CITIZEN PUBLISHING CO. v. U.S.
Legal provision: Sherman
Argument of Richard J. Maclaury
Chief Justice Earl Warren: Number 243, Citizen Publishing Company et al, appellants, versus the United States.
Mr. Richard J. Maclaury: Mr. Chief Justice, may it please the Court.
My pan of argument is to spend 25 minutes on the opening and then reserve for if the Court please, five minutes for rebuttal.
This case comes here from the District Court, in the District of Arizona on direct appeal under the Expediting Act.
It tests for the first time the validity under the antitrust laws of a newspaper operating agreement.
The agreement combines the commercial asset and the functions of two newspapers in Tucson, Arizona, the morning, in Sunday Star and the evening, Citizen.
Agreements of this kind have become increasingly necessary to preserve competition between newspapers on the journalistic level.
The reason the agreement was adopted is because Tucson cannot support two newspapers operating at both the journalistic and the commercial levels.
Now, this situation is not peculiar to Tucson.
Over the past 30 or 40 years, there has been a drastic decline in the number of separately owned newspapers in the same city.
In 1920, there were 552 cities having separately owned newspapers.
20 years later in 1940, there were only 181 and by the mid-sixties, there were 65.
And of the 65, more than one third operated under agreements such as we have into consideration here.
Now the Government claims that this agreement is a per se violation of Section 1 of the Sherman Act and the District Court on summary judgment held that it was in fact a violation, a per se violation of Section 1.
It is our contention that the agreement in substance and effect was a merger and that the Court should've judged it under the rule of reason and specifically that it should apply to this agreement the failing company doctrine because Citizen in 1940 was truly in a failing condition.
Now, we do not seek here to justify per se violations.
The Government argued below and it argues in its brief here that all we do is to seek to justify per se violations.
I just like to emphasize to the Court that that is not our position.
We feel that the agreement is entirely lawful and would've been found lawful had it been examined under the rule of reason rather than on summary judgment and under the per se rule.
This case involves a typical situation of the economic conditions experienced by newspapers throughout the country.
In 1940, Citizen was in fact a failing company.
It did not pay dividends for many years.
Its liabilities far exceeded its assets and it have been kept alive in able to pay its current bills only by contributions from its stockholders.
In contrast its competitor, the Morning Star was in good financial condition.
It was a strong competitor.
It was selling more than 50% -- it sold more than 50% of the advertising in Tucson.
Justice John M. Harlan: Also the respect to circulation.
Mr. Richard J. Maclaury: The respect to circulations in 1939 were approximately 2000 a part.
Sun -- the daily circulation, the Sun -- the Star was approximately 12,000, the Citizen approximately, 10,000, but in addition, Star had a 12,000 circulation of its Sunday edition which Citizen did not have.
Those figures are approximation but there has always been from 1932 on through 1939, a variation of 1500 to 1800 up to 2000 difference in its circulation.
Now, as I say in contrast Star was making a profit and sold 50% more advertising than Citizen and in the --
Justice Byron R. White: We haven't primarily (Inaudible) the settlement issue.
I think that's otherwise a circulation (Inaudible) --
Mr. Richard J. Maclaury: I would not --
Justice Byron R. White: Or that -- except for the Sunday edition, why should we think that we can do it both the other (Inaudible)?
Mr. Richard J. Maclaury: Well, I think it was due in large measure to the Sunday edition but not entirely, Mr.Justice White.
There was of course available to the Star the combination of rate between Sunday and Monday and Saturday and Sunday and Sunday being the unattractive advertising day.
It did give Star an advantage.
Now, in these circumstances, Citizen had several choices.
It could've ceased publication and shut down its operations and sold equipment on the secondhand market.
Or it could've sold out or merged with Star.
The evidence was undisputed that Citizen in that failing condition could not have been sold to an outside competitor.
Of course no outside competitor would've wanted to come in and place itself in the shoes of a failing company against an established newspaper such as Star.
Now it took neither of these courses but instead took the third course and that was to enter into an operating agreement with Star which preserved for the citizens of Tucson and for these newspapers, two separate rival, competing editorial voices.
And it's our contention here that that was a far, far more preferable choice.
A far more preferable course of conduct than to have merged entirely and shutdown this competing voice of Citizen.
And so they entered into this operating agreement which was premised on the basic economic back in the newspaper business that newspapers operate in two levels as we all know, at the journalistic-editorial level and also at a commercial level.
By commercial I mean, running mechanical equipment, the press, the composing room, of the pricing and sale of advertising and the circulation and establishment of circulation prices and the general business affairs of the two newspapers.
That is what I refer to as the commercial level.
So the newspapers operate at both these levels, the operating agreement recognized that and provided for what we referred to as in substance and effect a merger of the commercial assets -- of the assets devoted for the commercial functions as well as the personnel, records and all of the material devoted in use at the commercial level of these two businesses.
But on the other hand, the separate identities of Star and Citizen will retain and the provision in the agreement specify that Star and Citizen would continue to be published separately and the court find -- found that ever since the agreement indeed, Star and Citizen have continued in rival composition of news and editorial materials and have developed into two high quality newspapers.
The agreement was patterned after to what we refer to as the Albuquerque agreement which was then in effect and is still in effect, stopped at 1933.
The purpose of the operating agreement was to merge these commercial functions and assets so to support two separate news and editorial voices.
To do this, the parties didn't really see three things.
First, each newspaper acquired in joint interest in the assets of the other newspaper necessary to produce newspapers.
Secondly, they organized a third corporation which was called Tucson Newspaper Inc., we refer to it as TNI.
And thirdly, TNI then fickle with a management and control of these assets, they operated the press room, the composing room, and other mechanical equipment.
They sold advertising space in both newspapers.
They established advertising rates.
They circulated the newspapers, operated the distribution trucks and established the circulation rates.
Star and Citizen each own equal shares in it's -- in the third corporation TNI and the board of directors of TNI or by the number, three appointed by Star, substance and two by Citizen.
But the management of TNI was completely separate from the management of the editors and the publishing people of the two newspapers, it was a separate management, they had a separate general manager, a separate comptroller, separate man who headed the advertising department, had nothing to do with the editorial levels of the two newspapers of the separate operation.
We are urged -- the District Court because that this was a -- in effect, substance in effect a merger or a consolidation to judge the agreement under the rule or reason.
But this it refused to do.
It was the District Court's view that the failing company doctrine would've applied in this situation if Star had acquired Citizen outright and published both newspapers as a single owner.
As the -- the court ruled in effect that the transaction would not have been unlawful if the newspapers had gone further than they did and eliminated all news and editorial rivalry.
Now, we do not urge that the fact that this case deals with newspapers exempts the activity -- trust laws but we do urge that the District Court interpret the Sherman -- the elimination of a separate and effective editorial voice -- that there was a separate voice.
