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Friday, February 22, 2008

Imaginary Evidence

Posted By on Fri, Feb 22, 2008 at 5:58 PM

Plus: “Curse words” aimed at the Weekly

By Andy Van De Voorde

Under California law, attorneys are allowed to ask hypothetical questions of expert witnesses. But Bay Guardian attorney Ralph C. Alldredge outdid himself Friday when certified public accountant Everett P. Harry took the stand in the Guardian’s predatory pricing lawsuit against the Weekly.

Harry is the financial expert called by the Weekly to refute the outlandish damage estimates submitted by Clifford Kupperberg, the $500-per-hour Guardian witness who on Thursday discussed fourteen different “damage models” ranging from $4.4 million up to $11.8 million.

Should the Guardian win a verdict, those amounts could be tripled if its request for “treble damages” is granted.

Harry, a former Air Force pilot who now runs his own accounting firm in San Francisco, came across as a no-nonsense witness.

And he seemed to have little patience for the many imaginary scenarios Alldredge asked him to contemplate.

For instance, Harry had earlier told Weekly attorney H. Sinclair Kerr Jr. about anomalies he found in a “database” list of 128 customers Kupperberg used to help calculate purported “below cost sales” by the Weekly and its former parent company New Times.

Many of those transactions, the Guardian has claimed, caused it “injury.”

In California it is not illegal to sell below cost, only to do so to injure a competitor.

Harry told Kerr he saw no evidence of any Weekly wrongdoing after studying the database.

But he did notice several errors.

For instance, Harry noted that one customer, Suite 181, was cited by the Guardian because, it claimed, it had found “80 New Times ads [that] coincide with the Bay Guardian not getting any ads.”

The problem with that, said Harry, was that there was no evidence Suite 181 ever advertised with the Guardian at all; in fact, the Guardian’s own document proved that its entire sales history was with the Weekly.

“It was one of several examples” where the Guardian claimed “lost business” from customers it never signed up in the first place, Harry said.

When Alldredge began his cross-examination, he went straight to the database.

But while Harry was interested in talking about what was in the document, Alldredge steered the conversation toward what might have happened but simply was never written down.

Referring to Suite 181, the attorney noted that at one point in 2004, the customer’s rate with the Weekly dropped from around $15 per inch to about $10 per inch.

“Doesn’t it strike you as a little strange that they would have sold at $15 and then dropped to $10 if there wasn’t something else going on?” he asked.

It has been a familiar technique for Alldredge: Implying conspiracies without providing supporting evidence.

“What we don’t know, for example, is whether a Bay Guardian rep came up in 2004 when they were getting a $15-dollar rate and said, ‘We’ll match the price,’ and then the SF Weekly offered $10,” he continued.

Harry gave Alldredge a look that, had the two been involved in an email exchange, would have roughly translated as “wtf?”

There was simply no evidence in the database to suggest that ever happened, said the accountant.

“But there’s no evidence in the database that says it didn’t, right?” countered Alldredge, emphasizing the word “didn’t.”

Odd as it was, the line of questioning was just getting started.

The attorney took the same tack when discussing Gold’s Gym.

Earlier, Harry and Kerr had discussed Gold’s sales history at both papers: The exercise chain started with the Guardian, which charged a high rate and then lowered it significantly in 2001. Only thereafter did New Times begin selling to Gold’s, at about the same price as the Guardian.

That pattern, noted Harry, didn’t suggest any “injury” to the Guardian, particularly given that it was the Guardian that dropped the price in the first place.

But rather than offering hard evidence of wrongdoing, Alldredge again ruminated about what might have happened in an imaginary universe.

Noting that the Guardian had dropped its rate “suddenly,” he asked “Isn’t that strange?

“Is it possible this could be interpreted as a situation where the Guardian had to drop its price because of an offer from the Weekly?” Alldredge continued.

Wasn’t it possible Weekly salespeople had called Gold’s and offered it lower rates?

Again, noted Harry, he had seen nothing to indicate that anything of the kind had happened.

Alldredge, the accountant observed, was simply speculating.

“Well, is my interpretation of these facts any more speculative than yours?” countered the attorney.

“Yes!” said Harry emphatically. “It’s not a reasonable approach to assume facts you haven’t provided.”

It was déjà vu all over again with Studio Z.

Harry told Kerr that that the customer did business first with the Weekly, which consistently charged it around $16 per inch.

In 2003, he noted, the Guardian was able to sell the customer ads at a higher price; later Studio Z stopped doing business with the Guardian.

That pattern, noted Harry, simply didn’t suggest skullduggery on the part of the Weekly.

