheeling policy is handled no more forthrightly (D-Br., pp. 91-93; S-Br., F/F pp. 81-88; C-Br., 30-31). We r

l can do no better than direct the Board to the discussion in our earlier brief which accurately portrays the true state [~ --21/ -t of the record regarding this allegation (A-Br. , pp. 583-95) . r i

20/ With reference to the Staff's argument that Ohio

      .      Edison's prepayment concept for new transmission facilities did not contemplate a refund to the municipalities of Norwalk L            and Orrville, we would simply direct the attention of this Board to S-88, p. 2 and A-237, which confirm the company's

[~ position in this regard. L 21/ It is incredible that Cleveland has suggested that 7 thii Board can make a finding that Ohio Edison refused a wheeling request by WCOE at the August 1, 1975 meeting (C-Br.,

p. 31). A comparison of Mr. Lyren's ambiguous remarks (L3cen 1915) with the other relevant evidence on this point (see (Cont'd next page)

i

r [ The claim by DOJ and the NRC Staff that Ohio Edison refused a WCOE request to wheel power between municipalities (D-Br., I pp. 92-93; S-Br., F/F p. 72) deserves special mention, how-ever. The sole record reference to which the Board has been directed is Mr. Cheesman's testimony (Cheesman 12154, 12166-67). I DOJ and the NRC Staff simply ignored Mr. Mayben's testimony

   -         to the effect that such wheeling was a matter which WCOE pro-I posed for study without any objection by Ohio Edison (Mayben I         12561-63). This latter account of the discussions on the matter of wheeling among municipalities is fully confirmed l(           by the documents introduced into evidence (S-32, Items 3 (e)

._ and (g)), as well as by the R. W. Beck Study itsblf (S-44). b Indeed, the prepayment plan recommended in the Study neces-

.F          sarily contemplates that the WCOE members will have access

t to Ohio Edison's transmission lines for purposes of trans-r

  ,!_       mitting power to and from one another (see S-44, Section VII).

In the face of this evidence, the one-sided treatment by DOJ

h. and the NRC Staff of this matt'er is, at the very least, sus-i: pect.

~\

20. With regard to the WCOE negotiations generally, r

{ DOJ has apparently now jumped on the NRC Staff's bandwagon ,,, and decided to characterize the joint study for a new bulk li! u lL I-21/ (Cont'd)

'~

White 9630; and see A-178), demonstrates how unwarranted such a finding would be. Neither DOJ nor the NRC Staff went so far as to suggest that the record here would permit such a conclusion -- and for good reason. 'h

 ....n e     . .-

{ l (~ L power relationship "as a vehicle restricting the growth and competitive viability of the WCOE members" (D-Br., p. 93). Cleveland also has seen fit to fault Ohio Edison's role in F the WCOE negotiations. What is perhaps most surprising about j our adversaries' treatment of these negotiations is the ab-i

s. sence, but for a single passing footnote reference (see D-Br.,

p. 93 n.66), of any recognition of the recommendations and I.

conclusions set forth in the R. W. Beck Study (S-44). See D-Br., pp. 91-94; S-Br., F/F pp. 69-80; C-Br., pp. 30-31. Also conveniently ignored is the present state of negotia- .[. tions and the impasse caused by WCOE's internal disagreement over whether to execute a letter of intent to move forward with the recommended prepayment plan (see A-Br., pp. 606-09). Instead, the focus, as anticipated, is on Ohio Edison's proposals, as imposing impermissible restrictions P [. upon the scope of any joint power supply study by WCOE. r- Thus, while CEI is being accused in this proceeding of anticompetitive behavior for failing to make specific pro-posals to Painesville (see p. 21, supra), Ohio Edison faces [. the same sort of accusations because, in the course of on-p ! (7 going negotiations, it came forward with certain proposals c-. which the company was interested in exploring with the WCOE l-members. To hear now that such proposals should be viewed as " restrictions" is a measure of our adversaries' total lack i .w

.r . .. > 'f'. j ir of appreciation for the fundamental give-and-take nature !- of the negotiating process, as well as an indication of how unfamiliar they really are with the R. W. Beck Study. A careful reading of that document will demonstrate that, l' but for the subject of general third-party wheeling (see A-Br., pp. 583-90), the Ohio Edison proposals did not " restrict" R. W. Beck from studying any of the matters relied upon by i our adversaries. I Even more to the point in the face of an antitrust I charge is the fact that the R. W. Beck consu;tants arrived m at a proposal which would give to the WCOE members the ben-

  -            efits of coordinated operation and development that they were
  ;
  '            seeking through a meaningful bulk power supply relationship
  ~

with Ohio Edison (see A-Br., pp. 605-06). The company has readily agreed to move forward with that proposal. To sug-t [ gest in such circumstances that Ohio Edison has not been

   -           negotiating in good faith with WCOE, or that antitrust over-      J k           tones somehow attach to the company's legitimate proposals, is to twist the true facts to fit a preconceived determination    j to make this " situation" something that it is not and never      l C                       We have demonstrated already why this Board should L           has been.

not allow itself to be misled by such a jaundiced view of the

;f.

L ,COE W negotiations (see A-Br., pp. 595-609), and there is no

need to repeat that discussion here. w 1 I

r . b F ! 7-

21. With reference to the arguments against Duquesne

_ Light, perhaps the most obvious failure is our adversaries'

 $.            refusal to recognize the legal barriers to competition among
  ~~

electric utilities in Pennsylvania by virtue of state law i (see D-Br., pp. 80 n.42, 84-85; S-Br. F/F pp. 17-20; C-Br.,

pp. 98-101). For example, DOJ makes reference to 66 P.S.

  . _ .        S 1122 (g) as authority for the proposition that " Pennsylvania b             utilities are not subject to any limitation on the amount of r-           power they may sell" (D-Br., p. 35).          This simply misconstrues i

that statutory provision, which has precisely the opposite impact. Similarly misleading is DOJ's reference to the Penn- _ sylvania condemnation provision (D-Br., p. 33 n.4). In order (. for a municipality to acquire the electric facilities of an-other entity serving within the corporate limits, it must first obtain the approval of the PaPUC (66 P.S. S ll22 (c)) I' L upon a showing that the utility to be ousted has provided .r service in an unreasonable, inadequate or otherwise objection-t, able manner. See Metropolitan Edison Company v Public Ser-

     ,        vices Commission, 127 Pa. Super 11,191 A. 678 (1937).            As for the other legal restraints on actual or potential competition I            among electric utilities in Pennsylvania, they are fully des-k cribed . in our earlier brief (A-Br. , pp. 139-143, 145-47, 636-38).

r [ 22. Similarly misleading is DOJ's description of the Pennsylvania Economy League's report on the Borough of wo

e

r . .. l I * .? Aspinwall (see D-Br., pp. 86-87). Its effort to describe _ that report as demonstrating that the Aspinwall system was in " good condition financially and physically" in 1967 (D-Br., .I p. 86), reflects perhaps as well as anything else the lengths L. to which DOJ is prepared to go to distort the record in

this proceeding. The best response to this sort of " advocacy" is to ask this Board to read the PEL report for itself (see I m A-120). It will find, as Applicants have already stated (A-Br., p pp. 64E-5 0) , that Aspinwall's equipment was old, substandard, I

'~

and subject to increasing maintenance costs which had gone up 130% between 1955 and 1964 and could be expected to con-tinue rising at the same rapid rate (see A-120, pp. i, ii, .t 3-5, 22, 29, 31, 32, exh. X). Moreover, the study shows that c- Aspinwall had used all of the revenue it obtained from the ~ operation of its electric system to subsidize the borough's General Fund, leaving the municipality with no financial ca- .a , ~ r pability to undertake the needed capital improvements (pd.). e 23. The further contention by DOJ and the NRC Staff 'm that Duquesne Light refused to interconnect with Pitcairn

l without adequate explanation (D-Br., 84; S-Br., F/F pp. 20-23),

C ignores the clear import of Gilfillan's letter of March 19, l ki i 1968 (S-16). It cannot fairly be disputed that Pitcairn was '[. incapable of providing any benefi. to Duquesne under an in-terchange arrangement (see Dempler 8678-79). Even McCabe L i-

                                                                           .m.~

r .- .. I r l seemed to acknowledge that an interconnection involving a 7 two-way flow of power between Duquesne Light and Pitcairn was economically improbable (McCabe 1832-34). There thus is no sound basis whatsoever to fault the company for its position on this matter.

24. Indeed, in view of Mr. Stark's undisputed tes-r timony that Duquesne did in fact offer to operate in par-allel with Pitcairn (Stark 8949), it is difficult to under-F j stand the real thrust of our adversaries' interconnection claim in this context. While reference is made to early c-t meetings in which McCabe seemed to recall a Duquesne refusal to operate in parallel (McCabe 1658, 4169, 4176), although

Dempler did not (Dempler 8690), no none has suggested that Stark's account of the later meeting he attended is inac- .' t . curate (see D-Br., p. 82; S-Br., F/F pp. 33-34). Given Du-L quesne's offer, and Pitcairn's decision at that time not to .r operate in parallel (see A-48 ; A-4 9) , the company certainly is not subject to antitrust condemnation. ji 25. One final point worth noting with regard to the .i. Pitcairn " situation" relates to the NRC Staff's overly sim-er I[ plistic analysis of Rate M in an effort to make it appear un-reasonable (S-Br., F/F pp. 25-27). We have already imHeatsi .;

in our earlier brief why this Licensing Board is not in a I position to pass judgment on a lawfully established Duquesne , w l a.

r .- .. l i 6-

     ;           tariff explicitly approved by the PaPUC (see A-Br. , pp. 665-
     -           70). The argument made by the NRC Staff simply underscores the point. If the Staff's figures are properly analyzed, I           they show that Rate M was, in fact, not unreasonable at all.

Thus, if Pitcairn had agreed to take Rate M with a contract r demand of 1600 kva (or 1600 kw if we ignore power factors),

p. the borough would have been able to recoup the minimum annual 1

charge of $23,400 merely by taking 90 kw on a round-the-clock F basis.--22/ This would certainly be above Pitcairn's lowest L hourly demand. r [ More importantly, the 90 kw figure demonstrates ex-

actly why the comparatively high energy charge of 3 cents per kwh was required. Under Rate M, Duquesne would have been ob-r ligated to provide Pitcairn up to 1600 kw of capacity on a mo-

 ' L.

ment's notice. However, Rate M contained no capacity charge;

p so if Duquesne was to recoup the investment costs associated u

,r with the 1600 kw of capacity, it had to be through the energy

1. charge. Had Pitcairn 'i imited its Rate M purchases to 1/18 of r the contract demand and thereby simply recovered the minin:um

.i annual charge, Duquesne would not have recovered a penny of II               investment costs associated with the remaining 17/18 of capacity L

reserved for Pitcairn's use. Thus, only by. collecting an energy l L charge in excess of production costs and hoping Pitcairn would r

                    ~22/   At 3 cents per kilowatt hour, Pitcairn would recover the annual charge of $23,400 by purchasing 780,000kwh{23400),

Taking power continuously, that would be equivalent to

   -            a demand of 89.04 kw (780,000),

uco x 24 )

r . I

t. '

i_ take power in excess of 90 kw could Duquesne recover the full r- costs of providing Rate M service to the borough. Indeed, on the basis of Staff's analysis, Rate M was a bargain for Pitcairn; instead of charging 15 times the cost of production (see S-Br., F/F p. 25), Duquesne should have been charging 18 times the r [ cost of production, since it had no assurance that Pitcairn r would take any power after contracting under Rate M. t

26. With regard to the matter of remedy, our reading of the several filings by DOJ, the NRC Staff and Cleveland supports our initial belief that extensive discussion in this I

L, area is entirely academic. We would note, however, that the j_ proposed license conditions of the other parties contain cer-L tain provisions which, under any conceivable antitrust situa-F tion, go far beyond the permissible remedial authority of this L r. Board. One clear example of this is the proposal by DOJ, the [ NRC Staff and Cleveland that the present licenses be conditioned

n so as to require Applicants to offer access to any and all L

future nuclear facilities they may construct (D-Br., p. 147, ifi S-Br., App. II, pp. 5-G; C-162). --23/ It is similarly inappro-L. priate to condition the licenses here on providing access to some other nuclear (i.e., Beaver Valley Unit No. 2) or fossil plants owned by Applicants (see D-Br., p. 147; C-162). Such L a 23/ Plainly, the time for the Commission to consider the matt r of conditioning future nuclear licenses is only when (if ever) an antitrust proceeding is initiated under applica-tions for the new units. That responsibility cannot now be obviated ~by an overly broad remedy relating to the' activities .o under the present nuclear licenses.

r . .- [

r. ,

a proposal ignores entirely the fact that this proceeding re-I lates only to the Davis-Besse and Perry units, and the activ-r ities under the licenses to be issued for construction and 24/

