By Ayala Ben-Yehuda
Three Queens business owners have filed a $100 million class action lawsuit against Newsday, Times Mirror Co., the Tribune Co. and distributors for allegedly using inflated circulation figures to overcharge for advertising in the Long Island newspaper.
East Coast Realtors in Bayside, a former operator of the Douglaston Manor catering hall and the owners of Gallagher’s strip clubs in Long Island City and College Point, charged in a federal lawsuit last week that the newspaper employed “nefarious devices” to pump up its circulation reports — and its advertising rates.
The defendants in the case are Melville, L.I.-based Newsday, its Spanish-language paper Hoy, its current parent Tribune Co., former corporate owner Times Mirror Co. and several distributors and employees.
The suit was filed under the Racketeer Influenced and Corrupt Organizations Act, or RICO, because of allegations of mail and wire fraud.
According to the lawsuit, the alleged schemes included flooding distributors with more newspapers than could be sold and ordering the distributors not to account for the unsold copies; instructing sellers to dump unsold newspapers in the trash rather than return them to distributors; and creating a computer program to submit false reports to the Audit Bureau of Circulations, an independent agency that verifies media readership.
“Newsday executives would from time to time require the distributor to falsely increase the circulation volume in order to substantiate executive bonuses,” the suit charges.
False sales increases of 50 percent or more were allegedly reported “whenever there was a major news event, such as an earthquake, sporting event or other significant event,” the lawsuit said.
In a statement issued by Newsday and Hoy, the newspapers said the lawsuit “is completely without merit.”
The newspapers said the allegations involved less than 1 percent of Newsday’s circulation and less than 15 percent of Hoy’s. They also said the Audit Bureau of Circulations regularly audits the papers’ retail operations and has approved their circulation numbers.
“The source of the allegations is a disgruntled former employee who was a principal of a bankrupt distribution company that was an affiliate of Newsday bought in 1998,” they said in a joint statement.
Joseph Giaimo, the plaintiffs’ attorney, called Newsday’s contention “ludicrous,” saying the employee in question was not merely a worker but “became partners with Newsday. That’s when the pressure got so unbearable he couldn’t do it anymore.”
The class action suit, which seeks $100 million in punitive damages for the plaintiffs, was originally filed in Brooklyn federal court but transferred to Central Islip, L.I., Giaimo said.
No one at East Coast Realtors could be reached for comment. Douglaston Manor’s current operator, Bayside restaurateur Dominick Bruccoleri, said he was unaware of the lawsuit and the owner of Gallagher’s declined comment.
Giaimo would not disclose how the alleged fraud came to his attention, but the lawsuit said his clients found out about it in March 2002. Giaimo’s office is in the same Kew Gardens building as Newsday’s Queens bureau.
The alleged fraud took place beginning “sometime prior to 1995” and it was unknown whether it was continuing, according to the suit.
“Plaintiffs believe that there are, at a minimum, thousands of members in the class,” the lawsuit said.
Reach reporter Ayala Ben-Yehuda by e-mail at firstname.lastname@example.org or call 718-229-0300, Ext. 146.