Not so fast, said Alldredge.

“Can you look at this and say this isn’t a case where the Bay Guardian lost business to that customer because they wouldn’t go down to [the Weekly’s] $16 per inch?” he asked.

It was another question that had seemingly been beamed in from the ether.

“I can’t speculate,” said Harry with a shrug.

Things got particularly interesting when Alldredge moved on to Discount Fabrics, another customer the Guardian had cited as an example of “lost business.”

It didn’t look that way to Harry, who noted that there was a fourteen-month gap between the store’s decision to move from the Guardian to the Weekly—and that it went to the Weekly at a higher price.

“As I look at all of that, I don’t see anything that would indicate the behavior of New Times would have hurt the Bay Guardian,” said the CPA.

But wasn’t it possible, asked Alldredge, that the customer records simply weren’t complete, thus skewing the data?

I have no idea, said Harry.

The CPA might have added that the database was introduced by the Guardian and was prepared by its controller, Sandy Lange, meaning that if there were problems with the document they were squarely the responsibility of Alldredge’s client.

“So we just don’t know, do we?” said the attorney.

“If we don’t know,” said Harry, “that’s another problem with the database.”

And it didn’t take much to find problems with the database, Harry said.

Earlier in the day, he discussed the document with Kerr and noted that when he double-checked the very first entry, Abbey Tavern, he realized that what Lange had listed as six transactions with the Weekly were actually three transactions that had been counted twice.

Through spot checks, he continued, “we found at least two more examples. This time there were dozens of duplications.”

Harry also noted that Lange’s list—which Kupperberg used as a basis for his claim that the Weekly engaged in giant numbers of below-cost transactions—was of little statistical significance given that it clearly wasn’t a random sample of advertising transactions.

Instead, he noted, it was a list of customers the Guardian had carefully selected in an effort to bolster its case.

“Did you form an opinion as to whether the preparer was objective?” asked Kerr.

Yes, said Harry. “They weren’t.”

How could he tell?

It wasn’t hard, said Harry, considering that he found “certain comments in the worksheet which were derogatory toward New Times, and certain curse words.”

In one instance, noted Harry, Lange or someone else at the Guardian “had inserted a particular word that starts with an ‘a.’”

“What was that word?” Kerr asked.

“Assholes,” said Harry. “I also saw ‘morons.’”

In addition, said the CPA, he found other comments that made it clear the Guardian had no intention of taking a fair-minded approach.

“I saw a comment that said, after a long series of highly priced New Times transactions, ‘These have been sky high, but I finally found one [at a lower price],’” Harry added.

Flawed as the database was, said Harry, Kupperberg made things worse when he estimated numbers of below-cost sales by New Times by using only about half of the transactions in the document.

Alldredge pressed Harry on the issue, but after the CPA continued to point to errors on Kupperberg’s part, the attorney eventually relented, noting, “We’re probably at a level of detail on this that isn’t necessary.”

Still, Alldredge seemed intent on repairing Kupperberg’s image with the jury after yesterday, when Harry pointed out that, among other blunders, his counterpart had committed a “$3 million addition error.”

Wasn’t it true Kupperberg had corrected that error after Harry caught it?” asked Alldredge.

“In the document I got Monday night,” said Harry, who has repeatedly expressed frustration at Kupperberg’s habit of making mistakes and then attempting to smooth them over by producing reams of data at the last minute.

Had he found any other mathematical errors in Kupperberg’s new work? Alldredge asked.

“I haven’t checked for mathematical accuracy other than the one that stood out because it doubled his damage estimates,” replied Harry, referring to Kupperberg’s $3 million boner.

The two men then engaged in a fifteen-minute conversation about Harry’s assertion that the Guardian’s CPA had also made a “conceptual error” that, if carried to its logical conclusion, would create the suggestion that the Guardian “deserved” every bit of business the Weekly did over a period of six years.

Harry stuck to his guns as Alldredge attempted to defend Kupperberg, and as the two men went back and forth, the complex nature of the subject matter ultimately appeared to flummox the lawyer.

Alldredge eventually asked the accountant, “They’re not the wrong numbers in the sense that they’re the numbers that Mr. Kupperberg used, are they?”

Wrong is wrong, insisted Harry.

“I just am talking about whether this is an accurate representation of Mr. Kupperberg’s analysis,” said Alldredge.

“If you define accuracy in that sense, then I will agree that everything you’ve produced is accurate,” said Harry.

And the CPA wasn’t done taking Kupperberg apart.

Earlier, Harry had told Kerr that any good damage estimate takes into account all the factors that could affect a given situation.

