Application for Approval of a Joint Operating Arrangement Under the Newspaper Preservation Act

• Court: Department of Justice Office of Legal Counsel
• Decided: May 7, 1982
• Status: Published

Opinion

Application for Approval of a Joint Operating Arrangement Under the Newspaper Preservation Act

The Attorney General is not required as a matter o f law to disapprove an application for a joint operating arrangement under the Newspaper Preservation Act because the allegedly failing participant in the, proposed arrangement has not been offered for sale, and no good faith efforts have been made to find a purchaser ready, w illing, and able to operate it independently.

May 7, 1982

MEMORANDUM OPINION FOR THE ATTORNEY GENERAL

In connection with your consideration of the application by the Seattle Times Company and the Hearst Corporation for approval of a Joint Newspaper Operat­ ing Arrangement pursuant to the Newspaper Preservation Act, 15 U .S.C . §§ 1801-04 (1976), you have requested that this Office advise you whether approval must, on a per se basis, be denied if the allegedly failing participant in the proposed arrangement has not been offered for sale or if good-faith efforts to find a purchaser ready, willing, and able to operate it independently have not been made. We conclude that no such p er se rule pertains.

I. Background

On March 27, 1981, pursuant to the Newspaper Preservation Act (Act), 15 U.S.C. §§ 1801-04 (1976), the Seattle Times Company, as owner of the Seattle Times, and the Hearst Corporation, as owner of the Seattle Post-Intelligencer, (hereinafter Applicants) applied to the Attorney General for approval of a joint newspaper operating arrangement.1The Assistant Attorney General in charge of the Antitrust Division, acting under 28 C.F.R. § 48.7 (1980) and aftera review of documents and information submitted in support of the Application, recom­ mended that a hearing be held under 28 C.F.R. § 48.10 to resolve material issues of fact. Such a hearing was ordered. Attorney General Order No. 953-81, 46 Fed. Reg. 41230. Petitions for intervention were entertained and granted under

1 The Act provides, inter aha, a limited antitrust exemption for such arrangements entered into subsequent to J u ly 24, 1970, with the prior written consent of the Attorney General. 15 U.S.C. § 1803(b). Approval of the Attorney General is dependent upon his determination that “ (n]ot more than one of the newspaper publications involved in the arrangement is a publication other than a failing newspaper and that approval of such arrangement would effectuate the policy and purpose of [the Act)” Id. “ Failing newspaper” is a defined term under the Act, 15 U.S.C. § 1802(5), and the Act contains a congressional declaration of policy. 15 U.S C. § 1801.

243 28 C.F.R. § 48.11, Attorney General Order No. 959-81, 46 Fed. Reg. 49228, and a hearing was held. The Administrative Law Judge who conducted the hearing has issued his Recommended Decision, including findings of fact and conclusions of law, pursuant to 28 C.F.R. § 48.10(d). Intervenors and the Anti­ trust Division (hereinafter Opponents) have filed exceptions to the Recom­ mended Decision, and Applicants have filed a response. 28 C.F.R. § 4 8 .10(e). The Application is now ripe for Attorney General consideration and decision under 28 C.F.R. § 48.14. It is conceded that the Seattle Times is not a failing newspaper under the definition of the Act, 15 U.S.C. § 1802(5). Applicants contend that the Seattle Post-Intelligencer does fall within the statutory definition. The burden of proving this fact is on the Applicants. 28 C.F.R. § 48.10(4). The Administrative Law Judge concluded, as a matter of fact and law, that Applicants have satisfied this burden. Recommended Decision at 103. Opponents contend as a matter of law that, because Hearst has not offered the Post-Intelligencer for sale and has not made a good-faith effort to find a ready, willing, and able purchaser, Applicants have failed to carry their burden of demonstrating that the Seattle Post-Intel­ ligencer is failing. You have asked us to consider Opponents’ position and advise you concerning it. Our analysis is set forth below.2

II. Analysis

The Opponents urge that the definition of “ failing newspaper” under the Act contains a p e r se “ salability” rule. This rule, they say, requires denial of an application for approval of a joint newspaper operating arrangement if the allegedly failing participant has not been offered for sale or if good-faith efforts have not been made to find a purchaser (other than a competing newspaper) ready, willing, and able to operate it independently. Based on findings 156-158 of the Administrative Law Judge, this rule, the Opponents contend, mandates denial of the present application.

