A group of former and current Los Angeles Times employees settled a federal lawsuit against GreatBanc Trust, the trustee for Tribune Co.'s employee stock ownership plan, for $32 million.
The employees contended that the leveraged buyout that resulted in creation of the ownership plan violated federal pension law.
The suit, filed in 2008, also included the newspaper’s corporate parent, Tribune Co., and its chairman, Chicago-based real estate mogul Sam Zell, but they were subsequently dismissed from the litigation.
Tribune’s employees became owners of the company when it was taken private in a Zell-engineered 2007 transaction that created an employee stock ownership plan (ESOP) for the tax benefits it offered and pushed Tribune’s debt to $12.5 billion. The company filed for bankruptcy protection one year later.
GreatBanc Trust, the trustee for the ESOP, was also a defendant in the suit.
Last November, a federal district court in Chicago ruled that GreatBanc violated pension laws by purchasing unregistered shares in Tribune for the ESOP at a time when there were still company shares trading on the New York Stock Exchange.
That ruling gave weight to the employee suit, providing the impetus for a settlement, said Daniel Feinberg, an Oakland attorney who represented the employees.
About 13,000 current and former Tribune employees will divide the $32-million settlement, which will go into their retirement accounts after legal fees are deducted. The amount each employee receives will depend on how many shares each was allocated in the ESOP, which was linked to salaries.
The recipients must have been employed by Tribune on or after Dec. 31, 2008, and have received shares in the ESOP. In addition to the Los Angeles Times, Tribune owns KTLA-TV Channel 5, the Chicago Tribune and other media properties.
Attorneys are asking for 25% of the settlement, or $8 million.
The payment will be funded mostly by insurers contributing $26.5 million. Tribune will pay $4.5 million, and GreatBanc Trust will add $1 million.
Under the terms of the agreement, Tribune made no admission of wrongdoing or liability. The agreement also resolves claims against Tribune asserted by the Labor Department in connection with the ESOP and ends the agency’s objections to Tribune’s proposed plan to emerge from bankruptcy.
“This is a good result for all parties and ensures a smoother exit from bankruptcy once we have a confirmed plan,” said Don Liebentritt, Tribune chief restructuring officer.
The lead plaintiff in the case was Dan Neil, a former Times auto columnist who now works for the Wall Street Journal.
“Whatever money comes to the members of the class isn’t much cash, but at least it was acknowledgment that they were wronged,” Neil said. “This was a horrible deal for the employees of Tribune.”