CHARLESTON -- Three years after the parent company of The Charleston Gazette purchased its capital city rival, the Charleston Daily Mail, the U.S. Department of Justice has stepped in, declaring the sale illegal.

The Justice Department filed a lawsuit May 22 in U.S. District Court in Charleston, alleging the sale violates antitrust laws. It seeks an order requiring the Daily Gazette Co., which owns the Gazette, and Denver-based MediaNews Group Inc., which owned the Daily Mail, to undo the $55 million deal.

The 19-page complaint alleges the Daily Gazette Co. bought the Daily Mail in May 2004 intending to shut it down and create a newspaper monopoly in Kanawha County. The Justice Department said the Daily Gazette Co. suspended those actions in December 2004 but only after the company learned the federal agency had launched an investigation into the newspaper company's maneuvers.

The Justice Department's suit seeks to undo completely the 2004 sale and restore the Daily Mail to its previous competitiveness.

"When the Daily Gazette Co. acquired the Daily Mail with the aim of shutting it down, readers in the Charleston area and the advertisers who valued access to them, were denied the benefits of competition," Assistant Attorney General Thomas O. Barnett said in a news release. Barnett works in the Justice Department's Antitrust Division.

"The Department's investigation saved the Daily Mail from this unlawful termination, and this action seeks to remedy the competitive damage already done and to prohibit the parties from resuming an anticompetitive course in the future."

Trip Shumate, chief financial officer for Charleston Newspapers, which serves as the umbrella company handling the business side of the Gazette and Daily Mail, said the Daily Gazette will "vigorously defend" the Justice Department's lawsuit.

"We will win in court if it goes there," he said.

Messages left for Dean Singleton, MediaNews' vice chairman and CEO, and MediaNews President Joseph Lodovic IV were not returned.

The Justice Department alleges the sale violates the Clayton and Sherman antitrust acts. The Clayton Act prohibits any person or business engaged in commerce to discriminate in price between different purchasers of similar commodities that results in less competition or the creation of a monopoly. The Sherman Act is the country's oldest antitrust law. It declares monopolies to be illegal and was designed to protect consumers from the price of goods going up drastically.

From the 1950s until 2004, the two newspapers operated in Charleston under a joint operating agreement. A JOA, as it is known, is a special exception to antitrust laws that allows newspapers to combine certain business and financial operations, such as printing, distribution and advertising, as long as they maintain two separate and competing newsrooms with divergent editorial content and style. The reason for that, according to the Justice Department, is the separate content allows readers of each newspaper to determine the "attractiveness" of the papers, which directly affects circulation, as well as the value of each operation.

Under a JOA, two competing newspapers may not combine all of their operations or share ownership; however, they may share both profits and losses equally.

That changed May 7, 2004, when the Daily Gazette Co. acquired all assets of the Daily Mail and entered into a new agreement with MediaNews. That new agreement, which the DOJ said was never approved by the attorney general, gave MediaNews "nominal responsibility for the news and editorial content of the Charleston Daily Mail but gave Gazette Company ultimate control over their budgets, management and news gathering and reporting of both newspapers, as well as the right to receive all the profits of both newspapers."

That arrangement, according to the DOJ's complaint, also gave the Daily Gazette Co. the unilateral right to shut down the Charleston Daily Mail. And that, the DOJ said, is the heart of the problem: When the new agreement was entered into, it specified a plan to terminate one of the two newspapers.

"Gazette Company's plan was to use that control to weaken the Daily Mail to the point where it would fail and could be eliminated as a competitor to the Charleston Gazette," the complaint alleges, "and the Gazette Company acted quickly to carry out that plan -- until the Department's investigation interrupted those efforts."

Those efforts by the Gazette's parent company negate any antitrust protection the two newspapers had under the joint operating agreement, the DOJ complaint continues.

"The May 2005 transaction invalidated any claim by Charleston Newspapers to antitrust immunity under the NPA because they were part of a plan to terminate publication of the Charleston Daily Mail, leaving only one daily newspaper in the Charleston area," the lawsuit contends.

The DOJ alleges the Gazette's owners worked with an outside consultant to develop a two- to three-year plan to shut down the Daily Mail. That plan was shared with lenders who helped finance the transaction. According to the court filing, the plan was to rapidly reduce the amount of the Daily Mail's circulation -- which is a common yardstick for measuring the viability and success of a newspaper -- to a level where the newspaper no longer would be considered a healthy business.

"Gazette Company believed it could then successfully argue to the Department of Justice that it should not oppose the termination of the JOA because the Charleston Daily Mail would be a 'failing company,'" the complaint alleges, pointing out that in years past the DOJ has not contested shutting down one newspaper in a JOA if it can be demonstrated that circulation has plummeted and no other feasible buyer could be found.

The Justice Department said the Daily Gazette Co. took several steps to accomplish the goal of choking the Daily Mail's circulation, including:

• stopping all promotions and discounts for the Daily Mail;
• stopping solicitations for new Daily Mail readers;
• stopping delivery to thousands of the Daily Mail's home delivery subscribers;
• stopping printing an independent Saturday afternoon newspaper, instead merging it in with the Saturday morning edition of the Gazette;
• allowing almost half of the Daily Mail's reporters and editors to leave the newspaper without allowing replacement workers to be hired; and
• substantially cutting the Daily Mail's newsroom budget in both 2004 and 2005, which forced the newspaper to reduce its coverage.

The DOJ said all of those actions reduced the Daily Mail's circulation from 35,076 in February 2004 to 23,985 in January 2005.

"This decline in circulation matched almost precisely the projections that Gazette Company and its consultants made as part of Gazette Company's pre-acquisition plan to shut down the Charleston Daily Mail by 2007," the DOJ said. It noted that during that same period, the Gazette's circulation increased to 52,000.

The Justice Department said those actions stopped in December 2004 after the Daily Gazette Co. learned they were being investigated. At that point, the Gazette's owners took steps to limit future damage to the Daily Mail.

"Those steps, however, failed to restore the competitive conditions that had existed prior to the May 7 transactions," the complaint said.

In addition to asking that the 2004 sale be rescinded and the Daily Mail be restored to its competitive condition, the DOJ is asking a federal judge to "award the United States such other and further relief as the Court may deem just and proper to redress and prevent recurrence of the above violations."