-~

operation of those facilities. See also A-Br., pp. 69 }-91. For the foregoing reasons, and the reasons set forda in Applicants' earlier filings on August 30, 1976, the present antitrust inquiry should be resolved in Applicants' favor in f all respects. I L. Respectfully submitted, I [ SHAW, PITTMAN, POTTS & TROWBRIDGE Of Counsel: 2- w _A Wm. Bradfotd Reynoldk I SQUIRE, SANDERS & DEMPSEY Robert E. Zahler

t. FULLER, HENRY, HODGE

              & SNYDER                              Counsel for Applicants

' [- REED SMITH SHAW & McCLAY -[ WINTHROP, STIMSON, PUTNAM

              & ROBERTS r

L Dated: September 15, 1976. y . . .p 24/ While it is not altogether clear what DOJ has in mind [~ by Its proposed Condition No. 12 (D-Br., p. 149), if it is sug-gesting that this Board can condition the present nuclear li- 'r censes on a requirement that Applicants grant to other electric lt entities in the CCCT membership in CAPCO, we believe that such .' a suggestion is not only unwarranted, but totally irresponsible. The record clearly demonstrates that such entities are financially .[' and physically incapable of assuming pool responsibilities on

L any sort of equitable or meaningful basis (see Kampmeier 5874-75 (12-25 & 1-18)). To use the present proceeding as a vehicle for r forcing CAPCO to restructure completely its present arrangement

so as to accommodate these smaller systems (even assuming arguendo that that could be done, which we doubt), not only disregards the legislative mandate to this Commission to confine its antitrust review responsibility to the matter of nuclear access, but, even a more importantly, serves no legitimate public interest (see A-1k. , pp. 256-67). l 4

r- . 4 p- EXHIBIT A l The following table cross-references those portions of F Applicants' Supporting Brief most directly responsive to the 1 particular arguments advanced by the NRC Staff, DOJ and Cleveland. r- . [ Unless otherwise noted references are to the findings of fact

     -       .and conclusions of law contained in the respective post-hearing filings of the NRC Staff, DOJ and Cleveland, and to the pages of Applicants' Supporting Brief.

(a) Relevant Markets and Monopoly Power F 1' NRC Staff DOJ Cleveland Applicants 1.001 L45 -- 214-15 L 1.002-1.003 L46-L47 -- 215-17

,r L            --

L48 41.01 231-33 4.01-4.02 41.01 220-221; 230-231;

;                                                                          237; 243-45 1.004-1.006           4.03                --

237; 243-45 L 1.007 L49 -- 218-19

.[

4.04 41.01 221-230

-L.

4.05 41.01 233-37 4.06 41.01 237-43; 245 , _ 1.008 4.07 -- 237-43; 245 -l

     -        1.009-1.012          4.07                --                  237-43; 245

(~ 1.013 5.03-5.04 42.01 385-407; 465-66;

L 536-42; 632-41, 670-73; 224-30; r 234-37; 246-49; 68-87 c

l I!

  ,-4 i
  .m                                                                     ,
                                                                                     - - + , - , -

?.7 . . It NRC Staff DOJ Cleveland Applicants 1.014-1.015 L50-L51 42.01 68-87 .F --

i. 5.01 42.01 224-30; 68-87

r- --

5.02 42.01 234-37; 68-87 1.016 5.05 42.01 266-67; 681-84;

r. 688-89; 397-404 1.'017-1.018 -- --

246-49; 68-87 1.019 -- -- 266-67; 681-84; a[ 688-89; 397-404

!r            1.020-1.021             5.05            42.01                   246-49; 170-200;
!i                                                                            68-87 L

(b) Competition in the Electric Utility Industry - i(- 3.01 -- 108-113; 122-34; !I 150-51; 201-07 L 3.02 -- 134-50; 72-78

.r-L4                  --

52-66; 201-07 3.03-3.04 -- 113-16; 120-22 i L -- 3.05-3.06 -- 180-84 f -- 3.07 -- 171-200; 122-34 L -- L5 -- 134-50

--

{{ L6 -- Reply Brief at PP- 25-29 ['

, L. -

3.08 -- 113-20 3.09 -- 151-70; 122-34 1 , ,y -- 3.10 -- 134-50 L7 -- 139-42; 145; 636-41 e L8 -- 135-39; 143-44; 405-07 w L9 -- 135-37; 140-41; 637-38 e (L-

m .. .

..

(c) Duquesne Light p NRC Staff DOJ Cleveland Applicants I 1.022-1.029 -- 10.06 670-73 1.030-1.031 7.03 10.01 658-60 m 1.032-1.035 7.03 10.04 660-62 t.. 1.036-1.038 -- -- 662-64; 656-658 p 1.039 7.05-7.06 10.07 646-47 and note j 344 1 040 -- -- 647 note 343; I 171-75 L 1 041 7.05-7.06 10.07 646-47 F [. 1 042 -- -- 636-41 r 1.043 -- -- 660-64

   '      l.044-1.051            7.07-7.08       10.05       662-65 & note 350;

__ 353-61

   -. 1.052-1.054             --             10.02;10.05 663-64 1.055-1.064             --

10.03 664-70

1.065-1.075 7.09 -- 349-50 note 209; 681-84

F

~' l.076-1.086 7.14-7.17 10.01 670 notr 333; 645-47 T-

b. 1.087-1.090 7.04 --

671 note 354

~~

1.091 -- -- 256-67; 338-43; 344-61 -r 1.092 7.18 -- 636-41; 670-73 7.01-7.02 9.01 645-47 [ -- 7.10-7.11 -- 645-47 'L 7.12-7.13 9.02-9.05 648-58 e

-

lii 1 i

r

'{.
    ,                (d)  Cleveland Electric NRC Staff             DOJ         Cleveland     Applicants

~1 1.093 6.01 1.01-1.04 411-16; 166-67 ![^ 1.094-1.098 6.15-6.16 37.01-37.02 387-90; 395-405; a. 450-56; 179-91

;r                --                   --

30.02 404-05

-l 1.099-1.106          6.05-6.06;  31.01; 33.01;  428-39 6.09; 6.11  35.01-36.01 i

1.107-1.110 6.07-6.08; 31.01; 34.01 439-44 _ 6.10

i. -- --

34.01 444-47 J- 1.111-1.112 6.01; 6.25- 28.01-29.02 413-25

!L                                 6.26 4-                --

6.02-6.04 29.02-30.01; 422-23; 425-28 x 32.01 1.113 6.13-6.14 38.01 390-95; 361-72; [ 447-50; 376-84 L 1.114 -- -- 385-407 F

   !         1.115-1.117              --          --

137 note 90; 405 1.118-1.126 6.22 39.01; 39.05 387-405; 460-61 l.127-1.132 6.17; 6.19 39.04 460 r

b. 1.133-1.135 6.18; 6.21 39.03 457-59 y- 1.136-1.139 6.27 28.01; 39.06 456; 417-22 1.140 -- --

461 note 262 {~ 1.141 -- -- 460 u 1.142-1.145 -- -- Reply brief at pp. 22-23 a 1.146 -- -- 456-61 r-

1.147-1.162 6.20 -- 387-90 note 229 FM g iv 7 n-o

NRC Staff DOJ Cleveland Applicants

    -         1.163-1.179            6.23          39.02       462-64 1.179a-1.179c         6.12               --

387-90 & note 229;

    -                                                          445-47
    ,                               6.24              --

408 note 238 r-(e) Ohio Edison and Penn Power

    -         1.180                    --             --

595-609 1.181; 1.207- -- -- 277-80; 583-95 1 208 ' l.182-1.187; 8.02; 8.05 16.02 271-72; 275-77; 1.195-1.201 281; 285-86; 304-p- 17; 599-609; 681-l w 82 '

    ,         1.188-1.194           8.01          16.01        584-85; 595-601 L-        1.202-1.206           8.03; 8.04    16.02        584-90 1.209-1.217;           8.06             --

590-94; 191-95

t, 1.219

   -         1.220-1.222              --

15.03 583 note 323 I- 1.223 8.08 15.01-15.02 583; 615-18

'F 1.224                   --             --

544-64

L 1.225; 1.252 -- --

559-64 1.226-1.239 -- -- 559-61 1.240-1.245 -- -- 561 'F

1.246-1.248 -- -- Reply brief at

p. 36 note 20 I

L_ l.249-1.251 -- --

561-64 1.253-1.254 8.11 13.06 542-44 '~ 1.255-1.257 8.22; 8.23 -- 544-53 t 1.258-1.266 8.22; 8.23 -- 544-53 m !! V .

NRC Staff DOJ Cleveland Applicants 1.267-1.281 8.13-8.16 13.01-13.06 122-39; 553-59 8.24-8.25 14.01 571-75 l -- 8.26-8.28 17.01 565-71 _ 8.09-8.10 18.01 620-23 6.24 19.01 620 note 338 r -- 8.29 20.01 575-82 h 8.07; 8.08 -- 609-20 8.21 -- 622 note 339 8.12 -- 630-32 8.17-8.19 -- 623-30 L (f) Toledo Edison 7 1.282 -- 26.01 499-503

' L' l.283                   --          --

503-07 1.204 9.25 -- 508-09 L. 1.285-1.286 -- 26.01 503 & note 285; p- 180-82; 186-90; y

   .-                                                              195-97 1.287                   --

26.01 501-02; 505-07

   -           1.288                   --          --

501-02; 505-07 I 1.289 -- -- 499-509; 480-82 1.290 -- -- 180-200; 499-509; p 480-82 1.291 9.03 23.01 476-80; 536-38 [, 1.292 -- -- 476-80; 536-38; 499-509; 480-82 t l~ 1.293 -- -- 508 note 286

"~

1.294-95 9.27 24.01 510-21 l vi

                                                               , ,     -             M'-"

NRC Stafif DOJ Cleveland Applicants r- 1.296 -- -- 476-80; 536-38 l.297 9.33 -- 465-538 ~ 9.01-9.02 21.03 471-72

'~

9.04 25.01 521-23; 534 note 305 9.05 25.01 532-36 9.06 25.01 530-32 9.07 -- 523-26 9.08-9.11 -- 526-28

 'I           --

9.12 -- 528 L 9.13-9.14 -- 529-30 9.15-9.19 22.01 485-99 9.20 22.02 480-82

 .r_-

9.21 -- 482-84 9.22-9.23 22.02 485-89 L 9.24 -- 483 note 273 I 9.26 27.01 509-10 note 288 7_, 9.28 -- 531 & note 301 t- -- 9.29-9.32 21.01-21.02 466-76 tr [ (g) CAPCO

   ,-       1.298            2.32-2.38     8.01-8.07     253; 267-90 2.39             --

341-43 2.40 -- 265-67 L 2.41 -- 266; 681-84 l.299 -- -- 293 & note 182 Vii

NRC Staff DOJ Cleveland Applicants r 1.300-1.301 10.04 -- 280-82 l.302-1,303 10.03 -- 290-99 1.303 -- -- 277-80 t 1 304 -- -- 349-50 note 209; I 596-609; 476-80;

      ._                                                              344-84
      --.      1 305-1 308            --              --

Reply brief at pp. 12-13 _ 1 309 -- -- 309-10 L 1.310-1.313 -- -- 313-14 note 191 { l.314 10.05 40.05 311; 315-17 t 1.315-1.316 10.06 40.05 318-21 l.317 10.07 40.05 321-27 1.318-1.319 10.05-10.07 40.05 300-17 L_ l.320-1,322 -- -- 313 note 191

r- 1.323 -- --

31P-21 L 1.324 -- -- 300-28 10.02 40.02 328-38 1.325-1.346 10.08-10.15 40.02; 40.04 . 256-67; 338-43; 344-61 m 1.347-1.361 10.16-10.20 40.02-40.03 256-67; 338-43;

r. 361-84 i

40.06 373-75; 391-95;

r. 265-67 (h) Electric Utility Industry, Essential

,t Resources and Nexus

 .L 2.01                  --              --

113-22; 72-78; 246-49; 265-67

                                   ~ 2.01-2.04     7.01-7.03; 7.05-   122-34; 257-58;

l. 7.06 329 i.

viii

c--

    'i NRC Staff        DOJ          Cleveland        Applicants F           --

2.05 -- 122-34 2.06 7.04 81-84 & note 56; c- 386: 411-23; 466-

76; 575-82; 645-58 I --

2.07-2.11 -- 271-73; 300-314 2.14-2.19 7.08 300-314 2.20-2.27 7.07-7.08 265-67; 270-90 2.28-2.31; -- 397-404; 277-80; L1-L2 689-91 u L52 -- 674-79 a- 2.02; 3.01 2.13 7.09; 7.16; 7.18 269-90; 265-67; 679-91 2.04-2.05; 3.02; 11.02-11.04 7.19 397-404; 36-43; 3.10-3.11 277-80; 395-97; - 501-03; 506-09; 592-95; 689-91 3.03; 3.09; 3.15 -- 7.17 679; 689-91 r-(t 2.03; 3.05-3.08; 2.27; 11.02- 7.12-7.13; 7.15 266-67; 679-80; 3.12-3.14 11.04; 11.06 684-88; 689-91

