News+media Capital Grp. LLC v. Las Vegas Sun, Inc.

• Decision Date: 16 September 2021
• Docket Number: No. 80511,80511
• Citation: 495 P.3d 108
• Parties: NEWS+MEDIA CAPITAL GROUP LLC, a Delaware Limited Liability Company; and Las Vegas Review-Journal, Inc., a Delaware Limited Liability Company, Appellants/Cross-Respondents, v. LAS VEGAS SUN, INC., a Nevada Corporation, Respondent/Cross-Appellant.
• Court: Nevada Supreme Court

495 P.3d 108

NEWS+MEDIA CAPITAL GROUP LLC, a Delaware Limited Liability Company; and Las Vegas Review-Journal, Inc., a Delaware Limited Liability Company, Appellants/Cross-Respondents,

v.LAS VEGAS SUN, INC., a Nevada Corporation, Respondent/Cross-Appellant.

No. 80511

Supreme Court of Nevada.

FILED SEPTEMBER 16, 2021

Kemp Jones, LLP, and J. Randall Jones, Michael J. Gayan, and Mona Kaveh, Las Vegas; Jenner & Block LLP and Richard L. Stone, David R. Singer, and Amy M. Gallegos, Los Angeles, California, for Appellants/Cross-Respondents.

Lewis Roca Rothgerber Christie LLP and E. Leif Reid, Kristen L. Martini, and Nicole S. Scott, Reno; Pisanelli Bice PLLC and James J. Pisanelli, Todd L. Bice, and Jordan T. Smith, Las Vegas, for Respondent/Cross-Appellant.

BEFORE THE SUPREME COURT, EN BANC.¹

OPINION

By the Court, STIGLICH, J.:

This appeal and cross-appeal concern the standard of review a court should apply when asked to overturn the result of a private arbitration. The parties are two newspapers with an extensive contractual relationship. In their contract, they elected to submit disputes arising out of the contract to binding private arbitration, instead of the court system. When a dispute arose over amounts owed under the contract, the parties submitted the dispute to arbitration, and the arbitrator rendered an award. Neither party was fully satisfied with the award, so they both turned to the district court to seek vacatur of the portions they perceived as unfavorable to their respective sides. They had high bars to clear. Under well-settled law, an arbitration award can only be overturned for very limited reasons, and a mere error is not one of those reasons. Here, both parties argued in essence that the arbitrator's award was not simply wrong, but so egregiously wrong that it was clear the arbitrator had failed to apply the contract at all. The district court was not persuaded. Nor are we. We affirm.

FACTS

In 1989, the Las Vegas Sun newspaper was struggling to stay afloat financially. Pursuant to the federal Newspaper Preservation Act, the Sun entered into a joint operating agreement (JOA) with its larger competitor, the Las Vegas Review-Journal (RJ).² Under the agreement, the two newspapers continued their separate news and editorial operations, but the RJ took over production, distribution, and advertising. Because the RJ handled distribution and advertising, it also collected all revenue. Thus, the original agreement required the RJ to pay the Sun a sum each month to cover the Sun's news and editorial expenses.

Further, the agreement required the RJ to pay the Sun a fixed percentage of total operating profits. Operating profits were defined as "Agency Revenues" minus "Agency Expenses," where "Agency" referred to the joint venture. The original agreement was relatively clear as to what costs could properly be considered deductible Agency Expenses. The agreement allocated each newspaper a budget for news and editorial expenses and a separate budget for promotional activities. The allocated budgets were considered Agency Expenses. If a newspaper desired to exceed its budget for promotional activities, the agreement was clear that it could choose to do so, but additional costs would not be included in Agency Expenses and would instead be borne by the respective newspaper.

In 2005, the parties entered into an amended agreement, which tracked the structure of the 1989 agreement but included several important changes. In particular, the new agreement did not refer to "Agency Expenses." It eliminated the existing allocations for news, editorial, and promotional expenses. Instead, it simply stated that the parties would bear their own editorial costs; that promotions of the RJ must "include mention of equal prominence for the Sun" but either newspaper "may undertake additional promotional activities for their respective newspaper at their own expense"; and that "[a]ll costs, including capital expenditures, of operations under this Restated Agreement, except the operation of the Sun's news and editorial department, shall be borne by the Review-Journal."

