Key hearing in newspaper fight today

When King County Superior Court Judge Greg Canova convenes today's hearing between Seattle's warring newspaper companies, there will be plenty at stake.

But the hearing is only one part of a complex legal struggle.

Today's hearing will focus on a contract issue: whether The Hearst Corp., owner of the Post-Intelligencer, can claim that "force majeure" limits The Seattle Times Co. from claiming its flagship Seattle paper lost money in 2000 under terms of the two papers' joint-operating agreement (JOA).

Force majeure, a boilerplate item in many contracts, limits liability in cases where a "greater force" than the contracting parties caused a loss.

The Times says it lost money for three straight years, starting in 2000, because of a series of events, including a 49-day strike, an earthquake, the impacts of the 9-11 terrorist attacks, Boeing layoffs and Seattle's dot-com implosion.

Under a "stop-loss" clause in the JOA contract, The Times says, the losses allow it to demand that Hearst begin negotiations to shut the P-I by the end of October next year or end the 20-year-old JOA. Either option would likely end publication of the 140-year-old P-I. With The Times handling all printing, distribution and advertising for both papers under the JOA, Hearst says the P-I can't make it on its own.

Hearst is challenging The Times' losses and says it wants to keep publishing the P-I under the JOA. The losses, it says, were caused by force-majeure events in 2000 and 2001 and, therefore, should be exempt from consideration toward the contract's loss clause.

The Times argues that force majeure applies only to production and performance issues and not toward financial results.

Judge Canova is set to hear arguments only on the force-majeure issue for 2000 today.

Hearst also disputes the loss in 2002, which it contends was caused by Times overspending. That question — a potentially more difficult issue, according to legal experts — will be taken up later.

Here is a look at the major players in today's hearing.

The Hearst Corp.

By any benchmark, Hearst is big. Its stable of a dozen newspapers, 17 magazines from Cosmopolitan to SmartMoney, 27 TV stations and other holdings annually yields some $5.2 billion in revenue and a half-billion in net profit, according to published estimates.

Little is known about the company's financial details, since the New York-based media giant is privately held and obsessively secretive.

While Seattle Times Chief Executive Frank Blethen issues regular broadsides accusing Hearst of attempting to bleed his company to insolvency, Hearst has remained all but mute in this battle. The terse statements out of its Manhattan headquarters, undergoing a half-billion-dollar expansion, generally say only that it intends to keep publishing the P-I, and nothing more.

Hearst doesn't like others talking about it either. Alan Marx, former chief litigator with the Justice Department's antitrust division and now a Hearst consultant, hangs up the phone at his Nashville office when Hearst's name is raised by a Seattle reporter.

Newspaper analyst John Morton, one of the most quoted industry specialists, stopped talking after being hired by Hearst last year as a JOA adviser. Other Hearst advisers simply don't return calls.

While Hearst's Seattle attorneys have commented on issues and other subjects related to the case, they decline to talk about the company itself. "I can't help you on that, sorry," says Kelly Corr, one of the attorneys.

Despite its corporate silence, Hearst does make one thing clear: It plans to expand its TV holdings, and that expansion could well include Seattle.

Last year, then-CEO Frank Bennack told Business Week that Hearst was looking for more television stations, especially in the dozen cities where it already owns newspapers. The four largest of these cities are San Francisco, Houston, San Antonio and Seattle.

A Hearst spokesman says that while Victor Ganzi has taken Bennack's CEO seat, the company's interest in expanding its TV holdings hasn't changed.

According to industry sources, Hearst's TV unit, Hearst-Argyle Television, held discussions last winter with Seattle's Fisher Communications, which was seeking to sell nearly a dozen TV stations it owns, including Seattle's KOMO-TV. One industry official familiar with the talks said Fisher pulled its stations off the block early this year because it wasn't satisfied with offers it received, but it maintains contacts with Hearst.

Meanwhile, Hearst has hired New York investment banking firm Veronis Suhler Stevenson to offer the P-I for sale, but newspaper officials who have reviewed the offering say there is little to sell. The P-I has no presses, delivery trucks or support services and operates out of leased offices on Elliott Bay.

Hearst officials say they are seeking buyers even as they fight their court battle because the Justice Department, which oversees JOAs, would require the company to show there are no interested parties before it could shut down the paper.

"Nobody is going to buy what they are offering," says a Seattle media executive who signed Hearst's nondisclosure agreement before reading the offering.

Hearst says that if it loses its lawsuit against The Times it may shut the P-I.

The Seattle Times Co. and the Blethens

Frank Blethen, 58, is the patriarch of the family that owns a 50.5 percent controlling stake in the privately held Seattle Times Co. and he takes the fight with Hearst personally.

When Hearst attorneys asked to see his famous tattoo after deposing him in June, Blethen happily rolled up his pant leg and showed off The Times eagle logo inked on his calf.

