Friday, December 18, 2009

Sam Zell Must Face Tribune Employee Pension Plan Suit

By Andrew M. Harris

Dec. 18 (Bloomberg) -- Sam Zell, the real estate investor who took the Chicago-based Tribune Co. private in an $8.3 billion stock buyback two years ago, must face an employee lawsuit claiming he knowingly violated federal pension laws.

U.S. District Judge Rebecca Pallmeyer in Chicago rejected Zell’s request to dismiss the suit filed last year. The employees accuse Zell of working with board members and others who allegedly breached their fiduciary duty to the workers.

The judge, in a ruling posted yesterday on the court’s Web site, said that Zell helped engineer the transaction that left Tribune with almost $13 billion in debt even if he wasn’t responsible to the Employee Stock Ownership Plan that privatized the newspaper and broadcasting company.

The company, owner of the Chicago Tribune and Los Angeles Times newspapers, filed for Chapter 11 bankruptcy protection last year. The employee stock ownership plan that acquired the shares in the buyback is a federally protected pension plan.

As many as 10,000 workers may have lost money as a result of how the shareholder buyout was executed, said Daniel Feinberg, an attorney for the employees in Oakland, California. While only six workers are named as plaintiffs in the suit, he said he will seek class-action certification to sue on behalf of other employees.

“This deal was misguided from the very beginning,” Feinberg said today in a phone interview. “It was obvious from the start that this deal had a huge risk of insolvency because of the amount of debt.”

Pallmeyer dismissed claims against several Tribune board members, ruling they had delegated their fiduciary duty to Greatbanc Trust Co. The judge said in her ruling that Greatbanc, the trustee for the employee plan, must face the lawsuit.

Terry Holt, a spokeswoman for Zell, declined to comment.

Two lawyers for the Tribune and other defendants, David Bradford and Craig Martin, were said by their office to be travelling today and didn’t immediately respond to e-mail messages seeking comment.

The case is Neil v. Zell, 08cv6833, U.S. District Court, Northern District of Illinois (Chicago).

Sam Zell Sued By Tribune Writers
By Bob Norman

The lawsuit contends that, since the inception of the deal, it appears that Zell and his accessories have planned to enrich themselves, tax-free, by perverting laws passed by Congress intended to benefit rank and file American workers.

The employee-owners of Tribune Company had everything, including their retirement plans, at great risk and little to gain in this deal, while Zell had everything to gain and little at risk.

Among the deal's outrages outlined in the complaint: Zell set up a mechanism to buy 40% of the company – valued at more than $8 billion at the time the ESOP took ownership – for as little as $500 million. It’s a classic grift, played out under the cover of legal technicalities. The real losers in this deal, however, are Americans who rely on news and information collected and disseminated by the respected Tribune news organizations.

In the 1970s and later in the 1980s when Senators Bob Dole (R-Kansas), Russell Long (D-Louisiana) and others in Congress spearheaded efforts to promote ESOPs with generous tax benefits, the intent was to empower employees eager to own and manage the companies where they work.

When it comes to Tribune Company’s ESOP, nothing could be further from the truth.

Employees were never asked if they wanted to own Tribune Company.

They had no opportunity to question the wisdom of saddling a media company with $13 billion in debt at a time when the industry faces serious challenges.

Even though they are nominally the owners, they have no voice on the company’s board and no say in its management.

When Zell hung “You own this place now” banners at Tribune newspaper and TV stations across the country, employees could not know the high price they would pay for this “privilege.”

According to the complaint, Zell de-funded employees retirement packages, raided the employee pension fund for more than $400 million, and eliminated more than a thousand Tribune Co. jobs.

Meanwhile, Zell and his band of publishing rookies were wrecking the company’s marquee properties – including the Los Angeles Times, the Baltimore Sun, and the Chicago Tribune – alienating readers by launching aimless redesigns while dramatically cutting coverage. Seemingly ignorant of journalistic ethics, they, for instance, turned control of the Los Angeles Times Magazine over to the advertising staff, with no indication to the reader that this product is now a “pay-to-play” advertorial. All the while, revenues have continued to decline.

Despite a slowing economy, a precipitous drop in ad revenue in the real estate, classified, and automotive sectors along with the de-monetizing of content put on the web and the spiraling cost of newsprint – the Tribune Company continued to be profitable throughout this decade. Without the staggering debt load from the Zell deal, Tribune's newspapers and TV stations would be solidly profitable today – without eviscerating news gathering operations.

For more information contact:

Attorney for the Plaintiffs Plaintiffs’ spokesmen:
Joseph W. Cotchett, Dan Neil, and Philip L. Gregory
(818) 508-1000
Cotchett, Pitre & McCarthy
San Francisco Airport Office Center
840 Malcolm Road, Suite 200
Burlingame, CA 94010

1 comment:

Anonymous said...

I am not yet a union member, and I don't know alot about this business stuff, but I know I've seen this stuff sam Zell is pulling before...