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Dan Neil and Eric Bailey, Individuals, On Behalf of Themselves and v. Samuel Zell; Greatbanc Trust Company

March 4, 2011


The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer


Plaintiffs Dan Neil and Eric Bailey, former employees of the Tribune Company, have brought this action under the Employee Retirement Income Security Act ("ERISA"). Neil and Bailey charge Defendants GreatBanc, Sam Zell, and EGI-TRB L.L.C., with breaches of fiduciary duty stemming from the leveraged buyout of the Tribune Company by the Employee Stock Ownership Plan ("ESOP") of which Plaintiffs were participants. Plaintiffs now move for certification of a class of ESOP participants. Defendants Zell and EGI-TRB have taken no position on the propriety of class certification, but Defendant GreatBanc objects, and all three Defendants challenge the adequacy of Neil and Bailey as class representatives. For the reasons explained herein, Plaintiffs' motion to certify the class is granted and Plaintiffs' counsel are appointed class counsel.


Plaintiffs' claims arise out of a leveraged buyout that transformed the Tribune Company from a publicly-held corporation into an employee-owned company through the creation of an Employee Stock Ownership Plan ("ESOP") and the ESOP's purchase of the Tribune Company. The Tribune Company declared bankruptcy months after going private, and Plaintiffs allege that the stock held by ESOP participants is worthless.

As detailed in several opinions, Plaintiffs allege a number of claims against GreatBanc pursuant to ERISA § 409, 29 U.S.C. § 1109; ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2); and ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). (Third Am. Compl. ¶¶ 170, 171, 172, 186, 187, 188.) Section 502(a)(2) is the enforcement provision allowing a plan participant to bring a civil action against a fiduciary "to make good to such plan any losses to the plan resulting from . . . [a] breach" as specified in Section 409. ERISA § 409, 29 U.S.C. § 1109; ERISA § 502(a)(2), 29 U.S.C. §1132(a)(2). Section 502(a)(3) provides for equitable relief "to redress [ERISA] violations" or "to enjoin any act or practice" which violates ERISA. ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3).

In November 2010, the court granted summary judgment in favor of Plaintiffs on their claim that GreatBanc breached its fiduciary duty in approving the ESOP's purchase of $250 million worth of Tribune Company stock because that stock did not meet the Tax Code's definition of "qualifying employer security" as required by ERISA. See ERISA § 406(a)(1)(E), 29 U.S.C. § 1106(a)(1)(E); Neil v. Zell, No. 08 C 6833, ___ F. Supp. 2d ___, 2010 WL 4670895, at *9 (N.D. Ill. Nov. 9, 2010). The court previously limited any potential recovery from Zell and EGI-TRB to equitable relief because Zell and EGI-TRB did not become fiduciaries of the ESOP until after the ESOP's purchase of the Tribune Company, and thus could not have breached any fiduciary duty to the ESOP (or Plaintiffs) arising from the going-private transaction. Neil v. Zell, 677 F. Supp. 2d 1010, 1021-22 (N.D. Ill. 2009). The court also held that "all [equitable] claims for relief in the nature of returning property that originated with Tribune must be dismissed"--specifically, Plaintiffs' claim for disgorgement of payments made to Zell and EGI-TRB pursuant to § 502(a)(3). Neil v. Zell, No. 08 C 6833, 2010 WL 3167293, at *2 (N.D. Ill. Aug. 9, 2010). With respect to Defendant GreatBanc, however, the court has concluded that Plaintiffs have the necessary statutory and Article III standing to proceed here, and has rejected Defendant GreatBanc's motion for a ruling that would limit the amount of damages Plaintiffs could potentially receive to $2.8 million or $15.3 million. See Neil v. Zell, No. 08 C 6833, ___F. Supp. 2d ___, 2011 WL 722747 (N.D. Ill. Feb. 28, 2011).

Plaintiffs now ask the court to certify a class of "[a]ll individuals who are, or at any time on or after the 2007 Leveraged ESOP Transaction, were (1) participants in the Tribune ESOP who received or were entitled to receive an allocation to their ESOP Stock Account and/or ESOP Cash Account; or (2) beneficiaries of such participants." (Mot. for Class Cert. [259] ¶ 1.) The class would exclude "Defendants and their affiliates; the officers and directors of any Defendant or of any entity in which a Defendant has a controlling interest; and legal representatives, successors, and assigns of any such excluded persons." (Id. ¶ 2.) Defendant GreatBanc argues that the class should not be certified mainly because Neil and Bailey "are unsuitable class representatives." (GreatBanc Resp. at 2.) Specifically, GreatBanc argues that Neil and Bailey are driven by "personal animosity" toward Zell and "personal views" that the ESOP transaction "pose[s] a threat to the free press in America." (Id. at 2-3.) Further, GreatBanc argues that Neil and Bailey have economic interests adverse to those of the proposed class. (Id.) Though Zell and EGI-TRB do not take a "formal stance" on class certification, they do argue that Neil and Bailey "are abusing ERISA to pursue claims improperly against Zell/EGI-TRB for personal reasons that potentially conflict with and could impair the faithful performance of their duties as class representatives." (Zell Resp. [312] at 1-2.)


