SFBG Blogs

Judge Marla Miller July 18th rejected attempts by the SF Weekly and its chain owner to overturn the Bay Guardian’s victory and $16 million jury award in a predatory pricing case.

The ruling on the defendants’ post-trial motions marked the end of the first full round of this legal fight and sets the stage for a shift to the California Court of Appeal. All that remains to be decided by Judge Miller is the Guardian’s upcoming motion for attorneys’ fees, which are expressly allowed to a prevailing party under the California Unfair Practices Act.

SF Weekly and Village Voice Media had asked Miller to overturn the jury verdict or order a new trial, and the company lawyers spent hours July 8th arguing that the evidence presented in a five-week trial didn’t justify the jury’s decision. And they claimed, in a laundry list of challenges, that Miller had issued improper jury instructions and erred in admitting evidence at trial.

Defense attorneys James Wagstaffe and H. Sinclair Kerr also tried to get the judge to overturn the 16-paper chain’s liabilty for any damages awarded by the jury. That would have left the Weekly as the only guilty party. VVM had admitted in earlier post-trial proceedings that the Weekly has a negative net worth and alone would be unable to pay the Guardian anywhere near $16 million.

Miller, with little comment, denied those requests.

In her “order denying defendants’ motion for new trial” Miller stated:

“To the extent that the motion for New Trial is based upon the grounds of insufficiency of the evidence to justify the verdict (Civil Procedure Code #657(6) and excessive damages (Civil Procedure Code #657(5) the court has weighed the evidence and is not convinced from the entire record, including reasonable inferences therefrom, that the jury clearly should have reached a different verdict. To the extent that the motion for New Trial is based upon errors at law which Defendants contend occurred at the trial and were excepted to by them (Civil Procedure #657(7), the Court finds these contentions lack merit.”

The defendants have said they plan to appeal.

The case centered around the Guardian’s charge that the Weekly had for years violated California’s Unfair practices Act by selling advertising space below the cost of producing it for the purpose of injuring the locally owned, independent competitor.

Evidence presented at trial showed that the Weekly had consistently lost money, as much as $2 million a year, since New Times, now known as VVM, bought the paper in 1995.

The chain later bought the East Bay Express, and transformed it from a profitable paper to one that consistently lost money. Between the Weekly and the Express, VVM has lost some $25 million in San Francisco.

The evidence also showed that VVM’s executive editor, Michael Lacey, had vowed to put the Guardian out of business, and that Weekly advertising and business staff were instructed to try to take business away from the Guardian by below cost pricing, whatever the sacrifice in revenue and profits.

And while the VVM lawyers mounted a convoluted legal argument to claim that the parent company wasn’t legally liable for any damages, the trial showed that the senior executives at the Phoenix-based chain were not only aware of the predatory strategy but were active participants in enabling the Weekly to carry out its pervasive program of below-cost sales..

In fact, two senior officers, CFO Jed Brunst and Controller Jeff Mars, testified on the stand or in pretrial depositions that the SF Weekly would have gone out of business years ago if the chain hadn’t made a policy of shipping large sums of money from headquarters into the San Francisco operation to subsidize below-cost sales.

After the trial, jurors said they were convinced that VVM sought to destroy local competition. Juror Kerstin Sjoquist, a local business owner and graduate student, said in an interview that “it felt overly predatory on the part of the Weekly” and that “the predatory intent trickled down from the top.”

Although the VVM lawyers have 60 days to file their notice of appeal, there’s already some indication of what the chain will try to argue to the higher court. Even before the trial started, Andy Van De Voorde, VVM executive associate editor, who flew in from Denver to cover the trial for the Weekly, argued in his blogs that the California Unfair Practices Act was out of date and irrelevant. Referring to the act as a “depression era law,” (actually, the act dates back to 1913, California’s Progressive Era), Van De Voorde suggested that modern competitive markets made such a law pointless.

The law bars any business from selling a product or service below cost with the intent to harm a competitor or destroy competition. That prohibition has been upheld by many appellate court decisions, some as recent as the 21st century. The state Legislature has reviewed and even amended that part of the state code many times in recent decades, but has declined to make any fundamental changes in the protections afforded by the Unfair Practices Act.

And the trend toward chain ownership and consolidation of businesses in everything from coffee shops to bookstores and hair salons would seem to suggest that the need for a law protecting independent local merchants from predatory chains is greater than ever today.

That’s certainly true for the news media: One company new owns almost every daily newspaper in the Bay Area.

Both before and after the trial, the VVM lawyers also argued that a ban on predatory pricing would violate the Weekly’s First Amendment rights. If the paper was forced to live within its means – that is, to raise ad rates and stop relying on big subsidies from the chain – Weekly managers might have to cut the size of the staff, thus reducing editorial coverage, the lawyers argued.

Two judges – first Richard Kramer, who handled pre-trial rulings, and later Miller – rejected that argument wholesale.

As the Guardian’s lawyers argued, newspapers have always had to follow basic business regulations – even when they might cost money that could have gone to editorial staffing. No newspaper has ever seriously tried to claim that labor laws, or environmental laws, or workplace-safety laws, or tax laws were a First Amendment violation.

Still, those claims may appear again in the appellate briefs.

Meanwhile, the costs to VVM and the Weekly will continue to rise: If the verdict is upheld on appeal, the chain will have to pay interest on the jury award, which is now accruing at about $4,300 a day. And at this point the Guardian has an additional statutory right to recover reasonable attorney’s fees, which could add a substantial amount to the current judgment of more than $16 million

The Guardian’s lawyers are Ralph Alldredge, Richard Hill and E. Craig Moody.

You can read the Guardian’s key legal brief on the post-trial motions here. For a detailed history of the case, click here