CHICAGO A New York federal judge has shot down an effort by creditors of the former Tribune Co to claw back $8 billion from shareholders who sold stock in the publisher's 2007 buyout, bringing a long-running legal battle sparked by its bankruptcy closer to an end.
The ruling stems from the tangled litigation following real estate mogul Sam Zell's leveraged buyout of the Chicago Tribune and Los Angeles Times publisher, which creditors blame for its 2008 bankruptcy.
In an attempt to recover money raised from the buyout, Tribune creditors have spent years pursuing unusual claims in court, such as trying to hold passive shareholders accountable for the failed deal.
In a ruling published on Monday, Judge Richard Sullivan dismissed such claims and absolved individual shareholders from complying with creditors' demands that they hand over the money from the sale of their stock in the buyout.
The shareholders included retired employees, whose pension funding was in the form of Tribune stock, and pension plans that also held stock at the time of the buyout and sold their shares.
Sullivan said the deal was approved by independent directors and that creditors lacked sufficient evidence to allege that those directors had tried to defraud them through the buyout of the publisher.
Lawyer Stephen Newman of Strook Strook & Lavin, which represented a California pension fund in the matter, said the opinion was significant because it protects shareholders and provides companies with guidelines to ensure the validity of M&A deals is not questioned later on.
"This litigation has been pending for a long time, but today's ruling is a major development that should put an end to it and give some peace of mind to the thousands of retirees who were dragged unwittingly into it," Newman said.
Sullivan's decision could be appealed, which could impact similar litigation brought over Lyondell Chemical Co's $12.5 billion buyout in 2007.
Lyondell filed for bankruptcy a little over a year after the buyout and creditors filed clawback lawsuits against Lyondell's former shareholders. A decision on a motion to dismiss that lawsuit is still pending.
The case is In Re Tribune Company Fraudulent Conveyance Litigation, U.S. District Court for the Southern District of New York, No. 11-MD-2296
(Editing by Matthew Lewis)