Federal Rule of Civil Procedure 23 sets out the criteria for certification of a class action. First, the class must satisfy all four criteria of Rule 23(a): "numerosity, common questions of law or fact, typicality of claims or defenses, and adequacy of representation." Spano v. The Boeing Co., ___ F.3d ___, 2011 WL 183974, at *8 (7th Cir. Jan. 21, 2011). The class must also satisfy one of the provisions of 23(b). Rule 23(b)(1) provides for a non-opt-out class action where individual actions could "establish incompatible standards of conduct for the party opposing the class" or "as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications." FED. R. CIV. P. 23(b)(1). Rule 23(b)(2) allows class certification for an action seeking "final injunctive relief or corresponding declaratory relief." FED. R. CIV. P. 23(b)(2).

Finally, Rule 23(b)(3) is appropriate for "a case in which the common questions predominate and class treatment is superior." Spano, 2011 WL 183974, at *8. If the requirements of Rule 23 have been satisfied, the court must certify the class action. "By its terms [Rule 23] creates a categorical rule entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action." Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., 130 S.Ct. 1431, 1437 (2010).

I. 23(a)

A. Numerosity

Plaintiffs estimate, based on plan documents, that the class contains 11,000 participants. (Class Br. at 8.) "Although there is no 'bright line' test for numerosity, a class of forty is generally sufficient to satisfy Rule 23(a)(1)." McCabe v. Crawford & Co., 210 F.R.D. 631, 643 (N.D. Ill. 2002). Defendant GreatBanc does not dispute that sufficient numerosity exists for class certification (in fact, Defendant does not mention numerosity in its response brief). GreatBanc does suggest that the class should be narrowed because nearly 4,000 Tribune employees have signed releases waiving any ERISA claims. (GreatBanc Resp. at 2.) The court will address that issue below, but, even if those releases are effective, Plaintiffs have established that the class is sufficiently numerous to satisfy 23(a).

B. Commonality

The commonality requirement may be satisfied by "a common nucleus of operative fact." Keele v. Wexler, 149 F.3d 589, 594 (7th Cir. 1998) (quotation and citation omitted). "Common nuclei of fact are typically manifest where . . . the defendants have engaged in standardized conduct towards members of the proposed class." Id. Plaintiffs believe this requirement is "more than satisfied" because their allegations against Defendants "arise from the exact same common nucleus of operative facts, without factual variations between class members, and the legal claims are identical for all class members." (Class Br. at 9.) The court agrees. GreatBanc acknowledges, in passing, that "there are certain common questions of law or fact," (GreatBanc Resp. at 27), and Plaintiffs' allegations all unquestionably stem from the same occurrence--the Tribune Company's going-private transaction. The questions of fact that will need to be answered as this litigation progresses are the same as to every member of the proposed Plaintiff class. The court finds the commonality requirement satisfied.

C. Typicality

The typicality requirement "is meant to ensure that the named representative's claims have the same essential characteristics as the claims of the class at large." Oshana v. Coca-Cola Co., 472 F.3d 506, 514 (7th Cir. 2006) (quotation and citation omitted). The Seventh Circuit addressed the typicality requirement very recently (after this motion was briefed) in Spano. In that case, employee-participants in Boeing's ERISA investment plan charged that Boeing and others breached their fiduciary duties by causing the plan to pay excessive fees, offering imprudent investment options as part of the plan, and concealing information regarding these fees and investment options. 2011 WL 183974, at *1. The investment plan at issue in Spano differed significantly from the Tribune ESOP in that it offered various funds that participants could choose from in which to invest the employer's contributions, such as the "technology fund" or "Boeing stock fund." Id. at *11. The court found that the proposed class did not satisfy the typicality requirement because participants in the Boeing plan, whom Plaintiffs urged should comprise the class, were not all necessarily invested in the same funds. "[I]t seems that a class representative in a defined-contribution case would at a minimum need to have invested in the same funds as the class members. . . . [W]e think that there must be a congruence between the investments held by the named plaintiff and those held by members of the class he or she wishes to represent." Id. There is no dispute here that Neil and Bailey held the same investment as did all other members of the Tribune ESOP--the ESOP invested only in Tribune Company stock.

GreatBanc does raise one valid objection that implicates typicality concerns, which is that nearly 4,000 ESOP participants signed separation agreements or releases that might bar their claims. (GreatBanc Resp. at 24 n.14.) The Seventh Circuit found a similar release did bar claims for breach of fiduciary duty. See Howell v. Motorola, Inc., ___ F.3d ___, 2011 WL 183966, at * 8 (7th Cir. Jan. 21, 2011) (a proposed class representative who signed a release "cannot now claim that his account would have been worth even more [post-release] had the defendants not breached a fiduciary duty"). A finding that the named plaintiffs have signed a release can defeat typicality. "The requirement that the proposed representatives not be subject to unique defenses can be seen as an offshoot of the requirement that the representative have circumstances that are sufficiently similar to those of the class." In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 598 (3d Cir. 2009). The Spano court cited Schering Plough in describing the typicality requirement, explaining that in Schering Plough, "[a]lthough [plaintiff's] legal claims appeared to be identical to those of the class she sought to represent, the release that she signed gave rise to a possible defense that was unique to her; indeed, it was possible that she might not have a monetary stake in the outcome at all." Spano, 2011 WL 183974, at *9. Defendant here does not argue that the proposed representatives, Neil and Bailey, themselves signed a release, however. To the extent that the releases are determined to be valid, that would serve to whittle down the defined class, but does not defeat the named representatives' typicality.

Defendant GreatBanc does generally argue that "Plaintiffs' claims are not typical" but does not appear to offer any specific objections on the basis of typicality other than the release issue. (GreatBanc Resp. at 18.) Instead, its other objections in this area appear mainly focused on adequacy of representation. The ...

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