Judge tells AG, Gazette-Mail to meet about antitrust petition

By Chris Dickerson | Sep 1, 2015

WINFIELD – A Putnam County judge has told the state Attorney General’s office and the state’s largest newspaper to talk things over before coming back to his courtroom for the next hearing about a possible antitrust violation.

Putnam Circuit Judge Phillip Stowers on Tuesday told attorneys from AG Patrick Morrisey’s office and lawyers representing the Charleston Gazette-Mail to meet soon to discuss Morrisey’s petition seeking an investigative subpoena looking into possible state Antitrust Act violations and to enjoin the Daily Gazette Company from continuing the merger of the papers.

Stowers told Daily Gazette attorneys they should should decide what parts of the subpoena they would comply with willingly.

“You folks need to get together and see if you can figure this out,” Stowers said near the end of Tuesday’s hour-long hearing at the Putnam County Judicial Annex.

Morrisey’s office filed the petition Aug. 13, saying they had probable cause to believe July’s merger of the Charleston Gazette and the Charleston Daily Mail newspapers may violate the West Virginia Antitrust Act. 

“The Attorney General is informed and believes the Gazette Company and/or Gazette-Mail possesses information relevant to the inquiry,” the petition states. “Obviously, the operators of the two former newspapers conspired …merging the operations of the daily newspapers into one.”

Toward the end of Tuesday's hearing, Stowers did respond to a question from Assistant AG Bob Leslie to clarify that he thinks the AG's office has probable cause, at least on some of the issues found it its petition. He wouldn't specify which ones those were, again telling the sides to "sit down and try to figure things out voluntarily. Then, come back here if you need to."

Richard Neely, who is representing the Daily Gazette Company in the case, called Morrisey’s subpoena “harassing.”

“In another case I’m arguing, I believe the parties had done something wrong to my clients,” Neely, a former state Supreme Court justice, said after the hearing. “But I didn’t file a mandamus. I called the other parties and asked them to tell me what’s going on.

“That’s how gentleman lawyers behave. There’s no reason the Attorney General needed to file that petition. They were looking for a fight.

“I offered to file an answer to the interrogatories, but that wasn’t the intent. He filed it to harass Charleston Newspapers. I think the judge saw that and went from there.”

During Tuesday’s hearing, Assistant AG Doug Davis argued that the AG’s office had met all of the criteria for filing the subpoena.

“What was reported that two fierce competitors now are part of one big happy family,” Davis said. “What we want to know is Antitrust Act violated? We think there is probable cause to issue the investigative subpoena.”

Neely submitted a document under seal that he said contained confidential material. But he talked about it some during the hearing, noting how the entire market for newspapers has changed in recent years.

“I evaluated antitrust laws,” Neely said, noting that he was the one who engineered the merger of the two papers. “I contacted the DOJ (U.S. Department of Justice) and told them we were combining the papers on July 20. Short of a federal court injunction, I told them we were merging.”

Neely, a partner at Neely & Callaghan, said the antitrust claims is bogus because a company be in collusion with itself.

“We owned both papers,” Neely said. “In 2004, we bought all of the Charleston Daily Mail except the masthead … all assets.”

Davis disagreed with that statement. Still, Neely said it isn’t unreasonable for Morrisey’s office to ask questions about the merger.

“The bottom line is that we have no choice but to merge,” Neely said. “We can’t afford to publish two newspapers, which is what I explained to the Attorney General.

“The real problem isn’t that the Gazette-Mail is destroying the competition. The problem is that the competition is destroying the Gazette-Mail.”

Neely discussed some of the information in the document he presented to Stowers, saying it contained some revenue charts and figures.

In 2004, he said, revenue for the company was about $37.5 million. In 2014, that number was just under $25 million. He also said the Daily Gazette Company owes $18.4 million to United Bank and $450,000 to Digital First Media.

In addition, Neely said the company has asked the federal Pension Benefit Guaranty Corporation to take over the defined benefits retirement plan because it is in arrears for more than $1 million.

He also noted that in the merger, only seven employees were laid off and that 11 others retired or took positions elsewhere.

“We didn’t do this (merger) for the purpose of making big money,” he said. “This subpoena is not based on any information not available with a simple phone call.

We would like to be a monopoly. But, that’s not the situation here. We are in dire condition. However, we believe we’ll be able to survive.”

Neely said the company doesn’t have an issue with the interrogatory questions in the AG’s petition. He said there could be a problem with providing all of the documents Morrisey’s office requests because of the expense involved to produce them. He offered that perhaps the AG’s office might be able to fine-tune its request to make it more manageable and affordable after the sides meet outside of the courtroom to discuss the matter.

“The production of these documents would be fabulously expensive,” Neely said. “Fabulously expensive and unnecessary.

"They’re asking us to produce huge amounts of documents at an enormous expense that don’t tell anybody anything."

In its petition, the AG Office’s says it began investigating the merger on July 19, the day it was announced. Two days later, the office issued a subpoena to the Daily Gazette Company directing it to answer interrogatories and produce documents and information specified to the AG’s office by July 31. It was hand-delivered to Gazette Company Chief Operating Officer Trip Shumate on July 21. Mike Callaghan, who works with Neely, objected to the subpoena, saying there was no probable cause to issue it.

Morrisey’s office claims the probable cause is that the apparent merger violates the Antitrust Act. The office seeks an order compelling the Gazette Company to answer the interrogatories and produce the documents requested within two weeks. It also seeks an order enjoining the Gazette Company from further merging of the two papers until it complies in full with the subpoena. It also seeks court costs and attorney fees.

The July 19 merger came five years to the day after a federal antitrust settlement was reached regarding Charleston’s two daily newspapers. Morrisey’s memorandum notes that the announcement came hours before the expiration of the final judgment in that settlement.

