Tuesday, January 06, 2009

The Runaway Arbitration

When Santa Barbara News-Press editor Jerry Roberts and six of his top deputies resigned from their positions at the paper in July of 2006, owner, Wendy McCaw probably thought that barely anyone would notice. After all, the comings and goings of those who cover the news is seldom remarkable or newsworthy.

Little did McCaw know that Roberts and the editors would, as Dick Cheney said in another context, "be greeted as liberators." The community was choosing sides in the conflict between McCaw and her newsroom, and people were clearly siding with the newsroom.

Undoubtedly, most galling of all to McCaw, was the reception Roberts got from a standing-room-only audience that gathered at Victoria Hall a couple of weeks following the resignations where Roberts explained why ethically and in good conscience he could not continue in his position at the News-Press under Wendy's ownership.

Indeed, a photo that ran in the Independent said it all. It showed Roberts, in shirt sleeves, smiling and basking in the adulation of those who were assembled there. (A request to the Independent for permission to post the photo I'm referring to was denied.)

The photo of Roberts was in stark contrast to the unflattering ones of the camera-shy McCaw that invariably ran whenever a story on the controversy was published.

That photo of Roberts coupled with the elevation of his status to that of a local hero, must have been the last straw for McCaw. Within days of the Victoria Hall forum, McCaw had Ampersand Publishing, the corporation she wholly owns which in turn, owns the News-Press, sue Roberts for wrongfully disclosing confidential information in violation of his employment contract. No longer would Roberts talk about his experience at the News-Press at Wendy's expense.

Later, an attorney for the paper would allege that Roberts made disparaging statements about McCaw after he left the News-Press that were picked up in numerous news stories. In other words McCaw was basically taking the position that anything Roberts said about his time at the paper was a breach of the non-disclosure clause of his contract.

The allegations didn't stop there. Ampersand's lawyers came up with 14 additional allegations against Roberts including breach of fiduciary duty, plotting to assemble a collective of investors to buy the News-Press, implementing an illegal compensatory time scheme and failing to discipline business editor Michael Todd for inappropriate remarks he allegedly made to photographer Ana Fuentes.

The guy who simply wanted to quit his job and have nothing more to do with Wendy McCaw was now being held hostage in a lawsuit.

Roberts answered back and asserted several counter-claims against McCaw including, constructive discharge (that he was basically forced out of his position as editor), that he had been the victim of misrepresentations made by McCaw and that he had been defamed by a blog post that appeared on September 8, 2006 on the "Nippers" website site run by McCaw's boyfriend and News-Press co-publisher, Arthur von Wiesenberger. In the post, von Wiesenberger defended the need to make changes at the paper by analogizing the paper's status under the editors who had since resigned to a sloppily run hamburger stand.

Although he didn't ask for a specific dollar amount of damages, the American Arbitration Association, before whom the case was pending, treated his counter-claims as being for the maximum amount allowed for under such circumstances, $10 million, leading to reports among some local media that Roberts had countersued McCaw for that amount.

McCaw struck back, and increased the amount of damages she had originally asked for from $500,000 to $25 million.

Robert's contract with Ampersand, which he entered into back in January of 2005, had required that any dispute that arose out of his employment with the News-Press be submitted to arbitration. It also contained a confidentiality clause which required that the fact that the case was being arbitrated and the details of the arbitration not be disclosed by either party.

Despite that clause, a News-Press reporter, Vladimir Kogan, was assigned to write a story on the paper's demand for arbitration and News-Press management furnished him documents concerning the matter and had offered him on-the-record comments.

Kogan called Roberts to get his comment on the arbitration. Roberts asked Kogan how he knew about it. Kogan responded that the newspaper's general counsel, David Millstein, had given him a copy of the demand and claim.

Kogan's story was killed when it finally dawned on someone at the News-Press that if they ran it they would be violating the confidentiality provisions of their very own arbitration agreement.

When the L.A. Times reported the fact of the dispute and the arbitration, which was supposed to be confidential, the News-Press accused Roberts of being the one who leaked the story despite the fact that it was the News-Press' general counsel who had spilled the beans to their own reporter.

