Volume 42 Number 17

January 23 – January 30, 2007

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Editor’s Notes


› tredmond@sfbg.com

There’s a January report from the San Francisco Controller’s Office that says the city’s transportation policy is failing.

It doesn’t say that in so many words — that might have gotten some media attention — but the implication is clear.

The report is on the taxicab industry, always a fascinating topic, and it’s filled with charts and graphs discussing how much money the cab companies make and how little the drivers make. But in the middle of all of that is a remarkable paragraph that says:

"The resident population in San Francisco appears to be increasing. Since 2000, the Department of Finance reports it has grown by 4.7 percent, or by approximately 0.6 percent per year. Although the Census Bureau believes San Francisco lost population from 2000 to 2005, it too has reported population increase since 2005. Muni trips have slightly declined over the same period — a cumulative negative change of 2.5 percent — while vehicle registrations in San Francisco have increased by 1.5 percent. This suggests that residents may be substituting away from mass transit and into private and personal transport modes."

That reads like, well, a Controller’s Office report, but here’s the translation: More San Franciscans are driving cars. Fewer are taking Muni. It’s not exactly shocking news to anyone who pays attention to traffic patterns in town, but it’s a serious indictment of city policy.

The statistics show a couple of things. One is that the city is, indeed, getting richer — generally speaking, wealthier people are more likely to use private cars. Another is that Muni hasn’t been performing: all of the national and local data show there’s a direct correlation between on-time transit service and ridership (and of course there’s a direct, or rather inverse, correlation between the number of people riding Muni and the number of cars on the streets.)

But what it says to me is that city hall doesn’t really consider the car glut a top priority.

There is no official city goal to reduce the number of cars in town or the number of car miles traveled or the number of vehicles on the streets. The city Planning Department continues to base its land-use decisions on projections of increased car traffic (which has to be accommodated with more garages). Nobody’s calling for a five-year plan to turn the trend around.

It’s going to be a big year for transit policy: the city’s Transit Effectiveness Study comes out in February, and the report on congestion management should be done in June. Perhaps the supervisors can use that information to create goals, timelines, and programs that will reduce — instead of accommodate — cars on the streets.

I’m part of the problem, and I know it: I drive a car, and I drive it too often. I do it because it’s difficult to get my kids to and from school on a bus.

That’s one of the tricky parts of this equation (school buses in a city where everyone has choice and kids from any neighborhood can go to any school), but I have to say, the parking lot at McKinley Elementary School is packed every single morning with people driving schoolkids. You’d think the city could work with the San Francisco Unified School District — maybe organize car pools. Maybe the mayor’s $130,000 per year global warming coordinator could get involved.

We could start with a citywide survey: Why do you drive? Where? What would get you out of your car? Aim for 5 percent per year. It’d be better than what we’re doing now.

Delete key


› sarah@sfbg.com

San Francisco’s recent move to a new, privatized electronic campaign finance database will make it more difficult to track amendments to reports on political spending, a change that has caused a conflict between top-level staffers at the Ethics Commission.

In a Jan. 10 memo sent to all of the appointed members of the Ethics Commission, fines collection officer Oliver Luby wrote, "The transition to a NetFile-created database will result in large amounts of deletion of campaign data from the Commission’s database, both in the future and retroactively.

"This data deletion will destroy the ability of the Commission and the public to systematically perform computerized reviews of finance changes made via amendment," Luby wrote, adding, "Coincidentally, the biggest beneficiary of this lack of disclosure will be the clients of NetFile."

Many large campaigns use NetFile to electronically file their finance statements, and last year the Ethics Commission decided to have the company take over the city database, which officials with the Department of Technology and Information Services say is failing.

To illustrate his concerns, Luby sent a report to commissioners and staff Jan. 2 identifying more than $2 million in transactions that political committees, including the 2003 campaigns Gavin Newsom for Mayor and Kamala Harris for District Attorney, reported between 1997 and 2007 by using post-filing-deadline amendments, sometimes in violation of the law.

