Ka-Ching!

Guardian hits jackpot—but don’t count the money yet, Bruce.

By Andy Van De Voorde

The Bay Guardian hit the lawsuit lottery for the second time in its history Wednesday, winning a $15.6 million judgment against SF Weekly and its parent company, New Times (now Village Voice Media) and it’s former sister paper the East Bay Express. The jury awarded the Guardian $1.79 million for damages from Oct. 2001 to Oct. 2003, and $4.6 million for damages from Oct. of 2003 to present, but that second amount could be trebled.

Village Voice Media vows that Guardian publisher Bruce Brugmann will have a difficult time cashing his ticket.

The verdict came despite the fact that the Guardian produced no direct evidence of a predatory pricing conspiracy aimed at harming the Guardian and called not a single advertiser to the stand to testify on its behalf.

The paper did, however, play heavily on the jury’s emotions, portraying itself as the local victim of a national chain and describing VVM as a company with “unlimited resources” that could easily afford to prop up its longtime ideological rival with a cash infusion. The jury voted eleven to one in the Guardian’s favor.

The last thing the jury heard was the Guardian’s claim that if it didn’t receive a huge cash payout from the Weekly, it would go out of business.

In his closing arguments, Guardian attorney Ralph C. Alldredge told the jury that, should the Guardian lose, its demise was “inevitable.”

The assertion was made despite the fact that the Guardian made a profit last year and continues to have a higher circulation than the Weekly.

And after forming in 1966, the Guardian didn’t take long to choose suing competitors as its preferred business model.

In the 1970s, Brugmann filed suit against San Francisco’s daily newspapers as one of several parties who alleged the Chronicle and Examiner were attempting to establish a monopoly. Brugmann took a $500,000 settlement before the case ultimately was decided in favor of the dailies.

As with its claim against the dailies, the Guardian insists it would have made more money if not for wrongful competition from the Weekly.

The Weekly immediately announced it would appeal the verdict and issued a statement noting that the Depression-era California predatory pricing law under which the suit was filed makes a mockery of prevailing federal court standards.

Over the years, federal courts have increasingly viewed below-cost pricing claims dubiously because they can so easily be twisted to protect not consumers’ pocketbooks but the right of inefficient competitors to stay afloat.

VVM says that’s precisely what happened here.

“Instead of competing in the marketplace, Brugmann seeks shelter in court-sanctioned price fixing,” company owners Michael Lacey and Jim Larkin said in a statement. “He wants mom and pop advertisers to pay higher rates.”

But Tuesday’s verdict suggests that Alldredge, a veteran attorney with the courtroom demeanor of a kindly if sometimes bumbling grandfather, knew what he was doing all along.

In fact, even before the trial started, Alldredge publicly bragged that the extraordinarily low burden of proof called for under California’s Unfair Practices Act would make his job simple.

And he kept it simple at trial, not bothering to call any advertisers to the stand and instead repeatedly hammering away at the fact that New Times had sold thousands of ads “below cost.”

Saying a company is selling below cost is just another way of saying it is losing money.

But in Alldredge’s hands, New Times’ willingness to invest millions of dollars in the Bay Area—most of which went to salaries and benefits for employees—began to sound like a conspiracy.

The Guardian has complained about the Weekly’s high costs and even asked Judge Miller to issue an injunction preventing the paper from selling below cost in the future.

A common question asked of Weekly witnesses, for instance, was whether the New Times paper realized that if it sold ads cheaper than the Guardian, such activity might harm the Guardian—a query that seemed to turn the American free-market system on its head.

However, if the Guardian’s rhetoric occasionally appeared to have been piped in from the politburo, many of those arguments were actually within the letter of the California law.

Among other things, that law, which was passed in the 1930s in an effort to prevent Safeway from driving out independent grocers by offering low food prices, allows plaintiffs to recover attorney’s fees if they win, but forces defendants to pay their own attorney’s fees regardless of the outcome.

It’s the equivalent of an open invitation for plaintiffs to roll the dice, and the Weekly isn’t the first Bay Area paper to be sued under the statute.

In fact, in the 1990s, a local jury awarded the San Francisco Independent millions in a judgment against the daily’s San Francisco Newspaper Agency.

That judgment was reversed by a San Francisco appeals court.