2 We note that O p p o n en ts, particularly th e A ntitrust D ivision , urge, in addition, that the A dm inistrative Law Judge com m itted an e rro r o f law in failing to adm it and fully to co n sid er th eir proffered evidence o n increm ental analysis. W hile we agree w ith your prior ru lin g , expressed in A ttorney G en eral O rder N o . 9 62-81 (unpublished) o f N ovem ber 9 , 1981, that “ the terms of the N ew spaper Preservation A ct certainly d o not preclude all inquiry into financial relationships betw een parent co rp o ratio n s and th e ir new spaper su b sid iaries,” we also ag ree w ith the con clu sio n o f the A dm inistrative Law J u d g e that the inclusion o f the phrase “ reg ard less o f its o w nership o r affiliatio n s'' in the definition o f “ failing n ew sp ap er” p reclu d es ap plication o f increm ental analysis, as urged by O p p o n en ts, in m aking th e determ ination w h e th e r a new spaper is “ failin g ” u n d er the A ct. T he legislative history o f the A ct m akes cle a r that financial interrelationships m ay be investigated fo r the purposes o f d eterm ining w hether a parent co rporation has ” create[d] [a ] ‘failing new spaper’ by artificial book k eep in g en tries ” S Rep N o 5 3 5 ,9 1 s t C o n g ., 1st. S ess. 5 (1969). However, the leg islativ e history m akes equally clear, passim, th a t, aside from the issue o f creative b o o k k ee p in g , “ w h eth e r a new spaper is failing should be d eterm ined on the b asis o f the o peration in the p articu lar city rather than on th e basis of th e sw eep of the n ew spaper o w n er's business interests.” Id. See also , e .g ., 116 C o n g . Rec 23147 (q u estio n of Rep. E ckhardt and response by Rep. K astenm eier); 116 C ong. Rec. 2006 (statem ent o f S en . H ruska) Increm ental a n a ly sis, how ever packaged , w ould require investigation o f th e econom ic p osition o f the P o st-In tellig e n cer not as an independent en tity but as a con trib u to r to the overall H earst corporate structure. M oreover, it w ould require that ex p e n ses of the P ost-Intelligencer found legitim ate by the A dm inistrative Law Judge be d isreg a rd e d and thus effectively absorbed by th e rem ainder o f the H earst ch a in . T his w ould be a form o f subsidy an d , as the legislative history m a k e s clear, the A ct is intended to elim inate any requirem ent th a t ow ners, p articularly n ew spaper c h a in s, subsidize th e ir failing new spapers from external resources

244 It is clear that the rule urged by Opponents does not appear either in the plain language of the Act generally or in its definition of “ failing newspaper” specifi­ cally. That definition states that

The term “ failing newspaper” means a newspaper publication which, regardless of its ownership or affiliations, is in probable danger of financial failure.

15 U.S.C. § 1802(5). Nor does this rule appear in the regulations issued by the Attorney General to implement the Act. See 28 C.F.R. Part 48. Opponents contend, nevertheless, that the legislative history of the Act demonstrates that the rule urged was within the contemplation of Congress when the definition of “ failing newspaper” was framed. This, however, does not seem to be the case. To the contrary, those references in the legislative history specific to a sales requirement indicate that Congress intended that the definition of “ failing newspaper” would contain no such p er se rule. Examination of the legislative history3of the definition of “ failing newspaper” must be approached with two considerations in mind. The first is that the definition underwent a metamorphosis during the legislative process; the second is that statements made concerning the characteristics of failing newspapers refer, alternately, depending on the context, either to such newspapers when considered under the “ failing company” doctrine established by the Supreme Court in International Shoe Co. v. FTC, 280 U.S. 291 (1930), and applied to newspapers in Citizen Publishing Co. v. United States, 394 U.S. 131 (1969), or to such newspapers viewed under the less stringent definition to be enacted. Both of these considerations bear on Opponents’ legislative history argument. Opponents have pointed to a number of statements, made during hearings, made on the floor of the House and Senate, and contained in the committee

