Editors note: The original version of this story, published March 17, should have made clear that the March 18 court date was for a status hearing only. It also implied that the ESOP was considered employees' "chief source" of retirement income; it should have been more clear that the stock fund was intended to supplement existing plans. These changes -- and other, more minor edits -- are reflected in the version below.
As if plunging circulation, vanishing ad revenues and job losses weren't tormenting the Los Angeles Times enough, an employee lawsuit making its way through a Chicago court accuses Tribune Co. chairman Sam Zell and others of adding a financially ruinous company-stock plan to thousands of newspaper workers' retirement plans.
Lawyers representing six L.A. Times current and former writers are facing off against attorneys defending Zell and the executive team who together created an Employee Stock Ownership Plan that allegedly saddled workers with nearly $13 billion in Zell-acquired debt.
Tribune Company -- the owner of the Chicago Tribune, the L.A. Times and a constellation of other print and electronic media outlets (and, until recently, the Chicago Cubs baseball team) -- was originally included as a defendant but was dismissed.
The plaintiffs include former staffers Dan Neil, Henry Weinstein, Corie Brown, Walter Roche Jr., Myron Levin and Julie Makinen.
At the heart of the federal suit lies a stock ownership plan that Zell, a Chicago real-estate tycoon, first proposed in early 2007, prior to his buyout of the company, and which was accepted by Tribune that April.
Turning Tribune into a stock ownership plan-owned entity allowed the company to become an S-Corporation with a hugely reduced tax burden. GreatBanc, an Illinois-headquartered trust company, acted as the plan’s trustee and is now a co-defendant in the suit.
The stock ownership plan was put in place for L.A. Times and other Tribune Co. employees in place of company contributions to their 401(k) plans (to which they could still make their own contributions). But while it technically made employees stockholder-owners of their company, it hardly made them masters of their destiny, the suit alleges; in reality, it says, it made them slaves to a debt generated by Zell and others.
(The Tribune Co. has declined to comment on the lawsuit, while Jenner & Block, the law firm representing the defendants, did not respond to requests for interviews.)
The amended complaint is a dense, 109-page document that delves into the esoteric world of pension-fund law and taxation. It boils down to two charges:
The first is that Zell, along with the GreatBanc Trust Co. and 22 individuals, in moving Tribune from a publicly traded company to a private corporation solely owned by its stock ownership plan, so recklessly leveraged its purchase that it made bankruptcy inevitable and amounted to fiduciary negligence under the Employee Retirement and Income Security Act.
The second charge involves violations of the security acts rules -- including one that was broken when the ownership plan purchased unregistered Tribune stock when higher-grade, marketable Tribune stock was available.
