Memo lays out plan for Charleston Newspapers' bankruptcy sale

By Chris Dickerson | Feb 28, 2018

CHARLESTON – In less than one week, bids are due from potential buyers for Charleston Newspapers.

If Ogden Newspapers is, as expected, the sole bidder for the March 6 U.S. Bankruptcy Court hearing, it becomes the new owner of the parent company of the Charleston Gazette-Mail. The March 8 auction would be cancelled.

That schedule comes from an internal Charleston Newspapers memo written to department heads by President and Chief Financial Officer Trip Shumate. It also says there would be a hearing March 9 to approve the purchase agreement and to take care of other related items before the bankruptcy court. There also is a March 1 U.S. Trustee Office meeting of unsecured creditors.

As early as March 12, Ogden Newspapers would be on site to begin assembling its organization.

“Ogden Newspaper Group plans to interview every employee with the intent to fill positions within their new organization named Charleston Newspapers LLC (CNLLC),” the memo states. “They will spend a short amount of time with each employee; decide around March 20th who they will hire.

“All employees will be told of their plans while still employed here at Charleston Newspapers.”

Shumate says in the memo that any interview or decisions made while employed by Charleston Newspapers until March 30 at 11:59 p.m. will not affect the unemployment application of a Charleston Newspapers employee.

“So if an employee goes through the interview process, fills out a CNLLC job application, chooses to accept employment with CNLLC or not, they will remain in good standing regarding unemployment compensation guidelines as long as their actions are taken while employed at Charleston Newspapers,” he wrote. “Any decision made while on the job WILL NOT affect an employees’ status regarding unemployment compensation because the employee is active, employed, and in a job at Charleston Newspapers until Charleston Newspapers no longer exists on March 30th. So unemployment compensation forms if filled out properly will not be subject to review.”

The memo also says WorkForce West Virginia plans to meet with employees on March 26.

“After knowing each employee’s situation we will schedule a meeting to inform those terminated about unemployment compensation and training opportunities led by WorkForce West Virginia,” Shumate wrote. “This meeting will provide information and answer questions about requirements to receive unemployment, procedures and timeline for signing up for unemployment benefits.

“All employees of Charleston Newspapers will be in their job (unless terminated for cause) until March 30th at 11:59 p.m.”

On March 31, Ogden’s Charleston Newpapers LLC will take control of the paper. That’s also the day current employees who aren’t retained by Ogden can sign up for unemployment compensation.

“Once again I want to thank you and the entire staff for continuing to make Charleston Newspapers a better company by your diligent efforts creating, publishing and delivering our region’s best news products,” Shumate said to end the memo.

On Jan. 30, Wheeling Newspapers, a company created by Ogden Newspapers to purchase the Gazette-Mail, bid $10.911 million, according to court documents.

On Jan. 29, Charleston Newspapers said it was filing bankruptcy and that the Wheeling company owned by the Nutting family was the highest bidder. Ogden owns dozens of newspapers across the country, including ones in Wheeling, Parkersburg, Elkins and Martinsburg.

The bankruptcy court filings show that Charleston Newspapers has more than $31 million in liabilities. The biggest of those is $15.6 million owed to United Bank from a loan it took out in 2006. Charleston Newspapers also owes more than $12 million to the Pension Benefit Guaranty Corporation, a federal agency that guarantees retirement plans. Also, the paper owes $3.8 million to the former owners of the Charleston Daily Mail because of an arbitration award handed down last year.

The court filings show the buyer of Charleston Newspapers will agree to provide non-compete payments to the owners of the Gazette-Mail. That includes $150,000 each to Charleston Newspapers president and CFO Trip Shumate, $150,000 to publisher Susan Chilton Shumate and $50,000 to former publisher and president Betty Chilton. Those three also would be prohibited from competing with the Gazette-Mail for two years after the sale.

The documents also show that Charleston Newspapers brought in $19.5 million in revenue and $1.5 million in earnings in 2017 before interest and taxes.

On Jan. 29, Charleston Newspapers employees were issued WARN notices of potential layoffs. A Worker Adjustment and Retraining Notification Act notice is required when potential layoffs could exceed 50. Charleston Newspapers currently employees a little more than 200 employees.

Ogden could decide to maintain current employees, but it remains unknown and Charleston Newspapers issued the notices under their attorneys’ advice.

Now that Charleston Newspapers has filed Chapter 11, it has started a two-month countdown until new ownership could take over. Also, there is a 30-day window in which other potential buyers could come forward to make offers.

In January, a federal judge upheld a $3.8 million arbitration ruling against the Charleston Gazette-Mail.

U.S. District Judge Thomas Johnston granted the petitioner’s petition to confirm the arbitrator’s award and denied the respondent’s motion to vacate the arbitrator’s award Jan. 19.

The newspaper filed a motion to vacate the arbitrator’s award 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 was sold without consent.

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.

The arbitration order says the Daily Gazette Company and the Daily Gazette Holding Company LLC, 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.

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.

The Chilton family has owned a Charleston newspaper since 1907, when the family of Charleston politician, lawyer and business William E. Chilton bought the city’s Daily Gazette and renamed it the Charleston Gazette.

Chilton became publisher of the newspaper in 1917, after he lost his re-election bid to the U.S. Senate.

Chilton’s son, W.E. Chilton II, and grandson, W.E. “Ned” Chilton III, also served as publisher. Ned Chilton ran the paper from 1961 until his death in 1987.

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 of the Gazette and Daily Mail into the Gazette-Mail was announced in 2015, West Virginia Attorney General Patrick Morrisey's Consumer Protection Division said it investigating Charleston Newspapers 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.

Also last 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.

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