UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

TABLE OF CONTENTS

Table of Authorities ii

REQUESTED CONCLUSION OF LAW #1 1

REQUESTED CONCLUSION OF LAW #2 1

REQUESTED CONCLUSION OF LAW #3 3

REQUESTED CONCLUSION OF LAW #4 4

REQUESTED CONCLUSION OF LAW #5 5

REQUESTED CONCLUSION OF LAW #6 6

REQUESTED CONCLUSION OF LAW #7 8

REQUESTED CONCLUSION OF LAW #8 13

REQUESTED CONCLUSION OF LAW #9 14

REQUESTED CONCLUSION OF LAW #10 15

REQUESTED CONCLUSION OF LAW #11 16

REQUESTED CONCLUSION OF LAW #12 17

REQUESTED CONCLUSION OF LAW #13 17

REQUESTED CONCLUSION OF LAW #14 17

REQUESTED CONCLUSION OF LAW #15 21

REQUESTED CONCLUSION OF LAW #16 23

REQUESTED CONCLUSION OF LAW #17 23

REQUESTED CONCLUSION OF LAW #18 25

REQUESTED CONCLUSION OF LAW #19 25

TABLE OF AUTHORITIES

Advanced Health-Care Servs., Inc. v. Radford Community Hosp.,

910 F.2d 139 (4^th Cir. 1990) 14

American Soc'y of Mechanical Eng'rs, Inc. v. Hydrolevel Corp.,

456 U.S. 556 (1982) 3

American Tobacco Co. v. United States,

328 U.S. 781 (1946) 9, 14, 16

Apex Hosiery Co. v. Leader,

310 U.S. 469 (1940) 14

Aspen Skiing Co. v. Aspen Highland Skiing Corp.,

472 U.S. 585 (1985) 10, 14

Associated Press v. United States,

326 U.S. 1 (1945) 16, 24

Associated Radio Serv. Co. v. Page Airways, Inc.,

624 F.2d 1342 (5^th Cir. 1980), cert. denied,

450 U.S. 1030 (1981) 6

Blue Shield of Va. v. McCready,

457 U.S. 465 (1982) 2

Brown Shoe Co. v. United States,

370 U.S. 294 (1962) 6, 8, 10-11

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,

429 U.S. 477 (1977) 3

California v. American Stores Co.,

495 U.S. 271 (1990) 2, 3, 21

Cargill, Inc. v. Monfort of Colo., Inc.,

479 U.S. 104 (1986) 3

CIA Petrolera Caribe, Inc. v. Arco Caribbean, Inc.,

754 F.2d 404 (1^st Cir. 1985) 4

Citizen Publishing Co. v. United States,

394 U.S. 131 (1969) 18, 19, 20

City of Anaheim v. Southern Cal. Edison Co.,

955 F.2d 1373 (9^th Cir. 1992) 14

Community Publishers, Inc. v. Donrey Corp.,

892 F. Supp. 1146 (W.D. Ark.),

aff'd, 139 F.3d 1180 (8^th Cir. 1998) 5, 8

Continental Ore Co. v. Union Carbide & Carbon Corp.,

370 U.S. 690 (1962) 16

Eastman Kodak Co. v. Southern Photo Materials Co.,

273 U.S. 359 (1927) 24

F.T.C. v. Staples, Inc.,

970 F. Supp. 1066 (D.D.C. 1997) 6

F.T.C. v. Warner Communications, Inc.,

742 F.2d 1156 (9^th Cir. 1984) 19

Fashion Originators' Guild of Am. v. F.T.C.,

312 U.S. 457 (1941) 10

General Indus. Corp. v. Hartz Mountain Corp.,

810 F.2d 795 (8^th Cir. 1987) 14

Gilder v. PGA Tour, Inc.,

936 F.2d 417 (9^th Cir. 1991) 4

Hospital Corp. of Am. v. F.T.C.,

807 F.2d 1381 (7^th Cir. 1986, Posner, J.),

cert. denied, 481 U.S. 1038 (1987) 4

In re Nissan Motor Corp. Antitrust Litig.,

430 F. Supp. 231 (S.D. Fla. 1977) 16

International Salt Co. v. United States,

332 U.S. 392 (1947) 21, 23

International Shoe Co. v. F.T.C.,

280 U.S. 291 (1930) 17-18

Klor's, Inc. v. Broadway-Hale Stores, Inc.,

359 U.S. 207 (1959) 10

Lawlor v. National Screen Serv. Corp.,

349 U.S. 322 (1955) 2

Lucas Automotive Eng'g, Inc. v. Bridgestone/Firestone, Inc.,

140 F.3d 1228 (9^th Cir. 1998) 3

Maryland and Virginia Milk Producers Ass'n v. United States,

362 U.S. 458 (1960) 16

Morgenstern v. Wilson,

29 F.3d 1291 (8^th Cir. 1994), cert. denied,

513 U.S. 1150 (1995) 6

Movie 1 & 2 v. United Artists Communications, Inc.,

909 F.2d 1245 (9th Cir. 1990), cert. denied,

501 U.S. 1230 (1991) 15

NCAA v. Board of Regents of Univ. of Okla.,

468 U.S. 85 (1984) 10

National Soc'y of Professional Eng'rs v. United States,

435 U.S. 679 (1978) 21

Nelson v. Monroe Regional Med. Cntr.,

925 F.2d 1555 (7^th Cir.), cert. denied,

502 U.S. 903 (1991) 1, 4

Olin Corp. v. F.T.C.,

986 F.2d 1295 (9^th Cir. 1993),

cert. denied, 510 U.S. 1110 (1994) 19

Reiter v. Sonotone Corp.,

442 U.S. 330 (1979) 1-2, 3

Schine Chain Theatres, Inc. v. United States,

334 U.S. 110 (1948) 24

State of Hawaii v. Gannett Pac. Corp.,

Civil No. 99-687 ACK-BMK, 1999 U.S. Dist.