“All you do is take all of their costs and divide that by the number of inches of advertising space they sold,” Alldredge told the Daily Journal in January in describing the convenience of the UPA. “That tells you how much the cost is per inch. Whenever they sell below that cost, under California law, they’ve committed a violation.”

In fact, the law is written so strongly in favor of plaintiffs that the jury in the Weekly’s case received a jury instruction that was tantamount to declaring the Weekly’s guilt before deliberations even began.

“If you find that any defendant sold advertising space below cost and any below costs sale(s) injured the Bay Guardian as a competitor, it is presumed that defendant’s purpose was to injure competitors or destroy competition,” read Instruction No. 21.

The instruction goes on to say that the presumption of guilt “may be overcome by other evidence.”

That language essentially requires the Weekly to prove a negative.

Weekly attorneys H. Sinclair Kerr Jr. and Ivo Labar did their best, arguing at trial that the Weekly and the Express always got the most they could for their ads, and that the extremely competitive Bay Area media market coupled with the dot-com bust, the events of 9/11 and the flow of advertising to Internet sites exerted powerful pressure to keep prices low.

The attorneys produced numerous exhibits and witnesses who described a print-media economy in which all print papers are suffering, and also offered undisputed evidence that revenues and overall ad count in both the Guardian and the Weekly had dropped since 2001.

Alldredge and the Guardian, however, kept a laser focus on the “below cost” issue, and also aggressively contested the notion that the Guardian had any significant competitors other than the Weekly.

That argument was critical to maximizing damages, even if it flew in the face of past statements from the Guardian itself.

For instance, the Guardian’s 2004 press release announcing the lawsuit trumpeted the fact that the newspaper “has had competition every day of our existence, from dailies, weeklies, community papers and other publications in one of the most media-rich markets in the country.”

The Weekly’s attorneys argued that its struggles to achieve profitability were a direct result of a multi-competitor environment, and made a point of noting that one reason the Weekly’s costs are high is that it has invested heavily in its Web site in an effort to keep up with industry trends.

The Guardian, by contrast, acknowledged that it had laid off its Web team in an effort to save money, and suggested that it is only now regaining momentum on the Internet.

Brugmann also acknowledged on the stand that he had made the decision to buy a $5.2 million office building in 2002, just as the print economy started to plummet.

The Guardian boss insisted that the purchase was a great deal for his paper despite the fact that it sent millions of dollars in equity into his own pocket owing to the fact that he and Dibble had set up their own limited liability company to make the purchase.

The deal also had the effect of saddling the Guardian with a monthly rent payment roughly twice that paid by the Weekly.

Throughout the trial, the Guardian never let such inconvenient truths get in the way of its chief argument: That New Times had intentionally lost more than $20 million in an effort to bleed the Guardian.

It then asked the jury to interpret the mere fact of those losses as circumstantial evidence of a below-cost plot.

The only other evidence the Guardian presented regarding New Times’ purpose was the fact that the Weekly maintained a “Guardian Report” that tracked ads in its competitor by category, and statements purportedly made by executive editor Lacey at a staff meeting in 1995.

Three Guardian witnesses claimed Lacey had said he wanted the Weekly to be “the only game in town,” and two said he uttered “words to the effect” that he wanted to drive the Guardian out of business.

However, Lacey disputed ever having vowed to put the Guardian out of business, and was backed up on that point by Patricia Calhoun, editor of VVM’s paper in Denver, Westword. And even the Guardian witnesses, two of whom had been fired by New Times after its purchase of the Weekly, acknowledged that Lacey never said a word about advertising or any pricing plans.

As for the Guardian Reports, the Guardian’s own witnesses admitted maintaining “SF Weekly Reports.”

In their statement issued after the verdict, Lacey and Larkin affirmed their strong belief that VVM will prevail on appeal.

The newspapermen noted that the U.S. Supreme Court in 1993 ruled that sales-below-cost statutes simply don’t apply to highly competitive marketplaces.

“The highest courts of all five states that have ruled on sales below cost claims since the Supreme Court ruling have agreed,” they added. “We look forward to giving California its first opportunity to become the sixth state.”

Lacey and Larkin also had this to say about Brugmann’s newspaper: “We have not sought to injure the Bay Guardian. We just don’t want to read it.”

The judgement has not yet been entered. Attorneys for both sides will meet again at a March 25th hearing at which the Guardian is expected to ask Judge Miller to issue an injunction that monitors the behavior of the Weekly with regard to ad pricing.


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