Posted Sep 17, 2008 01:03 pm CDT
Updated: A group of current and former journalists at the Los Angeles Times, including former legal writer Henry Weinstein, have filed suit against billionaire Sam Zell challenging his buyout and management of the Tribune Co.
The suit claims Zell and other managers violated their fiduciary duty to the company’s Employee Stock Ownership Plan and violated the federal law regulating pensions, report the Wall Street Journal and Daily Journal (sub. req. for both publications).
The suit targets the $8.2 billion buyout that made the employee stock plan the majority owner of the company. Zell invested only about $315 million in exchange for a promissory note and the right to buy 40 percent of the company, the Wall Street Journal story says. The suit also says pension assets have been tapped to fund severance payments to employees.
“After engineering the transaction which essentially let someone buy an $8 billion house without making down payment, Zell redirected the company’s operations from running newspapers to servicing the new debt,” the complaint says.
The suit also contends Zell has destroyed the integrity of the Tribune brand by blurring the line between editorial and advertising.
Zell released a statement pledging to work quickly to see the lawsuit is dismissed. “The lawsuit filed yesterday is filled with frivolous and unfounded allegations, and I hope every partner in this company is as outraged as I am at having to spend the time and money required to defend ourselves against it,” he said. He noted that the media industry is facing an economy “in turmoil” and a tough advertising environment.
The suit was filed by Joseph Cotchett of Cotchett Pitre & McCarthy in Burlingame, Calif. Cotchett also recently announced he is filing a lawsuit on behalf of investors who say they were encouraged to buy preferred shares in Fannie Mae before its government takeover.
Updated on Sept. 18 to add a statement from Zell.