For more than a year, the case crept towards a hearing date. Robert's attorney's fees started to mount. He would later tell supporters that he was suddenly being forced to put together three words that he never thought he'd have to use in the same sentence - "my legal team."

In June of 2007, friends of Roberts organized a fundraiser at the Hope Ranch home of former county supervisor Susan Rose and her husband Allan Ghitterman. 165 people showed up and more than $135,000 was raised. $100,000 of it coming from textbook publisher and philanthropist, Sara Miller McCune.

Through the summer and into the fall both sides continued to prepare for the arbitration hearing.

As the hearing date approached Santa Barbara attorney Barry Cappello had assumed the role of Ampersand's lead counsel. He had several prominent supporters of Roberts including Mercedes Eichholz, President of the Santa Barbara Museum of Art, author Annie Bardach and McCune, served with subpoenas to either appear and testify at the hearing or to give deposition testimony.

Finally, on December 3, 2007 in a conference room at the Double Tree hotel across from East Beach the hearing began before arbitrator Deborah Rothman of Los Angeles. The hearing itself would last until nearly the end of December.

After that, Rothman took the case under submission. Arbitration rules required her to render a decision by March 20, 2008. The parties began to wait. And wait. And when they were done waiting, they had to wait some more.

Rothman informed the parties on at least two occasions that she would need more time. Neither side objected.

On April 10, 2008, Rothman issued a decision clearly labelled "tentative" where she found that Robert's public disclosures breached his fiduciary duty to the paper and that she was tentatively inclined to award Ampersand damages.

She also found that Ampersand had defamed Roberts in the Nipper's website hamburger stand story.

Additionally, she ruled that Roberts was entitled to recover his attorney's fees and costs that he incurred in defending against Ampersand's demand that he indemnify the company for damages his actions had allegedly caused.

She asked the attorneys for further briefs devoted exclusively to the issue of the attorneys fees.

On June 25 Rothman issued a decision that, at the very least, took Ampersand's attorneys by surprise. Contrary to what she indicated in her tentative ruling, she ruled that Ampersand had failed to establish any of the 15 allegations that it had made against Roberts and that Ampersand would take nothing on its claims. In other words, Ampersand failed to win so much as a dime of the $25 million it sued Roberts for.

She found that Roberts was the prevailing party on Ampersand's claims of breach of confidentiality and breach of fiduciary duty. And she found that each party had successfully defended all claims that the other party had brought against it.

Although the majority of her rulings in the case by and large consist of conclusions unaccompanied by facts or explanation to bolster them, Rothman reasoned that while Roberts was entitled to recover his attorney's fees based on successfully defending against Ampersand's claims, Ampersand was not entitled to recover its attorney's fees and costs from Roberts for successfully defending against his counter-claims because the attorney fee provision in the parties' contract was limited to claims of breach of confidentiality.

In the world of litigation "tentative" means just that, tentative, and the decision maker is free to change his or her mind until a final ruling is entered, but nevertheless, Ampersand's attorneys must have felt ambushed when Rothman, evidently without warning and without entertaining any more argument on the issues, changed two of her intitial rulings.

Ampersand's lawyers responded with two new tactics. First, they petitioned the American Arbitration Association, under whose auspices the arbitration had been conducted, to remove Rothman from the case. When that failed they simply stopped paying their share of the costs of the arbitration. According to papers in the court file, Ampersand's share of what is owed to Rothman, who charges $400 per hour for her services as an arbitrator, is $48,600.

Last Monday, Ampersand filed a motion in Santa Barbara Superior Court to have the case dismissed, Rothman removed and the arbitration to begin anew. They argue that Rothman lost the power to make a binding decision when she blew the deadline for doing so.

After spending time at the court clerk's office yesterday reviewing the documents in the case file my own impression is that Rothman, by taking so long to decide the matter, might well have made a bigger mess of what was a messy case to begin with. And she still hasn't determined the amount of attorney's fees that Ampersand owes to Roberts.

Ampersand's request to remove Rothman as arbitrator will be heard in court on January 26.