CHARLESTON – The Charleston Gazette-Mail has asked a federal judge to vacate a $3.8 million arbitration ruling made against the newspaper earlier this month.
The newspaper, by its attorneys, Richard Neely and Michael O. Callaghan of Neely & Callaghan, filed a motion to vacate the arbitrator’s award on Sept. 21 in the U.S. District Court for the Southern District of West Virginia.
MediaNews Group Inc.—the former owner of the Charleston Daily Mail—said it did not consent to the combination of Charleston’s two daily newspapers two years ago and that it is entitled to back-payments, plus payments of an annual management fee until the year 2024.
The company also claims www.dailymail.com was sold without consent.
Earlier this month, Edward D. McDevitt, the arbitrator, ruled in MediaNews’ favor.
In the newspaper’s Sept. 21 response, the attorneys claim that the domain name sale and the combination of two newspapers were a financial necessity — that default on its loan with United Bank was at hand and that bankruptcy would have been necessary if two newspapers had continued operating into the next year.
“Certainly, the respondents met all of the functional criteria established by the West Virginia Supreme Court of Appeals for excuse of performance because of impossibility,” the motion states. “And, of course, the ‘supervening event’ was actually two specific events: First, since the iPhone was introduced in 2010, there has been a surge in ‘electronic media’ that has caused a realignment of advertising budgets with advertisers seeking outlets different from traditional daily newspapers. Second, the economy of Southern West Virginia has virtually collapsed; more than half the store fronts of downtown Charleston are empty, the coal mines have closed and the price of oil and gas has made exploration and exploitation of our oil and gas resources uneconomical.”
Businesses like Sears that once advertised heavily have left and smaller retailers have closed or reduced their advertising budgets, according to the motion.
“Therefore, the Gazette’s gross receipts have consistently gone down from 2010 onwards,” the motion states.
In his filing, McDevitt provides some details about what happened internally at Charleston Newspapers when executives were deciding to shut down the Charleston Daily Mail and merge it with the Charleston Gazette.
In closing his 16-page order, McDevitt writes that a newspaper expert used by Charleston Newspapers determined that the authority to cease publication of the Charleston Daily Mail “did not exist.”
The petition for order confirming the arbitration award of nearly $4 million was issued Sept. 6 in federal court. The petition came days after the now-combined Charleston Gazette-Mail announced it soon would eliminate its Monday print edition.
The 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, the former owners of the former Charleston Daily Mail, $3,795,000 plus post-judgment interest for three primary claims the former publishers of the Daily Mail had made.
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.
McDevitt writes that the Gazette claims it had a right of substitution and a right of sale in the ordinary course of business.
“This arbitrator concludes these defenses legally fail,” he wrote. “Respondents note that during these trying times, a number of newspapers, including some owned by MNG (MediaNews Group), have sold capital assets, including the very buildings they occupied. The fact of thse sales does not make them ‘ordinary course of business.’”
McDevitt also wrote that United Bank was “lenient” on Charleston Newspapers when it fell behind on loan payments. He quotes an exchange between attorney Richard Neely, who represents Charleston Newspapers, and CN President and CFO Trip Shumate during hearings.
McDevitt said his review of the case “does not provide the arbitrator with sufficient evidence to find that the ‘incremental revenue/costs’ test … can be met.”
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 dailymail.com 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