Bay Guardian Co. v. New Times Media LLC, A122448

• Decision Date: 11 August 2010
• Docket Number: No. CGC-04-435584,A122448,CGC-04-435584
• Court: California Court of Appeals Court of Appeals
• Parties: BAY GUARDIAN COMPANY, Plaintiff and Respondent, v. NEW TIMES MEDIA LLC et al., Defendants and Appellants.

BAY GUARDIAN COMPANY, Plaintiff and Respondent,

v.NEW TIMES MEDIA LLC et al., Defendants and Appellants.

A122448

No. CGC-04-435584

Court Of Appeal Of The State Of California

First Appellate District

Division One

Filed: August 11, 2010

For Defendants and Appellants Reed Smith LLP Paul D. Fogel, Esq. Raymond A. Cardozo, Esq. Dennis Peter Maio, Esq.;

Kerr & Wagstaffe LLP H. Sinclair Kerr, Jr., Esq. James M. Wagstaffe, Esq. Ivo Labar, Esq.;

Village Voice Media, LLC Don Bennett Moon, Esq.

For Plaintiff and Respondent Joseph A. Hearst, Esq.; E. Craig Moody, Esq.; Ralph C. Alldredge, Esq.; Richard P. Hill, Esq.

CERTIFIED FOR PARTIAL PUBLICATION^*

Dondero, J.

The Bay Guardian and the San Francisco Weekly are competing alternative newspapers in the San Francisco Bay Area. Each paper relies on advertising revenue in large part to sustain the publication of the news weekly. San Francisco Weekly offered advertising to business entities at a rate lower than was provided by the Bay Guardian. Consequently, the Bay Guardian sued San Francisco Weekly for unfair competition under California law. It was successful and won a jury verdict of approximately $16 million.

This appeal has been taken by defendants New Times Media (the New Times), San Francisco Weekly (the SF Weekly), and East Bay Express (the Express), from a judgment that awarded plaintiff Bay Area Guardian (the Guardian) damages in an action for violations of Business and Professions Code section 17043 based on sales of advertising at rates below cost for the purpose of harming a competitor.¹ Defendantsclaim that the trial court erred by failing to admit defense evidence and properly instruct the jury on the essential element in a section 17043 action of proof of the defendant's ability to recoup losses. Defendants also argue that the court gave defective instructions on the intent or "purpose" to harm a competitor and the statutory presumption of improper purpose stated in section 17071. They further assert that the evidence presented by plaintiff failed to adequately prove the element of damages caused by the below-cost sales, or that the New Times and the Express were agents of the SF Weekly so as to incur liability to plaintiff pursuant to section 17095.

We conclude that recoupment of losses by the defendant is not a requirement to prove a violation of section 17043. Therefore, the trial court did not err by failing to instruct the jury on recoupment of losses as an element of the action, by limiting the presentation of defense evidence on recoupment, or by denying defendants' motions for judgment based on lack of evidence of recoupment. We also conclude that the court's instructions on the purpose to harm a competitor and the statutory presumption of improper purpose were not erroneous. Substantial evidence supports the finding of damages suffered by plaintiff, and the agency relationship between the SF Weekly and the New Times. The judgment against the Express must be reversed for lack of evidence that it acted as an agent of the SF Weekly to sell advertising at rates below cost in violation of section 17043. Otherwise, we affirm the judgment.²

STATEMENT OF FACTS

The Guardian was first published in October of 1966 in San Francisco as an "alternative" newspaper of "tabloid size," published weekly and distributed free of charge. The Guardian targeted a young, educated, affluent audience, more focused on alternative views and life styles than daily newspapers such as the San Francisco Chronicle or San Francisco Examiner. Without any revenue from circulation, the Guardian relied almost exclusively on sale of advertising space in the paper to produce income. The Guardian sold two forms of advertising: classified advertising, which was primarily personal in nature and was placed in the back of the paper; and display advertising, which was purchased by local retail businesses and sold "modularly" as a larger portion of a page of the newspaper. During the first six years of existence the Guardian struggled, and was published only irregularly. By 1995, however, the Guardian became the dominant weekly newspaper in the San Francisco Bay Area. Between 1985 to 1995, revenues grew from $2 million to $8 million, and then to over $11 million by 2000, of which $7.6 million was attributable to display advertising.

Over the years the Guardian did not compete with the radio or "even the daily" newspapers, but rather with other "non-daily papers" which also had "alternative" editorial content. One of the Guardian's competitors was defendant SF Weekly, which in 1995 principally focused "on the music scene in San Francisco," and had a target demographic of 18 to 40 years of age.

