JUDGE BEGINS HEARING IN ANTITRUST SUIT

By: Joel Davis San Francisco Papers Stuck in Court



SAN FRANCISCO - After more than 2 hours of closed-door negotiations
failed to produce an out-of-court settlement, the bizarre, rancorous
antitrust lawsuit brought by Clint Reilly to block the sale of the
San Francisco Chronicle and San Francisco Examiner is
under way.



'The old adage that a bad settlement is better than a good trial has
not succeeded, so I am looking forward to an exceptionally good trial,'
Judge Vaughn Walker mused before a packed courtroom at U.S. District
Court Northern Division on Monday.



Walker, the arbiter in the non-jury trial, presided over opening
arguments with both a firm hand and homespun wit, quizzing attorneys on
both sides during opening arguments.



Reilly, a San Francisco real estate developer, former mayoral
candidate, and unsuccessful bidder on the Examiner, is bringing
the antitrust suit as a subscriber and potential advertiser, his
attorney, Joseph Alioto, said.



Alioto called Hearst's sale of the Examiner a 'sham.' The Fang family,
owners of the thrice-weekly Independent since 1987, were named
buyers of the Examiner by Hearst in March. Alioto said that
despite the deal calling for a $66 million subsidy to be paid to the
Fangs over three years, Hearst and the Fang family structured the deal
so the Fangs only have to put a percentage of the subsidy back into the
Examiner. He said the Fangs can pocket the rest - up to $6
million a year.



The deal Alioto, told the court, 'is not only doomed to failure, but
there are incentives in it by the Hearst Corporation that will ensure
it will fail.'



Both sides in the high-profile trial, perhaps the most important case
involving newspapers in U.S. history, are represented by a battalion of
attorneys.


Examiner buyer Ted Fang sat with his mother, Florence Fang,
behind the Fang family attorneys, who ironically have joined forces
with the Hearst attorneys for the civil suit. Hearst and the Fangs have
sued each other in the past.



Lawyers for Hearst and Fang are in the awkward position of trying to
prove the Examiner is a failing paper that cannot survive under
Hearst ownership on the one hand and trying to prove that it can
prosper after being reborn by the Fangs.



There seemed to be enough paradoxes in Hearst attorney Gary Halling's
argument that at one point Judge Walker quipped, 'I suppose the virtue
in this is if you take enough positions, you are bound to be right.'



The judge also peppered Fang attorney David M. Balabanian with
questions about how Fang intends to make a paper like the
Examiner succeed without the benefit of its joint operating
agreement with the Chronicle, which expires in 2005.



If $66 million is all that's needed to turn the paper around, the judge
said, why doesn't Hearst - which is paying $660 for the
Chronicle - invest the money into the Examiner?



'All I can tell the court is that Mr. Fang can make it happen,'
Balabanian said. 'They have succeeded where others have failed and all
they ask is a chance to make a success of the Examiner.'



The trial, expected to last up to three weeks, was set to resume Monday
afternoon with testimony from Examiner Publisher Timothy White.