About that San Francisco Lawsuit You Might Have Heard About

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You might have heard the Voice's sister paper in the Bay Area, SF Weekly, is mixed up in a legal kerfuffle with a rival Bay Area weekly newspaper, the Bay Guardian, and that the case recently took an odd turn when the Guardian seized SF Weekly's two minivans.

And you might also have heard that a court out there gave the Guardian the OK to try to seize even more assets, which led to some news stories implying that the Guardian could end up forcing the sale of the Voice itself. Sounded a little far-fetched, but we didn't know much more about it until we got this letter today from the two big cheeses, Jim Larkin and Mike Lacey, which went out to the whole company...


January 12, 2010

A MESSAGE TO ALL EMPLOYEES FROM JIM LARKIN AND MICHAEL LACEY


From the time it filed a groundless predatory pricing lawsuit against SF Weekly and New Times Media, the Bay Guardian's case has been characterized by exaggerations and inflated rhetoric.

That pattern has continued in recent days, particularly with regard to news reports in the San Francisco Chronicle and other publications regarding a "charging order" approved by a San Francisco Superior Court commissioner.

This is a complicated legal and economic matter, and in its story of January 8, the Chronicle couldn't even get the number of our publications right.

Meanwhile, the Guardian and its attorney are attempting to interfere with our business while delaying getting this case before the appellate court, and before the appeal has even been heard in the case. They are doing this in part by waging a thoroughly misleading public relations campaign, which requires a response.

Here are the facts:

In May 2008 the Guardian received a judgment against SF Weekly and New Times. That judgment is being appealed.

While we had hoped that the appeal would move expeditiously, it has not. The reason for this is that the Guardian has sought numerous extensions of the deadline by which it needs to file its own brief. In fact, earlier this month, the Guardian received a "failure to file" notice from the court and was given a new deadline of January 21. We will watch with interest to see whether the Guardian seeks yet another extension.

It is notable that, instead of responding to our appeal in a timely fashion, the Guardian has instead chosen to make aggressive attempts at collecting on the judgment--again, before we have received our day in court before the Court of Appeals.

We continue to believe that we have a very strong appeal and that the Court of Appeals will agree that significant errors were made in the proceeding and will overturn the judgment.

In the meantime, while the Guardian has taken extensive discovery on the assets and liabilities of New Times and SF Weekly, it has collected very little on its judgment.

Despite wild claims by the Guardian--most notably, an assertion by its attorney that he could seek a court order allowing him to foreclose upon and sell any of our publications--the recent San Francisco court order is very limited in scope. Issued in response to a Guardian motion seeking to have the court recognize certain rights it has as a creditor, it simply says the Guardian can try and go after cash distributions New Times receives from its publications as a limited partner or member of the company.

But New Times doesn't do business that way. As our attorney, Randall S. Farrimond, told the Chronicle, the amount of those monies is zero. Our publications are separately organized limited liability companies or limited partnerships that own, operate and publish in their respective communities. New Times is simply a holding company.

In effect, the Guardian has received an order for monies that don't exist, and which are, in any event, subject to a prior bank lien.

Additionally, none of our publications was organized under the laws of California, and most of them do no business whatsoever in that state.

The San Francisco court's order doesn't give the Guardian control over our newspapers or Web sites, or over any of their assets. As we pursue our appeal, our publications will continue to publish and conduct business as they have all along.

Finally, the Guardian has suggested that all New Times has to do to forestall its collection efforts is to file an appeal bond with the court. There are several common-sense reasons we have not done so.

The most obvious is the sheer size of the judgment, which, with interest, has now grown to more than $20 million. If enforced, the judgment would require New Times and the Weekly to pay the Guardian more money in damages than the Guardian has earned in its entire 43-year history; indeed, more than in all other reported cases under the relevant California statute.

Under California law, the amount of the bond would have to be roughly 1.5 times the size of the verdict, meaning it would have to be secured by roughly $30 million in assets. The judgment is against two entities, SF Weekly and New Times, neither of which have assets even approaching the amount necessary to secure the bond. And given the strength of our legal position, it is our belief that even the fees on such a bond would far exceed any amount we would ever be forced to pay the Guardian.

As with so many of its other claims in this lawsuit, the Guardian's disingenuous comments about our not having posted a bond only serve to underscore the absurdity of its underlying case.

At trial, the Guardian made the remarkable claim that, if not for the competition posed by the Weekly's pricing strategies, it could have achieved profit margins as high as 75 percent. It stretches credulity to think that Guardian publisher Bruce Brugmann testified that, unlike nearly every other print newspaper published in this country, competition from the Internet had no adverse affect on his revenues. Instead, as part of the Guardian's ongoing effort to shirk responsibility for its own poor performance--which included posting a 5 percent return on investment in its best year ever--Brugmann blamed the Weekly, and the Weekly alone, for his meager profits.

This morning we will be back in court in San Francisco to ask for a temporary stay of the court commissioner's most recent order. We are not taking this procedural step in anticipation of a short-term victory. Rather, we are doing so to clear the way for a formal appeal of that ruling, and are also considering other options that might be available to us.

The Guardian's lawsuit is a rarity in the realm of anti-trust law: an action designed to protect not consumers but one firm's profits. We believe we stand on firm legal ground in our fight to overturn the verdict--and to prevent the Guardian from achieving its objective of harassing our employees and publications, both in San Francisco and elsewhere, prior to the suit's ultimate resolution.


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