MNC is represented in the Los Angeles Superior Court lawsuit by Thomas V. Girardi of Girardi & Keese and DJC is represented by Bradley K. Phillips and Jonathan R. Levey of Munger, Tolles & Olson, a firm founded by defendant Munger.

Allegations include selling below cost, use of loss leaders, receipt of secret rebates, locality discrimination, unfair competition, and intentional interference with prospective economic advantage. An expert witness for MNC has set the loss to MNC at $10 million.

The complaint seeks treble damages and attorney fees in connection with causes of action under the Unfair Practices Act and general and punitive damages against DJC and Munger for intentional interference with prospective economic advantage. It also seeks injunctive relief, as well as disgorgement of profits under the Unfair Competition Act.

DJC denies liability.

The litigation stems from DJC's conduct in wresting from MNC customers who place "trustee sale notices" - a legal advertisement which, by statute, must be published prior to conducting foreclosure sales of real property.

To meet requirements of the Civil Code, notices of sales of properties in the City of Los Angeles must be published in a newspaper adjudicated by the Los Angeles Superior Court to be of "general circulation." Although there are dozens of adjudicated newspapers in the city, only MNC and DJC publish an appreciable number of those notices, each having two daily newspapers specializing in legal advertising.

DJC publishes the bulk of its trustee sale notices in its afternoon newspaper, the Daily Commerce, a real estate newspaper, and MNC publishes most of its trustee sale notices in its afternoon publication, the Los Angeles Bulletin, a general-interest newspaper.

The major allegations in the complaint are that DJC has committed two types of unfair business practices: "locality discrimination" and selling below cost. Both are expressly forbidden by the Unfair Practices Act.

In the absence of a showing of injurious intent, as required by that act, the conduct could be enjoined under the Unfair Competition Act upon a finding of "unfairness." That act permits no award of damages, but does provide for disgorgement of profits and injunctive relief.

Munger, 74, has been named as a defendant based on aiding and assisting DJC in its objectives. Individually and through a partnership, he has controlling interest in the corporation.

No longer an active member of the State Bar, Munger has been highly successful as an investor-amassing assets estimated in a recent Wall Street Journal article at $825 million-and is best known as the partner of multi-billionaire Warren Buffett. He is vice president of Berkshire Hathaway, a Buffett-controlled holding company; president of Wesco, a Pasadena-based financial institution 80 percent of which is held by Berkshire Hathaway; and a director of Costco Companies, Inc, a chain of discount retail stores.

Liability and damages under the Unfair Practices Act and in connection with intentional interference with prospective economic advantage will be decided by a jury. The judge in the case, Peter D. Lichtman, will decide whether injunctive relief should issue and will resolve the cause of action under the Unfair Competition Act, an equitable statute.

The locality discrimination began in mid-1994, while selling below cost (and the related tort of using "loss leaders") commenced in December, 1996, according to the plaintiff's allegations.

Locality discrimination entails selling goods or services at a lower price in one geographic area than another for the purpose of harming competitors in the area where the lesser amounts are charged.

DJC, according to the plaintiff's motion, lowered its price for publishing trustee sale notices in the City of Los in 1994 from an average rate of $263.63 to a flat rate of $150, or $127.50 for "preferred" customers, and $125 to a corporate trustee that was MNC's largest customer. That price-lowering amounted to locality discrimination, MNC argued, because DJC retained higher rates in other cities, such as Oakland where it charges $275 and up, although its overhead costs there are less than here.

DJC did not lower its price in Los Angeles for the statutorily permissible purpose of meeting a "competitive price," MNC maintained. It pointed out that it was DJC's only major competitor in Los Angeles - publishing four times more trustee sale notices in the City of Los Angeles than DJC at the time of the price slash-and was then charging more than DJC (an average rate of $280).

In response, DJC contended that a publication of a trustee sale notice in one city is not the same "article or product" as a publication of a trustee sale notice in another city. It also maintained that it had a right to lower its price in response to competitive "influences."

The "selling below cost" allegations relate to a plan under which DJC gains exclusive rights to publish all foreclosure notices for major lending institutions in those 10 California cities in which it has newspapers, in exchange for partially subsidizing publication of those customers' notices in newspapers in cities in which DJC does not have a newspaper. It places the notices through its advertising agency, "California Newspaper Service Bureau."

Whether acting in the capacity of a publisher of newspapers or as an advertising agency, it charges the customer a flat rate of $195.

However, the advertising agency, California Newspaper Service Bureau, must often pay the non-DJC newspapers in excess of $195, and DJC has admitted that in the one-year period ending June 30, it lost money overall on the placement of the trustee sale notices in newspapers it does not own.

