Ruling Thursday on papers' JOA

The dispute between the owners of Seattle's daily newspapers could reach a pivotal moment Thursday with an expected ruling from Washington's highest court on a central issue in their 26-month- old lawsuit.

STORY UPDATE

Supreme Court sides with Times in JOA dispute

The opinion from the state Supreme Court may not end the legal fight between the owners of The Seattle Times and the Seattle Post-Intelligencer. But the ruling, focusing on a disputed contract clause, will shape the direction of the conflict -- potentially determining the fate of both papers.

"It's obviously a very important decision in the process," said Phil Talmadge, a former state Supreme Court justice and co-chairman of a group lobbying to keep both papers in business.

At issue is an effort by The Seattle Times Co. to end the joint operating agreement, under which the separately owned papers have been published for more than 20 years.

The Times Co. says the arrangement has become financially untenable and threatens the survival of its newspaper. The Hearst Corp., the P-I's owner, disagrees and says its newspaper wouldn't survive outside the JOA.

The dispute came to a head in April 2003, when The Times Co. moved to end the JOA under a provision that allows either company to do so after suffering three consecutive years of losses.

Hearst sued to block the move, citing factors including a separate provision, called the force majeure clause, that relieves either company of contractual obligation to the other in the event of extraordinary events, such as strikes and labor disputes. Hearst contends that the clause prevents The Times Co. from counting losses in 2000 and 2001 -- caused by a Pacific Northwest Newspaper Guild strike -- toward the three required years of losses.

The Times Co. acknowledges that the strike caused the losses in those two years, but it says the force majeure clause doesn't prevent it from ending the JOA. The company points out that there are no exceptions mentioned in the portion of the JOA outlining the process by which the contract can be ended.

"A loss is a loss," The Times Co.'s executives and lawyers said repeatedly in filings, depositions and court arguments, explaining their understanding of the contract.

That issue, the interpretation of the force majeure clause, is now before the state Supreme Court. But no matter the outcome of today's decision, a range of additional issues could keep the dispute alive even after the court rules.

If The Seattle Times Co. prevails in its argument, Hearst is expected to return to King County Superior Court to pursue the other portion of its suit, which alleges that The Times spent excessively and breached its fiduciary duty under the JOA to achieve a loss in 2002, the last of the three required years.

One potential factor in that aspect of the case: a decision by the Justice Department last month to end an antitrust investigation into The Seattle Times Co.'s handling of the circulation, printing, advertising and other business functions for both papers under the JOA. The Justice Department examined whether The Times Co. engaged in conduct "that made no business sense but for its tendency to reduce competition" and to "lead to the monopolization of the Seattle newspaper market."

The department said its investigation did not indicate that The Times Co. engaged in that type of conduct.

If Hearst prevails in today's decision, the current lawsuit might end, but that wouldn't necessarily resolve the broader dispute. The Times Co. has unofficially said 2003 and 2004 were both also loss years under the JOA. On that basis, it could issue a new loss notice for 2002-04.

In the event that should happen, "we are prepared to aggressively defend the P-I" by filing a new lawsuit, Hearst attorney Guy Michelson said. That could extend the dispute even further than previously expected.

"If the Supreme Court agrees with Hearst, it means the likelihood is that the JOA will remain in place for a much greater period of time," said Talmadge, the co-chairman of the Committee for a Two-Newspaper Town.

Representatives of both papers declined to comment yesterday.

King County Superior Judge Greg Canova ruled in Hearst's favor on the force majeure issue in September 2003. A three-judge panel of the state's appeals court reversed Canova's ruling in March 2004. The Supreme Court agreed in November to hear Hearst's appeal.

The Hearst Corp., a privately held New York-based media conglomerate, owns daily newspapers, magazines and TV stations. Seattle's Blethen family owns a controlling interest in The Seattle Times Co., which also publishes newspapers in Maine and Eastern Washington. Knight Ridder Inc. owns a minority share of The Times Co.

P-I reporter Todd Bishop can be reached at 206-448-8221 or toddbishop@seattlepi.com

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