Petition — Providence Journal Co. v. Home Placement Service, Inc.

82 -229

No.

IN THE

Supreme Court of the United States.

OcToBER TERM, 1982.

PROVIDENCE JOURNAL COMPANY,

PETITIONER,

v.

HOME PLACEMENT SERVICE, INC., AND

JOSEPH P. MUSCHIANO,

RESPONDENTS.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT.

EDWARD F. HINDLE, (Counsel of Record),

JosePH V. CAVANAGH, JR.,

Epwarps & ANGELL,

2700 Hospital Trust Tower,

Providence, Rhode Island 02903.

(401) 274-9200

DANIEL C. KAUFMAN,

Wappey & NEwporT,

500 Church Street,

Nashville, Tennessee 37219.

August 9, 1982 (615) 244-7545

ADDISON C. GETCHELL & SON, INC. THE LAWYERS’ PRINTER - BOSTON

i

Questions Presented.

The Court of Appeals has held a dominant newspaper liable

under the federal antitrust laws for implementing an adver-

tising acceptability policy found by the District Court to have

been formulated and adopted in the good faith exercise of the

publisher’s editorial judgment and for reasons unrelated to

competition. The questions presented are:

1. Whether a newspaper is protected by the First Amend-

ment in refusing to publish advertising which reason tells it

should not be published.

2. Whether a newspaper is required by the Sherman Act to

publish advertising believed in good faith to be unacceptable

and to jeopardize the integrity of the newspaper’s advertising

section.

3. Whether the clearly erroneous standard set forth in

Rule 52(a) of the Federal Rules of Civil Procedure was vio-

lated by the appellate court’s de novo review of the trial

court’s findings of reasonableness.

Table of Authorities

Opinions Below

Jurisdiction

Constitutional and Statutory Provisions Involved

Statement of the Case

A. The Parties

B. The Underlying Controversy

C. The Proceedings Below

Summary of Reasons for Granting the Writ

Reasons for Granting the Writ

A. The Decision Below, in Disregard of First Amend-

ment Principles Consistently Enunciated by this

Court, Erroneously Imposed Antitrust Liability

for a Publisher’s Decision Concerning the Con-

tent of Its Newspaper

to Afford Even a Dominant Firm Reasonable

Leeway in Customer Selection and Is Irreconcil-

ably in Conflict with those Decisions

. The First Circuit’s Independent Determination of

the Reasonableness of Petitioner’s Advertising

Policy Was a Clear Departure from the Estab-

lished Standards of Appellate Review in the Fed-

eral Judicial System

Conclusion

Appendix

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17

21

- S88

Table of Authorities Cited.

CASES.

Allston v. Lewis, 480 F. Supp. 328 (D.S.C. 1979) 14,19

America’s Best Cinema Corp. v. Fort Wayne

Newspapers, Inc., 347 F. Supp. 328 (N.D. Ind.

1972) 14, 19

Approved Personnel, Inc. v. Tribune Co., 177 So.2d

704 (Fla. Dist. Ct. App. 1965) 14

Associated Press v. United States, 326 U.S.1(1945) 15,18

Associates & Aldrich Co. v. Times Mirror Co., 440 F.2d

133 (9th Cir. 1971) 14

Bloss v. Federated Publications, Inc., 380 Mich. 485,

157 N.W.2d 241 (1966), aff’g, 5 Mich. App. 74,

145 N.W.2d 800 (1968) 14

Brewster v. Ashland Publishing Corp., 345 F. Supp.

35 (W.D. Wis. 1972) 14

Broadcast Music, Inc. v. Columbia Broadcasting

System, Inc., 441 U.S. 1 (1979) 16

Burke vy. Kingsport Publishing Corp., 377 F. Supp.

221 (E.D. Tenn.), aff'd men., 497 F.2d 923 (6th

Cir. 1974) 14

Byars v. Bluff City News Co., Inc., (“Byars I’’), 60S

F.2d 843 (6th Cir. 1979), appeal after remand, 1982-2

CCH Trade Cases 4 64,838 (6th Cir. July 14, 1982)

(“Byars IT’’) 16, 27, 28

Carpets by the Carload, Inc. v. Warren, 360 F. Supp.

1075 (E.D. Wis. 1973) 14

Chicago Joint Board v. Chicago Tribune Co., 435 F.2d

470 (7th Cir. 1970), cert. denied, 402 U.S. 973

(1971) 14

iv

Eastern Railroad Presidents Conference v. Noerr Motor

Freight, 365 U.S. 127 (1961) 20

Franchise Realty, Etc. v. San Francisco Loc. Joint

Exec. Bd., 542 F.2d 1076 (9th Cir. 1976), cert. denied,

430 U.S. 940 (1977) 20

Friedenberg v. Times Publishing Co., 170 La. 3, 127 So.

345 (1930) 14

Friedman v. Rogers, 440 U.S. 1 (1979)

Galaxy Rental Service, Inc. v. State, 108 Misc.2d 237,

437 N.Y.S.2d 854 (1981)

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) 20

Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir.

1979), cert. denied, 444 U.S. 1025 (1980) 20

Homefinders of America, Inc. v. Providence Journal

Co., 471 F. Supp. 416 (D. R.1. 1979) 9,13

Homefinders of America, Inc. v. Providence Journal

Co., 621 F.2d 441 (1st Cir. 1980) 9,13

Homes Unlimited, Inc. v. City of Seattle, 90 Wash.2d

154, 579 P.2d 1331 (1978) 25

In re Coachlight Dinner Theatre, Inc., 8 Bankr. 657

(Bankr. S.D.N.Y. 1981) 19

In re Louis Wohl, Inc., 50 F.2d 254 (E.D. Mich.

1931) 14

In re N.J.A.C. 11:5-1. 32 - Rental Location Operations,

179 N.J. Super. 294, 431 A.2d 855 (App. Div. 1981) 25

25

In re R.M.J., _ U.S. _, 102 S.Ct. 929 (1982)

Levinson v. Evening Star Newspaper Co., 138 F. Supp.

947 (D.D.C. 1955) 14

Lorain Journal Co. v. United States, 342 U.S. 143

(1951) 17, 24

vi

Sacramento Data Processing, Publication & Sales v.

