Tribune ESOP Fiduciary Breach Suit Moves Forward

December 21, 2009 (PLANSPONSOR.com) – A federal court has moved forward claims that fiduciaries for the Tribune Company Employee Stock Ownership Plan (ESOP) breached their duty to the plan when real estate investor Sam Zell took the company private in an $8.3 billion stock buyback two years ago.

U.S. District Judge Rebecca Pallmeyer of the U.S. District Court for the Northern District of Illinois rejected Zell’s request to dismiss the suit filed last year, saying that Zell helped engineer the transaction that left Tribune with almost $13 billion in debt even if he wasn’t a fiduciary to the ESOP at the time. She cited a U.S. Supreme Court decision that non-fiduciary parties in interest can be held liable for fiduciary breaches if they knowingly participate in them. 

Pallmeyer dismissed claims against several Tribune board members, ruling they had delegated their fiduciary duty to Greatbanc Trust Co., and moved forward claims against Greatbanc. 

Six workers filed the suit alleging that the buyout deal was imprudent because of the great amount of debt Tribune took on. (see ESOP at Center of Chicago Tribune $8.2B Deal). The company filed for bankruptcy protection about a year after the buyback.

The workers also claim that several parts of the deal were prohibited transactions under the Employee Retirement Income Security Act (ERISA). They allege that the ESOP paid too much for its shares of Tribune Company, that the purchase was improper because those shares were not immediately marketable, that Tribune Company paid too much for the shares it bought to take the company private, that it was improper for the ESOP to bargain away its voting rights to Zell, and that a voting agreement with the company’s biggest shareholder was impermissible (see DoL Subpoenas Tribune on ESOP).

The court’s opinion is here.

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