Michigan Citizens for an Independent Press v. Thornburgh

• Decision Date: 27 January 1989
• Docket Number: No. 88-5286,88-5286
• Citation: 868 F.2d 1285
• Parties: , 57 USLW 2445, 1989-1 Trade Cases 68,406, 16 Media L. Rep. 1065 MICHIGAN CITIZENS FOR AN INDEPENDENT PRESS, et al., Appellants v. Richard THORNBURGH, United States Attorney General, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1285

868 F.2d 1285

276 U.S.App.D.C. 130, 57 USLW 2445,

1989-1 Trade Cases 68,406, 16 Media L. Rep. 1065

MICHIGAN CITIZENS FOR AN INDEPENDENT PRESS, et al., Appellants v. Richard THORNBURGH, United States Attorney General, et al.

No. 88-5286.

United States Court of Appeals District of Columbia Circuit.

Argued Oct. 28, 1988.

Decided Jan. 27, 1989.

Appeal from the United States District Court for the District of Columbia (C.A. No. 88-02322).

William B. Schultz, with whom David C. Vladeck and Alan B. Morrison, Washington, D.C., were on the brief, for appellants.

Clark M. Clifford, with whom Robert A. Altman, Robert P. Reznick, Philip A. Lacovara and Gerald Goldman, Washington, D.C., were on the brief, for appellee The Detroit Free Press, Inc.

Douglas Letter, Atty., Dept. of Justice, with whom John R. Bolton, Asst. Atty. Gen., Jay B. Stephens, U.S. Atty., Washington, D.C., were on the brief, for appellee Thornburgh, Atty. Gen., et al. Robert K. Kopp also entered an appearance for the Atty. Gen.

Lawrence J. Aldrich, John Stuart Smith, and Gordon L. Lang, Washington, D.C., were on the brief, for appellee The Detroit News, Inc.

Paul L. Friedman and Anne D. Smith, Washington, D.C., were on the brief, for amicus curiae Little Rock Newspapers, Inc. urging reversal.

W. Terry Maguire and Claudia James, Washington, D.C., were on the brief, for amicus curiae American Newspaper Publishers Ass'n urging affirmance.

Before ROBINSON, RUTH BADER GINSBURG, and SILBERMAN, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

Dissenting opinion filed by Circuit Judge RUTH BADER GINSBURG.

SILBERMAN, Circuit Judge:

This case presents a challenge to a decision and order of the Attorney General, pursuant to the Newspaper Preservation Act ("NPA"), 15 U.S.C. Secs. 1801-1804 (1982), approving a joint operating arrangement between the Detroit Free Press and Detroit News newspapers. Appellants, which include Michigan Citizens For An

Independent Press, ¹ seven individuals, ² and the interest group Public Citizen, brought suit against the Attorney General and the two newspapers in the district court alleging that the Attorney General's decision violates the NPA and the Administrative Procedure Act, 5 U.S.C. Sec. 706 (1982), because it is not based on substantial evidence, is arbitrary and capricious, and is otherwise in violation of law. The district court granted summary judgment in favor of defendants, 695 F.Supp. 1216, and plaintiffs appealed to this court. We conclude that the Attorney General's decision was based on a permissible construction of the statute, and that his application of the legal standard to the facts of this case was not arbitrary, capricious, or an abuse of discretion. We therefore affirm the judgment of the district court.

I.

A.

Congress passed the Newspaper Preservation Act in 1970 with the stated purpose of "maintaining a newspaper press editorially and reportorially independent and competitive in all parts of the United States." 15 U.S.C. Sec. 1801. The Act creates an exemption to the antitrust laws that permits a joint newspaper operating arrangement ("JOA") ³ between two newspapers if the Attorney General determines that one of the papers is "a failing newspaper" and that the arrangement will "effectuate the policy and purpose" of the Act. 15 U.S.C. Sec. 1803(b). ⁴ A "failing newspaper" is defined as "a newspaper publication which, regardless of its ownership or affiliations, is in probable danger of financial failure." 15 U.S.C. Sec. 1802(5).

The first joint newspaper operating arrangement was started by three newspapers in Albuquerque, New Mexico in 1933, and by 1966 there were twenty-two JOAs in effect. In 1964, the Department of Justice initiated an investigation of newspaper JOAs, and in 1965 it sued the publishers of two daily newspapers in Tucson, Arizona, which operated jointly, for violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1, 2 and section 7 of the Clayton Act, 15 U.S.C. Sec. 18. The trial court in that suit found violations of all of those provisions, and the Supreme Court upheld that finding in Citizen Publishing Co. v. United States, 394 U.S. 131, 89 S.Ct. 927, 22 L.Ed.2d 148 (1969).

