Billionaire Sam Zell and other former executives of the bankrupt Tribune Company have reached a $200 million deal to settle the bankruptcy trustee’s adversarial claims against them arising out of the disastrous 2007 leveraged buyout (LBO) of the company. According to press reports about the settlement, the $200 million settlement amount will “significantly” exceed the company’s remaining D&O insurance; the settlement amount in excess of the remaining insurance is to be split among the various individual defendants.  The settlement is subject to bankruptcy court approval. The trustee’s May 31, 2019 motion for court approval of the settlement can be found here. Jonathan Stempel’s June 12, 2019 Reuters article about the settlement can be found here.



The bankruptcy and the subsequent adversarial proceed both arise out of the December 2007 LBO in which Zell and other investors took the Tribune Company private. (The Tribune company owns or owned the Chicago Tribune, the Los Angeles Times, and a number of other media properties.) The LBO transaction resulted in an enormous debt load for the company. The transaction timing was poor, as global financial crisis arose only months after the deal was completed. (Interestingly, even before the financial crisis, Zell reportedly was referring to the transaction as the “deal from hell” owing to its complexity.) Within a year of the LBO, the company filed for bankruptcy.


In 2010, the bankruptcy trustee initiated an adversarial proceeding against former Tribune CEO Dennis FitzSimmons, Zell, and, eventually, a total of approximately 50 other former Tribune executives. The trustee’s complaint sought damages from the defendants for a variety of alleged legal violations, including for alleged breaches of fiduciary duty; alleged unjust enrichment claims, to recover payments made to certain of the defendants in connection with the LBO as well as incentive compensation payments allegedly made to certain of the executives; alleged illegal dividends; as well as liability for certain other alleged preferences and fraudulent conveyances.


Following years of litigation, in late 2018, the Federal District Court judge presiding the adversarial proceeding directed the parties (including also the company’s D&O insurers) to mediation. In March 2019, the parties reached an agreement in principle to settle the adversarial proceeding; the agreement was subsequently reduced to a settlement agreement, and on May 31 2019, the bankruptcy trustee filed a motion for court approval of the settlement.


The Settlement

According to the bankruptcy trustee’s motion for settlement approval, the company’s D&O insurers and the individual defendants agreed to settle the adversarial claims for a total of $200 million. According to the motion, “the total Settlement Payment is significantly in excess of the available insurance.”


In exchange for the payment, the defendants (and the insurers) are to receive complete releases. Interestingly, the settlement agreement also includes releases for certain other individual defendants who otherwise would have been entitled to the protection of the now-exhausted D&O insurance proceeds. The settlement agreement excludes from the releases a variety of other parties (including for example various advisors to the LBO transaction).


For those who are interested, the list of D&O insurers involved is set out as attachment 3 to the settlement agreement, which was in turn an attachment to a declaration submitted in connection with the motion for court approval of the settlement agreement (here).


According to the settlement agreement, “The Settling Defendants will be responsible for allocating individual responsibility for the Settlement Payment between and among the D&O Insurers and between and among the Settling Defendants.” As far as I can tell, there is nothing in the settlement agreement specifying how much the D&O insurers (collectively or individually) will contribute to the settlement, or how much the individuals (collectively or individually) will contribute. I can only imagine how much fun the insurers and the individuals have had trying to sort out their respective contributions in order to come up with a total of $200 million.



The bankruptcy and the adversarial litigation resulted from what clearly was a disastrous transaction. The ultimate settlement of the adversarial proceeding is noteworthy in a number of respects, not least simply because of its massive size. Any D&O claims settlements that reaches nine figures is noteworthy, but this one is particularly noteworthy – I am not aware of very many (if any) bankruptcy trustee claims that have reached this level.


But for me and I suspect for most others who worry about the liabilities of corporate directors and officers, the most noteworthy aspect is that as part of this settlement the individual defendants are being called upon to contribute toward the settlement out of their own assets. It isn’t clear from publicly available settlement documents how much the individuals are contributing. And whatever the individuals are contributing collectively, the aggregate amount is going to be split up among quite a number of people (including Zell himself, who is after all a billionaire). Just the same, the settlement documents do make it clear that the $200 settlement amount “significantly” exceeds the remaining amount of insurance. It does not take too much imagination to suppose that some of the individuals’ contributions likely will put a significant dent in lifetime savings.


There is another aspect of this settlement that is worth thinking about for those of us who worry about the liabilities of directors and officers. That has to do with the amount of insurance that was remaining at the end to try to settle this case. It is not as if the Tribune Company did not buy a lot of insurance. The list of insurers on the exhibit to the Settlement Agreement suggests that the company purchased a very significant amount of insurance. However, there can be little doubt that one of the reasons the $200 million settlement so “significantly” exceeded the remaining amount of insurance is that years of litigating what undoubtedly was complex litigation substantially depleted the amount of insurance that was available at the outset. While defending complex D&O suits will always deplete the available insurance, this practical consequence of mounting a vigorous defense is particularly noteworthy where, as here, the depletion of the insurance in the end leads to the individuals having to contribute to toward settlement of the claim out of their own personal assets.


There are a number of cautionary tales for directors and officers, their insurance advisors, and their insurers from this sequence of events. One clear lesson has to do with the perennial question about limits adequacy – that is, how much insurance is enough insurance?  So many corporate executives don’t want to listen to warnings that their companies should be buying more insurance. The executives might feel very differently about the additional limits question if they were to consider that the alternative to buying more insurance is their having to contribute toward a claims settlement out of their own assets. The fact is, as this case clearly shows, the liability that D&O insurance protects against is personal liability. If there isn’t enough insurance to defend and settle a serious claim, company executives could find themselves having no choice but to fund these amounts out of their own pocket.