That they were competing editorial voices in Tucson should have been a factor that the court should've taken under consideration in deciding whether or not this agreement was unreasonable.
It was the benefit to the community, arriving from separate editorial voices is a factor that the court should've taken into consideration but on the con --
Unknown Speaker: (Inaudible)
Mr. Richard J. Maclaury: We do not claim here that there was a violation of the First Amendment.
Justice Byron R. White: Oh, I just thought that that argument had taken was another effect of the editorial voice, would that suggest that it is a First Amendment consideration?
Mr. Richard J. Maclaury: Well, yes, it is a First Amendment consideration because the court had the choice here of interpreting the Sherman Act so as to permit two separate editorial voices.
Justice Byron R. White: But not you suggest that there's no First Amendment to -- in terms of First Amendment so as to present a violation?
Mr. Richard J. Maclaury: We urge below -- we urged below, we do not urge here but we did urge below that if the court --
Justice Byron R. White: Did what it did in your argument?
Mr. Richard J. Maclaury: Yes but our argument was that here the court said, it will be perfectly lawful.
You could've put these two newspapers together and shut down one voice and in that event the Sherman Act would not have been violated.
But it interpret the Sherman Act to have been violated if we kept one voice alive and in -- we argued below that the court then was interpreting the Sherman Act so as to violate the First Amendment or deprive the citizens --
Justice Byron R. White: You're really --
Mr. Richard J. Maclaury: -- of a First Amendment --
Justice Byron R. White: -- here to do what the court did that it really, it really perhaps, (Inaudible) carrying the importance of the business.
Mr. Richard J. Maclaury: That -- that's correct.
Justice Byron R. White: You would make the same argument with the respect to the view that any other business that you actually would've heard over the community.
Mr. Richard J. Maclaury: Oh, I think that that's correct.
I think that this is a factor.
We argued here this is a factor that should've been taken into consideration under the rule of reason.
Justice John M. Harlan: What the District decided on summary judgment?
Mr. Richard J. Maclaury: Yes sir.
Yes, Your Honor.
Justice John M. Harlan: Assume you prevail --
Mr. Richard J. Maclaury: Assume we --
Justice John M. Harlan: Are there issues of fact?
Mr. Richard J. Maclaury: There was a serious and a genuine issue of fact on the motion for summary judgment.
We filed numerous affidavits and the intent of all of them was that this was a merger.
The -- that was the primary issue of fact, a disputed issue of fact which the court ignored on motion for summary judgment.
Now, thereafter, this case would --
Justice John M. Harlan: (Voice Overlap), it wouldn't technically argue this to appeal, doesn't it?
Mr. Richard J. Maclaury: It was an agreement for a term of years but in addition the agreement could not have been dissolved except upon the consent of both parties.
Technically, Your Honor, you are absolutely correct, it is -- it was not technically a merger or a consolidation but in terms of the economic realities, it was a merger.
It was a merger, it had no difference or no more of effect or no less an effect upon the commercial market, the advertising market than would a full and complete statutory merger had had.
And of course we -- and certainly we all agree on both sides of this case that the Sherman Act does deal with economic realities and with substance rather than form.
Now, the Government charged that this agreement constituted price fixing and profit pooling and market allocation and therefore illegal per se.
Now, I believe that the complete answer to these charges is that the owners of Star and Citizen are doing nothing today and did nothing after the agreement was entered into 1940.
It did nothing, than they would've been doing had there been a complete merger.
And certainly if there had been a complete merger of both the editorial and the commercial functions the Government would be in no position, it would be perfectly clear that the Government would be in position to argue that that was a per se violation.
By price fixing, all the Government simply means is that this TNI organization established the price for its products and services.
Justice Byron R. White: Let's assume though that there -- let's assume neither company was failing.And they merged --
Mr. Richard J. Maclaury: Yes sir.
Justice Byron R. White: -- may not be a per se violation (Inaudible) --
Mr. Richard J. Maclaury: I don't think we'd have very much trouble at all Your Honor.
The fact, the very fact that Citizen was failing in 1940 could not have been -- could not be reconstituted, rehabilitated after years.
That would cause Citizen to fail again is the reason we're here.
It's the basis for our argument.
And without that fact situation, I don't think we would have a case.
It is because one newspaper would fail without or having taken this Act that we believe the District Court committed error.
Justice Byron R. White: Would fail eventually or was about to fail?
Mr. Richard J. Maclaury: Back in 1940 as I say, I don't think there's any question about it, Citizen was clearly a failing company within the meaning of international shield.
Justice Byron R. White: (Inaudible)
Mr. Richard J. Maclaury: I don't believe so Mr.Justice White.
The District Court found in finding 17 or I'll say concluded in finding 17 that Citizen was not in 1940 on the verge of going out of business.
And that it would not have ceased publication but for the opportunity offered in this operating agreement.
Now I do not consider that to be a finding to finance the losses for some little out of this own pocket, that's in finding 14.
But the evidence also had to find another source of resources in order to keep Citizen alive.
Now and I take that situation --
Justice Byron R. White: And that -- at that time he moves to Tucson, for how long?
Mr. Richard J. Maclaury: He had moved to Tucson I believe in about September of 1939 and had given his full time and attention to the business without a salary for about six months.
The court found in findings --
Justice Byron R. White: Did the paper showed any inclusions (Inaudible)?
Mr. Richard J. Maclaury: No, the newspaper didn't -- did not as a matter of fact they continued to fail and fail to deteriorate.
In December of 1939, the current liabilities of Citizen were $47,000.00.Its assets, current assets were $16,500.00.
Its total liabilities in nine -- in December of 39, exceeded total assets by $53,000.00.
Its total assets were $80,000.00.
Now by March of 1940, its total liabilities exceeded assets by $81,000.00 and its total assets had declined from $80,000.00 to $54,000.00.
And by June of 1940 just before the operating agreement went into effect, the total assets of Citizen had declined further from $54,000.00, the previous March, to $47,000.00.
Justice Byron R. White: Well, when -- do you think that this was a occasion, 36, it wasn't 40.
And if that was 40, it wasn't 36.
Mr. Richard J. Maclaury: No, I think it was in worst shape in 1940 than it was in 1936.In 1936, Mr.Small and a Mr.Johnson acquired a newspaper from the Chicago State.
They acquired it for a $100,000.00 which they paid over a period of time.
At that time they put $25,000.00 into new capital.
The debts of the corporation at that time were approximately $7500.00.
By 1940, the debts of the corporation were a $109,000.00 and $79,000.00 of this was due to its stockholders which represented the new money put in to the enterprise via stock bonus so clearly Citizen was steadily declining financially from 1936 through 1940.
And by --
Justice Byron R. White: (Inaudible) was there any evidence that he (Inaudible) --
Mr. Richard J. Maclaury: There was an effort --
Justice Byron R. White: (Inaudible)
Mr. Richard J. Maclaury: He understood what its financial condition was in 1936.
