Zellous Counsel

Chicago billionaire Sam Zell shocked the button-downed newspaper industry in April

when he successfully led a going-private transaction of the Tribune Co., owners of the Chicago Tribune, the Los Angeles Times, the Chicago Cubs and a host of radio and TV stations. Known mostly for his real estate prowess and maverick personality, Zell pulled off the transaction by orchestrating a head-spinning $8.2 billion deal structured around a complex ESOP. The lawyer behind the transaction was Joseph Paolucci, general counsel of Equity Group Investments (EGI), Zell's investment company.

Paolucci grew up in Joliet, a far western suburb of Chicago. His dad, who emigrated from Italy in 1958, was a tailor at an upscale clothing store in Chicago. Paolucci graduated from the University of Chicago in 1985 and then went to law school at Cornell. After graduating from law school in 1989, he bounced around various firms in Chicago, including Altheimer & Gray and Seyfarth Shaw, before taking a job in 1996 with Zell's captive law firm--Rosenberg & Liebentritt. The 35-lawyer firm provided legal advice to all of Zell's companies before Zell disbanded it in 1999 after spinning off his real estate portfolio into three REITs. Zell kept only four lawyers from the firm. Paolucci was one of them. Zell tapped Paolucci to become deputy general counsel of EGI and then later promoted him to CLO.

Q. Did you always want to be a lawyer?

A. I wanted to be a doctor, but then I volunteered at a hospital the summer before I started college and hated it. It was depressing. So I went to law

school instead.

Q. Did you like law school?

A. I hated it. It was frustrating. I was very interested in business law, but everything seemed geared toward litigation--although there didn't seem to be many students who wanted to litigate.

Q. How did you end up working for Zell?

A. While at Seyfarth I got an offer to go to Katten Muchin as an income partner. However, I had to provide client references. One of my references was Don Liebentritt, who at the time was the general counsel of Equity Group. He told them great things about me and then hung up the phone and called me and said, "You need to come over here and talk to us before you make any decisions." So I did, and within a couple of weeks, I was working for Zell's captive law firm.

Q. What is a captive law firm?

A. Sam created the firm to serve the legal needs of his affiliates. So the firm wasn't allowed to do any work for anyone or any entity outside of Sam's affiliates.

Q. Did you meet Sam before you started at his firm?

A. No. The first time I met Sam was when I had to get a signature from him when I first joined the firm in 1996. I approached the doorway very cautiously.

Q. Is he intimidating?

A. A little. He's very smart and irreverent. He doesn't put up with any bullshit from anybody. And he does use a lot of coarse language and is not someone who is going to be careful about what he says or does around people. Sam has a meeting every Monday with the senior executives. And, you know, he gives people a lot of shit and tries to get under people's skin. He enjoys doing it. But we all enjoy doing it. We are like family in a way. Outsiders are often surprised by how open we are with each other and what we say to each other.

Q. Were you surprised when Sam closed down the firm?

A. It was a total shock. I had absolutely no idea it was happening. I was on paternity leave at the time. I had just adopted two babies from Romania. They closed the firm right before my leave ended. They gave me the bad news and then asked me to join Equity Group Investments as deputy general counsel.

Q. What is EGI?

A. It is the entity that employs everybody that works for Sam's private investment company. We don't make investments through this entity. Our investments are all made through LLCs that we create specifically for that investment.

Q. So EGI houses the advisers, accountants and the deal guys?

A. That's right. There is an investment team, and then we have myself, as the senior lawyer, and I have an associate who works with me. And we have a boatload of accountants and tax people.

Q. What takes up most of your time?

A. It really depends on what we are doing. I was up to my ears in the Tribune transaction every single day. I was focused on negotiating the most important terms of the transaction documents and then coordinating them among outside counsel. I never had to do so much coordinating in my life. We had four law firms working on this deal.

Q. That had to be tough.

A. It was difficult because the lawyers would always come to me with their questions, even if it involved one of the lawyers from a different firm. Law firms hate talking to each other. It was pretty frustrating.

Q. The law firm bills from the Tribune deal have to be huge, right?

A. Yeah. They are going to be pretty hefty. These will be the biggest bills I have ever had to deal with.

Q. How close does Sam get to the legal side of these deals?

A. I will only go to him on the major legal issues. I know what his hot buttons are. You can't go to Sam with a laundry list of issues. You have got to go in there with a short-list of about 20.

Q. What is the one thing people don't know about Sam?

A. His family is very generous philanthropically. The Zells give a lot of money to good causes, but they do it quietly.

Q. Is the Tribune the most complex deal you've ever worked on?

A. I would say it is. It consumed about 90 percent of my time.

Q. If Sam decides to divest some of the Tribune properties, will you be involved in that?

A. I don't think so. Crane Kenney is the GC of the Tribune and there is no plan to change that. He is a great guy and very smart and hands-on. I am sure he will handle those from his office.

Q. What was the hardest part of the deal from your standpoint?

A. It was all hard. There was nothing straightforward about this deal.

Q. What are you working on now?

A. There are always a lot of deals to work on. We are looking at an energy deal in the Middle East. We also are looking at real estate in Latin America. We also are looking at a rust-belt business.

Q. You mentioned that you adopted two babies from Romania. Was that difficult?

A. Yes. It took six months from start to finish. I went over there three times. I had to adopt as a single man, and my lawyer told me that I had to come up with a cover story. At the time you couldn't adopt there if you were gay. It was illegal. My story was that I hadn't found the right woman yet and I needed an heir. It was very nerve racking, but it worked out great.

Q. Has it been difficult being openly gay in the legal industry?

A. Not really. Certainly not at the Equity Group. There were a few issues at the beginning of my career. I remember one time at Altheimer someone had come in for an interview. After he left, two of our lawyers started talking about how they thought he was a "fag."

Q. Your partner is a lawyer too, right?

A. He does bankruptcy work in the real estate industry.

Q. What would be your dream job?

A. This is it. It is the perfect job. It is a great environment. I work with very smart people. Sam is a terrific leader, and the conversation is good and the hours are good. And it is a casual environment. Everything is good about it.

Staff Writer

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