WILMINGTON, Del. – The owner of the Charleston Daily Mail says the owners of the Charleston Gazette pushed through the July merger of the newspapers without its consent.
Last month, Charleston Publishing Company filed a complaint against Daily Gazette Company and Daily Gazette Holding Company LLC in Delaware Chancery Court. Charleston Publishing Company is a subsidiary of MediaNews Group Inc. doing business as Digital First Media. MediaNews Group was the owner of the Charleston Daily Mail, which merged in July with the Charleston Gazette to form the Charleston Gazette-Mail.
In the complaint, CPC details the history of the joint operating agreement between the two papers and how MediaNews Group acquired the Daily Mail and 50 percent interest in the joint venture in 1998. In 2004, it says MediaNews negotiated a sale of its interest in the joint venture to a third party, but the Daily Gazette Company exercised its right of first refusal and bought MediaNews’ economic interest in the joint venture.
As for the merger, CPC says counsel for the Daily Gazette Company sought permission to combine the papers in advance of the July 20, 2015, merger. Consent by CPC was required under the partnership agreement.
“CPC never consented to the proposed consolidation plan,” the complaint states. “On June 2, 2014, counsel for MediaNews Group responded that CPC would not consent before, at a minimum, consulting with the Department of Justice and jointly discussing what level of comfort MediaNews Group required from the government before proceeding.”
CPC says the Daily Gazette did notify the Department of Justice, but proceeded to “unilaterally implement its consolidation plan without any discussion with the government and without CPC’s consent,” the complaint states. “The proposed consolidation of the newspapers was never presented to the board of managers of DGHC for approval, and neither of the CPC appointees to the board approved the attendant changes in the Daily Mail’s budget, news hole and color allocation as required: by the partnership agreement.
On July 20, Charleston Newspapers announced the combining of the newsrooms to form the Charleston Gazette-Mail.
“Charleston Newspapers also co-opted the former editor and publisher of the Daily Mail (Brad McElhinny), CPC’s sole representative in Charleston, into an executive role with the Gazette-Mail,” the complaint states.
That isn’t the only issue MediaNews has with the Daily Gazette.
“To maintain the joint venture’s antitrust exemption, the parties agreed that MediaNews Group would continue to have sole responsibility for the editorial content of the Daily Mail, for which it would be paid an annual management fee of $225,000 subject to adjustment,” the complaint states.
To make that work, Charleston Newspaper Holdings LP was formed to manage the business affairs of the joint venture. In 2010, the limited partnership agreement for Charleston Newspapers Holdings was revised as part of a federal settlement in a lawsuit brought by the U.S. Justice Department challenging the 2004 transaction under antitrust laws.
A 2010 consent decree required MediaNews Group and Daily Gazette Company “to adhere to the terms of the amended limited partnership agreement during the five-year term of the decree,” the complaint states. “The purposes of the partnership include ‘to own, directly and indirectly, all the interests in the joint venture’ and ‘to engage in the business, directly and indirectly, of owning, operating and managing newspaper properties, including managing the business and affairs of the joint venture in accordance with the JOA.’”
It says the terms of the partnership extends to June 30, 2024 “unless sooner terminated as provided in this agreement.” The partnership agreement, according to the complaint, requires that management of the Daily Gazette Holding Company be delegated to a board of managers, two of whose five members are controlled by CPC.
“There is a supermajority requirement for certain actions, including approval of the budgeted editorial expenses of the Gazette and Daily Mail and news hole and color usage allocations for the two newspapers,” it states. “These decisions require approval by at least 75 percent of DGHC’s board of managers, meaning that no such actions can be taken without the concurrent of at least once of the CPC managers.”
The complaint also says the general partner couldn’t take certain actions without written consent of the limited partner. That means the DGHC could not do any act that would make it impossible to carry on the ordinary business of the partnership, change the purposes of the partnership or dissolve the partnership.
It also says DGHC could not act against the requirement to “continue to maintain as separate and independent the respective news and editorial operations of the newspapers consistent with the requirements of the Newspaper Preservation Act.”
“There shall continue to be no merger, combination or amalgamation of the editorial or reportorial staff of Gazette and Gazette-Mail, on one hand, and Mail on the other hand” and “CPC shall continue to independently determine the editorial, news policy and content of Mail,” the complaint states, quoting the JOA.
