In a decision that could determine the future of Seattle's two major newspapers, the court ruled unanimously in favor of the The Seattle Times Co. in the dispute over its business arrangement with the Seattle Post-Intelligencer.
In a decision that could determine the future of Seattle’s two major newspapers, the state Supreme Court ruled unanimously today that The Seattle Times Co. is entitled to claim losses in 2000 and 2001 under its joint operating agreement (JOA) with Hearst Corp., owner of the Seattle Post-Intelligencer. The 9-0 decision, upholding an Appeals Court decision last year, lays to rest part of the bitter battle for survival between Seattle’s two major daily papers. Over two years, that fight has climbed through the state-court system, with each side publicly accusing each other of trying to put their rival out of business.
In its decision, the state’s highest court said, in effect, that while the stakes in the legal dispute over The Times 2000-2001 losses may be a high-profile matter, the case itself was a simple contractual dispute.
“The law of contracts is the same whether the parties are two publishing giants fighting for market control or two individuals disputing the cost of appliance repair work,” wrote Justice Tom Chambers.
The court ruled that “the written contract between the parties is subject to only one reasonable interpretation”: that the losses in those two years should be allowed.
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Seattle Times Publisher Frank Blethen said in a statement: “The Seattle Times family is gratified that the state’s highest court has upheld the Appeals Court ruling. This lawsuit has been a costly and time-consuming effort during a particularly difficult time for metropolitan daily newspapers.”
Hearst said it was disappointed by the ruling. “But this case is far from over,” the company said.
Hearst said it would return to the King County Superior Court, where it initially filed its case against The Times. “There are many issues yet to resolve,” the statement said. Indeed, today’s decision resolves only one part of the suit Hearst filed in April 2003 to block The Times from forcing a showdown over the future of the JOA, with the possibility that the P-I could be shut down.
The suit came one day before Times officials, citing an escape clause in the joint agreement, notified Hearst on April 29, 2003, that under the JOA their paper lost money from 2000 through 2002. The clause stipulates that notification of three consecutive years of losses allows either party to trigger negotiations to either end the agreement, shut down one paper, or both.
In his notification, Times Publisher Frank Blethen urged Hearst to move quickly to set a date to close the P-I.
Instead, Hearst challenged the validity of The Times’ losses in King County Superior Court. The New York-based media conglomerate said the another JOA provision, the force majeure clause, prevents The Times from claiming losses in 2000 and 2001 because they resulted from a strike against both papers that started in late 2000.Force majeure is a common contract provision absolving either side from their contract obligations if an extraordinary event occurs.
The dispute over the conflicting JOA clauses was the issue the Supreme Court resolved today.
Hearst’s suit also contests The Times’ 2002 loss, saying, in effect, Times officials spent the paper into the red by overhiring and other spending. In yet another challenge, Hearst said The Times breached its fiduciary duty to the P-I by various unnamed “acts and omissions.”.
While the lawsuit doesn’t spell out the alleged “acts and omissions” by The Times, Hearst’s attorneys say privately they may challenge both the 2002 losses and The Times’ handling of the JOA, a move legal experts say could drag out the dispute for years.
In a lengthy letter to Blethen, sent just before the newspaper dispute flared in public, senior Hearst officials listed several examples of marketing and distribution that they said favored The Times and caused losses to the P-I’s circulation.
In his reply, Blethen dismissed the allegations and blamed the P-I’s dwindling circulation on “the marketplace’s perception of the comparative quality of the two competing newspapers.”
A Hearst spokesman declined to speculate today whether his company would choose to litigate the 2002 loss accounting or the fiduciary-breach allegation.But that decision may be influenced by a May annoucement by the U.S. Department of Justice that it had ended a two-year investigation of Seattle’s JOA, saying it didn’t find enough evidence to pursue an antitrust case against The Times over its administration of the JOA.
Under the JOA, each paper publishes separately, but The Times prints, distributes and markets both. After payment for these expenses, the papers’ pooled revenues are split, with 60 percent going to The Times and 40 percent to the P-I.
The Justice Department’s statement left open the possibility that the government may re-enter the case if one paper closes under terms not part of the agreement as approved by the Justice Department.
Under a 1999 revision the JOA, even if the P-I is shut down, Hearst would receive 32 percent of The Times’ net profit until 2083. The revision, while reviewed by the Justice Department’s antitrust division, never received formal approval.
Another uncertainty involves how broadly the language of the 1999 revision applies. It is unclear whether the profit payout would include spinoff operations like the Times company’s Web site.
While advertising revenues for The Times newspaper have remained relatively static at best recently, mirroring the entire newspaper industry, revenue from the company’s news Web site has been growing sharply.In any event, in its statement today, Hearst indicated it has no intention of shutting the P-I.
“If we succeed, (in court) as we believe we will,” Hearst said, “Seattle will not lose the benefits of two daily newspapers under a JOA.”
In his statement today, Blethen suggested Hearst and The Times negotiate changes to the JOA contract to resolve their dispute. “It is our hope that the Hearst Corporation will join The Times in modifying the JOA contract to reflect today’s difficult newspaper economics so that The Times has a fair chance to become profitable again,” he said.
Bill Richards is a freelance writer hired on a special contract by The Seattle Times to cover events involving the joint-operating agreement with the Seattle Post-Intelligencer. He can be reached at email@example.com.