“Importantly, the Attorney General is not seeking to enforce the terms or to remedy a potential violation of the Final Judgment,” the memorandum states. “Rather, the Attorney General is simply seeking to enforce the validly issued investigative subpoena in order to determine whether the Gazette-Mail was created in violation of the Antitrust Act.

“The timing of the events, as they are currently known, combined with the prior conduct remedied through the Final Judgment instills, at the very least, an honest belief in a reasonable and prudent person that the Gazette-Mail was arguably created in violation of the Antitrust Act.”

On July 19, 2010, U.S. District Judge John Copenhaver approved an antitrust settlement to regulate both newspapers.

"The Charleston Daily Mail shall continue to be published as a daily newspaper," he wrote then.

In his memorandum, Morrisey says, “Indeed, based upon the information currently available, it is entirely reasonable to believe that the Gazette-Mail represents exactly the same single daily newspaper the owners of the Gazette and Daily Mail attempted to create beginning in 2004 – an effort that was challenged, and ultimately reversed, because it violated antitrust laws.”

In the 2010 order,Copenhaver wanted proof that Charleston Newspapers, the operating partnership between the papers, didn’t discriminate against the Daily Mail, which then was an afternoon newspaper with a smaller circulation than the morning Gazette. He sought that proof of compliance for five years. That five years expired Sunday, and staffers were gathered that afternoon and told of the merger.

Then, according to reports, newsroom staffers at both papers were gathered and told of the newsroom merger. They papers had shared the same press and business operations since forming a joint operating agreement in 1958. The Sunday Gazette-Mail has been published for decades, and the Saturday Gazette-Mail has been around for nearly a decade. Last year, the papers began printing combined holiday editions.

After new Charleston Gazette publisher Susan Chilton Shumate told the staffers of the merger, they had just hours to put together Monday’s paper, according to wvfocus.com.

“The action itself is not something I am surprised about,” one employee told wvfocus.com. “I’m surprised with the way they went about it, but then, I don’t know all the circumstances.”

Employees who weren’t at the meeting received an email announcing the change around 5 p.m. Sunday.

“Beginning today, the two newspapers are combining newsroom functions with the exception of editorial page content,” the email said. “Welcome to the Charleston Gazette-Mail.”

Like the announcement in the July 20 morning’s newspaper, the email said the new Gazette-Mail would retain two independent editorial pages – one conservative and the other liberal.

“This is not one paper gobbling up the other,” the announcement said. “It is a combination of the two newsroom staffs working in cooperation to produce the most comprehensive news product in West Virginia.”

“The email they sent made it sound like the Charleston Gazette-Mail would be bigger and better than before … But I don’t know that the situation was handled well enough to make me feel totally confident about that,” the anonymous employee told wvfocus.com. “Just based on the way that they’ve handled it so far, I don’t think that they will tell us any of their plans before executing them at any point in this transition.”

At a July 20 meeting, newsroom staffers were told they’d have to reapply for their jobs, and that the new Gazette-Mail newsroom would employ about 65. At the time of the merger, the Gazette employed 45 workers and the Daily Mail 33.

Copenhaver’s 2010 final judgement was in an antitrust case brought by the U.S. Justice Department against the Daily Gazette Company and MediaNews Group.

Although the Daily Mail’s and Gazette’s joint business operations were known as “Charleston Newspapers,” the Daily Gazette Company owned the Gazette and MediaNews owned the Daily Mail. Both companies had 50 percent stakes in Charleston Newspapers until 2004 when MediaNews sold out to the Daily Gazette Company for a reported $55 million.

In 2007, the Justice Department filed a suit alleging the Daily Gazette Company “planned to deliberately transform a financially healthy and stable Daily Mail into a failing newspaper and close it.”

In July, a federal agency spokesman said missed contributions to Charleston Newspapers’ retirement plan and the company’s application for a distress termination of the plan are not related.

Pension Benefit Guaranty Corporation spokesman Marc Hopkins said PBGC attached a lien on behalf of the plan earlier in the month. That’s a standard practice when required pension payments of $1 million or more are missed. Hopkins said Charleston Newspapers and other entities responsible for that retirement plan have missed payments for the last few years. The $1,341,121 in missed payments took several years to reach that amount, he said.

Regarding the distress termination of the plan, Hopkins said PBGC received that application in June.

“A plan sponsor that makes such an application must demonstrate to PBGC that it can’t stay in business and continue its pension plan,” Hopkins said. “PBGC will evaluate the company’s financial condition and make a decision based on those findings.

“It’s PBGC’s preference to keep plans going with their sponsors. If that can’t happen, we’ll step in and take responsibility for paying the pension benefits of all plan participants up to the legal limits. For plans that end in 2015, the maximum guaranteed benefit for a 65-year-old retiree is $60,136 a year.”

Shumate said the liens had been placed against the entities named as plan sponsors – Charleston Newspapers, Daily Gazette Company, The Daily Gazette Company, Daily Gazette Holding Company LLC, Charleston Newspapers Holdings LP, Daily Gazette Publishing Company LLC, G-M Properties Inc., ABRY/Charleston Inc. and Ridgeview Express Delivery LLC – because of lack of payments.

“We are behind on our minimum contributions, so we had the lien filed against us,” Shumate, who attended Tuesday’s hearing, said in July. “We’re now working with the PBGC to get caught up. We have been talking to them since January to get this taken care of. We will be done and caught up with our payments in the next few weeks, next few months.

“The PBGC guarantees benefits are there for those in the plan up to a certain maximum. And more than 99 percent of those in our plan are under that maximum.”

Putnam Circuit Court case number: 15-C-201

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