Muny Light vs. Cleveland Electric Illuminating Co.

Squire Sanders and the Sabotage of Cleveland by Roldo Bartimole Written June, 2009

SQUIRE-SANDERS AND THE SABOTAGE OF CLEVELAND

written June 2009

By Roldo Bartimole

This is a story of civic sabotage.

The desire for the private sector to damage, destroy and take over the Cleveland’s public electric power system reveals an important lesson in how power works in this or any community.

It also is instructive in the sense that you can apply these past lessons to today’s events and Squire-Sanders’s role in the medical mart.

This piece continues my attempt to review aspects of power that have been used in the community and to suggest how it is used today.

Squire, Sanders & Dempsey, Cleveland’s second largest law firm at the time, was a key player in this assault on public government.

Oddly, Squire-Sanders represented the city at the same it represented CEI, the private electric company. Guess whether the city or CEI got the best representation. The city claimed in court papers that the flow of crucial financial information went one way – to CEI, never to the city.

A lot of information about this situation became publicly available because the city eventually sued CEI. Court cases open private matters to public scrutiny.

Here’s the issue. Back in 1972 the city needed financing to help improve its electricity system. It wanted to borrow $9.8 million by letting bonds. Squire-Sanders served as its bond counsel.

The original legislation provided for sale through the City’s Sinking fund. If this didn’t work the city wanted to borrow via its own treasury account. This would allow the city to borrow from itself and at cheaper rates than on the private market.

However, an amendment to the city’s legislation, written by a Squire-Sanders attorney, stated that the bond issue could only be made on the open market. The amendment was attached to the legislation by then Council utilities chairman Frank Gaul, a close friend to CEI. Gaul in a court deposition admitted that he took gifts from CEI general counsel Lee Howley, a former city law director, and cooperated with the company in other ways.

Another Squire-Sanders lawyer wrote the original city legislation. It wanted the borrowing to avoid the private market.

“At that meeting the SS&D lawyer who wrote the ordinance was asked by the (city) law director to defend it, but, says the city, he “declined to defend his own work product and CEI’s crippling amendment was adopted and the amendment was approved…” I wrote from city documents at the time.

The move delayed the required borrowing for improvements until 1975. Just CEI’s desire. Ironically, the delayed bond issue was made through the city’s treasury account, as originally planned.

On another occasion during this period, the city attempted to buy backup power to avoid bad service. A CEI memo revealed that its executives, along with a Squire-Sanders partner, decided “The the company should refuse” to allow the city’s system to join a group that would give Muny Light cheaper power it vitally needed.

The city claimed that Squire-Sanders lawyers’ “representation of the city has endured so long, involved so many of its lawyers, and been so all pervasive it is very difficult to put any limits on their knowledge of the city’s affairs… Their inside knowledge… very likely exceeds that of the city itself.” All too true. Sabotage.

One of the milder charges against the law firm at the time was, “It would appear that Squire-Sanders used the management and financial information gleaned from its representation of the city for the benefit of CEI,” according to a brief that asked that Squire-Sanders be disqualified from representing CEI before the U. S. Nuclear Regulatory Commission on an issue involving the city. Sabotage.

Here were some of the charges the city made against the law firm:

– It allowed amendments to legislation that it wrote to insure the city wouldn’t get needed financing.

– Advised CEI of a plan by which it could thwart the city’s attempt to get interconnections to needed electric power, although the law firm knew that the plan was likely illegal.

– Participated in CEI decisions that denied Muny Light cheaper power source.

Squire-Sanders, as today, injects itself into public matters. Indeed, it is used by many politicians as consultants. This puts the law firm in a central position on many public decisions, as Nance has been with the Browns situation and now the Medical Mart/Convention Center project.

One of the strategies businesses uses is to offer itself as helpmates to the city.

This was the case in 1967 when Ralph Besse, chairman of CEI, and a former Squire-Sanders law partner (upon retirement he went back to the law firm as a partner), formed the Inner City Action Committee to supposedly “help” Mayor Ralph Locher. The city was in serious trouble at the time with its urban renewal program.