Justice Byron R. White: There was no other effort to sell.
Mr. Richard J. Maclaury: There wasn't -- not an effort to sell outright Mr.Justice White.
There was an effort by Mr.Small to acquire new financing from people interested in newspapers and in the publishing business, people that he knew and this efforts fail.
He was a very poor season to be investing in newspaper in Arizona at the time.
Having failed to attract new investment money, he then renewed his conversations with Matthews, owner of the Star to enter into or make some kind of an arrangement for this operation, operating agreement.
I might point out here that the undisputed testimony at the trial was that Citizen could not have been sold in 1940 to an outside publisher who had any expectation of operating a newspaper out of profit.
Justice John M. Harlan: Mr.MacLaury, what was the situation as to Citizen from 1965 which as I understand that was determined of the joint venture.
Mr. Richard J. Maclaury: Well, in 1965 --
Justice John M. Harlan: Am I right about the (Voice Overlap) --
Mr. Richard J. Maclaury: No you, you're not correct Mr.Justice Harlan on the termination date, 65 was not the termination date, 65 was the date of the year that the complaint was filed.
It still have some years to run but the evidence was that in a form of a focal misstatement prepared by a national accounting firm, the evidence was that Citizen and Star as newspapers were healthy, company [Audio Cut] --
Justice John M. Harlan: -- termination date.
Mr. Richard J. Maclaury: The termination date had been such [Audio Cut] 1993 I believe but there was a provision that they have a specific termination date unless both parties at the end of each 25-year period would agree to terminate it.
The evidence -- let's go the question, the evidence was that [Audio Cut] 65, if this agreement should be abrogated in the sense that the District Court ordered it that Citizen would promptly again flunk towards a company for the years 62, 63 and 64, a test period.
The evidence was and it was undisputed that Citizen would lose on the average of $75,000.00 a year.
Star was in a far stronger position and would've earned between 450 and $500,000.00.
I see my 25 minutes is up and I would if the court please [Audio Cut] minute for rebuttal.
Chief Justice Earl Warren: Two minutes.
Argument of Daniel M. Friedman
Mr. Daniel M. Friedman: Mr.Chief Justice, may it please the Court.
The court found in this case in finding number 20, page 74 of the record that it was the intention of the parties to the operating agreement to reduce costs and increase profits by eliminating commercial competition between Star and the Citizen while retaining separate editorial and news departments.
In their agreement to reduce costs and in four on the same page they speak of what they did in furtherance of their intent to eliminate competition between the two papers.
Moreover, both of the parties conceded at the trial that this was the purpose of the operating agreement.
Mr.Matthews who was the owner of the Star stated that was the purpose of the agreement to end commercial competition between Star and Citizen.
This is at page 194 of the record.
Mr.Small Sr. would then who was the owner of the Citizen said the same thing.
A Mr.Chambers who had been the business and edit and advertising manager of the Star in 1940 and who had participated in the negotiations leading to the joint operating agreement, he stated at page 155 of the record when he was asked as the -- whether as the result of this Tucson Newspapers, Inc. was there any competition remaining between the Star with respect to the business aspect, he said, "We tried to make it not so.
I don't think that there was."
And then he later -- a few pages later at page 158 of the record he was asked whether this arrangement could've worked if the revenues had been divided on some method other than a fixed formula which I will come to in a minute and he said, "No."
He didn't think it would.
He said that that was -- would've defeated all the idea we had for accomplishing this unification.
We were trying, he said, "I guess that competition is a nasty word in this Court but we were trying to eliminate the competition between the two of us."
Now, in addition to this testimony at the trial we had in this record a rather unusual document which is Government exhibit number 26 which was a submission that the Star made in 1947 to the Internal Revenue Service in support of excess profits tax relief for the more years.
And I have to read to the court a couple of the things that the Star said in this document about the purpose of the 1940 agreement.
In page 409 they said, it is obvious that the aim and purpose of the parties was to destroy every vestige of the competition that existed on January 1, 1940.
Then at pages 420 and 421 they say in order to preserve perpetual elimination of competition the operate agreements provides that neither of these papers will engage in publication of any other newspaper in Tucson.
On the next page in rather large type at the bottom of the page, they told what the purpose was and they said, "And this two paper -- the Arizona Star did in large letters underlined did eliminate all competition from the local newspaper field on that day."
Justice Hugo L. Black: At page 422?
Mr. Daniel M. Friedman: 421 Mr. Justice.
And then finally I would like to invite the Court's attention to this little pictures at page 424 of the record in which the Star graphically displays what the result of this agreement was.
At the top of the page, we have two hawks, one labeled the Star and the other label the Citizen.
At the edges of the picture we have two draws, one labeled circulation, one labeled advertising.
Justice Byron R. White: At pages what?
Mr. Daniel M. Friedman: 424 Mr. Justice.
The two hawks are chained together at the rear and they are pooling.
Each one is pooling one to its circulation, one toward advertising but of course neither can reach the trophy.
Now at the bottom of the page they tell us what happened after this agreement.
We now have the two troughs again circulation and advertising and both the Star and the Citizen shown is rather fat hawks at this point had their snouts down on the trough enjoying the benefits of this.
Justice John M. Harlan: What was that exhibit on that matter?
Did the Court called that advertising or did the antitrust --
Mr. Daniel M. Friedman: Now this was in response to a provision under the excess profits tax that they could get relief if they could show that there was an elimination of competition resulting from a merger which distorted their earnings during the base picture but they have told us -- they have told us as plainly as they can what the purpose was.
Now how did they set about -- how did they accomplish this elimination of competition?
They did it basically from three aspects of the joint operating agreement and I want to make it clear that the Government is not challenging the joint operating agreement as such.
It is only challenging this three aspects and the District Court has not struck down the operating agreement.
It has only struck out these three paragraphs.
The first thing they did was they turned over to this Tucson Newspapers, Incorporated which they jointly control the sole authority to fix prices.
That is to fix the advertising rates, to fix the circulation rates.
Neither of them after this agreement could fix their own advertising or circulation rates independently.
Now I would like to suggest to the Court a hypothetical situation because I think it illustrates the basic argument they are making here.
Let us assume we had two newspapers in town and both of them were losing money and the publishers of the papers got together and said, things are terrible.
We're both losing money.
The best solution to this problem is for both of us substantially to increase our rates.
And they shook hands on it and they said, "Fine, we'll do this the first of next month."
And then they decided themselves what the rate level would be and they said, "Well, let's turn it over to a third person to fix the rate."
It seems to me two things are clear.
First, that they could not possibly offer any defense to this as a per se violation, it's clearly per se and secondly, they could not attempt to justify this type of arrangement on the plea that this was necessary to preserve the companies.
Justice Hugo L. Black: There's any plea of self-incrimination raised in regard to the picture?
