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Wednesday, December 01, 2004 - Page updated at 12:00 A.M.
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State Supreme Court takes newspaper fight

By BILL RICHARDS
Special to The Seattle Times

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The Washington State Supreme Court agreed yesterday to review arguments in the long-running legal fight between The Seattle Times Co. and The Hearst Corp. over who will control the future of Seattle's daily newspaper market.

Hearst, owner of the Seattle Post-Intelligencer, praised the high court's decision to review a unanimous ruling in The Times' favor last March by a three-judge state Appeals Court panel.

In that decision, the appellate judges wrote that while it might be "a sad moment for Seattle and for journalism," The Times was legally correct in citing strike-related losses in 2000 and 2001 to trigger a provision in the joint-operating agreement (JOA) between The Times and Hearst that could lead to a shutdown of the P-I or an end to the agreement.

The appellate decision reversed a ruling by King County Superior Court Judge Greg Canova last year in Hearst's favor.

In a statement yesterday, Hearst said it was pleased the Supreme Court will hear its case.

"We believe Judge Canova was correct in (his) ruling ... and we welcome the opportunity to make that case before the highest court in the State of Washington," Hearst said.

In their own statement, Times Co. officials said they were confident the Supreme Court will agree with the appellate ruling.

"We believe the panel of judges at the appellate-court level correctly interpreted the contract and we are confident the Supreme Court will also support this interpretation," Times Publisher Frank Blethen said in the statement.

Nonetheless, the court's decision to hear the case was a setback for The Times, which has accused Hearst of using the JOA and a lawsuit to "bleed" Times assets and force a sale of The Seattle Times newspaper to Hearst.

In its statement, The Times Co. said that despite cutting non-news staff positions by 18 percent, the Seattle paper lost more than $22 million from 2000 to 2003 and expects to lose $12 million this year.
 
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"It will be necessary to further downsize to reduce the losses, which are driven by the permanent loss of 20 percent of the paper's traditional revenue," The Times said. Earlier, the company said the paper's annual advertising revenue has remained about $50 million below its all-time-high of $270 million in 2000.

Under Supreme Court rules, both sides will have a month to file additional briefs with the court, with oral arguments likely to be scheduled before the nine-member panel in February or March. It could take six months to a year after that before a decision is handed down.

The Washington State Supreme Court hears about 45 cases per quarter, generally choosing those that have divided the state appeals court, present constitutional issues or are of substantial public importance.

No matter what the justices decide, the newspaper fight is not likely to go away for several more years. If Hearst loses in the Supreme Court, it's expected to challenge Times loss claims for 2002, and possibly other aspects of The Times' management of the 21-year-old JOA.

Those challenges would have to wend their way through the courts, a process some legal experts say could stretch into 2007.

If the Supreme Court rules for Hearst, Blethen has made it clear he no longer sees the JOA as a financially viable way to operate Seattle's newspapers. In The Times' statement yesterday, he reiterated his position, saying the newspaper industry has been "fundamentally changed," both at the national and local levels.

Yesterday's decision by the court centers on just one part of a lawsuit Hearst filed in April 2003 to stop The Times from taking actions that could result in the P-I's shutdown.

The companies disagree over an escape clause in the JOA that allows The Times, after three consecutive years of JOA-related financial losses, to demand negotiations that could lead to either shutting down the P-I or ending the JOA.

Either outcome, Hearst says, would mean the end of the 142-year-old P-I because, under the JOA, The Times prints, distributes and markets both papers.

While each company says the survival of its Seattle paper is at stake, legal experts say the issue before the Supreme Court is a fairly basic contract dispute — whether The Times can cite losses from a 49-day strike that spanned 2000 and 2001 to trigger the escape clause.

Hearst contends that a broad interpretation of the JOA contract exempts strike-related losses from consideration in invoking the escape clause. Instead, Hearst says, a separate JOA provision, known as "force majeure" — or "greater force" events outside either party's control — holds sway.

Hearst lawyers argue that in negotiating the JOA, the parties intended to exclude cases such as the 2000 and 2001 losses because they were caused by a strike, considered a force majeure event.

Times lawyers contend force majeure is standard boilerplate contractual language separate from the escape clause. It excuses both parties from liability if the event causes it to be unable to perform a contractual obligation.

In its unanimous March ruling favoring The Times' position, the appeals court said the JOA must be narrowly interpreted under its contractual language.

Hugh Spitzer, who teaches state constitutional law at the University of Washington Law School, said the high court apparently chose to hear the case because of its public importance.

"This is not a constitutional issue," said Spitzer. "It's a pure contract-law issue. I think they wanted to take another look because newspaper preservation is such an important public issue."

Hearst's case before the State Supreme Court deals only with The Times' 2000 and 2001 losses. The 2002 loss claim, which Hearst says was deliberately inflated by Times overspending, has not been argued in court, although Hearst attorneys have said they intend to do so.

In their petition to the Supreme Court in April, Hearst's attorneys said the appeals court's ruling "threatens the very existence of the P-I." In rebuttal, The Times called the P-I a failing paper and accused Hearst of using the JOA and the P-I's weakening circulation to drag down The Times and force sale of the paper to Hearst.

In the most recent reports, The Times had an average daily circulation of 231,051 in the six months ended Sept. 30, about the same as the year-ago period. The P-I's circulation dropped about 3 percent to 145,964.

Hearst and The Times signed a separate agreement in 1999 allowing Hearst first rights to buy the Blethen family's 50.5 percent voting stake in The Times if the family decides to sell. In return, Hearst agreed to pay the Blethens $10 million over a 10-year period.

Knight Ridder, which owns the remaining 49.5 percent of The Times Co., was not part of the separate agreement.

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 © 2004 The Seattle Times Company

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