Instead of helping, Besse administered a severe blow to Locher in a re-election year. First, he tried to foist one of his people on Locher to head the city’s urban renewal program. His odd choice was a former major general of the U. S. Army.

Locher balked. Besse turned on Locher. He went to the always accommodated Plain Dealer. The Pee Dee, as I have always liked to call the paper, did more than simply accommodate. It ran a top of Page One headline: “Besse’s Inner-City Group Quits Locher.” It was a powerful blow to a beleaguered Locher. Sabotage.

Locher did hit back. “I have not yet seen on real constructive action taken by the committee. So far we have heard some cries from them and they have made some demands on us. Where’s their action?” Locher’s point had validity.

Besse, of course, had an ulterior motive in embarrassing the mayor. His company wanted control of the city’s municipal light plant. But that never came into the public discussion. The media rarely, if ever, call corporate people on their self-interest in civic matters.

These efforts poisoned the relations between government and the private sector as dominated by corporate/legal interests in Cleveland.

This is an important point. These efforts damaged decision-making and leadership in this town. They built mistrust into all civic dealings.

Besse greatly admired favored Hitler general Field Marshall Erwin Rommel. He admired Rommel so much that he ordered his top executives to read him and adopt his methods.

War, not business.

One of his lines to his executives read, “The dead are lucky, it’s all over for them.” He had just finished reading ‘The Rommel Papers,” edited by B. H. Liddel Hart.

“There are so many places (in the book) where the parallel with business command is apparent that I have copied a few of the most interesting quotations… and have attached them,” wrote Besse to his executives.

One employee challenged him and he was dumped. He charged Besse wanted the company to operate as a war machine even though the company was actually a public utility with a “guaranteed profit.” I think this truth about it being a public utility whose profit was assured goes to the core of why CEI and the business community so wanted Muny out of the way. (See the full story in Point of View, Vol. 10, No. 22, May 22, 1978.)

The truth was both the city’s plant and CEI were not businesses in the true sense.

Here is one of the passages he cited for his executives:

“If there is anyone in a key position who appears to be expending less than the energy that could be properly be demanded of him, or who has no natural sense for practical problems of organization, then that man must be RUTHLESSLY REMOVED.” (My emphasis).

The fight by the city to maintain its electric system is a classic case of public vs. private interests. It should be studied in business economics classes. It goes to the core of many ideological problems being examined now on the national stage.

We will see how CEI and Squire-Sanders tried to destroy the city’s electric system over a number of years and how it was caught breaking the law by the U. S. Nuclear Regulatory Commission and how a federal lawsuit, in two trials, failed because of a Cleveland judge’s bias permeated the courtroom.

One Man Can Make A Difference by Roldo Bartimole

photo: Cleveland State University

The pdf is here

One Man Can Make a Difference

By Roldo Bartimole

It took a single person’s act in 1979 to save Cleveland’s public electric light system.

And no, that man wasn’t Mayor Dennis Kucinich.

It was a Plain Dealer reporter. His name was Bob Holden.

Mayor Kucinich had been forced by political pressure to put the Cleveland Municipal Light System, commonly known as Muny Light at that time, on the ballot. The measure asked voters to decide whether to sell or keep the troubled electric system. Muny produced no electric power itself. The city’s system owed its origin to the progressive politics of Mayor Tom L. Johnson in the early 1900s.

Kucinich and his administration worked exhaustively to save Muny. But without Holden’s act and the ensuing revolt at the Plain Dealer, it would not have been sufficient.

A Jan. 23 poll showed the ballot measure would go down by a 70 to 30 vote. Cleveland voters were tired of the constant disputes of the Kucinich administration. The poll revealed the voter frustration. On Feb. 27, 1979 the voters, however, made their choice.

Historically, the era of the 1960s was ending or over. In Cleveland, however, Kucinich kept it alive. He espoused an urban theory that urged progressives to concentrate on economic issues, not social issues. Progressives flocked to his administration from around the nation. He even drew Ralph Nader into the drama.

