United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 14, 1997 Decided December 30, 1997
No. 97-1218
Alarm Industry Communications Committee,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
Ameritech Corporation,
Intervenor
On Petition for Review of an Order of the
Federal Communications Commission
Danny E. Adams argued the cause for petitioner. With
him on the briefs was Steven A. Augustino.
Stewart A. Block, Counsel, Federal Communications Com-
mission, argued the cause for respondents. With him on the
brief were William E. Kennard, General Counsel at the time
the brief was filed, Daniel M. Armstrong, Associate General
Counsel, and John E. Ingle, Deputy Associate General Coun-
sel. Andrea Limmer and Robert B. Nicholson, Attorneys,
U.S. Department of Justice, entered appearances.
Kenneth S. Geller argued the cause for intervenor Ameri-
tech Corporation. With him on the brief was Evan M. Tager.
Before: Edwards, Chief Judge, Wald and Randolph,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Randolph.
Randolph, Circuit Judge: Do a corporation's assets, when
organized in a separate operating division and dedicated to a
particular line of business, constitute an "entity"? This and
related questions, in less abstract form, are posed by a
provision in the Telecommunications Act of 1996. Pub. L.
No. 104-104, 110 Stat. 56 (to be codified in various sections of
47 U.S.C.). The provision, 47 U.S.C. s 275(a), forbids any
Bell Operating Company or affiliate from providing "alarm
monitoring services" for 5 years from February 8, 1996--
unless the company was already in that market. Only Ameri-
tech Corporation qualified for the exemption. Ameritech
thus could continue providing alarm monitoring services, but
during the 5 year period s 275(a)(2) prohibited it from acquir-
ing "any equity interest in," or obtaining "financial control of,
any unaffiliated alarm monitoring service entity." The Fed-
eral Communications Commission thought the word "entity"
in this clause had a clear and precise meaning--it included
only an object with a separate legal existence such as a
corporation. Ameritech therefore could, the Commission
ruled, purchase alarm monitoring assets organized and oper-
ated in an unincorporated division of Circuit City Stores, Inc.
I
There is no need to repeat the description, found in many
of our opinions, of the 1982 AT&T modified final judgment;
the consolidation of the Bell Operating Companies, or BOCs,
into seven (now only five) regional holding companies, includ-
ing Ameritech Corporation; or the "line of business" restric-
tions contained in the judgment. One such restriction pro-
hibited the BOCs from entering the "information services
market." United States v. American Tel. & Tel. Co., 552
F. Supp. 131, 189 (D.D.C. 1982), aff'd mem. sub nom. Mary-
land v. United States, 460 U.S. 1001 (1983). This market
included alarm monitoring services. Providers of such ser-
vices place devices on a customer's property to detect possi-
ble threats from burglary, fire, vandalism, and the like; when
triggered, the devices transmit signals to a remote center,
alerting monitors there of the need to inform the customer or
police, fire, rescue, security, or public safety personnel. See
47 U.S.C. s 275(e).
By 1991, the district court had lifted the "information
services" ban. See United States v. Western Elec. Co., 993
F.2d 1572 (D.C. Cir. 1993). But only Ameritech thereafter
entered the alarm services market. It did so in late 1994
when it purchased the assets of a security alarm monitoring
company based near Chicago. In early fall 1995, Ameritech
expanded operations by acquiring the stock of The National
Guardian Corporation, a company with accounts nationwide.
Through SecurityLink, a wholly-owned subsidiary, Ameritech
now serves some 367,000 customers and is the second-largest
provider of alarm services in the country.
The Telecommunications Act of 1996 added a new Part III
to Title II of the Communications Act of 1934. Entitled
"Special Provisions Concerning Bell Operating Companies,"
this portion of the Act regulated the entry of BOCs into
certain markets. See 47 U.S.C. ss 271--76. We are con-
cerned here with 47 U.S.C. s 275(a):
(a) Delayed entry into alarm monitoring
(1) Prohibition
No Bell operating company or affiliate thereof shall
engage in the provision of alarm monitoring services
before the date which is 5 years after February 8, 1996.