Mr. Daniel M. Friedman: Regard to the picture?
Justice Hugo L. Black: 424?
Mr. Daniel M. Friedman: No Mr.Justice.
There was no objection taken to the introduction of this document.
Now there was -- the next thing that they did which they said was essential to this arrangement, they had what we think correctly was held by the District Court to be an illegal profit pooling arrangement in here.
The proceeds of the operations of the papers, what they did was the Tucson Newspapers, Inc. received all the revenues.
That is the revenues from the sales of advertising, from circulation and then the revenues were -- after paying the expenses of putting out the paper, the revenues were divided between the two papers not on the basis of what each one contributed but according to a fixed formula.
That is without regard to whether one contributed more or one contributed less, they divided it up according to a preordained formula.
You mean, contributed in the sense of gross?
Mr. Daniel M. Friedman: Of gross revenue, that's right.
Justice Byron R. White: And did the company -- did the managing company itself determine what the circulation expenses would be?
Mr. Daniel M. Friedman: Oh, yes.
I mean, subject of course that these two companies obviously had basic control.
Justice Byron R. White: In any sales expenses like pushing circulation or pushing advertising or pushing some subscriptions, is that determined by that company?
Mr. Daniel M. Friedman: That's right.
That was determined by Tucson Newspapers, Inc. because they took over -- it took over for these two papers the circulation and the advertising.
The business affected that thing.
Now, this seems to us has a very obvious effect, a very obvious effect of deterring the incentive of each paper to take whatever steps might increase its circulation because obviously if one paper decided to try to increase its circulation, a large part of that immediately flows over to the other.
And finally, although it's not terribly important in this case, we're not stressing that the third agreement provision they had was an undertaking that neither of them would go into any publishing basis in Tucson.
Now, the question as we see the case is whether this three restraints which -- it seems to us are the type of this Court traditionally has treated as per se and the purpose of which as the court found and the effect of which was to eliminate all commercial competition between the two papers can be save as somehow is taken out of the operation of these rules because of the claim that this was necessary to say a failing newspaper in 1940.
Justice John M. Harlan: What ground do you think that the antitrust laws did commonly -- common fact, the newspaper, the revenue of the newspaper as the result of competition are getting smaller and smaller, the company in New York City to -- competitor factor, you've got practical monopoly from these company.
Now do you think that that was hard economic facts to find any (Voice Overlap) recognition under the antitrust laws, does this case had suggested the term ordinary and conventional?
Mr. Daniel M. Friedman: I think I'd like -- I'd like to make two points in answer Mr.Justice.
First of all, it seems to us and I think Your Honor has put the case it seems -- I think fairly, it seems to us what they're really suggesting in this case is that the normal antitrust principles that apply to all industries should somehow be treated somewhat differently because of the peculiar characteristics of the newspaper business.
Justice John M. Harlan: In here you got -- in here you got is a practical -- I'm not talking (Inaudible)
I'm talking about economics as to private companies.
Here, the result of all this, you've got a strong newspaper and a small competitor but through this device has preserved the competition and ideas of competition and competition in its editorial policies.
Mr. Daniel M. Friedman: Well, as -- I'd like to just make two answers to that.
First, there is a disagreement as we have developed in our brief among authorities as to the causes of the problems of the newspaper industry.
Admittedly there's been a tremendous failure.
On the other hand, there are people who believe that perhaps with new technology things may improve.
But my other answer is it seems to me if there is to be a special treatment of the newspaper industry, we think this is basically a problem for the Congress and not for the judicial branch of the Government.
Justice John M. Harlan: Except the whole antitrust development which has been in judicial development, everybody knows that?
Mr. Daniel M. Friedman: A judicial development Mr.Justice but I don't think a judicial development of providing special rules for particular industries.
Justice William J. Brennan: Aren't terrific now in the Congress?
Justice John M. Harlan: The Baseball for example.
Mr. Daniel M. Friedman: The Baseball was an application -- originally the Baseball decision was not -- a special rule for Baseball but -- that as the court then viewed interstate commerce based those --
Justice John M. Harlan: A few years ago (Inaudible)?
Mr. Daniel M. Friedman: Well, but on the application of stare decisis, they're not reaching the merits of whether Baseball was quoted but on the theory that that was not appropriate in the circumstances to be exempt.
I just like to stress here that the pleas often made to the court of course that rules of law should not be changed by the court but should be changed by Congress.
But this -- in this case, Congress for two years has had this very problem before it.
They have been pending now in the Congress for two years, various bills that would specifically sanction this type of agreement for the newspaper.
Justice Byron R. White: Oh, Mr.Friedman we never reached any of these questions if this one company was not a failing company --
Mr. Daniel M. Friedman: That is --
Justice Byron R. White: (Voice Overlap) --
Mr. Daniel M. Friedman: That is correct.
Justice Byron R. White: You are -- are you conceding that the --
Mr. Daniel M. Friedman: Oh, no, that's about the next point after I answer Mr. Justice Harlan.
Justice Byron R. White: Well, I know, you never -- you didn't -- wouldn't need to waste any breath on any of these questions if this record is clear that this -- that the Citizen was not a failing company.
Mr. Daniel M. Friedman: That is correct and I'd like to -- if I may turn to that right now.
Justice Hugo L. Black: Oh, I understand now that you are denying?
Mr. Daniel M. Friedman: Pardon me sir.
Justice Hugo L. Black: I know -- understand now that you are denying the assumption of my Brother Harlan's questions that this newspaper then became one voice or two voices, what was it --
Mr. Daniel M. Friedman: It was two --
Justice Hugo L. Black: -- after the merger?
Mr. Daniel M. Friedman: It -- we say, it's not a merger Mr. Justice.
Justice Hugo L. Black: Well, after whatever it was?
Mr. Daniel M. Friedman: Its still -- there was still two editorial voices.
There was still two -- there were two, the two papers that the court found continued to operate as separate editorial voices, we don't question --
Justice Hugo L. Black: Were they owned by the same people?
Mr. Daniel M. Friedman: No, they -- continued to be separately owned.
Justice Hugo L. Black: Separately owned?
Mr. Daniel M. Friedman: Separately owned but they did have this interrelationship between them on the business --
Justice Byron R. White: But we may assume then I gather that the Government does not claim and would make no claim that there would be any connection between news policy and this joint commercial operation?
Mr. Daniel M. Friedman: Well, no.
Mr. Justice, we do suggest, we do suggest that we have in our brief that the likely tendency of this type of commercial operation may be to inhibit competition in news.
If we don't say that it has here, but the tendency of it -- in other words, people would have this interrelationship on the business level and who have had removed some of the incentives for trying to increase their business, its likely to have --
Justice Byron R. White: What do you suppose the managing company would do if one of the companies -- if one of the papers because of its news policy, news coverage policy suddenly begun to decline in the circulation seriously?
Mr. Daniel M. Friedman: I don't know what they'd do.
