Hearst tells reason for agreeing to arbitration

Apr. 1--The Hearst Corp. said Friday that it agreed to submit its long-running legal dispute with The Seattle Times to binding arbitration to avoid putting its Seattle newspaper, the Post-Intelligencer, up for sale immediately.

Without the arbitration deal, Hearst spokesman Paul Luthringer said in an e-mail, Hearst would have been required to put the P-I on the market in response to two recent notices from The Times that it intended to trigger an escape clause in the newspapers' joint operating agreement (JOA).

Under the escape clause, the JOA would have been terminated, or the P-I closed, or both, within 18 months. The arbitration agreement stops those 18-month "clocks" until after the arbitrator rules, Luthringer wrote.

Putting the P-I on the market now would have damaged the newspaper while its future played out in court, Hearst attorney Guy Michelson said. "It creates levels of uncertainty that could lead to an exodus [of employees] ... or lead to P-I readers shifting to another paper."

A Times spokeswoman said the company had no comment.

The two companies have been engaged in a three-year courtroom struggle that could shape the futures of both newspapers.

They announced Thursday that they had agreed to move the fight behind closed doors, present their arguments to former King County Superior Court Judge Larry Jordan, and abide by his decision. There would be no appeal.

Both companies said binding arbitration offered privacy and the prospect of a quicker resolution: Under the agreement, Jordan must rule within 14 months. But some observers questioned why much-wealthier Hearst had agreed to the deal, since delay was widely considered its ally.

On Friday Luthringer and Michelson offered Hearst's rationale: It's complicated.

Some background: Under the 23-year-old JOA, The Times and P-I maintain separate news and editorial operations, but The Times handles circulation, advertising, production and other business functions for both.

Under current terms, The Times gets 60 percent, Hearst 40 percent of any revenue that remains after accounting for non-news expenses of publishing both papers.

The Times has said the expense of producing the smaller P-I threatens both The Times' profitability and its continued control by the Seattle-based Blethen family. In April 2003 The Times notified Hearst it had lost money under the JOA formula three years in a row -- 2000, 2001 and 2002.

Under the contract, that meant Hearst and The Times had 18 months to negotiate a date to close the P-I, after which Hearst would get 32 percent of The Times' profit for the contract's remaining years, until 2083. If there was no agreement within 18 months, the JOA would dissolve.

Hearst, which has said the P-I can't survive outside the JOA, went to court to block The Times the day before the notice was delivered. It argued The Times' losses weren't valid.

Hearst also put the P-I up for sale briefly in August 2003, in case it lost in court. It's a step the U.S. Justice Department requires to satisfy antitrust concerns before a newspaper in a JOA closes, Michelson said Friday.

Hearst pulled the P-I off the market weeks later, after King County Superior Court Judge Greg Canova ruled in its favor on the first of several legal issues. An agreement between Hearst and The Times stopped the 18-month "clock" until all issues were completely resolved.

But Canova was later reversed on appeal. And The Times has since served Hearst with two more "loss notices" -- last September for 2002, 2003 and 2004, and on Wednesday for 2003, 2004 and 2005 -- each triggering its own 18-month countdown. Unlike the first loss notice, there's no agreement keeping them on hold indefinitely.

"What the arbitration agreement does is stop the clock" on those notices, Luthringer wrote. "If we had to challenge a loss notice in court, we would be forced to immediately put the P-I up for sale just like we did several years ago."

"It sounds like it was a way for The Seattle Times to pressure Hearst into agreeing to the arbitration," said Jack Kirkwood, a Seattle University law professor who specializes in antitrust issues.

The arbitration agreement must be approved by Canova, who is scheduled to hear it Friday.

The Committee for a Two-Newspaper Town, a citizens group that has intervened in the lawsuit, wants the judge to allow it to participate in the arbitration proceedings, something both newspapers oppose.

They contend the issues the committee has raised can be dealt with in court after arbitration concludes. The Times has said that, if Canova approves the committee's bid, it will back out of the agreement and arbitration won't happen. Hearst has declined to comment on its plans.

Committee co-chair Anne Bremner said Friday that the companies' position is puzzling, especially given The Times' recent series on improperly sealed court files and the newspaper's efforts to get them opened.

"No matter the forum," she said, "one cannot take pending litigation and transfer [it] to an alternative forum, and exclude a participating party -- especially not the public."

Michelson disagreed. "For them to say they should be allowed to participate in a private arbitration is utterly unsupportable," he said.

Several legal experts said it's highly unlikely the committee's bid to participate will succeed.

"I'm not aware of any legal basis for a third party to participate when the two parties to the [arbitration] agreement don't want it," said Seattle attorney Nick Wagner, a past chairman of the Washington State Bar Association's dispute-resolution section.

Stew Cogan, a former King County Bar Association president and full-time arbitrator and mediator, agreed. "I think it would be unusual for an intervenor to be allowed to participate in the proceedings," he said.

But Bremner said this isn't a typical case. "This circumstance is unusual. It's a case where you have three parties and then two decide they want to go to arbitration."

-----

To see more of The Seattle Times, or to subscribe to the newspaper, go to http://www.seattletimes.com.

Copyright (c) 2006, The Seattle Times

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.