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If the Salt Lake Tribune Publishing Co. can operate the paper contrary to the wishes of the newspaper's owners, it could drive down the paper's value, so the paper could be bought back later at a reduced price.
So contends a legal brief that the Tribune's new owners, MediaNews Group, filed Tuesday with the U.S. 10th Circuit Court of Appeals in Denver.
The filing was the latest salvo in a legal battle over control of Utah's largest daily newspaper and joint operations between the Tribune and Deseret News.
The managers owned the paper until 1997, when they agreed to a $731 million tax-free stock trade with TeleCommunications Inc.
According to the managers, they retain an option to repurchase the newspaper in the summer of 2002 at fair market value. The Tribune managers also argue that meanwhile, they have the right under a management agreement to run the paper as they wish.
But the Tribune's new owners do not agree.
Acting on the manager's request, on Feb. 21 U.S. District Judge Tena Campbell issued a preliminary injunction against MediaNews, saying that it had overstepped its ownership rights in replacing Tribune publisher Dominic Welch and chief operating officer Randy Frisch with its own representatives on the board of the Newspaper Agency Corp. NAC handles advertising, circulation and printing for the Tribune and Deseret News.
MediaNews, which purchased the Tribune in January for $200 million, has asked the appeals court to reverse the injunction.
On Monday, attorneys for the Tribune's managers said in a brief to the appeals court that MediaNews Group knew "full well" what strings were attached when they bought the Tribune on Jan. 2.
MediaNews' reply brief turns that statement on its head, saying that when MediaNews bought Kearns-Tribune LLC, "it did indeed do so with its eyes open: It read the words of the management agreement."
The agreement provided that the Salt Lake Tribune Publishing Co. is to act only as an agent for Kearns-Tribune (now owned by MediaNews) and not to further its own separate interests, says the brief.
Despite the clear language, Campbell reached "the extraordinary conclusion" that there was a high likelihood the publishing company is entitled to operate Kearns-Tribune's business for the managers' own benefit, the brief continues.
Campbell concluded that the publishing company could take action "contrary to the desires and objectives of (Kearns-Tribune's) owners, who paid $200 million for the business," MediaNews lawyers wrote.
"This conclusion means that the agent, acting for its own benefit, can lower the fair market value of the Tribune assets and, when and if it exercises its option, buy the Tribune assets at a lower price."
If the managers were to operate contrary to the interests of the paper's owners that would "do violence" to both the management and option agreements, says the brief. It also would "conflict with the tax treatment" involved in a merger between Kearns-Tribune and TCI.
If the publishing company doesn't have a right to act on its own, it is not entitled to an injunction, and Welch and Frisch "have no right to be reappointed to positions at the NAC," it says.