CEI, SQUIRE-SANDERS INFECT CITY POLITICS

Submitted by Roldo on Wed, 02/11/2009 - 13:46.

“The Cleveland Electric Illuminating Co. has been caught so red-handed in its predatory anti-competitive activities that a CEI lawyer had to admit guilt in the hope he could bamboozle the jury enough to avoid losing up to $150 million in damages,” I wrote as the city pursued its anti-trust case against CEI in 1980.

Squire, Sanders & Dempsey lead lawyer John Lansdale admitted this deception in his opening address to the jury.
“Yes,” he said, “We refused to wheel PASNY (Power Authority of State of New York) power…because it would have given Muny cheaper power” than CEI could produce. Any outside electric power to the city’s system had to travel over CEI’s lines with it approval.

Lansdale told the jury: ‘We did not wish to interconnect. We did not wish to help Muny. We wished to serve customers directly.”

In other words, CEI wanted a 100 percent monopoly.

I described Lansdale, who died in 2003, as looking like a 1940 Councilman with his olive green suit and red bow tie. He was far from such an innocuous being.

He had been the chief of security on the nation’s World War II Manhattan atom bomb project. He defended J. Robert Oppenheimer against charges of being a communist before Congress and headed American forces that beat the Russians to intercepted German’s nuclear operation and its uranium cache near the end of World War II.

Brad Norris, who died in 2006, was the city’s lead lawyer. He had the bearing of a U. S. Senator. His military-strait posture and graying sideburns gave him a patrician look. Yet, his very presence in the courtroom seemed to annoy U. S. Judge Robert Krupansky. Norris, one could see, tried to not annoy the judge but couldn’t succeed. The prejudice was palpable.

Lansdale might have been the judge’s favorite but he had a bad case. He would not even declare whether CEI had or had not acted in a predatory manner toward Muny.

However, Lansdale had a good judge. The city tried to get Judge Robert Krupansky removed as prejudicial, just as it had tried to argue that Squire, Sanders & Dempsey - because of its dual representation of CEI and the city - should be disqualified. It failed on both counts.

Krupansky used his power to handicap the city with rulings, limiting depositions to lawyers who had not started for the city. As I wrote then, “Krupansky’s rulings mean that the city will go into this trial with not ONE of the present city’s lawyers having deposed a SINGLE witness in the complex anti-trust case.”

Company records unveiled at the trial certainly suggested that CEI had been predatory.

After admitting that CEI did try to put the city out of the electric power business, Lansdale cutely argued that the city be barred from use of some 1,000 exhibits showing how CEI had tried to destroy Muny. His reasoning: CEI already admitted it wanted Muny dead.

Even so, a lot of tainted material came to light.

When CEI determined that Muny had begun to improve and was making advances financially, it turned to dirty tricks worthy Dick Nixon’s Watergate crew.

It hired a lawyer to bring suits to harass the city, laundering payments through another law firm.

Meanwhile, Krupansky showed deep bias against the city, particularly against Norris of Loeser, Freedheim, Dean & Wellman. I noted at the time that Krupansky interrupted Norris so often that the lawyer had trouble finishing a sentence or a thought.

Krupansky’s demeanor was being made clear to the jury – he didn’t like Norris but enjoyed Lansdale.

I wrote: “Krupansky appeared to give side glances to Lansdale seeming to smile or smirk at the simplicity of the (city’s) witness’s statements. At one point, Krupansky turned his chair completely away from the witness, looking at the ceiling, hardly an inspiring action to those in the jury who noticed.”

The city’s first witness was Mayor George Voinovich, who kept the lawsuit that Dennis Kucinich had really forced. But Voinovich – a popular public figure for the city - was quickly dismissed after a private discussion by Krupansky with lawyers. Krupansky apparently didn’t want the popular mayor scoring points for the city.

It was a clear signal of how Krupansky would rule his courtroom at this trial.

A letter from Howley to the city gave the impression that CEI was cooperative and “will be happy to work with the city concerning the interconnection.”

It was hardly the way things would go.

