AG files suit to block Tucson Citizen closure - East Valley Tribune: Arizona

AG files suit to block Tucson Citizen closure

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Posted: Friday, May 15, 2009 7:52 pm | Updated: 12:40 am, Sat Oct 8, 2011.

Arizona Attorney General Terry Goddard filed suit late Friday to block closure of the Tucson Citizen, charging that its corporate owners and the owners of the Arizona Daily Star are illegally conspiring to silence one of the editorial voices in the community.

Goddard said that Gannett Corp., which has owned the Citizen since 1976, rejected offers to buy the afternoon paper to keep it operating in competition with the Star. He contends that Gannett and Lee Enterprises Corp., the Star’s parent, set up the closure so that no one will compete with the Star, and Gannett will continue to benefit financially from that lack of competition.

"We’re talking about an agreement between two media entities to extinguish one of them, to their mutual profit," Goddard told Capitol Media Services. "I’m just not satisfied that the public interest is being served here."

Goddard said late Friday it was unlikely he could get a judge to consider his request before Monday, two days after the Citizen, founded in 1870 and the state’s oldest continuously published newspaper, is scheduled to print its last edition, which would be Saturday’s paper. But the attorney general said he intends to pursue the case anyway.

Dan Hayes, vice president of corporate communications for Lee, said the company "vigorously disputes the attorney general’s allegations and we look forward to addressing them in court."

Calls and messages to Gannett were not immediately returned. Here in the Valley, Gannett is the parent company of The Arizona Republic/azcentral.com and KPNX-TV (Channel 12).

Central to Goddard’s lawsuit is the "joint operating agreement" that has existed between the Tucson Citizen and the Arizona Daily Star for more than 30 years.

Under that pact, which goes back to the 1940s, the two independent newspapers, both at the time owned by families, agreed to share in the cost of printing, advertising sales and circulation, while maintaining separate news-gathering and editorial departments.

A federal court found the arrangement illegal, a decision the U.S. Supreme Court upheld in 1969. Congress effectively reversed that ruling the following year, approving the Newspaper Preservation Act, which allows such agreements provided a community gets to preserve two independent editorial voices.

In the legal papers filed Friday, Goddard said that joint operation, known as Tucson Newspapers Inc., had more than $30 million in profits between 2004 and 2007.

"Not content with those profits, Gannett and Lee plan to close the Citizen and cease all remaining competition," the lawsuit says.

Goddard said it would have been one thing if Gannett simply chose to close the Citizen, whose circulation had slid to about 17,000, and ended its financial agreement with Lee.

"In this case, however, you’ve got a joint operating agreement which has operated to the benefit of both companies and to the community of Tucson for 30-plus years," Goddard said. "To simply terminate one of the papers, which is the reason you had that operating agreement in the first place, and continue the operating agreement, it seems to me that you’re now agreeing to eliminate competition and reap the benefits of the agreement which were there to preserve the competition."

He called the closure plan between Lee and Gannett "an agreement to basically pay themselves, pay the joint operating agreement, for reducing competition in the news marketplace."

To buttress his argument of economic collusion, Goddard submitted to the court a copy of a confidential memo from Gannett to Lee prepared in January when it was first announced the Citizen would close unless a buyer was found. That memo spells out that, even after the Citizen is shuttered, Gannett and Lee would continue to share in the assets, liabilities, profits and losses of TNI.

Goddard also submitted an affidavit from Stephen Hadland, a shareholder of Santa Monica Media Co., saying he and his partners have been negotiating to buy the Citizen.

He said they initially offered $10,000 and agreed to other terms Gannett had placed on the sale. That included the fact that the buyer would not get assets including the advertising and circulation services and Gannett’s share of the printing plant, meaning the buyer would need to set up its own operations, including its own news staff.

Told by Gannett’s broker that was too low, Hadland said he increased the bid to $100,000. That, too, was rejected, with a Gannett official saying the company wanted $1 million.

Santa Monica responded with a $250,000 offer; Gannett countered at $800,000.

Hadland, in the affidavit signed Friday, said he finally made an offer of $400,000 over five years, one that was never countered.

"I believed we were negotiating in good faith and that we were very close to reaching an agreement," Hadland said. But he said the assets won’t be worth anything if the paper is no longer publishing.

Goddard, in his legal papers, suggested Gannett was not really interested in selling the Citizen.

"Gannett plans to close the Citizen and receive nothing for the Citizen assets, which will rapidly lose their value after the newspaper closes," the lawsuit states. "This plan demonstrates that the Citizen assets have little value to Gannett."

He also disputed Gannett’s contention that the Citizen is worth $762,000, saying the company’s valuation methods contain "many serious errors, including a fatally flawed assumption: that the Citizen will continue to operate."

"Gannett itself has no plans to publish after Saturday," the lawsuit states.

"It plans to simply close the newspaper and let the value of the Citizen assets dissipate," it continues. "And Gannett refuses to sell the Citizen assets to potential buyers who would operate the newspaper."

Goddard said there need to be "other options" for maintaining a separate editorial voice in Tucson.

"But I think just cutting it off should not be one of those options, especially since the two entities that have been the beneficiaries of the JOA are now the ones forging the agreement to close the Citizen, thereby continuing to benefit from an agreement that was only in place with the intention of providing a vigorous set of competitive editorial and news views."

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