Department of Consumer Affairs, 129 Cal. App.3d

348, 181 Cal. Rptr. 51 (1982) 25

Schuck v. Carroll Daily Herald, 215 Iowa 1276, 247

N.W. 813 (1933) 14

Six-Twenty-Nine Productions, Inc. v. Rollins

Telecasting, Inc., 365 F.2d 478 (5th Cir. 1966) 16, 23, 27

Spectrofuge Corp. v. Beckman Instruments, Inc., 575

F.2d 256 (5th Cir. 1978), cert. denied, 440 U.S. 939

(1979) 16

Staff Research Associates, Inc. v. Tribune Co., 346 F.2d

372 (7th Cir. 1965) 14

Times Picayune v. United States, 345 U.S. 594 (1953) 19

United States v. Colgate & Co., 250 U.S. 300

(1919) 15, 16, 21

United States v. Kansas City Star Co., 240 F.2d 643

(8th Cir.), cert. denied, 354 U.S. 923 (1957) 24

Walker v. Providence Journal Co., 493 F.2d 82 (1st

Cir. 1974) 9

Wisconsin Ass’n of Nursing Homes, Inc. v. Journal Co.,

92 Wis. 709, 285 N.W.2d 891 (1979) 14, 19

CONSTITUTIONAL PROVISION.

U.S. Const. Amend. I 2,17

STATUTES.

15 U.8.C.§1 Passim

15 U.S.C. §2 Passim

15 U.S.C. § 15 9

15 U.S.C. § 26 9

28 U.S.C. § 1254(1) 2

28 U.S.C. § 2101(c) 2

Vv

Mack v. Costello, 32 S.D. 511, 143 N.W. 950 (1913) 14

Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241

(1974) 15, 18, 19, 20

Mid-Texas Communications Systems, Inc. v. American

Tel. & Tel. Co., 615 F.2d 1372 (5th Cir.), cert. denied,

449 U.S. 912 (1980) 16, 22, 23, 26, 27

Mid-West Electric Cooperative, Inc. v. West Texas

Chamber of Commerce, 369 S.W.2d 842 (Tex. Civ.

App. 1963) 14

Mississippi Gay Alliance v. Goudelock, 536 F.2d 1073

(5th Cir. 1976), cert. denied, 430 U.S. 982 (1977) 14, 19

Modla v. Tribune Publishing Co., 14 Ariz. App. 82,

480 P.2d 999 (1971) 14

Newspaper Printing Corp. v. Galbreth, 580 S.W.2d 777

(Tenn. App.), cert. denied, 444 U.S. 870 (1979) 14

Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447 (1978) 25

Packaged Programs, Inc. v. Westinghouse Broadcasting

Co., 255 F.2d 708 (3d Cir. 1958) 16, 23, 27

Person v. New York Post Corp., 427 F. Supp. 1297

(E.D. N.Y.), aff'd mem., 573 F.2d 1294 (2d Cir.

1977) 14, 19

Poughkeepsie Buying Service, Inc. v. Poughkeepsie

Newspapers, Inc., 205 Misc. 982, 131 B.W.S.2d

515 (Orange Cnty. Sup. Ct. 1954) 14

Pullman Standard v. Swint, _ U.S. __, 102 S.Ct. 1781

(1982) 27, 28

Rentex, Inc. et al., 87 F.T.C. 1340 (1976) 4

Resident Participation, Inc. v. Love, 322 F. Supp. 1100

(D. Colo. 1971) 14

iy

- a... “T-".

16 C.F.R. § 238.0

Fed. R. Civ. P. 52(a)

i, 3, 13, 27, 28

No.

IN THE

Supreme Court of the United States.

OctoBer Term, 1982.

PROVIDENCE JOURNAL COMPANY,

PETITIONER,

HOME PLACEMENT SERVICE, INC., AND

JOSEPH P. MUSCHIANO,

RESPONDENTS.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT.

2

Opinions Below.

The opinion of the Court of Appeals (reprinted in the Ap-

pendix at A. 1) is reported at __ F.2d __. The opinion of the

District Court (reprinted in the Appendix at A. 14) has not

been officially reported. In addition, the Appendix includes

opinions rendered by those courts in related litigation—the

unreported District Court opinion denying a preliminary

injunction (reprinted in the Appendix at A. 20), the opinion of

the Court of Appeals affirming the same (reprinted in the Ap-

pendix at A. 25) reported at 493 F.2d 82, the District Court

opinion on the merits (reprinted in the Appendix at A. 36)

reported at 471 F. Supp. 416, and the opinion of the Court of

Appeals affirming the same (reprinted in the Appendix at A.

54) reported at 621 F.2d 441.

Jurisdiction.

The Judgment of the Court of Appeals for the First Circuit

was entered on June 18, 1982. On July 9, 1982, the Court of

Appeals entered an order staying the issuance of its mandate

pending filing of this Petition by August 9, 1982. This Peti-

tion was filed within the time prescribed by the aforesaid

order, and within 90 days of entry of judgment. 28 U.S.C.

§ 2101(c).

This Court’s jurisdiction is invoked under 28 U.S.C. §

1254(1).

Constitutional and Statutory Provisions Involved.

Article I of the Amendments to the Constitution of the

United States:

Congress shall make no law .. . abridging the freedom

of speech, or of the press; . . .

United States Code, Title 15:

§ 1. Trusts, etc., in restraint of trade illegal; penalty

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign nations,

is declared to be illegal. Every person who shal] make

any contract or engage in any combination or conspiracy

hereby declared to be illegal shall be deemed guilty of a

felony, and, on conviction thereof, shall be punished by

fine not exceeding one million dollars if a corporation, or,

if any other person, one hundred thousand dollars or by

imprisonment not exceeding three years, or by both said

punishments, in the discretion of the court.

§ 2. Monopolizing trade a felony; penalty

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other per-

son or persons, to monopolize any part of the trade or

commerce among the several States, or with foreign na-

tions, shall be deemed guilty of a felony, and, on convic-

tion thereof, shall be punished by fine not exceeding one

million dollars if a corporation, or, if any other person,

one hundred thousand dollars or by imprisonment not

exceeding three years, or by both said punishments in

the discretion of the court.

Fed. Rules Civ. Proc. 52(a):

In all actions tried upon the facts without a jury ...

