Judge Rules in Employee Favor in ERISA Lawsuit

Chicago, ILWhen companies are bought out by or merged with other companies, the situation can be stressful for employees, especially when it comes to how those dealings affect the company's employee stock plan. Unfortunately for people with money in an employee savings plan or employee stock plan, when businesses are bought or merged, decisions are not always made in the best interests of employees. In some cases, however, employees can file lawsuits alleging ERISA plan violations.

For employees of Tribune Co., the problems reportedly began when Tribune was subject to a leveraged buyout by Sam Zell, a real estate mogul. As part of that buyout, which occurred in 2007, the company's employee stock ownership plan (ESOP) bought $250 million in Tribune shares. Employees sued the trustee of the ESOP, GreatBanc Trust Co., alleging the trustee violated the Employee Retirement Income Security Act (ERISA) in buying those shares.

In 2010, a judge agreed with the employees. The judge ruled GreatBanc violated its fiduciary duty to employees by purchasing $250 million in unregistered Tribune Co. stock instead of buying common stock on the open market. A year after the $250 million in shares were purchased, the company filed for bankruptcy and the employee stock option plan reportedly became worthless.

Following the judge's decision, GreatBanc filed a request to cap the damages of its liability to $15.3 million. According to Chicago Business (03/01/11), the judge refused to cap damages. "Plaintiffs allege that they, and other plan participants would have the benefit of an ESOP with $250 million worth of assets had defendant abided by ERISA's requirements, while today, due to defendants' breach, that ESOP has nothing," Judge Rebecca Pallmeyer wrote in her decision (as quoted in the Chicago Business article).

According to an article in the Chicago Tribune (11/18/10), federal authorities are also investigating Tribune Co.'s employee stock ownership plan and GreatBanc's role as trustee of the plan.

Plaintiffs who filed suit against GreatBanc also allege the trustee breached its fiduciary duty by not attempting to block the takeover of the Tribune. The lawsuit seeks $250 million, the value of stock purchased.

According to an expert quoted in the Tribune article, an ESOP cannot purchase unregistered stock if there is publicly available stock. GreatBanc, however, says purchases of unregistered stock are standard in the industry.