A Superior Court judge ruled Thursday that the Bay Guardian's predatory pricing lawsuit against SF Weekly and its parent company can go to trial.
After hearing arguments on SF Weekly's three motions for summary judgment, Superior Court Judge Richard A. Kramer said he believed the case should be heard by a jury. The ruling was not surprising, considering only about 7 percent of California cases are decided by summary judgment.
Speaking from the bench, Kramer emphasized he was not ruling on the merits of the case by allowing it to move forward. In fact, he noted that a reasonable person could easily conclude that some of the behavior described as illegal by the Guardian -- such as the Weekly's practice of keeping tabs on which customers were advertising with its alt-weekly rival -- was actually good business practice.
"You could look at the facts and say it was anticompetitive, or you could look at the facts and say, 'Boy, do I wish those guys were my senior management," the judge said with a smile as he made his ruling.
Kramer suggested that it should be left to a jury to make the final interpretation as to whether the Guardian's arguments have any merit.
SF Weekly's attorneys, James M. Wagstaffe and Ivo Labar of Kerr & Wagstaffe, had asked Kramer to award summary judgment because the Guardian failed to provide any concrete evidence to back its claim that SF Weekly and its parent company, New Times (now Village Voice Media), sold ads below cost and offered "secret rebates" to customers as part of an unlawful attempt to drive it out of business.
Wagstaffe also asked the judge to dismiss the case on the basis that it violated the Weekly's First Amendment rights. He noted that the lawsuit represents a direct attempt by the Guardian to dictate what prices the Weekly can charge for ads and therefore how much space it can make available for editorial content.
Judge Kramer described that First Amendment argument as "creative," but added, "I don't buy it." The judge ruled, however, that Wagstaffe would not be precluded from making First Amendment arguments to the jury as part of the Weekly's effort to highlight the fact that the Guardian has responded to its economic difficulties by slashing editorial spending while the Weekly has made the decision to keep a larger number of reporters and editors because it believes strong editorial content is the ultimate key to financial success.
One thing that quickly became apparent during the two-day hearing was the fact that the Guardian has used the lawsuit as an opportunity to sift through mountains of internal Weekly documents. As part of an exhaustive discovery process, the Weekly was forced to hand over more than 70 boxes of company records to its competitor. After spending years combing through those documents, the Guardian identified fewer than 100 customers it claimed had been sold ads below cost. During that same time period, 7,869 unique advertisers had done business with the Weekly. That paltry ratio didn't prevent the Guardian, however, from alleging a "massive" scheme of below-cost sales.
The Guardian's other evidence was similarly sketchy, consisting mostly of a handful of e-mails and internal documents that describe the Weekly's efforts to compete against it.
For instance, the Guardian cited the fact that the Weekly offered bonuses to its salespeople for taking ads from the Guardian as evidence of anticompetitive behavior rather than competitive behavior.
Labar found that claim particularly amusing. "If this is a 'purpose to injure competition,'" he noted, "then business is a purpose to injure competition."
In motions filed prior to the hearing, Weekly attorneys also questioned the Guardian's remarkable claim that if SF Weekly gives a discount to an advertiser and doesn't offer the same deal to every other similar advertiser -- and then notifies the Guardian so that its competitor could have a chance to match the price -- it was guilty of violating the law.
"So much for discounts off the sticker prices of automobiles, or Senior Citizens' Night at Luby's," the Weekly attorneys noted in their motion for summary adjudication.
Guardian attorney Ralph C. Alldredge also argued during the hearing that an e-mail exchange between then-Weekly publisher Chris Keating and a newly hired salesperson who had not yet started work was evidence that the Weekly was guilty of predatory behavior. In that email, the new employee told Keating, "The Bay Guardian is ripe for the picking, and I'm excited for the opportunity to lead the charge."
According to Alldredge, that gung-ho comment should be interpreted as evidence of wrongdoing. He also argued that the fact the Weekly prepared regular reports about its performance compared to the Guardian's was evidence of a predatory-pricing conspiracy.
Labar responded that that sort of comparison is "something businesses do all the time," and added that the Guardian had done precisely the same thing, preparing regular reports about the Weekly.
