Seattle's two daily newspaper companies announced a surprise agreement Thursday morning to settle their long-running legal dispute through binding arbitration. But by late afternoon, it became clear it wasn't a done deal, as a third party said it would seek to participate in the process.

The high-stakes agreement between The Seattle Times Co. and The Hearst Corp., owner of the Post-Intelligencer, needs the approval of King County Superior Court Judge Greg Canova, who has jurisdiction over the lawsuit Hearst filed nearly three years ago.

A three-year dispute

Another twist: After three years of wrangling in court, the dispute between The Seattle Times Co. and The Hearst Corp. may be heading to binding arbitration.

2003

April 28: Hearst sues in King County Superior Court to block The Times Co. from triggering an escape clause in the two companies' joint-operating agreement that could result in shutting down the Post-Intelligencer or terminating the agreement.

April 29: The Times Co. notifies Hearst that The Times had financial losses under the JOA in 2000, 2001 and 2002. That allows The Times to exercise the escape clause.

June 6: The U.S. Department of Justice discloses it is investigating issues surrounding the Seattle JOA.

July 14: Superior Court Greg Canova grants the Committee for a Two-Newspaper Town intervenor status in the case, allowing the ad-hoc citizens group a seat at the table. The group has support from the local newspaper union.

Sept. 12: Canova hears arguments on one claim in Hearst's suit — that a newspaper strike caused The Times' losses in 2000 and 2001 and, therefore, loss claims for those years should be disallowed.

Sept. 25: Canova rules for Hearst, preventing The Times from invoking the escape clause.

Oct. 7: The Times Co. appeals Canova's decision to the state Court of Appeals.

2004

March 22: A three-judge Appeals Court panel rules in favor of The Times Co., remanding the case to Superior Court with orders to reverse the September decision.

April 19: Hearst appeals the ruling to the state Supreme Court.

2005

Feb. 15: The Supreme Court hears oral arguments in the case.

May 13: The Department of Justice says it didn't find enough evidence to pursue the case, calling off the investigation. It does suggest it could come back to the case if the dispute leads to closing one paper.

June 30: The Supreme Court unanimously upholds the Appeals Court decision, sending the case back to Superior Court.

Sept. 29: The Times Co. notifies Hearst it lost money under the JOA in 2002, 2003 and 2004. This is the second "loss notice" the company formally issues.

2006

March 30: The Times Co. and Hearst jointly announce they have agreed to binding arbitration of their dispute. In addition, The Times Co. says it had issued a third "loss notice," this one covering the years 2003, 2004 and 2005.

The Committee for a Two-Newspaper Town, a citizens group that has intervened in the case, said it will ask Canova to let it participate in the arbitration proceedings. "We believe we are the representatives of the public interest in all this," committee Co-Chairwoman Anne Bremner said.

But Times spokeswoman Jill Mackie said if Canova gives the committee a seat in arbitrator Larry Jordan's hearing room, The Times will pull out and arbitration won't happen. "Our view is that this is a dispute between two parties, and they ought to be allowed to resolve it themselves," she said.

The 11-page agreement allows either The Times or Hearst to back out if Canova lets the committee participate. A Hearst spokesman would not comment when asked what the company would do.

Canova is scheduled to rule next Friday, although a court official said that could be delayed.

If Canova grants the companies' request, Jordan could begin receiving paperwork within two weeks. Under the arbitration agreement, the former King County Superior Court judge, who was chosen by the two companies, will conduct what amounts to a private trial and render a pivotal decision by next spring.

With binding arbitration, there would be no appeal.

Thursday's announcement ended nine months of deafening silence in a dispute that could determine the future of both Seattle newspapers.

The Times and P-I have been linked since 1983 by a joint-operating agreement (JOA). They maintain separate news and editorial operations, but The Times handles circulation, advertising, production and other business functions for both.

Under current terms, The Times gets 60 percent, Hearst 40 percent, of any revenue that remains after accounting for non-news expenses of publishing both papers.

The Times has said the arrangement no longer works, that producing the P-I has become a big expense that threatens both The Times' profitability and its continued control by the Seattle-based Blethen family. In April 2003, it notified Hearst it had lost money three years in a row — 2000, 2001 and 2002 — under a formula prescribed by the JOA.

That meant Hearst and The Times had 18 months, under an escape clause in the contract, to negotiate a date to close the P-I, after which Hearst would get 32 percent of The Times' profit for the contract's remaining years, until 2083. If there were no agreement within 18 months, the JOA would end.

Hearst, which has said the smaller P-I can't survive outside the JOA, went to court to block The Times the day before the notice was delivered. Its lawsuit challenged whether The Times' losses were valid. The newspapers later agreed to stop the 18-month "clock" until the lawsuit was resolved.

