L.A. Times Former Staffers: Zell's Takeover a 'Classic Grift'

It would be hard to argue that Sam Zell really knows his way around the newspaper business. But does his floundering constitute grounds for legal action?

A group of former Los Angeles Times staffers say it does. Calling Zell's takeover of Tribune "a scam" and "a classic grift," they filed a class-action suit in federal court today, seeking to force Zell to hand over control of the company.

"This is basically a workers'-rights issue," says Dan Neil, an automotive columnist who won a Pulitzer Prize for his work at the Times. The suit hinges on what he and his fellow plaintiffs allege is Zell's misuse of the employee stock ownership plan through which Zell was able to acquire a controlling interest in Tribune for a mere $500 million. "The ESOP law was not written so companies could be taken over like this. It's an abuse of the ESOP structure and, I think, a fairly obvious effort to avoid paying taxes."

Among the other named plaintiffs are Corie Brown, a former Times wine and food writer; Myron Levin, a former consumer affairs writer; former writer Walter Roche Jr.; former D.C. bureau chief Jack Nelson; and Henry Weinstein, the legal-affairs writer often described by colleagues as "the conscience of the paper." All Tribune employees are eligible to join, says Neil.

It was Weinstein who first came up with the idea for the suit following a wave of layoffs in early summer. "It occurred to us that we, the employee-owners, had little or nothing to say over the way the company was being managed," says Neil. "We could see there were some mistakes being made, at least on the editorial side. So people started to buckle on their armor."

While layoffs and buyouts are the order of the day at virtually every big newspaper, what's happening at the Times and other Tribune newspapers is particularly egregious, says Neil. Tribune's papers, he says, are profitable; there would be no need for layoffs were it not for the "absurdly untenable" debt Zell piled on the company in making the deal.

"Zell is a corporate raider," says Neil. "He's not a publisher. Newspapers are too important to the public to be treated as just pieces on a financial chessboard."

A Tribune spokesman said the company had not yet reviewed the complaint and had no comment for now.

'L.A. Times' Refugees v. Sam Zell: The Complaint

What are you doing for the next three hours? Maybe you want to read the complete, 115-page text of the class-action complaint against Sam Zell and Tribune Co. today by former employees of the Los Angeles Times? It's here.

I asked Carl Tobias, a professor at the University of Richmond School of Law, for his opinion of the complaint. "I can't tell you they're going to win, but from what little I've seen, I think they have a credible claim, at least," he said.

For now, the main hurdle will be convincing the judge to grant the plaintiffs class certification. To do that, they'll have to show the issues are common to all the plaintiffs and there's efficiency in hearing all their complaints together. "I think they'll be able to satisfy it," says Tobias.

Comments

[swaps:]

This is an interesting post and the plaintiffs make an interesting argument.
But our court system is biased toward, shall we say, capital and not people when it comes to business.

2008 Sep 17 04:00 PM