"If there is any way for the Commission to convince NetFile to provide a database and filing system that will not delete data, I recommend pursuing it," Luby concluded. "Otherwise, this problem is an indicator that the cost savings obtained by using NetFile, instead of SF DTIS, were inflated."

But Ethics executive director John St. Croix didn’t appreciate Luby’s input and defended the choice of NetFile.

"DTIS determined that it would be very expensive and unrealistic for them to create a new system since they didn’t have the man power or the time. And to buy it elsewhere, like from the city of Los Angeles, would have been expensive, so we looked at the private vendors," he told the Guardian.

St. Croix signed a three-year, $90,000 per year contract with NetFile on Oct. 31, 2007, and told us, "If we don’t go with NetFile, we won’t have anything,"

David Tristan, deputy director of Los Angeles’ Ethics Commission confirmed that his city’s in-house system, which costs $30,000 per year, is not a turnkey operation: "It was built as a filing, audit, enforcement, and compliance tool, and it’s a good system, but we encourage that you have a systems person."

St. Croix claimed Ethics auditors are not losing any tracking capability. "The way the old system works, a global assessment is no longer available," St. Croix told the Guardian.

Acknowledging that his staff will have to take more steps to do a comprehensive "global search," St. Croix said Luby "is negating the fact that we will be able to display lobbyist reports, statements of economic interests, and all our scanned filings."

If a modification to the NetFile contract is required, St. Croix said, "We’ll try to get the city to pay for it." But, he claimed, "there is no basis for the idea that there is a sinister relationship between the filers and NetFile."

NetFile founder David Montgomery confirmed that NetFile, which accounts for 50 percent of the state’s electronic filings, provides services to filers, such as political committees supporting candidates and measures, and governmental agencies.

"But the data filed belongs to NetFile’s customers. We’re just providing a management service," Montgomery told the Guardian, dismissing conflict-of-interest concerns. "That’s like saying that because Joe Smith cheated on his income tax, we need to sue TurboTax."

Noting that amendment-tracking capabilities are on NetFile’s long-term wish list, Montgomery said, "We want to make sure everyone is happy with the transition, but some people don’t like change."

Joe Lynn, who was campaign finance project for the Ethics Commission when San Francisco went online, believes NetFile represents a degradation of Ethics audit capacity. "The biggest fine issued by the SF Ethics Commission, and the biggest in California, involved this principle, the auditing of an amendment," he said, referring to the $100,000 fine that a Pacific Gas and Electric Co.–funded committee incurred from the city (plus $140,000 from the state) when its amended filings showed it failed to disclose $800,000 in last-minute donations from the utility to help defeat a 2002 public power measure. Ethics auditors caught one of PG&E’s violations, while the media, using Ethics’ amendment review tools, caught the other.

"But thanks to the way NetFile’s system is set up, it doesn’t have the capacity to display amendments the way we do," Lynn said. "This demonstrates the dangers of privatization."

Lynn said NetFile’s less sophisticated ability to track amendments stems from the fact that it was set up in 1998 to help committees fill out campaign finance reports, "and not from what makes sense for public disclosure.

"It’s unfortunate, but not necessarily negligent, that this fell through the cracks," added Lynn, who suggests the Ethics Commission should work to resuscitate its amendment-tracking ability by requiring that committees filing amendments fill out a form stating just how filings have been amended.

"We need to have ordinance," Lynn said. He doesn’t buy the argument that NetFile’s system is adequate just because it’s used by San Jose, Santa Clara, and San Bernardino.

"San Francisco should have a first-class system," Lynn said. "This is another mechanism by which a committee can skirt the law."

Robert Stern at the LA Center for Governmental Studies worries that by signing on with NetFile, San Francisco will lose "the ability to find electronically information on what was changed and to see whether voters had this amended information before an election and what they were learning through amendments afterwards."