.E
 .,          2.06; 3.04; 3.16 2.12; 11.05; 7.10-7.11; 7.14  688-89; 679-84
   ^

11.07

r-2.07-2.08 -- -- 246-49; 68-87;

'i-

679-91

}[ 2.09 11.01 -- 636-73 iu 2.10 11.01 -- 385-464

c -

.'           2.11             11.01           --

539-635 2,12 11.01 -- 465-538 L- 2.13 11.01 -- 253-384 r-L t

k ix l '.-

j (i) Legal Analysis r-NRC S tat'." DOJ Cleveland Applicants 4.01 L10 p. 113 18 r-pp. 172-73 209-14 L 4.02 -- -- 9-17; 674-76 L 4.03 ,-- 676-79 4.04 L11 p. 114 98-106; 452 note { 256 L. 4.05 L12; Ll4 pp. 113-14 18-25 i L 4.06 L15; L31 pp. 115-16 25-107 r -- Ll6- L22;L24 pp. 138-39; 140 25-45 L -- L23 p. 139 249-52 e-L25-L30 pp. 128-29 45-66 L32 pp. 116-17; 118- 66-67 19 L33 pp. 119-20 67-87 L34-L35; pp. 120-28 88-107 L37-L44 ![ ,u L36 -- 67; 85-87 5.01-6.01 L13 -- 18-25; 45-49; -F 52-66; 69-87; L 91-93; 108-13; 201-07 ', 7.01-7.02 L45-L49 pp. 117-18 214-49

, 7.03 -- --

67-87; 214-49 E. 7.04-7.05 -- -- 134-50; 52-66; 69-87; 91-93; t 108-13; 201-07 ly. 7.06 -- -- 88-107; 656-58 7.07 -- -- 59-66 X

f* s . ( 4 1

       -              NRC Staff                   DOJ                                       Cleveland                                                      Applicants r-                                           --                                          --                                                          249-52; 290-93;

_7.08 296-99; 338-43 l-h- , 7.09 -- -- 454-56; 60-61 note 41 !l= ._. 7.10 -- -- 676-79; 684-88 7.11-7.12 -- -- 674-91 e f 5 i y. 4

 .c         '

L Ir 4 ? f 5 !F I w( . i f i e il ! L. 4 4 . {l L e J M

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                                                                 . X1 x      .         -y            .            - - . . . , - . _ ,     ,m.,_,-_,,          e,. -,._ _ , . . - . .-__ ,    _.#.,_           .__._-._       ...._.w..,...       ...-_.-___._-__     . . . ,..-

'~

EXHIBIT B

     -                1 i

f, b I [ [ QHE UNITED STATES DISTRICT COURT [.; s, ~ .i,TUE NORTHERN DISTRICT OF OHIO

                                                  /g et r t r *. .              EASTERN DIVISION G ihu G U ;i [ "]

1 CITY OF CLEVELAND, ) CIVIL ACTION NO. C75-560 c., ) Plaintiff )

v.

                                                                  )
    ~
                                                                  )

l' THE CLEVELAND ELECTRIC ) i ILLUMINATING COMPANY, et al., )

    '                                                             )

Defendants ) 0RDER r-I {, KRUPANSEY, J.

This is an action instituted by the plaintiff City L_

of Cleveland (City) against defendants Cleveland Electric . Illuminating Company (CEI), Duquesne Light Company, Ohio u_

                   .       Edison Company, Pennsylvania Power Company, and Toledo Edison Company charging a conspiracy to violate Sections 1

~ - l l and 2 of the Sherman Antitrust Act, 15 U.S.C. $$1 and 2. . Jurisdiction is properly invoked pursuant to Sections 4 and L. 16 of the Clayton Act, as amended, 15 U.S.C. $$15 and 26. The Complaint, alleging certain acts of conspiracy jf, l to monopolize and restrain trado, was filed en July 1, 1975. Collateral to the substantive counts of the Complaint, the (~

  ,'                       City, on December 15, 1975,- filed its Motion to Disqualify the Cleveland law firm of Squire, Sanders and De=psey (SS&D), legal counsel for defendant CEI. This Motion, t

f charging a conflict'of interest arising as a result of

O earlier legal retainers between SS&D and the City, seeks to { foreclose SS&D from further participation in these pro-

   ,                 ! ceedings.
                     .1 C                  0 l
              ~.,.

g . _ . . . . . . . . . . t-L

      ~
                                  ~

b i

     **                                                       ~~

t, The pending action before this District Court climaxes protracted litigation initiated by the City against l CEI and others as early as May 13, 1971, before the Federal ( Power Commission (FPC) in a proceeding styled City of y_ Cleveland v. CEI, Docket No. E7631. Litigation was thereafter h pursued by the City with its Petition to Intervene before the Nuclear Regulatory Commission (NRC) filed on July 6, 1971, wherein the City pressed its antitrust charges against CEI and others.1 By order dated July 12, 1972, the FPC concluded

*~

that the City's allegations of anti-competitive practices by [- CEI were unsupported by the facts. This conclusion was b- subsequently affirmed on January 9,1976, by the United States Court of Appeals for the District of Columbia Circuit. r-

L. The proceeding before the NRC is still pending. Issues of disqualification of counsel for conflicts r arising as a result of former representation present the [ acutely sensitive dilemma of protecting the confidentiality of the client-attorney relationship without needlessly interfering with a litigant's freedom to proceed with legal

~ I-                          counsel of choice. See, Note, Attorney's Conflict of Interest s:

1

  '-                          Representation of Interest Adverse to That of Former Client, r                           55 B.U. L. Rev. 61, 65 (1975). An equitable balance of
' (.                          these competing interests is, essential if the public's trust in the integrity of the Bar is to be preserved. Redd v. Shell Oil Co., 518 F. 2d 311 (loth Cir.1975). Assignment of this
                              'In the Matter of the Toledo Edison Company and The Cleve-I                          land Electric Illuminating Company (Davis-Besse Nuclear g

Power Station Units 1, 2 and 3) Docket Nos. 50-346A. 50-ii 500A and 50-501A; In the Matter of the Cleveland Electric J Illuminating Company, et al. (Perry Nuclear Powcr Plant, r .i Units 1 and 2), Docket Nos. 50-440A and 50-441A. - (_ r~

1 ;

F#5.SW ,= 9 9 49 9. 949 la i

p.,- -

            ,.                                                                                               l E                                                                                                       i j
    ..                                                                                                       ;

1 ( ' delicate factual and policy-making decision is delegated with increasing exclusivity to the district court. As (~ Celanese Corporation, 513 F. 2d 568, 1recognizedinHullv. 57'l (2d Cir. 1975): {- ( The district court bears the responsibility for the supervision of the members of its bar . . . . The dispatch of this duty is [~ discretionary in nature and a finding of I~ the district court will be upset only upon a showing that an abuse of discretion has taNen place. See p?so, Richardson v. Hamilton International Corporation,

                          %69 F. 2d 1382 (3d Cir. 1972), cert. denied, 411 U.S. 986, I'                   (1973); creen v. Singer, 461 F. 2d 242 (3d Cir.), cert.
     '                    denied, 409 U.S. 848 (1972).

7- in approaching the issues of disqualification, the b_ Court is mindful of its paramount obligation of " maintaining __ the highest standards of professional conduct and the g scrupulcus administration of justice." Hull, supra at 569; Silver Chrysler Plymouth. Inc. v. Chrysler Motor Corp. , 518 (~ F. 2d 751, 757 (2d Cir. 1975). This obligation stands in contrast to the secondary consideration of ensuring the right of the public to legal counsel of its own choice. f~ Ethical problems, however, cannot be resolved in the abstract. r~ Rather the Court must rely upon a thorough consideration of f o the facts. "Nor can judges exclude from their minds realities

p. of which fair decision could call for judicial notice."

l (, Silver Chrysler, 518 F. 2d at 753 Thus, when dealing with ethical principles it is .c h appare t that a court, in the words of Judge Irving R. l d Kaufman in United States v. Standard Oil Company, 136 F. f Supp. 345, 367 (S.D.N.Y. 1955), L

L-.

'.i

.w. l M bS t.W9 9 9 9 044g-.5 9 I i .'._ [ w

t i cannot paint with broad strokes. The lines are fine and must be so marked.

  $                        Guide-posts can be established when virgin
    '                      ground is being explored, and the conclusion in a particular case can be reached only after painstaking analysis of the facts and F-
    '                      precise application of precedent.

L Accordingly, the dynamics of time have resulted in

evolving modification of the practitioner's ethical, social

   '           and political roles in society. Patterson and Cheatham, The
    ~~         Profession of Law 19-23, 65-67 (1973). Rules appropriate in b-         guiding lawyers of several decades ago must be applied in light of current realities. As one ccamentator perceptively points out, the rigid rule of total disqualification is premised in the day when firms, when f~

they existed, were very small -- also a day when attorneys rest frequently could j- think of their activities in terms of discreet " matters." Increasingly, neither condition maintains. Note, Unchanging Rules in Changing Times: The ^?nons of Ethics and Intra-firm Conflicts of' nterest, 73 Yale L.J. L_ 1055 (1964), quoted in Silver ChryJler Plymouth Inc. v. chrysler Motors corp.

  ~                          370 F. Supp. 551, 559 (1973).
  \

Since the largest legal firms represent the largest corporations within all sectors of the economy, it is {- - L. practically impossible for a firm to ensure against some form of legal relationship between its clients at some time. F The pragmatics 'of modern day legal practice assume greater significance and magnitude when a firm such as SS&D, a F prominent authority in a highly specialized area of the law, is pursued to provide expert services for the stonomic f~ benefit of the public interest. 5

  "                                        THE PARTIES Since 1905, the city has owned and operated the r-I L-             Municipal Electric Light Plant (MELP) which has generated and distributed electric energy in keen competition with CEI F'             for residential, commercial and industrial consumers within

, (_ 1 ' , I~

ls ..._..............

I-15 l\ L

~~

Cleveland, Ohio. MELP is a proprietary interest of City and is financed by the issuance of revenue bonds payable from r

     '                    the revenues of the system. MELP, as all other city depart-ments, both governmental and proprietary, is represented i~                   legally by the City's Law Department. The City Law Depart-i-                    ment is administered by the Law Director assisted by a Chief Counsel and staffed by innumerable Assistant Law Directors.

{i~ John Lansdale, Jr. (Lansdale), against whom the

 .-                       Motion to Disqualify is primarily lodged, is a partner in I

the law firm of Squire, Sanders & Dempsey (SS&D) which practices in Washington, D. C. ender the name of Cox, Lang-ford & Brown. Martindale-Hubbell Law Directory (1975) t. identifies SS&D as having 79 partners and 80 associates. Cox Langford & Brown is listed as having an additional seven partners and five associates. SS&D is the largest and f~ one of the most prestigious law firms in Ohio. b- SS&D is structured into five sections, i.e., i l - Litigation, Public Law, Estate & Taxes, Labor and Corporate. Incorporated into its Public Law Section is SS&D's municipal bond department, perhaps the largest in the entire United States and nationally recognized as the most reputable and ![ prestigious legal authority in this highly specialized area

 .f**

of consultation. Its unique expertise in municipal bond law is unquestioned in the bond market: the firm's imprimatur lE assures the bond market that a proposed issue has underlying r! legal validity, thereby affording it greater public accepta- ,1 bility and more favorable marketability. In Ohio, SS&D performs virtually all state, county and municipal bond work. The firms of Peck,Shaffer & Wil-l _, liams (Peck) and Bricker, Evatt, Barton & Eckler (Bricker) l of Cincinnati and Columbus, Ohio, respectively, also offer i reputable bond consultation and services nationally on a lesser scale than SS&D.

   .                    l

u p.ee e roi.e -e...po.eeso.eae s

_

I

 ~
                                                                     ?~                                                                                                  ;

I $ SS&D has represented CEI since the company's incorporation in 1890, and has openly, notoriously and [" without interruption, served CEI as outside general counsel for 65 years. In accordance with the pronouncement of the Sixth _. Circuit Court of Appeals in Melamid v. I.T.T. Continental l Baking Co., No. 75-1970 (6th Cir. April 27, 1976), an evidentiary hearing was accorded the parties to this pro-Y~ ceeding, in which the following facts were disclosed. { FACTS I It is conceded that CEI is and has been one of

l. SS&D's major corporate clients. The total commitment of

                      !           SS&D to the legal and business affairs of CEI is further t                           reflected by the service of Ralph M. Besse, a partner in
     \
      .-                          SS&D who left the firm in 1948 to become Vice President and
   . [_                           General Counsel and later President and Chief Erecutive of CEI; upon his retirement in 1970 he rejoined SS&D as a
 . (~
 .1                               partner but continued as a Director of CEI.

