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Friday, May 9, 2008

The Price of Free Speech Rises

Posted By on Fri, May 9, 2008 at 5:10 PM

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First Amendment arguments get short shrift from judge in Guardian v. Weekly lawsuit

By Andy Van De Voorde

Apparently unsatisfied with a $15.6 million jury verdict in its predatory pricing lawsuit against SF Weekly, the Bay Guardian Friday asked a judge to give it even more.

During a post-trial hearing, Guardian attorney Ralph C. Alldredge told Superior Court Judge Marla J. Miller that his client wanted the entire $6.4 million verdict trebled rather than only the portion of the damages incurred within one year of the filing of the complaint.

The effect would have been to turn a $15.6 million verdict into a $19.2 million verdict.

The Guardian demanded the additional payoff despite the fact that the verdict already far exceeds the net worth of the Weekly, and would give the Guardian more money that it has earned in total profits since its founding in 1966.

The verdict, which was awarded despite the fact that the Guardian has always been the larger, more profitable paper, also exceeds the total damages awarded and affirmed in every reported California sale-below-cost case in the last seven decades combined.

In a further grab for cash, the Guardian also asked Miller to award it $400,000 in pre-judgment interest, a request that would have amounted to more than $6,000 per day since the trial ended.

Miller refused to go along with the Guardian’s latest attempts to bleed its weekly rival, signaling from the bench that she didn’t accept either argument and was inclined to leave the judgment untouched.

However, the judge appeared equally skeptical of the Weekly’s chief argument: that she should refuse to enter the judgment or issue an injunction monitoring the paper’s advertising prices because those actions would violate its First Amendment rights.

The Weekly’s position: Draining a newspaper’s bank account while simultaneously dictating the parameters of its sales activity blatantly violates its ability to practice free speech.

Miller observed that Superior Court Judge Richard A. Kramer, who handled the case for three and a half years before unexpectedly handing it off to her on the eve of trial, had already rejected First Amendment arguments posed by the Weekly as part of its request for summary judgment.

And although she did not issue any formal rulings on Friday, Miller gave every indication she is prepared to let both the verdict and the record-setting judgment stand, meaning the case is inalterably headed for the California Court of Appeals.

Weekly attorney Forrest A. Hainline of the firm Goodwin Procter, who has been retained for the appeal, did his best to convince Miller that the verdict is legally preposterous--and makes a mockery of constitutional due process by exposing the defendant to potential ruin. At one point, Hainline became so animated while making his arguments that the judge asked him to speak more softly.

“You have said you don’t think much of the First Amendment argument,” said Hainline, referring to the “tentative views” the judge had expressed at the hearing’s outset. “I am going to suggest that those arguments won’t go away.”

The attorney’s voice grew louder as he noted that, throughout the trial, the Guardian argued that the Weekly should be forced to “live within its means.”

“What does that mean?” asked Hainline. “It means paying less to editors and paying less to writers,” as well as cutting back on editorial projects.

“But isn’t that the same for any company?” asked Miller, who went on to suggest that whether a defendant is a newspaper “or a company that sells cooking oil or flour,” if it violates the law, it violates the law.

“The answer to your question is that it isn’t the same as any company,” Hainline replied. “It’s a newspaper.”

Hainline added another observation: “This isn’t Crisco, it’s advertising. It’s protected speech.”

Of particular concern from a constitutional standpoint, argued Hainline, was the Guardian’s request that Miller issue an injunction that would enjoin the Weekly from selling any ad below cost “for the purpose of injuring the Bay Guardian” -- unless it is prepared to prove in court that the price was offered in an attempt to “meet but not beat” a price being offered by a competitor.

Such an order would necessarily involve the court in the Weekly’s day-to-day business, Hainline noted, and would force the paper to comply either by raising prices beyond what the market would bear or dramatically slashing its editorial spending. Both, he said, would effectively represent prior restraint on the Weekly’s ability to publish.

And Hainline also noted an ugly irony: that the huge judgment in the case will greatly increase the paper’s fully allocated costs, meaning that “selling below cost” will essentially be inevitable.

Holding a newspaper subservient to its opponent’s definition of fair pricing should offend the sensibilities of anyone who believes in a free press, the attorney said.

In an effort to make his point to an obviously dubious Miller, Hainline proceeded to pose a hypothetical: Imagine, he said, an immensely wealthy person who chooses to start a free newspaper in San Francisco and opts not even to charge for the ads because he so dislikes local media—in particular the Guardian -- and wants to take all the readers and advertisers for himself.

Such behavior would obviously violate California’s Unfair Practices Act, and an injunction would be issued, Hainline said. Yet, he added, “I can’t imagine any federal judge [ruling that such an injunction] wasn’t a violation of the First Amendment.”

“Now modify that slightly,” Hainline continued. “I’m giving away the paper, but I’m charging for advertising—but I’m now going to have to charge so much for the advertising, and I’m going to have to cut back what I pay to editors and writers.”

That is precisely the position in which the Weekly finds itself, the attorney suggested.

“What you’re saying is that I shouldn’t enter the judgment and the whole scheme is unconstitutional,” said Miller.

“That’s absolutely right,” responded Hainline.

Hainline also argued that the sheer size of the verdict raises First Amendment due process issues because it so obviously would threaten the ability of the Weekly to stay in business. Therefore, he said, trebling the damages at all is clearly improper.

“I don’t see where you’ve cited any case that gives me the authority to scrutinize whether that’s acceptable or not,” said Miller.

“A court always has the power and the right and the duty to apply constitutional principles to what the legislature has done,” replied Hainline.

Alldredge, however, echoed the sentiment expressed by Miller in her questioning of Hainline: That newspapers are no different than widget-makers when it comes to enforcing predatory pricing statutes. He also denied that advertising prices directly affect a newspaper’s editorial activities, and added that the Weekly is exaggerating when it describes an injunction as an onerous imposition.

Given the expense and man-hours that would be involved in running into court to challenge specific ad rates, Alldredge said, the Guardian is not likely to use the court order as a tool for harassing its competitor.

“The projection of floodgates opening here…and this court becoming the czar of newspaper advertising is just not going to happen,” he said.

In a comment that seemed to sum up the Guardian’s attitude toward the Weekly rival, Alldredge also argued that Hainline’s claim that treble damages would pose an unbearable financial strain on the Weekly is meaningless since the core judgment itself—the $6.4 million awarded by the jury—“puts them out of business right there; it’s more than their net worth.”

The simple fact, said Alldredge, is that Miller is obligated by statute to treble at least a portion of the damages and to issue an injunction--both positions the judge seemed to have arrived at before the hearing began.

Miller concluded the hour-and-a-half hearing by telling the attorneys for both sides that she will issue her rulings within ten days, and possibly as soon as the end of next week.

If Miller enters the judgment as expected, that would trigger the Weekly’s ability to file motions asking the judge to grant a new trial or set aside the verdict. Once Miller rules on those motions (assuming the Weekly loses again), the paper would have sixty days to file its case with the Court of Appeals.

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Tom Walsh

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