Luby also worries that because Ethics’ old database won’t have technical support, it could irreparably break down in the future and that even if it remains functional, "auditors will have to look in two places to see every local contribution Chevron made."

Luby e-mailed his concerns to management Dec. 7, 2007, then provided them with his detailed analysis Jan. 2 — submissions that raised St. Croix’s ire.

"I cannot attest to the accuracy of the information in this report," St. Croix wrote in a Jan. 11 memo to the commission. "I believe that many of its conclusions are inaccurate and many are spurious. Further, the information appears to be based on false assumptions and the language implies dishonest motives that are quite simply non-existent."

But St. Croix’s reply earned a swift rebuke from Luby’s union, Service Employees International Union Local 1021. "We believe the report was written in accord with Mr. Luby’s previously recognized duties," SEIU work-site organizer Cristal Java wrote Jan. 15.

Claiming St. Croix implied that Luby’s report was a "misuse of City resources," Java added, "While Mr. Luby’s act of forwarding his report may not satisfy the technical requirements of filing a complaint, we believe that Mr. Luby’s bringing of a report about work-related problems to your attention was whistleblowing."

Luby said St. Croix "is attempting to discredit his amendment review report because its results reflect that Ethics staff dropped the ball when the new database’s minimum system requirements were provided to NetFile. Mr. St. Croix doesn’t want to own up to the mistake."

Money for nothing


› news@sfbg.com

Nedir Bey, a close confidant of the late Your Black Muslim Bakery founder Yusuf Bey, received public funds for his anemic 2002 run for the Oakland City Council but faced little scrutiny from election officials for suspect political contributions and spending.

The discovery appears to be one more example of the Bey empire’s alleged scams and schemes uncovered by the Chauncey Bailey Project since the eponymous journalist’s August 2007 murder, which law enforcement sources have linked to the bakery.

For five years the Fair Political Practices Commission in Sacramento sat on a request to investigate alleged campaign finance irregularities committed by Nedir Bey — who owes the city of Oakland $1.5 million in another matter — then dropped the probe because too much time had elapsed.

Bey ran for the Oakland City Council’s District 4 seat in March 2002 but got only 268 votes. He received $14,178 in public matching funds for his campaign despite questions raised by the head of Oakland’s Public Ethics Commission about the sources of the candidate’s contributions.

In August 2007, however, the FPPC sent a letter to Bey announcing it would not be taking any action against him, “given the age of this case and our current enforcement priorities.” Bey refused to comment on any of the main points in this article.

FPPC spokesperson Roman Porter said he could not say why the investigation lagged as long as it did, other than to say that a former enforcement official refrained from pursuing the case. Porter said the official closed a large number of cases to decrease a backlog, but Bey’s wasn’t one of them.

A new chairman and enforcement team came on board last year, but by that time the statute of limitations had already expired on two of the matters contained in Oakland’s complaint and there wasn’t enough time left to investigate the third matter before the statute of limitations ran out, Porter said.

Oakland’s Public Ethics Commission executive director, Dan Purnell, passed the case to Sacramento instead of completing the investigation locally. City law gives the Public Ethics Commission the sole authority for civil enforcement of the Limited Public Financing Act, which contains regulations for disbursing matching funds.

Purnell suspected irregularities in Bey’s campaign expenditures as early as January 2002, 10 months before he asked the state FPPC to initiate an investigation.

The March 2002 election was the first in Oakland to offer public financing to candidates who agreed to abide by voluntary spending limits. Candidates in the election could qualify for up to $14,700 in matching public funds from a special account established by the city to help defray the cost of running for office.

Matched contributions had to be $100 or less. The Committee to Elect Nedir Bey reported it had raised a total of $14,517, of which $14,178 was eligible for matching funds. The campaign reported it spent a total of $39,741 on the election.

Documents obtained from the FPPC through a public records request show that of 145 contributions, 123 were made with $99 money orders with sequential numbers, all apparently purchased from the same location over a four-day period between Jan. 14 and 18, 2002. Only 22 donations to Bey’s campaign were written on personal checks.