The Court rejected the newspapers' argument that the so-called "failing company" defense--a judicially created doctrine--absolved them from liability under the anti-trust laws. Id. at 137-38, 89 S.Ct. at 930. Under the "failing company" doctrine, conduct which would otherwise violate antitrust laws does not do so if one of the suspect businesses "faced the grave proba In Citizen Publishing, the Court narrowly confined the scope of the doctrine. It held that a financially troubled company may not employ the "failing company" defense unless it meets three conditions. The disputed merger may be sought only when the owners of the "failing" company are contemplating liquidation; indeed, the JOA must be the "last straw" at which the company can grasp. 394 U.S. at 137, 89 S.Ct. at 930. The defendants are required to establish that the company that acquires the failing company is "the only available purchaser," id. at 138, 89 S.Ct. at 931, and finally, the prospects for successful reorganization under the bankruptcy laws must be "dim or nonexistent." Id. Because the Tucson papers did not make such a showing, their JOA violated the Sherman Act.

                bility of business failure."    International Shoe Co. v. FTC, 280 U.S. 291, 302, 50 S.Ct. 89, 93, 74 L.Ed. 431 (1930).  The doctrine is based on the notion that a merger between two competitors, one of which is failing, cannot have an adverse effect on competition, because the failing company would disappear as a competitive factor whether or not the merger occurred
                

Congress reacted to Citizen Publishing by passing the Newspaper Preservation Act, which established a less stringent test for newspapers seeking a JOA. S. REP. No. 535, 91st Cong., 1st Sess. 4 (1969). Congress did not question the Court's reasoning in defining the failing company doctrine, but it felt that "the economics of the newspaper industry make it more likely for newspapers to fail when faced with competition than other businesses." Id. As the Senate Judiciary Committee noted, "when a newspaper is failing it is harder to reverse the process and it is almost impossible to find an outside buyer." Id. The NPA therefore provides that a newspaper is "failing" and eligible for a JOA when it is "in probable danger of financial failure." 15 U.S.C. Sec. 1802(5). The statute also includes what Congress meant to be a less strict standard for JOAs already existing in 1970. H.R. REP. No. 1193, 91st Cong., 2d Sess. 10 (1970), U.S.Code Cong. & Admin.News 1970, p. 3547. A pre-statute JOA is not unlawful if at the time at which such arrangement was entered into, not more than one of the newspapers involved was "likely to remain or become a financially sound publication." 15 U.S.C. Sec. 1803(a).

Since 1970, four new JOAs have been approved and implemented. ⁵ In each of those cases, unlike the Detroit case, the "failing newspaper" was well into what in the newspaper industry is known as the "downward spiral." The fate of a struggling newspaper is thought to be determined by the close interrelationship between circulation and advertising revenues. Once a paper loses circulation, advertisers are less likely to purchase space in the paper. Readers, in turn, are less likely to buy a paper that is short on advertising, so circulation drops further. The result of this interrelationship is an apparently irreversible downward plunge that ends in business failure. The only court to address the Act, Committee for an Independent P-I v. Hearst Corp., 704 F.2d 467 (9th Cir.), cert. denied, 464 U.S. 892, 104 S.Ct. 236, 78 L.Ed.2d 228 (1983), concluded that a newspaper in the downward spiral satisfies the "probable danger of financial failure" test, as long as it had followed reasonable management practices. Id. at 479.

B.

The Detroit Free Press and the Detroit News are daily newspapers that compete in Detroit, which is the nation's fifth largest newspaper market. The papers are owned by the two largest news organizations in the United States; Knight-Ridder, Inc. owns the Free Press, and the Gannett Company has controlled the News since February 1986, when it purchased the paper from the Evening News Association. Over the This bitter fight has led to large operational losses by both papers. The Free Press has lost money every year since 1979, and it lost over $10 million per year from 1981 to 1986. The News has sustained operational losses since 1980, and it lost over $50 million between 1981 and 1986. A circulation price war has driven the daily prices in Detroit to twenty cents for the News and fifteen cents for the Free Press--probably the lowest daily prices in the United States. In recent years, the News has maintained a consistent circulation lead of approximately 51% to 49%. Perhaps more important, the News has continuously maintained more than a 60% share of total full-run advertising linage.

past fifteen years, the papers have been engaged in fierce competition for absolute dominance of the Detroit market, which was motivated, at least initially, by the knowledge that many junior papers have been unable to survive as the second paper in metropolitan area competition.

As a result of their losses, the papers began to consider the alternative of a JOA as early as 1980 when the chief executive officers of Knight-Ridder and the Evening News Association first discussed the possibility. Negotiations continued sporadically from January 1981 to January 1984, but no agreement was reached during that period. In August 1985, Gannett agreed in principle to purchase the News from the Evening News Association, and senior officials of Gannett and Knight-Ridder thereafter met 16 times between August 1985 and April 1986 to shape the final agreement. On April 11, 1986 the News and the...