Instead, CEI secretly engineered a lawsuit asking an injunction against the interconnection. The suit was through an outside lawyer, Charles R. Miller. Miller was hired to keep CEI’s name out of the legal action.

CEI also hired Miller to make legal objections to the U. S. Environmental Protection Agency about air quality standards of the city’s electric systems.

CEI, to be more duplicitous, hired Miller through another law firm, putting even more distance between CEI and its lawyer.

The use of an intermediate law firm reveals how CEI tried to hide its role in these harassment tactics.

CEI paid for both lawsuits and provided by telephone and in person advice and technical information used by Miller in the suits.

These underhanded tactics provide a good glimpse at the way business operates with shakedowns and dirty tricks. You rarely get to see such tactics revealed to the public.

Correspondence back to 1959 shows the intense and obsessive interest CEI had for any improvements Muny Light might offer its customers.

One memo by a Squire, Sanders & Dempsey partner of Lansdale partner Ralph Gibbon to Karl Rudolph and Ralph Besse, both former presidents of CEI, outlined a scheme to allow an interconnection only if CEI could get the city to agree to a price-fixing agreement.

Lansdale should have known better but it didn’t stop the attempt to price fix. Indeed, Lansdale wrote: “The Federal Power Commission’s jurisdiction over sales at wholesale cast doubt upon our ability to make such conditions in an interchange agreement effective.”

The extent to which CEI stalked the city’s insignificant competition borders on the insane.

Here a memo reveals the lunacy of top CEI officials in their determination to damage the city’s asset. Didn’t they have business of their own to do?

“Since it is unlikely under present circumstances that Muny operation will continue its rate of decline as we had previously hoped, it should be recognized that before we can successfully contain the Muny operation and reverse the trend of customer (our) loss, which we have recently been experiencing, or arrive at a point where a sale could be negotiated, the rate differential between our service and Muny service must be equalized and reduced to a minimum.”

Though it wanted rates between the utilities to equalize, there were problems with that, too.

The memo continued: “And further, it should be recognized that the mere elimination of the rate differential would result in no material gain to us (CEI) unless the additional revenues realized from the equalization of Muny rates are siphoned off into additional cost, additional financial burdens by way of increased interest and the like, or the payment to the city general fund of a sum in lieu of taxes or by an increase in the non-remunerative service such as law paying street lighting, etc.”

CEI even feared Muny’s improvement of services to its customers: “Should the additional revenues be used to better Muny service, and increase its capacity, any benefit to us from rate equalization would be nullified.”

This isn’t mere competition. This is warlike and predatory behavior.

CEI even recognized that it might be alerting the city to problems.

“Our course of action should … recognize the fact that in taking action to hasten the Municipal plant’s decline, we run the risk of alerting the plant’s management and friends to the system’s weakening economic position. But the advantage to be gained from our action far outweighs such a penalty.”

Such reasoning is beyond bizarre.

Amusingly, the memo to Howley said that CEI must recognize the “importance of good timing – when to move in, and how far; when to drop back; when to act and when to wait.”

What would have happened if CEI and Muny cooperated and provided cheaper power to businesses instead of CEI trying to sabotage the city’s asset? How many businesses could have been kept in Cleveland?

Would we today have a better business climate of trust between the private and public sectors?
CEI and top legal firms helped infect way of governing and a distrust that persists today.

Certainly CEI’s treacherous business mentality infected the entire relationship between government and business in this town. I believe it still does because the mentality still infects our leadership.

Even fellow Republican George Voinovich, who had become Mayor, revealed his disenchantment.

He had said of Muny, “You can’t compete with CEI.” However, as mayor he proceeded with the case. I think he hinted why when he said, “Maybe I wasn’t as excited about Muny as the former mayor because I didn’t have the information he had.”

He got the message of how vile the Cleveland business community could be.

The jury also apparently got the message. The foreman, a young woman, let it be known that its members were shocked by what they heard. Except for one juror.

The jury voted for the city 11-1. The lone holdout, however, hung the jury in this case that could have meant up to $325 million in triple damages for Muny Light.

The city had to do it again and Judge Krupansky played an even more evil role in the second trial.

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