Lawsuit Says Register Inflated Circulation Figures

The battle between former distributors of the Orange County Register and the newspaper escalated this week as one of the dismissed dealers accused the newspaper in a new lawsuit of inflating circulation figures to mislead advertisers and boost its profits.

Ken Goddard accused Freedom Newspapers Inc., which does business as the Register, of fraud, racketeering, breach of contract and other wrongdoing in terminating him in February as an independent distributor in the Newport Beach and Irvine areas.

Goddard, like 26 other former independent dealers, kept stores and racks stocked with papers. Earlier this year, the Register terminated the contracts of the dealers--without any compensation--to take street sales operations in-house. A group of 18 dealers, some of whom paid up to $130,000 each for their routes, then sued Freedom Newspapers. Money paid for routes went to former dealers, not the Register.

Richard Wallace, the newspaper’s general manager, defended the paper’s right to eliminate outside distributors.

“Under the contracts with the dealers, we have a right to unilaterally terminate them with or without cause,” Wallace said. “There were certain conditions to meet and we met them all. We weren’t shooting from the hip.”

The Register gave away the routes several decades ago, and officials have said previously they believe that they have no obligation to compensate the dealers for their business. Patrick Elster, vice president for circulation, said in February that the paper made the move in part because it believed that some dealers were shortchanging the newspaper and causing it to lose valuable circulation gains.

Goddard, who said in his Orange County Superior Court lawsuit that the Register helped him obtain a route last July for $130,000, is the first former distributor to accuse the newspaper of overstating its circulation.

He said he would not have purchased the route had he known the Register’s true circulation or its plan to reclaim the dealerships.

Goddard charged that the Register “wanted secretly to control the single-copy distribution systems so as to be able to improperly manipulate and inflate circulation figures, via methods such as ‘trash-can circulation’ . . . to mislead advertisers about the true levels of circulation of the Register and increase profits.”

Trash-can circulation is a reference to dumping bundles of unused papers that are counted as paid circulation.

The Register’s Wallace dismissed that allegation, saying such a practice is “not a good decision considering the price of newsprint today.”

Under racketeering laws, Goddard seeks triple his investment, or $390,000, plus costs and attorney fees. He also seeks punitive damages.