The 2005 agreement also changed the formula for calculating the profits payment. Whereas the 1989 agreement required a simple monthly payment of a fixed percentage of operating profits, the 2005 agreement was somewhat more complicated. The payment for the year 2005 was set at $12 million. Going forward, this was to be adjusted on an annual basis by the percentage change in earnings before interest, taxes, depreciation, and amortization (EBITDA), which is an accounting term roughly similar to operating profit. The 2005 agreement stated that, in calculating EBITDA for any period that included earnings prior to April 1, 2005, such earnings must not be reduced by any amounts that would have been deducted from earnings under the 1989 agreement's Appendix A.l—which apparently meant that news and editorial allocations were not deductible for that period. The 2005 agreement also listed certain items that could not be deducted from EBITDA at any time. Importantly, the agreement stated that "[t]he Parties intend that EBITDA be calculated in a manner consistent with the computation of ‘Retention’ as that line item appears on the profit and loss statement for Stephens Media Group^{[3 ]} for the period ended December 31, 2004." The referenced profit-and-loss statement is in the record and shows that editorial expenses were among the costs deducted to compute "Retention."

Finally, the 2005 agreement contained a mandatory arbitration clause covering any dispute as to amounts owed by the RJ to the Sun. The clause stated that the arbitrator "shall also make an award of the fees and costs of arbitration, which may include a division of such fees and costs among the parties in a manner determined by the arbitrator to be reasonable."

PROCEDURAL HISTORY

The instant dispute boiled over in 2018, and the Sun sued the RJ for breach of contract. The Sun alleged that the RJ had been improperly deducting its own editorial and promotional expenses from its calculation of EBITDA, thus reducing the profits payment to the Sun. Consistent with the arbitration clause, the court compelled arbitration.

During arbitration, the Sun argued that the 2005 agreement did not permit the RJ to deduct its own editorial and individual promotional expenses before distributing profits to the Sun. The Sun supported this argument by pointing to the elimination of the editorial allocation, the exclusion of editorial costs for the first year, and the distinction between deductible "equal prominence" promotional expenses versus non-deductible separate promotional expenses. The RJ, of course, argued that it was allowed to deduct its editorial expenses. The RJ relied heavily on the Stephens Media Group profit-and-loss statement. In its view, editorial expenses were deductible because that statement showed a deduction for editorial expenses. With respect to the promotional expenses, the RJ argued that the Sun had failed to prove that any particular promotional activities did not benefit the Sun. The RJ further argued that, under generally accepted accounting principles, even promotional activities that only benefited the RJ would be deductible if the activities’ associated revenues were included in EBITDA.

After hearing evidence and argument, the arbitrator issued a decision in which he found that editorial expenses were not deductible and that the Sun had proven damages. He wrote:

At issue here are multiple readings of the JOA. On one hand the JOA includes language in Appendix D indicating that the EBITDA calculation should be performed in a manner akin to the computation of "Retention" (a newspaper term of art used by a prior owner of the RJ in preparing financial statements). The term "Retention" was very similar to earnings before interest, taxes, depreciation and amortization (EBITDA). The prior (pre-2005) computation of "Retention" included Editorial Expenses of the RJ as allowable deductible expenses. On the other hand, a specific provision of the JOA (4.2), a provision which was new to the calculation in the 2005 JOA, specifically indicates that the RJ and Sun would each bear their own editorial costs meaning that the RJ would not, in keeping the books of the JOA, be permitted to deduct editorial expenses of the RJ in computing EBITDA of the JOA and the subsequent annual profits payments (if any) to the Sun. The weight of the evidence leads to the conclusion that the RJ has improperly deducted the RJ editorial expenses reducing the EBITDA of the JOA resulting in improperly low annual profits payments to the Sun.

He also found that, while promotional expenses were not deductible if they did not feature the Sun in equal prominence, the Sun had failed to prove its damages. Finally, although both parties expressly requested attorney fees in their post-hearing briefs, the arbitrator declined to award either party attorney fees. He stated that, in his opinion, the JOA's provision for "fees and costs of arbitration" included the arbitrator's fee and the American Arbitration Association's (AAA) fee but did not include attorney fees.

The Sun moved the district court to confirm the substance of the award relating to editorial and promotional costs but to vacate the arbitrator's denial of attorney fees. In the alternative, it asked the district court to modify or correct the award to include $39,800 in expenses related to the hearing and transcription, in addition to the sum paid to the AAA. The RJ cross-moved the district court to vacate the award in its entirety. It argued that the award was "so irrational and so inconsistent with the parties’ contract and fundamental legal principles that vacating it is the only option. ... [T]he Arbitrator recognized that the parties’ contract required editorial expenses to be deducted, but he did the opposite ...." The RJ again insisted that editorial and promotional expenses should be deductible.

The...