Legal News

Journalists file suit against CEO of L.A. Times

By Jason Siegel

Six current and former journalists at the Los Angeles Times have filed a class action complaint against the newspaper's parent company, the Tribune Co., and its current chairman and chief executive, Samuel Zell, claiming that he and others have breached their fiduciary duties and devalued the stock ownership plan.

The suit was filed in federal court in Los Angeles on behalf of all current and former employees who once participated in the company's employee stock option plan (ESOP), which owns 100% of the Tribune Co. Dan Neil et al v. Samuel Zell et al., No. 08-cv-06040 (C.D. Calif.).

Since infusing cash into Tribune in December 2007, Zell, who had touted the benefits of the employee ownership element of his acquisition deal, has, along with several others, mismanaged the company for his own benefit, the suit claims. Because the deal required borrowing against assets, Tribune immediately went from about $4 billion to $13 billion in debt.

The suit alleges numerous violations of the Employee Retirement Income Security Act (ERISA).

"Sam Zell's plan could not be clearer," the suit says. "He took the Tribune Company private with the intention of breaking up and selling the assets because he saw a collection of assets worth billions of dollars that he could purchase at a bargain price with a minimal outlay of his own money."

In addition to the Los Angeles Times, Tribune owns the Chicago Tribune, the Baltimore Sun and dozens of other daily newspapers, Web sites, television stations and the Chicago Cubs baseball team.

The suit claims that Zell and others have maintained control of the company, even though its employees technically own Tribune. Specifically, he engineered a deal in which he could obtain 40% of the company for about $500 million, a fraction of Tribune's value. Additionally, he "pursued a strategy of slash and burn" by eliminating more than 1,100 jobs, the suit says.

The suit seeks damages for losses in the value of the ESOP, punitive damages and the removal of Zell and others from their fiduciary positions and the board of directors.

Joseph Cotchett and Philip Gregory, principals at Burlingame, Calif.-based Cotchett, Pitre & McCarthy, represent the plaintiffs in the lawsuit: Dan Neil, Pulitzer Prize-winning auto critic for the Los Angeles Times; Corie Brown, former wine and food writer at the Los Angeles Times; Henry Weinstein, former legal affairs writer at the Los Angeles Times; Myron Levin, former consumer affairs writer at the Los Angeles Times; Walter Roche Jr., former writer at the Los Angeles Times; and Jack Nelson, former Washington, D.C., bureau chief for the Los Angeles Times.

In addition to Tribune and Zell, the suit was filed against the trustee of the Tribune ESOP; Tribune's employee benefits committee, which administers the ESOP; five directors of Tribune's board: and three former board members, including Tribune's former chief executive and chairman Dennis J. Fitzsimons.

Gary Weitman, a Tribune spokesman, declined to comment.

-- Amanda Bronstad

Full post as published by Legal Pad | LA on September 17, 2008 (boomark / email).