The accountant returned to the subject with Alldredge, telling the attorney that Kupperberg made a mockery of the process by accepting the Guardian’s notion that the Weekly’s pricing alone was responsible for its financial woes.

“It’s only a mathematical exercise to impute the pages lost,” he said, referring to one Kupperberg model. “It doesn’t mean it passes the business test, or the smell test.”

The overall economy, the dot-com bust, the events of 9/11, the advent of Internet advertising and myriad other factors exert influence on the Guardian’s financial situation, noted the accountant, who said he had studied numerous documents and articles after taking the case.

As has been the case since the trial began, however, Alldredge wasn’t giving an inch on the suggestion that terrorist attacks or tech-stock busts could hold a finger to the Weekly when it came to causing injury to his client.

Had Harry attempted to find stories “on each side of the issue” when researching the general decline of print media in the United States? Alldredge asked.

Had he looked at “the other side” of questions such as the negative effect the flow of ads to the Internet has had on newspapers?

Whether there is “another side” to what appear to be accepted realities isn’t clear.

But he’d done the best he could on each score, answered Harry, who left the stand shortly thereafter when Weekly attorneys opted not to bother with a “redirect” examination.

The other witness to take the stand Friday was New Times vice president for financial operations Jeff Mars, who had been cooling his heels in San Francisco awaiting the conclusion of the Kupperberg-Harry shootout.

The New Times (now Village Voice Media) money man described for Kerr the company’s budgeting process, noting that local publishers have complete control over advertising rates.

He also described the growth VVM has seen in Web revenue—an 80 percent rise in San Francisco last year--and detailed its increasingly successful to combat the free-classified site Craigslist with its alternative.

“[The Internet] is where a lot of our market is going,” noted Mars. “We’re trying to stay ahead of that on the developmental side.”

Mars’s testimony was intended in part to counter the Guardian’s theory that the Weekly’s large losses over time are evidence of a plot to bleed the Guardian with low prices.

Instead, the vice president said, the positive momentum on the Web and general financial turnaround since Josh Fromson took over as publisher in 2006 have convinced the company that the Weekly—unlike the East Bay Express, which VVM sold last year—has a bright future.

“We’re protecting an investment” by continuing to spend millions on developing the Weekly, he said.

But Alldredge suggested a plot to drive out the Guardian was the only logical explanation for the company’s continued support of the paper despite losses that have amounted to $13 million since it purchased the Weekly in 1995.

The attorney continually questioned Mars about whether, after the Guardian sued the Weekly, he had ever “taken action to try and determine whether in fact the Weekly and the Express were selling ads below cost in violation of California law.”

That wouldn’t have been his job, said Mars, adding, “You’re kind of making it sound like we’re conspiring here, which is not what happened.”

“How about passing the buck?” replied Alldredge, a remark Superior Court Judge Marla J. Miller then ordered stricken from the record.

Alldredge also pressed Mars on one of his favorite themes: The notion that the Weekly should have simply raised its prices to the level of the Guardian’s, despite the Guardian’s larger circulation and longer history in the city.

“Do you understand if the rates of the Weekly are below those of the Guardian, it means there’s a possibility it will take business away from the Guardian?” he demanded, in a question that came perilously close to endorsing Soviet-era economic theory.

In a free market the customers are the ones who determine rates by what they’re willing to pay, responded Mars.

Alldredge then threw another by-now-familiar suggestion: That if the Weekly really thought it put out a better paper than the Guardian, it should have raised its rates—to the same levels as the Guardian.

The notion appears to amount to price-fixing

“If you believe your product is better, why not charge the same price and let the customer decide?” Alldredge asked.

Mars looked a bit like Harry had when Alldredge first asked him to contemplate imaginary conversations that might have taken place among phantom salesmen.

“Are you attempting to suggest that we should call the Bay Guardian to learn its rates before we set our rates?” asked Mars, a remark that drew a round of laughter from the jury.

The panel laughed again when Weekly attorney Ivo Labar asked Mars a question during a brief redirect examination.

Given that Alldredge had equated below-cost pricing (which is essentially just another way of saying a business is losing money) to criminal behavior, the attorney returned to the Internet competitors who have done so much damage to American print newspapers.

“Would you agree that a free ad on Craigslist is below cost?” he asked.

“I would think so,” said Mars, as the jury chuckled.

“Do you know if the Bay Guardian has sued Craigslist?” asked Labar.

The question didn’t seem to require an answer.

The trial will take a day off Monday and return Tuesday with testimony from more defense witnesses; it is now expected that the case will go to the jury either Tuesday or Wednesday.

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