Lawsuit could block deal with Trammell Crow

The suit accuses Penn and Trammell Crow of tryuing to reduce benefits. Although Friday's unanimous vote by University Trustees effectively allowed the outsourcing of most campus facilities management to Trammell Crow Co. to proceed, a recent lawsuit still threatens to block the deal. Several University employees sued Penn and Trammell Crow in U.S. District Court in Philadelphia October 23, accusing the defendants of illegally working the deal to reduce employees' benefits. The suit seeks class-action status for the approximately 180 employees who are losing their jobs with Penn and being forced to reapply for new positions with Dallas-based Trammell Crow. Stephen Pennington, an attorney representing the plaintiffs -- three employees, as well as one's wife -- said the lawsuit, if successful, has two possible outcomes: either a judge could invalidate the deal before March 1 -- the date Trammell Crow is scheduled to take over facilities management -- or the judge could award the employees damages in the future. The Trustees' approval "is something, that if you look at the complaint, we anticipated," Pennington said. The suit states that the University told the affected employees that "ratification of the 'outsourcing' agreement with [Trammell Crow] was a mere formality and that the agreement would be finalized on November 7, 1997 at a Board of Trustees meeting." The lawsuit accuses the University and Trammell Crow of violating the federal Employee Retirement Income Security Act of 1974, an employment benefits law that prohibits companies from outsourcing departments specifically to reduce benefits. For the suit to impact the outsourcing deal, the plaintiffs would have to prove that cutting benefits was the sole reason for the deal. Given University promises to maintain most benefits at their current levels after Trammell Crow takes over, that may be a difficult case to make. A judge will decide at a yet-to-be-scheduled pretrial conference whether to certify the case as a class action one, Pennington said. Although neither defendant has filed an official response to the lawsuit, both have recently denied the charges. In a filing last Thursday with the Securities and Exchange Commission, Trammell Crow said it "believes that it is an improper defendant in this lawsuit and will aggressively seek to be dismissed from the lawsuit." The company didn't elaborate, and officials declined to comment. University officials also declined to comment for this article. In another recent SEC filing, Trammell Crow said it may use some of the proceeds from its upcoming initial public stock offering to cover part of the $26 million it agreed to pay the University as part of the outsourcing deal. The company agreed to pay the University $26 million up-front, as well as $6 million at a later date. Penn will pay Trammell Crow about $5.25 million per year to manage the properties over the course of the 10-year contract. Trammell Crow didn't mention the October 8 Penn agreement in its first SEC filing September 3. There's nothing "very surprising or unusual" about a company redirecting future proceeds from its IPO, said Armando Gomes, a Finance professor in the Wharton School. During the month-long debate following the announcement of the deal, some University employees criticized the real-estate services company for timing the agreement to increase its stock's appeal to potential investors. Although no exact date is set for the IPO, the offering is still scheduled for this week or next week, according to Leigh Pierce, a spokesperson for New York-based Morgan Stanley, Dean Witter, Discover & Co., the offering's chief underwriter. The offering's 5 million shares will be priced at between $14 and $16 apiece, according to last Thursday's SEC filing

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