Lexis 19069 (D. Haw., October 15, 1999),

aff'd, November 15, 1999 (9^th Cir., unreported) 15

Tasty Baking Co. v. Ralston Purina, Inc.,

653 F. Supp. 1250 (E.D. Pa. 1987) 4

Thompson v. Metropolitan Multi-List, Inc.,

934 F.2d 1566 (11^th Cir. 1991),

cert. denied, 506 U.S. 903 (1992) 6

Times-Picayune Publishing Co. v. United States,

345 U.S. 594 (1953) 7

Transamerica Computer Co., Inc. v. International Business Machines,

698 F.2d 1377 (9^th Cir.), cert. denied, 464 U.S. 955 (1983) 15

United States v. Aluminum Co. of Am.,

148 F.2d 416 (2d Cir. 1945, L. Hand, J.) 9, 14

United States v. American Airlines, Inc.,

743 F.2d 1114 (5^th Cir. 1984),

cert. dismissed, 474 U.S. 1001 (1985) 15

United States v. American Tobacco Co.,

221 U.S. 106 (1911) 24

United States v. Continental Can Co.,

378 U.S. 441 (1964) 8

United States v. Crescent Amusement Co.,

323 U.S. 173 (1944) 24

United States v. El Paso Natural Gas Co.,

376 U.S. 651 (1964) 3-4

United States v. First Nat'l Bank & Trust Co. of Lexington,

376 U.S. 665 (1964) 13-14

United States v. Greater Buffalo Press, Inc.,

402 U.S. 549 (1971) 18

United States v. Griffith,

334 U.S. 100 (1948) 9

United States v. Grinnell Corp.,

384 U.S. 563 (1966) 23

United States v. Jos. Schlitz Brewing Co.,

253 F. Supp. 129 (N.D. Cal. 1966),

aff'd, 385 U.S. 37 (1966) 8, 19

United States v. M.P.M., Inc.,

397 F. Supp. 78 (D. Colo. 1975) 19

United States v. Pabst Brewing Co.,

384 U.S. 546 (1966) 8, 11-12

United States v. Paramount Pictures, Inc.,

334 U.S. 131 (1948) 16, 23, 24

United States v. Philadelphia Nat'l Bank,

374 U.S. 321 (1963) 4, 6, 8, 11

United States v. Phillips Petroleum Co.,

367 F. Supp. 1226 (C.D. Cal. 1973),

aff'd, 418 U.S. 906 (1974) 19

United States v. Third Nat'l Bank in Nashville,

390 U.S. 171 (1968) 18

United States v. Times Mirror Co.,

274 F. Supp. 606 (C.D. Cal. 1967),

aff'd, 390 U.S. 712 (1968) 5, 6, 8

United States v. Trans-Missouri Freight Ass'n,

166 U.S. 290 (1897) 10

United States v. Vons Grocery Co.,

384 U.S. 270 (1966) 8, 11

Virginia Vermiculite, Ltd. v. W.R. Grace & Co.,

156 F.3d 535 (4^th Cir. 1998), cert. denied,

119 S. Ct. 1458 (1999) 16

Volvo No. Am. Corp. v. Men's Int'l Professional Tennis Council,

857 F.2d 55 (2d Cir. 1988) 14

William Inglis & Sons Baking Co. v. ITT Continental Baking Co., Inc.,

668 F.2d 1014 (9^th Cir. 1981), cert. denied, 459 U.S. 825 (1982) 14

Zenith Radio Corp. v. Hazeltine Research, Inc.,

395 U.S. 100 (1969) 2, 4, 21

28 U.S.C. §  1331 1

28 U.S.C. § 1337 1

Clayton Antitrust Act, Section 4, 15 U.S.C. § 15 1, 25

Clayton Antitrust Act, Section 7, 15 U.S.C. § 18 Passim

Clayton Antitrust Act, Section 16, 15 U.S.C. § 26 1, 3, 4,

21, 25

Newspaper Preservation Act, 15 U.S.C. § 1801, et seq. 12, 13, 23,

24

Sherman Antitrust Act, Section 1, 15 U.S.C. § 1 13, 14, 16,

17, 21, 23

Sherman Antitrust Act, Section 2, 15 U.S.C. § 2 14, 15, 17,

21, 23

Plaintiff above-named submits this memorandum in support of Plaintiff's Requested Conclusions of Law in the above-entitled action. Hereafter, plaintiff will set forth the specific Conclusions of Law requested by plaintiff and the underlying legal authority that supports each requested conclusion.

Jurisdiction is not questioned here. Title 28, section 1331 provides for federal question jurisdiction; and section 1337 and sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, provide for federal jurisdiction for suits under the antitrust laws.

Plaintiff is a consumer: a subscriber to The Chronicle and a purchaser of The Examiner. Plaintiff therefore has standing under the antitrust laws to challenge Hearst's acquisition of The Chronicle. This acquisition will result in a reduction of output (only one daily newspaper in San Francisco); a lessening of consumer choice (only one news and editorial voice); the elimination of competition within the Joint Operating Agreement ("JOA"), insofar as Hearst and CPC try to position themselves advantageously in anticipation of either ending or renegotiating the JOA; increased subscription and newsstand prices if The Chronicle becomes the only daily newspaper in San Francisco; and the elimination of competition that would have occurred on the expiration of the JOA. The law has recognized the ability of consumers, or their authorized representatives, to sue to redress such injuries. Nelson v. Monroe Regional Med. Cntr., 925 F.2d 1555, 1562-65, 1568 (7^th Cir. 1991) (consumers accorded standing under section 7 of the Clayton Act to challenge a hospital merger); see Reiter v. Sonotone Corp., 442 U.S. 330 (1979) (consumers have standing to enforce the antitrust laws when violations cause them monetary injury); California v. American Stores Co., 495 U.S. 271 (1990) (action by state as parens patriae to redress harm to its citizens as consumers resulting from a merger); see also Blue Shield of Va. v. McCready, 457 U.S. 465, 473-74 (1982) (injury to the "general economy" of a state "is no more than a reflection of injuries to the 'business or property' of consumers, for which they may recover themselves . . . .").

Plaintiff's standing as a consumer is evident when one considers that standing would not be an issue were this action brought by the State of California as parens patriae on behalf of consumers, or were this a class action brought by plaintiff on behalf of subscribers and purchasers of the two newspapers. In either type of action, the defendants must concede standing. Yet, in each instance, the rights being asserted, which confer standing to bring the action, are merely an aggregation of the individual rights that plaintiff is asserting here: the rights of a consumer to be free of monopolistic overcharges, limitations of output, and narrowing of choice. Thus, if the State of California could bring a parens patriae action, or if plaintiff could bring a class action to vindicate such rights, plaintiff can bring this lawsuit to assert these same rights on his own behalf.

