• by Erik Sass  @eriksass1, November 16, 2010

Sam Zell, the billionaire real estate mogul who engineered the disastrous 2007 buyout of Tribune Co., said he will resign his position as chairman shortly after the company exits bankruptcy.

This departure, reported by The Wall Street Journal, will provide the symbolic capstone (some might say gravestone) for the high-profile corporate debacle initiated by Zell, who formerly called himself "the grave dancer," boasting of his ability to revive moribund companies.

Zell resigned his role as CEO back in December 2009.

"When we're done with the bankruptcy process, I will turn it over to whoever the creditors decide they want to run it, and wish them a lot of good luck," Zell told the WSJ in a report published Tuesday.

Indeed, good luck was something his management team conspicuously lacked. Shortly after completing a heavily leveraged buyout which left the struggling newspaper publisher burdened with billions in debt, Zell and company contended with a secular decline in the newspaper business compounded by a general economic meltdown.

Zell was forced to take Tribune Co. into Chapter 11 bankruptcy protection in December 2008, where it remains to this day -- paralyzed by ongoing legal disputes between junior and senior creditors, including various bondholders, firms specializing in distressed debt, and lenders large and small.

Over the last year, unsecured creditors have argued that the entire deal was doomed to bankruptcy from the beginning, making it a "fraudulent conveyance" and therefore illegitimate. By calling the legitimacy of the original buyout deal into question, the unsecured creditors questioned the right of current management and lenders behind the deal to plan the bankruptcy reorganization. They also laid the foundation for litigation, which is just getting started.

Earlier this month the Committee of Unsecured Creditors, which includes eight Tribune bondholders, brought two lawsuits against most of the key principals involved in the original 2007 deal to take the company private.

Altogether, over 100 individuals or companies were named as defendants in the two lawsuits. These include chairman Sam Zell, former CEO Dennis FitzSimons, Tribune board members past and present, including former directors Betsy Holden and William Osborn, major shareholders like the Chandler Trust, and some of the secured creditors who helped fund the deal.

Among the big banks named as defendants in the suit are JPMorgan Chase, Merrill Lynch, Citigroup, and Wells Fargo & Co. Valuation Research Corp. is being sued for breach of fiduciary duty and unjust enrichment, while Morgan Stanley, which served as an adviser to Tribune's special committee overseeing the transaction, is being sued for professional malpractice.

Separately, another lawsuit (apart from the bankruptcy court case) was brought Friday by a group calling itself the Step-One Credit Agreement Lenders (SoCal, composed of distressed debt owners Alden Global Capital, Greywolf Capital, and Arrowgrass) against JPMorgan, Merrill Lynch, Citicorp and Bank of America. Like the unsecured creditors, the distressed debt holders cite findings by independent examiner Kenneth Klee, released this summer, suggesting that the second round of funding may have been fraudulent.

Separately, the last few weeks have witnessed a steady exodus of former Tribune executives appointed by Zell. In mid-October, chief innovation officer Lee Abrams resigned after sending a racy, controversial email that many in the company deemed offensive. CEO Randy Michaels resigned a week later, followed by interactive president Marc Chase, senior vice president and COO Jeff Kapugi, executive vice president Carolyn Gilbert, interactive vice president for research and marketing John Martin, Barb Buchwald, senior vice president for human resources, and human resources vice presidents Ken Perry and Louise Sheard.