L l- Lansdale also has been a Director of CEI since 1964 and has, since at least 1948, been the partner of the L' firm who advised and counseled the Company in rate and

   ' (~                           service matters as its chief legal counsel, not only before the Public Utilities Commission of Ohio (PUCO), but in all g'                      ,   other litigation save those proceedings before the FPC.

P L- During the intervening 29 years between 1947 and the present, SS&D hks, without exception, represented CEI in

(; opposition to the City in each instance where the interest of CEI and the City were in conflict. Moreover, during this ' f' s ! same period SS&D represented CEI in adversary proceedings v l l against the City involving the Company's rate and service

    ,                         I
     '                      h l

I p.eas-e en. .... e s e... . . e l l

F- ' i

~~

practices before the PUr0 in 1947, 1961, 1964, 1965 and 1974 (Deft.'s Exh. 29). For the City to now feign ignorance of the complete and intimate legal commitment of SS&D to CEI,

'~

its client for 65 years, as against all adverse interests includinE those of the City, and to disclaim knowledge of r~ the scope and depth of the continuing legal relationship in

   !--                   total disregard of the innumerable direct adversary con-frontations experienced by the City during at least the 30

{ years reflected by the evidence herein (Deft.'s Exh. 29), presents a naive absurdity. I: MELP, CEI's chief competitor for the electric L consumer market within Cleveland, is one of the utilities

~'

owned and operated by the City. The other is the Water Division (Water). MELP and Water are self-supporting and " financed by revenue bonds. These utilities theoretically

 '                       generate funds from their own separate operations similar to p-                       profit-oriented, privately owned business ventures, in contrast to non-reimbursable governmental functions (police, fire, courts, etc.) and service functions (garbage col-lection, parks, building inspection, etc.) which are supported by genernl fund tax receipts.

In all general respects, MELP is considered to be L. similar to a privately owned and regulated electric utility, f except that as a city owned enterprise, it pays no federal, state or local income, real estate or personal property r- taxes.2 It is structured as an independently operating, b- self-contained proprietary entity, and maintains an independent system of audits and accounts. 7 L t j 2 Cleveland Little Hoover Commission Project No.12 -Division 6 lJ Light of Light andand Power Power City- of The White - Becher Cleveland - Pjevach commissioned by theReport Mayor on 5l and President of Cleveland City Council to conduct an in-depth st6dy of all City of Cleveland operations commenced in g December 1965 and concluded on February 1, 1967. l k i I O I*E F.9..em=9 9 9 3 433. 4 6e 9

       "~    ,
           ,     g

( [' Pursuant to the Charter of the City of Cleveland, I Ch. 15, $83 et seo., MELP is legally represented and coun-r~ seled by the City's Law Department. Indeed, the Law Depart-

               .           ment's representstion of MELP is analogous to SS&D's repre-
      -                    sentation of CEI.

A number of Cleveland's major law firms including SS&D have, during the last 30 years or more, served the City l on an ad hoc basis as special counsel representing the City's legal interests in selected controversies. (~ The selective arrangement provides the City access, L as its requirements demand, to the services of the area's,

and in many instances the nation's, most respected and talented legal practitioners generally not available within the City's relatively 3tmited salary-structured Law Depart-ment. In most instances retainers are accepted as a public

     ,_                    service, albeit upon a fee basis generally more moderate i

than the expertise commands in the private sector. It is conceded that apart from the services per-

 . (~

formed by its bond department, SS&D's ad hoc legal repre-t sentation of the' City had no substantial relationship to the

. e-case at hand although the City urges that by some undefined L.

process of legal osmosis, unsupported by evidence, SS&Q [~ acquired an insight into the City's affairs which is in

    '~                     itself an impermissible conflict, a charge ef the type 7-                     prompting Judge Moore to comment in Silver Chrysler, supra
~ h[                       at 754:  "The mere recital of such a proposition should be self-refuting."

MELP's limited relationship with SS&D since 1963 ( has been with John Brueckel (Brueckel), a partner assigned

   ,                       to the bond department of the Public Law Section. It is s,
                          . noteworthy, however, that although SS&D accepted ad hoc t

I M4b3 p.e.se==0 9.99.tles.49et t ! l.

       . . . . ~ .

F~ .' ,e (

      ._ ;

e retainers from the City,it scrupulously avoided any relation-I~ ship with MELP, apart from its bond consultations, except to I

                                    , openly oppose it as advocate for its client CEI in rate and r~                                 service controversies and other adversary proceedings before the PUC0 and the courts.

_. Accordingly, if the City is to prevail upon its [ Motion to Disqualify it must do so upon the relationship that existed between the parties as a result of SS&D's role r-as bond counsel for the City generally and, more particular-l ly, in the financing cf MELP. e It is in.this context of dual representation that L the alleged conflict must be considered. Absent evidence to

~~

the contrary, SS&D's capacity as bond counsel for City

        -                        . departments other than KELP, lacks, in the Court's view, the requisite adverse interest implicit in controversies of this
!L                                      ~'"re. Vague and general assertions by the City that as&D's relationship with City departmer.ts in general is
;r                                 q comparable to SS&D's general representation of CEI is clearly a distortion of its ad hoc relationship with the

[~

City as speciti counsel and ignores the diverse structure L. inherent in municipal government. I' In this context an exploration of the function of L~ bond counsel is helpful. The record, however, is limited in

 'g                                    defining the work product'of this commission. The only
^ (;                                   evidence directed to.the subject is the testimony of Brueckel who frequently characterized his role in the following

., 7, , L; terms: We address *ourselves to legality to make > 1 sure that the proceedings are legal so that people can have faith in their (the 1 > bond issue) legality. 7 So we are not in the advocacy position. We are not selling wares; we are selling

.s,                                              legality . . . . I think that a bond attorney, this is his or her lot. I think you can l            destroy your credibility and the trust 4

in you if you take an advocate's position y and depart from the strict legal aspects.

'~

h (Record at 305-307). . 6 p.eea e re.. w.e es enes. eses

l. m

r~ .O ( 1 I In substance the primary responsibility of this - c- employment is to certify that the transcript of proceedings relating to any given bond offering has been examined in conjunction with the law under authority of which said bonds are issued and executed and such exkmination supports a [ legal opinion that the bonds constitute valid and legal obligations of the issuing governmental political subdivi-sion. (Pltf.'s Exh. AA at B-1). I~ As closely as the Court can determine frcm the i fragmented testimony elicited at the hearing, the genesis of a bond issue is enabling legislation, in this case, an

    -               ordinance which fixes the amount and defines the purposes y                 and the manner in which the issue is to be amortised. It is supported by a transcript or manuscript which emphasizes

t various factors and characteristics significant '.o the I

  <                 security; an analysis of the political subdivist.ons' debt structure; various finane$tl factors; governmental opera-l                    tions and economic characteristics of the issuing entity.

Included in the -documentation of any bond issue is the Bond

[' Certificate, Notice 6f Sale and Bid Forms.

b- From time to time bond counsel may be called upon

to draft, exclusive of financial statements, one or more of t

L. these documents, somewhat as a scrivener draft 3 instruments. Initially the information is, in whole or in part, - [ ,. documented by the appropriate governmental ag?ncy and present-6. ed to bond counsel for examination and certif, cation as to '. L accuracy, authenticity and legality. Meticu)ous attention to detail, exactness and veracity coupled witn sagacious 'I pedantic legal acumen are the hallmark of successful bond counsel in an astutely discriminating financial community. l i

~.

I @M N $99.GW 9 5 5 0$.9*.5.%

s D* e* *

                                                                               ~   e ny-

i-i . ( r~ (.

    ,,                        Eminence is not achieved by accepting, at face value, the
    ;                         presentments of the subscriber, nor does perfunctory appro-bation effectuate and maintain probity.

I Accordingly, primary and secondary source references

                               " bottomed on public knowledge and what is in the public domain" (Record at 310) are the tools of verification and b

the keystone of legal opinion attesting any offering. F- Integral to such comparative analysis is examination of state and local law, both constitutional and legislative; p- the reports of the Ohio Municipal Advisory Council incorpo-(. rating a compendium of indebtedness of every political subdivision in the state, debt payment record, operating expenses, tax collections, assessed valuations, millage limitations, and debt limitations, median' family income, largest employers (Deft.'s Exhs. 23-27); primary records of'

,L the state and coanty auditors; reports of various bond

[" rating agencies such as Moody's and Standard & Poor, and other information bottomed in the public domain and utilized by the finr.ncial community in evaluating fiscal responsi- -{- L. bility of a political subdivision. (Record at 310 - 334).

       .                                 Historically the competitive relationship between

(, MELP pnd CEI is demarcated by two periods, with 1971 being the watershed year. Prior to that time, the relationship, although competitive, was one in which the City sought, and CEI offered advice on the MELP operation. Moreover, through-

[ out the 1960's the parties without success negotiated at Ls various levels the sale of MELP to CEI. In the pre-1971 era, the record discloses that SS&D served as bond counsel for MELP-related bond issues on

five separate occasions: 1954,1960,1963,1966and1966.

P44M pee.ee.-e.e.,s some sees e we f - - - - = , - r

         .-   ..                                                                                                l t                                                                                                            l l

r- The latter two, in 1966 and 1968, were se,neral obligation

   '.                        bonds for street lighting rather than MELP mortgage revenue r,

bonds. As such, their relationship to MELP is so attenuated as to render them irrelevant to this proceeding. As to the three earlier issuances, the record r-reveals little beyond their mere existence. It does appear, however, that the manuscript for the 1948 MELP issuance was [ prepared by the Cleveland law firm of Jones, Day, Cockley and Reavis (now Jones, Day, Reavis & Pogue) in conjunction

   "~                        with the New York firm of Wood, Dawson, Love & Ssbatine t
   '-                        (Wood, Dawson), and was the progenitor of the 1954, 1960 and 1963 parity issuances. The City Finance Department prepared 7-(.                        the latter issuances, while SS&D merely certified the proceedings. The City has failed to present probative material evidence as to the role assumed by SS&D in these b                                                                                                        .

issuances, detailing neither the identity of the 35&D attorney serving as bond counsel, nor the nature or extent

'L of information conveyed to the firm in the course of this ad                       l f~                         boc relationship. The paucity of evidence 'in this regard                          ,

l compels the Court to conclude that these issuances are , r- simply too remote in point of time and relevance to be of

  ,                           any legal significance to the present inquiry.                                    ,

r, The City's conclusory assertion of confidential g.3 disclosure arising from the Lansdale-Hauser memorandum dated i October 26, 1966, (Pltf.'s Exh. E), is equally remote and, I' L. more impor'sntly, unsupported by evidence and completely l I misconceived.3 L; 3In December of 1965, the Cleveland Little Hoover Commission I was activated by the Mayor and President of Cleveland City l [, (- lCouncilbytheappointmentof24businessandcommunity leaders to conduct a 12-part, in depth study of all City ,

                           , operations. The Commission was charged "to analyse the                             ,

I above operations, determine tneir adequacy, and make specific ' 1 recommendations for improvements and/or financial savings."

                           ; (Defc.'s Exh. 4a). Project No.12 of the study project                               1
      .                    r ~ styled Municipal Light - The White-Becher-Pjevach Report -                       I l Financial Aspects of the Utilities - Division of Light and

t. ., Power was under the directorship of Carl White (White) of l %

1.. > ,i Diee$ig #96 98-4-9 79 883#+ 48 48

7- . ( ' r' Mounting equipment breakdowns resulting in wide-r- spread service failures and an increasing self-realization i by MELP of its incapability to provide reliable service to its customers prompted the City to file a Complaint against r~ CEI before the FPC on May 13, 1971. Pursuant to this action, and a Motion to Consolidate filed December 6, 1971, the City P' demanded of CEI a permanent synchronous interconnection between their respective transmission systems and an investi-r sation of CEI's alleged anti-competitive practices. CEI was l' represented before the FPC by the law firm of Reid and m Priest of New York.

b. Ernst & Ernst and G. George Becher (Becher). White was appointed by the Mayor and President of Council and, at all I times in question, was acting in his representative capacity for the City. He voluntarily consulted CEI to discuss the

(, hlegalityofhismemorandumstyled"ThoughtsontheUseof Electric Light and Power Plant Utility (MELP) Funds for

     '-                Alleviation of Critical Situation in General Fund of the City of Cleveland" dated February 21, 1966, incorporating s

his thoughts on the use of MELP funds as they impacted the City's general fund. Presumably, he was referred to CEI's legal counsel Lansdale (Pltf.'s Exh. F). Lansdale, pursuant

- to the instructions of his client CEI, agreed to meet with l White on October 26, 1966. White appeared at the designated t, time with his associate Becher, also of Ernst & Ernst, and duly identified themselves to Lansdale and Brueckel, who was also present. The tabulations and calculations included in

{' the White memorandum had been developed by White from k' sources known only to himself. During the course of the conference White also produced a legal opinion that Lansdale had prepared for CEI concerning the validity of relieving the City's general fund in which he recommended a reduction i Fs of charges by MELP for street lighting. Although not t,

developed by the evidence it appears that Lansdale's legal opinion to CEI p'redated the White memorandum. White's

 ; f.                 possession of Lansdale's CEI memorandum is unexplained,
 ;'

8 except to the extent that it has not been supplied by either

                 l  Lansdale or Brueckel. All data and information, financial l and otherwise, concerning MELP which was discussed during the course of the meeting was prcduced by White, as a
 - {-                 representative of the City. It is quite clear that neither Ls Lansdale, Brueckel nor any other member of SSAD produced any

{ evidence whatsoever *concerning MELP cr CEI. The subsequent letter and memorandum styled the Lansdale memorandum (Pltf.'s Exh. E), addressed to Donald Hauser (Hauser), house counsel

 ' f*                 for CEI, is a sequential report of the meeting with White                                         !