Congress has provided for persons such as plaintiff to enforce the antitrust laws as private attorneys general. The Supreme Court has specifically noted that "the purpose of giving private parties treble-damage and injunctive remedies was not merely to provide private relief, but was to serve as well the high purpose of enforcing the antitrust laws." Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 130-31 (1969); Lawlor v. National Screen Serv. Corp., 349 U.S. 322, 329 (1955):

American Soc'y of Mechanical Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 572-73, n.10 (1982); Reiter v. Sonotone Corp., 442 U.S. at 344 ("Congress created the treble-damages remedy . . . precisely for the purpose of encouraging private challenges to antitrust violations. These private suits provide a significant supplement to the limited resources available to the Department of Justice for enforcing the antitrust laws and deterring violations." (Emphasis in original)); California v. American Stores Co., 495 U.S. 271, 284 (1990). The Supreme Court's admonitions are particularly appropriate here, where plaintiff is acting as a private attorney general by default, in place of federal, state, and local authorities whose absence is both conspicuous and suspect.

The injury of which plaintiff complains is an antitrust injury, i.e., injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Antitrust injury is required in private actions challenging a merger under section 16 of the Clayton Act. Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104 (1986). In Cargill, the plaintiff lacked antitrust injury because it was complaining of a decrease in prices and an increase in competition. Here, however, plaintiff's claim is exactly the opposite. Plaintiff is complaining, and the evidence shows, that if Hearst acquires The Chronicle, there will be less competition, and Hearst will raise prices—the hallmarks of monopoly. These are exactly the evils against which section 7 is directed, and which render a merger unlawful. Lucas Automotive Eng'g, Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1236-37 (9^th Cir. 1998) (finding ". . . a customer in a market controlled by a monopolist, has standing to assert a s§ 7 claim for equitable relief, including divestiture, under § 16."); United States v. El Paso Natural Gas Co., 376 U.S. 651, 659 (1964) ("We repeat that one purpose of § 7 was 'to arrest the trend toward concentration, the tendency to monopoly, before the consumers' alternatives disappeared through merger. . . .'", quoting United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 367 (1963), emphasis in original); Hospital Corp. of Am. v. F.T.C., 807 F.2d 1381, 1389 (7^th Cir. 1986, Posner, J.) ("Section 7 does not require proof that a merger or other acquisition has caused higher prices in the affected market. All that is necessary is that the merger create an appreciable danger of such consequences in the future."); Nelson v. Monroe Regional Med. Cntr., 925 F.2d at 1564 ("As defendant concedes 'antitrust injury "means injury from higher prices or lower output, the principle vices proscribed by the antitrust laws."'") Because plaintiff is complaining of just such a potential injury resulting from Hearst's acquisition of The Chronicle, plaintiff has sustained antitrust injury.

Under section 16 of the Clayton Act, as construed by the Supreme Court, injunctive relief is available "upon the demonstration of 'threatened' injury. That remedy is characteristically available even though the plaintiff has not yet suffered actual injury . . . [citation omitted]; he need only demonstrate a significant threat of injury from an impending violation of the antitrust laws or from a contemporary violation likely to continue or recur." Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. at 130; Tasty Baking Co. v. Ralston Purina, Inc., 653 F. Supp. 1250, 1274 (E.D. Pa. 1987) ("This requirement is satisfied where defendants manifest an intent to violate the antitrust laws, as here, by evidence that the identified anticompetitive actions are feasible and would significantly benefit defendants."); CIA Petrolera Caribe, Inc. v. Arco Caribbean, Inc., 754 F.2d 404, 407-08 (1^st Cir. 1985); see Gilder v. PGA Tour, Inc., 936 F.2d 417, 423 (9^th Cir. 1991). Here, plaintiff has shown a significant threat of injury from Hearst's increasing subscription and newsstand prices after it acquires The Chronicle. Accordingly, plaintiff is entitled to injunctive relief under section 16 of the Clayton Act.

The record in this case confirms what courts have invariably held whenever the issue has been litigated: local daily newspapers are a relevant market for antitrust purposes. United States v. Times Mirror Co., 274 F. Supp. 606, 617 (C.D. Cal. 1967), aff'd, 390 U.S. 712 (1968):

The foregoing words, written over 30 years ago, apply with equal force today. As noted by the court in Community Publishers, Inc. v. Donrey Corp., 892 F. Supp. 1146, 1157 (W.D. Ark.), aff'd, 139 F.3d 1180 (8^th Cir. 1998), after finding daily newspapers to be a relevant market in language strikingly similar to that in Times Mirror, "in the future, it would probably make little sense for any party to relitigate this issue, given the amount of resources spent on an issue that has been resolved the same way by every court that has addressed it in any depth." (See cases cited at 892 F. Supp. 1156-57.) The record in this case is no different.

The relevant geographic market "is that geographic area 'to which consumers can practically turn for alternative sources of the product and in which the antitrust defendant faces competition.'" F.T.C. v. Staples, Inc., 970 F. Supp. 1066, 1073 (D.D.C. 1997), quoting Morgenstern v. Wilson, 29 F.3d 1291, 1296 (8^th Cir. 1994). In determining relevant market, "[t]he goal is to determine how economic factors function in terms of where buyers seek supplies and sellers seek purchasers." Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1573 (11^th Cir. 1991). The "area of effective competition in the known line of commerce must be charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies." United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 359 (1963) (emphasis in original). In Brown Shoe Co. v. United States, 370 U.S. 294, 336-37 (1962), the Court provided the following guidelines, in which it noted that a single city could constitute a relevant geographic market under section 7 of the Clayton Act:

At bottom, determination of relevant market is a question of fact. Associated Radio Serv. Co. v. Page Airways, Inc., 624 F.2d 1342, 1348-49 (5^th Cir. 1980).

On this record, substantial evidence exists to compel the conclusion that the city and county of San Francisco is a relevant geographic market, or at least a relevant geographic submarket. The two classes of customers with which newspapers deal are readers and advertisers. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 610 (1953). The record here is that when readers in San Francisco turn to daily newspapers, they turn to newspapers published in San Francisco. The Chronicle and The Examiner have over 97 percent of paid circulation of daily newspapers in San Francisco. Similarly, when advertisers wish to reach readers in San Francisco, they use The Chronicle and The Examiner, with the lowest advertising rates per thousand. The evidence is overwhelming and undisputed that the newspaper business is local, in that newspapers have core markets consisting of the cities in which they are published and located. Although newspapers may seek readership and advertisers in localities outside their core markets, they do not significantly penetrate and erode the advertising or readership base in the core markets of other newspapers. The result is that advertisers face rates that differ from paper to paper across different communities, with the lowest rates per thousand readers being invariably in the newspaper published in the local community—compelling evidence of separate, local geographic markets.

