Hearst wins first round in newspaper fight

King County Superior Court Judge Greg Canova yesterday dealt The Seattle Times a blow in its legal fight with the Post-Intelligencer, ruling that a financial loss The Times claimed in 2000 could not be used to start proceedings that could shut down its crosstown rival.

"This was a big victory, and we're very pleased," said Guy Michelson, an attorney for The Hearst Corp., which owns the P-I. The news was greeted with jubilation in the P-I's newsroom.

Canova spent 20 minutes reading from notes as he explained to a crowded courtroom that The Times' own statements had undermined its defense against Hearst's argument.

The 2000 loss was one of several issues raised in a lawsuit Hearst filed in April to stop The Seattle Times Co. from making moves under terms of the two papers' joint-operating agreement (JOA) that could result in the P-I's demise.

Times attorneys had argued that the newspaper's $2.1 million loss in 2000 qualified as the first of three consecutive years of losses, which allowed the company to trigger the JOA contract's "stop loss" provision that requires both companies to begin negotiations to shut one paper within 18 months or end the JOA.

Hearst contended that another contract provision, the "force majeure" or "greater force" clause, exempted the 2000 loss from applying to the "stop loss" provision.

Force majeure, standard boilerplate in contracts, excuses a party from liability if some unforeseen event beyond its control prevents it from performing its obligations under the agreement.

Hearst's attorneys argued in a hearing before Canova two weeks ago that a 49-day strike against The Times in late 2000 and early 2001 was a force majeure event that invalidated the newspaper's loss claims. Times attorneys said force majeure applied only to production and performance issues, not the loss provision. "A loss is a loss," said Douglas Ross, a Times attorney.

Canova's ruling applies only to the 2000 loss. But Michelson said Hearst next week will ask the judge to also apply it to The Times' 2001 loss claim on the same grounds.

Times spokeswoman Kerry Coughlin said after Canova's ruling that the newspaper would consult its attorneys before deciding whether to appeal. It has 30 days to make that decision.

Landmark case guides judge

What the judge decided King County Superior Court Judge Greg Canova ruled that The Seattle Times Co. cannot use losses it recorded under the JOA in 2000 to count toward a key clause in the JOA contract. That clause allows either paper, after having three consecutive years of losses, to force negotiations to shut down one paper or dissolve the JOA. What's next Both The Times and Hearst did not say yesterday what their next steps would be. But each side has a number of options. Among them: The Seattle Times Co. • It has 30 days to file an appeal, to the Washington state Court of Appeals. • It could wait for expected losses in 2003 and beyond to invoke the clause again. The Hearst Corp. • It could continue to press the case with claims that Times losses in 2001 and 2002 also should not be counted toward the loss clause. • It could end an attempt to sell the Post-Intelligencer. The company had put the paper on the block, even as it pursued the suit, to demonstrate there are no buyers. Hearst says that before it can receive federal sanction to shut down the P-I it would need to show no other party was willing to operate the paper outside the JOA.

In his ruling, Canova said he had relied on a landmark 1990 state Supreme Court contract case known as the Berg decision. In that case, the state's senior court ruled that disputed contracts like the JOA must be examined in a broad light that includes both the intent and the conduct of the signers, as well as the narrow language of the document itself.

Hearst's attorneys had cited the Berg case as their primary argument for allowing force majeure to be applied to The Times' loss claims.

Canova, a 55-year-old former county and state prosecutor who was elected to the Superior Court bench three years ago, cited what he called "limited information" from the evidence in the JOA case that Times officials had apparently accepted force majeure as applying to the strike on several occasions.

The judge said the evidence showed Times officials told their bankers at a meeting on refinancing the company's loans that losses from the strike were "in fact an anomaly" and would not affect the paper's long-term earnings. In another instance, Times officials ignored a JOA cap on the paper's charitable deductions in 2001, citing force majeure as the reason for an exemption from the cap.

