Committee for an Independent P-I v. Hearst Corp.
| Decision Date | 21 April 1983 |
| Docket Number | P-,P,82-3493 and 82-3523,Nos. 82-3488,s. 82-3488 |
| Citation | 704 F.2d 467 |
| Parties | 1983-1 Trade Cases 65,334, 9 Media L. Rep. 1489 COMMITTEE FOR AN INDEPENDENTeople Opposed to a One-Newspaper Town, Committee for a Free Press, Longview Publishing Co., et al., Plaintiffs-Appellees-Cross-Appellants, v. The HEARST CORP. and The Seattle Times Co., Defendants-Appellants-Cross-Appellees, and William French Smith, Attorney General for the United States, Defendant-Appellant-Cross-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
William L. Dwyer, Culp, Dwyer, Guterson & Grader, Seattle, Wash., for Committee For An Independent P-I.
Jonathan E. Thackeray, Baker & Hostetler, Cleveland, Ohio, for Hearst Corp.
Douglas Letter, Dept. of Justice, Washington, D.C., for Smith & U.S.
Appeal from the United States District Court for the Western District of Washington.
Before ANDERSON, HUG, and POOLE, Circuit Judges.
This action presents issues of first impression concerning the scope and operation of the Newspaper Preservation Act. This Act permits competing newspapers that meet certain qualifications to enter into joint arrangements which otherwise would be violative of the antitrust laws. In a memorandum opinion, the district court overturned the Attorney General's action approving a joint operating agreement proposed between the Seattle Post-Intelligencer and the Seattle Times. We reverse and reinstate the Attorney General's decision.
On March 27, 1981, the Seattle Times Company, owner of the Seattle Times (the "Times"), and The Hearst Corporation, owner of the Seattle Post-Intelligencer (the "P-I"), applied to the United States Attorney General for approval of a joint operating agreement ("JOA") pursuant to the Newspaper Preservation Act (the "Act"), 15 U.S.C. Secs. 1801-1804. 1 The Times, founded in 1896, and the P-I, founded in 1891, have been the only metropolitan daily newspapers in Seattle for some time. For approximately the last 15 years, the P-I has been losing ground to the Times in terms of circulation and advertising revenue. From 1969 through 1980, the P-I lost over $14 million.
The Newspaper Preservation Act gives the United States Attorney General the authority to approve joint operating agreements between competing newspapers. This approval provides the agreement with a limited antitrust immunity. The Attorney General is required to make two findings as a condition to approving a JOA under the Act: first, one of the newspapers must be "failing," defined as a "publication which, regardless of its ownership or affiliations, is in probable danger of financial failure," 15 U.S.C. Secs. 1802(5), 1803(b); second, the JOA must "effectuate the policy and purpose" of the Act. 15 U.S.C. Sec. 1803(b). Pursuant to Department of Justice regulation, the Attorney General is to refer the JOA application to the Assistant Attorney General in charge of the Antitrust Division. The Assistant Attorney General then recommends either approval of the JOA or that a hearing be held before an administrative law judge ("ALJ"). 28 C.F.R. Sec. 48.7 (1982). If a hearing is held, the Antitrust Division becomes a party to the proceeding, id. at Sec. 48.10(b), and other interested parties may intervene, id. at Sec. 48.11. The Attorney General must base his decision on the hearing record, the ALJ's recommendation, and any exceptions filed thereto. Id. at Sec. 48.13(b).
In this case, the Attorney General followed the Antitrust Division's recommendation to hold a hearing. The Committee and other interested organizations were allowed to intervene. The hearing before Administrative Law Judge Daniel Hanscom lasted through most of November, 1981.
After reviewing the lengthy hearing record, ALJ Hanscom issued his decision recommending approval of the JOA in January of 1982. The ALJ supported his recommendation with 162 findings of fact and several conclusions of law. These findings will be discussed more thoroughly below in the context of the issues to which they pertain. For now, a brief summary will suffice. The ALJ first discussed the dominant position attained by the Times in the Seattle newspaper market. He then described the trend in this country away from competition in many major markets. Newspapers have been folding at an alarming rate; many areas which had two competing newspapers now only have one.