For purposes of the issues involved in this case, however, the result will be the same even if this Court finds the relevant geographic market to be broader, whether the five-county San Francisco metropolitan area, or the larger 11-county area. In these wider areas, The Chronicle and The Examiner are still the dominant firms. In the five-county metropolitan area, their combined share is 47 percent, more than five times the size of their nearest competitor, The Contra Costa Times. In the 11-county area, their combined share is 34 percent, double the share of their next largest competitor, The San Jose Mercury News. Significantly, however, no competitor in either the five-county or 11-county area is able to achieve more than 20 percent of its circulation outside of its home market. (Plaintiff Exhibit ("PX") 3, Bates No. H-0001739.) Thus, although The San Jose Mercury News may provide effective competition for The Chronicle and The Examiner in Santa Clara County, its home county where it has 80 percent of its circulation, it does so nowhere else. The same is true for all other newspapers throughout the Greater Bay Area. Hence, if the Court concludes that the relevant geographic market is the broader metropolitan area, The Chronicle and The Examiner are still the only two competitors able to achieve meaningful circulation throughout any area beyond the core markets in which they are published. If the market is metropolitan daily newspapers, there are still only two effective competitors, The Chronicle and The Examiner. Thus, their combination, or the discontinuance of The Examiner, will result in a monopoly and significant restraint of trade.

Section 7 of the Clayton Act proscribes any merger or acquisition "the effect of which may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C. § 18. In this case, there are now two daily newspapers in San Francisco, or in the larger metropolitan area, depending on how the geographic market is defined. If Hearst acquires The Chronicle, there will be one. This acquisition occurs in an industry with a marked historical trend of increasing concentration and diminished competition. The market is also characterized by high barriers to entry and the absence of new entrants. Under the case law, a violation of section 7 clearly exists. United States v. Times Mirror, id.; Community Publishers, Inc. v. Donrey Corp., id.; Brown Shoe v. United States, id.; United States v. Jos. Schlitz Brewing Co., 253 F. Supp. 129 (N.D. Cal. 1966), aff'd, 385 U.S. 37 (1966); United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963); United States v. Continental Can Co., 378 U.S. 441, 461-62 (1964):

United States v. Vons Grocery Co., 384 U.S. 270 (1966); United States v. Pabst Brewing Co., 384 U.S. 546 (1966). Unless Hearst can present some defense or justification for The Chronicle acquisition, the Court must find a violation of section 7.

In its defense, Hearst raises four points. The first of these, that the relevant market is broader than plaintiff claims, has been dealt with supra. The second, that The Examiner is a failing company, will be dealt with infra. The third is that Hearst has preserved competition by transferring The Examiner to the Fangs. This claim, however, fails on the facts. The evidence overwhelmingly shows that The Examiner in the Fangs' hands cannot be a competitive daily newspaper or even a colorable substitute for the present paper. The transaction with the Fangs is a sham, a political accommodation by Hearst, which will not preserve competition.

The final argument raised by Hearst is that its acquisition of The Chronicle will not further diminish competition, because the JOA between Hearst and CPC has already eliminated economic competition between the two newspapers, and antitrust law cannot properly concern itself with the policy of preserving two independent editorial voices, which is the concern of the Newspaper Preservation Act. This argument founders on both the facts and the law.

On the facts, as the Justice Department argued in its Amicus Brief in the Honolulu case, the JOA has not eliminated all economic competition between Hearst and CPC. The JOA itself reserves to Hearst and CPC the right and obligation to set their own ad rates and subscription and newsstand prices. In addition, with the end of the JOA approaching in 2005, Hearst and CPC have both tried to position themselves advantageously either to be able to compete at the end of the JOA, or to force the other party into a beneficial renegotiation or resolution of the JOA. Hence, the JOA has not in fact eliminated all economic competition between Hearst and CPC.

Moreover, there is undeniably the potential of future competition at the conclusion of the JOA in 2005. Allowing Hearst to acquire The Chronicle will eliminate that future competition. The antitrust laws are as much concerned with the elimination of potential competition as they are with actual competition. United States v. Aluminum Co. of Am., 148 F.2d 416, 431 (2d Cir. 1945, L. Hand, J.); American Tobacco Co. v. United States, 328 U.S. 781, 797 (1946); United States v. Griffith, 334 U.S. 100, 107 (1948) ("The anti-trust laws are as much violated by the prevention of competition as by its destruction.") Thus, an acquisition that eliminates potential future competition violates section 7 as much as one that eliminates present competition.

Even assuming the elimination of present economic, i.e., price, competition, however, Hearst's acquisition of The Chronicle will result in one firm and one editorial voice where previously there were two firms and two independent editorial voices. Plaintiff submits that this reduction in the number of firms is cognizable under the antitrust laws, particularly section 7 of the Clayton Act, even without regard to the policy of the Newspaper Preservation Act.

While recent decisions have treated antitrust in terms of allocative efficiency and effects on price, there is another long line of cases, stretching from the early days of the antitrust laws through the present in which the Supreme Court has condemned practices reducing the number of firms in a market. United States v. Trans-Missouri Freight Ass'n, 166 U.S. 290, 323 (1897):

Fashion Originators' Guild of Am. v. F.T.C., 312 U.S. 457, 465 (1941); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213-14 (1959):

NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85 (1984); Aspen Skiing Co. v. Aspen Highland Skiing Corp., 472 U.S. 585 (1985).

