U.S. v. Daily Gazette Co.

Decision Date19 June 2008
Docket NumberCivil Action No. 2:07-0329.
Citation567 F.Supp.2d 859
PartiesUNITED STATES of America, Plaintiff v. DAILY GAZETTE COMPANY and MediaNews Group, Inc., Defendants.
CourtU.S. District Court — Southern District of West Virginia

Bennett J. Matelson, Bernard M. Hollander, David L. Meyer, J. Robert Kramer, Jennifer A. Wamsley, John R. Read, Mark A. Merva, Matthew J. Bester, Thomas O. Barnett, Thomas J. Horton, William H. Jones, II, U.S. Department of Justice, Washington, DC, Charles T. Miller, Stephen M. Horn, U.S. Attorney's Office, Charleston, WV, for Plaintiff.

Ambika J. Biggs, Lee H. Simowitz, Ronald F. Wick, Baker & Hostetler, Donald I. Baker, W. Todd Miller, Baker & Miller, Washington, DC, Benjamin L. Bailey, Brian A. Glasser, Bailey & Glasser, John R. Hoblitzell, Michael T. Chaney, Kay Casto & Chaney, David A. Barnette, Jackson Kelly, Charleston, WV, Alan L. Marx, Steven C. Douse, King & Ballow, Nashville, TN, Gary L. Hailing, Thomas D. Nevins, Sheppard Mullin Richter & Hampton, San Francisco, CA, for Defendants.

MEMORANDUM OPINION AND ORDER

JOHN T. COPENHAVER, JR., District Judge.

Pending is the motion of the Daily Gazette Company ("Gazette Company") and MediaNews Group, Inc. ("MediaNews") to dismiss. The motion is the subject of well written briefs by the parties and the amici.

I.
A. Background

The Charleston Gazette and Charleston Daily Mail (collectively the "dailies" or "newspapers") were founded respectively in 1873 and 1880. (Compl.¶ 13). The newspapers operated independently of one another until 1958, when their owners entered into, as partners, a Joint Operating Agreement ("1958 JOA").1 (Id.)

The 1958 JOA combined the dailies' printing, advertising, subscription sales, and distribution functions under a single management structure known as Charleston Newspapers. (Compl.¶¶ 2, 13). All significant business decisions regarding Charleston Newspapers, including the newspapers' individual budgets, advertising rates, and subscription rates, were approved by a JOA committee composed equally of the dailies' representatives as equal joint venture partners. (Id. ¶ 2, 14). The partners also shared Charleston Newspapers' profits and losses equally. (Id. ¶ 15).

The newspapers remained separately owned, with their own editorial and reportorial staffs, and competed vigorously for readers over the years by (1) attempting to break newsworthy stories first, (2) generating information of interest, (3) attempting to cover local news with greater depth, breadth, and accuracy, and (4) offering the most attractive mix of news, features, and editorials. (Id. ¶¶ 2, 13, 14, 16). Both newspapers remained consistently profitable through May 2004. (Id. ¶ 17).

As of 1998 the respective owners of the Charleston Gazette and Charleston Daily Mail were the Gazette Company and MediaNews. (Compl.¶ 14). On August 23, 1998, the Gazette Company and an assignee of MediaNews entered into an Amended and Restated Joint Venture Agreement ("1998 JOA"). (Attach. A at 2, Defs.' Mot. to Dismiss). In late 2003, MediaNews negotiated to sell the Charleston Daily Mail and MediaNews' 50% stake in the JOA ("the assets") to an experienced third-party newspaper company for $55 million. (Id. ¶ 18). On May 7, 2004, acting pursuant to a 1998 JOA right-of-first refusal provision, the Gazette Company matched the third-party offer and purchased the assets. (See id. ¶ 19).2

B. The May 7, 2004, Transactions

The United States contends the May 7, 2004, transactions lessened competition in pursuance of a monopoly. Specifically, it is alleged that the Gazette Company gained control of the Charleston Daily Mail's assets and MediaNews' 50% ownership interest in the Charleston JOA. (Id. ¶ 20). The United States asserts that MediaNews purports to provide management and supervision services for the Charleston Daily Mail in return for a fixed fee paid by the .Gazette Company, but in reality the Gazette Company now sets the news and editorial budget for the Charleston Daily Mail and may terminate its publication at any time. (Id. ¶¶ 12, 20).