A key issue in the case is whether DJC may offset losses on placing notices in non-DJC newspapers with its profits on publishing the customers' notices in its own newspapers. MNC agreed that if profits and losses from both functions were lumped

It stressed that DJC's advertising agency has one set of competitors: "posting and publishing companies" which traditionally have acted in the capacity of advertising agencies placing foreclosure notices. As a company publishing newspapers carrying foreclosure notices, it has a different set of competitors: other companies publishing newspapers (such as MNC) which include trustee sale notices in their newspapers.

The fact that DJC makes money in connection with one function does not excuse its selling below cost in connection with a different function, the plaintiff asserted.

DJC countered that from the standpoint of its customers, DJC is performing a single function: taking care of their advertising needs in the state of California. It said that MNC was seeking to create an artificial distinction between aspects of the same service, in contravention of a case brought by Western Union against a company selling "moneygrams."

An opinion by Justice Miriam Vogel of this district's Div. One said Western Union could not separate its rival's product into domestic, Mexican and international transfers in order to show that it was losing money in some areas.

MNC is also alleging that DJC has received secret rebates from some newspapers in which it places trustee sale notices. The complaint includes a cause of action for intentional interference with prospective economic advantage.

Litigation over unfair business practices raged in the 1970s in an action brought by the then-owners of the Metropolitan News (forerunner of the Metropolitan News-Enterprise) against the then-owner of the Los Angeles Daily Journal, the California Newspaper Service Bureau.

It culminated in a $1.5 million settlement in 1976 and an agreement that the Daily Journal and CNSB be separated. That disjoining took place the following year. In 1990, however, the new owner of the Daily Journal, DJC, purchased CNSB.

The Metropolitan News was sold in 1977 to its present owner, Grace Communications, Inc., parent of the Metropolitan News Company.

DJC publishes 14 newspapers in California, 11 of which are adjudicated, and therefore eligible to carry legal notices. MNC publishes seven newspapers in the state, six of which are adjudicated.

MNC was denied an adjudication of its Sacramento newspaper in January by a judge who found merit in DJC's opposition, argued by San Diego attorney Michael Kirby of Post, Kirby, Noonan & Sweat. DJC questioned the adequacy of the list of paid subscribers.

The judgment is on appeal in the Third District Court of Appeal. MNC is represented by in-house counsel Lisa W. Grace.

DJC also succeeded last year in blocking a modification of the adjudication MNC's newspaper in the Riverside Judicial District of Riverside County. MNC sought an adjudication for the City of Riverside.

Meanwhile, MNC is opposing DJC's Los Angeles Superior Court petition for an adjudication of the Antelope Valley Journal, a real estate newspaper. The adjudication is also being challenged by the Antelope Valley Press.

Antelope Municipal Court Judge Randy Rogers, sitting on cross assignment to the Superior Court, has sustained a demurrer to DJC's petition with leave to amend, and further proceedings are slated for Dec. 18.

DJC started its competing newspaper after the Antelope Valley Press declined to lower its rate to DJC for publishing its trustee sale notices.

MNC is alleging both in the lawsuit in Lichtman's court and the proceeding before Rogers that DJC is making an example of the Antelope

Valley Press to intimidate other newspapers that are charging it more than $195 for publications of trustee sale notices to lower their prices.

Other litigation between the newspaper publishing companies erupted in April with the filing of a writ petition by DJC against the City of Los Angeles, naming MNC as real party in interest. The action was aimed at yanking a city contract for legal advertising from MNC.

Although MNC had been the low bidder and had garnered higher ratings than DJC from all five city evaluators, DJC contended that MNC's bid was "non-conforming."

Los Angeles Superior Court Judge Robert H. O'Brien sustained a demurrer without leave to amend, agreeing with MNC's lawyers, Roger M. Grace and retired California Supreme Court Justice Armand Arabian, that DJC had failed to exhaust administrative remedies.

DJC's lawyer in that case, lobbyist Neil Papiano, has filed an opening brief in the Court of Appeal.

Meanwhile, DJC is facing other litigation based on alleged unfair business practices. An action brought by a former newspaper publisher, Jeff Barge, is pending in U.S. District Court for the Central District of California.

That case stems from alleged trickery in 1992 by DJC President Gerald Salzman, accused of feigning an interest in the purchase of Barge's Seattle legal newspaper, Washington Law, and, after obtaining its trade secrets, launching a copycat competing newspaper. DJC's newspaper, Washington Journal, according to the complaint, engaged in predatory pricing, causing Washington Law to fold.

In filings with the Securities Exchange Commission, DJC has summarized the allegations in Barge's suit and commented: "The Company believes that the action is without merit and is defending it vigorously." (DJC has not disclosed in its SEC filings the litigation brought by MNC.)

DJC's Washington newspaper has experienced set-backs in court. A King County Superior Court judge in 1975 stripped the newspaper of its adjudication, holding -under a statute similar to California's-that as a trade paper, it did not qualify as a newspaper of general circulation, eligible to carry legal notices.

That decision was upheld in May, 1997 by the state Court of Appeals. The Washington Supreme Court last April denied review.