Hearst Communications, Inc. v. Seattle Times Co.

86 P.3d 1194
Court of Appeals of Washington·Decided March 22, 2004·No. 53148-4-I·Published·Cited by 4 cases

Opinion

86 P.3d 1194 (2004)

HEARST COMMUNICATIONS, INC., a Delaware corporation, and Texas Newspaper, Inc., a Delaware corporation, as General Partners of the Hearst Newspapers Partnership, L.P., owner of the Seattle Post-Intelligencer, Respondent,
v.
SEATTLE TIMES COMPANY, a Delaware corporation, Appellant,
and
Committee for a Two-Newspaper Town, an unincorporated association, Intervenor.

No. 53148-4-I.

Court of Appeals of Washington, Division 1.

March 22, 2004.

*1195 Douglas Ross, Marvin Gray, Stephen M. Rummage, Seattle, WA, for Appellant.

Kelly Corr, Guy Michelson, Kelsey Linn Joyce, Corr Cronin LLP, Seattle, WA, for Respondent.

Dmitri Iglitzin, Schwerin Campbell Barnard LLP, Lawrence Schwerin, Seattle, for Intervenor.

ELLINGTON, J.

Since 1981, the Seattle Times Company and Hearst Communications have been parties to a joint operating agreement (JOA) whereby the Seattle Times Company (the Times) publishes both The Seattle Times and Hearst's newspaper, the Seattle Post-Intelligencer. The agreement contains an escape clause, under which either of the parties may issue a loss notice to trigger termination of the JOA after three consecutive unprofitable years. A lengthy strike contributed to operating losses, and the Times invoked the escape clause in 2003. Hearst filed this lawsuit, seeking damages for breach of the JOA and a declaration that a loss notice cannot be *1196 based upon losses from a force majeure event such as a labor strike. The Times contends that under the plain terms of the agreement, strike losses are no different from any other losses for purposes of the escape clause. Under the established rules for contract interpretation, we are constrained to agree. We therefore reverse the summary judgment entered in favor of Hearst, and remand for entry of judgment on this issue in favor of the Times.

BACKGROUND

History of Joint Operating Agreements and the Newspaper Protection Act. Beginning during the Great Depression, some newspaper publishers negotiated agreements to reduce production costs by combining the business operations of previously competing newspapers, while maintaining separate and independent editorial operations.[1] In 1969, the United States Supreme Court put these arrangements in jeopardy when it affirmed a district court decision holding that a joint operating agreement in Tucson, Arizona constituted illegal price-fixing and conspiracy to monopolize in violation of the Sherman Act and Clayton Act.[2]

Congress then enacted the Newspaper Protection Act (NPA), which created a limited exemption from these antitrust laws for newspaper joint operating agreements:

In the public interest of maintaining a newspaper press editorially and reportorially independent and competitive in all parts of the United States, it is hereby declared to be the public policy of the United States to preserve the publication of newspapers in any city, community, or metropolitan area where a joint operating arrangement has been heretofore entered into because of economic distress or is hereafter effected in accordance with the provisions of this chapter.[3]

The NPA afforded limited antitrust immunity to the parties to existing JOAs, and provided a process by which future agreements could gain the same protection:

It shall be unlawful for any person to enter into, perform, or enforce a joint operating arrangement, not already in effect, except with the prior written consent of the Attorney General of the United States. Prior to granting such approval, the Attorney General shall determine that not 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 this chapter.[4]

History of Times/P-I Joint Operating Agreement. Since 1896, The Seattle Times and Seattle Post-Intelligencer have operated as the only metropolitan daily newspapers in Seattle.[5] The P-I began losing ground to the Times in terms of circulation and advertising revenue in the late 1960s, and in 1981, owners of the two papers applied to the Attorney General for approval of a joint operating agreement (JOA).[6] The Attorney General approved the agreement, as did the Ninth Circuit Court of Appeals.[7]

FACTS

The Times/P-I JOA was formed in 1981. The Times owns the printing plant, and is responsible for printing, promoting and distributing both newspapers, as well as selling advertising and circulation for both. The newspapers are separately owned and managed, and maintain independent news and editorial departments. Excluding news and editorial expenses, for which each paper is separately responsible, the Times and Hearst *1197 now share the total operating revenues and expenses of both papers in a 60/40 ratio.[8] Each receives its share of the excess of revenues over expenses (or must fund its share of any shortfall) in this ratio. These revenues and expenses are referred to as "agency revenues" and "agency expenses."[9] The excess of revenues over expenses is referred to as the "agency remainder." This is the amount distributed to each paper, in the agreed ratio, for purposes of satisfying its own newsroom expenses. Joint operations will continue until 2083 unless the parties agree to terminate the JOA by setting a "newspaper cessation date," or unless one party invokes the "escape clause" in section 7.1.4.

The escape clause permits either party to terminate the agreement after three consecutive years in which its share of the agency remainder is insufficient to pay its own news and editorial expenses. A party invokes the escape clause by issuing a loss notice, stating its intent to establish the newspaper cessation date "at the earliest possible opportunity."[10] The parties must then cooperate to bring about the cessation date. If they are unable to do so, the agreement terminates automatically, 18 months after the loss notice.

The agreement also contains a force majeure clause, section 6.2, which provides that neither party shall be liable to the other for any failure of performance resulting from causes outside the control of the party, such as acts of war or labor strikes.

In November 2000, a strike by The Newspaper Guild and the Teamsters affected both papers. Because the strike caused significant increases in expenses and decreases in revenues, the Times was unable to cover its news and editorial expenses in 2000 and 2001. The Times also came up short in 2002, although this loss is not ascribed to the strike.

In 2003, Hearst filed a lawsuit alleging the Times breached the JOA and breached its fiduciary duties.[11] Hearst also sought a judgment declaring that the Times could not invoke the escape clause because its losses were the result of force majeure events, including the strike, the September 11 terrorist attacks, and the severe economic recession in 2002. The Times filed a loss notice the following day. After a course of discovery, the parties filed cross-motions for partial summary judgment on a single question: whether the force majeure clause prevented the Times from issuing a loss notice based in part on its 2000 losses, given the Times' acknowledgment that but for the strike, it would have suffered no loss that year. The Committee for a Two-Newspaper Town was permitted to interve

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Hearst Communications, Inc. v. Seattle Times Co., 86 P.3d 1194 (Wash. Ct. App. 2004).

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