[flindings of fact shall not be set aside unless clearly

erroneous, and due regard shall be given to the oppor-

tunity of the trial court to judge of the credibility of the

witnesses.

4

Statement of the Case.

Petitioner seeks a Writ of Certiorari to review the Judg-

ment of the United States Court of Appeals for the First Cir-

cuit which reversed the judgment rendered in Petitioner's

favor by the United States District Court for the District of

Rhode Island following a bench trial. To facilitate an under-

standing of the important issues implicated in this case, Peti-

ceedings in related litigation instituted against Petitioner by

similar, albeit unaffiliated, business operations.

A. Tue PAaRrTIEs.

Petitioner Providence Journal Company (hereinafter

Journa!”’) is a Rhode Island corporation headquartered in

the City of Providence in that State, The Journal publishes

daily newspapers in Rhode Island and adjacent southeastern

Massachusetts. While the Journal publishes the only metro-

ay ern fee oe Ry pr gamely ga

the State, other daily and weekly newspapers and

“shoppers” are published and circulated in localized areas

within the larger geographic market served by the Journal.

In 1972, one Keith Walker d/b/a Homefinders (hereinafter

“‘Walker’’) commenced a so-called rental referral business in

Providence, Rhode Island, as a franchisee of Homefinders of

America (hereinafter ‘‘Homefinders’’), a Colorado corpora-

tion. Rental referral firms, which, after extracting an ad-

vance fee, provide customers with a one year “‘pulicy”’ entitl-

ing them to access to lists of purportedly available homes and

apartment rentals, had sprung up across the country under

Homefinders’ direction. See, generally, Rentex, Inc., et al., 87

F.T.C. 1340 (1976). Walker and Homefinders were parties to

related litigation against the Journal, but were not parties

below.

5

Respondent Home Placement Service, Inc. (hereinafter

“Home Placement’’) is a Rhode Island corporation which

entered the rental referral business in Providence in late

March, 1973. It was organized by respondent Joseph P.

Muschiano and others saw the opportunity “for another

business to jump in and grad [sic] (grab) this [business].”

Home Placement was only in operation as a rental referral!

firm for approximately two weeks.

B. THE UNDERLYING CONTROVERSY.

The Journal adopted a policy in early 1973 of refusing to ac-

vacancies. That policy resulted from the Journal’s experience

with Walker, beginning in August, 1972, when Walker com-

menced placing classified advertising listing specifically

described properties ostensibly for rent under columns

headed “‘Houses for Rent,” “Suburban Rentals,” “Furnished

Apartments,” or “Unfurnished Apartments.” The advertise-

ly.’ Interested prospects who responded by telephone to

Walker’s advertisements were not given information con-

cerning the properties advertised when they called, but were

advised to “stop by the office and register.”

A mere visit to Walker’s office did not, however, suffice to

connect the prospect with the advertised properties. Pay-

ment of a twenty-dollar fee was required for access to infor-

mation sufficient to enable the prospect to contact the land-

lord. Many times, the specific property which had enticed the

customer was “unavailable’’ either because it was no longer

vacant or, indeed, had never existed. Walker on occasion ad-

vertised fictitious properties to attract unsuspecting cus-

tomers.

Almost immediately after Walker’s classified advertising

began to appear, the Journal started to receive reader com-

plaints. Those who had responded to Walker’s advertise-

ments complained of being surprised and confused about be-

ing required to pay a fee for access to specific properties ad-

vertised in the newspapers. Other Journal readers com-

plained of getting little or no satisfactory rental information

for fees which they had paid. Certain landlords also com-

plained that Walker had listed their properties without their

permission.

In mid-September, the Journal advised Walker that it

would no longer accept his advertisements. Walker there-

after agreed to include disclosure of his fee in the advertising,

and the Journal resumed publication of his advertisements.

The complaints, however, did not abate; indeed, their volume

was so great that the Journal specially assigned one of its em-

ployees to monitor all such complaints. At about the same

time, the Journal was contacted by several consumer protec-

“WARWICK: Be Beautiful s for thus 4 room, $160. Child

$20 ear Stove ies paid, Quaint 1 bodro 785-1112,

HOMEFINDERS.”

7

tion agencies which had received similar complaints.? By

January 31, 1973, the Journal concluded that it would no

longer accept advertisements placed by Walker, and, because

of its experience and concern about the potential deception of

its readers, implemented @ policy against accepting advertis-

ing from any rental referral firm which charged prospective

tenants a fee for access to rental listings. Walker was in-

formed of the Journal’s decision by letter dated February 1,

1973. About three months later, Walker closed his doors and

left the state.

The Journal implemented the above-described policy to

maintain a quality advertising section for its readers. After

receiving complaints concerning Walker’s practices and rec-

ognizing the obvious potential for abuse by similar firms, the

Journal wished to disassociate itself from businesses of this

type.*

2 The Rhode Island Consumer’s Council and the Better Business

Bureau also received numerous complaints about Walker. These

Srvc cient ett ata

we a very to see

that we as accurate information as possible to our

readers. wet Nercpes caer pee to the gathering

of the news reporting Those same

Spies themes ond eect edie ah ates

vertising. We were very hay ray wy yp

Respondent Muschiano, who by his own admission “knew

quite a bit about and had many dealings with Homefinders”

and saw the latter’s unfavorable publicity as an opportunity

“for another business to jump in and grad (sic grab) this”

business, began operation as Home Placement in March of

1973, some six weeks after the Journal had implemented its

policy. As described by Home Placement in its brief to the

court below:

“Home Placement generally followed the format for

business that had been introduced into Rhode Island by

Homefinders—that is, its purpose was to assist prospec-

tive tenants to locate residential property by making

available to them for a fee, a catalogue of available rent-

als which were listed with Home Placement by landlords.

The service was purchased by the consumers in the form

of a contract.”

Like Walker, respondents insisted that the fee be paid by

prospects in advance; like Walker, respondents placed adver-

tisements in the Journal’s classified section purporting to list

specific vacancies.‘ Respondents, however, denied listing fic-

titious properties and denied listing properties without the

landlords’ consent.

