The state Supreme Court yesterday handed The Seattle Times Co. a clear legal victory over its crosstown newspaper rival, Hearst Corp.'s Seattle Post-Intelligencer. But before...
The state Supreme Court yesterday handed The Seattle Times Co. a clear legal victory over its crosstown newspaper rival, Hearst Corp.’s Seattle Post-Intelligencer.
But before it can celebrate the unanimous decision, The Times still faces a long and costly road ahead in the case.
The high court, upholding an Appeals Court decision of March 2004, ruled that Hearst could not block The Times from citing 2000 and 2001 financial losses under the joint-operating agreement (JOA) between the two companies.
The decision struck down one argument of Hearst’s April 2003 lawsuit, which seeks to prevent The Times from exercising an escape clause in the JOA contract. The clause allows either party, after three consecutive years of losses, to force negotiations that could lead to shutting down one paper or ending the agreement.
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“While a happy ending to the story of Seattle as a two-newspaper town is very desirable, our duty is clear,” Justice Tom Chambers wrote in the 9-0 decision. “That duty is to uphold the law and to enforce lawful agreements parties bring before us.”
Although the court may have cleared up one issue, Hearst is poised, after more than two years of legal jousting, to continue its efforts against The Times in court.
That would force The Times to incur further legal costs at a time the privately held company has claimed a string of losses.
In a statement hailing the decision yesterday, Times Publisher Frank Blethen said: “This lawsuit has been a costly and time-consuming effort during a particularly difficult time for metropolitan daily newspapers.”
The Supreme Court case centered on Hearst’s claim that because the 2000 and 2001 losses were caused by a newspaper strike, they should not count toward invoking the escape clause, known as the “loss-operations” provision.
Hearst argued both parties intended for the contract’s “force majeure” clause to trump the escape clause. Force majeure is standard contract language that relieves either party of its obligations in the event of an extraordinary event, such as a strike.
“Hearst essentially asks us to rewrite the JOA by revising the loss-operations clause, something we are not at liberty to do,” Chambers wrote.
Hearst’s legal efforts could take two avenues, both of which are part of its suit against The Times but have not been litigated: It could challenge The Times’ management of the JOA, and it could move to strike down The Times’ 2002 loss claim.
Under the JOA, The Times prints, markets and distributes both papers, while each maintains separate news and editorial operations. One key provision is that in handling those functions, The Times must give even-handed treatment to the P-I.
Hearst officials have complained The Times has shortchanged the P-I. In a January 2002 letter to Blethen, Hearst’s chief executive at the time, Frank Bennack, and current CEO Victor Ganzi listed a slew of marketing and distribution complaints they said violated the JOA.
Blethen rejected most of their allegations and blamed the P-I’s quality for its circulation decline.
In the latest reporting period, for the six months ended March 31, the P-I’s circulation stood at 144,836, a 4 percent drop from the same period the year before. The Times’ daily circulation was 233,268, a 1.7 percent decline.
Earlier this year, Hearst attorneys said privately they might follow the shortchanged argument in their legal attack.
But that could fly in the face of a U.S. Justice Department statement in May that, after a two-year investigation, there wasn’t enough evidence to show whether The Times Co. violated antitrust rules by favoring its own paper in Seattle.
Still, says Jack Kirkwood, a Seattle University law professor and antitrust expert, getting cleared of federal antitrust violations and fighting allegations of contract violations do differ.
“Hearst wouldn’t be precluded from litigating this,” he says, although the Justice Department clearance may prompt courts to summarily dismiss the case.
A more likely legal challenge, Kirkwood says, would center on The Times’ 2002 loss claim. Hearst says Times officials overspent on hiring and other newsgathering efforts in that year, creating a loss.
“The question of whether The Times hired too many people and spent too much on news seems a more disputable issue,” he says.
Proving such a case would likely also require a trial, Kirkwood says, and that would certainly drive up legal costs for The Times.
Other industry experts say Hearst might have a difficult time proving its case.
“It would be hard for any reasonable person to say they overspent and there was excessive coverage of news,” said Bob Giles, curator of the Nieman Foundation for Journalism at Harvard University.
A Times spokeswoman said the company would have no comment on future litigation in the case.
Hearst, expressing disappointment with yesterday’s ruling, wouldn’t comment on litigation plans beyond a brief statement saying the New York-based company expects to return to King County Superior Court, where it launched its legal fight.
“Hearst will continue to press its efforts to preserve two separate and distinct editorial voices in Seattle,” a Hearst spokesman said.
If The Times continues its battle and if Hearst carries through on its earlier threat to litigate all aspects of its lawsuit, some experts theorize, yesterday’s legal win may prove more costly than a loss would have been to The Times — at least in the short run.
The Times might do better to pocket its legal victory and drop its effort to force negotiations over the JOA for now, says Doug Underwood, a University of Washington associate journalism professor.
The Times Co.’s Seattle paper hasn’t had a profitable year under the JOA formula since 2000. Underwood contends that if the pattern continues, The Times can claim three more money-losing years — 2003 through 2005 — with less opportunity for Hearst to question the validity of those losses.
“If you consider the length of the process of litigating the 2002 loss,” Underwood says, “why not say, ‘Forget it. We’ll start all over next year with three clean years of losses under our belt.’ “
On the other hand, he says, Hearst appears to have little to lose by continuing the current fight.
Analysts say the privately held Hearst has been one of the media industry’s more profitable companies in recent years, with money-making television, newspaper and magazine units.
Times officials, on the other hand, have struggled with the company’s finances and cut nearly 100 jobs earlier this year to make up for what they said was a $12 million loss by the Seattle paper in 2004.
Questions also hover over whether the two sides can settle the case outside of court. Blethen has said in the past that the dispute could be resolved if Hearst agrees to change the profit split mandated by the JOA.
He suggested as much yesterday in his post-decision statement: “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.”
But even with The Times’ victory yesterday, observers think Blethen may not have enough leverage to pressure Hearst to give up more of its share of the split — now 60 percent to The Times and 40 percent to Hearst.
“If Hearst can string this out for years more,” Underwood says, “they may think they’ll end up with a better deal from The Times.”
In continuing to go head-to-head against a much bigger and wealthier company like Hearst, Kirkwood adds, Times officials risk an indefinite continuation of what Blethen calls Hearst’s “bleeding” of Times assets.
“To turn today’s victory into an ultimate victory,” says Kirkwood, “they’ve got considerable time and considerable expense ahead.”
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.