Indeed, an irony of the Guardian lawsuit that was underscored at the hearing is that the evidence actually seems to suggest that the Guardian itself was engaging in below-cost pricing and aggressive, even openly hostile, attempts to take business from the Weekly. For instance, an e-mail from Weekly publisher Josh Fromson -- put into evidence by the Guardian -- contains Fromson's notes that the Guardian was "giving away second ads, free ads, upsizes, etc."
In a July 6, 2004, e-mail, Guardian owner Bruce Brugmann summed up his scorched-earth strategy regarding the Weekly. "Make sure we go after each and every Weekly/East Bay Express ad and campaign," he wrote to his publisher Jody Colley, editor Tim Redmond, and paid consultant Kat Thornton. "Further, that we prepare for counterattack on all of our ads and particularly the new ones. We are really driving them nuts and making real gains."
Despite making those statements, just three months later, in October 2004, Brugmann filed suit against the Weekly and its former sister paper, the Express, claiming that they were engaging in illegal anticompetitive behavior and trying to destroy him.
That lawsuit coincided with the Guardian's failing financial fortunes; in fact, at times Alldredge made a point of emphasizing the Guardian's dramatic losses -- including a $347,000 shortfall in 2005.
In a further irony, the Guardian's suit argues that the fact the Weekly has also lost money in recent years was circumstantial evidence of a plot to bleed the Guardian by selling ads below cost. That argument, as Labar noted, blindly ignores the precipitous decline in print advertising that followed the 9/11 attacks, and downturn of print advertising in general. The San Francisco Chronicle has admitted to losing more than $330 million in the past six years, Labar said, adding wryly, "If that's not evidence of below-cost sales according to [the Guardian's convoluted] argument, I don't know what is."
The Guardian did not present an explanation as to why its own admitted losses in recent years should not be viewed a similar smoking gun other than to suggest those losses were the fault of the Weekly.
A portion of the hearing was devoted to the Guardian's claim that in 1995, VVM executive editor Michael Lacey held a meeting of Weekly editorial employees and told them that, under his management, he wanted to drive the Guardian out of business so the Weekly would be "the only game in town." That purported comment, Alldredge argued, was evidence of longstanding malice and could be construed to refer to a predatory pricing scheme.
The alleged twelve-year-old statement was first brought to the Guardian's attention by a witness who added that she may have dreamed it. Since then, two other people who attended the meeting have come forward to claim they heard similar language. But Labar argued that such "puffery" is common in the world of business, and noted that Lacey is an editorial executive who has nothing to do with ad prices.
Another Guardian claim that was discussed at the hearing was its contention that an advertising deal between the Weekly and Bill Graham Presents, which is owned by Clear Channel Communications, was evidence of wrongdoing because it called for BGP to commit a certain portion of its local advertising in alternative weeklies to the Weekly. That arrangement, Labar noted, is no different than Hertz agreeing to buy its cars exclusively from Ford, and BGP entered into it willingly.
The Guardian has also argued that the Weekly's agreement to buy naming rights for the SF Weekly Warfield Theater was actually a secret kickback to BGP. But it has provided no evidence to support that allegation. And Labar also noted the bizarre nature of the Guardian's claim that the Weekly "took over" the business of BGP, and that in some strange way the Guardian lost business that rightfully belonged to it. Perhaps, Labar suggested, the more than $250,000 in revenue the Guardian lost from Clear Channel might have something to do with the strange treatment the Guardian has given Clear Channel in print.
Shortly after the Weekly closed the BGP deal in 2005, for example, Brugmann ran a series of full-page ads attacking the Weekly for running Clear Channel advertising. "Why are the Weekly folks fooling around with a greedy Texas corporation that's hell bent on muzzling dissenting voices and homogenizing the media?" he wrote.
He neglected to explain that, a few weeks earlier, he had been running around with Clear Channel himself, and cashing the Texas conglomerate's checks to the tune of hundreds of thousands of dollars -- the same money he now seeks to recoup via the lawsuit.
The Guardian's professed desire for Clear Channel advertising also seems odd given what Tim Redmond wrote in a blog post yesterday. Clear Channel, Redmond opined, is not only "one of the most evil corporations in the United States," but it also is "sleazy."
Judge Kramer has set the case for trial on January 2, 2008.