3 The legislative histo ry of the A ct is extensive. It consists of four sets of hearings, a H ouse and a Senate rep o rt, and floor debates in both H ouses. A lthough the tw o bodies initially passed varying versions o f the A ct, there is no conference report T h e S enate adopted the H ouse version w ithout necessity for a conference 116 C ong. Rec 24435 T he first version of w hat eventually becam e the A ct was S 1312. 90th C ong , 1st Sess (1967) H earings w ere held on this bill, know n as the Failing N ew spaper A ct, in July and A ugust of 1967 and in February, M arch, and A p ril o f 1968. See Hearings on S. 1512, the Failing Newspaper Act, Before the Subcomm. on Antitrust and Monopoly c f the Senate Comm on the Judiciary (I^ rts 1-7), 90th C o n g ., 1st and 2d Sess. (1 9 6 7 -6 8 ) (herein after Senate Hearings (90th)). A lthough the bill w as favorably reported by the subcom m ittee, it was not acted upon by the full Senate Judiciary C om m ittee T he H ouse also held hearings on a num ber of predecessors o f the A ct d u n n g the 90 th C ongress. See Hearings on H R 19123 and Related Bills to Exempt from the Antitrust Laws Certain Joint Newspaper Operating Arrangements, Before the Antitrust Subcomm (Subcomm No 5 ) c f the HouseCom m on the Judiciary, 90th C ong , 2d Sess. (1968) (hereinafter H ouse H earings (90th)). H R. 19123 was not rep o rted , and the H ouse did not act on it D u n n g the 91st C ongress, after the S uprem e C o u rt’s d ecision in Citizen Publishing Co v United States, 394 U .S . 131 (1969), additional hearings w ere held in both the H ouse and the S en ate. See Hearings o n S 1520, the Newspaper Preservation Act, Before the Subcomm on Antitrust and Monopoly c f the Senate Comm, on the Judiciary, 91st C o n g ., 1st Sess (1969) (hereinafter Senate H earings (91st)) and Hearings on H R 279 and Related Bills to Exempt from the Antitrust Laws Certain Joint Newspaper Operating Arrangements. Before the Antitrust Subcomm. (Subcomm No. 5) o f the H ouse Comm on the Judiciary, 9 1 st C o n g ., 1st Sess. (1 9 6 9 ) (h erein after House Hearings (91st)) S . 1520, as am ended, was reported favorably by the Senate C om m ittee o n the Judiciary in S. Rep. N o. 535, 91st C ong , 1st S ess. (1969) (hereinafter Senate Report) as w as H .R 2 7 9 , as am en d ed , by the H ouse C om m ittee on the Judiciary in H R Rep N o 1193, 91st C o n g ., 2d Sess. (1 9 7 0 ) (h erein after House Report)

245 reports4 which suggest that Congress believed that one of the essential charac­ teristics of a failing newspaper is that no one (except a competitor) wants to buy it.E .g ., 116Cong. Rec. 1786 ( “ There is no market for independent ownership of a failing newspaper. . . .” ) (statement of Sen. Inouye). They argue from this that the willingness of “ outsiders” to consider purchasing the Post-Intelligencer (Finding 157) is strong evidence that that newspaper is not “ failing” within the congressional contemplation of the Act’s definition. This argument, however, ignores the second consideration. When viewed in context, it is equally likely that the statements cited by Opponents refer to the unwillingness of outsiders to purchase newspapers that meet the Supreme Court’s “ failing company” test as it is that they refer to their unwillingness to purchase newspapers that might satisfy the A ct’s definition.5 This ambiguity is in sharp contrast to those instances in the legislative history in which a requirement, under the proposed definition, to seek an alternate purchaser was discussed directly. In each such case the unequivo­ cally expressed view was that no such requirement would exist. In a letter addressed to Senator Eastland as Chairman of the Senate Committee on the Judiciary, which is included in the Senate Report, the Chairman of the Federal Trade Commission, an opponent of the Act, observed that under it “ [NJewspapers in economic distress may seek an exempt joint arrangement without search for an available purchaser who could truly continue an indepen­ dent newspaper operation.” Senate Report at 10. A similar objection was raised by Donald F. Turner, then Assistant Attorney General in charge of the Antitrust Division. It was his view that [A] more vital issue is at stake, and I stress this. Under present law, a company may not invoke the “ failing company” defense if there are purchasers available who are not direct competitors . . . yet, this bill contains no such requirement. Senate H earings (Part 7) (90th) at 3110-11. His successor, Assistant Attorney General McLaren, evinced a similar concern. He believed that S. 1520 would establish a special definition for and a special failing company defense for newspapers. This definition falls short of the requirements adopted by the court in the Tucson newspaper case [Citizen Publishing Co. v. United States, supra]. There the court disallowed the failing company defense on the finding that the allegedly failing newspaper was “ not on the verge of going out of business” and it had not been established that there were no alternative purchasers. Even assuming justification for preserving a failing newspaper through a price-fixing and profit- pooling arrangement, certainly this could not be justified . . . if there were a purchaser available who would continue independent operations.