Initially, the Journal accepted Home Placement’s ciassified

advertising, being unaware of the nature of respondents’

business. However, the Journal learned promptly of the simi-

larity between respondents’ operations and those formerly

engaged in by Walker. Respondents were advised of the

Journal’s policy and the fact that their advertising was unac-

ceptable. The Journal received no complaints about Home

Placement. For a brief period, respondents ceased charging a

fee to prospects, and their advertisements in Journal publica-

tions resumed. This was apparently inconsistent with re-

‘A Home Placement advertisement read as follows:

: New duplexes, two bedrooms, 1¥2 baths,

built-in, $250 a month, lease. Home Placement. 828- ‘'

spondents’ modus operandi, and Home Placement ceased do-

ing business as a rental referral firm shortly thereafter.

C. THe Procrepincs BELow.

Walker had filed suit against the Journal, its director of ad-

vertising, the consumer protection agencies which had for-

warded complaints to the Journal and their directors, and

pseudonymously designated customers of Walker and the

Journal. Walker claimed that the Journal’s refusal to accept

his advertising was violative of Sections 1 and 2 of the Sher-

man Act, 15 U.S.C. §§ 1 and 2, and sought treble damages,

injunctive relief, and attorneys fees pursuant to Sections 4

and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26. Walker’s

motion for preliminary injunction was heard by District

Judge Day in May, 1973, and denied (A. 20); that denial was

affirmed on appeal. Walker v. Providence Journal Co., 493

F.2d 82 (1st Cir. 1974) (A. 25).

Prior to trial on the merits, Homefinders was added as a

party plaintiff and Walker was dismissed for failure to re-

spond to discovery requests. Following a bench trial, District

Judge Boyle entered judgment in defendants’ favor, finding

that the Journal had discontinued carrying Walker’s adver-

tising and had implemented its policy to nrotect the integrity

of its classified advertising section and not for anticompeti-

tive reasons. Homefinders of America, Inc. v. Providence

Journal Co., 471 F. Supp. 416, 422-423 (D.R.I. 1979). On ap-

peal the First Circuit affirmed, concluding that the trial

court’s findings were not clearly erroneous, but were, indeed,

“plainly right.”” Homefinders of America, Inc. v. Providence

Journal Co., 621 F.2d 441, 443 (1st Cir. 1980).

Respondents brought suit in 1977, approximately four

years after Walker had commenced his litigation against the

10

Journal. They charged the Journal with the same violations

of the antitrust laws as Walker had charged.

Trial commenced in December, 1980. The parties stipulated

that the earlier record of the Walker and Homefinders case

could be considered for all purposes by Judge Boyle.

Respondents also offered brief testimony concerning Home

Placement’s operations. The trial court found that

respondents operated in the same manner as Homefinders,

placing advertisernents for specific rental properties with a

brief and untraceable description, followed by its name and

telephone number, then selling a list of available properties

for an advance fee. (Slip op. at 3-4, App. A15-A16). While re-

spondents were not affiliated with Homefinders and did not

seek to advertise unavailable properties, the District Court

found this to be “‘a distinction in search of a difference.”’ (Jd.

at 8, App. A-18.) The trial court adhered to its earlier findings

that the Journal had unilaterally adopted its policy for sound

business reasons. Specifically, the court found that:

{t]he decision of the Journal not to publish advertise-

ments such as those involved here was not made in a

vacuum ... [tJhe Journal previously ran similar adver-

tisements which resulted in customer complaints. In

Homefinders, Plaintiff, a business similar to Home

Placement, was refused space in the Journal’s classified

ad section after the Journal received complaints from its

subscribers. The Journal decided this type of advertise-

ment possessed too great a potential for misrepresenta-

tion with concomitant exposure to liability and disad-

vantageous publicity.” (Jd. at 8, App. A18).

The trial court concluded that no antitrust violation had

been made out and entered judgment dismissing the action.

Respondents appealed to the Court of Appeals, which re-

versed the District Court’s findings of fact and conclusions of

11

law, and held that the Journal’s policy was unreasonable as a

matter of law. The case was remanded for further proceed-

ings on remedial issues only. The Court of Appeals found that

the additional evidence offered by respondents established

“marked differences’ between the respective operations of

Walker and respondents, “requiring, as a matter of law, a

different result.” (Slip op. at 2, App. A2.) The Court of Ap-

peals found dispositive the lack of proof of actual deception

by respondent and lack of consumer complaints against them

and refused to ‘‘accept that the sale of rental information is

an inherently and unfailingly deceptive practice or that ad-

vertisements for such necessarily engender complaints which

affect the good will of the advertising medium.” (Jd. at 5,

App. A5.) The Court further concluded that respondents’

status as a competitor of the Journal for rental listings was a

“special circumstance,” overcoming the Journal's “‘presump-

tive[] free[dom] to choose its advertising.” (Jd. at 5, App. A5.)

The Court accordingly held that Sections 1 and 2 had been

violated, concluding, in essence, that the Journal’s policy was

unreasonabie as a matter of law.

Summary of Reasons for Granting the Writ.

The instant case presents intertwined First Amendment

and Sherman Act issues of fundamental importance. Never

before in the history of the Republic has az appellate court, |

federal or state, held a publisher liable for refusing, in good —

faith for reasons unrelated to competition, to publish adver- _

tising which the publisher finds to be unsuitable and unac- _

ceptable.

The Journa! faced with a substantial number of reader com-

tices of a rental referral agency, had implemented a general

12

policy whereby it discontinued accepting classified advertise-

ments from any such agency. This good faith policy decision—

characterized by the Court of Appeals as “a paternal judg-

ment” (Slip op. at 4, App. A4), but, in fact, at the heart of the

journalistic process—was undisputedly grounded on the Jour-

nal’s editorial and business judgment that its own integrity

should not be compromised by association with endeavors

which it considered to be of potentially questionable veracity.

This Court has unequivocably held that newspaper pub-

lishers are to be given the widest latitude in choosing what

they will or will not publish. Moreover, decisions by courts of

appeal consistently reserve, even to a dominant firm, reason-

able leeway in selecting those with whom it will deal. In strik-

ing down the Journal’s policy, the Court below departed from

those established principles of both constitutional and federal

antitrust law.

The District Court found that the Journal adopted the

policy at issue ‘to minimize the chance it would run afoul of

the law or harm its reputation. In other words, its refusal was

a reasonable business decision.” (Slip op. at pp. 7-8, App.