Moreover, the intent of the antitrust laws to preserve competitors, as a means of preserving competition, is especially apparent under section 7 of the Clayton Act and the Supreme Court decisions applying it. Brown Shoe v. United States, 370 U.S. at 315 ("The dominant theme pervading congressional consideration of the 1950 amendments was a fear of what was considered to be a rising tide of economic concentration in the American economy."), 315-16 ("Other considerations cited in support of the bill were the desirability of retaining 'local control' over industry and the protection of small businesses."), 333, 344:

United States v. Von's Grocery Co., 384 U.S. at 274-75, n.7 (quoting with approval Judge Learned Hand, "Throughout the history of these statutes it has been constantly assumed that one of their purposes was to perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other."), 275 n.10, 277:

278 ("It is enough for us that Congress feared that a market marked at the same time by both a continuous decline in the number of small businesses and a large number of mergers would slowly but inevitably gravitate from a market of many small competitors to one dominated by one or a few giants, and competition would thereby be destroyed."); United States v. Philadelphia Nat'l Bank, 374 U.S. at 362-63; United States v. Pabst Brewing Co., 384 U.S. 546, 552-53 (1966):

The foregoing authorities show that under section 7, a reduction in the number of competitors, which will occur here, is a central and overriding concern of merger jurisprudence. Thus, where the number of independent newspapers is reduced from two to one, section 7 proscribes the acquisition, regardless of whether and to what extent a JOA may have previously limited their economic competition.

In addition to the policy of section 7, it is appropriate for the Court to consider "the public policy of the United States" as articulated in the Newspaper Preservation Act "to preserve the publication of newspapers in any city, community, or metropolitan area where a joint operating arrangement has been heretofore entered into . . . ." 15 U.S.C. § 1801. As a gloss on the antitrust laws, the Newspaper Preservation Act reaffirms for the newspaper industry the public policy underlying section 7, that preserving competitors is an appropriate means of preserving competition. Thus, when a merger eliminates two independent editorial voices, competition is reduced in the antitrust sense as Congress has defined competition not only under section 7, but also under the Newspaper Preservation Act.

The position taken by Hearst in this litigation would frustrate the policy of both statutes. In 1965, because of "deficits" and in order to "enable both Chronicle and Hearst to survive as publishers of separate and independent newspapers" (PX 1, pp. 1-2), Hearst and CPC entered into the JOA. After the passage of the Newspaper Preservation Act in 1970, the JOA was allowed to continue because, as of 1965, The Examiner was not "likely to remain or become a financially sound publication." 15 U.S.C. § 1803(a). Under the Newspaper Preservation Act, Hearst and CPC were granted antitrust immunity to fix prices and divide markets, "[p]rovided, [t]hat there is no merger, combination, or amalgamation of editorial or reportorial staffs, and that editorial policies be independently determined." 15 U.S.C. § 1802(2). For 35 years, Hearst and CPC have engaged in per se violations of the antitrust laws, while both newspapers have become profitable and are expected to continue to be profitable through the end of the JOA in 2005. Now Hearst comes before this Court to suggest that because the JOA has allegedly eliminated competition between Hearst and CPC, Hearst's purchase of The Chronicle will have no effects on competition, and Hearst should be allowed to obtain a daily newspaper monopoly in San Francisco. This is a misuse and perversion of both the Newspaper Preservation Act and the JOA. Having been allowed to suppress competition under the JOA on condition that two independent newspapers be maintained, Hearst now argues that because competition has already been suppressed, Hearst should be allowed to reduce the number of newspapers to one without fear of antitrust consequences. Clearly, Congress intended neither section 7 nor the Newspaper Preservation Act to be used in this manner for the elimination of both economic competition and independent newspaper voices. Hearst therefore cannot use the JOA or the Newspaper Preservation Act to justify its acquisition of The Chronicle.

Because Hearst's agreement with CPC to acquire The Chronicle violates section 7 of the Clayton Act, it also is an agreement that unreasonably restrains trade in violation of section 1 of the Sherman Act. United States v. First Nat'l Bank & Trust Co. of Lexington, 376 U.S. 665 (1964). In the Lexington Bank case, the Supreme Court reviewed a number of earlier decisions involving railroad mergers and concluded:

376 U.S. at 671-72. So too, here, the only two firms in the daily newspaper business in San Francisco have agreed to combine and eliminate both present and future competition. Their agreement therefore violates section 1 of the Sherman Act.

The elements of an unlawful conspiracy to monopolize are "concerted action, a specific intent to achieve an unlawful monopoly, and commission of an overt act in furtherance of the conspiracy." Advanced Health-Care Servs., Inc. v. Radford Community Hosp., 910 F.2d 139, 150 (4^th Cir. 1990); Volvo No. Am. Corp. v. Men's Int'l Professional Tennis Council, 857 F.2d 55, 74 (2d Cir. 1988); American Tobacco Co. v. United States, 328 U.S. 781, 809 (1946). Here, the acquisition agreement between Hearst and CPC is concerted action. Overt acts include the steps taken by Hearst and CPC to consummate their transaction, including, for example, Hearst's agreement to transfer The Examiner to the Fangs. The element of specific intent "requires proof that the defendant intended his acts to produce monopoly power." General Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 801 (8^th Cir. 1987). "Specific intent need not be proven by direct evidence, but can be inferred from the defendant's anticompetitive practices or other proof of unlawful conduct." 810 F.2d at 802; William Inglis & Sons Baking Co. v. ITT Continental Baking Co., Inc., 668 F.2d 1014, 1027 (9^th Cir. 1981). In finding specific intent, the actions of the defendant "taken as a whole, can and should be considered." City of Anaheim v. Southern Cal. Edison Co., 955 F.2d 1373, 1378 (9^th Cir. 1992). In addition, a party must be presumed to attend the natural consequences of its acts, Apex Hosiery Co. v. Leader, 310 U.S. 469, 485 (1940); and "no monopolist monopolizes unconscious of what he is doing." United States v. Aluminum Co. of Am., 148 F.2d at 432; Aspen Skiing Co. v. Aspen Highland Skiing Corp., 472 U.S. at 602-03, n.28. Here, Hearst knows and intends that The Chronicle will be the only metropolitan daily newspaper in San Francisco. Hearst has also entered into its sham transaction with the Fangs in order to create the illusion of competition. This evidence is more than sufficient to establish specific intent to monopolize. Accordingly, on this record, all elements of an unlawful conspiracy to monopolize are present.

The elements of an unlawful attempt to monopolize are (1) specific intent to control prices or destroy competition; (2) predatory or anticompetitive conduct to accomplish monopolization; (3) dangerous probability of success; and (4) causal antitrust injury. Movie 1 & 2 v. United Artists Communications, Inc., 909 F.2d 1245, 1254 (9th Cir. 1990), citing Transamerica Computer Co., Inc. v. International Business Machines, 698 F.2d 1377 (9^th Cir. 1983). Plaintiff has already addressed specific intent and causal antitrust injury, supra. The predatory or anticompetitive conduct consists in Hearst's agreement to purchase The Chronicle and the steps it has taken to consummate that transaction, including, for example, the sham transaction with the Fangs. Dangerous probability of success appears from the evidence that once Hearst acquires The Chronicle, it will be the only metropolitan daily newspaper in San Francisco.

