Judge Relieves Zell of Liability for Tribune ESOP Losses

August 11, 2010 (PLANSPONSOR.com) – A federal judge has ruled that Sam Zell, who took the Tribune Company private in an $8.3 billion-stock buyback two years ago, can’t be made to pay for its retirement fund losses.

Bloomberg reports that workers sought disgorgement of payments made to Zell and his closely held company EGI-TRB by Tribune in the acquisition, but U.S. District Judge Rebecca Pallmeyer in Chicago ruled that 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, Pallmeyer said, according to the news report.   

Zell and EGI, in a statement e-mailed to Bloomberg by spokeswoman Terry Holt, said they are “pleased that collectively the federal court opinion and the examiner’s report reflect that Sam Zell and EGI acted in good faith.” The statement said that both a court-appointed examiner’s report on the buyout and the “opinion recognize that Sam Zell and EGI-TRB are not financially liable for Tribune losses.”  

In addition to the money damages, the workers also seek a court order barring Zell and EGI-TRB from their fiduciary positions. Pallmeyer said the plaintiffs could continue to pursue that relief, but added it may be mooted by developments in Zell and his company’s bankruptcy case.   

Six workers filed the suit alleging that the buyout deal was imprudent because of the great amount of debt Tribune took on. The company filed for bankruptcy protection about a year after the buyback (see Tribune ESOP Fiduciary Breach Suit Moves Forward).  

Last December, Pallmeyer dismissed claims against several Tribune board members, ruling they had delegated their fiduciary duties to Greatbanc Trust Co., and moved forward claims against Greatbanc. The workers’ lawyers said they will continue to pursue the claims against Greatbanc, according to Bloomberg.