Enron Corp. sued Knight Ridder and the Tribune Co. for $31 million, alleging that the media giants defaulted on contracts related to the price of newsprint, according to an Associated Press report.

The lawsuit charges that Knight Ridder and the Tribune Co. violated contracts by canceling them early. As a result, Enron, which traded newsprint, is owed $22.9 million by the Chicago-based Tribune Co. and $8.7 million by Knight Ridder, of San Jose, Calif. The damages include termination fees plus the value of the remaining contracts.

Both companies signed multi-year contracts, known as swap transactions, with Enron to hedge against fluctuations in the price of newsprint. Enron signed swap transactions for a variety of commodities, including electricity, natural gas, and even space on high-speed Internet lines, according to an Associated Press story by business writer Brad Foss.

Under the agreements, the newspaper companies set the price they would pay for a specific amount of newsprint. If the actual market value of newsprint fell below the contract price, the companies paid Enron the difference. If the market value was higher than the contract price, Enron paid the remainder.

The Times Mirror Co., a unit of the Tribune Co., signed swap transactions with Enron in 1997 that were to terminate in April 2002, August 2002, and July 2003. The deals required Times Mirror to purchase some 13,000 metric tons of newsprint per month at prices ranging from $605 per metric ton to $618 per metric ton.

Tribune signed a seven-year agreement that was scheduled to terminate in December 2008. The deal required Tribune to purchase 25,000 metric tons annually for $605 per metric ton, the AP story said.

The media companies stopped making payments shortly after Enron revealed questionable accounting practices and filed for bankruptcy protection in December 2001.

Swap transactions usually carry a clause allowing either side to back out if their counterparty cannot live up to the terms of the deal, said Kevin Mason, an analyst at Equity Research Associates in Vancouver. That is the argument both Tribune and Knight Ridder are likely to make in court, Mason told the AP.

With the drop in advertising amid the economic downturn, newspapers have gotten thinner and the price of newsprint has fallen. In July, the average price for a metric ton of newsprint was $425.

A pre-trial conference was scheduled for Sept. 19 at the U.S. Bankruptcy Court in New York.