A18.) And as the District Court observed, that decision was

not “adopted in a vacuum,” but followed the Journal’s un-

favorable experience with a similar operation—an experience

which led the Journal to conclude that “this type of advertise-

ment possessed too great a potential for misrepresentation.”

(Id. at 8, App. A18).° Implicit in the District Court’s opinion is

the finding that the Journal’s stated reasons were not pre-

5 The District Court made similar findings following trial of the

Homefinders case on the merits:

13

textual and that the supposed “competition” between the

newspaper and rental referral agencies played no part in the

adoption of the policy. These findings, consistent with the

strictures of Fed. Rules Civ. Proc. 52(a), were not set aside

on appeal. Rather, the Court of Appeals refused to “‘accept

that the sale of rental information is an inherently and unfail-

ingly deceptive practice or that advertisements for such nec-

essarily engender complaints which affect the good will of the

advertising medium.” (Slip op. at 5, App. A5 emphasis

content as the Court itself would make and, in effect, insisted

that the newspaper treat each advertiser “in a vacuum’”’ with- _

out reference to prevailing media practices. The antitrust |

laws do not foreclose, and the First Amendment protects, a

treble damages or injunctive relief.

did anything other than reduce its revenues.

Rather, it was sound business judgment made at a financial

sacrifice, intended to maintain a quality

its readers. After receiving complaints from as to

14

The Court below, while acknowledging the Journal’s pre-

sumptive freedom to choose its advertising,’ nonetheless con-

result. (Slip op. at 12, App. A12.) This “special circumstance”

Se ee

cluded that respondent’s alleged status as a competitor of the

Journal was a “special circumstance” calling for a different

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15

departure from well-established antitrust and First Amend-

tion, the antitrust laws do not prohibit even a monopolist |

from exercising legitimate business judgment; the bare pos-

session of monopoly power does not strip its holder of reason-

able leeway in decision making.

Nearly four decades ago this Court acknowledged, but had

no need to reach the profound constitutional questions which

would be raised by an antitrust decree compelling newspaper

proprietors “‘to permit publication of anything which their

‘reason’ tells them should not be published.’’ Associated Press

v. United States, 326 U.S. 1, 20 n.18 (1945). The Court below,

substituting its own notions of suitability for what it charac-

terized as the ‘paternal judgment”’ of the Journal to protect

its readers from potentially deceptive businesses, imposed

just such a decree.

If the decision below is allowed to stand, either private liti-

gants or the executive branch will have the right to use the

Sherman Act to convert media outlets into mere “passive

receptacle{s] or conduit{[s]’—precisely what this Court in

Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241, 258

(1974), held a legislature could not do.

The fundamental error below goes beyond the Court’s

failure to weigh Petitioner’s First Amendment interests in

the balance, for those interests expanded the zone of reason-

ableness which the Sherman Act affords all businesses, media

and non-media alike. This Court long ago held that, “‘in the

absence of any purpose to create or maintain a monopoly,”

the antitrust laws do not bar a private commercial enterprise

“freely to exercise his own independent discretion as to

parties with whom he will deal. And, of course, he may

announce in advance the circumstances under which he

will refuse to sell.” United States v. Colgate & Co., 250

U.S. 300, 307 (1919).

City News Co., Inc., 609 F.2d 843, 862 (6th Cir. 1979) (“Byars

I’), appeal after remand 1982-2 CCH Trade Cases { 64,838

(6th Cir. July 14, 1982) (“Byars II”). Accord, e.g., Mid-Texas

Communications Systems, Inc. v. American Tei. & Tel. Co.,

615 F.2d 1372, 1388 (5th Cir.), cert. denied, 449 U.S. 912

(1980); Sia-Twenty-Nine Productions, Inc. v. Rollins Tele-

casting, Inc., 365 F.2d 478 (Sth Cir. 1966); Packaged Pro-

ment’s eaitenn ane aad te Duane below equated

with a combination which “fixed a maximum price of zero” (Slip

at 8, App. A8.) This characterization is infected with the

simplistic and overbroad “‘literalness” condemned by this Court in

Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441

Journal’s no-fee-to-prospective-tenants

the on deen ten S. Colgate & Co.,

250 U i see sao ton Ce tem v. Beckman Instruments,

575 F.2d 256, 289 1978) ert. denied, 440 U8 939 (1

the Journal’s insistence that referral agencies not oye oe

tenant in

2 addressed in the text. See Byars v. Bluff City News Co., Inc.,

supra, 609 F.2d at 860. :

17

In short, a Writ of Certiorari should issue to correct the

First Circuit’s deviation from constitutional precepts estab-

lished by this Court and to resolve the conflict among the cir-

cuits in resolving fundamental questions arising under the

Sherman Act.

Reasons for Granting, the Writ.

A. Tue Decision BELOW, IN DISREGARD OF First AMENDMENT

PRINCIPLES CONSISTENTLY ENUNCIATED BY THIS COURT,

ERRONEOUSLY IMPOSED ANTITRUST LIABILITY FOR A PuB-

LISHER’S DecISION CONCERNING THE CONTENT OF ITs NEws-

PAPER.

It must be recognized that newspaper publishers are not

simply engaged in an ordinary business operation, but partici-

pate in a process protected by the constitutional guarantee

that “Congress shall make no law ... abridging the freedom

... Of the press.” U.S. Const. Amend. I. This is not to say that

the media are immune from antitrust scrutiny. See, ¢.g.,

Lorain Journal Co. v. United States, 342 U.S. 143 (1951).

Rather, where, as in the instant case, liability turns on content, |

the publisher operates within a larger zone of reasonableness _

and may take into account journalistic, as well as business, |

considerations.

The Court of Appeals in the earlier Homefinders case recog-

nized that “.. . First Amendment rights in this case are not to

be ignored .. .” (621 F.2d at 443, App. A58.) That Court also

stated that “... Even when it might lack proof of actual

fraud, we would hesitate long before holding that a news-

paper, monopoly or not, armed with both a First Amendment

and a reasonable business justification, can be ordered to

publish advertising against its will.” Jd. at 444, App. A60-A61.

(Citations omitted).