I suppose they would attempt to try to persuade that paper to improve itself I would think.
I'd like to come now to this whole question of the failing company because that of course is the foundation on which their entire argument rests.
They claim in 1940 the Star -- Citizen was a failing company and of course if that under pending falls it seems to us, do does their whole case.
Now the District Court found and this is at page 72, that's the second sentence, it says that at the time they entered into the operating agreement, Citizen Publishing was not then on the verge of going out of business --
Justice Byron R. White: Where are you reading?
Mr. Daniel M. Friedman: Page 72 of the appendix, finding 17, the second sentence.
It said at the time, Citizen Publishing was not then on the verge of going out of business nor was there a serious probability at that time that Citizen Publishing would terminate its business to liquidate its assets unless Star Publishing and Citizen Publishing entered into the operating agreement.
We think the record fully supports that finding.
We also think that finding does properly embody a so-called failing company defense in the International Shoe case.
Justice Byron R. White: Now what are the facts underlying that -- do you think that's the state among the evidence?
Mr. Daniel M. Friedman: Yes we do Mr. Justice and I'd like to refer to 809 specific items which we think support it.
But before that I just like to say one thing because they have challenges in the brief.
The evidence to which I am going to refer was not admitted of course on the motion for the summary judgment.
At the time of the summary judgment, it was decided on affidavit.
This evidence came in, in the course of the trial on the Section 2 issues, it was offered with respect to intent.
However, it seems to us that all the evidence that is relevant to the failing company defense was introduced.
Justice Byron R. White: Was there a later motion to set aside the one -- the Section 1 judgment?
Mr. Daniel M. Friedman: Yes, there was Mr. Justice.
Justice Byron R. White: And based on evidences, they already -- they had at that time been taken?
Mr. Daniel M. Friedman: Oh, yes, this was after the record was closed.
Justice Byron R. White: So this is after all this evidence that you're talking about was in the record.
Mr. Daniel M. Friedman: That was in the record and it was before the court.
It was before the court of course when the court made this finding 17.
Justice Hugo L. Black: You said challenge to -- I think, it was for summary judgment?
Mr. Daniel M. Friedman: Oh yes, they object.
They do object --
Justice Hugo L. Black: They objected -- did they object at the beginning?
Mr. Daniel M. Friedman: Oh, yes, they objected all the way to our motion for summary judgment.
They objected to that.
Justice Hugo L. Black: I thought the Government had been taking the position at least at some cases, summary judgment was not coupled in an antitrust case.
Mr. Daniel M. Friedman: Well, we did -- in some cases we have where we think there are disputed factual issues.
On the other hand, in situations where we think that on the undisputed facts, we're entitled to judgment, we have supported summary judgment and Your Honor in his opinion in the Northern Pacific case upheld the grant of summary judgment.
They are on a tying agreement.
There have been a number of cases of course in which summary judgment has --
Justice Byron R. White: Well, I take it, your position is that in view of the course this case took, the fact of summary judgment was initially granted on one part of the case is rather unimportant --
Mr. Daniel M. Friedman: In view of all the other --
Justice Byron R. White: -- because there was a trial on other issues and evidence was introduced which was very relevant to this summary judgment matter.
Mr. Daniel M. Friedman: There are only two items of evidence that they claim they should have had the right to introduce on the question of failing company that was not introduced.
We think neither of those is relevant.
First to some statistics as to the financial condition of the Citizen on the 1920s that seem to us is too remote.
Secondly, as some statements by various people in the Tucson area which is printed in the record as to the importance of having two papers in Tucson, again it seems to us that's irrelevant.
Now let me come to the specific issues.
I'd like to start with something because the argument is put in terms of failing company.
Is it -- was it a failing company and they say basically Mr. MacLaury says, just look at the balance sheet, that's enough.
Now, failing company is really a shorthand phrase we think.
Failing company is a shorthand phrase with a basic concept that when a company is in such serious condition and has such serious problems that it appears that it is about to go out of the market anyhow, then its acquisition via competitor is not substantially less in competition because it is --
Justice Byron R. White: (Voice Overlap) whether it's a viable economic --
Mr. Daniel M. Friedman: That is correct Mr. Justice.
And we --
Justice Byron R. White: The different point in that is whether it's viable defense in this matter.
Mr. Daniel M. Friedman: But I think Mr. Justice, I think, I suggest that if this management is willing to keep it going, it is at that time a viable entity in terms of the purpose of the failing company defense.
That is if the entity -- he is able to keep going, if the entity is able to keep going, if the man is willing to keep it going for a while, it seems to me that refutes the claim that its elimination through a merger will not substantially lessen competition.
Now let me come --
Justice Potter Stewart: In other words --
Justice Byron R. White: Do you think (Inaudible)?
Mr. Daniel M. Friedman: Surely.
Yes of course.
Let me come to these items of evidence --
Justice Potter Stewart: Its your position then that even though a corporation might be suffering substantial losses, there's no prospect of any change in the downward curve if it -- if all of its stock happens to be owned by a multimillionaire who just likes the idea of owning a corporation that publishes a newspaper and is willing to take those losses perhaps setting him against other income zone that that is in no sense a failing company?
Mr. Daniel M. Friedman: That is correct Mr. Justice though we -- I'd like to point out that there are many of these situations -- a publisher may have hopes of rehabilitating the paper --
Justice Potter Stewart: But my hypothesis says that he has no hope.
Mr. Daniel M. Friedman: No hope.
I would think so --
Justice Potter Stewart: Well, he's just stubborn or eccentric or --
Mr. Daniel M. Friedman: I would think --
Justice Potter Stewart: -- vain or something.
He likes to have editorials from the paper praising him and even though it loses some million dollars (Voice Overlap) --
Mr. Daniel M. Friedman: That's right because it's continuing as an operating entity in the market.
Now, if I may, I'd like to just come to these items of evidence that we have here.
Justice John M. Harlan: As to what witness, he can contribute to them?
Mr. Daniel M. Friedman: We -- he did for many years.
Justice John M. Harlan: Certainly, he did.
Mr. Daniel M. Friedman: First of all, the initial overtures about making this arrangement came not from the Citizen which allegedly was the failing company but from the other paper, from the Star.
Now this is directly in contrast with the International Shoe case where the overtures came from the failing company.
It seems to us, this is of some significance cause normally if a company feels that it can't go on it would take the initiative.
Now in the International Shoe case, this Court found that the controlling purpose of International in acquiring the McElwain Company, the failing company there was to get additional plans for its business which it could not have been quickly hope to make.
And in its discussion of what it was holding as to that, the acquisition of the company in those circumstances would not violate Section 7.
It put in as a qualification.
The -- in the passage which the appellants themselves quote in their brief at page 41 that the purchase of the competitor there was not and I ?not with a purpose to lessen competition.?