4 See In te rv en o r’s E xceptions at 6 -7 , A n titru st D iv isio n ’s E xceptions at 1 2-13 5£ S en ate R eport at 4.

246 Senate Hearings (91st) at 296-97. Mr. McLaren expressed the same concern in the House hearings. House Hearings (91st) at 360. Nongovernment opponents of the Act held similar views. E .g ., House Hearings (91st) at 419 (“ H.R. 279, however, contains no requirement that an allegedly failing newspaper must seek a purchaser other than a competitor” ) (statement of Thomas E. Harris, Associate General Counsel, AFL-CIO). Nor were opponents of the Act the only ones to make these observations. Arthur B. Hanson, General Counsel, American News­ paper Publisher Association, a principal architect of and lobbyist for S. 1312, described that bill’s intended effect on the alternate purchaser requirement as follows: In merger cases under section 7 of the Clayton Act, some courts have added to the requirement of proof of a “ failing company” evidence of the absence of a purchaser alternative to the one seeking to acquire the stock or assets of the failing company. This limitation is not applicable to S. 1312 . . . any other newspaper would be free to become a party to the joint arrangement or to acquire ownership of the failing newspaper. . . . Under the bill there would be no obligation on the part of the failing newspaper to accept an offer from a source other than a competitor.

Senate Hearings (90th) at 58.6 An additional and persuasive indication that Congress did not believe that the Act’s definition of “ failing newspaper” would contain the p er se rule advanced by Opponents is that Senator Brooke found it necessary to propose virtually the identical rule as an amendment to S. 1520. His amendment would, inter alia, have imposed, as a prerequisite to qualification as a failing newspaper, the requirement that “ active efforts made in good faith by the managers thereof to obtain a purchaser of such newspaper publication who is willing and able to continue it in operations as a separate and independent newspaper publication have been unsuccessful.” 115 Cong. Rec. 10625.7 It seems unlikely that Senator Brooke would have offered such an amendment had there been general consensus that such a requirement was already contained in the definition of “ failing newspaper.” Indeed, the Brooke amendment was considered to so have the potential to work such a change that even after it had been withdrawn it was opposed as “ most objectionable” by one of the principal lobbyists in favor of the Act. Senate H earings (91st) at 321 (Statement of Mr. Levin). The legislative history detailed above admittedly pertains to definitions of “ failing newspaper” different from that which was finally enacted. As Oppo­ nents point out, modifications to the definition made by the House Judiciary Committee were intended to make it more stringent than the definition as

6 S 1312, the p red ec esso r o f S . 1520, the Senate version of the A ct, see note 3, supra, w ould have provided an antitrust exem ption for m ergers involving failing new spapers as well as fo r join t new spaper operating arran g em en ts. S 1312, 90th C ong , 1st Sess. §§ 3(2) and (3), 4. 7 A sim ilar proposal h ad been put forw ard by a representative of th e A m erican N ew spaper G u ild early in the Senate hearings Senate Hearings (90th) (P art 1) at 219 (S tatem ent o f M r Parson)

