A federal judge in Chicago ruled Dec. 17 that key parts of a lawsuit by current and former Los Angeles Times employees can proceed against Tribune Company chair Sam Zell and the bank that oversaw Zell’s take-over of the media giant, reported ProtectConsumerJustice.org. Plaintiffs in the suit are Dan Neil, Corie Brown, Henry Weinstein, Walter Roche, Jr., Myron Levin and Julie Makinen. Jack Nelson, hformer Washington Bureau Chief, the seventh plaintiff, has since passed away. 

Tribune Company had requested a dismissal of the suit but the U.S. District Judge said the plaintiffs “have stated a claim for knowing participation in a fiduciary breach.” What were dismissed, however, were claims against the Zell-appointed board members.

Claims not dismissed were those brought by the six current and former Los Angeles Times journalists who alleged that Zell and others breached their fiduciary duty to employees in the deal; they contended that $8.3 billion in debt incurred to buy the company was imprudent. They also claimed that Zell and others breached their fiduciary duty to protect employees’ interests under Employee Retirement and Income Security Act, ERISA.

Judeg Pallmeyer said that defendants’ claims “ are not so wild that the claim must be dismissed.” She said serious questions must be considered about whether GreatBanc adequately considered the risk created by the massive debt Tribune would be taking on in the deal.

When real estate magnate Zell took control of Tribune company, and its 10 newspapers and 25 television stations, he created an employee stock ownership plan that was supposed to benefit workers. Instead, Tribune declared bankruptcy within the first year, with debt in excess of $13 billion. Tribune company newspapers have since laid off hundreds of employees.

The judge refused to dismiss as well the claim that Tribune overpaid for the stock.

“Whether the ESOP paid adequate consideration for the stock it bought from Tribune Company is a question of fact, not one for which Defendants are entitled to judgment as a matter of law,” the judge wrote in the 25-page decision. Attorneys representing the plaintiffs hailed the ruling.

“This decision reaffirms our complaint. Judge Pallmeyer found that plaintiffs’ first claim raises serious questions regarding whether GreatBanc adequately considered the risk created by the great amount of debt Tribune would take on in the deal,” said Oakland attorney of Dan Feinberg of Lewis, Feinberg, Lee, Renaker & Jackson.

These decisions pave the way for a court proceeding, not yet scheduled.