Times Publisher Frank Blethen also cited force majeure in a letter last year to Hearst officials, arguing that The Times had no obligation to publish the P-I during the strike.

Hearst efforts aided

Canova's decision boosts Hearst's efforts to keep publishing the newspaper. The New York-based media company has said that without the JOA it would have to shut down the P-I because the paper cannot operate without the support services provided by The Times under the agreement.

The JOA creates a structure under which The Times and P-I maintain their own news and editorial staffs and publish separately. The Times handles all non-news operations, such as production, distribution and marketing, for both papers.

The papers pool their revenues and split what remains after The Times is paid for handling the business functions of the JOA, with 60 percent of the remainder going to The Times and 40 percent to the P-I.

While clearly damaging to The Times' case, Canova's ruling, known as a "partial summary judgment" in legal terms, is not likely to put an end to the fight between Seattle's dailies.

Partial summary judgments, said Jack Kirkwood, an antitrust specialist at the Seattle University School of Law, can be more easily overruled on appeal than judicial decisions stemming from a full trial. "A summary judgment is a ruling by a judge that factual issues in a case are not in dispute," Kirkwood said. If there is a dispute, and a judge calls for a full trial, appeals courts tend to defer more often to the judge's assessment of the evidence, he said. "It is often relatively easy to get a summary judgment overruled on appeal if you can present contrary evidence," Kirkwood said.

Happy newsroom

Reaction to the judge's ruling was predictably mixed, with P-I staffers cheering and clapping when Roger Oglesby, the paper's publisher, recounted the decision at a hastily called meeting in the paper's newsroom. "I told them I was pleased I was delivering this news rather than some other news," said Oglesby, an attorney himself, who sat with Hearst's attorneys during Canova's ruling.

"There was a lot of joy, a lot of jubilation," said Art Thiel, a P-I sports columnist who is also a member of the Committee for a Two-Newspaper Town, the ad hoc citizens' committee that was granted intervenor status in Hearst's lawsuit.

Thiel called the decision "a successful first round."

"All the skeptics in town who said it was a matter of time before the P-I was going away — it feels good to be validated in the face of that skepticism," he said.

In a memo to The Times' 355 news staffers, Times Executive Editor Mike Fancher said, "Nothing has changed."

"We will continue to do great journalism, because that's who we are," he said. "It fulfills our and the Blethen family's commitment to the people we serve and desire to make a difference."

Hearst had not waited for Canova's decision to put the P-I on the market. In August, after complaining that the pace of its lawsuit was moving too slowly, Hearst hired the New York investment banking firm of Veronis Suhler Stevenson to shop the paper to prospective buyers.

The company made the move because, it said, it would need to show there were no parties interested in buying the paper outside the JOA before federal officials, who have oversight over the country's dozen newspaper JOAs, would approve a shutdown of the P-I.

Hearst attorney Michelson said yesterday that, in light of the judge's favorable ruling, it is possible Hearst may pull its paper off the market. "It's something we'll have to discuss," he said.

Times officials said they, too, will be reassessing their financial situation because of the judge's ruling. Earlier this month, in a memo to The Times staff, Blethen said The Times Co. was considering selling some of its real-estate assets to ease financial pressures on the company.

Losses continue

"We continue to lose money under the JOA, and that puts us in a difficult financial situation," Coughlin said yesterday. While the company has emphasized its losses in 2000, 2001 and 2002 as determined by JOA-prescribed calculations, that agreement covers only the editorial operations of The Times.

Court documents indicate that the Seattle paper may have had an overall profit during those years. But the company has said that even if there had been a small profit, it would have been "too close to the line to consider it an acceptable risk to the company."

Coughlin declined to say whether the newspaper's parent, The Times Co., is currently losing money.

She also couldn't say whether the company, which is controlled by the Blethen family, would put any of its eight newspapers in Washington and Maine on the market if it fails to successfully appeal Canova's decision and has to continue operating the JOA as is.

"It is something the family is looking at," Coughlin 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 brichards@seattletimes.com