Purnell asked Bey prior to disbursing the matching funds if the money orders were purchased at the same time in bundles and if anyone other than the donor had purchased them. Bey declined to comment for this story, but he explained to Purnell at the time that the donors were transported to the store en masse to buy the money orders, and he promised no one else had obtained them for the donors.

Bey also assured Purnell that the listed contributors were adults who gave their own money, as required by law, although 26 donors listed their addresses as either 5832 or 5836 San Pablo, locations used at that time by Your Black Muslim Bakery.

Once Bey got the money, he stopped filing required campaign finance statements with the city. When he eventually filed them in September 2002, the forms offered no detailed accounting of the $39,741 worth of expenditures. Nor did Bey explain the gap between the amount spent on his campaign and the contributions received, which came to $28,695, including the public matching funds.

Often the bulk of election costs come from fees paid to consultants, printed campaign materials, fundraising events, and office rental. Bey’s committee paid all but $500 to a person by the name of Vaughan Foster, who provided no address or further identification. Foster reportedly received $27,000 for salary, $11,000 for circuutf8g petitions, $241 for voter registration, and $1,000 for phone banking.

Bey’s birth name is Victor Foster.

The Public Ethics Commission received a complaint and ultimately voted in August 2002 to forward the matter to the state FPPC after a stormy hearing during which Bey told the commissioners he was “not a professional politician,” as the Contra Costa Times reported. He also told the commission he “would not bow down to [them].”

In an Oct. 10, 2002, letter to state authorities, Purnell wrote, “The commission believes this matter is important because the commission relies on the content and accuracy of campaign statements to help administer its matching fund program.”

The FPPC has moved to subpoena bank records and other materials during the intervening years. But in August 2007, nearly five years after Purnell’s initial request and four years after he forwarded hundreds of pages of documentation from the campaign to Dan Schek, an FPPC investigator, Bey received a letter declaring the case closed.

Jean Quan, the District 4 incumbent who ran against Bey in 2002, said she didn’t recall him stumping widely or knocking on doors in the area’s neighborhoods. She was surprised he raised $15,000 from private donors to begin with and said he didn’t appear to spend much of it on campaign signs.

“I ran into a few fliers of his,” she said, “but nothing that would cost $30,000.”

According to the city’s municipal code governing elections, the Public Ethics Commission is supposed to “promptly advise” the city attorney in writing, as well as the “appropriate prosecuting enforcement agency,” of any evidence of criminal violations.

The law states, “any person who knowingly or willfully misrepresents his or her eligibility for matching funds … is guilty of a misdemeanor.”

The law also gives the local commission broad latitude to recover the funds, including penalties and fines not to exceed $1,000 per violation, and authorizes the commission to sue the candidate.

But none of that was done in Bey’s case, Purnell said. The matter was referred to the state because the Ethics Commission does not have the authority to enforce state elections laws, which at that time appeared to be Bey’s most obvious violation, Purnell said.

“To make a criminal complaint we have to prove intent,” Purnell said.

He said he was never pressured by anyone to refer the matter to the state instead of local authorities. Back then he had no idea who Bey was, that he was connected to Your Black Muslim Bakery, or that he had defaulted on a $1.1 million economic revitalization loan from the city of Oakland just a few years before running for the Oakland City Council, Purnell said.

“I didn’t know Nedir Bey from Adam,” Purnell said, adding that he later learned of Bey’s background from a November 2002 article in the East Bay Express.

“What I recall him telling me was that it was a big grassroots effort on his part, that many of his contributors were poor and lived in a complex and he organized them to go down there [to buy the money orders],” Purnell said. “It sounded plausible.”

The city’s original public financing ordinance was less restrictive regarding matching contributions than it is now, partly because of the Bey case. Contributions made by money order are no longer eligible for matching funds and now must be made on two-party checks drawn on the bank account of the contributors.