18

The Court of Appeals in the instant case, however, made no

accommodation for the strong First Amendment interests

which are at stake when a publisher with proper motives and

in good faith sets an advertising acceptability policy aimed at

protecting the interests of the newspaper and of its readers.

The Court of Appeals denigrates the good faith exercise of

editorial judgment on the content of the newspaper, writing

it off as an impermissible “‘paternal judgment.” (Slip op. at 4,

App. A4.) Such a narrow and confining approach is inconsis-

tent with the precedents of this Court.

Although traditional First Amendment jurisprudence

centers on what the press chooses to disseminate, a number

of cases recognize the protection for what the press chooses

to refrain from publishing. Nearly forty years ago, this Court

was sensitive to the profound constitutional question which

would be raised by an antitrust decree compelling newspaper

publishers ‘“‘to permit publication of anything which their

‘reason’ tells them should not be published.” Associated Press

v. United States, 326 U.S. 1, 20 n.18 (1945). Thereafter, fol-

lowing a number of cases in which that issue implicitly passed

on but not explicitly decided, this court held that such com-

pulsion was unconstitutional. Miami Herald Publishing Co.

v. Tornillo, 418 U.S. 241 (1974). In unanimously striking

down a Florida statute giving political candidates a ‘‘right of

reply,” the Court held that:

“ ...[a] newspaper is more than a passive receptacle or

conduit for news, comment, and advertising. The

choice of material to go into a newspaper, and the deci-

sions made as to limitations on the size and content of

the paper, and treatment of public issues and public of-

ficials—whether fair or unfair—constitute the exercise

of editorial control and judgment. It has yet to be

demonstrated how governmental regulation of this cru-

policy, refuse to publish the advertising of ‘‘X-rated” movies

© A number of post- cases publisher’s right

to refuse advertising have been : at least in

part, on First Amendment , ippt Gay

1 1075 (5th Cir. 1 cert.

:

20

In disregarding the First Amendment interests involved,

the decision below conflicts with established case law resolv-

ing the potential tension between the First Amendment and

the Sherman Act. Eastern Railroad Presidents Conference v.

Noerr Motor Freight, 365 U.S. 127 (1961), and its progeny

teach that activity which is prima facie protected by the First

Amendment cannot be the predicate for antitrust liability ab-

sent a showing that the protected activity is a sham or

pretext for direct economic and anti-competitive interference

with a competitor. Indeed, at least one court of appeals has

held that the prospect of treble damages, and of protracted

and expensive antitrust litigation, poses such a threat to con-

stitutional rights as to demand that the plaintiff meet an

elevated standard of pleading and proof. See, Handgards,

Ince. v. Ethicon, Inc., 601 F.2d 986, 996 (9th Cir. 1979) (“clear

and convincing evidence” required to overcome ~resumption

that litigation commenced in good faith), cert. denied, 444

U.S. 1025 (1980); Franchise Realty, Etc. v. San Francisco

Loc. Joint Exec. Bd., 542 F.2d 1076, 1082 (9th Cir. 1976)

(plaintiff must make “allegations of the specific activities”’

not constitutionally protected), cert. denied, 430 U.S. 940

(1977). Cf. Gertz v. Robert Welch, Inc., 418 U.S. 323, 347

(1974) (First Amendment precludes liability without fault in

actions based on content of publication).

The Journal’s policy of refusing to publish advertisements

carrying a high potential for deception—a policy based on

past experience with a similar business and falling well within

the range of journalistic reasonableness—was, under Tor-

nillo, constitutionally protected. That being the case, the

First Circuit’s insistence that the Journal lea) with rental

referral agencies on an ad hoc basis was an intrusion into the

constitutionally protected internal editorial process. Nothing

in the antitrust laws authorized that intrusion because the

Journal’s articulated basis for the policy was, as the Court of

21

B. THe Decision BELOW ERRONEOUSLY DEPARTED FROM THE

CONSTRUCTION CONSISTENTLY ADOPTED BY OTHER COURTS

OF APPEALS CONSTRUING THE SHERMAN ACT TO AFFORD

EVEN A DoMINANT Firm REASONABLE LEEWAY IN CUSTO-

MER SELECTION AND Is IRRECONCILABLY IN CONFLICT WITH

THOSE DECISIONS.

Any analysis of refusals to deal under the Sherman Act

must begin with this Court’s classic statement in United

States v. Colgate & Co., 250 U.S. 300, 307 (1919):

In the absence of any purpose to create or maintain a

monopoly, the [Sherman] Act does not restrict the long-

recognized right of trader or manufacturer engaged in

an entirely private business, freely to exercise his own

ee ee eee ee

SE an A ON POE

session of monopoly power in the market coupled with the

“special circumstances” of Home Placement’s status as a

competitor in that market established the prohibited ‘‘pur-

pose to create or maintain a

The hypothetical possibility of “competition” between ren-

tal referral firms and the classified advertising function of a

daily newspaper is conceded by the Journal for purposes of

this appeal. However, it must be pointed out that the record

goes no further than the bare characterization of rental refer-

ral firms as “‘in competition” with the Journal; the extent and

a aoa if any, of that competition in the real world is

nowhere addressed. The record in this case is totally devoid

of any evidence that could serve as a basis for showing any-

thing more than a theoretical competitive relationship be-

tween the parties. Thus, in the absence of some evidence of

‘anticompetitive intent and substantial anticompetitive effect,

the Court of Appeals’ conclusion is unsupportable in the bal-

ancing of First Amendment rights and antitrust principles

under the facts of this case.

The Journal’s unsatisfactory experiences with Homefind-

ers were deemed insufficient by the Court of Appeals as a

predicate for the Journal’s across-the-board policy of declin-

ing to print rental referral advertising. As a result, the Court

of Appeals imposed on the Journal an affirmative duty to deal

with competitors by accepting advertising which in its

editorial judgment it had deemed to be unacceptable. In doing

so, the Court unduly restricted the zone of business reason-

ableness which other federal courts of appeals have consist-

ently afforded even to those in possession of monopoly power.

The conflict among the circuits is best illustrated by con-

trasting the decision below with that of the Fifth Circuit in

Mid-Texas Communications Systems, Inc. v. American Tel. &

Tel. Co., 615 F.2d 1372 (5th Cir. 1980), cert. denied, 449 U.S.