247 originally proposed and as passed by the Senate.8 116 Cong. Rec. 23154-55 (Statement of Rep. Railsback). In view of this, it could be argued that the final, more stringent definition incorporated the p er se rule advanced by Opponents, even though the statements cited above indicate that the earlier versions under consideration would not have. We regard this as a dubious conclusion. In our view, it is not supported by anything specific in the legislative history, and it seems unlikely that such a sweeping (but specific) change of intent would have incorporated sub silencio. This is particularly so since the Act, as a whole, as is recognized by Opponents, was clearly intended to ameliorate, both as to existing and future joint newspaper operating arrangements, the Supreme Court’s deci­ sion in Citizen Publishing C o. v. United States, supra, that the traditional “ failing company” doctrine applied in full force to such arrangements. One of the major features of that doctrine found objectionable by the proponents of the Act when applied to joint newspaper operating agreements was its strict “ alter­ nate purchaser” requirement. We doubt that Congress would have intended to impose any new p e r se requirement in this regard, even a less stringent one, without saying so. Opponents argue that certain statements made in the Senate Report and during the House and Senate debates relating the language “ in probable danger of financial failure” (contained in the final definition of “ failing newspaper” ) to the Bank Merger Act of 1966,12U .S.C . § 1828 (c) (1976) and to the case of United States v. Third N ational Bank, 390 U.S. 171 (1968), interpreting that Act, are specific indicators of a congressional intent to incorporate their per se rule into the final definition. We do not agree. First, as the Administrative Law Judge points out (Recommended Decision at 91), the House Report contains no reference to either the Bank M erger Act of 1966 or to the Third National Bank case.9 This is significant because the House Judiciary Committee was the source of the final version of the definition. More important than this omission, however, is the inevitable conclusion to be drawn from a full tracing of the references in the legislative history to the Bank M erger Act of 1966 and to the Third National Bank decision. Reference was first made to the Bank Merger Act of 1966 and to the Third National Bank case before the phrase “ in probable danger of financial failure” was added to the definition of “ failing newspaper.” 10House Hearings (90th) at

8 In S . 1312 and H R . 19123, see note 3 supra, and in S 1520 and H R. 279, as orig in ally introduced, the d efinition o f “ failing n ew sp ap er” read “ th e term ‘failing new spap er' m eans a new spaper publication w hich, regardless o f its o w n ersh ip o r affiliations, ap p e a rs unlikely to rem ain o r becom e a financially sound p u b licatio n .” T h e Senate subcom m ittee considering S 1520 am ended th e definition by ad ding in the disjunctive the p h rase “ is in p robable d an g e r o f financial failure or” b efo re “ appears unlikely to . . . ” Senate Hearings (91st) at 7 In the H ouse J u d iciary C o m m ittee, th e phrase “ ap p e a rs unlikely to rem ain o r becom e a financially sound p u b licatio n ” w as deleted from th e d efinition. 116 C o n g . Rec. 2 3 1 5 4 -5 5 (S tatem ent o f Rep R ailsback) That standard, considered to be m ore len ien t, w as, however, retained w ith respect to ju d g in g jo in t new spaper o perating arrange* merits already in effect. 15 U S .C . § 1803(a); House Report at 10. A s a result, the A c t’s definition o f “ failing n ew sp ap er” is relevant only in the case of jo in t new spaper operating arran g em en ts entered into after Ju ly 25, 1970, w hich require A ttorney G eneral approval Compare 15 U S .C § 1803(a) with 15 U .S .C § 1803(b). 9 T he A dm inistrative Law Judge is also c o rre c t in his observation that th e Bank M erger A ct o f 1966 does not, itself, co n tain the quoted p h rase o r an approxim ation o f it. 10 See fn 8. supra, for a discussion of th e developm ent o f the definition o f “ failing n ew sp ap er”