[, and a reaffirmation of Lansdale's legal opinion to CEI. t i Taken in proper context, it is obvious that there is no '

 'l             4 substance to the City's charge of confidential disclosure oy h members of SS&D arising from this incident. Disclosure, if                                           l l any in fact occurred, was by the City through its representa-g tive White.                                                                                         ,

l d l k l

~~

p l 4 l

                                       ~.                       - ~ _ , - - - ,                          , , . , -

l In the 1971 time frame, the City engaged Wood, Dawson, f as bond counsel in conjunction with a $5 million second I raortgage revenue bond issue for MELP. Wood, Dawson authored , Ordinance No. 1187,-71 (the 1971 ordinance), adopted by Cleveland City Council on June 28, 1971, which authorized i the City to issue and sell to its sinking fund $5 million in F anticipatory notes to be liquidated from proceeds of future public bond sales. On or about June 6, 1972, Howard Holton

(Holton), Assistant Secretary of the City's Sinking Fund i i

   '         Commission and the public official primarily responsible for           !

r~ the City's bond work, approached Brueckel with a request

t. to review and approve the issuance of $3 million available ,

for sale pursuant to the 1971 ordinance. Brueckel, aware of ( the action before the FPC snd the potential for the con- 1 l

comitant charge of conflict of interest arising as a result thereof, declined the offer pending a review of the request t with his partners at SS&D. Thereafter, SS&D internally

i decided to forego the tendered retainer pending consultation -(' and approval by its client, CEI, upon full disclosure of the possible consequences arising as a result of the under- [

 '-          taking. Carl Rudolph, President of CEI, subsequently                  !

r- authorized SS&D to act upon the City's request. f .I L. Concurrently, the incumbent Law Director for ,the y. City, Richard Hollington, Jr. (Hollington), was discussing i with Daniel O'Laughlin (O'Laughiin), a partner of SS&D and , [ I former Chief Counsel for the City, the same potential for i conflict arising from the FPC action. It should also be l L. . i noted that, on July 6, 1971, the City moved to intervene in l l I -I the NRC action to which CEI was already a party. ,

                     Before SS&D communicated to Holten the approval of
}                                                                                  !

L l

          ..                                                    ..._.....-........ j i  l l

t U r- CEI to SS&D's review of the City bond issue, Hollington I telephonically advised O'Laughlin of the' City's decision to seek other bond counsel for the pending proposed issue. [ Hollington advised O'Laughlin that the decision was prompted by the intense competition between the City and SS&D's I i client. CEI, the adversary posture'of the parties resulting therefrom, and opposition voiced by City Director of Utilitiet r-Raymond Kudukis (Kudukis) in consultation with administrative L , and operational personnel of MELP. Upon Hollington's direct I' request O'Laughlin suggested the names of two reputable Ohio law firms that offered bond services analogous to those p performed by SS&D, i.e., William Chadcayne of the Bricker , , ( firm in Columbus, and the Peck firm in Cincinnati. I _ The City thereupon tendered its retainer to the i i

     ,                         Bricker firm. By letter dated July 18, 1972, (Def..'s Exh.

10), Chadesyne declined the proffered employment, noting [ certain complications and implying a questionable interpre- l tation of Ohio law by Wood, Dawson as it applied to the , [ initial bond proceedings. For reasons known only to itself

    '                          and not disclosed by the evidence, the City, upon Bricker's                     !i refusal of its retainer, failed to approach the Peck firm of

{ l L Cincinnati for employment on this particular issue. f Citing the critical press of time, the City impor-tuned SS&D, literally as a public service, to undertake the 9 assignment. However, before a reluctant acceptance of the I L retainer,*SS&D insisted upon the written assent (in Holling-

ton's request to SS&D) of Kudukis. That concurrence was I fprovidedbytheHollingtonletterofJuly 24, 1972 (Deft.'s t , i Exh. 11). The Court is here constrained to interject that, f

.}                            from the evidence taken in its entirety, reasonable minds L

J a !,

   -                        ;                                                                              \

l P443 8

                                                                                                          ~l pe ..., e.,, eg o , . .,g      j I

l ' .. I

?

l l l l

[ . l r-1 l can arrive at but one co'clusion: n from'the open, notorious 1 [ i and continuous legal representation provided by SSED as l general outside legal counsel to CEI, adversary to the b entire world including the City for 65 years, viz., that the l City was fully cognizant of the scope and depth of any { potential conflict of interest that could attach to SS&D's services to the City as a bond consultant. r- The classic attorney-client relationship between laymen and lawyer is here significantly absent. Confronting the Court in the case at bar is a relationship between an (, attorney seeking consultation services for a client from another attorney. The Charter of the City of Cleveland, Ch. I 15, 583, mandates that the Director of Law shall be the legal advisor of and attorney and counsel for the City, and for all . (_ officers and departments thereof, in matters relating to their official duties. (.~~ He shall'. . . prepare all contracts, bonds, and other instruments in writing in which the {L City is concerned and endorse on each his ap-preval of the form and correctness thereof. No such bond, contract or instrument shall become effective without such endorsement by the Director of Law thereon. 7 i In accordance with the requirements of -the foregoing concise language, the Law Director has historically, in his official capacity, either reviewed ,the legality of all proposed bond issues or, in the alternative, delegated the duties to L. f private lawyers or law firms as special counsel for the City. Accordingly, in instances when the Law Director f elected to delegate these duties, he has, within his dis-b# cretion, assigned these duties to private bond counsel. i Aware of the potential for conflict implicit in SS&D's

- f..           .              simultaneous representation of CEI and the City and having

, . - ! openly discussed the subject with Kudukis and O'Laughlin it j .i ,i~ l lispresumedthatthedecisionoftheLawDirectortopersist

                         ,     in his demands upon SS&D to act as bond counsel was, i, -

L i e44a o .-............ !l

r .

r-w r 1 under the prevailing circumstances, knowledgeably rendered with a full understanding of the impact that such insistence { could have upon the ethical issues evolving from the under-taking. Brueckel's services, as they related to the 1972 ' l

~~

MELP bond issue, were limited to drafting Ordinance No. l l 2104-72, authorizing purchase of the issue by the City's i 1

         -                 sinking fund. Thereafter City Council enacted an amended                I Le                     version of the ordinance directing the issue to be sold publicly or, in the alternative, to be purchased by the

[ sinking fund only upon enactment of an authorizing resolu-tion by City Council. SS&D did not prepare the amended form F of the ordinance ' Deft.'s Exh. Id). Brueckel did, however, at the insistence of the City, continue his ccnsultations on ,

.,                         a number of other bond issues, including the 1974 note to i
;'                         provide general obligation financing for street lighting improvements.

' {- L- During September of 1974, before the NRC, the City , for the first tine interjected the issue of conflict of I interest arising as a result of dual representation. There-I after, on July 1,1975, the City initiated the instant [ antitrust action against CEI and others in this Court. l Commencing on August 5,1975, the City, under the ; direction of James B. Davis (Davis), incumbent Director of l

Law, embarked upon an unusual, and perhaps questionable, l campaign. On the one hand, the City was demanding that SS&D I

     "                     continue as bond counsel for the City under penalty of
    --                     violating DR 2-110, Dode of Professional Responsibility, 4
     -                     " DR 2-110 Withdrawal from Employment.

(A) In general. r (1) If permission f w withdrawal from employment is , i required by the rules of a tribunal, a lawyer l L. shall not withdraw from employment in a pro-ceeding before that tribunal without its per-mission. l l e a.e .-.4u....., i

+ T

? ,

r F , 1 F while on the other hand demanding that SS&D withdraw as E legal counsel for CEI both before the NRO and this Court, under penalty of violating Canons 4, 5, and 9 of the Code of r-Professional Responsibility. Notwithstanding its charges of conflict leveled against SS&D, the City again retained SS&D as bond counsel in mid-November of 1975, at which time Davis assured Ralph G3bbon (Gibbon), the SS&D partner in charge of r the Public Law Section, that the bond work currently under-t taken would be considered as a matter separate and apart I from the instant litigation. However, on December 5 1975, ( mounting tension between the parties prompted Gibbon to r- notify Davis of SS&D's decision to withdraw as the City's bond counsel. (Pltf.'s Exh. M). On December 15, 1975, the i L City filed the instant Motion to Disqualify. As late a December 15, 1975, when its formal Motion to Disqualify and enjoin SS&D from further participation in the pending action before this Court was filed, the City, in its Brief support-ing said motion, continued to press SS&D to continue as bond

    ~
                   .      counsel for the City:

'~ SS&D is the largest law firm in the State of Ohio, with approximately 180 lawyers in 1975. It has one of the largest sections [~ specializing in public law and public finance [ of any major law firm in the United States. SS&D has a virtual monopoly on public finance law in Northern Ohio. Only two other firms r' I in Ohio, one in Columbus and one in Cincinnati, L (2) In any event, a lawyer shall not withdraw from F. employm nt until he has taken reasonable steps to avoid foreseeable prejudice to the rights of (_. his client, including giving due notice to his client, allowing time for employment of other counsel, delivering to the client all papers and property to which the client is entitled, and

  '                                   complying"with applicable laws and rules.

(3) A lawyer who withdraws from employment -r shall refund promptly any part of a fee paid j in advance that has not been earned. 4 9 I

 -                   1 MM '                                                           f ot.48==G 9 9 9 e t.e.4 94 8

r-t- f -- do any significant amount of public bond legal work. Neither has ever worked for the City.

i. Cleveland his four ocher firms with in excess of 80 lawyers each and a number of other firms of

  "~                substantial size, but none has ever attempted any significant amount of bond work in the public sector. The opinion of SS&D is widely accepted by financial institutions in Ohio and elsewhere as authoritative for the sale of public notes and bonds.

The City of Cleveland, in order to conduct its business and survive financially, must _. each year issue millions of dollars of notes and bonds. Over the last several decades, virtually all of such notes and bonds have been prepared by SS&D and sold because of its opinion letters. No other law firm in Ohio or elsewhere has the great and detailed familiar-ity with the City's affairs, the legal skills in dealing with Chio municipal law, and the staff necessary to prepare the City's bonds and notes

and give the necessary opinions for their sale as does SS&D. For the City to arrange to transfer e a part of its bond business to other firms would be very difficult and time consuming. It is much

more cumbersome and expensive to deal with law firms not located in Cleveland. The other large firms in Cleveland are reluctant, for a variety of reasons to even enter the field. Of the five large law firms in Cleveland, only Jones, Day, Reavis & Pogue has done any bond work for the City in recent, years, having prepared an issue of Sewer _ Bond Anticipation Notes in 1974 and again in 1975 This firm is not currently available as a

  ~                source of bond work for the City because it now seeks to represent the Ohio Edison Company in this present case.

The City Law Dapartment, with a constant problem F of low pay and heavy turnover, has not managed to develop lawyers with thJ skills necessary to la handle its own bond work. It is totally incapable of doing such work at the present time.

The practical consequence of the virtual monopoly of skills possessed by SS&D in the field of public finance is that the. City must and does totally rely upon it for the daily conduct of its financial affairs.

  -                  With the recent financial crisis in New York City, it is common knowledge that purchasers of nunicipal obligations across the country have become extremely cautious. With regard to the parchase of the current obligations of the City of Cleveland, it is now more necessary than ever to have authorita-tive opinion letters from a law firm on its bdnds

[ and notes. At present, only SS&D is readily avail-if able to provide such opinions. (Pltf.'s Br. at

' l-2-4). - l- ! . l m ...-..-,,......... lL

ESTOPPEL The alleged conflict of interest, if any in fact u. exists, arises as a result of actions induced by the party seeking disqualification. SS&D's asserted defense of equitable estoppel is therefore appropriately urged. P' In defining the doctrine of equitable estoppel in

    '             State v. Dayton Power & Liaht Co., 170 F. Supp. 722, 725 r-            (5.D. Ohio 195.), aff'd.263 F.2d 909 (6th Cir.), rev'd b,            on other arounds, 359 U.S. 552 (1959), the court stated:

Equitable estoppel or estoppel in pais is the principal (sic) by which a party who knows or should know the truth is absolutely pre-cluded, both at law and in equity, from denying, or asserting the contrary of, any r- material fact which, by his words or con-duct, affirmative or negative, intentionally b or through culpable negligence, he has induced another, who was excusably ignorant of the

   ,_                       true facts and who had a right to rely upr..

such words or conduct, to believe and act [_ upon them thereby, as a consequence :ason-ably to be anticipated, changing his position in such a way that he would suffer injury if such denial or contrary assertion were allowed.

