Tucson Citizen Closure Targeted by Goddard in Lawsuit; Also Files Restraining Order to Keep Paper Alive

Arizona Attorney General Terry Goddard filed a special action in federal court today to block Gannett Inc. and Lee Enterprises from stopping publication of the Tucson Citizen.

An Associated Press article on azcentral.com tonight says Goddard filed the motion for a restraining order just before the court closed. The two companies, which share profits from the Citizen and Arizona Daily Star under a federally authorized Joint Operating Agreement, announced they would print the (almost) 139-year-old paper for the last time on Saturday. It's unclear whether Goddard's action will force an edition on Sunday or beyond.

Goddard also filed a federal lawsuit against Gannett and Lee, alleging they violating federal and state anti-trust laws by the planned closure.

"According to court documents, closing the Citizen is the result of an agreement between Gannett and Lee Enterprises, Inc. (Lee), owner of the Arizona Daily Star, to eliminate competition and increase profits to both companies," states a news release by Goddard.

Along with the release, Goddard's office e-mailed to the media -- including New Times -- several documents filed with the court, including partial transcripts of depositions of Lee and Gannett executives.

Daniel Ehrman, vice president of planning and development at Gannett, and Carl Schmidt, Lee's chief financial officer and treasurer, were interviewed by investigators in February with the Department of Justice.

In the transcripts, Schmidt says that in August or September summer of 2008, Ehrman was the first to broach the topic of closing the Citizen, which was bleeding subscribers:

Mr. Ehrman called me one day and said that Gannett had decided that they believed it was best to sell, or failing that, to close the Citizen and wanted Lee's opinion as to whether we would agree with that.

Problem is, these newsmen can't seem to get their story straight. Here's Ehrman's take:

Q. At what point did you broach with Lee the idea of shutting down the Citizen?

A. I didn't broach it with Lee.

Q. Who -- did anybody broach that with Lee?

A. I don't know if anybody did. I didn't.

Q. What point, to your knowledge, did Lee become informed that Gannett was going to pursue that idea of shutting down the Citizen?

A. When they -- they suggested it.

Q. Lee suggested it?

A. Carl suggested it.

Ehrman later hones in on the money factor:

A. I don't recall how [Schmidt] put it, but the idea was -- the suggestion was what are other efficiencies? What else can we do in Tucson to improve the operating results there?

Q. What does the operating results mean? Does that mean the profits?

A. Yes.

The Joint Operating Agreement, or JOA, gives an exemption to federal antitrust laws that prevent monopolies. When applied to newspapers, the concept usually allows shared business resources, but differing editorial content to better inform the public.

Though the two companies split profits 50-50 in the JOA, Gannett operates the Citizen while Lee operates the Star. Gannett provides its own newsroom and content for its paper, while Lee does likewise for the Star. The deposition show that Gannett will still get its 50 percent share even when the Citizen is gone.

The federal investigators ask Ehrman what Lee gets out of the deal, and he answers that the company no longer has to "subsidize 50 percent of the losses of the failing newspaper."

Schmidt, in answering the same question, says that the Star -- the Lee-operated paper -- already generates the bulk of the ad revenue yet Gannett gets 50 percent of the profits. Closing the Citizen "is simply an extension of that same concept..." he says.

Goddard's office says the JOA netted the companies $16 million in profit last year. Although the companies will increase profits by shutting down the Citizen, Goddard feels the move would violate the federal anti-trust exemption. It would create an unfair playing field that would result in "decreased competition and, consequently, monopoly profits to both companies," he states in his announcement.

We'll be interested to see how the Arizona Republic, a Gannett paper, plays this story.

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