B000U5KFIC EBOK (43 page)

Later, as consolidation continued in the publishing industry, Brill's
former publications, which included the San Francisco newspaper, the
American Lawyer and several law journals in other parts of the country,
were sold by Time Warner to the investment banking firm Wasserstein
and Perella for $300 million.

In 1996, the Wall Street Journal reported that the San Francisco Daily
Journal had cost the Daily Journal Corporation $2 million a year for the
preceding 10 years, a high price for outlasting Brill. Munger disagrees with
the numbers and maintains he will never close the paper down.

THE DAILY JOURNAL CORPORATION HAS been sued on various theories by a
swarm of small California newspapers, up and down the state, including the
100-plus-year-old San Diego Daily Transcript. Jeff Barge, publisher of a startup Seattle newspaper, in 1996 claimed that Salzman traveled to Seattle and
feigned an interest in purchasing his newspaper, Washington Lau,, but after
obtaining its trade secrets, started a competing publication and engaged in
predatory pricing. Salzman said he didn't acquire Barge's newspaper because
the publisher was nearly bankrupt and was in arrears in turning over employee withholding taxes and other money to the Internal Revenue Service.
And anyway, said Salzman, Barge stopped publishing before Salzman
launched the Washington Journal.20 The Seattle suit was filed in several
courts around the country, and has been dismissed in all, over the objections
of the plaintiff.

Most contentious of the Daily Journal's competitors has been another gnat, the 2,000 circulation Los Angeles Metropolitan News, run by
attorney Roger M. Grace. Thus far, the Daily journal has prevailed in
most, though not all, of the lawsuits.

Part of the rivalry between the Met Neu's and the Journal stems back
to 1986, the year the Journal's longtime editor, Robert E. Work, died
quite suddenly. Rather than promote Work's second in command, Munger
gave the job of president to Gerald L. Salzman, the newspaper's accountant and chief financial officer. The offended number two man, John
Babigian left two years later to become the Metropolitan News' vice president and general manager.

Babigian accused the company of age discrimination, which Munger
denied. As for choosing Salzman, "That's an accident of Salzman being so
talented and so honest," said Munger.2'

Salzman, a baldheaded man with large, expressive eyes, seems trustworthy and competent in the business arena, but he is not a fire-in-thebelly journalist. He has been with Munger since he and Guerin took
control of the New America Fund. An accountant with a Big Eight accounting firm, Salzman left consulting to join the Fund to help with the financial details. Later he consulted with the Munger, Tolles law firm. As he
is prone to do, Munger decided to stick with a known, tested, and trusted
person when choosing a new chief executive officer for the Daily Journal Corporation. Additionally, Salzman owns about 1 percent, or between
16,000 and 17,000 shares, of the company.' Salzman's wife is the company's personnel director and three of the Salzman children, including
the Daily Journal's webmistress Sherrie Salzman, work there.

The entire company is something of a family deal. In 1982, Emilie
Munger worked at the Daily Commerce, an afternoon real estate adjunct
to the Daily Journal. She did reporting, editing, and page layout before returning to Stanford to earn her law degree. Barry Munger, a professional
freelance photographer in New York, also did a stint with the company.

The Metropolitan News is particularly critical of the 1990 Daily
Journal acquisition of the California Newspaper Service Bureau, specialists in placing public notice advertising in publications throughout the
state. The Bureau gets a block of legal notices, usually from some government agency, then places all the ads in its own newspapers-if the
Daily journal has a publication in the proper jurisdiction. When there is
none, the legal notice is placed in another newspaper for a 15 percent
commission. Clients for the service include Fannie Mae, Child Services
for the County of Los Angeles, and other agencies that are required to
place legal ads.

Alleging predatory practices in one of its suits, the Metropolitan
charged that the Journal priced its legal notice ads below cost in Los Angeles specifically to drive the Met News out of business. The Metropolitan
News further claimed a Daily journal's deal with Fannie Mae, the mortgage giant, and other agencies to carry legal notices in California at less
than cost, violated state law prohibiting so-called "loss leader" tactics in
advertising. Munger said the suit's charges were erroneous because the
Daily Journal does not subsidize the profitable Fannie Mae account.
Some of the offenses in the suit carried treble damages that legal experts
said could have pushed the Journal's liability to more than $30 million.

The Metropolitan News case ended in a hung jury in January 1998,
after a three-week trial. Grace said Munger's "arrogant" and "dismissive"
behavior on the witness stand was a great boon to his case. Nevertheless,
Munger said he would testify again in the retrial. "We won't lose," he responded. "The Daily Journal did nothing that violated any laws." ,23

Still, reported the National Lau' Journal, "Mr. Munger acknowledged
that the paper beefed up its defense team when the case went to court
for retrial in June 1999. Ronald Olson, the biggest name to come out of
Mr. Munger's firm, will be overseeing partner Bradley S. Phillips, who
was in charge the first time around."2

The second time, the Daily Journal successfully defended itself
against the charges. The jury voted eleven to one in favor of Munger's newspapers. However, within a few weeks, the Metropolitan News not
only appealed the ruling but filed an additional suit.

In the meantime, the Metropolitan News-Enterprise has made controversies between itself and the Daily Journal the subject of oversized
headlines in its own newspaper and on its Web page. In most cases, the
stories emphasize Munger's wealth and include a photograph of Charlie
in which he seems to be smirking.

