Judge Upholds Operating Pact for 2 Detroit Papers

A federal judge on Wednesday upheld the partial merger of the Detroit Free Press and Detroit News under a joint operating agreement (JOA) approved last month by then-Atty. Gen. Edwin Meese III.

U.S. District Judge George Revercomb rejected contentions by a group of Detroit advertisers and readers that the morning Free Press, owned by Knight-Ridder Inc., was not a failing newspaper entitled to antitrust exemptions under the 1970 Newspaper Preservation Act (NPA).

The judge said he would allow a month-old court order temporarily blocking the deal to expire at 7:15 p.m. on Saturday--a delay that could give opponents time to appeal the ruling to a federal appeals court here.

David C. Vladeck, a lawyer who represented Michigan Citizens for an Independent Press, said the group planned to appeal Revercomb’s decision and would ask the appeals court to extend the stay blocking the partial merger.

Revercomb dismissed contentions that Meese had “arbitrarily and capriciously” ignored findings by the Justice Department’s antitrust division and an administrative law judge that the dailies did not qualify for a joint operating agreement.

“The court finds that the attorney general was not unreasonable in finding that the Free Press--a newspaper that has incurred and will continue to incur losses that would already have led to its demise were it not owned by a large corporate parent--is a failing newspaper,” the judge wrote in a 17-page opinion.

Threatened Shutdown

David Lawrence, publisher of the Free Press, said in a statement: “This is a good day for the future of the Free Press. I can only hope that the pain and uncertainty of the past almost 2 1/2 years will be over before too long.”

Knight-Ridder had threatened to close the Free Press if the joint operating agreement was not approved.

The consolidation of the two newspapers’ business, advertising, circulation and production departments would result in layoffs of between 600 and 800 employees, compared to 2,200 if the Free Press shut down.

Revercomb also rejected the argument that the newspapers were not entitled to the joint operating arrangement because they allegedly deliberately cut prices and suffered losses in an attempt to put each other out of business or qualify for the antitrust exemption.

Meese “was not unreasonable in concluding that the Free Press was primarily motivated by competitive aims, not a JOA, in its recent business strategies,” Revercomb said.

The administrative law judge’s “evidence shows that the prospect of a JOA played at most a secondary or supporting role in the newspapers’ motivations” to cut prices during Detroit’s 8-year-old newspaper war, Revercomb said.

“The court believes that the policies behind the NPA would be best fulfilled by allowing a JOA when the newspaper’s losses are primarily the result of acceptable, competitive strategies, and are only marginally prompted by the prospect of a JOA should the strategies fail,” the judge said.

‘Reasonable Prediction’

The Free Press has lost $100 million in the last nine years and the afternoon News, purchased by Gannett Co. in 1986, has also sustained significant operating losses in the last decade.

Although Meese found that the Free Press was not in a typical downward financial spiral envisioned by the law, the attorney general made a reasonable prediction that it might fail if the joint operating agreement were not approved, Revercomb said.

“It would make little sense to hold that a newspaper should be denied a JOA and forced to close because of financial reasons simply because the publication had not entered a stereotypical ‘downward spiral,”’ Revercomb said.

“The ‘failing newspaper’ test must be, as the attorney general noted, a matter of probabilities, not certainties,” Revercomb said.

Meese also reasonably concluded “there is no unilateral policy available that could extricate the Free Press from its loss situation, and that were it not for massive infusions of funds from its parent, Knight-Ridder, the Free Press would likely already have failed,” Revercomb said.

The administrative law judge had found that if the joint operating agreement was rejected, the News would opt to abandon its price cutting strategy, thereby allowing both newspapers to return to profitability by raising ad and circulation rates.