In addition, solicitation of an agreement that will result in a monopoly constitutes an unlawful attempt to monopolize. United States v. American Airlines, Inc., 743 F.2d 1114 (5^th Cir. 1984). This has certainly occurred here, not only with the agreement to acquire The Chronicle, but also with the repeated prior proposals to form an arrangement under which Hearst would close The Examiner while continuing to share in the profits of The Chronicle. See also State of Hawaii v. Gannett Pac. Corp., Civil No. 99-687 ACK-BMK, 1999 U.S. Dist. Lexis 19069 (D. Haw., October 15, 1999), aff'd, November 15, 1999 (9^th Cir., unreported). Hence, on this record, Hearst has unlawfully attempted to monopolize the daily newspaper business in San Francisco.

Part and parcel of Hearst's scheme to acquire The Chronicle has been Hearst's agreement to transfer The Examiner to the Fangs. To facilitate Hearst in its acquisition of The Chronicle, the Fangs have contracted with Hearst to obtain The Examiner if Hearst is able to buy The Chronicle. The Fangs have thereby joined and entered the a pre-existing unlawful combination between Hearst and CPC. As such, they are as culpable as if they had been parties to the original unlawful combination. United States v. Paramount Pictures, Inc., 334 U.S. 131, 161 (1948) ("For acquiescence in an illegal scheme is as much a violation of the Sherman Act as the creation and promotion of one."); In re Nissan Motor Corp. Antitrust Litig., 430 F. Supp. 231, 233, and cases cited therein (S.D. Fla. 1977); Virginia Vermiculite, Ltd. v. W.R. Grace & Co., 156 F.3d 535 (4^th Cir. 1998). Because the Hearst-CPC agreement is an unreasonable restraint of trade under section 1, the ancillary agreement between Hearst and the Fangs, formed to enable Hearst to complete its agreement with CPC, likewise violates section 1. See United States v. Paramount Pictures, 334 U.S. at 152-53; Associated Press v. United States, 326 U.S. 1, 14 (1945) ("But however innocent such agreements might be, standing alone, they would assume quite a different aspect if utilized as essential features of a program to hamper or destroy competition."); American Tobacco Co. v. United States, 328 U.S. at 809-10 ("Acts done to give effect to the conspiracy may be in themselves wholly innocent acts. Yet, if they are part of the sum of the acts which are relied upon to effectuate the conspiracy which the statute forbids, they come within its prohibition."); Maryland and Virginia Milk Producers Ass'n v. United States, 362 U.S. 458, 471-72 (1960); Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 707 (1962) (". . . it is well settled that acts which are in themselves legal lose that character when they become constituent elements of an unlawful scheme."). This is exactly the position in which the Fangs find themselves, and their agreement with Hearst is therefore just as much a violation of section 1 as is Hearst's agreement with CPC.

For the same reasons that it constitutes a combination or a conspiracy in violation of section 1, Hearst's agreement with the Fangs constitutes an unlawful conspiracy to monopolize in violation of section 2. Because Hearst's agreement with the Fangs is part and parcel of the overall conspiracy to monopolize, it violates section 2 of the Sherman Act as well as section 1.

Hearst's agreement with the Fangs also constitutes an attempt by Hearst to monopolize the daily newspaper market in San Francisco for the same reasons that Hearst's agreement with CPC constitutes an attempt to monopolize. See discussion, supra.

As a matter of fact, and, more importantly, as a matter of law, Hearst cannot establish a failing company defense to any of the antitrust claims against it.

First, as a matter of law, the failing company defense is not available to Hearst in this lawsuit. The failing company defense derives from International Shoe Co. v. F.T.C., 280 U.S. 291 (1930). In that case, the Supreme Court approved an acquisition where the record disclosed the following facts:

280 U.S. at 302-03. In subsequent decisions, the Supreme Court has reaffirmed the defense, subject to the strict limitations enumerated in the International Shoe case. Citizen Publishing Co. v. United States, 394 U.S. 131, 136-39 (1969); United States v. Greater Buffalo Press, Inc., 402 U.S. 549, 555-56 (1971); United States v. Third Nat'l Bank in Nashville, 390 U.S. 171, 190-92 (1968). In none of these cases did the Supreme Court sustain the failing company defense. Moreover, the terms in which the Court defined the defense, and the limits with which the Court circumscribed it, show that it is not available to Hearst in this case.

First, by definition, the defense is available only where the company to be acquired is failing or in extremis, not where the acquiring company claims to be failing. In Citizen Publishing, the Supreme Court, in describing the holding in International Shoe, stated, "The evidence showed that the resources of one company were so depleted and the prospect of rehabilitation so remote that 'it faced the grave probability of a business failure.'" 394 U.S. at 136. In United States v. Greater Buffalo Press, where Hearst was a defendant, the Court said that the failing company defense would be met "only if two requirements are satisfied: (1) that the resources of International [the acquired company] were 'so depleted and the prospect of rehabilitation so remote that it faced the grave probability of a business failure . . .' [citation to International Shoe omitted], and (2) that there was no other prospective purchaser for it." 402 U.S. at 555. The Court's specific requirement, in every case discussing the defense, that the acquired company's resources be "so depleted" as to threaten business failure necessitates that the defense cannot possibly apply where the allegedly failing company is the acquiring company. Obviously, the assets of the acquiring company cannot be "so depleted" as to threaten business failure if the acquiring company has sufficient assets to buy the profitable acquired company. If assets are depleted to the point where business failure is imminent, then the failing company cannot have sufficient assets to acquire a flourishing competitor. To allow the acquiring company to claim to be the failing company would expand the defense far beyond the Supreme Court's contemplation.

Significantly, in Citizen Publishing, the Supreme Court concluded, "The burden of proving that the conditions of the failing company doctrine have been satisfied is on those who seek refuge under it. That burden has not been satisfied in this case. We confine the failing company doctrine to its present narrow scope." 394 U.S. at 138-39; emphasis added. Nor has the Supreme Court subsequently stated or intimated that the defense should be expanded beyond its "narrow scope."