"Since the time in early 1997 when the Metropolitan News Company
added Munger as a defendant in its action against DJC for unfair business
practices, Munger has accumulated more than $1 billion," wrote publisher Roger Grace. "And yet, the 75-year-old magnate seemingly has as his
mission, if not obsession, the crushing of MNC-which, I regret to say, is
considerably smaller than Munger's competing company. -25

The Met News did win a major victory in the newspaper war in 1998,
when the City of Los Angeles put up for bid the bulk of its legal-notice
business, which for 50 years had gone to the Journal. The $450,000 annual contract went to the News. The Journal hired an attorney to try to
overturn the council decision in court, but Superior Court Judge Robert
H. O'Brien ruled in favor of the smaller paper, throwing out the Journal's
suit.u' Judge O'Brien has since been reversed after an appeal by the Daily
Journal Corporation.

IN PART BFC;AI sE OF LEGAL wrangles, and in part because of changes in the
culture and in the economics of the business, newspapers aren't as lucrative as they once were. For one thing, the nature of news has changed. As
television and the Internet expand, readership is declining. Those problems aside, the legal advertising business has always been cyclical, rising
during a recession when bankruptcies, foreclosure, and liens are more
prevalent. In a long, strong economy, a legal newspaper invariably suffers
a decline in revenues.

Legal advertising still provides the base for profits at Munger's papers, but they are a slowly shrinking revenue source due to a trend toward
fewer required legal notices. For example, nonprofit organizations once
had to advertise their status annually, but the law no longer makes that demand. A number of government agencies across the nation are seeking
changes in the law to allow them to put pro-forma advertisements on the
Internet. Courts are giving those requests serious consideration.

As a precautionary measure, said Salzman, "We try to be as independent of legal advertising as possible." The Daily Journal-owned newspapers
have tried to beef up their display, or commercial advertising lineage, and
the company has expanded into new but associated lines of business.

In addition to its two magazines, California Lawyer and House
Counsel, the Daily Journal does significant trade in printing court rule
books, judicial profiles and other guidebooks, directories and manuals related to the legal industry.

Recently, the company bought Choice Information Systems, a company that provides software for case management to court systems. The
Daily Journal changed the company's name to Sustain Technologies, Inc.
Sustain Technologies, which looks like the Daily Journal's most promising
new enterprise, created a software program for the joint justice system
for Toronto and the Province of Ontario and so far has placed similar software in court systems in three countries and nine U.S. states.

Because of new businesses, and some centralization of its California
publishing activities, the Daily Journal Corporation is nearly doubling
its office space by constructing another building adjacent to the Los Angeles office.

Despite the operating difficulties, the Daily Journal has increased in
net worth substantially since Munger and Guerin acquired it for $2.5 million in 1977. It has been estimated that the modest media chain now is
worth about $65 million. Revenues in its 1999 fiscal year were $37 million, up from the previous year. Its net income was $1.9 million, down 40
percent from the year before, due to a year of extremely heavy litigation
expense.

Though there has been interest from potential buyers, Munger says
the Daily Journal is a vehicle that allows him to be "socially constructive" and has interesting financial prospects. Guerin says he and Munger
are in the business both for love of journalism and for the money the company earns. "A combination of both. We're lucky enough to be in things
because we want to be. None of us (Charlie, Warren, or himself) have to
do anything we don't want to do. Charlie and I love owning it. It's great
fun. We think we're serving the justice system, if you will. It does make
money and is gaining in value every year. We try to make it better," said
Guerin.

He then added, "Money is not everything to Charlie. We do hope
we've advanced civilization an inch. ,27

While Munger keeps close tabs on what's happening at the Dail),
Journal, he says he spends 5 percent or less of his time at the newspaper.
Although he tries to be available as needed, his main job is to stay out of
Salzman's way and let him run the company.''

"I'm plenty active though," said Munger. "I don't have a good half
speed. I'm quite active in the newspaper but not on the editorial side."

Each fall the company has a breakfast meeting with the board of
directors and all of the publishers, editors, and heads of the sections. Munger and Guerin attend to get reports on what the company's managers anticipate and plan for the year ahead. Salzman said that Munger and
Guerin both make a considerable contribution to the discussion. "Rick
can get to the real issues as fast or faster than Charlie can. It's pretty fast.
I don't have a lot of educating to do."

THE DAILY JOURNAL OFFICES ARE just beyond Los Angeles's Japan town in an
industrial area where many high action and car chase scenes are filmed,
including sequences of the Batman movies. The 10-year-old Daily journal
corporate and editorial offices are pleasant, modest, and within easy
striking distance of the courts and various government buildings. In the
entry area flows a fountain, full of field stones and brass sculptures of sea
otters. If Munger had his way, the foyer would display a nice bronze statue
of his hero, Benjamin Franklin.

During his lifetime, Franklin worked as an editor, author, legislator,
scientist, inventor (Franklin stove and bifocals), diplomat, Revolutionary
War hero, and was a founding father of the nation. "Franklin's story can
scarcely ever be told often enough," Munger told a Rotary Club audience
in Santa Barbara. "Born into poverty and obscurity, his father was a tallow chandler-lie worked with rancid fats. He was the fifteenth of 17
children, only went to school two years. He died 84 years later and perhaps was the most famous man in the world, if not, close. ,21

Munger's love of Benjamin Franklin, said Guerin, sometimes clouds
his common sense. "When we built the new Daily Journal Corporation
building-we found out later that there is a requirement that you spend 3
percent of the cost of the building for art or make a contribution to the
city's art fund. Charlie said, 'let's commission a head of Ben Franklin,
looking affable and wise, and engrave his great sayings on the pedestal.' I
said, 'Charlie, that's horse manure. Our employees don't want to be
preached to.. I said, 'Let's do something cheerful.' He thought about it for
a while and said, 'I think you're right.' We commissioned an artist to do
sea otters and a fountain."

But that wasn't the end of Franklin for Charlie. "Having the idea of a
Ben Franklin bust already in his mind, Charlie commissioned an artist to
do about 20 copies," said Guerin. "I took one. He took one for his office.
He gave the Marlborough School and the Harvard School copies. Then he
gave copies to other people as gifts."