Opinion ID: 2576158
Heading Depth: 1
Heading Rank: 7

Heading: the force majeure clause

Text: ¶ 26 Hearst argues that the force majeure clause by its terms modifies the loss operations clause so as to prevent losses associated with labor strikes. Hearst claims that such losses are not agency expenses for the purpose of calculating agency revenues and, therefore, cannot be used to calculate operational losses. ¶ 27 Contrary to Hearst's assertions, nothing in the force majeure clause itself modifies the method of calculating agency revenues. The force majeure clause merely provides a defense to liability when a party is required to perform, fails to do so, and that failure is caused by a strike or other event within its scope. ¶ 28 The force majeure clause states: Neither party shall be liable to the other for any failure or delay in performance under this Agreement, occasioned by war, riot, government action, act of God or public enemy, damage to or destruction of facilities, strike, labor dispute, failure of supplier or workers, inability to obtain adequate newsprint or supplies, or any other cause substantially beyond the control of the party required to perform. CP at 49, 100 (emphasis added). ¶ 29 Under the JOA, the Times is obligated to provide newsprint, presses, and labor and to print, sell, and distribute the newspapers for both parties. If the Times failed to print and distribute the newspapers because of a labor strike or other force beyond its control, it would be in breach of its agreement and arguably liable to Hearst. The record below reflects that the force majeure clause was included at the insistence of the Times. Since the Times is responsible for the printing and distribution process and would have potential liability to Hearst if it failed to perform these duties because of an event beyond its control, its insistence on a force majeure clause is understandable. ¶ 30 We note that the force majeure clause does not reference the loss operations clause, nor does the loss operations clause reference the force majeure clause. Further, there is nothing elsewhere in the text of the JOA that explains if or how they affect each other. So long as delay or failure to perform is caused by a force majeure event, the force majeure clause excuses liability occasioned by such an event. ¶ 31 The Times suggests that nothing associated with giving a loss notice requires any performance by Hearst that would create liability. The Times argues that without liability, there is nothing to trigger the defense of force majeure. Hearst counters that it does face liability as the loss operations clause imposes upon Hearst an obligation to cooperate to bring about a cessation date. Hearst argues that this obligation is occasioned by the strike because the Times ability to issue a loss notice was, at least partially, occasioned by the strike. Thus, Hearst suggests that its obligation to negotiate a cessation date, a duty it is required to perform, is relieved because of the force majeure clause. ¶ 32 We agree with the Court of Appeals. Hearsts suggestion that it incurs liability because of its duty to negotiate a cessation date is not a reasonable reading of the term liability as it is used in the agreement. Even assuming that Hearst has an obligation to cooperate in setting a loss notice date, Hearst may decline to perform its obligation without incurring liability to the Times. By the plain terms of the loss operations clause, if the parties do not agree upon a cessation date, the JOA terminates automatically 18 months after the loss notice. The agreement expressly anticipates the possibility that the parties will be unable (for whatever reason) to agree upon a cessation date, and provides an automatic remedy. Thus the failure to cooperate in setting the cessation date creates no liability; once set in motion, cessation of the agreement is automatic 18 months later. ¶ 33 Also important to our analysis is that the Times is not seeking to hold Hearst liable for failure to negotiate a cessation date. If the Times were contending that Hearst was liable for failing to cooperate in setting a cessation date, our analysis might differ, but the end result would still be the same. Hearst's failure to negotiate does not cause it to incur any liability to the Times. ¶ 34 Next, Hearst argues the parties intended that the JOA agreement would terminate only if and when the Seattle marketplace is unable to support two newspapers. Hearst points to the parties declaration in the JOA that it was the firm belief ... that the continued publication of at least two newspapers of general circulation, editorially and reportorially separate and independent under a joint newspaper operating agreement, is of paramount importance to the citizens of Seattle and its environs. CP at 84. About this there is no dispute. According to Hearst, it follows that the loss operations clause can be invoked only upon a showing that the Seattle economy has so deteriorated that it is no longer feasible to operate more than one newspaper. But again, nowhere in the text of the JOA is there language supporting this theory. Neither the words in the loss operations clause nor in the definition of agency expenses suggest a dependence upon a decline in the marketplace as a necessary prerequisite to the issuance of a loss notice. ¶ 35 Because extrinsic evidence may be used only to determine the meaning of specific words in the agreement, extrinsic evidence about the parties desire to ensure that the Seattle area maintained two newspapers of general circulation is irrelevant. See Hollis, 137 Wash.2d at 695-96, 974 P.2d 836. Furthermore, it is unreasonable to suggest that the absence of any negotiation about the applicability of one clause to another, especially where the clauses do not reference each other, leads to the conclusion that they were intended to apply to each other. ¶ 36 We find no support for Hearsts contention that the shrinking marketplace limitation on the loss operations clause found expression in the force majeure clause. Market forces are by their very nature beyond the control of the parties. Hearsts complaint identifies several alleged causes of the economic losses suffered by the Times, including the strike and the September 11, 2001, terrorists attacks as well as the resulting recession, the labor unrest of Seattle dockworkers, the Boeing Companys lay off of 30,000 workers, the burst of the dot.com bubble, and the stock market decline of 2002. [13] These were all, of course, force majeure events in that they were extraordinary events beyond the control of the parties. They are also forces affecting the market and, potentially, the ability of competing newspapers to survive in the same marketplace. ¶ 37 It cannot now be seriously argued that the loss operations clause is inconsistent with the intention that the JOA should endure absent a significant and long term shift in the economic market conditions. In context, by agreeing to the loss operations clause, the parties objectively expressed an intention that both sought to avoid ongoing financial losses under the JOA. They mutually agreed to terminate the JOA if losses mounted for three consecutive years. The loss operations clause does not permit a termination of the JOA unless one of the parties experiences three consecutive years of losses as defined in the agreement; an additional 18 months of operation is contemplated under the JOA before termination of the agreement. Thus, the parties committed to continue to publish two newspapers for up to four and one-half years even in the face of economic losses. If the parties intended the JOA could be terminated only upon a showing that the marketplace would no longer support two newspapers  a matter much debated here  they failed to express that intent within the agreement they wrote. ¶ 38 We agree with the Court of Appeals that the JOA is subject to only one reasonable interpretation. Even if the parties intended to require that agency remainder be calculated differently when strike losses affect agency expenses, they failed to reduce such an intention to writing. Instead, they defined the specific elements of calculating gains and losses once, in lengthy detail, and embedded these terms without qualification in the loss operations clause. Hearst essentially asks us to rewrite the JOA by revising the loss operations clause, something we are not at liberty to do. [14]