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Papers seek fast JOA appeal

By Bill Richards
Special to The Seattle Times

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Lawyers for The Seattle Times and the Seattle Post-Intelligencer agreed yesterday that a speeded-up appeal of their legal battle would benefit both papers.

In arguments before James Verellen, a commissioner for Washington's Court of Appeals, attorneys for both sides said they favored accelerating the appeal process in an effort to decide the future of Seattle's daily newspapers.

The Times and The Hearst Corp., which owns the P-I, have separately warned they could face financial difficulties and have threatened to sell or close their papers in the event one or the other paper loses the protracted fight. They are battling over efforts by The Times to initiate a process under their joint-operating agreement (JOA) that could lead to a shutdown of the P-I or an end to the 20-year relationship.

Times officials argue that their paper's $2.1 million loss in 2000 qualifies as the first of three consecutive money-losing years under the JOA's accounting formula. That would allow The Times to trigger the JOA's "stop-loss" provision, requiring both sides to begin negotiations to shut one of the papers within 18 months, or end the JOA.

On Sept. 25, Superior Court Judge Greg Canova ruled in Hearst's favor, saying The Times could not use a loss stemming from a strike that started in 2000 to initiate the stop-loss provision. Hearst had argued the strike was a "force majeure" event. Force majeure is a common legal term that excuses a party from liability if an event beyond its control prevents it from performing its contractual obligation.

The Times appealed Canova's ruling earlier this month.

Verellen, who functions as gatekeeper for the Appeals Court, said he would try to reach a decision by the end of next week on whether a three-judge Appeals Court panel would review the case. That process usually takes at least a year.

Attorneys for both sides agreed last week that an accelerated appeal was desirable. "We asked that we would not go to the foot of the calendar," Times attorney Marvin Gray Jr. said after his 10-minute argument before Verellen.

But Gray repeated earlier arguments made by The Times before Canova that force majeure covers only a party's performance and cannot be used to exclude events such as the strike. Force majeure clauses, The Times lawyer said, "are used as shields, not as swords."

Times attorneys also have sought to restrict the JOA argument to the contract language. Hearst has argued that a landmark 1990 state Supreme Court contract case, known as the Berg decision, requires a broader examination of the agreement, including both the intent and conduct of the signers.

Gray yesterday cited several later court decisions that he said had reined in the scope of the Berg decision.

While Times attorneys have described the paper's losses from 2000 to 2002 as in the millions, and Times Publisher Frank Blethen has accused Hearst of attempting to "bleed" the paper to force its sale to Hearst, Gray yesterday carefully limited the extent of those annual losses to the Times newspaper under the JOA formula.

Under the JOA, The Times and P-I pool their revenue. After The Times is paid for printing, distributing and marketing both papers, they divide the remainder, with 60 percent going to The Times and 40 percent to the P-I. A JOA profit or loss is determined by subtracting news and editorial expenses from that remainder.

In an interview with reporters after the hearing, Gray disclosed for the first time that The Seattle Times Co., which owns the Seattle paper, made money in two of the three years at issue.

"It netted out to a small profit" for the three-year period, Gray said. He did not say which years The Times Co. showed a profit.

Times officials say they don't break out the Seattle paper's results from the company's overall financial results. The Times company owns seven papers in Washington and Maine, as well as substantial real-estate holdings.

Under questioning by Verellen, Hearst attorney Guy Michelson said whether or not the Appeals Court upholds Canova's ruling on The Times' loss in 2000, Hearst intends to continue its separate challenge of the paper's 2002 loss. In that year, Hearst says, Times officials spent lavishly on staff and content for the Seattle paper. "The Times spent money to lose money," Michelson said.

The two parties have agreed to accept the Appeals Court decision about 2000 to apply to 2001 losses because the 49-day strike ended in 2001.

In another presentation, Dmitri Iglitzin, attorney for the ad hoc citizens group, the Committee for a Two-Newspaper Town, told Verellen the group believes Canova's decision was correct.

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.

Copyright © 2003 The Seattle Times Company