And that of course is exactly the opposite of the purpose the District Court found was involved here.
Now, initially in 1936, a small purchase, only a 25% interest in the paper, over the next three years, he increased his share of the paper from 25 to 75%.
It's been suggested that he made attempts to finance the paper and they were unsuccessful in this interval.
The record shows at pages 205 to 206 that these attempts, he merely spoke to three people he knew, a retired man, a man who just moved to Arizona and asked him, wouldn't he perhaps like to put some money into the paper and they refused.
When those three people refused to do so, Mr. Small decided to move to Tucson from Chicago and what he said -- what the District Court found when he testified was, he said -- he decided to come out himself at page 206 of the record, he said, "I felt that I could carry the deficit from some little time."
There's nothing to indicate at, that when this operating agreement was entered into that Mr. Small had any intention of liquidating the Citizen.
That there's no indication he tried any steps to improve its financial condition and there's nothing to show he made any efforts to try to sell it to others.
Now as to the financial condition of the paper, it is true, the Citizen for a number of years had been losing money.
However, between 1938 and 1939 just before the time that Mr. Small came out or during this period, the paper's condition improved.
Its circulation in those -- between those two years went up 22%.
Its deficit was reduced.Its advertising had gone up and its operating revenues had gone up.
Now the appellants tried us and say we've made an unfair comparison because they say 1938 was the worst year of the Citizen and we shouldn't compare it with 1939.
But of course it seems not unlikely perhaps that this was the turning in the Citizen of course and this was the situation.
This was the situation that the Citizen was faced with when it decided to enter into this operating agreement.
It saw -- this was -- it was at this point that Mr. Small when these improvements seem to be developing that he decided to come out to Tucson to play a more active role in the paper and he said to carry it along for a little while.
And finally -- oh, one other thing, I might mention, that on the -- there have been a reference to the balance sheet, that a substantial portion of these liabilities as Mr.MacLaury has indicated belongs to stockholders and finally, as to the present condition, as to the present, the claim is a pro forma earning statement in which we point out what we think there's some deficiencies on it.
But it seems to us, the answer to all of this argument that the Citizen was equally certain to fail again if it was now required to terminate this profit pooling, price fixing and division of market, provisions of the agreement is the District Court's three findings at page 98 to 99, findings number 190 to 192 which says that the joint trading and distribution of the Star does not depend upon these provisions that the restoration of competition requires that they have separate advertising and circulation requirements.
And finally, finding 192, the court says, "It is impossible to predict with any substantial degree of completeness what the operating results of either newspaper will be in a competitive situation."
Justice Byron R. White: You view that.
Mr. Daniel M. Friedman: Pardon me.
Justice Byron R. White: Do you view that?
Mr. Daniel M. Friedman: Oh, yes, we think it's impossible to predict.
That is it cannot --
Justice Byron R. White: Well, is that the -- it's impossible to predict whether or not those statements may survive or do you think that the only question is it's impossible to predict that which one (Inaudible)?
Mr. Daniel M. Friedman: No, I think it's impossible to predict how well they will do.
In other words, you cannot say --
Justice Byron R. White: Well, do you mean that it may be that the District -- that the District Court contemplated that perhaps both could survive?
Mr. Daniel M. Friedman: I think so.
I think so, but the District Court certainly said that he could not make the prediction that if these provisions were cancelled --
Justice Byron R. White: If the Government doesn't agree with the Tucson market, they would only mean (Inaudible) --
Mr. Daniel M. Friedman: No.
Unknown Speaker: (Inaudible)
Mr. Daniel M. Friedman: That's right.
We don't agree with that Mr. Justice.
And therefore it seems to us that this find -- this evidence to which I referred, I will point one other thing.
It's rather interesting that although the Citizen allegedly was failing in 1940 and presumably under their theory of quickly going out of business, the Star was willing to give the Citizen a very substantial share of the joint operating revenue.
Justice Byron R. White: What was the circulation of both the newspapers active since 1965 compared to 1940?
Mr. Daniel M. Friedman: About three-and-a-half times as much.
Justice Byron R. White: Each of them?
Mr. Daniel M. Friedman: Each of them.
They had roughly the same circulation in 1965 about 40,000 each.
Justice Byron R. White: That's roughly a correspondent besides the failing company, under the gross revenue?
Mr. Daniel M. Friedman: I don't know that.
As I say that the -- although the publisher testified, although publisher testified that the reason he was so generous is he wanted to preserve two operating voices in Tucson.
It seems one can legitimately ask whether perhaps he wasn't also anxious to avoid the possibility that this new man coming in might create a very serious competitor for him or might perhaps sell the paper to someone else who would be in a position to be a more vigorous competitor.
So that what you have here is that the -- these two people got together and attempted to solve the financial problems with the paper by eliminating all competition between them.
And we think that the District Court was fully justified in his -- in its finding that in 1940 Citizen was not on the verge of going business and it was not a serious probability at that time that Citizen would liquid -- be liquidate and dissolve unless it entered into this agreement.
Now, I would just very briefly, we developed it in our brief, in my remaining time, just say something on the claim that if the Court disagrees with us and thinks that this finding is not supported by substantial evidence, well that ties us --
Justice Hugo L. Black: Which finding?
Mr. Daniel M. Friedman: The finding that they were not a failing company, in other words, if the Court would think that the District Court was clearly erroneous and we think he was correct.
But if the Court should disagree with us, I'd like just briefly to indicate, to sketch to the Court the reasons we think the District Court still properly condemned these restraints as per se illegal.
The attempt was to analogize this to a partial merger.
Now, of course, as I've indicated, we are not challenging the operating agreement but only parts of it.
Chief Justice Earl Warren: You may take a few minutes more.
Counsel may have the same --
Mr. Daniel M. Friedman: Thank you, Mr.Chief Justice.
Chief Justice Earl Warren: -- same additional time.
Mr. Daniel M. Friedman: A merger basically is a single transaction which has some obvious anticompetitive effects, that is if competitors combine and eliminates the competition between them.
On the other hand, it may have some benefits.
It may lead to an improvement of the structure of the operating assets.
It may need to -- lead to some useful economies.
So that it's impossible on a merger to separate out the anticompetitive and the precompetitive things.
So, we have to do is make an over all judgment as to whether or not the total effect of the merger maybe substantially to lessen competition.
But this is a very different kind of a thing.
This is a very different kind of beast.
Here what we have is this agreement with separable provisions.
Some of it, you could just put your fingers on this provisions and see the provision for price fixing obviously eliminates competition.
The provision for profit pooling obviously eliminates competition.
The provision that they will not engage in any other publishing business obviously eliminates competition.
We think those can be tested under the traditional per se rules and found illegal.
Conversely, the provisions for joint printing, for joint distribution, these are things which can also be tested and these are plainly not illegal.
