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Thursday, October 14, 1999



Star-Bulletin closing after 117 years

Star-Bulletin
keeps on rolling

A federal judge's order gives
the newspaper life until a further
court order or until the state's case
against closure is heard

Bullet Bulletin case breaks new legal ground
Bullet Summary of the court arguments
Bullet Battle tugs at hearts of staffers
Bullet Full-text of Gannett-Liberty agreement

By Debra Barayuga
and Gregg K. Kakesako
Star-Bulletin

Tapa

THE Honolulu Star-Bulletin will continue publishing after its announced closing date of Oct. 30, or until further order by a federal court judge.

That's the effect of U.S. District Judge Alan C. Kay's decision yesterday in granting a preliminary injunction to the state, which asserted that an agreement to shut down the Star-Bulletin violated state and federal antitrust laws.

Kay's ruling prohibits Star-Bulletin owner Liberty Newspapers Limited Partnership and Gannett Pacific Corp., which owns the Honolulu Advertiser, from terminating their joint operating agreement and halting publication of the afternoon daily. Under the JOA, the Star-Bulletin and Advertiser share printing, distribution and advertising functions but maintain separate newsrooms.

Gannett and Liberty can appeal to the 9th U.S. Circuit Court of Appeals. Both companies indicated they will file an emergency appeal.


By Ken Ige, Star-Bulletin
Newly painted Advertiser newspaper street racks front Star-Bulletin
racks ready for repainting into Advertiser boxes. Sun Auto Body
workers were told today to stop changing the Star-Bulletin racks.



"Gannett Pacific will, of course, obey the injunction as long as it is in effect," Mike Fisch, president and publisher of the Honolulu Advertiser, said in a written statement. "We will immediately ask the court of appeals to set aside the judge's order."

Observers say the 9th Circuit could take a few days to several months to render a decision.

The state is prepared to defend an appeal, said deputy attorney general Rodney Kimura.

Trial date hasn't been set

Meanwhile, the preliminary injunction is in effect until the court rules further, and most likely until after a trial on the merits of the state's claims. A trial date has not been set.

Gannett also has until today to comply with an order from the U.S. Department of Justice, which also is investigating the agreement to end the JOA. The anti-trust division last week issued a civil investigation demand for documents from the Hawaii Newspaper Agency, the Gannett-owned entity which sells advertising, distributes and publishes both newspapers.

John Flanagan, editor and publisher of the Star-Bulletin, said that, like others, he has mixed feelings about the court's decision.


' I don't want to adopt false hopes
that we're out of the the woods and
this is a permanent situation.'


John Flanagan

EDITOR AND PUBLISHER OF THE
HONOLULU STAR-BULLETIN


Tapa

"What we do is write and edit and illustrate newspapers -- that's our job, and having a judge say we can continue doing it is good news," he said.

"At the same time, I don't want to adopt false hopes that we're out of the the woods and this is a permanent situation." The ruling doesn't make it easier for Star-Bulletin employees who are considering other job offers and aren't sure whether they should stay or leave.

Readers, however, can be assured yesterday's ruling will not affect the quality of the Star-Bulletin, Flanagan said. "We're all committed to putting out the best newspaper we can."

Gov. Ben Cayetano, in a written statement, said Kay made the right decision: "Though I've often disagreed with the paper's editorial policy, it was incumbent upon us to do what was right. The deal the papers cut was a perversion of the Newspaper Preservation Act and should not be permitted."

The state argued it was illegal for Gannett to pay Liberty to quit publishing, leaving the Honolulu Advertiser the sole daily circulation newspaper in Hawaii.

While Liberty can't be forced to continue publishing if it chooses not to, "You can't just pay a competitor to get out of town," Kimura said.

Firm cites First Amendment

In court yesterday, Gannett defended the agreement to end the JOA, arguing that the First Amendment gives a paper the right to publish or not to publish.

Robert Bernius, attorney for Gannett Pacific, said the Honolulu Advertiser's actions were merely another modification of the JOA first entered into with the Star-Bulletin in 1962.