248 74. More extensive references to that Act and that case were made after the definition had been modified in the Senate subcommittee to include the phrase “ in probable danger of financial failure” in the disjunctive along with the phrase “ appears unlikely to remain or become a financially sound publication.” Signifi­ cantly, most references to the Bank Merger Act of 1966 and to the Third National Bank case were made while the proposed legislation contained both the “ in probable danger” and the “ unlikely to remain or become” language. In most of these references each phrase, not simply “ in probable danger of financial failure,” is tied to the Bank Merger Act of 1966 and the Third National Bank case. E.g., Senate Hearings ( 9 1st) at 7-8, 319; House Hearings (91st) at 13, 96. It seems clear from the legislative history (apart from the references to the Bank Merger Act of 1966 and the Third National Bank case) outlined above that the unanimous interpretation of the definition of “ failing newspaper,” while it contained only the phrase “ appears unlikely to remain or become a financially sound publication” (and while parallels were already being drawn between that definition and that act and case), was that it did not include the per se rule argued for by Opponents. By introducing the phrase “ in probable danger of financial failure” in the disjunctive and relating both it and the phrase “ appears unlikely to remain or become a financially sound publication” to the Bank Merger Act of 1966 and the Third National Bank case, the Senate subcommittee intended “ to broaden the scope of the definition and not to narrow it.” Senate Hearings (91 st) at 8. Given this progression and these understandings, it hardly seems likely that references to the Bank Merger Act of 1966 and to the Third National Bank case were intended to serve to incorporate a per se rule concerning salability derived from either into the language “ in probable danger of financial failure.” Rather, it is our view that, taken as a whole, the references in the legislative history to the Bank Merger Act of 1966 and the Supreme Court’s interpretation of it in Third National Bank indicate a general rather than a specific congressional intent. This is that the loss of newspapers (like the loss of banks) is of such serious detriment to the public that the risks entailed in applying the normal “ failing company” doctrine to them cannot be tolerated. See United States v. Third National Bank, 390 U.S. at 187. Even if Congress had intended to import the entire holding of Third National Bank into the A ct’s definition of “ failing newspaper,” Opponents’ position could not be sustained on a p e r se basis. In Third National Bank the Supreme Court required the investigation of the possibility of a sale as one means of establishing the “ unavailability of alternate solutions to the [management] woes of the Nashville Bank and Trust Co.” United States v. Third National Bank, 390 U.S. at 190-191. It went on to hold that

The burden of showing that an anticompetitive bank merger would be in the public interest because of the benefits it would bring to the convenience and needs of the community to be served rests on the merging banks. Houston Bank, supra. A showing that one bank needed more lively and efficient management, absent a

249 showing that the alternative means for securing such management without a merger would present unusually severe difficulties, cannot be considered to satisfy that burden. Id. at 192. Thus it would appear that the requirements of the Third National Bank case, as applied to an allegedly failing newspaper, could be satisfied by proof that the introduction of new management (whether or not under a new owner) would not improve the situation. The Administrative Law Judge seems to have made such a finding (Finding 109).“

Conclusion

The legislative history of the Act does not support the proposition that Congress intended that the definition of “ failing newspaper” contain a p e rse rule requiring that before a newspaper may qualify as such it must have been offered for sale and good-faith efforts must have been made to find a purchaser ready, willing, and able to operate it as an independent publication.

T heodore B. O lson

Assistant Attorney General Office c f Legal Counsel

M We note th a t Intervenors have disputed th is finding Interveno rs’ Exceptions at 12 ei seq. A nother of the A dm inistrative Law J u d g e ’s conclusions (F in d in g 158) ( “ T he P ost-In tellig en cer could in all p robability be sold at fair m a rk et value to a person o r firm who c o u ld , and w ould, co ntinue it in operation as an independent m etropolitan daily.” ) ca n be read as in consistent with it. T h e factual issue w ill have to be resolved on the basis o f the en tire record b efo re th e A ttorney G en eral 28 C F R . § 4 8 .1 4 (a ).* ♦ N o t e : T h e A ttorney G eneral approved th e jo in t operating arran g em en t o n June 15, 1982. In subsequent litigation ch a llen g in g it, the d istrict court held that alternatives to a jo in t operating arrangem ent w ere relevant to a d eterm in atio n w h eth e r a n ew sp ap er qualifies fo r an antitrust exem ption under the N ew spaper P reservation A ct, and th at such alternatives h ad not been adequately ex p lo red by the p arties to the ag reem en t in this case. 549 F. Supp. 985 ( W D W ash. 1982) T h e court of appeals ag reed as to the legal stan d a rd , but reversed on the m erits, holding that the T im es C o m p a n y and H earst had sufficiently negated the possibility that any such alternatives w ere available. 704 F .2d 4 6 7 (9 th Cir. 1983) T h e Suprem e C ourt denied certiorari on O ctober 11, 1983. 464 U S 892 (1983). Ed.