(2) Existing Activities
Paragraph (1) does not prohibit or limit the provision,
directly or through an affiliate, of alarm monitoring
services by a Bell operating company that was engaged
in providing alarm monitoring services as of November
30, 1995, directly or through an affiliate. Such Bell
operating company may not acquire any equity interest
in, or obtain financial control of, any unaffiliated alarm
monitoring service entity after November 30, 1995, and
until 5 years after February 8, 1996, except that this
sentence shall not prohibit an exchange of customers for
the customers of an unaffiliated alarm monitoring service
entity.
Several months after s 275 became law, Ameritech pur-
chased all of the alarm monitoring assets of Circuit City
Stores, Inc., and integrated them into SecurityLink. Circuit
City had organized the assets--customer contracts, monitor-
ing center hardware and software, and alarm equipment
inventory--in its Home Security Division, an unincorporated
operating division. Ameritech extended offers of employment
to all Circuit City employees whose work had been fully
dedicated to the Home Security Division. After the asset
purchase, the Home Security Division ceased to exist and
Circuit City ceased providing alarm monitoring services.
In August 1996, petitioner Alarm Industry Communications
Committee ("AICC"), representing the trade group Central
Station Alarm Association, asked the Federal Communica-
tions Commission to issue an order to show cause why
Ameritech's "acquisition of the alarm monitoring business of
Circuit City ... is not in violation of" s 275(a)(2). It further
requested that the Commission issue a cease and desist order
directing Ameritech "to rescind its Circuit City purchase and
to refrain from soliciting for or engaging in any additional
acquisitions of alarm monitoring businesses" until the expira-
tion of the five-year statutory moratorium. AICC argued
that the purchase of Circuit City's alarm monitoring assets
constituted obtaining "financial control" of an alarm monitor-
ing entity because the existence of the alarm monitoring
business depended on the control of such assets. It main-
tained that "Congress did not intend to give Ameritech free
reign to use the five year moratorium period to acquire its
competitors and dominate the alarm industry."
Ameritech responded that "the statute is silent about, and
thus does not bar, asset acquisitions." According to Ameri-
tech, the "failure to prohibit asset acquisitions expressly"
suggested that "Congress believed that there is a valid dis-
tinction between acquiring assets and acquiring equity and/or
financial control.... Congress could well have concluded
that alarm businesses should be shielded from 'hostile' take-
overs by Ameritech, but that there is no need to prevent
them from engaging in voluntary transactions with Ameri-
tech."
A split Commission denied AICC's motion, concluding that
Ameritech's asset acquisition did not violate s 275(a)(2). See
In re Enforcement of Section 275(a)(2) of the Communica-
tions Act of 1934, as Amended by the Telecommunications
Act of 1996, Against Ameritech Corporation, 12 F.C.C.R.
3855 (1997) ("In re Ameritech"). The Commission held that
the "the statutory language regarding 'alarm monitoring ser-
vice entity' is unambiguous and ... the plain meaning of the
term requires that an 'entity' have an independent legal
existence." Id. at 3859, p 9. Since Home Security Division
was not "legally separate" from Circuit City, it did not
constitute an "alarm monitoring service entity." Id.
Commissioner Ness dissented. To her, s 275(a)(2) had
neither a clear meaning nor the meaning the Commission
ascribed to it. Rather, she found that the answer lay "in an
effort to discern the logic of the underlying congressional
policy." 12 F.C.C.R. at 3863. This policy, she believed, was
to allow a grandfathered BOC to expand its alarm business
only through competition. Id. at 3864.
II
The phrase in s 275(a)(2)--"alarm monitoring service enti-
ty"--had, the Commission thought, a plain meaning because
Black's Law Dictionary contained this definition of "entity":
"an organization or being that possesses separate existence
for tax purposes." See Black's Law Dictionary 532 (6th ed.
1990). Only the Circuit City corporation, as distinguished
from its Home Security Division, fits this description. Hence,
the "alarm monitoring service entity" consisted of the corpo-
ration, not its operating division. When Ameritech made its
asset purchase, it did not "obtain financial control of" or
"acquire any equity interest in" the corporation, and thus, in
the Commission's view, Ameritech had not violated
s 275(a)(2).
When the purported "plain meaning" of a statute's word or
phrase happens to render the statute senseless, we are
encountering ambiguity rather than clarity. So here. The
Commission's interpretation means that although s 275(a)(2)
precluded Ameritech from acquiring even one share of Circuit
City's stock, Ameritech was free to acquire the company's
entire alarm monitoring services division--lock, stock, and
barrel. We asked Commission counsel at oral argument what
possible rationale Congress could have had in mind if this is
what it intended. Counsel replied: "I'm not saying that the
statute makes perfect sense." This answer assumes, of
course, that the problem is with the statute rather than the
Commission's interpretation of it.
