United States v. Citizen Publishing Company

• Citation: 280 F. Supp. 978
• Decision Date: 31 January 1968
• Docket Number: No. Civ-1969.,Civ-1969.
• Parties: UNITED STATES of America, Plaintiff, v. CITIZEN PUBLISHING COMPANY, Star Publishing Company, Tucson Newspapers Incorporated, Arden Publishing Company, and William A. Small, Jr., Defendants.
• Court: U.S. District Court — District of Arizona

280 F. Supp. 978

UNITED STATES of America, Plaintiff, v. CITIZEN PUBLISHING COMPANY, Star Publishing Company, Tucson Newspapers Incorporated, Arden Publishing Company, and William A. Small, Jr., Defendants.

No. Civ-1969.

United States District Court D. Arizona.

January 31, 1968.

Charles D. Mahaffie, Jr., Gerald A. Connell, Dept. of Justice, Washington, D. C., Jo Ann D. Diamos, Asst. U. S. Atty., Tucson, Ariz., for plaintiff.

Richard J. MacLaury, Charles B. Renfrew, Harvey D. Hinman, Gary A. Martin, Pillsbury, Madison & Sutro, San Francisco, Cal., George Read Carlock, Ryley, Carlock & Ralston, Phoenix, Ariz., John L. Donahue, Jr., Merchant, Lohse, Donahue & Bloom, Tucson, Ariz., for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JAMES A. WALSH, Chief Judge.

This action having been tried by the court, sitting without a jury, the court does hereby find the facts and states separately its conclusions of law thereon, as follows:

FINDINGS OF FACT JURISDICTION

1. This is an action brought by the United States under Section 4 of the Sherman Act and Section 15 of the Clayton Act (15 U.S.C. §§ 4, 25).

2. The defendant corporations maintain offices, transact business and are found within the District of Arizona.

3. Defendant Citizen Publishing Company (hereinafter "Citizen Publishing") is a corporation organized and existing under the laws of the State of Arizona and has its principal place of business in Tucson, Arizona. It is engaged in the business of publishing in Tucson a daily, except Sunday, newspaper of general circulation known as "The Tucson Daily Citizen" (hereinafter "Citizen").

4. Defendant Star Publishing Company (hereinafter "Star Publishing") was, at the time this action was brought, a corporation organized and existing under the laws of the State of Arizona with its principal place of business in Tucson, Arizona. At the time this action was brought it was engaged in the business of publishing in Tucson a daily newspaper of general circulation known as "The Arizona Daily Star" (hereinafter "Star").

5. Defendant Tucson Newspapers, Incorporated (hereinafter "TNI") is a corporation organized and existing under the laws of the State of Arizona and has its principal place of business in Tucson, Arizona. At the time this action was brought it was wholly owned by Star Publishing and Citizen Publishing and was engaged in the business of acting as agent for them in the management and operation of the advertising, printing, and circulation departments of their newspapers.

6. Defendant Arden Publishing Company (hereinafter "Arden") is a corporation organized and existing under the laws of the State of Arizona and has its principal place of business in Tucson, Arizona. It was incorporated on or about December 21, 1964, by the stockholders of Citizen Publishing to acquire and hold the stock of defendant Star Publishing and on January 5, 1965, did acquire that stock at a purchase price of $9,999,790.

7. On March 31, 1966, pursuant to an order of the court granting defendant's motion, Star Publishing was liquidated and Arden acquired its assets. Arden now publishes Star.

8. Defendant William A. Small, Jr., is the sole stockholder of defendant Arden and was joined as a defendant in this action on March 31, 1966, pursuant to an order of the court granting defendants' motion.

9. Defendants Citizen Publishing, TNI and Arden are engaged in commerce within the meaning of Section 7 of the Clayton Act. Defendant Star Publishing was so engaged at the time this action was brought.

THE ACTS AND INTENT OF THE DEFENDANTS

10. The Star is, and during the period covered by the complaint has been, the only Sunday and morning daily newspaper of general circulation published in Tucson.

11. The Citizen is, and during the period covered by the complaint has been, the only evening daily newspaper of general circulation published in Tucson.

12. From 1932 to 1940, Citizen Publishing operated at a substantial loss. Its losses were defrayed by contributions made by its stockholders. Star Publishing from 1932 to 1940 operated at a profit.

13. In the period 1935 to 1939, though the respective circulations of the papers were approximately equal, Star sold fifty percent more advertising space than Citizen.