They do not restrain competition and therefore for that reason the Government has not challenged and it seems to us that once again if I may come back to what I said earlier, that basically this is a plea by the appellants for special rules for the newspaper business.
I think if you have this kind of situation --
Justice Potter Stewart: That's not true if this was a failing company, you're not asking for special rules, are they?
Mr. Daniel M. Friedman: Well, there -- they still are I think Mr. Justice because they urge this as a merger.
And it seems to me even assuming if this were failing, we suggest this is not like a merger that this --
Justice Potter Stewart: Well, what they -- if this were a failing company in every full sense of that term then they could -- these two companies could've legitimately merged?
Mr. Daniel M. Friedman: That is correct.
That is --
Justice Potter Stewart: Well, a fortiori, suppose they -- the argument runs, they could do something less than that.
Mr. Daniel M. Friedman: Well, that's where we part company with them Mr. Justice.
And we part company with them because we think that in the merger field, in the merger field, you have to look at the merger as a whole body.
You have to look at it as a whole body whereas this type of thing we do not think can be analogized to a merger because we think here you can separate out the good and the bad and that there are very different considerations that are applicable here.
Justice John M. Harlan: Well, here you've got a -- here you can look to the (Inaudible) you've got a stronger newspaper with the basic thing that (Inaudible) --
Mr. Daniel M. Friedman: Except Mr. Justice, the two are very interrelated.
The two are very interrelated in that sense that it is not it seems to us the same thing as though you have the two of them combining into one business.
Justice Potter Stewart: Well, the difference is that you're here as a result of what was done, you have two newspapers.
Justice John M. Harlan: You have more competition provided here or levied, opened than you have in the merger.
Mr. Daniel M. Friedman: You have immediately more but there are -- there are countervailing considerations which we suggest perhaps the effect of a combination leaves the market open for someone else to come in.
Here, what you have is these two papers are kept going with this agreement which restrains competition.
This in effect has pretty -- completely occupy the market and it's occupied the market by means of this elimination of competition.
It just seems to us, if the problems of the newspapers is such that there should be relief in this situation, we think this is this Bill which is before Congress.
We have opposed the Bill but we think that that is the appropriate for redress in this situation.
Justice Hugo L. Black: What the judge ordered, was it not, a separate means of the advertising department and the circulation department?
Mr. Daniel M. Friedman: Yes.
Justice Hugo L. Black: Is that where they do their business?
Mr. Daniel M. Friedman: That is where they do their business.
Justice Hugo L. Black: Is that where they make or lose their money?
Mr. Daniel M. Friedman: Well, its -- in a sense, it is Mr. Justice, that's where they make or lose their money but of course -- but of course, how well they're going to do on circulation?
How well they're going to do on advertising depend on circulation?
How well they're going to do on circulation depend upon how good their paper is.
Justice Hugo L. Black: He ordered to separate it as I understand it, the two parts of the business where they do their business, which is what the antitrust law was aimed at?
Mr. Daniel M. Friedman: What he has done Mr. Justice is this, they have not here -- they have not appealed from the finding that the merger of the two papers, they actually merged in 1965.
He -- they have not appealed from that and they agreed that divestiture is appropriate.
Now what the Court did in addition to ordering divestiture of the two papers, the Court went on and said that in such divestiture, they had to modify the operating agreement to eliminate these three provisions which resulted in the joint business act.
Justice Hugo L. Black: What he actually found as I read it, look at it, or is it, if you let him combine these two, that its situation is wide open to be affected and whatever they publish through the paper?
Mr. Daniel M. Friedman: I think that's right.
Chief Justice Earl Warren: Mr.Laury.
Rebuttal of Richard J. Maclaury
Mr. Richard J. Maclaury: If the Court please, we do not ask here for a special rule for newspapers.
The -- we suggest here is that where there has been a partial merger or a partial consolidation of the assets and the personnel of a two firms which preserves to that community competition which otherwise would fail that rule should apply regardless of the business that we're talking about.
Justice Hugo L. Black: Competition in what?
Mr. Richard J. Maclaury: Competition Mr. Justice between the news and editorial composition between the two newspapers.
Justice Hugo L. Black: What about the competition in seeking advertisements -- in selling advertisements?
Mr. Richard J. Maclaury: The competition --
Justice Hugo L. Black: And circulation?
Mr. Richard J. Maclaury: Yes sir, the competition is seeking advertising, circulation and pricing that has -- there is no competition under this --
Justice Hugo L. Black: There is none.
Mr. Richard J. Maclaury: -- under this arrangement just as there would be under any merger.
Just as there would under any merger and we suggest that the owners of Star and Citizen are not doing a thing here, this operation that they wouldn't be doing under a complete and total merger.
The only thing that they have done that they have saved this benefit to the community of two rival high quality newspapers as the Court found.
Justice Hugo L. Black: That in each one, say what they want to but each one agree with one another, there will be no competition between them in the circulation and the other department?
Mr. Richard J. Maclaury: That is --
Justice Hugo L. Black: That's suppressed?
Mr. Richard J. Maclaury: That -- that as the situation is today but Mr. Justice I would not agree that it has been suppressed because in 1940, although these witnesses testified as laymen, the owners of Star and Citizen that they intended to eliminate competition as they say that was the testimony of laymen.
They were not a taking of testimony as an economist would or an antitrust lawyer would.
They were not thinking of effective competition.
What they were talking about was the end of a long hopeless struggle between these two newspapers which had finally ended in one of them being in a failing condition.
Justice Hugo L. Black: Well, why can you say it -- I'm asking -- I want to get the argument, how can you say it's not suppressed by its advertising; distribution is when they are as one?
Mr. Richard J. Maclaury: I would like to answer that by first going to 1940 and then 1965 if I may Mr. Justice.
Justice Hugo L. Black: It's alright but you'd till get to the question whether he made this finding.
Whether when they are one in their advertising and circulation that you have not completely suppressed circulation and that -- in those two departments?
Mr. Richard J. Maclaury: There is no question --
Justice Hugo L. Black: Which where their money coming in and going out the --
Mr. Richard J. Maclaury: There is absolutely no question Mr. Justice Black that they're after this agreement, there was no competition whatsoever on the circulation or advertising level.
I just simply wanted to add Mr. Justice Black that before 1940 there was an effective competition in the antitrust sense on that level because the only thing that kept Citizen in the market was not the earnings that it derived from competing with Star but the earnings that were -- that what the moneys that were put into that newspaper out of Mr. Small's pocket, out of his resources from other areas.
Justice Hugo L. Black: But then when all of it -- they were getting some advertising money.
Mr. Richard J. Maclaury: They were getting some.
Justice Hugo L. Black: And some circulation.
Mr. Richard J. Maclaury: They were getting some but not sufficient to keep that company liable.
Justice Hugo L. Black: Oh, but even if they were not they didn't -- then they didn't have the fact of the other freedom to control themselves with reference that have been part of their business.