In the past, Bey has represented himself as a “spiritual adviser” to the late Antar Bey, who was briefly head of Your Black Muslim Bakery. Other bakery associates face numerous criminal charges in Alameda County, including torture, kidnapping, real estate fraud, and the Aug. 2, 2007, killing of Oakland journalist Bailey, who was working on stories about the Bey empire.

Most recently Nedir Bey served as president of the school site council for Fruitvale Elementary School.

Bob Stern, president of the Center for Governmental Studies in Los Angeles, said the understaffed FPPC couldn’t investigate every small-time municipal election.

But, he said, “when the ethics commission realized the FPPC wasn’t acting on the case quickly, then Oakland really should have begun looking at it.”

Cecily Burt is a staff writer for MediaNews, one of the Guardian‘s partners in the Chauncey Bailey Project. For more information and to read past stories, go to www.sfbg.com/news/chaunceybailey.

Dark Chocolate 1.0


NEWS What does technology taste like? According to TCHO, the answer is chocolate. This brand-new San Francisco company, founded by Wired magazine cofounder Louis Rossetto, is serious about good, dark chocolate — and using tried-and-true Silicon Valley techniques to guarantee quality and customer satisfaction.

For example: TCHO’s beta test for a new flavor at the Electronic Frontier Foundation’s 17th anniversary party at 111 Minna last week. TCHO representatives invited participants — many who came straight from Macworld — to taste small morsels of two flavors of chocolate and then vote for their favorite. The winner, to be announced in the EFF’s next newsletter, will determine the direction TCHO will take when it releases nationally later this year — a process not dissimilar to the way tech companies test, refine, and market their new software. (In case you’re curious, Option A was a warm, consistent, slightly bitter dark that just begged to be complemented with orange slices. Option B was sweeter but with a complex, strongly bitter aftertaste. I voted for A.)

All of this would be just an interesting gimmick if the chocolate weren’t good — which it truly is. So I expect the employee-owned fair trade company, which currently only sells its products at its Fisherman’s Wharf factory and online, will find itself quite a cult following. It’s no MacBook Air, but TCHO’s 0.16-inch innovation is much more cost-effective — and I promise it tastes better.

TCHO Mon.–Fri., 4–7 p.m. Pier 17, SF. (415) 981-0189, tcho.com

Daily Journal: Trial to start in Bay Guardian’s suit over rival’s ad costs


SAN FRANCISCO – For the 30th anniversary edition of The San Francisco Bay Guardian, founders Bruce B. Brugmann and Jean Dibble, his wife, posed for a cover shot in front of their home.

Dibble wore an apron and an overall-clad Brugmann held a pitchfork, recreating one of this country’s most famous paintings, Grant Wood’s 1930 “American Gothic.”

The photo was a nod to the couple’s Midwestern roots. Wood’s portrait depicted an Iowa dentist and his sister; Brugmann and Dibble came to San Francisco from Rock Rapids, Iowa, to start the Guardian in 1966.

But it wasn’t a pitchfork that got the unapologetically left-leaning newspaper going. It was a lawsuit.

In 1970, Brugmann sued the San Francisco Newspaper Agency, which operated the San Francisco Chronicle and the San Francisco Examiner under a joint operating agreement. Brugmann’s complaint asserted that the agreement constituted a monopoly.

The case settled for $500,000, and Brugmann used the money to increase the frequency of his publication.

Forty years later, Brugmann is back in court with another anti-competitive lawsuit.

This one, against SF Weekly and its parent chain, New Times Newspapers, asserts that the Weekly sold its advertisements below what it cost to produce them in an effort to push the Guardian out of business. Bay Guardian Co. v. New Times Media, 435585 (S.F. Super. Ct., filed Oct. 19, 2004).

Jury selection is set to begin Thursday in San Francisco County Superior Court, Judge Marla J. Miller’s courtroom.