Last June, the state Supreme Court ruled The Times could claim losses for 2000 and 2001. But a host of other Hearst claims, including one challenging the validity of The Times' asserted 2002 losses, remained to be litigated, which could have taken years.

In announcing their agreement, both Hearst and The Times said the approach guarantees a quicker resolution.

"It creates certainty," said Hearst spokesman Paul Luthringer. "This is all about obtaining a final resolution to the dispute."

Publisher Frank Blethen and President Carolyn Kelly said in an e-mail to Times employees: "... This is better for The Seattle Times and our employees than pursuing resolution through the court system, primarily because it will greatly reduce the time to resolution."

The agreement also cites the desire of the two privately held companies "to resolve their disputes privately and confidentially." They already have been forced to publicly disclose financial information and notes from top executives in court, and probably would have been required to reveal more.

Under the arbitration agreement, Jordan would rule on the validity of The Times' "loss notice" covering 2000 to 2002 and two similar notices it filed later — for 2002 to 2004 and 2003 to 2005 — by May 31, 2007. While the proceedings would be secret, Jordan would be required to produce a "reasoned decision" that would be made public.

If the loss notices were ruled invalid, the agreement says, the JOA would continue as is — a result Mackie said would put The Times' future at risk.

If the notices were ruled valid, the companies would have 12 months to negotiate a date to close the P-I. Under the agreement, the Hearst paper could close as soon as six months after the ruling.

It is also conceivable something could be negotiated that would keep the P-I alive, Mackie said, but there are no private side agreements.

The agreement raises another possibility: Hearst could sell the P-I while retaining its interest in the JOA, receiving 32 percent of the profits. The P-I would operate outside the JOA in this case.

Jordan's ruling wouldn't necessarily settle the fate of Seattle's two newspapers. The citizens committee, whose members include labor, political and civic groups, has claimed in court that the JOA provision allowing Hearst to receive 32 percent of The Times' profit if it closes the P-I is an illegal restraint of trade.

The committee could pursue that argument in court later in a bid to keep the P-I operating, said Dmitri Iglitzin, the committee's lawyer. The Justice Department and state attorney general also could act, he said.

Some observers applauded Thursday's announcement. "I think it's good news for everybody," said Peter Horvitz, publisher of the suburban King County Journal. "Litigation is not always a good strategy. It lasts a long time, it's very expensive, and in the meantime, problems don't get resolved."

David Martens, an Anacortes newspaper consultant and former newspaper executive, said the Seattle newspapers' economic troubles, which are shared by much of the industry nationally, may have driven Hearst and The Times to seek a speedier resolution.

"It must mean conditions are deteriorating on the business side," he said. "They must have said, 'We've got to speed this up. We've got to get this resolved.' "

The Committee for a Two-Newspaper Town also praised the agreement. "In general, we think it's a hopeful sign," Iglitzin said.

But the committee belongs in the arbitration proceedings, he said. "We think the issues are of public importance. ... We want the same opportunity we have in court to present the committee's perspective."

Several observers said that while it's easy to understand why The Times would seek a quick final decision, Hearst's motives are more puzzling.

"I'm not quite sure what's in it for Hearst," said University of Washington journalism professor Doug Underwood. "It baffles me. ... Hearst has a lot more to lose here."

Hearst has much deeper pockets than The Times, and Times Publisher Blethen has said repeatedly the New York-based media giant was using the protracted lawsuit to "bleed" The Times and force him to sell to Hearst.

By agreeing to binding arbitration, Hearst has given up that option.

"Why would Hearst do this?" said Jack Kirkwood, a Seattle University law professor who specializes in antitrust matters. "I wonder if they're figuring that their ability to challenge the later years' loss notices [for 2002-04 and 2003-05] is not strong, and this extra year is the best they can hope for."

Times and Hearst representatives said the binding-arbitration agreement took six months to put together. Lawyers began working on it last September, they said, after 10 months of unsuccessful secret mediation talks.

U.S. Sen. Patty Murray, D-Wash., convened the earlier negotiations. Former U.S. Sen. George Mitchell, D-Maine, mediated at her request.

Rick Desimone, Murray's chief of staff, said Blethen and Hearst CEO Victor Ganzi met face-to-face four times — in New York, Los Angeles and Maine. The two sides' attorneys met once in Chicago, he said, and the companies' top executives also exchanged numerous phone calls.

The effort ended last August but led to talks that resulted in the arbitration agreement.

In a statement Thursday, Murray praised the agreement. "With the paths the two companies were on, she was concerned it would undermine the foundation of both," Desimone said.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

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