CHARLESTON, W.Va. — The Charleston Gazette-Mail is asking a federal judge to vacate a $3.8 million arbitration ruling against the newspaper.
A lawyer for West Virginia’s largest newspaper on Thursday filed a motion to vacate the arbitrator’s award over its partnership with the former corporate owner of The Charleston Daily Mail.
The conflict — and the arbitrator’s ruling — are over the combination of Charleston’s two daily newspapers in summer 2015 and the sale of www.dailymail.com.
MediaNews Group, former owner of The Charleston Daily Mail, says it did not consent to the combination and is entitled to backpayments plus payments of an annual management fee until the year 2024. It also claims the dailymail.com was its intellectual property that was sold without its consent.
In early September, arbitrator Edd McDevitt of Charleston ruled in MediaNews’ favor. Lawyers for MediaNews, which now does business as the newspaper chain Digital First Media, asked federal court to confirm the arbitration ruling.
In its response filed in federal court, the local newspaper says 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.
“It is, and would have been, impossible to pushblish two entirely separate papers for even one more year without filing for bankruptcy, as exhibits showing the decline in advertising revenue, circulation revenue and total EBITA (earnings before interest, taxes and amortization expenses) clearly show,” wrote Richard Neely, the lawyer for Charleston Newspapers and a former state Supreme Court Justice.
Neely wrote that changes to digital presentation of news, the retail landscape and West Virginia’s economy had made for a very difficult newspaper market.
“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,” Neely wrote.
“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. Business like Sears that once advertised heavily have left and smaller retailers have closed or reduced their advertising budgets. Therefore, the Gazette’s gross receipts have consistently gone down from 2010 onwards.”
Until 2004, MediaNews Group had a 50-50 financial split with the owners of the Charleston Gazette, maintaining the combined advertising and circulation units that were established decades earlier — but maintaining separate Gazette and Daily Mail newsrooms.
That year, MediaNews received an offer from Wheeling-based Ogden newspapers to sell the Daily Mail. The Gazette had right of first refusal and took it, buying MediaNews’ share of the business for $55 million.
The continued publication of the Daily Mail wound up in federal court under antitrust law. The agreement that was hatched called for the continued publication of the Daily Mail, with MediaNews receiving an annual management fee but still having no ownership stake.
Part of Neely’s current argument is that setup was meant only to satisfy the terms of the joint operating agreement — a federally-backed contract between the two companies — and to satisfy the U.S. Department of Justice.
The court filing says the sale of the dailymail.com URL, for example, became a financial necessity. At the time, Charleston Newspapers still owed the bank $21 million.
McDevitt’s ruling says that although Charleston Newspapers sometimes has seemed near default on its loan with United Bank, the bank hasn’t actually declared default.
Neely wrote that’s merely semantics.
“The Arbitrator has made a great moment of the fact that at the time of the sale of the URL, United Bank had not declared a default,” Neely wrote.
“But the evidence clearly shows that Daily Gazette Co. was in default: Since when is it necessary for the Bank to ‘declare’ a default when the bank and the customer are working either to cure the default or renegotiate terms. The truth of the matter is that Daily Gazette Co. was in default at the time they needed to sell the Daily Mail URL in order to prevent the bank from formally declaring a default.”
The URL sale provided $1 million to pay down the newspaper’s debt but also potentially provided additional credit for projects such as modifying the web press to reduce the width of the paper, aimed at saving thousands annually on the cost of paper.
An additional $500,000 from the sale was rolled into purchases of a new content management system used by the staffs of both the Gazette and Daily Mail, plus new camera equipment for photographers at both papers.
Since then, the combined newspaper has gone on to yet a different content management system and the photography staffs have been merged, although no Daily Mail photographers remain.
Neely wrote that MediaNews effectively squelched a variation on the newspaper combination that would have meant producing the two newspapers as a “Section A,” with all of the other sections such as Sports combined.
“Under this scheme, both papers would be published but only the first section, namely Section A, would have been different in any way,” Neely wrote.
“However, Claimants made this impossible by demanding that respondents agree to reimburse claimants as much as $1.3 million in attorneys’ fees and expenses if the DOJ caused trouble.”
The arbitrator, McDevitt, ruled that even though Charleston Newspapers had entered contracts to satisfy its needs over the years and later found the contracts unfavorable, the company was still contractually obligated.
Neely wrote that when a contract is ambiguous, a court will attempt to interpret it in accordance with the intentionof the parties.
“It was admitted numerous times during the hearing in this case that virtually the exclusive purpose of both the Limited Partnership Agreement and the Joint Operating Agreement was to satisfy the Justice Department,” Neely wrote.
Judge Thomas Johnston has been assigned to the case in federal court.
NOTE: The writer of this story was the Daily Mail’s editor and then co-editor of The Charleston Gazette-Mail during the first year of the newspaper combination.