By: Lynne Marek
Crain's Chicago Business
(Crain’s) — A judge in Chicago denied a request by the trustee of Tribune Co.’s employee stock ownership plan to cap damages for its liability in the demise of the plan.
Greatbanc Trust Co. asked the court to limit its damages to $15 million after Judge Rebecca Pallmeyer of U.S. District Court ruled last year that the trustee violated the Employee Retirement Income Security Act when it let the ESOP buy $250 million in shares as part of Tribune’s 2007 leveraged buyout by Chicago real estate mogul Sam Zell.
Tribune Co. employees suing over their collapsed employee stock ownership plan have won another victory in the case.
Earlier, U.S. District Court Judge Rebecca Pallmeyer granted partial summary judgment to the plaintiffs in one of their claims against the fiduciary, Citizens Financial Group Inc.-owned GreatBanc Trust Co.
Ms. Pallmeyer agreed with the employees that Lisle, Ill.-based GreatBanc engaged in a prohibited transaction when it approved a leveraged buyout-related stock purchase by the ESOP.
In both decisions, she sided with current and former employees who brought the case. The workers argued that Greatbanc, a unit of Lisle-based US Fiduciary Services Inc., failed to protect their interests because the shares became worthless when the media company filed for bankruptcy a year later.
The ESOP, tied to the $8.2 billion buyout of the media company in 2007, failed after the Chicago-based publisher of the Chicago Tribune and other newspapers filed for bankruptcy protection in December 2008.
“Plaintiffs allege that they, and other plan participants, would have the benefit of an ESOP with $250 million worth of assets had defendant abided by ERISA’s requirements, while today, due to defendant’s breach, that ESOP has nothing,” Ms. Pallmeyer wrote in her Feb. 28 decision. Plaintiffs “have standing to pursue their claim.”
Greatbanc sought a partial summary judgment from the court asking the judge to limit its liability to either the principal $2.8 million paid on the promissory note used to buy the stock or, at most, at $15.3 million in principal and interest paid on the note.
A Greatbanc spokeswoman said the company was “disappointed” with the ruling. “The decision does not change Greatbanc’s position that the damages should be zero,” she said.
In other related news, commercial real estate magnate Sam Zell, whose move to take Tribune Co. private helped the company land in Bankruptcy Court, is objecting to a reorganization plan that has the blessing of most of the media company's creditors.
Mr. Zell claims in his objection that the prevailing reorganization plan, along with the one it defeated, would expose him and others to "frivolous litigation."
"Both plans seek the broad settlement of causes of action that may be asserted against certain preferred third parties," Mr. Zell's lawyers wrote in the objection filed Tuesday in U.S. Bankruptcy Court in Delaware.
His lawyers said that a court examiner already determined that such suits against certain parties would be unlikely to succeed.
Other parties that also objected to the proposed reorganization plans include the Robert R. McCormick Foundation and the Cantigny Foundation. The foundations were longtime shareholders of Tribune but sold its shares in the Zell-backed buyout and worry that the settlement could subject them to the same type of litigation Mr. Zell fears.
How Tribune would handle the lawsuits, which in part challenge how the Chicago-based media company went private in 2007 and who made money off the transaction, was a deciding factor in which reorganization plan creditors would back.
The majority of Tribune's creditors support a plan that is backed by its official committee of unsecured creditors, J. P. Morgan Chase & Co. and private-equity firms Angelo Gordon & Co. L.P. and Oaktree Capital Management L.P. Also onboard are the holders of senior loan and bridge loan claims.
That plan was chosen over one proposed by Aurelius Capital Management, which holds a large number of senior noteholder claims. That plan called for continuing litigation.
A U.S. Bankruptcy Court judge in Delaware has final approval of the reorganization plan. He has scheduled a March 7 hearing to render his decision.
Mr. Zell orchestrated a buyout deal to take the parent of the Chicago Tribune and WGN private, but the transaction ended up saddling the media company with $13 billion in debt.
A bankruptcy examiner later determined that Tribune executives may have given bankers the wrong impression by saying that the buyout would not render the company insolvent.