Tribune Co. employees at the time of company’s 2007 leveraged buy-out are eligible to join a class action lawsuit against the ESOP trustee that represented their interests in the takeover by billionaire Sam Zell, a federal judge ruled Friday.
Any Tribune Co. employee or beneficiary who received or were entitled to an allocation to their employee stock ownership plans (ESOP) stock or ESOP cash accounts are now automatically members of the class suing Lisle-based GreatBanc Trust Co. for failing to fulfill its fiduciary responsibility in the deal, said Daniel Feinberg, an attorney representing the employees and other plaintiffs in the lawsuit.
U.S. District Judge Rebecca Pallmeyer’s ruling is the second set-back in less than a week for GreatBanc, the remaining defendant with significant liability in a 2008 lawsuit brought by Dan Neil and other Los Angeles Times staffers against the architects of the ill-fated going-private transaction.
On Monday, Pallmeyer refused to cap damages against GreatBanc for purchasing $250 million in unregistered shares from Tribune Co. rather than buying Tribune stock on the open market in the first stage of the $8-billion deal that bankrupted the media conglomerate. Chicago-based Tribune Co.’s holdings include the Chicago Tribune and Los Angeles Times.
Pallmeyer ruled in November 2010 that GreatBanc violated its fiduciary duty by purchasing shares that couldn’t readily be traded, which is a prohibited transaction under the federal law governing ESOPs.
GreatBanc had sought to limit its liability to either the $2.8 million cash principal payment made on the loan that funded the stock purchase before Tribune filed for bankruptcy in 2008, or, alternatively, the $15.3 million principal and interest paid at that time.
The plaintiffs contend that about 11,000 current and former Tribune employees were harmed by the transaction and are eligible to collect damages. The class is limited to Tribune ESOP participants who received an allocation of Tribune stock and were employed on Dec. 31, 2008, Feinberg said.
Pallmeyer indicated that she may be willing to narrow the class, dropping about 4,000 workers who were layed off or or took buy-outs and signed waivers to ERISA litigation as part of their severance packages.
Federal authorities are also taking a closer look at the stock transfer at the heart of billionaire Sam Zell’s disastrous leveraged buyout of Tribune Co. The U.S. Labor Department is investigating Tribune Co.’s employee stock ownership plan, as well as GreatBanc, hired by Tribune Co. to serve as plan trustee and represent employee interests in the $8 billion deal, according to Tribune Co. bankruptcy filings.
The civil lawsuit brought by Neil has been trimmed down, and Tribune Co. , and most of its officials have been dropped as defendants. Pallmeyer ruled earlier that Tribune Chairman Zell wouldn’t face damages since he didn’t control the company in 2007 when the transactions occurred.