West Virginia Record

Monday, December 9, 2019

Former Daily Mail owners say domain name was sold without permission

By Chris Dickerson | Mar 9, 2017


PARKERSBURG – The former owner of the Charleston Daily Mail claims United Bank wrongfully induced Charleston Newspapers to sell the rights to the dailymail.com domain name.

MediaNews Group Inc. and Charleston Publishing Co. filed a lawsuit last month in Wood Circuit Court against United Bank Inc. The plaintiffs seek to recover the $1 million the bank received from that sale.

The plaintiffs say United Bank tortiously interfered with the Daily Gazette Company when it sold the domain name to the London Daily Mail for $1.5 million in 2013.

The 12-page complaint details the business setup of the companies involved in Charleston Newspapers and its joint operating agreement dating back to 1958.

In 2004, MediaNews sold its economic interest in the joint venture to the Daily Gazette Company, which published the Charleston Gazette. In 2010, the limited partnership agreement was revised as part of an antitrust lawsuit settlement after the Department of Justice had challenged the 2004 sale.

A 2010 consent decree required MediaNews and the Daily Gazette Company to adhere to terms of the limited partnership agreement for Charleston Newspaper Holdings L.P. and an amended joint operating agreement for five years.

A provision of that partnership agreement, which was set to expire on June 30, 2024, said Charleston Publishing Company would receive the Daily “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) …” The plaintiffs also note that the agreement prohibited the Daily Gazette from taking certain actions without written consent from Charleston Publishing Company.

“On April 10, 2013, Norman (Trip) Shumate III, on behalf of Daily Gazette, informed Larry Salyers of United Bank that he had agreed to sell the dailymail.com domain name to the owner of the London (UK) Daily Mail for $1.5 million,” the complaint states. “Shumate represented that he was investigating whether this required the consent of MediaNews Group or the Department of Justice.”

Six days later, the DGHC caused the registration for dailymail.com to be transferred from the Charleston Daily Mail to the joint venture, according to the complaint. On May 28, 2013, Shumate sought consent for sale of the URL from MediaNews Chairman Dean Singleton. CPC responded through its attorneys that it was entitled to receive the domain name back at the end of the joint venture and did not consent to a sale.

“On July 3, 2013, Shumate sent Salyers a marked-up version of a Certificate Regarding Loan Prepayment relating to the sale of the domain name,” the complaint states. “The original version, drafted by United Bank, represented that both the Department of Justice and MediaNews Group had consented to the sale, and their consents were attached as exhibits to the certificate. …

“The edited version that Shumate returned to Salyers deleted the reference to the consent from MediaNews Group. Shumate’s cover email to Salyers explained that ‘MediaNews Group has waffled on signing a consent to the sale, so we can’t commit to providing that.’”

The complaint also says Shumate’s July 3, 2013, email says MediaNews Group’s consent to the sale “is not required, just useful in obtaining the DOJ consent.”

The plaintiffs claim that United Bank had copies of the partnership agreement and the joint operating agreement.

“United Bank was on notice of the contents of those agreements, and it knew that the proposed sale of the domain name violated Daily Gazette’s obligations under those agreements and that Shumate’s representation that MediaNews Group’s consent was unnecessary were false,” the complaint states, adding that United consented to the sale of the domain was conditioned on the bank getting paid $1 million.

“At the time of the sale, Daily Gazette was in financial distress and was seeking to refinance its outstanding indebtedness with United Bank,” the complaint states. “The likelihood that United Bank would be more favorably inclined toward refinancing the outstanding indebtedness on favorable terms if Daily Gazette made a $1 million payment to the bank provided a strong incentive for Daily Gazette to ignore its contractual obligations to MediaNews Group and complete the sale of the domain name regardless of whether it obtained MediaNews Group’s consent.

“United Bank took advantage of this situation by making the refinancing contingent on Daily Gazette’s completion of the sale and payment of the $1 million to United Bank.”

In October 2013, the DOJ consented to the sale of the domain name, but MediaNews says it wasn’t notified of that until several months later. In November 2013, the Daily Gazette sold the domain name to Associated Newspapers for just more than $1.5 million. Charleston Publishing says it was sold without its knowledge or consent.

Of the sale price, $1 million went to United Bank, and the rest was used to buy equipment for the newspapers and to pay a past-due management fee owed to Charleston Publishing for 2013.

MediaNews Group’s complaint also mentions a separate lawsuit it filed against Daily Gazette in Delaware in 2015 seeking to recover unpaid management fees, future management fees if the Daily Mail had continued publishing and money the Daily Gazette received for the sale of the domain name. Daily Gazette had this case dismissed based on the joint operating agreement’s arbitration clause, and the matter currently is in arbitration.

It was during discovery of the arbitration that MediaNews obtained documents revealing United’s involvement in the sale of the domain name, according to the latest complaint.

It mentions a letter from United counsel Perkins Cole saying the loan modification did not violate the joint operating agreement, but “it specifically excluded and expressed no opinion as to ‘the assignability … of any contact or intellectual property license that … contains a provision prohibiting or restricting the assignment or transfer of such agreement or rights or obligations thereunder without the prior consent of the other party to such agreement …’”

MediaNews says the exclusion “demonstrates United Bank and its counsel were aware that transfers of intellectual property rights without observing contractual restrictions on the transfer of those rights would result in a breach of the underlying contract.”

In 2015, Charleston Newspapers merged the Charleston Gazette and Charleston Daily Mail into the Charleston Gazette-Mail. That came five years to the day after the federal antitrust settlement was reached.

United Bank became Daily Gazette’s primary lender in 2006 when it loaned $31 million, which was secured by all of Daily Gazette’s assets.

“Although the original loan has been refinanced and restructured on multiple occasions since 2006, and the overall balance has declined to approximately $16 million, United Bank has remained Daily Gazette’s primary lender from 2006 to the present, and it has maintained a security interest in Daily Gazette’s assets throughout this period,” the complaint states.

“United Bank’s actions in inducing and enabling this breach of the partnership agreement were in a direct, but-for cause of the harm sustained by MediaNews Group and CPC as a result of the breach. MediaNews Group and CPC have been damaged by the loss of their right to have the dailymail.com domain name returned to them at the end of the joint venture. The slightly more than $1.5 million received by Daily Gazette in exchange for the rights to the dailymail.com domain name and related intellectual property are a reasonable approximation of the value of those rights.”

MediaNews and CPC seek to be reimbursed for the value of the domain name up to the full amount of the sale price as well as other special and general compensatory damages, punitive damages, court costs, attorney fees and other relief.

The plaintiffs are represented by Michael Carey and David Pogue of Carey Scott Douglas & Kessler in Charleston.

Wood Circuit Court case number 17-C-62

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Organizations in this Story

Charleston Gazette-MailCarey, Scott, Douglas & Kessler, PLLC