Defendant the New Times decided to acquire the SF Weekly in 1995 to enter the vibrant San Francisco journalism market. At the time the SF Weekly was a marginally profitable newspaper of under 70 pages per edition which had a circulation of about 90, 000-about half that of the Guardian. The objective of the acquisition of SF Weekly was to increase circulation and improve content by bringing more "magazine-length journalism into the paper." Thus, from 1995 to 2000 the journalism staff of the SF Weekly was increased significantly, as was the editorial size of the paper, its circulation, number of advertisers, and total revenue.

The Guardian adduced evidence at trial that soon after the acquisition the executive editor of the New Times, Mike Lacey, disparaged the content of both the SF Weekly and the Guardian at a staff meeting, and announced that he wanted "the SF Weekly to be the only game in town." The Guardian was considered the primary competitor of the SF Weekly. Lacey stressed that the New Times had "deep pockets," with the financial resources to "compete very aggressively" with the Guardian and use "guerilla tactics" in rate battles. Lacey also emphasized that he was interested in improving the editorial quality of the SF Weekly. To increase circulation, additional salaried journalists were hired to bring higher quality "long form journalism" to the paper. The essence of Lacey's message was that he wanted "to put the Bay Guardian out of business."

One of the "new policies" implemented at the SF Weekly was to specifically target businesses which advertised in the Guardian. The previous advertising policy of the SF Weekly, like that of the Guardian, was to set the advertising "rate card" based on the "overhead costs" of publishing the newspaper, plus a variable percentage, depending on the frequency of the customer's advertising. Rates were structured on a "graduated frequency discount" scale, with customers who advertised "52 weeks throughout the year" offered a lower rate than a "one time customer." Ads were sold according to "the frequency earned."

Following the acquisition of the SF Weekly by the New Times, sales representatives were authorized to directly contact advertisers in the Guardian and offer "to sell advertising at a lower frequency" than was earned to transfer their business to the SF Weekly. The sales representatives were made aware that advertising could be sold "below cost" if needed "in order to make a sale," and the resources of the New Timeswould cover the losses, even over a term of many years. For example, the SF Weekly began to offer Bay Guardian advertisers the rate for "52 times, even if the advertiser only agreed to run for one week."

Furthermore the SF Weekly identified "key categories" of advertising emphasis in the newspaper, such as restaurants, fitness clubs, health and beauty, music and film, and furniture. To increase volume in those categories, the strategy of SF Weekly was to "initially lower the [introductory] rate" to advertisers to "build up a certain amount of critical mass," then once volume was established "slowly increase the rates" over time of both the "re-signs" and "new advertisers."

The Guardian recognized that SF Weekly had become a threatening competitor, along with internet publishing. Both newspapers appealed to essentially the same demographic and attracted many of the same advertisers. Competition between the two newspapers for advertisers was "pretty intense." The fundamental objective of the Guardian was essentially the same as the SF Weekly: to become dominant in the San Francisco marketplace.

In March of 2001, the New Times acquired another alternative weekly newspaper, the Express, which then had a circulation of about 60, 000 to 65, 000. The Express, which was based in Oakland, offered advertising customers a slightly different geographical region of exposure than the Guardian or the SF Weekly, and in conjunction with the SF Weekly provided a greater coverage area and circulation than the Guardian alone. As with the SF Weekly, the "approach" of the New Times was to improve the editorial quality of the Express and increase circulation. The Express provided reduced rates to advertising customers, which it intended to "slowly raise" over time. Despite its lower circulation the Express charged higher advertising rates than the SF Weekly, although lower rates than the Guardian. Once the Express was acquired by the New Times, to entice prospective advertisers "away from the Guardian" the SF Weekly also offered free advertisements in the Express. The New Times anticipated losses at the Express while the paper was developed and expanded.

Thereafter, through 2007, the SF Weekly and the Express continued to offer advertising, particularly to advertisers in key categories, at rates at least 20 percent below those charged by the Guardian, below the "rate card" prices, and well below its own costs per inch of display advertising space. According to the calculations of plaintiffs expert, the SF Weekly's average advertising space costs ranged from $21 per inch in 2001 to $29 per inch in 2007, whereas the average sale price of advertising space varied from $17 per inch in 2002 to $20 per inch in 2007. For the same time period, the Guardian's advertising costs per...