Thursday Ruling May Mean Goodbye for ‘P-I’

By: Mark Fitzgerald

Just four years ago, the future of the Seattle joint operating agreement (JOA) forged in 1983 between The Seattle Times, principally owned by the Blethen family, and the Seattle Post-Intelligencer, published by Hearst Corp., looked so bright that its principals decided to extend it for another 50 years. Now the fate of the 140-year-old P-I could be sealed as early as Sept. 25, when King County (Wash.) Superior Court Judge Greg Canova announces a key ruling in Case No. 03-2-23950.

Depending on how the judge rules, the P-I could disappear before Oct. 29, 2004. And even though the Times is the far stronger JOA partner, its very existence is also riding on the judge’s decision, according to Times Co. CEO Frank Blethen. In a memo to employees earlier this month, Blethen claimed that Hearst is using a “deep pockets and aggressive ‘bleed’ strategy” to keep his newspaper in an untenable JOA that will eventually force his family to fold or sell. The Blethens control a 50.5% stake in the Times, and Knight Ridder controls the rest.

If Judge Canova does not stop the 18-month countdown to the end of the JOA, Hearst says the P-I will be unable to continue publishing because all the printing presses, delivery trucks and other production equipment and facilities are owned by the Times Co. Hearst has put the P-I up for sale, but a second newspaper with virtually no production assets and a declining circulation is unlikely to find any serious takers.

Canova will also consider another option available to Hearst under the revised JOA agreement: If Hearst agrees to fold the P-I, the Times, under a 1999 revision of the JOA, will pay Hearst 32% of its profits until the JOA expires in 2083. Under its current arrangement, the P-I gets 40% of the profits.

The Committee for a Two-Newspaper Town argued in the Sept. 12 hearing that Canova should rule that JOA provision violates public policy because it amounts to permitting the Times to pay Hearst to stop publishing. The committee was organized by the Newspaper Guild and includes members from Seattle businesses and community groups.

Along the way to Thursday’s hearing, the bitter legal split has produced a flurry of documents in the months since April 28. On that date, Hearst filed a pre-emptive lawsuit one day before the Times invoked a “stop-loss” contract clause that forces a negotiated end to the JOA within 18 months if the partnership loses money for three consecutive years. The Times said that’s exactly what happened from 2000 to 2002.

Among the many documents that have emerged during the lawsuit discovery period are some suggesting neither side figured Seattle would remain a two-paper city forever. A Times memo written last January indicates the Blethens were targeting the JOA for elimination as early as 1985. A Hearst memo from 1993 showed the P-I was mulling a “St. Louis deal” — the 1983 arrangement that envisioned the Newhouse family folding its St. Louis Globe-Democrat but continuing to profit from the JOA with Pulitzer Inc.’s St. Louis Post-Dispatch.

But for all the documents engorging the court filings, nothing is more critical for the future of both papers than how Judge Canova interprets these 65 words from the 1999 revised JOA:

Neither party shall be liable to the other for any failure or delay in performance under this Agreement, occasioned by war, riot, government action, act of God or public enemy, damage to or destruction of facilities, strike, labor dispute, failure of supplier or workers, inability to obtain adequate newsprint or supplies, or any other cause substantially beyond the control of the party required to perform.

Hearst argues this force majeure clause plainly invalidates Blethen’s case for ending the JOA. The Times, it says, should not be allowed to consider the losses of 2000 because the newspaper agency was anticipating an operating profit of $73 million that year — and lost money only because the papers were hit by an extraordinarily costly Newspaper Guild strike that began right at the start of the Christmas shopping season, and lasted 49 days. Further, Hearst says the terror attacks of Sept. 11, 2001, were an act of “war” and “public enemy” that were force majeure events that disrupted what would have otherwise been a profitable year.

The Times has two answers to that argument. First, it says — repeatedly, in court filings and hearings — that “a loss is a loss.” But the Times also argues that the language of the force-majeure clause clearly applies only to production issues, such as the Times‘ obligation to provide enough newsprint to print the P-I or to secure enough fuel to deliver the papers. Times attorney Douglas Ross told Canova during a Sept. 12 hearing that the clause was never intended to apply to the loss notice.

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