He said it has been modified several times, the last being in 1993 when Liberty Newspapers bought the Star-Bulletin, without opposition from the Justice Department or any other groups, including the attorney general of the state of Hawaii.

Bernius said there is nothing in the 1970 federal Newspaper Preservation Act that sets minimum terms of joint operating agreements between two newspapers.

He said the decision to terminate the agreement between Gannett and Liberty was just another modification of the agreement between the two papers.

"There is nothing in the Newspaper Preservation Act which forces the parties to stick to a date they agreed to under different economic circumstances," he said.

Bernius said the state's request disrupts the "orderly transition."

"The Honolulu Advertiser can't even talk to Star-Bulletin reporters about employment," he added.

Liberty wants out

Alan Marx, Liberty's attorney, said Rupert Phillips, Liberty's major owner, wants to end the 1993 partnership because he can get "a higher return" on his investment elsewhere.

He said Liberty's investors were promised by Gannett a 12 percent return on their initial investment of $15 million and a 3 percent share of profits above that rate.

In its termination agreement, Gannett agreed to pay Liberty $26.5 million -- believed to be close to the amount Liberty would have received if it maintained the joint operating agreement until 2012.

In his ruling, Kay agreed with the state that it was likely to succeed on the merits of its claims and would suffer irreparable harm if injunctive relief was not granted.

He said he was not persuaded by Gannett's argument that the Newspaper Preservation Act exempts the termination agreement from antitrust scrutiny.

The act's purpose is to preserve competing editorial voices, but the termination agreement results in the closure of the Star-Bulletin, which doesn't have the infrastructure to publish, he said.

Kay ordered the state to put up a $10,000 bond to cover possible losses Gannett might suffer. Gannett had originally asked for a $10-million bond. If Gannett wins its case and can prove it suffered losses because of the state's lawsuit, the corporation can seek reimbursement from the state.

Gannett and Liberty are also prohibited from proceeding with the proposed Oct. 30 shutdown and paying out the $26.5 million termination payment, Kay said.

He also ordered the parties not to make any changes to the existing joint operating agreement or make adverse changes that would affect Star-Bulletin's advertisers and subscribers.

Kimura said Gannett and Liberty have the option of ending the lawsuit by withdrawing from the agreement to end the JOA.

According to the termination agreement between Liberty and Gannett, the issuance of a temporary, preliminary or permanent injunction or "civil investigation demand" allows either party to pull out, Kimura said.


Where they stand

A summary of the court arguments of both sides:

Gannett and Liberty

Bullet The Newspaper Preservation Act contains nothing that prohibits the termination of a joint operating agreement.

Bullet Gannett and Liberty simply agreed to end the joint operating agreement, and there was no agreement to shut down the Star-Bulletin.

Bullet Liberty Newspapers has the right to decide whether it wants to publish the Star-Bulletin or not.

Bullet An order forcing the Star-Bulletin to continue would be unconstitutional and cause financial harm.

Bullet The courts have no right to order newspapers to compete editorially, and the courts cannot force a newspaper to publish when it doesn't want to because that would impose undue costs on the publisher.

The state

Bullet Honolulu Star-Bulletin owner Liberty Newspapers Limited Partnership conspired with Gannett Pacific Corp., owner of the Honolulu Advertiser, to monopolize general circulation newspapers on Oahu by agreeing to end the joint operating agreement between the papers.

Bullet The clear intent of the $26.5 million termination agreement between Gannett and Liberty is to eliminate the Star-Bulletin as a competitor to the Advertiser.

Bullet Gannett and Liberty are restraining views and trade by refusing to publish the Star-Bulletin.

Bullet Actions already taken by the Gannett-owned Hawaii Newspaper Agency, such as removing Star-Bulletin street vending racks, virtually assures nothing will be left of the Star-Bulletin.

Bullet The danger of irreparable loss is immediate because it is unlikely the Star-Bulletin would reopen once it is shutdown.



Excerpts

Click here for the full text of the Liberty-Gannett agreement.

Here are a summary and excerpts from the termination agreement between Liberty Newspapers and Gannett Co.