    --                           Generally speaking, however, equitable estoppel is a rule of justice whi:h in its

_ proper field prevails over all other rules. e e e [_ The doctrine of estoppel in pais is ' founded upon principles of morality and fair dealing and is intended to subserve the ends of justice. (Citations omitted). While the doctrine is sparingly invoked against F L, municipal corporations, there is no doubt that a 'sunicipality can be estopped to prevent a manifest injustice, where pp;1tive action or representation by the municipal corpo-ration, acting eithi,n the scope of its authority, has induced another to act in good faith, and it would be inequitable to

~~

permit the retraction of such acts. Haba v. Cuff, 28 Ohio Op. 2d 266, 201 N E. 2d 343 (1963), appeal dismissed, 176 I i l I i

r . , i Ohio St. 374, 199 N.E. 2d 736 (1964), cert. denied, 380 U.S.

~~

964 (1965). The application of the estoppel doctrine to L attorney disqualification proceedings was recognized in Con-r- solidated Theatres. Inc. v. Warner Bros. Circuit Mat. Corp.,

      '               216 F. 2d 920 (2d Cir. 1954), as well as in Informal opinion
      -               1121, (April 21, 1975), wherein the American Bar Association Committee on Ethics and Professional Responsibility stated:

(0)1ving credence to the statement by F' Lawyer X that when he was engaged by counsel for Company B to represent the L latter in its dispute with Company C, he was advised by the lawyer for Company B r_ that there would be no conflict in his t, continued representation of Company A, then L. it would be improper for Company B to urge disqualification of Lawyer X now that Com-pany A and Company B have become embroiled in separate litigation. Id. at 3 {

      '                          The criteria for invoking the doctrine were suc-r-                cinctly delineated in United States v. Georgia-Pacific Corp.,

L_ 421 F. 2d 92, 96 (9th Cir. 1970) wherein it.was stated: Four elements must be present to establish the defense of estoppel: (1)

 ' [~                            The party to be estopped must know the
    '-                                                                                                                )

facts; (2) he must intend that his con-duct shall be acted on or must so act pr that the party asserting the estoppel has

a right to believe it is so intended; (3) LJ the latter must be ignorant of the true facts; and (4) he must rely on the former's conduct to his injury. (citation omitted). From the evidence educed at the hearing, the City , I i cannot, in good conscience, deny a full understanding of the j t'

    .'                scope and depth of SS&D's long stan'.ing general representa-L tion of CEI, if only from a review of tt. 49 legal actions                                 !

in which SS&D represented CEI as an adversary to the City's L interests (Deft.'s Exh. 29); the Hollington-O'Laughlin tele-phone conversations on July 24, 1972; the Holton-0'Laughlin {

' L-                  discussions of 1972 and the open, notorious and continuous
   .-                 legal representation afforded CEI by SS&D for a period of 65 years.
  !                                                                                                              I I

l L_ e a.e , . , . . . . . . . . . . . . . . . m .- u

i

     -                                                  t The Hollington letter of July 24, 1972 (Deft.'s I~                  Exh. 11), communicating the Kudukis concurrence in the appointment of SS&D as special bond counsel for the 1972 e-                  MELP issue, with Hollington acting within the scope of his L.        ,

authority as Law Director, certainly satisfies the second criteria. The Hollington-0'Laughlin discussion, coupled p_ f with the Hollington-Kudukis letter of July 24, 1972, convey-ed with explicit clarity the City's intention to waive any i ethical objections that could arise as a result of SS&D's L-performance as bond counsel, and SS&D had every right to f~ believe from the facts that the City so intended. Moreover, L it is apparent from the facts that SS&D was, at that time, completely ignorant of any intention on the part of the City

    '-                   to prest the ethical issues at a future date; and, in
        -                satisfaction of the fourth criteria set forth by United

[_ States v. Georgia-Pacific Corp., supra, SS&D, d10 in fact rely upon the City's conduct to its own detriment by reluctant - ly undertaking the City's induced retainer. Accordingly, the Court concludes that the facts herein catalogued warrant the imposition of the doctrine of

equitable estoppel against the City, thereby foreciosing the ~: f- City from prosecuting its Motion for Disqualification, I and it is on this account denied.

=r                                 The Court's inquiry does not, however, end here.

L. , Purther analysis of the disqualification issue is prompted

. r by a number of other asserted charges and defenses.

WAIVER ( As a corol%ary to the doctrine of equitable V lj estoppel, SS&D argues that in the event of an affirmative finding by the Court of ethical conflict as alleged by the __ F

. Ls I

t 3

  ~n
                                                                                    ~- -  ,

          .   /

_ City, the City has knowingly and voluntarily consented to t SS&D's role as bond counsel for the City, thereby waiving any right to pursue its Motion for Disqualification. It is axiomatic that the' client's right to object 1. to an attorney's allegedly adverse representation may be

i waived. E;g;, Marketti v. Fitzsimmons, 373 F. Supp. 637 (W.D.Wisc. 1974); Note, Attorney's Conflict of Interests , supra at 81. [- See also In re Yarn Processing Patent Validity

b. Litigation, 530 F. 2d 83, 89 (5th Cir. 1976). The defense i

of consent and waiver is predi ated, in large part, upon the same evidence supporting the Court's invocation of the doctrine of estoppel. As noted in Matsuo Yashida v. Liberty Mutual Insurance Co., 240 F. 2d 824, 829 (9th Cir. 1957): Waiver and estoppel are legal terms which r_ are frequently used interchangeably. Al-though the legal consequences of each are

~~'

often the same, the requisite elements are different. Waiver refars to the voluntary or intentional relinquishment

' [-

of a known right. It emphasizes the mental attitude of the actor. On the k other hand, estoppel is any conduct, express or implied, which reasonably p- misleads another to his prejudice so that a repudiation of such conduct would be [_ unjust .in the eyes of the law. It is grounded not on subjective intent but rather on the objective impression creat-I' ed by the actor's conduct. It is in the area of implied waiver that the two doc-trines are closely akin. (footnotes omitted). p- The Court, accordingly, focuses upon those facts evidencing

' l_                      the City's subjective intent manifested by the events sur-

_ rounding the 1972 bond ordinance representation. g; Again the Hollington-Kudukis letter of July 24, 1972, when taken in context with the Hollington-O'Laughlin F telephone conversations that preceded it, leaves no room for { doubt that the City did indeed waive any and all objection I~ to SS&D's continued representation of CEI: i c -

                *** s.e                                                   **. ..-e e.,e .eeo eeas

J t 1

     .-                                                 I                             I would greatly appreciate SS&D assist-t                             ing the City as bond counsel in connection with this matter. I have discussed this with Ray Kudukis who concurs with my refer-r-                            ral of this matter to your firm.

Accordingly, on this account the City's Motion to 7- Disqualify is dirmissed. b SUBSTANTIAL RELATIONSHIP TEST

     ,_                            Analogous to the City's broad brush treatment of I

L, the facts is the cavalier manner of its treatment of the law governing the issue of disqualification. Interchangeably, r* and without recognition of the distinct and definitive

,~

nature of each of the relevant Canons, the City charges SS&D with violating Canons 4, 5 and 9 of ".ne Code of Professional Responsibility. Although case authority does recognize a I' certain interrelationship between Canons 4 and 5, recent L- legal precedent distinguishes Canon 9 from the others and l p- proscribes its indiscriminate application to issues of L, disqualification. Silver Chrsyler Plymouth Inc., 518 F. 2d _ at 757. See generally, Note, The Second Circuit and Dis- {, qualification - Silver Chrysler Steers in a New Direction, 44 Fordham L. Rev. 130 (1975). That the " appearance of , r-l impropriety" doctrine of Canon 9 should not be given an [{. c - overbroad application was recently reaffirmed in International f Electronies Corp. v. Flanger, 527 F. 2d 1288, 1295 (2d Cir. l c. 1975) wherein the court stated: l We caution, as the Connecticut Bar Asso-l ciation urEes-us to do, that Canon 9, l though there are occasions when it should l l be applied, should not be used promiscuously ' as a convenient tool for disqualification l F when the facts simply do not fit within the i '[_ rubric of other specific ethical and disci-plinary rules. l I

                      ,2 Canon 9 as applied to D-.tiel O'Laughlin's former employ-

!c_ ment as Chief Counsel for the City Law Department will be ;

l'discussedmorefullyhereinafter. i I I I

                -                                                       ..-............ 1
                                                           - -  e

{

      -                                                                                                                                        I I

Judicial notice is taken of the standards of ! t r- professional conduct proclaimed in the Code of Professional i

   !      Responsibility. Canon 4, " A Lawyer Should Preserve the l

Confidences and Secrets of a Client,,a6 promotes the sound ! policy of confidentiality of communication inherent in the , attorney-client relationship by insuring, in the first

    !     instance, fundamental fairness in the judicial process by L

6 L_ DR4-101 Preservation of Confidences and Secrets of a Client. ' {- , (A) " Confidence" refers to information protected by

    '                the attorney-client privilege under applicable law, and " secret" refers to other information gained in the professional relationship that the client has requested be held inviolate or the dis-closure of which would be embarrassing or would be

_ likely to be detrimental to the client. f~ (B) Except when permitted under DR4-101 (C), a lawyer shall not knowingly; (1) Reveal a confidence or secret of his client. F-(2) Use a confidence or secret of his client to the disadvantage of the client. tv (3) Use a ~ confider.ce or secret of his client for f~ the advantage of himself cr of a third person, unless the client consents after full dis- ! [, closure. r-(C) A lawyer may reveal: u-(1) Confidences or secrets with the consent of the client or clients affected, but only after a full disclosure to them. I' (2) Confidences or secrets when permitted under [_ Disciplinary Rules or required by law or court order. (3) The intention of his client to commit a crime

L and the information necessary to prevent the crime.

(4) Confidences or secrets necessary to establish . f. '_t or collect his fee or to defend himself or his employees or associates agair-t an accu-sation of wrongful conduct.

i (D) A lawyer shall exercise reasonable care to prevent his employees, associates, and others whose services are utilized by him from disclosing or using confidences or secrets of a client, except that a lawyer may reveal the information allowed by DR4-l 101 (C) thiw - an employee. ,

! -- 1 h

l r t l l ~~ shielding the client from his attorney's use of confidential . information against him. Secondly, it encourages full disclosure by a client, thereby enabling the attorney to

i e function more effectively on the client's behalf. Note, j Attorney's Conflict of Interests, supra at 64. Canon 5,

f "A Lawyer Should Exercise Independent Professional Judgment on Behalf of a Client," also provides guidance for attorneys in conflict situations arising from multiple client representa-tion.I In determining the existence of a conflict of L interest herein, the Court's attention is directed to the test first advanced in T. C. Theatres Corp. v. Warner Bros. Pictures. Inc., 113 F. Supp. 265, 268 (S.D.N.Y. 1953),

r- ' L- 7 DR5-105 (A) - (D)' Refusing to Accept or Continue Employment' if the Interests of Another Client May Impair the Independent Professional Judg-ment of the Lawyer. 6 (A) A lawyer shall decline proffered employment, r_ except to the extent permitted under DR5-105 (C).

  "'               (B)    A lawyer shall not continue multiple employment i'                   !

the exercise of his independent professional judg- 1 ment in behalf of a client will be or is likely to I F be adversely affected by his representation of another client, excert to the extent permitted

-- under DRS-105(C).