912 (1980). The court there set aside a jury verdict for an in-

dependent local telephone service company (“WTC’’) which

was refused interconnection with the existing Bell System in-

terstate network—interconnection “essential” to the local

company’s ability to do business. Jd. at 1375-1376. Bell, which

wished to provide local service in the same area, based its

refusal on the ground that service would constitute a waste-

ful duplication of facilities, not in the public interest. Id. at

1376-1377. After an exhaustive review of the pertinent cases,

id. at 1887-1389, the Fifth Circuit held that the district court

had erroneously taken from the jury any consideration of the

public interest justifications offered by Bell. Jd. at 1389. The

appellate court was quite explicit in its mandate that the trier

of fact consider all relevant factors:

Bell’s position is that the refusal was not arbitrary or

motivated by anticompetitive intent, but instead was

proper because Bell believed that WTC’s request was

contrary to the public interest. If Bell was correct in its

assessment, and if its purpose in refusing interconnec-

tion was to vindicate the public interest, then the refus-

al, despite its obvious anticompetitive effect, would

have been proper and entitled to protection from an-

titrust scrutiny. In this case, where the public interest

has not been officially determined, it is no less impor-

tant for the vindication of the statutory procedure that

under proper instruction the jury be allowed to consid-

er why Bell’s refusal to interconnect was reasonable

under the antitrust laws because it was based on articu-

lable concerns of regulatory policy. The important issue

in this case is whether Bell’s action was reasonable

under antitrust law in light of the relevant factors con-

cerning the public interest standard. Jd. at 1390 (foot-

note omitted).

The court below, however, simply brushed aside the Journal’s

good faith “‘articulable concerns’”’ about its readers and about

its journalistic integrity, insisting instead that the Journal ap-

proach the question of rental referral advertising on an ad

hoc basis.

Mid-Texas Communications, supra, is not an anomaly in

antitrust jurisprudence. Quite to the contrary, the decision

below is anomalous. Federal appellate courts have considered

refusals by the sole VHF television station in a market to ac-

cept advertising produced by competitors. Siz Twentu- Vine

Productions, Inc. v. Rollins Telecasting, Inc., 365 F.. 1 478

(5th Cir. 1966); Packaged Programs, Inc. v. Westinghouse

Broadcasting Co., 255 F.2d 708 (3d Cir. 1958). In each case,

the central inquiry was the reasonableness of the refusal

from a business standpoint. See, Six-Twenty-Nine, supra, 365

F.2d at 486 (“Standards for agency recognition go to the

heart of the alleged Section 2 violation. The question of their

reasonableness is the key factor in determining whether the

Station had the intention of eliminating the competition of

the plaintiff agency.) (footnote omitted); Packaged Pro-

grams, supra, 255 F.2d at 710 (“The only controversy . . . is

24

whether Westinghouse has exercised judgment in bona fide

determination whether programs are meritorious and in the

public interest, or has used its power of selection among

available programs arbitrarily as an instrumentality for elimi-

nating a competitor in program production.”’)

The judgment below was neither compelled nor supported

by this Court’s decision in Lorain Journal Co. v. United

States, 342 U.S. 143 (1951), wherein the publisher of the

dominant newspaper had responded to the establishment of a

competing radio station through a course of “‘bold, relentless,

and predatory commercial behavior,” refusing to sell adver-

tising space to those local merchants who patronized its

fledgling competitor. Jd. at 148-149. Central to the Court’s

holding of antitrust liability in that case was the manifestly

anticompetitive motive of the publisher there, untempered by

any colorable business justification. Jd. at 155. Accord,

United States v. Kansas City Star Co., 240 F.2d 643, 662 (8th

Cir.), cert. denied, 354 U.S. 923 (1957). The record in the in-

stant case is precisely to the contrary, amply supporting the

trial court’s finding that the Journal’s “refusal was a

reasonable business decision,” made in an effort “to

minimize the chance it would run afoul of the law or harm its

reputation.” (Slip op. at 7-8, App. A7-A8.} Whatever the

theoretical validity of the ““competition’’ between the Journal

and rental referral agencies for the trade of landlords, the

record is devoid of evidence that such “competition” was of

any practical significance or played even the slightest part in

the Journal’s adoption of the policy in question.

The Journal regarded the abundant record evidence of

deception and sharp practices by Homefinders, coupled with

the nature of the rental referral business, as having estab-

lished beyond peradventure the reasonableness of that

policy.'? However, given the misperception below, a brief ex-

11 The potential and incentive for abuse and deception is rooted

in the advance fee aspect of the rental referral business, leading a

25

planation is appropriate. This Court has never insisted that

the government is obliged to address deceptive advertising

exclusively on an individualized basis. Advertising of a

character which ‘“‘experience has proven subject to abuse”

may be prohibited across-the-board. In re R. M. J., ___ U.S.

___., 102 S.Ct. 929, 937 (1982). Thus, attorneys may be

barred from in-person solicitation, Ohralik v. Ohio State Bar

Ass'n, 436 U.S. 447, 464-465 (1978) (prophylactic rule ap-

propriately founded on ‘potential for over-reaching’’) and cp-

tometrists may be prohibited from practicing under trade

names, F'riedman v. Rogers, 440 U.S. 1, 12 (1979) (noting the

“significant possibility that trade names will be used to

mislead the public” atd the numerous “possibilities for

abuse”). Indeed, at least one court has sustained adminis-

mee PN Epa a Sy pee cy Lame ec nets In

re N.J.A.C. 11: 5-1.82—Rental Location Operations, 1 79 NJ.

Unlimited, Inc. v.

City of Seattle, 90 Wash.2d 154, 579 P.2d 1331, 1335 (1978) (ad-

vance feee practice banned by ordinance viewed as “important fac-

the ee ores Snes eo

eee oe vague "eer" le anamenbur he

ment. Of necessity, those rose to “bait” by answering

advertisement were “‘switched”’ by to the entirely dif-

ferent product which had for sale. This is classic bait-and-

switch advertising. See, 16 C.F.R. § 238.0.

trative regulations totally prohibiting rental referral agencies

from advertising specific properties. Galary Rental Service,

Ine. v. State, 108 Misc.2d 237, 437 N.Y.S.2d 854, 860 (1981)

(advertising by rental referral agencies found to have

“demonstrated potential for fraud and deception’). Perforce,

the Journal, as a private enterprise, should not be required to

have ironclad proof of deception as the predicate for deciding

not to publish a category of advertising that it considers

unacceptable.