The two electric power companies had been involved in explosive disputes – legal and financial – for years. The city was suing the Cleveland Electric Illuminating Co. (CEI) for anti-trust violations and dirty tricks. A federal case was pending. Cleveland also disputed unusual high charges for power provided to Muny by CEI. Meanwhile, CEI tried numerous underhanded methods to weaken and destroy the city’s system. The aim was clearly to put the city out of the electricity business. CEI now is an operating company of First Energy Company of Akron.

So how did Bob Holden do it? He did it by being kicked off the story of how CEI had purposely damaged Muny Light.

But Holden didn’t go quietly.

Here’s what happened.

As the reporter assigned to cover CEI, Holden was delegated to report about the dispute between the two entities. In early 1979 series of articles was planned.

Before he got started, however, CEI complained about him to the Plain Dealer. They didn’t want Holden doing the reporting. They figured him as too tough. They also knew that the proof of the company’s bad behavior was readily available. Holden would not shy from collecting the data and writing it.

The editors folded under CEI’s pressure. Holden was pulled from the story. The reason editors gave was that Holden “would be unfair.” Not something reporters wanted to hear.

Since he hadn’t written a word how they determined bias was a mystery. How could they say that? The Plain Dealer editorial hierarchy was going out on a limb with that excuse. Reporters weren’t buying it.

At the time the Newspaper Guild, representing reporters, was strong and militant. Unlike today when reporters fear losing their jobs in a diminished newspaper business, reporters then were willing to fight management. The Guild voted to withhold bylines on articles and to picket the PD. This would reveal their displeasure about the censorship to the public. It would embarrass the editors. The Guild contract allowed reporters to withhold bylines.

Management buckled, though not totally.

These were tough times for media managers. In November 1978 WJW Channel 8 retracted a piece done by Bob Franken. Franken reported that a National City Bank Chairman Claude Blair wanted to deny refinancing city debt and force Cleveland into default to insure Mayor Dennis Kucinich’s defeat in the next mayoral election.

The station, under pressure from the bank, retracted the report. Ch. 8 news director Virgil Dominic read the rare retraction that said “We now find that all of the statements we made were inaccurate and there was absolutely no basis for the report.”

Franken resigned after the retraction was aired. He said, “I can only tell you that the story is not inaccurate. The story is 100 percent true. My sources, in this particular case, are incredibly good sources.”

“This in my mind,” he said, “was simply a matter of the power structure in the town getting its way.

Franken became an Emmy-winning reporter for CNN, covering the White House and Congress until he left in 2007.

Here’s how I explained the Holden situation in my newsletter Point of View in February 1979:

“The Guild followed by voting to withhold bylines and picketing the newspaper to call attention to the PD censorship. With TV coverage, particularly on Ch. 3, and radio, particularly on WERE, the entire community found out about the latest PD censorship.

“To get out of the spotlight, management agreed to meet with Guild members to hammer out a compromise.

“The two sides met for some eight hours at the Leather Bottel, a restaurant-bar, and an agreement was reached. It became the joint statement of the Guild and management:

“Plain Dealer reporter Robert Holden, for the month of February, will, as assigned, fill in for the vacationing book editor.

“At the end of February, he will report to the city editor as general assignment reporter under the usual PD standards.”

The two sides went a bit further.

They verbally agreed by handshake, reporters said, that Holden would spend the rest of the month of January on his utility beat.

But the deal broke down after Holden appeared on a television news show the same night he turned in an article about CEI. The article was not printed but ran later without his byline.

The Guild had been outmaneuvered. The written agreement, made in a bar with both sides drinking, said nothing of Holden returning to his beat.

Holden resigned in disgust.

His demise became a fulfillment of a warning made by a CEI public relation person more than a year before. The CEI spokesperson told Holden:

“CEI will be here long after Bob Holden is gone.”