Brugmann’s suit also claims below-cost ad sales or “predatory pricing” by the East Bay Express, which New Times bought in 2001 but sold last year. New Times merged with and became Village Voice Media in 2006. Its 17 publications make it the largest chain of alternative newsweeklies in the United States.

New Times executives and its attorneys deny that either the East Bay Express or SF Weekly sold ads below cost in an effort to rid the market of the Guardian.

Experts say predatory-pricing cases are interesting because of the inherently economic and somewhat theoretical aspect of the claims. What is cost, and how should it be determined? And, perhaps more important, does the plaintiff need to prove that the defendant would be successful post-predatory pricing?

In California, at least, the latter may be debatable.

SF Weekly launched in 1989. When New Times bought the Weekly in 1995, the Bay Area became one of three places New Times had a direct competitor in the market. In the second and third places, Cleveland and Los Angeles, New Times competed with rival Village Voice Media papers. In 2002, a “market-swap” deal between the chains eliminated head-to-head competition in those cities but caught the attention of the Justice Department. In January 2003, both companies signed a consent decree agreeing to aid competition by selling the rights to their former paper names. Neither admitted wrongdoing.

Brugmann points to that incident as evidence that New Times has a history of eliminating competition, but a pretrial motion from New Times barred any reference to the deal at trial.

The Weekly and the Guardian are both distributed free and depend largely on advertising revenues.

Although generally more politically moderate – and far less likely to take on such constant Brugmann targets as Pacific Gas and Electric Co. – the Weekly closely parallels the Guardian’s other qualities, including ubiquitous advertising for medical-marijuana clubs, “escort” services and bars and restaurants.

San Francisco Kerr & Wagstaffe attorneys H. Sinclair Kerr, James M. Wagstaffe and Ivo Labar represent New Times.

Labar said Brugmann is using the Weekly as a “scapegoat” for his own problems in dealing with new challenges in print media.

Michael Lacey, executive editor of the new Village Voice chain, agreed.

“[A lawsuit] is how Bruce got into the business, and now, in the twilight of his years, it’s how he’s hoping to maintain his business in a really tough media market,” Lacey said.

But Brugmann denies that’s the case.

“Of course that’s their story,” he said. “But from our point of view, the fact that the economy is not good and there are other problems in this business only makes this problem more acute.”

The problem Brugmann refers to began after New Times’ purchase of the Weekly.
According to Brugmann, his advertising staff started coming to him saying they were having problems making sales.

An exhibit in the Guardian’s court documents shows a list of dozens of advertisers, with Guardian employee notations alongside them: “Couldn’t match SFW,” “Great Deal with EBE [East Bay Express],” “Ludicrous deal from SFW,” “SFW giving away free ads,” “Will come back if match SFW,” “Match SFW or we’ll pull ads.”

Brugmann said he tried warning the Weekly about its practice. But when the ad rates didn’t go up, he sued.

“We had to sue them to get an even playing field,” he said.

Brugmann’s complaint asserts that the Weekly is using its parent company’s resources to lose money in San Francisco until the Guardian folds – like a broadsheet.
“This is a situation where a chain has decided that it could take over the market and either run a small family-owned company out of business or at least cripple them so they wouldn’t be an effective competitor,” said Ralph C. Alldredge, a San Francisco attorney who represents the Guardian.

E. Craig Moody and Richard P. Hill of San Francisco’s Moody & Hill also represent the Guardian.

In opposition to the Weekly’s motion for summary judgment (which was denied by San Francisco County Superior Court Judge Richard A. Kramer in October), the Guardian points out that Weekly executives knew their paper could make money in the Bay Area market if they raised their advertising rates.

The Guardian’s papers also cite evidence of wrongful intent. One piece of evidence is that, in a meeting with Weekly staff shortly after New Times bought the paper, Lacey told his employees he wanted the Weekly to be “the only game in town.”

Lacey points out that statement was made well before the period covered by Brugmann’s lawsuit and that he was speaking about editorial content, not advertising.

