Business & Real Estate

Judge sides with McClatchy trustees in fight with heir

Sacramento-based McClatchy publishes The Sacramento Bee and 29 other newspapers.
Sacramento-based McClatchy publishes The Sacramento Bee and 29 other newspapers. Bee file

A San Francisco court is poised to reject a lawsuit by a McClatchy family heir claiming that the company’s former chairman and trustees mishandled a family trust with the 2006 takeover of newspaper chain Knight Ridder Inc. for $4.4 billion.

The breach-of-trust allegation dates to a suit filed in 2012 in San Francisco Superior Court by Carlos McClatchy, son of James B. McClatchy, the firm’s former board chairman and publisher. James McClatchy died in 2006.

San Francisco Superior Court Judge Richard B. Ulmer Jr. on Tuesday issued a proposed decision siding with former McClatchy CEO Gary Pruitt – who oversaw the Knight Ridder transaction – and the other trustees. The judge will hold another hearing to allow lawyers for Carlos McClatchy to object, but such tentative rulings are rarely changed.

Carlos McClatchy alleged that Pruitt and other top officials of Sacramento-based McClatchy failed to properly administer the trust and preserve its value. The severe decline in McClatchy stock during the subsequent economic downturn ended dividend payments and eroded the financial value of its assets.

Ulmer found that when the trust was established in the 1970s under longtime company president Eleanor McClatchy, her top priority was to preserve McClatchy as an independent newspaper company controlled by the family, not to guarantee income for trust beneficiaries such as Carlos McClatchy.

“The paramount interest was that the trusts retain her stock to the sixth McClatchy generation, thus perpetuating the McClatchy control of its newspapers,” the judge wrote. “Income beneficiaries were a secondary consideration at best.”

John Poulos, an attorney representing past and present McClatchy officials, said the judge’s tentative ruling recognizes that McClatchy’s declining stock price was part of an industry-wide slump caused by the rise of online advertising and news.

“He said these are smart, thoughtful people who fulfilled their duties,” Poulos said. “That’s the best possible outcome.”

McClatchy publishes The Sacramento Bee and 29 other newspapers. Pruitt left the company in 2012 to become president and CEO of The Associated Press.

Mary Lynne Vellinga: 916-321-1094, @MLVellinga