(C)- In the situations covered by DRS-105 (A) and (B), l a lawyer may represent multiple clients if it is L_ obvious that he can adequately represent the interest of each and if each consents to the

"~

representation after full disclosure of the possible effect of such representation on the

't exercise of his independent professional judgment on behalf of each.

r (D) If a lawyer is required to decline employment or to withdraw from employment under DRS-105, no La partner or associate of his or his firm may accept such employment. .e s-t W l : ll j' .. . .............

r . . 4 [

t subsequently adopted by the Second Circuit Court 'of Appeals, I

in Consolidsted Theatres, Inc. v. Warner Bros. Circuit Management Corp., supra, and now generally applied in l I~ i nearly all circuits, to wit: the " substantial relationship" test.0 Redd v. Shell Oil Co., supra; Richardson v. Hamilter Internat'l Corp., supra; Uniweld Products. Inc. v. Union Carbide Corp. , 385 F. 2d 992 (5th Cir.1967), cert. denied,

          -                        390 U.S. 921 (1968); Chugach Elee. Ass'n. v. United States District Court, 370 F. 2d 441 (9th Cir. 1966), cert.

denied, 389 U.S. 820 (1967); Cannon v. U.S. Acoustics, 398 F. Supp. 209 (N.D.Ill. 1975); Marketti v. Fitzsimmons, supra. As Judge Weinfeld initially formulated the test in T.C. Theatres Corp., supra at 268, disqualification should be , ordered (~ where any substantial relationship can be shown between the subject matter of

   \                                          a former representation and that of a

subsequent adverse representation . . . . ,

n-Since the party moving for an order of disquali-w fication of an opponent's counsel charging alleged conflict j i

   "~                              of interest must overcome the burden imposed by several             j i

l"- interrelated evidentiary hurdles, the City is thu's required j i e to prove that: j m_ l. A past attorney-client relationship existed between the City and Brueckel which was adverse to Lansdale's concurrent and subsequent representa- , tion of CEI; ,c. l OThe City asserts th"at the " substantial relationship" test !

i ! is not applicable herein, relying on the recent case of ,

I Cinems 5. Ltd. v. Cinerama. Inc., 528 F. 2d 1384, 1387 (2d )

                                ; Cir. 1976), wherein the Second Circuit held that said test "did not set a sufficiently high standard" for disqualifi-               l cation where the " relationship is a continuing, adverse j representation." The Court concludes that the instant case
 --                          E is distinguishable therefrom, as detailed infra. Unlike .

(Cinema 5,Brueckel'sadhocrelationshipswiththeCityhad fixed parameters, were non-litigious and inherently non-l

                             ;- adverse, and, with the exception of the 1972 ordinance, were               )

unrelated to KELP matters.

o.. . _............ 1

f t t i I 2. The subject matter of those relationships was/is substantially related; and f' 3 Lansdale, as attorney for CEI, acquired knowledge ( of confidential information from or concerning the

-~

City, actually or by operation of law. Initially, within the context of the Code of Pro-

        -             feasional Responsibility, the existence of any attorney-client relationship, arising as a result of SS&D's role as bond consultant for the City, is questionable. The role of bond counsel is not that of an " advocate." Bond counsel merely examines and attests to the legal vriidit/ of pro-posed bond issues. Indeed, Brueckel's services in 1972 in drafting an ordinance for the 89.8 million bond issue are
  "~

analogous to that of a scrivener, a role that does not

  '                   create the relationship. W. McCormick, Law of Evidence $88 p-                  at 180 (2d ed. 1972). However, viewing the relationship in L_                   a light most favorable to the City, the Court concludes that an attorney-client relationship did exist between the City l                   and SS&D as its bond counsel. The existence of an attorney-client relationship between CEI and Lansdale is conceded.

r"

  !                              Having acknowledged the existence of an attorney-s-

client relationship, the Court must also affirmatively find ~I~ it to have been an adversary relationship. In this context L_ it should be noted that Canon 5, construed in conjunction r* with ethical consideration EC 5-15 and 5-19, approves cer-u- tain limited multiple-client representations.

  ;                              EC 5-15:

A lawyer should never represent in litigation multiple clients with differing i interests; and there are few situations in which he would be justified in representing

--                               in litigation multiple clients with potential-ly differing interests. If a lawyer accepted g            such employment and the interests did be:ome b                                                                     '

f .

f i actually differing, he would have to with- { draw from employment with likelihood of l i resulting hardship on the clients; and for l this reason it is preferable that he refuse {- th. enplJyn..*.; init1&lly. On the oVhcr hand,

               '             there are many instances in which a lawyer I

may eronerly serve multiple clients having potentially differirig interests in matters

     ]                       not involvir.g litiration. If the interests

( vary only slightly, it is generally likely that the lawyer will not be subjected to en adverse influence and that he can retain his T- independent judgment on behalf of each client; and if the interests become differing, with-(- drawal is less likely to have a disruptive effect upon the causes of his clients.

     --                      (enphasia added).

[_ EC 5-19: A lawyer may represent several clients F' whose interests are not actually or potential-ly differing. Nevertheless, he should explain

   '                         any circumstances that might cause a client to question his undivided loyalty. Regardless

Ir- of the belief of a lawyer that he may properly represent multiple clients, he must defer to

.[ a client who holds the contrary belief and withdraw from representation of that client. (emphasis added). Representations are sufficiently adverse to w warrant a disqualification when, in behalf of one client, it is l_ [the attorney's) duty to contend for that which duty to another client requires hit to oppose. Canon 6, ABA - I~ Canons of Ethics (now Canon 5, CPR).

                           Notwithstanding the intense competition existing i               between CEI and MELP, the Court, in viewing the nature of

(- the legal reyresentation afforded each of the parties hereto 7 by SS&D, finds that in this posture SSED's role as the f, City's special bond counsel in each ad hoc instance reflected , by the record herein, and more particularly for the 1972 7-

                   $9.8 million MELP issue, did not give rise to potentially

{ differing interests between the City and CEI. SS&D's r.epre-I sentation of the City as bond counscl was not litigious.

'~

l SS&D's representation of the City in bond matters was not .- [ i vo-l

j 1" I l t - as advocate. Each retainer was arranged by the City's legal counsel, namely the Law Director, acting with full realiza-l tion of SS&D's relationship as advocate for CEI in its l t capacity of general counsel, all in keeping with the objec- , [ tives of EC S-15 and 5-19. In view of the foregoing, the Court is unable to find the required adversity of representation necessary to ( support disqualification. _ In the event that the City had carried its burden L of proof by initially demonstrating the requisite adversity between these two representations, it would have been r-

    ,                    confronted next with the burden of affirmatively showing, as the second element of the test, that the former attorney-

[ client relationship involved c:stters substantially related to the latter. Absent such affirmative showing, it is F axiomatic that no. ethical problem results. Cannon v. U.S. L- Acoustics, supra at 222. 7 In confronting the conflicts issue, this elee M b is "not one whose dimensions are delineated with mathemata-cal precision," Silver Chrysler, 518 F. 2d at 758 (Adams, J. I concurring), and "[u]nfortunately, the cases furnish no

.;,

applicable guide as to what creates a ' substantial' relation-ship." United States v. Standard 011 Co., 136 F. Supp. 345, 1 355 (S.D.N.Y. 1955). A survey of cases cited in Silver ,[ Chrysler disclosed 1. hat disqualification was ordered only !L l ander circumstances where the relationship between subse- > l

                                              .                                                  i 4-                     quent and former representations was "gatently cicar." 518
                                                                                                 )

L P. 2d at 754. t, The gravamen of the City's antitrust action reflected by the pleadings is that of anti-competitive practices, en5 aged in by the parties in the genration,

                     . transmission and sale of electric energy in the Cleveland, i

L 6 ; e

 \           sms.s                                                         .  ..............

_ a ,

l

  -                                                          t iI                            Ohio area, as demonstrated by the City's charges that the L

defendants combined and conspired: to refuse to wheel or to allow the transmission of electric power and energy to MELP from other power and energy suppliers, or from MELP to any 'P other electric utility system which is an actual or potential

  $                          competitor of any of the defendants, over trans'aission lines owned or controlled by the defendants or any of them; to

(_ boycott and refuse to deal with plaintiff and others in the _- power exchange market, except on terms that would maintain domination and exclusive control by the defendants over '{ electric bulk power supply in the area served by each, and upon conditions that would be harmful to the interest of the L

plaintiff and other actual and potential competitors at

wholesale or retail; to refuse to admit plaintiff to member-ship in the Central Area Power Coordinating Group (CAPCO) or p , to otherwise permit plaintiff to have access to the benefits .b of coordinated operations and development or any other benefit of power pooling or power exchange services; and to I engage in other activities for the purpose and with the effect of restraining and eliminating competition in the

'C                           sale of electric power and energy.
'V The Court concludes that there exists no substan-   ,

I tial relationship between the pending antitrust action and lI~ SF4D's services to the City,on an ad hoc basis as special f"' bond counsel attesting the veracity of proposed bond offer- !k ings. .; No " patent 1y clear" relationship er'ists between f,_ Brueckel's bond representation in 1972 and Lansdale's representation of CEI in t5is pending antitrust action. The Court is unable to discer.. any commonality of issues, s,e.e.

%

91W \ i

                   ==                                                                 ............                  i

,g . 1. l-l

( (

l Fleischer v. A.A.P.. Inc., 163 F. Supp. 548 (S.D.N.Y.

                                                              ~
       -            1958), appeal dismissed, 264 F. 2d 515 (2d Cir.) eert.

( denied, 359 U.S. 1002 (1959), particularly in view of the __ non-litigious natur of Brueckel's bond consultations. Thus, j the instant case is distinguishable from precedent such as Emle Industries. Inc. v. Patenter, 478 F. 2d 562 (2d Cir. 1973), where the matters in controversy were identical, and Motor Mart. Inc. v. Saab Motors, 359 F. Supp. 156, 157 (S.D. [' N.Y. 1973), where the suit was " essentially the same type of suit." Moreover, the Court finds the City's reference to Chugach Elec. Ass'n. v. United States District Court, . __ supra, does not support its contention of substantial relationship. In Chugach, substantial relationship was r_ patently cl. ear and the disqualification was predicated upon the challenged attorney's former position, for 14 years, as General Counsel for the movant. That the City would compare Brueckel's limited, ad hoc representation to that of a .f ~~ general counsel r'lationship e reflects the City's failure to ' f- perceive the subtleties, or the " fine lines" to which Judge i-Kaufman referred in United States v. Standard 011 Co., supra .g at 367, that must be carefully considered in applying e.thi- [_ cal principles.

  ,_                          Furthermore, it is inconceivable that Brueckel's

, [_ authorship of Ordinance No. 2104-72 would provide him with confidential knowledge disclosing the City's antitrust f' strategies or motives such as those available to the dis-L. qualified attorney in Chugach. , ( The Cour* necessarily concludes that the City has

                 ' failed to meet ita burden of proving a substantial relation-ship between the instant representations.
                                                                     .                           l l

1 _ _ . _ . . . . . . . . . . .

M ( ( 33 t The general rule in disqualification cases has been that, upon proof of a former attorney-client relation-(- L ship concerning substantially related matters, disclosure of e- confidences is presumed. T.C. Theatres Corp., suora at 1 ( 268. This Court concludes that equity demands, and the pragmatics of emerging specialization inherent in contem-porary legal practice dictates, that this presumption be rebuttable. Thus, upon proof of the attorney-client relation-ship arising from Brueckel's employment as special bond I~ counsel, and of an adverse and substantial relationship L^ between that employment and SS&D'a representation of CEI

         ~     (which the City failed to provide), the disclosure of t          confidential information would have been initially presumed in favor of the City.

c-m However, the record in the instant case reflects that SS&D successfully and conclusively produced substantial

, c-probative, material evidence affirmatively showing that no confidential disclosure in fact occurred snd that the very mechanical procedure integrant to the services of bond                                        l b_          counsel for the City foreclosed such manifestation. In the                                   l f"           first instance, the document composite of any proposed City
   '-           bond issue is, by law, a matter of public record. Secondly, r          preliminary to any attestation of legality by City's bond
    !_          counsel, verification of su'h cdocumentation is premised upon y,

public record, and information within the public domain, (, e.g., legislative enactments of state and local political subdivisions, record's of the State and County Auditors, and Municipal fiscal officers, Ohio Municipal Advisory Council Reports, Moody's Reports, Standard & Poor. I In instances where courts have found disclosure of

              information by the client to one member of a law firm, such I

l u 9M. Gem =9 9.99.eges. 4 eg I l-

( . I knowledge has traditionally been imputed to all members of I his firm. Consolidated Theatres. Inc. v. Warner Bros. Circuit Manaseaaent Corp., supra at 928. The Court, having { found no disclosure of confidential information in the l proceeding at bar, is not confronted with resolving this issue. It should, however, be noted that recent prevailing L legal precedent has rejected ,the harsh, hard-line approach of irrebuttably imputing confidential disclosures, actual or presumed, received by one member of a law firm to all ( members of that law firm in fa'vor of the more realistically F~ equitable logic, attuned to contemporary legal practices L common to emerging law firms of substantial size. This more I intellectually sound treatment is demonstrated in Silver [- Chrysler: Only where an attorney himself represented i a client in matters substantially related i to those embraced by a subsequent case he wishes to bring against the former client, I

    -                              is he irrebuttably presumed to have benefitted s                              from confidential information relevant to the
. " ~

current case. In such limited situations there is no necessity to demonstrate actual exposure to specific confidences which would

, [~                               benefit the present client. But, as Judge Herlands noted in F2eischer [ supra at 552),

- in a case "where the attorney may be ' vicariously disqualified' (as by virtue of his former r membership in a law partnership), the inference is treated as rebuttable." 370 F. Supp. at

,[                                 587. (citations o:nitted).

