The P-I Lives—for Now

The Times ponders its next move after a big loss in court.

IT'S BACK TO the drawing board for Seattle Times executives and attorneys in the bitter battle with Hearst Communications over the fate of the Seattle Post-Intelligencer. The slam dunk the Times hoped for in King County Superior Court bounced off the rim last Thursday, Sept. 25, when Judge Greg Canova delivered a ruling that gives P-I partisans renewed hope of the newspaper's survival. Canova's ruling could thwart the Times' efforts to end the 20-year-old joint operating agreement (JOA) with the P-I and sent shock waves through both papers' offices. Nobody seemed more thrilled than Hearst attorney Kelly Corr, of Seattle's Corr Cronin law firm, whose face registered a mix of anxiety and relief as Canova read his decision.

Canova ruled that the Times' claim of financial loss in 2000 was invalid, for the purpose of ending the combined business operation, because a strike against both newspapers that year was a force majeure?a big, unforeseen event that pushed the joint operation into the red. A force majeure clause like the one in the JOA excuses a party from failure if circumstances are beyond its control. And if the loss of 2000 was due to a force majeure and doesn't count, the Times cannot claim three consecutive years of red ink?the condition under which either party of the JOA can seek closure of one of the newspapers or termination of the federally sanctioned monopoly. Under the agreement, the Times handles ad sales, marketing, printing, and circulation of both papers. The news and editorial operations are separate and competitive. The JOA is allowed under the 1970 Newspaper Preservation Act, which provides antitrust exemption for the purpose of preserving multiple editorial voices.

CANOVA'S DECISION to exclude 2000 from the Times' loss calculations was a heavy blow to the dominant paper and the local Blethen family that holds the controlling interest in the Seattle Times Co. The judge relied on a 1990 state Supreme Court decision that was a landmark for contract law in Washington. The decision in Berg v. Hudesman was the court's attempt to scrub away ambiguity and inconsistency that many legal experts thought had crept into the state's contract law. In the Berg decision, the court ruled that "extrinsic" evidence?information not included in the language of a contract?can be used to interpret the parties' original intent. In other words, a contract is a contract unless the parties no longer agree about what it means. In finding in favor of Hearst, which sued the Times last April to stop an 18-month closure process, Canova embraced the four considerations of Berg:

*The overall purpose of the contract?in this case the preservation, in the public interest, of two editorial voices.

*Negotiations regarding the clause in dispute. Canova noted that in drafting the JOA, there was no discussion of the scope of force majeure?whether it applied to the whole contract or not.

*Subsequent conduct of the parties. Three times in lesser disputes about its management of the joint operation, the Times invoked force majeure as relevant to the strike?contrary to today's claim that it isn't.

*The "reasonableness" of the two parties' interpretations of the contract. Canova noted that there had been no discussion of how or whether force majeure applied to the three-year-loss clause and that Hearst presumed the clause applied to the entire contract.

REPRESENTING THE Times, attorney Douglas Ross of Davis Wright Tremaine argued that the JOA was sufficiently clear in its language and that Berg did not apply. But Canova rejected the Times' "a loss is a loss" argument that force majeure was not relevant.

Hearst maintains that the arrangement and the marketplace are sufficient to support two successful newspapers, but when the JOA was signed in 1981, the company proclaimed the P-I, then operating on its own with all the overhead expense that entails, to be failing. In handing over the business operation to the Times, Hearst agreed to cease publication of a Sunday newspaper but kept control of the morning market on weekdays, while the Times kept its afternoon position. In 1999, the companies amended the agreement to allow the Times to join the P-I in the morning?a move the parties agreed was in the best interest of joint operation. But the 2000 strike and the Sept. 11, 2001, terrorist attacks took a toll on the newspapers' finances. Both events came during the Christmas shopping season that normally accounts for about 40 percent of a newspaper's advertising revenue. The economy failed to rebound in 2002, producing what Times officials proclaimed was a third straight year of losses?grounds for seeking closure of the P-I or ending the JOA altogether.

AS AN INTERNAL memorandum prepared for the board of the Blethen Corp., the family's holding company, stated last winter, the three years of losses presented the Times with a "unique opportunity" to move for closure of the P-I, leaving the Times as the sole survivor of Seattle's century-long newspaper war?although, if it agreed to close the P-I, Hearst would collect 32 percent of Times profit through 2083.

First, though, the Times had to get past Hearst's resistance and Judge Canova. Rulings such as his summary judgment often are overturned on appeal in cases in which both facts and interpretation of law are in dispute. And this week it appeared that the Times would appeal, or perhaps even file its own lawsuit.

Dick Clever is the city editor of the Skagit Valley Herald and has worked at both the Times and the P-I. Seattle Weekly Managing Editor Chuck Taylor has worked at the Times.

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