The ALJ then analyzed what he found to be the P-I's poor financial condition. He believed the P-I had been caught in the phenomena that is called the "downward spiral effect," in which a newspaper's declining circulation and lessening advertising revenue feed off one another, eventually forcing it to close. ALJ Hanscom did not find the evidence to support the allegations that mismanagement of the P-I by the Hearst Corporation ("Hearst") had caused the P-I's difficulties. Instead, it was the economics of the newspaper industry, highlighted by the "downward spiral effect," which led to the P-I's failing financial health. Finding the P-I's financial difficulties to be irreversible, the ALJ concluded that Hearst and the Times Company had met their burden of proving the P-I was in a state of "probable financial failure." He therefore recommended approval of the JOA. Importantly, ALJ Hanscom made this recommendation even though he found that, although Hearst had not attempted to sell the P-I and had rebuffed inquiries about a sale, the paper could in all probability be sold to a third party who would continue its independent existence.
The Attorney General followed Judge Hanscom's recommendation in spite of the opposition of the intervenors and the Antitrust Division. The Attorney General adopted all of the ALJ's findings, except for the one stating the P-I could in all probability be sold, which he did not believe to be supported by the evidence. The Attorney General's order approving the agreement was entered on June 15, 1982, and was scheduled to take full effect 10 days later.
The Committee for an Independent P-I ("the Committee" or "plaintiffs"), et al., intervenors below, immediately filed suit against Hearst, the Times Company, and the Attorney General to strike down the approval for the agreement. The district court granted the Committee's motion to stay the effective date of the Attorney General's approval of the JOA. Each side moved for summary judgment. The district court found for defendants on all issues except one. The district court concluded that the Attorney General could not validly approve the JOA when the evidence showed the alternative of a sale to a third party was possible. Judgment for the Committee was entered on August 30, 1982.
Hearst and the Times appeal. The Attorney General filed a separate appeal and the Committee cross-appeals. The three appeals were consolidated and expedited by an order of this court.
There are four substantive issues presented by this action. First, what role, if any, is proof of interested third-party purchasers to play in the determination that a newspaper is in probable danger of financial failure? Second, must it be shown that the failing newspaper would probably close if the proposed joint operating agreement is not allowed? Third, must the Attorney General determine that the proposed JOA is not unnecessarily anticompetitive and that it would not impair the editorial voices of smaller newspapers in the affected market? Fourth, is the Newspaper Preservation Act unconstitutional under the first amendment?
Each side agrees that our review of the district court's decision is de novo. District court review of agency action is entitled to no particular deference from this court; being limited to the agency record, the district court is in no better position to review agency action than the appellate court. Asarco, Inc. v. U.S. Environmental Protection Agency, 616 F.2d 1153, 1161 (9th Cir.1980). The parties dispute, however, the proper standard of review of both the factual and legal determinations of the Attorney General. The dispute, as one might anticipate, involves how much deference the factual and legal findings of the Attorney General deserve.
We do not believe the issue of the standard of review of factual findings to be critical to our decision. The parties debate whether the arbitrary and capricious standard or the substantial evidence standard of review applies. The Attorney General argues that the Administrative Procedure Act's arbitrary and capricious standard governs our review because the Newspaper Preservation Act does not require that a hearing be held. See 5 U.S.C. Secs. 554, 556, 706(2)(E); 28 C.F.R. Sec. 48.8(c). The Committee asserts that, nevertheless, a hearing was held and the regulations require that all hearings be conducted pursuant to 5 U.S.C. Sec. 556 of the APA. 28 C.F.R. Sec. 48.10(4). In turn, the APA's substantial evidence standard applies to all "case[s] subject to section ... 556." 5 U.S.C. Sec. 706(2)(E). The Second and Seventh Circuits have held that, in the area of administrative rulemaking, the arbitrary and capricious standard of review applies when the agency conducts a hearing by virtue of its regulations rather than required by statute. Automobile Club of New York, Inc. v. Cox, 592 F.2d 658, 664 (2d Cir.1979); Amusement & Music Operators Ass'n v. Copyright Royalty Tribunal, 676 F.2d 1144, 1149-1152 (7th Cir.1982). However, we find it unnecessary to resolve this issue, as our analysis will indicate.
Review under either standard is narrowly prescribed. We do not need to decide this issue, however, because our review of the record as a whole persuades us the Attorney General's decision is supported by substantial evidence, i.e., "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Universal Camera Corp. v. NLRB, 340 U.S. 474, 477, 71 S.Ct. 456, 459, 95 L.Ed. 456,...
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