"We've got people out there who would love to take this company away from the Blethen family," Blethen said in an interview last January. "We have no interest in helping them harass us."

In a memo to The Times staff this month, he cited his JOA partner's "aggressive bleed strategy" directed at The Times, a strategy, he maintains, that is designed to force the sale of the family's interest in The Times to Hearst.

Hearst's efforts, and other factors, have placed his newspaper in a financially "precarious and uncertain" position, Blethen said. Nonetheless, he said his advice to his kin remains: "I do not believe the family should throw in the towel."

In perhaps a less-recognized sense, the legal and public-relations battle with Hearst has as much to do with the Blethens — and their deep attachment to the paper — as it does with money.

A case study published two years ago by the Harvard Business School offers an unusually candid view of the Blethens' troubled private history.

The study, which was vetted and approved by Frank Blethen and his cousins, discusses three generations of parental neglect and alienation within the family and provides an unusual perspective to the current newspaper fight.

"I thought they were extraordinarily forthcoming, especially given the sad family history they've had," says John Davis, a Harvard senior lecturer and the study's lead author. Davis and Cathy Quinn, a clinical psychologist based in Beverly Hills, conducted most of the interviews for the Harvard study.

They write that C.B. Blethen, Frank Blethen's grandfather and part of the second Blethen generation to run The Times, was "a negligent father of five sons."

Davis and Quinn describe the third generation of Blethens as erratic men who left both The Times and their own families in disarray.

When Frank Blethen and his cousins assumed control of The Times in the 1980s, they used the business as a critical element to pull the family back together, says Davis, a family-business specialist.

So far, Davis says, Blethen "has turned the paper and the family around. It will be hard for Hearst to break through that loyalty he's built up."

Committee for a Two-Newspaper Town

As the third party in the JOA court fight, the Committee for a Two-Newspaper Town is a bit of an odd duck.

The ad-hoc citizens group, which has legal and financial backing from the Pacific Northwest Newspaper Guild, opposes the shutdown of the P-I. But it also opposes the JOA itself.

Its argument goes like this: The Times is compelling Hearst under the JOA to shut the P-I and act against the public interest by offering Hearst 32 percent of The Times' profit for the next 80 years if it does.

Paying off Hearst to shut the P-I is a "blatant restraint of trade," the committee argues. It says the arrangement also violates the so-called "Clean Hands" doctrine of state law, which negates an agreement if one of the parties has "dealt unjustly."

The Times opposes that stance in court and has refused to run a committee fund-raising ad. Hearst has stayed neutral and on Wednesday did run a committee ad.

According to the committee's Web site, it has backing from a dozen civic and other groups and more than 200 individuals. Its co-chairs are Phil Talmadge, former Washington State Supreme Court justice and 2004 candidate for governor, and Seattle attorney Anne Bremner.

Much of the committee's financial and legal backing has come from the Guild, which represents employees from both papers.

It will be up to Judge Canova to decide whether to allow the committee to argue its position at today's hearing. Canova's decision to grant the group intervenor status in Hearst's lawsuit surprised some legal observers. Allowing it to argue its position would broaden the scope of the hearing considerably beyond a contractual dispute, they say.

Judge Greg Canova

Presiding over all this is Judge Canova, a 55-year-old jurist with three years' experience on the bench.

As a rule, Superior Court cases tend toward less fractious and complex subjects than the JOA dispute. But Canova spent 26 years as a criminal prosecutor for King County and the state attorney general's office. Former associates describe him as particularly capable of keeping control over a high-profile case like the JOA dispute.

"Unlike a lot of judges, he's not afraid to make a decision," said David Lord, a former colleague of Canova's in the King County prosecutor's office.

"He won't be intimidated by the publicity," said Lord, now president of Seattle-based Pioneer Newspapers, which owns small papers in Washington state. "He'll do the right thing based on law and facts."

Lord and others who have worked with Canova describe him as a smart attorney who, as a prosecutor, favored trial work over longer research-oriented cases.

"Greg was really good at picking up a file and putting on a very good trial," said Patrick Sainsbury, another attorney who worked with Canova in the county prosecutor's office.

The JOA case is likely to involve extensive briefing by high-caliber attorneys, with "a lot of paper and cases to read," Sainsbury said.

"There will be a lot of lawyering that is different from what Superior Court judges typically handle," he said.

Canova is married to Seattle District Court Judge Barbara Linde and lives in West Seattle.

Canova was backed by the P-I, but not The Times, when he unsuccessfully challenged state Supreme Court Judge Richard Sanders in 1998. He received endorsements from both papers in his campaign for a Superior Court seat two years later.

"He likes legal challenges," says Kathryn Goater, a Seattle attorney who also worked with Canova as a county prosecutor.

"He knows how to run a trial," she said, "and he knows what it takes to be a good judge."

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 brichards@seattletimes.com