The Ninth Circuit has similarly confined the defense within the narrow bounds established by the Supreme Court. Olin Corp. v. F.T.C., 986 F.2d 1295 (9^th Cir. 1993) (rejecting "exiting assets defense"); F.T.C. v. Warner Communications, Inc., 742 F.2d 1156, 1164 (9^th Cir. 1984) (rejecting a "weak company defense," which "would expand the failing company doctrine, a defense which has strict limits."); United States v. Phillips Petroleum Co., 367 F. Supp. 1226, 1259-60 (C.D. Cal. 1973), aff'd, 418 U.S. 906 (1974) ("The law is clear that evidence of a decline in market position and varying profits and losses cannot be elevated to the status of a 'failing company' by subjective statements of management intention or desire to go out of business if the acquisition had not taken place."); United States v. Jos. Schlitz Brewing Co., 253 F. Supp. 129, 148 (N.D. Cal., aff'd, 385 U.S. 37 (1966) ("Allowing an acquiring company to successfully raise the defense that its acquired former competitor showed declining sales and profits in the years immediately preceding the acquisition surely would provide an exception to Section 7 large enough to eviscerate the statute.").

Thus, the defense is strictly limited. To plaintiff's knowledge, it has never been applied to the acquiring company. To permit its use by the acquiring company would make a mockery of the requirement that the failing company's assets be depleted to the point of insolvency and failure.

Furthermore, on the factual record of this case, Hearst has not sustained the defense. Within the JOA, The Examiner is profitable, and is expected to be so through 2005. This undisputed fact alone puts quietus to the defense. Hearst attempts to circumvent this evidence by various estimates, projections, and conjectures as to how The Examiner might fare apart from the JOA, or how The Chronicle might fare without The Examiner. Such estimates, however, have no basis in objective or historical fact or the actual accounting records of The Examiner, which admittedly do not exist for proving this point. Even were the law to permit a showing that the acquiring company is failing, sustaining the defense on the basis of the evidence in this record would open the defense to whatever accounting legerdemain a defendant could muster, and would totally demolish the tight limits the Supreme Court has taken such pains to erect. Given the strictures established by the Supreme Court, the proof offered in this case cannot be sufficient to establish the requisite depletion of resources and economic peril for a failing company.

A second insuperable problem faced by Hearst is that it has not satisfied and cannot satisfy the requirement "that the company that acquires the failing company or brings it under dominion is the only available purchaser." Citizen Publishing, 394 U.S. at 138. Hearst obviously cannot satisfy this requirement because of the semantic, definitional problem that the failing company must be the acquired company. Even beyond this problem, Hearst cannot show the absence of purchasers for The Examiner because Hearst has never offered The Examiner for sale in its present condition, as a party to the JOA. Key to the financial condition and viability of The Examiner is its interest in the JOA, pursuant to which the San Francisco Newspaper Agency pays all production and business expenses for The Examiner and then provides The Examiner with half the remaining profits. Hearst specifically refused to offer The Examiner with its interest in the JOA, although the record shows interested buyers willing to acquire The Examiner with its JOA participation, e.g., Knight-Ridder. Hearst therefore cannot show the absence of purchasers for The Examiner, as the failing company defense requires.

Indeed, all Hearst can offer in the way of supporting authority are statements by the Antitrust Division as to those conditions under which it would not challenge the dissolution of a JOA. These statements, however, are not law, nor have they ever been adopted and applied in any reported decision known to plaintiff. When such statements are arrayed against the repeated and express parameters of the failing company defense in Supreme Court and Ninth Circuit opinions, they are wholly lacking in force and authority.

In sum, The Examiner is not in fact failing; the failing company defense applies only to the acquired company and not the acquiring company; and Hearst has not established the defense in this case, either as a matter of fact, or as a matter of law.

Inasmuch as Hearst's intended acquisition of The Chronicle violates section 7 of the Clayton Act and sections 1 and 2 of the Sherman Act, plaintiff is entitled to a permanent injunction prohibiting Hearst from buying The Chronicle. Zenith Radio Corp. v. Hazeltine Research, 395 U.S. at 130-31 (1969). As the Supreme Court has noted, "a federal court has broad power to restrain acts which are of the same type or class as unlawful acts which the court has found to have been committed or whose commission in the future unless enjoined, may fairly be anticipated from the defendant's conduct in the past." Zenith v. Hazeltine, 395 U.S. at 132. Here, since the acquisition will violate the antitrust laws, it must be enjoined.

The more difficult question is whether the Court should go beyond this simple form of injunctive relief to attach conditions under which Hearst might at some future time acquire The Chronicle, or otherwise regulate the conduct of Hearst, whether in or out of the JOA. Certainly, the Court has the power to do so. National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 697-98 (1978); International Salt Co. v. United States, 332 U.S. 392, 400 (1947); California v. American Stores Co., 495 U.S. 271, 281 (1990) (Section 16 "states no restrictions or exceptions to the forms of injunctive relief a private plaintiff may seek, or that a court may order.")

Indeed, this Court has ordered the parties to address in post-trial briefing the question, "If the evidence shows that, with the changes proposed by the Fang group, The Examiner will likely become a financially sound publication, are Hearst and CPC entitled to immunity under 15 U.S.C. § 1803 for continued operation of the JOA?" The Court's question appears to raise the possibility of an injunction not only prohibiting Hearst from buying The Chronicle, but also removing any antitrust immunity from the continuing JOA on the ground that both The Chronicle and The Examiner are now likely to remain or become financially sound publications, thereby running afoul of 15 U.S.C. § 1803(a). As much as plaintiff would like to see the JOA stripped of its antitrust immunity, however, plaintiff does not ask the Court for this relief. First, under section 1803, the relevant inquiry is not whether Hearst might profitably operate The Examiner today implementing the changes contemplated by the Fangs, but whether in 1965, at the time the JOA "was first entered into," The Examiner was not "likely to remain or become a financially sound publication." Second, the evidence is clear that the changes suggested by the Fangs will not result in a paper that is even a colorable equivalent or substitute for the current Examiner. A 40-page paper written by an editorial staff of 30 people will be less than a shadow of what the people of San Francisco now receive. Third, removing the antitrust immunity will undoubtedly end the JOA, under which San Francisco now has the benefit of two newspapers with independent editorial voices, each financially healthy. Finally, an order removing the antitrust immunity of the JOA might transmute this case into a private action for enforcement of the Newspaper Preservation Act, a proceeding plaintiff has never intended to prosecute. For all these reasons, plaintiff does not believe that the Court's injunction should address the issue of continuing antitrust immunity for the JOA.