Counsel did offer one explanation, not mentioned by the
Commission: The first clause in this part of s 275(a)(2)
speaks of acquiring an "equity interest" and this necessarily
refers only to legal beings; therefore, the next clause dealing
with obtaining "financial control" must do the same. Even if
we were to credit the premise, the explanation contains
problems of its own. Suppose Ameritech had made a cash
purchase of all of the assets of Circuit City, not just those in
the Home Security Division. How could one say that Ameri-
tech had obtained "financial control" of the Circuit City
corporation? The corporation would still exist; it would
merely hold cash instead of the assets it sold; and Ameritech
could not control how the corporation disposed of the cash.
In other words, the form of the transaction would be determi-
native: s 275(a)(2) would allow an asset purchase of an alarm
monitoring "entity," but not a stock purchase. Why would
Congress have set up that distinction? On the other hand, if
Ameritech's purchase of all Circuit City's assets constituted
obtaining financial control of an "alarm monitoring service
entity," why would not the same be true regarding Ameri-
tech's purchase of just the assets devoted to the alarm
monitoring business? Counsel for the Commission could not
respond to our inquiries on this subject because the issue is
currently pending before the Commission in cases in which
Ameritech purchased all of the assets of other alarm monitor-
ing service corporations.
The Commission's belief that it had no other option than to
read "alarm monitoring service entity" as it did was, we think,
mistaken. We reach this conclusion without conferring the
deference commonly extended to an agency's interpretation of
a statute it administers. See Cajun Elec. Power Coop. v.
FERC, 924 F.2d 1132, 1136 (D.C. Cir. 1991). The Commis-
sion's reading of s 275(a)(2) reflects no consideration of other
possible interpretations, no assessment of statutory objec-
tives, no weighing of congressional policy, no application of
expertise in telecommunications. The Commission gave its
meaning to the provision on the basis of a dictionary and, as
we shall discuss in a moment, in light of an inapplicable
definitional provision in another part of the Act.
The Commission's use of Black's Law Dictionary raises an
obvious question. If it is proper to use any dictionary to
define "entity" in s 275(a)(2), why choose Black's? One
answer--an answer that casts doubt on the Commission's
"plain meaning"--is that other dictionaries lead to different
or uncertain outcomes. Consider, for instance, The American
Heritage Dictionary of the English Language. It defines
"entity" as "something that exists as a particular and discrete
unit." American Heritage Dictionary 614 (3d ed. 1992).
That might fit the Home Security Division. But what is a
"unit"? A "unit" is an "individual, a group, a structure or
other entity regarded as an elementary structural or function-
al constituent of a whole." Id. at 1953. As is common, there
is some circularity here; the definition of "unit," which is
used to define "entity," uses "entity." Still, it is hardly
evident why Circuit City's operating division was something
other than a "group" or "structure" that was a "functional
constituent of a whole," the whole being the Circuit City
corporation--in other words, the division was a particular and
discrete unit, an "entity." Treating the term in this expan-
sive manner is at least consistent with the idea that "entity"
is "the broadest of all definitions which relate to bodies or
units." 2 Collier on Bankruptcy p 101.15 (15th ed. 1997). To
cite another dictionary, The New Shorter Oxford English
Dictionary illustrates the meaning of "entity," and its proper
use, with a literary quotation: "How could the people ... act
as a collective entity ... unless they were ... organized"? 1
New Shorter Oxford English Dictionary 830 (thumb index
ed. 1993). Given the illustration, one could rightly ask: "How
could the Home Security Division act as collective entity
unless it was organized?"
There is no need to go through similar analyses with other
dictionaries. We have written enough to show that
s 275(a)(2) presents a puzzle, and that the wooden use of a
dictionary cannot solve it. Nor can the definition of "entity"
contained in s 274(i)(6) of the Act, which is the only other
reason the Commission offered for its result.
Section 274(i)(6) defines "entity" for the purpose of BOCs'
entry into electronic publishing. It states that "entity"
means "any organization, and includes corporations, partner-
ships, sole proprietorships, associations, and joint ventures."
