Times files appeal of ruling on JOA losses

The Seattle Times Co. is appealing a court decision that blocked it from beginning negotiations that could shut down its crosstown rival, the Seattle Post-Intelligencer.

The request for an expedited appeal, filed yesterday, contends that King County Superior Court Judge Greg Canova misinterpreted terms of the joint-operating agreement (JOA) between The Times and The Hearst Corp.-owned P-I.

In announcing the latest legal maneuver, Times Publisher Frank Blethen also raised the possibility that if the appeal isn't successful, the Blethen family — which owns 50.5 percent of The Times Co.'s voting stock — might consider selling its share of the paper.

"Unless something is done to modify the JOA quickly, it will threaten the continued local ownership of The Seattle Times," Blethen said in a statement.

Under an agreement separate from the JOA, Hearst has the right of first refusal if the Blethens decide to sell their stake in The Times Co. The provision generally gives a company the right to match or outbid potential competitors for a sale.

Blethen's announcement yesterday sought at the same time to emphasize the family's local control of The Times, calling descriptions of the fight with New York-based Hearst "terribly mischaracterized."

"It is not a dispute between The Seattle Times and the P-I," Blethen said, "but a dispute between the multibillion-dollar Hearst Corp. and the much smaller, independent Seattle Times."

The Times is appealing a partial summary judgment Canova made Sept. 25 in a lawsuit Hearst filed in April. The Times has requested an Oct. 24 hearing before a state Court of Appeals commissioner, which would determine how the case proceeds.

While the appeal was not unexpected, Blethen has never before discussed publicly the possibility that the family might consider selling The Times. The subject has come up in internal staff memos, however.

"What Frank is doing is letting the community know about the reality of the situation," said Times spokeswoman Kerry Coughlin.

The Blethens have owned The Times for four generations, since Alden Blethen purchased the Seattle Press-Times, a precursor to The Times, in 1896. Currently, the family's holding company, the Blethen Corp., controls the majority of the 16 seats on The Times Co.'s board.

In addition to the Seattle paper, the company owns seven papers in Washington and Maine, as well as substantial real-estate holdings.

"But we don't have unlimited resources," Blethen said in the statement. "We can't afford to sustain year after year of losses. We believe the real decision here is whether readers want their newspaper owned by out-of-state interests or by people who live and work in the community."

The Seattle Times newspaper has lost money the past three years by one measure — the accounting formula established by the JOA.

Under the agreement, both papers pool their advertising and circulation revenue and, after The Times is paid for handling printing, distribution and other non-news expenses, the parties split the remainder, with 60 percent going to The Times and 40 percent to Hearst.

Each party calculates its JOA-prescribed profit or loss by subtracting its news and editorial expenses from its share of the split. It's under these terms that The Times recorded audited losses in 2000, 2001 and 2002.

But internal Times accounting documents filed in the court dispute — and which reflect operations beyond the paper's news and editorial departments — indicate that under traditional accounting procedures, the Seattle paper as a whole may have had a profit during those years.

Coughlin said The Times Co. does not break out separate figures for the Seattle paper and does not know whether, under the broader calculations, it lost money in any or all of the three years.

She 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."

JOA-prescribed financial calculations are key to the dispute, because the agreement provides that either paper can demand to start negotiations to shut the other paper after three consecutive years of losses. The papers have 18 months to shut one down, or dissolve the JOA.

Last April, Blethen notified Hearst that, under JOA accounting, The Times had lost a total of $10 million from 2000 through 2002.

Hearst's suit challenged the eligibility of those losses for consideration under the JOA's "stop-loss" clause.

In his Sept. 25 decision, Canova ruled that the loss in 2000, which The Times blamed on a 49-day strike against the paper, fell under the JOA's "force majeure," or "greater force," clause.

The provision, standard in many contracts, exempts parties in an agreement from liability if some unforeseen event beyond its control prevents either from performing obligations under the agreement.

Guy Michelson, an attorney for Hearst, said yesterday the company expects to seek an extension of the judge's ruling to exempt The Times' JOA loss in 2001 "in the near future."

Hearst yesterday released a brief statement calling Canova's ruling "carefully reasoned and entirely consistent with both the law and the facts in the case."

"We expect the judge's decision to be upheld on appeal," the company said.

In its appeal, however, Times attorneys argue that the judge incorrectly applied the force majeure clause to the JOA's three-year-loss provision.

"Hearst has tried for over 25 years to do away with the escape clause (loss provision) in the JOA," the filing said. "What it was unable to obtain in negotiation, the ruling ... has given it in litigation."

The appeals court could overturn Canova's ruling if it decides there are material facts in the case that are at issue, rather than simply the judge's interpretation of the law.

"This is an important statewide issue," said Lis Wiehl, a professor at the University of Washington School of Law. "I could see the court accepting this as an expedited case."

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