The Journal articulated a basis for the advertising accept-

ability policy at issue—preservation of its own integrity—

which was neither “facially implausible” (Mid-Texas Com-

munications, supra, 615 F.2d at 1390) nor facially anticom-

petitive. The Court of Appeals, without overturning the trial

court’s finding that the articulated basis was not pretextual,

substituted its own notions of reasonableness.

The Court of Appeals did so without setting aside the Dis-

trict Court’s specific findings that the Journal’s advertising

acceptability policy was made in good faith and for reasons

unrelated to competition (Slip op. at 7-8, App. A7-A8.) Virtu-

ally identical District Court findings were, in fact, upheld by

the Court of Appeals in the related Homefinders litigation.

(621 F.2d at 443, App. A58.)

The rationale of the Court of Appeais’ decision limiting a

newspaper’s right to determine the acceptability of advertis-

ing brings it into conflict with decisions of other circuits. This

conflict should be resolved by this Court.

C. Tue First Circurr’s INDEPENDENT DETERMINATION OF

THE REASONABLENESS OF PETITIONER’S ADVERTISING POL-

icy Was A CLEAR DEPARTURE FROM THE ESTABLISHED

STANDARDS OF APPELLATE REVIEW IN THE FEDERAL JUDI-

CIAL SYSTEM.

The Court of Appeals did not and could not fault the Dis-

trict Court’s inquiry into the genesis of the Journal’s policy to

27

decline advertising placed by rental referral agencies which

charged prospects a fee to obtain rental information. That in-

quiry, which considered the testimony and other evidence ad-

duced in the related Homefinder’s litigation, as well as fur-

ther proofs pertaining to respondent’s operations, was

resolved in petitioner’s favor, the trial court finding that the

policy had been adopted in good faith for sound business rea-

sons, i.e., the protection of the Journal’s editorial integrity.

(Slip op. at pp. 7-8, App. A7-A8). In rejecting those findings,

the Court of Appeals deviated from the standard of appellate

review prescribed by Rule 52(a) of the Federal Rules of Civil

Procedure, as recently applied by this Court in Pullman-

Standard v. Swint, __. U.S. ___., 102 S.Ct. 1781 (1982).

The decisions of other circuits cited in the preceding section

make it abundantly clear that the resolution of the reason-

ableness question in a refusal to deal case is for the fact

finder. See, Mid-Texas Communications, supra, 615 F.2d at

1390; Byars I, supra, 609 F.2d at 864; Siz Twenty-Nine Pro-

ductions, supra, 365 F.2d at 486; Packaged Programs, supra,

255 F.2d at 710. Thus, if one reads the decision below as sub

silentio applying the legal analysis articulated in those deci-

sions but setting aside the trial court’s findings that the Jour-

nal acted reasonably, it is clear that the First Circuit fun-

damentally misconceived the proper role of an appellate court

in the federal judicial system. Rule 52(a) of the Federal Rules

of Civil Procedure explicitly demands appellate deference to

findings of fact in non-jury trials, admonishing that such find-

ings “shall not be set aside unless clearly erroneous, and due

regard shall be given to the opportunity of the trial court of

the credibility of the witness.”"”

% The Plret Circuit did state that it “usast label as clearly errone

+ emer shades tay teeny , indistinguish-

It must be remembered that the record below established

petitioner’s adoption of its policy in response to the deceptive

practices of Walker’s rental referral agency and the per-

ceived potential for abuse by any such agency. The Court of

Appeals, substituting its own view for that of the trial judge,

found the potential for abuse insufficient to support the broad

prophylactic rule. In short, the appellate tribunal decided the

central factual issue anew. Rule 52(a) required the Court

below to affirm, notwithstanding its possible belief that

“(there is little doubt that [the panel] may well have come to

a different conclusion had it viewed de novo the evidence on

the present record.” See, Byars IJ, supra, 1982-2 Trade

Cases at p. 72, 159.

The decision below cannot be sustained on the theory that

the reasonableness of the Journal’s conduct is an “‘ultimate”’

fact which an appellate. court is free to determine in-

dependently, as distinguished from a “‘subsidiary”’ fact which

stands unless clearly erroneous. Such a distinction, this Court

recently held, is wholly without support in the letter or spirit

of Rule 52(a). See, Pullman-Standard, supra, 102 S.Ct. at

make the missing findings.” Jd. at 1791.

The Court below disregarded Rule 52(a)’s admonition that

a district court’s findings of fact, duly made after a bench

able.’ Rather, there were marked , a8 a mat-

ter of law, a different result.” (Slip op. at p. 2, A2.) Petitioner

views this passage, the i “clearly

erroneous, ae appellate court’s disagreement as to the

trial, are not to be set aside unless clarly erroneous. A Writ

of Certiorari should accordingly issue to correct the First Cir-

cuit’s departure from the accepted and usual course of appel-

late review.

Conclusion.

tinually exercise their reasoned discretion in selecting mate-

of those activities underscore their importance. Prior to the

decision below, other courts of appeals had consistently ap-

plied the Sherman Act so as not to foreclose even a dominant

firm, whether or not a mass media outlet, from exercising

reasonable business judgments in choosing those with whom

it would dea]. The decision below—inconsistent with decisions

of other courts of appeals—injects confusion ar,j uncertainty

into this sensitive area. The Court below, compounding its de-

parture from settled antitrust principles, intruded into an

area which, this Court has held, the First Amendment re-

serves to the publisher’s exercise of reasonable journalistic

judgment. Accordingly, a Writ of Certiorari should issue to

resolve this significant question arising under federal anti-

trust law and to correct the First Circuit’s deviation from

core constitutional principles.

Respectfully submitted,

EDWARD F. HINDLE,

Counsel of Record,

JOSEPH V. CAVANAGH, JR.,

EDWARDS & ANGELL,

2700 Hospital Trust Tower,

Providence, Rhode Island 02903.

(401) 274-9200

DANIEL C. KAUFMAN,

WADDEY & NEWPORT,

500 Church Street,

Nashville, Tennessee 37219.

(615) 244-7545