Besides the Court's question, there are two other questions that occur to plaintiff with regard to the appropriate injunction to be entered against Hearst: first, whether the injunction should extend only to the end of the JOA in 2005; and, second, whether the injunction should exist only so long as Hearst is unable to produce a credible buyer for The Examiner (e.g., the injunction might lift on Hearst's selling The Examiner to Knight-Ridder with its interest in the JOA). Plaintiff has considered both questions, and believes the appropriate answer to be for the Court simply to enter a permanent injunction prohibiting Hearst's purchase of The Chronicle. In the event that circumstances change, whether by the termination of the JOA in 2005 or by the sale of The Examiner to a legitimate buyer, then Hearst would be free to petition this Court for relief from the injunction. International Salt Co. v. United States, 332 U.S. at 400. ("The usual ways to the prohibited goal may be blocked against the proven transgressor and the burden put upon him to bring any proper claims of relief to the court's attention.") Given the uncertainty of predicting the future, and given that Hearst has clearly violated the antitrust laws, there is no need for this Court to imagine or craft conditions that would enable Hearst to avoid the injunctive relief that must necessarily issue. Rather, the burden appropriately belongs on Hearst to reapply to this Court for relief from the injunction should circumstances change.

Likewise, this Court should permanently enjoin the Fangs from acquiring The Examiner from Hearst. The Fang transaction is part and parcel of the illegal scheme of defendants to give Hearst ownership of The Chronicle. As such, it is to be enjoined as one of "the fruits of monopolistic practices or restraints of trade." United States v. Paramount Pictures, 334 U.S. at 152-53, 171; United States v. Grinnell Corp., 384 U.S. 563, 577 (1966).

The same right to injunctive relief exists with respect to the right of first refusal and 60-mile non-compete clause in the JOA, both of which were demonstrably used by Hearst to exclude other buyers of The Chronicle. Neither term is intrinsic or necessary to the JOA, or authorized by the Newspaper Preservation Act. Neither term furthers the policy of the JOA of preserving business health of newspapers or independent editorial voices. Here, Hearst used both terms to frustrate the purposes of the Newspaper Preservation Act, and to bootstrap itself into a monopoly. Subsection c of 15 U.S.C. § 1803 specifically withholds antitrust immunity from "any predatory practice, or any other conduct in the otherwise lawful operations of a joint newspaper operating arrangement which would be unlawful under any antitrust law if engaged in by a single entity." From the dawn of the antitrust laws, courts have held unlawful the use of non-compete agreements, such as the 60-mile clause, when used in furtherance of monopoly or cartelization. United States v. American Tobacco Co., 221 U.S. 106, 163, 174-75, 182-83 (1911); Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 368-69 (1927); United States v. Crescent Amusement Co., 323 U.S. 173-181 (1944); Schine Chain Theatres, Inc. v. United States, 334 U.S. 110, 119 (1948) ("Even an otherwise lawful device may be used as a weapon in restraint of trade or in an effort to monopolize a part of trade or commerce. Agreements not to compete have at times been used for that unlawful purpose."). The right of first refusal accomplishes the same purpose as the 60-mile clause, and is therefore equally unlawful. Associated Press v. United States, 326 U.S. 1, 14 (1945) ("But however innocent such agreements might be, standing alone, they would assume quite a different aspect if utilized as essential features of a program to hamper or destroy competition."); United States v. Paramount, 334 U.S. at 148 ("For equity has the power to uproot all parts of an illegal scheme—valid as well as the invalid—in order to rid the trade or commerce of all taint of the conspiracy."). Since neither cause furthers any legitimate purpose of the JOA or is exempted from liability by the Newspaper Preservation Act, and since both clauses would be unlawful if employed by a single actor in furtherance of a monopoly, they enjoy no antitrust immunity, and Hearst should be permanently enjoined from their future enforcement.

See discussion, supra. Because Hearst's enforcement of the clauses has excluded other buyers of The Chronicle, Hearst has perforce used these clauses to foreclose and prevent newspaper competition, so as to create a significant threat of injury to plaintiff from an impending violation of the antitrust laws, thereby entitling plaintiff to injunctive relief.

Section 16 of the Clayton Act, 15 U.S.C. § 26, provides, "in any action under this section in which the plaintiff substantially prevails, the Court shall award the cost of suit, including a reasonable attorney's fee, to such plaintiff."

Dated: May 23, 2000. ALIOTO LAW FIRM

Joseph M. Alioto

Angelina Alioto-Grace, Pro Hac Vice

One Embarcadero Center, 39^th Floor

San Francisco, CA 94111

Telephone: 415-434-8900

SHULMAN, WALCOTT & SHULMAN, P.A.

By:___________________________________

Daniel R. Shulman, Pro Hac Vice

Jim Hilbert, Pro Hac Vice

121 West Franklin Avenue

Minneapolis, MN 55404

Telephone: 612-871-2909

Attorneys for Plaintiff Clinton Reilly

I, the undersigned, declare that I am, and was at the time of service of the papers herein referred to, over the age of 18 years and not a party to the within action or proceeding. My business address is Shulman, Walcott & Shulman, P.A., 121 West Franklin Avenue, Minneapolis, Minnesota 55404. I am readily familiar with the practice at my place of business for collection and processing of correspondence.

On May 23, 2000, I served the following document(s):

by Federal Express as follows:

Gary L. Halling, Esq.

Thomas D. Nevins, Esq.

SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

Four Embarcadero Center, 17^th Floor

San Francisco, CA 94111

Facsimile: 415-434-3947

J. Thomas Rosch, Esq.

Gregory P. Lindstrom, Esq.

Peter K. Huston, Esq.

LATHAM & WATKINS

505 Montgomery Street, Suite 1900

San Francisco, CA 94111-2562

Facsimile: 415-395-8095

David M. Balabanian, Esq.

MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP

San Francisco, CA 94111

Facsimile: 415-393-2286

I declare that I am employed in the office of counsel permitted to practice before this Court pro hac vice, at whose direction the service was made and declare under penalty of perjury that the foregoing is true and correct.

Executed this 23rd day of May, 2000, at Minneapolis, Minnesota.

________________________________________

Gayle M. Schaub, Legal Assistant, RP