A task force of federal, state and local prosecutors this week began taking sworn testimony from witnesses with firsthand knowledge of the deal that split the Los Angeles and Cleveland markets between the country’s two leading alternative newspaper chains.
For several weeks, prosecutors have been demanding documents and interviewing prospective witnesses as part of their probe into whether the arrangement that closed New Times Los Angeles and the Cleveland Free Times violates federal and state antitrust laws. But, according to sources in Cleveland, where government lawyers are collecting the first depositions under oath, attorneys for the Department of Justice also are weighing the possibility of seeking a legal remedy that actually facilitates the reopening of additional alternative newspapers in both cities.
The prosecutors’ decision to begin taking sworn depositions is a significant step forward in the unusually fast-paced investigation, according to Don T. Hiber, an antitrust specialist with the Los Angeles firm of Sheppard, Mullin, Richter & Hampton. “It gets the ball formally rolling toward either a civil complaint or a criminal prosecution,” he said. “Clearly, they’ve decided to move before the bodies get too cold -- and I think it’s for a reason.”
According to Eliot G. Disner, an antitrust lawyer with Manatt, Phelps & Phillips, taking testimony under oath before filing a complaint often sidesteps the problem of witnesses invoking their 5th Amendment rights against self-incrimination and allows authorities “to cast the widest possible net. If they decide there’s been a criminal violation, this lets them go to the grand jury with the testimony in the bag and ask for indictments. Naked market divisions, which we’re not accustomed to seeing anymore, are a criminal offense.”
Repeated calls to the U.S. Department of Justice went unreturned this week. However, Tom Dressler, a spokesman for California Atty. Gen. Bill Lockyer and Joe Scott, a spokesman for Los Angeles County Dist. Atty. Steve Cooley, confirmed that federal, state and local prosecutors are jointly probing the chains’ agreement, which was executed last month.
Under its terms, Phoenix-based New Times Media agreed to shut down its 6-year-old Los Angeles newspaper in exchange for more than $8 million, surrendering its Southern California niche to the L.A. Weekly, which is owned by New York-based Village Voice Media. As part of the arrangement, the latter closed its Cleveland Free Times in return for a substantially smaller payment from New Times, which continues to publish the Cleveland Scene.
(In California, the attorney general and local prosecutors have jurisdiction to prosecute such cases under the Cartwright Act, the state’s equivalent of the Sherman antitrust statute.)
According to employees of the closed newspapers interviewed by prosecutors over the past week, Justice Department lawyers have informally inquired about what it would take to allow new investors to launch alternative weeklies in both Los Angeles and Cleveland. Would it be helpful, for example, if New Times and Voice Media were compelled to cede the name equity of the closed newspapers to new owners? How valuable would lists of advertisers and the weeklies’ news racks and distribution systems be to a start-up publication?
“They’re very interested in what penalties and remedies might be available in both markets,” said one interviewee, who asked not to be identified. “I told them all of those things would help, but that the longer you wait, the harder it is to restart one of these things.”
Monday, the lead federal prosecutor in the probe -- Maurice E. Stucke -- flew to Cleveland to take the deposition of David Eden, who was editor of the Free Times when it closed. Stucke was joined by a Cleveland-based Justice Department lawyer, John Smibert; by a representative of the Ohio attorney general; and -- on the phone -- by California Assistant Atty. Gen. Winston Chen and L.A. County Deputy Dist. Atty. Kathleen Tuttle.
“I gave a deposition to the Justice Department regarding Village Voice Media’s trade of the Cleveland Free Times for New Times Los Angeles,” Eden said. “The government is looking into whether that violated the antitrust laws. They told me they are taking this very, very seriously and it is my belief they are trying to expedite this case because two publications were closed down and, if you want to restart them, you have to do that quickly.”
Though Eden declined to give details about his testimony, sources said he was questioned for 2 1/2 hours about his knowledge of the deal, his conversations with Voice Media CEO David Schneiderman and about the Free Times’ editorial and financial health prior to its closure. Prosecutors also are said to be interested in deposing the paper’s former publisher, Matt Fabyan, who was interviewed by the task force earlier this month. Sources in Cleveland said that, last week, when New Times Media learned of Fabyan’s earlier conversation with prosecutors, the company withdrew an offer to name him co-publisher of its Cleveland Scene.
Sources in Cleveland say those interviewed have told prosecutors that, since the Free Times’ closure, representatives of the Scene have told advertisers that their rates will double when their current contract expire. The Rock and Roll Hall of Fame and Museum -- a popular Cleveland attraction -- reportedly was told its rates would increase by 40%.
“New Times now has a monopoly market in Cleveland,” said one witness, “and they want to milk it.”
Prosecutors also are looking beyond Los Angeles and Cleveland in an attempt to assemble a portrait of New Times and Village Voice Media’s business practices. Last week, for example, they attempted to interview one of the alternative press’ elder statesmen, Bruce B. Brugmann, owner and editor of the Bay Guardian.
“I was really surprised,” Brugmann said. “They started out by saying, ‘This is a very sensitive investigation and we would like to ask you these questions, but please don’t say anything about our conversation.’ I said I don’t want to be an informant for John Ashcroft’s Justice Department and if you don’t want me to write about it, forget it. It was all very polite, but they said, ‘Thank you and goodbye.’ ”
Brugmann, however, has repeatedly railed against what he alleges are the “predatory practices” of New Times’ S.F. Weekly and East Bay Express, which compete with his paper. He was particularly alarmed last month, he said, when another group of alternative papers -- Metro Silicon Valley, Metro Santa Cruz and the North Bay Bohemian -- announced that the Ruxton Group would be their national advertising representative. Ruxton is owned by New Times Media and its announcement of the agreement said its combined Bay Area circulation of 345,000 makes it “the largest single metropolitan advertising combination in the alternative newsweekly industry.”
Brugmann alleges that the agreement is a prelude to further consolidation. “When a paper joins Ruxton, it usually means New Times will be buying them,” he said. “That’s what happened in Kansas City, where they brought the Pitch Weekly into Ruxton just before they bought it. That’s what we’re watching for here.”
If prosecutors file an antitrust case against New Times and Village Voice Media -- and if they do, in fact, seek the remedy now being weighed -- its beneficiary in L.A. could be an unlikely person: former mayor and one-time Republican gubernatorial hopeful Richard Riordan.
For months, Riordan has been discussing plans to launch his own newspaper with prospective investors and journalists. This week, he met with former employees of the L.A. Weekly and discussed the prototype currently under development. His Honor has said he is considering calling his paper The Dick, but perhaps Riordan’s New Times wouldn’t be a bad alternative.