MediaNews, Hearst and Clint Reilly should not be allowed to keep their secret settlement a secret

By Peter Scheer

News organizations are notoriously bad at covering news stories in which they are participants. Recent examples include the Wall Street Journal, whose top editors knew about Rupert Murdoch’s offer to purchase Dow Jones (owner of the Journal and related businesses) for days before the news was made public–not by the Journal, but by CNBC, a competitor.

In California, the Hearst Corporation, owner of the San Francisco Chronicle, and MediaNews Group, owner of all Bay Area daily newspapers except the Chronicle, recently reached a settlement in an antitrust suit that had been brought against them by Clint Reilly, a San Francisco politico and businessman. The settlement was announced in dueling press releases in which lawyers for the litigants gave their respective, and often conflicting, accounts of what they had all agreed to.

The MediaNews and Hearst reporters assigned to the story dutifully reported the parties’ self-serving characterizations of the settlement, with Reilly’s lawyer claiming a huge victory that would block Hearst from investing in MediaNews’ California businesses and stop both companies from collaborating to cut delivery costs and sell ads online, and Hearst and MediaNews’ lawyers arguing that they had agreed to nothing that they hadn’t already decided to do (or refrain from doing) for reasons independent of the antitrust case.

Confused readers, wondering which side is right, looked for quotations from the settlement, but in vain: In a stunning display of chutzpah (or was it just blindness to irony?), the parties had decided to keep the settlement itself secret–even as they issued statements to the press describing what the settlement “means.” The press, I’m sorry to say, went along with this charade. The newspapers didn’t demand a copy of the settlement, so far as I know; they didn’t write about the fact that it had been withheld (other than to mention, in passing, that it was a “confidential” document); they didn’t report on whether the settlement had been given to the federal judge in the antitrust suit or to the Justice Department’s antitrust division (whose review of MediaNews’ 2006 acquisitions from McClatchy Company is still open).

Why is it important for the public, via the press, to have a look at the secret settlement? Because this suit involved allegations of serious misconduct–fixing prices and dividing up markets–which, if true, caused harm to the public at large, not just to Reilly. A secret settlement in such a “public” case is an opportunity for mischief. The worst that could have happened, hypothetically-speaking: MediaNews and Hearst could have used a secret settlement to achieve aspects of the very “conspiracy” with which they were charged in the suit. Under this scenario, Reilly and his lawyers could have been induced to go along with the conspiracy in exchange for an oversize payment of attorney’s fees.

Nor are there checks and balances to guard against abuse of the settlement process. If Reilly had filed his suit as a class action, any settlement would have to be approved by a judge following a public hearing in which the settlement would be disclosed, dissected and debated for all to see. Reilly’s lawyers nicely avoided that requirement by not filing their case as a class action, but they nonetheless alleged anticompetitive conduct toward, and harm suffered by, a class of thousands of Bay Area readers, advertisers and subscribers of the newspapers (of which Reilly is just one member). Since a settlement will have precisely the same impact on this class whether the suit was filed as a class action or as a regular individual law suit, it’s illogical to have disclosure of the settlement in one case but not the other. And don’t count on the Justice Department for scrutiny of the parties’ secret deal. In two recent phone conversations, the government antitrust lawyer handling this matter told me he was unable to determine whether the agency had even received the settlement.

Do I really suspect wrongdoing by the parties to the settlement? No, knowing the lawyers and their clients, I don’t suspect misuse of the settlement process. But the public’s right to know about a settlement does not depend on the good intentions of the participants. The public should not have to guess at the contents of a settlement potentially affecting their interests or accept at face value the parties’ representations about a settlement whose particulars they won’t reveal.

The parties–Hearst, MediaNews and Reilly–should release the complete settlement immediately, including specifics about the amount of attorney’s fees, costs and other sums paid to Reilly or his lawyers. If they cannot agree to do that, the party(ies) blocking release should come forward and defend that decision. Maybe this time the press will react with appropriate skepticism.

Peter Scheer, a lawyer and journalist, is executive director of CFAC.

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