14. In 1936, William A. Small, Sr., and William H. Johnson contracted to purchase the stock of Citizen Publishing from the Hitchcock Estate, at that time putting $25,000 of working capital into the paper and agreeing to pay the $100,000 purchase price over a period of time. At the time of the purchase, William A. Small, Sr., was familiar with the financial condition of Citizen Publishing. When Small, Sr., became interested in Citizen, he acquired a 25% interest in the paper and Johnson obtained a 75% interest. Between 1936 and 1939, the respective interests of the purchasers changed, and Johnson owned 25% while Small, Sr., and his wife owned 75% of the paper. Following the purchase of Citizen Publishing by Small, Sr., and Johnson and from 1937 to 1940, Citizen Publishing lost money. Between 1937 and 1939, Small, Sr., made unsuccessful efforts to attract additional financing to Citizen Publishing, and in 1939 he moved to Tucson, being prepared to finance the losses of Citizen Publishing for some little time thereafter from resources available to him other than the earnings or assets of Citizen Publishing.

15. For many years prior to 1940, Citizen Publishing had been unable to pay a dividend. Prior to 1940, Mr. Small, Sr., received no salary and by March, 1940, Citizen Publishing owed debts of more than $109,000. Of this indebtedness, about $79,000 was to stockholders of Citizen Publishing.

16. Starting at some time in 1936, there were discussions between Star Publishing and Citizen Publishing, which were initiated by Star Publishing, concerning the possibility of a joint operation of the two newspapers.

17. As a result of these discussions, Citizen Publishing and Star Publishing on March 28, 1940, entered into a joint operating agreement, to become effective on July 1, 1940. At the time Star Publishing and Citizen Publishing entered into the operating agreement, and at the time the agreement became effective, Citizen Publishing was not then on the verge of going out of business, nor was there a serious probability at that time that Citizen Publishing would terminate its business and liquidate its assets unless Star Publishing and Citizen Publishing entered into the operating agreement.

18. The agreement provided that each newspaper would retain its separate identity and that the news and editorial departments of each would remain separate. It also provided for formation of an agency corporation, defendant TNI, whose function would be "to manage and operate all of the departments of the publishing business of Star and Citizen (excluding the news and editorial departments as hereinabove provided), and to integrate the operation of said business as much as possible."

19. The agreement provided that the profits realized from the publication of the newspapers would be pooled and distributed by TNI to Star Publishing and Citizen Publishing according to a specified ratio; and that during its term, Star Publishing and Citizen Publishing, as well as their stockholders, officers and executives, would not engage in any other publishing business in Pima County or engage in any other business in conflict with the agreement. Pursuant to the operating agreement, since 1940, Star and Citizen have been sold and distributed to the public by the circulation department of TNI, commercial advertising placed in Star and Citizen has been sold by the advertising department of TNI, and the circulation and advertising rates of Star and Citizen have been set by Star Publishing and Citizen Publishing jointly, acting through TNI.

20. The operating agreement provided that it could be cancelled by mutual consent of both parties; its original term was 25 years but in 1953 this was extended to 1990.

21. Prior to the execution of the 1940 operating agreement, the owners of Star and Citizen believed there could not be a successful operation of two competing dailies in a city with a population of 100,000 or under. They were also aware of the success of the operating agreements then in effect between the newspapers in El Paso, Texas, and Albuquerque, New Mexico.

22. The 1940 operating agreement states that the parties thereto believed that the past 15 years of experience had shown that the Tucson area was not large enough to support, at a profit, two completely independent newspapers.

23. It was the intent of the parties to the operating agreement to reduce costs and increase profits by eliminating commercial competition between Star and Citizen (which were in 1940 the only daily newspapers of general circulation in Tucson), while retaining separate competitive news and editorial departments.

24. It was in furtherance of their intent to eliminate competition between Star and Citizen that the parties inserted a profit pooling provision in the operating agreement.

25. From July 1, 1940, through January 4, 1965, Star and Citizen were operated pursuant to the operating agreement.

26. At all times between July 1, 1940, and January 5, 1965, Star Publishing and Citizen Publishing remained independently owned corporations and retained the sole ownership of their respective newspapers.

27. Pursuant to paragraph 5 of the operating agreement, Star Publishing transferred to TNI as working capital all of its accounts receivable, and Citizen Publishing transferred to TNI as working capital all of its accounts receivable. Pursuant to paragraph 4 of said agreement, title to all of the machinery and equipment, typesetters, automobiles, furniture and fixtures owned by Citizen Publishing (except the amount retained for use by the news and editorial department of Citizen) and used to produce its newspaper, was vested jointly in Citizen Publishing and Star...