Mr. Richard J. Maclaury: After this operating agreement, that is correct Your Honor.
Now I would like to address myself to one -- to another point here and that is the Solicitor General's intention here that the court found that Citizen was not a failing company.
We submit to the Court that the District Court made no such finding.
Such a finding under the theory that this case was tried would've been entirely superfluous and irrelevant because the Court eliminated in this trial any and all Section 1 issues and at the end of the trial Mr. Justice White --
Justice Byron R. White: Well, is that (Inaudible) -- was there a finding of Section 7?
Rebuttal of Daniel M. Friedman
Mr. Daniel M. Friedman: There was a finding on Section 7 at --
Justice Byron R. White: Well, could there have been an (Inaudible) failing company indication?
Mr. Daniel M. Friedman: Section 7 issue Mr. Justice White its related only to the year 1965.
It was an acquisition by Citizen of Star stock in 1965.
We make -- we do not contest that ruling.
Justice Byron R. White: So, your claim was in effect that there was a merger in 1940?
Mr. Daniel M. Friedman: Yes.
Justice Byron R. White: That merger would've been subject to Section 7?
Mr. Daniel M. Friedman: Sect -- yes, but it was not challenged under Section 7.
It was challenged only under Section 1.
The 1940 transaction was challenged only under Section 1.
Justice Byron R. White: Well, do you have to get by the failing company -- you would have to -- to get by -- it's quite clear there was a merger in 1940, you would have to get by Section 7?
Mr. Daniel M. Friedman: If they had challenged it under Section 7, yes but actually the burden on the Government in bringing this case under Section 1 was far greater it would've been had they challenged it under Section 7.
They did not challenge the 1940 operating agreement under Section 7.
So, at the close of trial, after we'd had a great deal of testimony on the question whether there was a violation of Section 2 and the primary issue there was (1) intent to acquire power over the market and (2) relief.
We put in a great deal of testimony including the testimony and evidence concerning the failing condition of Citizen so as to show that these people really had no intent to monopolize but their intent was to rehabilitate these two newspapers.
Now, Section 1 was not in the case at that time.
It had been eliminated by summary judgment and at the close of trial, we moved not quite in terms of -- stated by the Solicitor General.
What our motion was that the Court reopened the trial and permit the -- set aside its summary judgment on Section 1 and permit the Government to adduce evidence on that issue and permit us to rebut that evidence and also to apply to that issue all of the evidence that we had adduced under Section 2.
Now the Court denied that motion and refused to set aside its ruling on summary judgment that Section 1 was a violation.
So its not -- I don't think a proper statement of the record to say that the Court considered in a Section 1 context all of the evidence on the failing company doctrine.
Justice Byron R. White: Do you think that the -- that there was a necessity for the Court to conclude that in 1965, neither paper was failing in order to find that there was a violation of Section 7?
Mr. Daniel M. Friedman: No, I do not Your Honor.
I find -- I think this that in 1965, the Court needed only to find that if the operating agreement should abrogated then one company would fail.
Justice Byron R. White: Yes, but there was a finding of a Section 7 violation.
Mr. Daniel M. Friedman: Yes.
Your Honor, the Section 7 violation, I haven't argued here at all.
The Section 7 violation which was charged was an acquisition by Citizen of the stock of Star in 1965.
Justice Byron R. White: I understand that.
Mr. Daniel M. Friedman: And we make -- we do not contest that finding.
We do not --
Justice Byron R. White: So that neither company was failing at that time.
Mr. Daniel M. Friedman: No, neither company was failing at that time.
We do not contest that rule.
Justice Byron R. White: And if it's taken apart, if the companies were separated it -- right now they wouldn't be a failing company right now.
Mr. Daniel M. Friedman: No.
The companies at the journalistic level and we have asked this Court to reverse the Section 1 issue and for with us to sell, permit Citizen to sell Star promptly as we had always advised the Government in the fist place, that's what we intended to do when we acquired it.
We have -- the Citizen has no intent and no desire to retain Star.
It was their intent at the time they required it to promptly dispose of it.
So we raised no issue there.
The only issue we raised on the 1965 transaction is that if this Court should sustain the District Court's ruling on abrogating the main clauses of the operating agreement so that Citizen then would be likely to go into a failing condition that Citizen on this be given the option of disposing of either Star or Citizen because the whole game has been changed.
And that's the same option that the Government recently gave in a consent decree to the Gannett newspapers in Rockford, Illinois where the Gannett newspapers acquired a radio and in consenting to dispose of one or the other, the Government agreed that the newspaper could at their choice, dispose of either the radio station or the newspaper.
And I just like to close again to -- and then close into the state that I'm satisfied and on examination the Court will be satisfied that the cause of the conflict between the findings of fact in number 14, finding 14 and 15 of the financial condition of Citizen that it could not have met that by finding 17, by conclusion in finding 17 that Citizen in 1940 was not a failing company.
All it intended to do was to say that Mr.Small was willing and continue at that time to reach down deeper in his pocket to finance -- continue to finance that failing company.
Justice Potter Stewart: Mr.MacLaury what stage of the game where these findings made after all the evidence was in on the Section 2?
Mr. Daniel M. Friedman: Yes, Your Honor.
About one year, almost one year after the case was tried, 9 months after and I might add to that finding 17 was not proposed by the Government, it was not proposed by the defendants, it was a finding arrived at by the Court on which it heard no argument.
Justice Potter Stewart: And this was -- what have been litigated was the Section 2 claim.
Mr. Daniel M. Friedman: Just the Section 2 issue and the Section 7 issue.
Justice Potter Stewart: Because there have been a summary judgment on the Section 1, is that correct?
Mr. Daniel M. Friedman: That's correct Your Honor.
Justice William J. Brennan: Mr. MacLaury, may I ask one question, I didn't quite understand what you said if the court should sustain the District Court in abrogating those provisions of the operating agreement that then this should be a new ball game and there ought to be the opportunity before the due, either to dispose of Citizen or dispose of Star?
Mr. Daniel M. Friedman: That's correct.
Justice William J. Brennan: I -- that's right?
Mr. Daniel M. Friedman: That's right.
Justice William J. Brennan: Now what is it that -- if we sustain the District Court as to the provisions of the operating agreement, what now precludes you having that option, the divestiture?
Mr. Daniel M. Friedman: Well, because the District Court's order orders the owner of Citizen to dispose of Star and does not give them that choice that they must dispose of Star.
Justice William J. Brennan: Oh, I see.
And what you're asking is that you -- Citizen be afforded the opportunity to dispose of Citizen or of Citizen -- Star?
Mr. Daniel M. Friedman: That's right.
Justice William J. Brennan: Or of Star.
Justice Byron R. White: Or of Star.
Rebuttal of Richard J. Maclaury
Mr. Richard J. Maclaury: That is correct Your Honor.
Justice William J. Brennan: I see, alright.