Bullet Liberty: Requested termination of the joint operating agreement in exchange for a lump sum payment. Liberty determined "upon its own initiative" that it is not in its interest to continue to publish the Star-Bulletin pursuant to the agreement.

Bullet Profitability: "On a stand-alone basis, the expenses of publishing the Star-Bulletin substantially exceed the incremental revenues, and the Star-Bulletin is no longer profitable."

Bullet Terms: Liberty is to receive a lump sum payment of $26.5 million. Other funds will be provided by the Honolulu Advertiser and the partnership to meet obligations to Liberty arising out of the termination, including costs incurred by state and federal plant closing provisions and health and severance costs of Star-Bulletin employees, including payments to each of the publisher and editor "in an amount equal to up to two times his 1999 salary and 1998 bonus, respectively."

Bullet Challenges: If an action challenges the validity of or claims substantial damages from either party because of the termination agreement, or if a restraining order or injunction is issued enjoining the termination, then either party may terminate the termination agreement. If the Advertiser receives a civil investigation demand or "equivalent process from any federal or state agency, then Advertiser may terminate this termination agreement."

Bullet The agreement: "If for any reason the agreement does not terminate by the close of business on December 23, 1999 ... all provisions of the termination agreement shall be null and void ... and the agreement and the partnership shall remain in full force and effect for its remaining term, unless the parties otherwise agree in writing."



The battle tugs at hearts,
hope of staffers

By Gordon Y.K. Pang
Star-Bulletin

Tapa

Some Star-Bulletin staffers were hoping for a little more time. Some were promised jobs across the hall at the Honolulu Advertiser. Others were going to take some time off.

And then there's Dana Williams, assistant city editor, who only the day before Judge Alan C. Kay's ruling had shipped her Jeep to the mainland.

Williams had accepted a position at the Fort Lauderdale Sun-Sentinel.

For a moment after yesterday's news, she said, she thought about the colleagues she's leaving behind and the fight they have ahead.

"I'm still going to start (the new job) on Nov. 15," Williams said. "I thought about calling them, but the bottom line is, I gave them my word, and I'm not going back on my promises."

Elsewhere in the newsroom, other staffers wrestled with what the decision meant to them, their colleagues and a newspaper with a 117-year-old history .

Kathryn Bender was slated to fly to her hometown of Arlington, Texas, next month to spend time with her mother. Now, those plans are on hold.

Bender said her mother had already bought plane tickets to New York so they could visit her sister.

"I feel like I'm in limbo," she said.

"Part of me thinks the writing is on the wall and that it's inevitable that the Star-Bulletin will close."

More than 20 Star-Bulletin staffers have been offered jobs at the Advertiser. Some said they were told by Advertiser editors that the offers were contingent on the Bulletin closing. It was unclear yesterday how Kay's decision will affect those offers.

Features reporter Tim Ryan, one of those who accepted a job at the Advertiser, said he's happy with Kay's decision.

Ryan said he and others recognize the Star-Bulletin's extended life may have only a short future, but he feels dedicated to it nonetheless.

"My gut feeling is this is a good fight," Ryan said. "Let's have an impartial panel look at this business deal and see if it's legitimate and ethical. This entity, the Star-Bulletin, deserves this after 100 years of service to the community."

And personally, he said, "whatever I've accomplished as a reporter, it's because of the Star-Bulletin."

"Judging from some of the people who've been offered jobs, their loyalties remain with the paper," reporter Cynthia Oi said.

"They're still dancing with the ones they came in with. It's not splitting loyalties, because the loyalty is always with the reader, and that's where it should be. It's the whole purpose for being in journalism."

Police reporter Jaymes Song said he intends to keep job interviews on the mainland that have been scheduled for the next few weeks.

"Meanwhile, I'll continue to do my job here and hope for the best for our Star-Bulletin ohana," he said.

Managing Editor Dave Shapiro said he's been proud of the job his staff has continued to do since the closure was announced.

"Obviously, there are conflicting feelings, it's been a very stressful situation," Shapiro said. "But from what I've seen so far, I'm very pleased with the way the people have put their personal interests aside and pulled together."



Star-Bulletin closing Oct. 30, 1999



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