Aug. 10 (Bloomberg) -- Sam Zell can’t be made to pay for Tribune Co. retirement fund losses, a judge ruled, rebuffing workers who claim the billionaire caused the company’s employee stock ownership plan to lose value.
The workers sued Zell and his closely held company, EGI-TRB LLC, in 2008 after he took the Chicago-based newspaper publisher private in an $8.3 billion transaction. They alleged Zell used their plan to buy back shares, burdening it with unsustainable debt.
While the workers sought disgorgement of payments made to Zell and EGI-TRB by Tribune in the acquisition, U.S. District Judge Rebecca Pallmeyer in Chicago ruled yesterday they can’t because Tribune isn’t directly involved in the lawsuit.
“Tribune is not a party to this case, so the court cannot order relief that would involve repayment of funds that originated with Tribune,” and not the employees’ stock ownership plan, the judge said. The workers say Zell is a fiduciary for the plan.
The publisher filed for bankruptcy court protection in Wilmington, Delaware, less than one year after going private. Some creditors have alleged the buyout was a fraudulent transfer because it added more than $8 billion in debt to the company while benefiting only Zell and his investors.
Creditors have won a delay in reorganization of the company while they review evidence supporting a court-appointed examiner’s report on the buyout.
Zell and EGI, in a statement e-mailed by spokeswoman Terry Holt, said they were “pleased that collectively the federal court opinion and the examiner’s report reflect that Sam Zell and EGI acted in good faith.”
“Both the report and opinion recognize that Sam Zell and EGI-TRB are not financially liable for Tribune losses,” according to the statement. “Further the examiner’s report recognized that EGI also ‘lost a lot of money.”
Dan Neil and Eric Bailey, who were reporters for Tribune’s Los Angeles Times newspaper, filed the case before Pallmeyer as a group lawsuit seeking to represent themselves and any other participant or beneficiary in the stock ownership plan.
In addition to the money damages, they also seek a court order barring Zell and EGI-TRB from their fiduciary positions.
Pallmeyer, in her ruling, said the plaintiffs could continue to pursue that relief, adding that it may be mooted by developments in the bankruptcy case. The judge last year denied Zell’s request to dismiss the suit, while eliminating several Tribune board members from the case.
“Our clients and the other Tribune ESOP participants have been the main victims of this fiasco,” Daniel Feinberg, a lawyer for the plaintiffs with Oakland, California-based Lewis, Feinberg, Lee, Renaker & Jackson PC, said in a phone interview.
Tribune’s bankruptcy and the statutory limits of the federal Employee Retirement Income Security Act, or ERISA, under which the case was brought, narrow the workers’ options with respect to Zell, Feinberg said.
The employees will continue to press their claim against the plan’s trustee and principal fiduciary, Greatbanc Trust Co. of Lisle, Illinois, he said.
“The ESOP owns worthless stock,” Feinberg said. “This was supposed to be part of their retirement.”
The case is Neil v. Zell, 08cv6833, U.S. District Court, Northern District of Illinois (Chicago).
--With assistance from Steven Church in Wilmington. Editors: Fred Strasser, Stephen Farr
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