“I write for a living, and I edit for a living,” he said. “I have nothing to do with advertising. I never have.”

According to Lacey and attorney Labar, the Weekly would be no better off with the Guardian out of the picture.

“That doesn’t change our business profile here,” Lacey said. “I guarantee you, like mushrooms cropping up, there will be publications cropping up. Everybody takes a piece of the same sorts of actions.”

Labar agreed.

“This isn’t a city with two newspapers,” he said. “It’s a city with unlimited means to advertise.”

In papers, the Weekly point to several other newspapers or online advertising outlets that clutter the Bay Area market: a weekly supplement in the San Francisco Chronicle, the Chronicle itself, The Onion and craigslist, among others.

But the Guardian’s papers assert that New Times executives called the Bay Area advertising market a “zero sum game” with the Guardian and kept track of the number of advertising inches purchased by each Bay Guardian customer in a weekly “Guardian Report.”

Experts say predatory-pricing cases face very different odds depending on where they are filed. Attorneys say California superior courts generally are seen as more friendly to plaintiffs.

That’s largely because federal courts have been swayed by decades-old economic theory that is skeptical of the plausibility of predatory-pricing claims, some say.

“[The theory] was highly critical of the idea that predation could ever work,” said Daniel A. Crane, an antitrust professor at the Benjamin N. Cardozo School of Law. “For one, it’s extremely expensive. Then, you not only have to prevail, you have to recoup [recover your losses]. If another firm comes into the market, you don’t get to recoup. It’s almost a suicidal way of doing business.”

Crane, who has written about predatory-pricing cases, said economic theory also has developed in support of predatory-pricing claims. But in his view, the theories often don’t stand up in the real world.

Don T. Hibner, an antitrust attorney with Sheppard, Mullin, Richter & Hampton in Los Angeles, agreed.

“With enough ifs, we could put Paris in a bottle,” Hibner said, paraphrasing a French proverb. “We want to use economic theory to buttress facts and common sense. If we’re going out on a limb and all we have is economic theory, God help us.”

To protect competitors from purely theoretical claims, Hibner said federal courts have adopted tougher standards for plaintiffs in predatory-pricing cases. First, they’ve adopted a method of calcuutf8g cost that takes into account only variable costs.

California uses a method called “fully allocated costs,” which factors in all costs, both fixed and variable. That method generally yields a higher cost, making it easier for a plaintiff to show that any sale was below cost.

Second, federal courts require the plaintiff to prove that the defendant would in fact be able to recover or recoup its losses after the plaintiff was pushed out of the market. California courts have not directly addressed the issue of recoupment, making the recoupment prong debatable, attorneys say.

Cost and recoupment are the “two horns on which you can be hooked” in federal courts, according to Maxwell M. Blecher, of Blecher & Collins in Los Angeles. Blecher most often represents plaintiffs in predatory-pricing cases.

Hibner said the California statutes dealing with sales below cost “seem to mean what they say,” he said.

The primary statute at issue, Business and Professions Code 17043, reads, “It is unlawful for any person engaged in business within this state to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.”

Hibner said literal readings of the statute sometimes can shift the protection of antitrust laws from consumers to “inefficient competitors.”

But according to Alldredge, the language makes the Guardian’s case simple.

“All you do is take all of their costs and divide that by the number of inches of advertising space they sold,” he said. “That tells you how much the cost is per inch. Whenever they sell below that cost, under California law, they’ve committed a violation.”
And, he added, under California’s Unfair Practices Act, with even one below-cost sale, a defendant’s negative intent is presumed.

That places the burden on the defense to show that they had another reason for selling below cost.

“Why were we selling below cost on certain advertisements?” Labar asked. “We couldn’t get a higher price.”

Labar said the triable issue of fact is intent.

“They’re trying to say a handful of documents and a couple of statements indicate we were trying to run them out of business,” he said. “We say, ‘No, they indicate we were trying to compete.'”

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