The complaint says the JOA assumed “the continued publication of the Gazette and Daily Mail as separate newspapers” and became “meaningless if the two newspapers are combined.”
“The joint venture will not discontinue publication of Mail without CPC’s approval unless the incremental revenue from Mail fails to cover Mail’s incremental costs and the discontinuation of Mail can be effected by satisfying the failing firm test as applicable to joint operating agreement newspapers under the (Newspaper Preservation) Act and the U.S. Department of Justice approves the discontinuation of publication of Mail.”
CPC also says upon liquidation, the partnership was required to distribute the Mail masthead, all trademarks, copyrights, trade names, service names and service marks of the Mail, subscriber and advertiser lists, print and electronic archives of the Mail, associated websites and URLs – including dailymail.com – and all legal rights associated with these assets.
As for the dailymail.com website, CPC says the Daily Gazette Holding Company “without CPC’s knowledge or approval” caused the registration of the website to be transferred from the Daily Mail to the joint venture on April 16, 2013.
“DGHC did inform CPC that it was negotiating with Associated Newspaper Limited, publisher of the Daily Mail in the United Kingdom, for sale of the ‘dailymail.com’ website,” the complaint states. “CPC responded that it was entitled to receive the website back at the end of the joint venture and that it did not consent to a sale.”
DGHC sold the web address in late 2013 for about $1.5 million, according to the complaint.
“Most of the proceeds were used to pay down the Daily Gazette Company’s debt to its lenders,” the complaint states. “The remainder was invested in Charleston Newspapers.”
CPC also says the Daily Gazette Holding Company has failed to pay its management fees in May 2014 and May 2015, which total $450,000.
CPC claims the Daily Gazette Company caused DGHC to breach the partnership agreement by not having a supermajority approval of changes to the Daily Mail’s editorial budget that accompanied the merger of the papers, by failing to maintain editorially separate and independent newspapers, by failing to pay $450,000 management fees, by making it impossible to carry on the ordinary business of the partnership, by changing the purposes of the partnership, by disposing of assets contributed to the partnership by CPC.
CPC says the damages include that it hasn’t received the $450,000 in management fees, likely won’t receive those for the rest of the venture for a total of at least $2,025,000, and it has lost the right to receive the website address dailymail.com upon termination of the joint venture.
It says the Daily Gazette also breached its duty of loyalty, its duty of care and its duty of good faith and honest dealing. It also accuses the Daily Gazette and DGHC of civil conspiracy.
CPC seeks recovery of the $450,000 in unpaid management fees with interest, the $2,025,000 in future management fees, reimbursement for the value of the dailymail.com web address and that CPC receive the intellectual property and other such assets of the Daily Mail from the dissolution of the agreement. It also seeks court costs, attorney fees and other relief.
Attorneys Alan L.Marx and Steven C. Douse of King & Ballow in Nashville and Stephen B. Brauerman, Vanessa R. Tiradentes and Sara E. Bussiere of Wilmington, Del., are representing CPC.
Since the July merger, West Virginia Attorney General Patrick Morrisey’s office filed a petition, saying it had probable cause to believe the merger may violate the West Virginia Antitrust Act. Daily Gazette attorneys disagree, and they’re fighting that case in Putnam Circuit Court.
Also, a federal agency in June filed $1.34 million in liens against Charleston Newspapers and other entities regarding the company’s pension plans.
The Pension Benefit Guaranty Corporation filed the liens June 29 in Kanawha Circuit Court against Charleston Newspapers Holding LP, Charleston Newspapers, Daily Gazette Publishing Co., Daily Gazette Holding Co., Ridgeview Express Delivery, Abry/Charleston Inc. and G-M Properties.
PBGC spokesman Marc Hopkins said his agency attached a lien on behalf of the plan. 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.
Hopkins also said the lien does not affect the plan’s ability to pay current or future benefits owed to participants. Rather, it is designed to offer financial protection for the plan and to help ensure that it’s properly funded.
Hopkins said Charleston Newspapers also applied for a distress termination of the plan in June.
Delaware Chancery Court case number 11471