The United States additionally alleges that the Gazette Company took immediate steps to shutter the Charleston Daily Mail. (Id. ¶ 19). The plan centered on a rapid reduction of the Charleston Daily Mail's subscriber base in the hopes the newspaper would qualify as a "failing company" within 2 to 3 years. (Id. ¶ 19). The United States explains the significance of the "failing company" argument:

Over the years, the Department of Justice has elected not to challenge the decision of several newspaper companies to stop publishing one of the newspapers in a JOA based on a demonstration that circulation for the newspaper had shrunk to the point where the paper was not economically viable and no buyer could be found.

(Id. ¶ 19).

It is alleged that following the May 7, 2004, transactions, the Gazette Company, inter alia, stopped conducting the following activities respecting the Charleston Daily Mail: (1) all promotions and discounts, (2) solicitation of new readers, (3) daily delivery to thousands of customers, and (4) publishing a Saturday edition. (Id. ¶ 22). Additionally, it is contended that the Gazette Company affirmatively (1) attempted to convert existing Charleston Daily Mail customers to the Charleston Gazette, (2) allowed almost half of the Charleston Daily Mail's reporters to resign without replacement, and (3) reduced the Charleston Daily Mail newsroom budget substantially in 2004 and 2005. (Id.)

The complaint further alleges that the Gazette Company's actions caused the Charleston Daily Mail's circulation to fall from 35,076 in February 2004 to 23,985 in January 2005. (Id. ¶ 23). It is said that "[o]nly after learning in or about December 2004 that the Antitrust Division ... was investigating the May 7[, 2004] transactions did ... Gazette Company take any steps to limit further damage to the Charleston Daily Mail caused by" the aforementioned actions. (Id.).

In sum, the United States alleges the May 7, 2004, transactions have (1) substantially lessened competition in the Charleston local daily newspaper market, and (2) given the Gazette Company a monopoly in that market. (Id. ¶ 31).

The United States alleges three violations of federal antitrust laws arising out of the May 7, 2004, transactions as follows: (1) Count I—substantial lessening of competition and actions tending to create a monopoly in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, (2) Count II—a contract, combination or conspiracy unreasonably restraining trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and (3) Count III—willful monopolization activities through anticompetitive and unreasonably exclusionary conduct in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. (Id. ¶¶ 35, 39, and 44).

II.
A. Governing Standard

Federal Rule of Civil Procedure 8(a)(2) requires that a pleader provide "a short and plain statement of the claim showing ... entitlement] to relief." Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) correspondingly permits a defendant to challenge a complaint when it "fail[s] to state a claim upon which relief can be granted...." Fed.R.Civ.P. 12(b)(6).

The required "short and plain statement" must provide "`fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atlantic Corp. v. Twombly, ___ U.S. ___, ___, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), overruled on other grounds, Twombly, 127 S.Ct. at 1969); see also Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir.2007). Additionally, the showing of an "entitlement to relief" amounts to "more than labels and conclusions...." Twombly, 127 S.Ct. at 1965. It is now settled that "a formulaic recitation of the elements of a cause of action will not do." Id.

The complaint need not, however, "make a case" against a defendant or even "forecast evidence sufficient to prove an element" of the claim. Chao v. Rivendell Woods, Inc., 415 F.3d 342, 349 (4th Cir. 2005) (quoting Iodice v. United States, 289 F.3d 270, 281 (4th Cir.2002)). Instead, the opening pleading need only contain "[f]actual allegations ... [sufficient] to raise a right to relief above the speculative level." Twombly, 127 S.Ct. at 1965. Stated another way, the complaint must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 1974.

Application of the Rule 12(b)(6) standard also requires that the court "`accept as true all of the factual allegations contained in the complaint....'" Erickson v. Pardus, ___ U.S. ___, ___, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007) (quoting Twombly, 127 S.Ct. at 1965); see also South Carolina Dept. Of Health And Environmental Control v. Commerce and Industry Ins. Co., 372 F.3d 245, 255 (4th Cir.2004) (quoting Franks v. Ross, 313 F.3d 184, 192 (4th Cir.2002)). The court is additionally required to "draw[ ] all reasonable ... inferences from those facts in the plaintiff's favor...." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999).

B. The Sherman and Clayton Acts

Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2 respectively, and section 7 of the Clayton Act, 15 U.S.C. § 18, provide pertinently as follows:

Every contract, combination ... or conspiracy, in restraint of trade or commerce among the several States ... is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony....

15 U.S.C. § 1.

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States ... shall be deemed guilty of a felony....

15 U.S.C. § 2.

No person engaged in commerce ... shall acquire ... the whole or any part of the stock ... and no person...

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