In affirming the lower court's departure from precedent, the Second Circuit, citing Laskey Bros. of W. Va.. Inc. v. Warner Bros. Pictures, 224 F. 2d 824, 827 (2d Cir. 1955), cert. r-

                     ; denied, 350 U.S. 932 (1956), has cautioned:
.'C.                               It wil, tot do to etake the presumption of confidential information rebuttable                                      ,

'~ and then to make the standard of proof for rebuttal unattainably high. This is particularly true where, as here, the , i attorney must prove a negative, which is i ~[ - 1: always a difficult burden to meet. Silver Chrysler, 518 F. 2d at 754. l . g H - r- 4 .s. p44&B p.e.ee-e.e.ps sees.es as l i

                                                                                 - - -                -   wg--  v

       \
           ..                          As Judge Weinstein had noted in the lower court decision in Silver Chrysler, 370 F. Supp, at 588:

Since the larger firms represent the largest corporations with interests in all sectors of the eccnomy, it is almost i impossible to have an important client or its subsidiary avoid some kind of legal

        -                                        relationship with another client at some time. Cf. E. O. Smigel, The Wall Street Lawyer ~734 (1964). "Where a firm re-presents concurrently conflicting inter-
       ~~

ests, the practice is sometimes followed of ' splitting up' the firm into separate i teams of lawyers, each of which repre-sents one of the antagonistic clients." hoto. Unchanging Rules in Changing Times:

       --                                        The Canons of Ethics and Intra-firm Con-flicts of Interest, 73 Yale L.J.1053, l_                                         1071 (1964). Cf. J.C. Coulden, The Super-lawyers 53 (1772) (Covington and Barling "isn't really a law firm. . . . Actually3 it's a conglomeration of fifty law practices.").
      ,                                          The fact that attorneys within the firm are
       "~                                        effectively insulated from exposure to the confidences of other clients where
      ~'                                         necessary demonstrates the inappropriate-ness of an invariable mechanical imputa-
      -                                          tion of knowledge.

Nor does this departure from traditional inter-protation of Canons 4 and 5 diminish the force of existing 1 decisions g_ which hold that the right of the

    --                                           public to counsel of its choice or the possibility of a reduction of "both the
         -                                       economic mobility of employees and their
                                                 ,,ersonal freedom to follow their own

"[ interests" must be secondary considerations to the paramount importance of " maintaining the highest standards of professional conduct P~ and the scrupulous administration of justice." Silver Chrysler, 518 F. 2d at 757. (citations omitted).

    -                                            Thus, it is appropriate to reject a mechanistic (s                              . approach herein. Alternatively, the doctrine of' vertical l

i b; responsibility, classically invoked for disqualifying former j government attorneys upon ternination of governmenc service y was, and is, limited in application to imputing confidential disclosures, presumed or actual, of subordinates serving i

3 E*"O" F.e stemp396894.-.5 9 s

    -om
         ,4    . . ,      ~

                . t l

r- , i 7-

~'

i within the same subdivision or section of service of the ! former government attorney. See, United States v. Standard 011, supra at 362. 4 This doctrine of vertical responsibility is rele- __ vant to the private sector of legal practice in view of the ( increasing numbers of law firms that equal the size of many legal subdivisions of government. Imputing to an attorney in the private practice all confidential information obtained, f or presumed to have been obtained, by other members of his . I' law firm may severely limit the scope of the private atter-t ney's future career and the effective operation of his firm,

~~

as well as the individual's right to legal counsel of r

       '                    choice. The analorous rule in the private practice of law
     -.                     should therefore limit the imputation of confidential dis-I closures, actual ar presumed, to only those lawyers practic-ing in the attorney's area of concentration. Absent direct proof to the contrary, the attorney would not be deemed to
 . u-have shared confidential information relating to matters and r                      services exclusively within the sphere of representation of

( another department or section of his firm. This vertical 1 (" responsibility rule is more acutely dramatized in the large,

t' departmentalized law firms characteristically more prevaler.t p in an era of evolving legal specialization. See also

          -                 Kaufman, The Former Government Attorney and the Canons of Professional Ethics, 70 Harv. L. Rev. 657, 666-67 (1957);

Note, Atyorney's Conflict of Interests, supra at 77-78. Without qu'estion SS&D is the largest law firm in Ohio and perhaps one of the larger law firms in the nation, L-with approximately 180 partners and associates. It is I departmentalized into five sections as hereinbefore described. L. d t 1: L e M3 3 FM.s.u-9 9 9 tJ94. 4949 't

                                                                                                    - --m-

i . . ( I I Brueckel is, and has been during his legal career with SSF.D, assigned to the highly specialized bond division of the L Public Law Section of that firm; Lansdale is, and has been I

during his legal career with SS&D, assigned to the Litiga-tion Section of the firm. Each is a separate and distinct section of the firm pursuing specialized areas of endeavor.

I The Litigation Section has, without exception, pursued in adversary proceedings the interests of CEI. In no instance i has it represented MELP, and under circumstances of cross-interest between the parties the litigation section has been I the advocate for CEI. g. The record is barren of evidence of actual confi-

dential disclosure between Brueckel of the Public Law Section and Lansdale of the, Litigation Section. The Lansdale-Hauser l memorandum resulting from the White-Little Hoover Commission

   '                      meeting attended by Lansdde and Brueckel does not support a
   ,-                     conclusion of actual disclosure for the reasons heretofore m                      discussed in the statement of the facts herein.

Apart from the doctrine of vertical responsibility, i the City was equally unsuccessful in supporting imputed dis-closure of confidential information by Brueckel to Lansdale I in light of affirmative evidence rebutting such presumption. y , Standard 011 Co., supra at 304. S The City having failed to carry its burden of [ ~~ f proof as to the three elements of the " substantial relation-

.e                        ship" test, it is manifest that disqualification of SS&D is

! not warranted under this traditional analysis, i

   --                  ,             Lastly, the Court directs its attention to the
'..                       alleged conflict of interest arising from O'Laughlin's 3 service with the City Law Department between 1952 and 1968

.f $ C shen he became associated with SS&D. L, s , 1 l L i . ..-.............. l\ . y t ,.

        ;  , .

l 1 38 - t-During his tenure with the City Law Department, ,

       -                    l                                                                                              I g                    fO'LaughlinservedasChiefCounselfortheCityunderLaw 5 Director Brontis Klementowicz (Klementowicz) between 1964                                    I I

s.r. ? 1963. h this capacity he had overall resconsibility I ( for the City's civil litigation, monitoring in varying I ! degrees legal services required by all City departments. I

       '                     0 The evidence demonstrates that MELP affairs during this A
       ~                     k period were directly under the supervision of Klementowicz,
                              'I
                              .?     acting on behalf of the incumbent Mayor Ralph J. Locher.

p g O'Laughlin was, however, as Secretary to the Mayor's Board

                              '$ of Control privy to various discussions concerning MELP i

expansion. Since affiliating with SS&D, O'Laughlin has been

                               -      assigned to the Public Law Section, where he has served in a
       '                       3 i consulting capacity with various political subdivisions of government, school boards and state universities.

L k The City's charge of conflict arising from O'Laughiltn's

I ;f employment by SS&D is founded upon Canon 9, "A Lawyer Should b' h Avoid Even the Appearance of Professional Impropriety."

     -                         .:     DR 9-101 (B) states:

t b ) A lawyer shall not accept private employment in a matter in which he

                               ;                  had substantial responsibility while
'I.                             1                 he was a public employee.
 ~

As noted in ABA Coenittee on Professional Ethics Formal r- Opinion No. 37 (May 4, 1931), the rule evolved to protect

'b                                    against the manifest possibility that his 7-                                           action as a public legal official might I

be influenced (or open to the charge that L it had been influenced) by the hope of being emp1,oyed privately either to up- ' hold or upset what he had done. I u Considering the issue presented, the Court is f pided by Judge Kaufman's admonition articulated in his p se: sinal articlc, The Former Covernment Attorney and the '[, C.*r.nne of Professional Ethics, 70 Harv. L. Rev. 657, 668 (1957), wherein he stated: e' f .....,,.n.......

                 2*'           .

l1 fk .. l ___.

F , , ( F i . I If the Government service will tend to L sterilize an attorney in too large an area of law for too long a time, or will

prevent him frca engaging in the practice of a technical specialty which he had [" devoted years in acquiring, and if that t- sterilization will spread to the firm witn wnich he becomes associated, the sacrifice of entering government service will be too great for most men to make. ~ l' ~ Obvious are the distinctions between legal precedent I

and the present case under which Canon 9 sanctions are sought. In those instances wherein disqualification was ordered pursuant to Canon 9 the challenged attorney had f performed extensive services in specific matters, or litigatio 1 in the same proceeding from which he was subsequently being

{ disqualified. Q , General Motors Corp. v. City of New York, 501 F. 2d 639 (2d Cir. 1974); Allied Realty or St. Paul,

 .h                     Inc. v. Exchange Nat'l Batnk of Chicago, 408 F. 2d 1099 (8th Cir.), cert, denied, 396 U.S. 823 (1969); Hilo Metal
     ~

Company. Ltd. v. Learner Co., 258 F. Supp. 23 (D. Haw. L 1966). p Manifest from the record is the City's failure to b factually interconnect O'Laughlin's present employment with his previous public employment. Indeed, the record is con-

y spicuously silent as to any specific claims or matters involving O'Laughlin's participation in MELP affairs, either I substantially or remotely related to the antitrust action

{

presently before this Court. Accordingly, in the words of y-Judge Kaufman in United States v. Standard 011 Co., supra at i 365 (S.D.N.Y. 1955), the failure of. proof ?.s fatal: [I]t is haidly reasonable to hold that !t [ an appearance of evil can be found in !' [an attorney's] undertaking a case against the government where there is not some closer factual relationship between his l[ former job and the case at hand other than il, that the same vast agency is involved. . l l' 3 k i L u.>. l . . . - . . . . . . . . . . .

I , . L p- I I Absent the vital links required to support a Canon b_ 9 violation, the City's Motion for Disqualification is overruled on this account. { ,

SUMMARY

OF CONCLUSIONS I, For the reasens hereinbefore set forth, the Court L concludes:

1. The City is estopped from asserting alleged

[~ ("' conflict of inte'r est against SS&D;

2. The City, with full knowledge of SS&D's legal

[-

b. representation of CEI over the years, waived any rights to assert alleged conflict of interest against SS&D;

[ 3 Brueckel's services for the City in preparation of 'IL the 1972 $9.8 million MELP related bond ordinance' were not adverse to Lansdale's adversary represen- . r' tation of CEI in this antitrust action; . L. 4 SS&D's role as special bond counsel for the City

    ~                                 on an ad hoc basis throughout the years does not
  '-                                  constitute an adverse representation to Lansdale's r-                                   representation of CEI in the instant antitrust b,                                  action within the intent and meaning of the Canons.
                  ~

5 Lansdale received no confidential information concerning KELP as a result of Brueckel's services r' as special bond counsel to the City either actual-ly or by operation of law; 'I' 6. O'Laughlin's present employment with SS&D presents L no basis for disqualification of SS&D as counsel 1 for CEI in the pending antitrust action. L

(

l a q _ , . . _ _ . . . . . . . . . . i i

I~ . . f j r Accordingly, the City's Motion to Disqualify the I- law firm of SS&D from continued represent,ation of defendant CEI in this antitrust action is hereby denied. p 1 IT IS 30 ORDERED.

x 1 >> Uhh Sc&Tirk LWct Ju 6e F t i' L L - r'

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    ..                                                                                                      i t.

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                                                                      ....-..............                   l l
  ..                                                                                                        1 l

l

r , s ( U r-CERTIFICATE OF SERVICE i c' L r- I hereby certify that copies of the foregoing

           " Applicants' Joint Reply Brief" were served by hand on each of the persons listed below, on this 15th day of September, 1976:

F Douglas V. Rigler, Esquire Chairman, Atomic Safety and Licensing Board Foley, Lardner, Hollabaugh and Jacobs F Chanin Building - Suite 206 b 815 Connecticut Avenue, N.W. Washington, D. C. 20006

I Ivan W. Smith, Esquire Atomic Safety and Licensing Board

_ U.S. Nuclear Regulatory Commission East-West Towers

    -                      4350 East-West Highway Bethesda, Maryland 5

John M. Frysiak, Esquire Atomic Safety and Licensing Board U.S. Nuclear Regulatory Commission

. b-                      East-West Towers k                        4350 East-West Highway Bethesda, Maryland i
   ~

Y. A .% . A Wm. Bradfoh,d Reynolps 'l

L 1-

By order of the Licensing Board, on September 22, 1976, copies of the Reply.Brief will be served upon all persons q listed on the Service List used throughout this proceeding.

t-l b

!) L

                                                                          .- . - -}}

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