Arbitrator says Gazette owes nearly $4 million to Daily Mail publishers

By Chris Dickerson | Sep 6, 2017

CHARLESTON – An arbitrator has ruled Charleston Newspapers’ publishing company owes the publisher of the defunct Charleston Daily Mail nearly $4 million.

The petition confirming the arbitration award was issued Sept. 6 in federal court.

Arbitrator Edward D. McDevitt of Charleston wrote the order, which was signed off on by Chief Judge Thomas E. Johnston.

The 16-page arbitration order says the Daily Gazette Company and the Daily Gazette Holding Company LLC 1, the companies that run Charleston Newspapers and the Charleston Gazette-Mail, must pay MediaNews Group Inc. and Charleston Publishing Company $3,795,000 for three primary claims the former publishers of the Daily Mail had made.

“Claimants during the course of the arbitration alleged that they were entitled to damages as a result of breaches of the principal agreements between the parties,” the document states.

The damages alleged were:

* $495,000 in management fees,

* Approximately $1,800,000 of future annual fees due through the end of the joint venture in 2024, and

* Loss of the right to receive the website “” upon termination of the joint venture due to the sale of the website by respondents for the sum of $1,500,000.

“The defenses of the respondents were stridently presented and argued – often presented in enviable prose,” McDevitt wrote before he “distilled” the defenses” down to:

1. Failure of consideration.

2. The Joint Operating Agreement and Limited Partnership Agreement were not real operating documents but were constructed exclusively for the Department of Justice Antitrust Division.

3. Impossibility and/or impracticality of performance by respondents.

4. The “right of substitution” provided in the JOA.

5. A combination of “claimants actions (being) inequitable” violation of the “implied covenant of good faith and fair dealing” and “the futility of the litigation,” i.e. “improper or malicious interference with contractual relations.”

6. A counterclaim for an unspecified sum for bringing of an “unnecessary and unavailing litigation.”

According to court filings, the arbitration began in April. McDevitt says the award was executed and published to the parties on Aug. 28. It was filed in federal court on Sept. 6. 

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.

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.

Earlier this year, The West Virginia Record reported that a federal agency has taken over Charleston Newspapers’ pension plan.

The Pension Benefit Guarantee Corporation recently sent letters to CN employees and retirees affected by the change.

According to the PBGC, Charleston Newspapers filed a distress termination application on June 3, 2015, and the Charleston Newspapers Retirement Plan ended on Aug. 1, 2015. PBGC officially took responsibility for the plan on Oct. 13, 2016.

“A plan that does not have enough money to pay all benefits owed to participants and beneficiaries may be terminated only if the employer and the members of the employer's ‘controlled group’ of affiliated companies each meet one of the distress termination tests,” the PBGC told The Record. “Members of a plan sponsor’s controlled group are legally responsible for funding the pension plan.”

The PBGC said Charleston Newspapers was able to prove to PBGC’s satisfaction that unless the plan was terminated, the company would be unable to pay its debts when due and remain in business.

When PBGC takes over a plan as trustee, it uses its own assets and any remaining assets in the plan to “make sure that current and future retirees of the plan receive their pension benefits, within the legal limits.”

“PBGC also tries to collect plan underfunding from employers and shares a portion of its recoveries with participants and beneficiaries,” the agency said.

According to the PBGC, the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer plan is $60,136 a year for plans that end in 2016.

Also, the single-employer guarantee formula provides lower amounts for people who begin getting benefits from PBGC before age 65, reflecting the fact that they will receive more monthly pension checks over their expected lifetime. Amounts are higher for benefits starting at ages above 65.

The PBGC said the CN Retirement Plan covered 517 people as of Aug. 1, 2015. The plan had $17.4 million in assets to cover $37.7 million in benefits. PBGC said it expects to cover $20.1 million of the $20.3 million shortfall.

PBGC protects the pension benefits of nearly 40 million Americans in private-sector pension plans. The agency is currently responsible for the benefits of about 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars. Its operations are financed by insurance premiums, investment income, and assets and recoveries from failed single-employer plans.

In 2015, the PBGC filed $1.34 million in liens against CN and other entities regarding the company’s pension plans. Those entities, which had a legal responsibility to fund the pension plans, were Charleston Newspapers Holding LP, Charleston Newspapers, Daily Gazette Publishing Co., Daily Gazette Holding Co., Ridgeview Express Delivery, Abry/Charleston Inc. and G-M Properties. The PBGC typically files liens when entities miss making pension contributions of more than a million dollars.

In 2015, PBGC Press Secretary Marc Hopkins said the agency works similar to the FDIC with banks, insuring almost all private pension plans across the country.

Days before the liens were announced, the Charleston Gazette and Charleston Daily Mail announced a merger to become the Charleston Gazette-Mail on July 19, 2015. That was five years to the day after U.S. District Judge John Copenhaver approved an antitrust settlement to regulate both daily newspapers.

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.”

Weeks after the merger was announced in 2015, state Attorney General Patrick Morrisey's Consumer Protection Division said it investigating CN for violations of state antitrust laws. Months later, Putnam Circuit Judge Philip Stowers threw out Morrisey's attempt to force the newspaper to produce large numbers of documents about the merger.

On Oct. 6, 2015, the previous owner of the Daily Mail, the MediaNews Group, filed suit in the Delaware Court of Chancery against the Gazette's owners, 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.

Earlier this year, MediaNews filed another suit against United Bank, saying it wrongfully induced CN to sell the rights to the domain name to the London newspaper. MediaNews seeks $1 million the bank received from that sale. In that complaint, MediaNews says it learned of the United Bank issue during discovery of the lawsuit currently in arbitration.

U.S. District Court for the Southern District of West Virginia case number 2:17-cv-03921

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