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Times, Hearst lawyers take JOA battle to appeals-court panel

By Steve Miletich
Seattle Times staff reporter

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An attorney for Hearst, owner of the Seattle Post-Intelligencer, asked the three-judge panel to uphold a lower court ruling that bars The Times from using financial losses in 2000 and 2001 to force negotiations that could lead to the P-I's shutdown.

But an attorney for The Times argued that the ruling handed down in September by King County Superior Court Judge Greg Canova was based on incorrect conclusions and should be overturned.

A third attorney, arguing for a group called the Committee for a Two-Newspaper Town, told the court both sides offered plausible arguments but that it should side with Hearst to preserve the public's interest in maintaining two newspapers.

One judge, H. Joseph Coleman, appeared skeptical of a key Hearst argument, but the court gave no clear indication of how it might rule.

Because of an earlier agreement between the two sides that put the case on a fast track, the court could decide within weeks rather than the usual six to nine months. The ruling, however, can be appealed to the nine-member state Supreme Court.

The publishers of both newspapers were in the Seattle courtroom to witness the legal wrangling. Times Publisher Frank Blethen made his first courtroom appearance in the case, while P-I Publisher Roger Oglesby adhered to a pattern of attending each proceeding.

Hearst and The Times are fighting over whether their joint-operating agreement (JOA), which took effect in 1983, allows The Times to force negotiations that could lead to shutting the 140-year-old P-I or ending the JOA.

Hearst has said the P-I would not be able to publish outside the agreement, in part because The Times prints both papers and the P-I doesn't have its own presses. Under the JOA, The Times also distributes and markets both papers, while each maintains it own news and editorial operations.

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

In April, The Times invoked the JOA's so-called "stop-loss" clause, allowing it to demand negotiations to shut one paper after three consecutive years of financial losses. Under the agreement's prescribed formula, The Times showed losses for 2000, 2001 and 2002.

Hearst sued to block the negotiations, contending losses in the first two years stemmed from an extraordinary event — a strike against both papers in late 2000 and early 2001. As such, Hearst's attorneys argued, the losses were exempted under the contract's "force majeure," or "greater force," clause.

Times lawyers have maintained that clause is standard boilerplate language that is separate from the stop-loss clause, and only excuses either party from liability if an unforeseen event beyond its control keeps it from performing a contractual obligation.

During yesterday's arguments, Coleman hammered on the language of the force majeure clause, asking Hearst attorney Kelly Corr how the P-I could invoke it.

Corr said the P-I was asking to be relieved of an obligation to set a date for ending the JOA, as required under the stop-loss provisions.

"That is the liability, because the practical effect of that is the death of the P-I," Corr said.

In addition, Corr said, the force majeure clause contains wording specifically stating that it applies to the "entire agreement."

Corr further argued that Times executives sought the stop-loss language as a buffer against a general shift in the newspaper marketplace, not for one-time strike losses following years of handsome profits.

Times attorney Stephen Rummage told the appellate judges that the stop-loss terms were a "strict, bright-line monetary test," clearly spelled out in the JOA after intense negotiations in which Hearst executives tried to eliminate the language.

"In determining loss under that provision, the parties didn't leave it to chance," he said, later adding, "The words they came up with have to be honored."

Although the Times was the dominant paper when the JOA was enacted, Rummage said, it also was a "smaller family-owned company" that wanted to ensure that the much-larger Hearst wouldn't "bleed The Times" into a financially precarious position.

In the end, Rummage told the court, a "loss is a loss" under the terms of the contract.

Asked by Judge Susan Agid why the force majeure clause was inserted into the JOA, Rummage called it typical but narrow contract language. Agid, however, questioned whether some aspects of the clause could be strictly interpreted.

The panel, whose third member was Judge Anne Ellington, also heard from Dmitri Iglitzin, attorney for the Committee for a Two-Newspaper Town. He told the court that when contract language is ambiguous, judges are required to look to what is the best public policy, under a 1990 state Supreme Court ruling on contract law commonly referred to as the Berg decision.

Under that ruling, Iglitzin said, the court should bar the Times from invoking the stop-loss clause because Congress' overarching goal in passing the Newspaper Preservation Act of 1970 was to preserve two newspapers in communities. That act exempts JOAs from antitrust laws.

"The Times is basically taking a gotcha approach to the JOA," Iglitzin said.

Steve Miletich is a staff reporter at The Seattle Times who can be reached at 206-464-3302 or smiletich@seattletimes.com. He substituted yesterday for Bill Richards, 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. Richards was traveling yesterday.

Copyright © 2004 The Seattle Times Company