However, Holden’s refusal to be censored and the reporters’ protests damaged the PD’s credibility. It put the newspaper in a vulnerable position. No newspaper wants to be seen as openly censoring itself.

Editors were forced to assign others to write the history of the dispute that led to the ballot issue.

The situation made it difficult for the PD to censor a second time. A team of reporters was assigned to the story.

The paper had no choice but to accept the articles the new team wrote after Holden’s resignation. The news room was in insurrection mode.

“We’d have gone crazy and we’d have gone crazy in public,” said one reporter asked what might have happened had the PD tried censorship again.

“The Saturday Night Massacre would apply,” he said, referring to the resignations during Watergate. It would have put the PD in the position of having no reporter who would take the assignment.

Dave Abbott, now head of the Gund Foundation and Dan Biddle, who became a Pulitzer Prize winner in Philadelphia, were assigned to write the series. Their articles revealed the hidden truth about how CEI tried to damage the city’s electric system. One headline on Feb. 11 revealed the tone: “CEI Objective: Snuff Muny Light.

The dramatic outcome of this battle between staff and management was revealed by the result of the vote. It flipped.

The early poll showed that Cleveland voters would elect to sell the city’s electric system to CEI by a two to one vote.

The dispute and Holden’s resignation allowed freedom to the two new reporters. Prompted by revelations they produced, the actual vote came in two to one to maintain the city’s electric power system.

It was a critical example of the power of information. It revealed that if you give people the truth, they’ll understand and make their decision. It also shows that when the news media hide the truth it distorts democratic decision-making.

The change in public attitude was striking.

I wrote in Point of View before the election: “The virtual blackout on Muny Light has been shattered. The Holden affair and the entry of Ralph Nader into the fight gave focus to the charges of the news media’s refusal to focus on the dispute in a meaningful way. The news media here were open to the charges of serious distortion of the news.

“But in the past week, the coverage in both the Press and PD broke the blackout and silence. Finally, in a realistic manner information has begun to flow.

“Whether it will be enough to offset the years of distortion and failure to report will be revealed by the vote.”

It was a game changer. The voters spoke decisively. The city retained its system. And does to this day.

Holden later left town to pursue an academic career. Today he is Dr. Holden, a tenured professor of Latin American history at Old Dominion University in Norfolk, Va.

In a recent interview he called that period in Cleveland, “A special time, a different time.”

He recalled that he somehow learned about the anti-trust charges by the city against CEI. It shocked him that the Plain Dealer hadn’t covered the issue. “We haven’t covered this,” he said he complained to editors. “How could we have missed this?” he asked them. Holden started to make telephone calls and cover it.

Actually, it wasn’t that much of a secret.

Two years before in 1977 I wrote a piece entitled: “U. S. Ruling Puts CEI in Jeopardy of Losing $325 Million Anti-trust Suit to Muny Light. Perk, Forbes Trying to Boot Away Opportunity.”

Here’s how I put it: “There’s a robbery in progress with the mayor of Cleveland, the Council President and the Cleveland news media accessories before the fact.

“The Cleveland Electric Illuminating Co. (CEI) is still trying to STEAL Cleveland’s electric light plant (MUNY) from the city.

“The mayor knows it. The Council President knows it. The news media know it. And the public should know it.”

Holden now can’t remember how he discovered the anti-trust problem but says it may have been from Point of View, where the above appeared.

Ironically, Holden, after he left the Plain Dealer, went to work for Kucinich. He said he was assigned to the community relations department but actually he was a speech writer for the Mayor.

Holden, as a number of other progressives, became disenchanted with Kucinich during his re-election campaign. They particularly soured because of his use of racial politics as Kucinich tried to retain office. He lost in 1979 to George Voinovich.

The crucial issue of the ideological desire of CEI to rid itself of competition by a public agency was far from over. It was to play out in two federal court anti-trust trials.

The first trial ended in a hung jury as one juror held out in CEI’s favor. The city lost the second anti-trust trial.

But Holden proved an old adage that one man can make a difference.

Given the truth, the public also made a difference.