47 U.S.C. s 274(i)(6). Even if s 274(i)(6) controlled the inter-
pretation of s 275(a)(2)--the Commission admits it does
not--the provision's list of examples is not exhaustive.
"[T]he word 'includes' is a term of enlargement, not of
limitation." American Fed'n of Television & Radio Artists v.
NLRB, 462 F.2d 887, 890 (D.C. Cir. 1972). Commission
counsel notices that s 274(i)(6) lists "complete business units,
not subparts," Brief for Respondent at 19, but this still leaves
open the possibility that an unincorporated division is an
"organization." In American Federation, for instance, we
held that a statute defining the term "person" to include
"individuals, labor organizations, partnerships, associations,
corporations, legal representatives, trustees, trustees in bank-
ruptcy, or receivers," did not exclude separate operating
divisions of the same corporation. 462 F.2d at 889-90. An
operating division may be, as the Commission tells us, "mere-
ly an internal administrative fiction." But we do not under-
stand why that is necessarily decisive. For one thing, the
legal personhood of a corporation is itself a fiction. See 1
Fletcher Cyclopedia Corporations s 25 (perm. ed. 1990).
For another thing, nothing appeared artificial or fictitious in
Circuit City's organizing assets in a separate operating divi-
sion to provide alarm monitoring services. As Commissioner
Ness pointed out in her dissenting opinion, "Ameritech ac-
quired the central station hardware and software, took over
all residential and business customer contracts, and employed
the same workforce previously employed by Circuit City.
Ameritech has not identified anything that was previously a
part of Circuit City's Home Security Division that did not
become part of Ameritech." 12 F.C.C.R. at 3862 n.31.
The Commission's treatment of the "alarm monitoring ser-
vice entity" also runs into another difficulty. It tends to
make s 275(a)(2)'s final clause superfluous. This clause al-
lows Ameritech to exchange its customers "for the customers
of an unaffiliated alarm monitoring service entity." Ameri-
tech tells us that the customer exchange clause is not really
an exception to s 275(a)(2)'s bar against its acquiring an
equity interest or financial control. This may well be true.
It would be unusual if, by exchanging customers with a
company, Ameritech wound up with an equity interest in or
financial control of the company. But whether the clause is,
or is not, an exception is of little moment. The important fact
is that it mentions customer accounts specifically. Customer
accounts are a type of asset. If, as the Commission sup-
posed, the clauses preceding the customer exchange clause
place no restraints on asset acquisitions of less than every-
thing the corporation holds, why the explicit language in
s 275(a)(2) allowing the acquisition of one kind of asset--
customer accounts? Commissioner Ness asked this question
but neither she, nor this court, has been provided with any
good answer. See 12 F.C.C.R. at 3864. When the supposed
plain meaning of one clause in a section renders another
clause nugatory, it is time to put aside the dictionaries and
start considering what interpretation best comports with Con-
gressional intent. See, e.g., Davis County Solid Waste Man-
agement v. EPA, 101 F.3d 1395, 1404 (D.C. Cir. 1996); Mail
Order Ass'n of America v. United States Postal Serv., 986
F.2d 509, 515 (D.C. Cir. 1993).
This brings us back to the question we asked earlier. Why
would Congress prohibit Ameritech from purchasing even one
share of an alarm monitoring company's stock, but allow it to
purchase all of the company's assets devoted to that line of
business? The Commission did not address the subject.
Ameritech, believing that the meaning of s 275(a)(2) is also
plain but somewhat different than the Commission's reading,
deals with the question this way. According to Ameritech,
s 275(a)(2) permits it to purchase all or part of the assets in
an alarm monitoring service entity but not the stock of the
company because Congress wanted to prevent hostile take-
overs, yet allow "voluntary transactions." This strikes us as
far-fetched, for several reasons. One cannot take over a
publicly-traded company with one share, yet all parties agree
that Ameritech would violate the statute by acquiring just one
share. Also, management of the target company might wel-
come Ameritech's buying enough stock to gain a controlling
interest, but the statute nevertheless prohibits this. In short,
Ameritech's theory does not fit what Congress actually did,
which was to impose a far more extensive bar than, in
Ameritech's words, merely forbidding its "taking over a rival
business against the wishes of that business' management."
The notion that Congress drew a distinction between asset
and equity acquisitions to protect the management of alarm
monitoring companies is unsupported by any evidence we
have seen. Many such companies, according to one source,
are small, family-owned businesses with an average of eight
employees. See Communications Law Reform: Hearings
Before the Subcomm. on Telecommunications and Finance of
the House Comm. on Commerce, 104th Cong. 452 (1995)
(Statement of James Synk, Executive Director, National Bur-
glar and Fire Alarm Association). The companies whose
assets Ameritech purchased after the Circuit City transac-
tion--Norman Security Systems, Inc., and Central Control
Alarm Corporation--had one and two shareholders respec-
tively. In both companies, the shareholders were also corpo-
rate officers. Any acquisition of such closely-held businesses
could be accomplished by an asset purchase or a stock
purchase; in either case, the transaction would be "volun-
tary." Ameritech believes Congress permitted the first
method, but not the second. While tax ramifications might
influence how the parties structure such a deal, see 1 Martin
D. Ginsburg & Jack S. Levin, Mergers, Acquisitions, and
Buyouts s 105 (1997), we cannot imagine anything having to
do with telecommunications policy that would turn on the
method of acquisition.
Furthermore, it is hard to see why it would have mattered
to Congress whether a potential target of Ameritech ran its
alarm monitoring business through a wholly-owned incorpo-
rated subsidiary or, as here, through an unincorporated oper-
ating division. In the law of antitrust, liability does not
"depend on whether a corporate subunit is organized as an
unincorporated division or a wholly owned subsidiary." Cop-
perweld Corp. v. Independence Tube Corp., 467 U.S. 752, 772
(1984). "The economic, legal, or other considerations that
lead corporate management to choose one structure over the
other are not relevant to whether the enterprise's conduct
seriously threatens competition." Id. at 772. Yet Ameri-
tech's approach, and perhaps the Commission's, assume that
those considerations are somehow relevant to telecommunica-
tions law. If the Home Security Division had been separately
incorporated, Ameritech and the Commission agree that
s 275(a)(2) would have barred a stock purchase. But Ameri-
tech believes the statute would have permitted it to buy the
subsidiary's assets in the same manner it did here. The
Commission considers the question open. For the future it
may not matter. If the Commission decided that Ameritech
could not purchase the assets of an incorporated subsidiary,
the seller could merely reconfigure its structure before the
sale so that its alarm monitoring assets were held in an
unincorporated division.
Commissioner Ness could find no logic in any of this. The
distinctions between stock purchases and asset purchases are
not tied to anything remotely related to the evident objective
of s 275(a)(2). In her view, Congress wanted to authorize
Ameritech to continue in the alarm business but to allow it to
expand its business "only through competition, not acquisi-
tions" until the excluded BOCs were permitted to enter the
market. 12 F.C.C.R. at 3864. The tortured history of the
Telecommunications Act does not shed much light on the
matter. Although Congress rejected an earlier version that
precluded a grandfathered Bell from acquiring "the alarm
monitoring service activities of another entity," S. 652, 104th
Cong. (1995), it never explained the change and the earlier
draft made no mention of "financial control." On February 1,
1996, the day both Houses approved the Telecommunications
Act, Representative Hyde stated, in written remarks inserted
into the Congressional Record, that grandfathered BOCs
"may grow their alarm monitoring business through customer
or asset acquisitions." 142 Cong. Rec. H1158 (daily ed. Feb.
1, 1996) (statement of Rep. Hyde). On the same date,
Senator Pressler commented, "The language in the bill ... is
intended to include a prohibition on the acquisition of the
underlying customer accounts and assets." 142 Cong. Rec.
S689 (daily ed. Feb. 1, 1996) (statement of Sen. Pressler).
It is not for the court, at this stage, to choose between
competing meanings. Rather than having a plain meaning as
the Commission thought, we find the disputed language in
s 275(a)(2) uncertain. For that reason we must vacate the
Commission's order and send the case back. It will be up to
the Commission to decide how best to resolve the ambiguity
in the phrase "alarm monitoring service entity." We do not
intend to foreclose the Commission from interpreting the
phrase narrowly. But whatever interpretation it adopts must
be supported by more than a dictionary.
The petition for review is granted. The Commission's
Order is vacated and the case is remanded to the Commis-
sion.
So ordered.