EAST ST. LOUIS – Casino Queen directors and former owners aim to stop a suit over the collapse of an employee ownership plan by enforcing an arbitration clause that former president Jeff Watson signed in December 2018.
Watson gained an appointment as St. Clair County associate judge a month later.
In October 2019, employees learned that the value of their casino stock had fallen by about 95 percent.
Former manager Tom Hensiek and former dealer Jason Gill sued Watson, current directors and former owners at U.S. district court this April.
They claim they retired but didn’t receive benefits they expected.
Their counsel, Michelle Yau of Washington, alleges breach of fiduciary duties under the Employee Retirement Income Security Act.
In the suit, Yau claims former owners Timothy Rand, James Koman, and Charles Bidwill tried to sell the casino to third parties for years.
It alleges defendants created an employee ownership plan in 2012, to buy the stock for $170 million. It alleges directors sold almost all the casino’s property to pay the owners. It further alleges directors reported annual gains in stock value until last October.
In August, defendants moved to compel arbitration on an individual basis.
Ronald Norwood of St. Louis, representing Rand and Bidwill, wrote that the original plan allowed prospective or retroactive amendments.
In the motion to compel arbitration, Norwood wrote that on Dec. 2, 2018, directors adopted an amendment requiring arbitration and waiving a class action effective Jan. 1, 2017.
He wrote that they advised employees of the amendment on Dec. 6, 2018.
“Should plaintiffs argue that they are not bound by the arbitration and class action waiver provisions because they did not personally consent to them, that position is unsupported by the case law,” Norwood wrote.
He wrote that plans such as the casino’s employee ownership plan don’t allow participants to pick and choose the terms they like.
“They are bound by all valid terms of the plan added by the sponsor,” he wrote.
Yau responded that Hensiek and Gill never agreed to arbitrate, the amendment was invalid, and defendants relied on incorrect law.
She wrote that the law imposes exacting requirements on employee ownership plans because those responsible for them all too often manipulate them for their own purposes or make poor investments.
“Individual arbitration actions would lead to divergent outcomes that would be impossible to reconcile for plan administration purposes,” Yau wrote.
She wrote that Hensiek and Gill couldn’t reject the amendment because they no longer worked at the casino.
She wrote that the former owners couldn’t enforce the amendment because they weren’t associated with the casino when it was added.
She wrote that a promise by a fiduciary to violate his duty or a promise that tends to induce a violation is unenforceable on grounds of public policy.
She wrote that the amendment was designed to deter individual claims by requiring a claimant to bear half the cost of arbitration and prohibiting disclosure of discovery, testimony, evidence, briefs, or an award.
She wrote that the law granted Hensiek and Gill the right to seek relief on behalf of the entire plan.
At a hearing before U.S. District Judge David Dugan on Dec. 17, Norwood said courts must rigorously enforce arbitration provisions.
Yau said Norwood didn’t talk much about real people who were harmed.
“They lost virtually their entire retirement savings,” Yau said.
She said employees were told it was the best retirement they could have and it would be like a second salary.
She said directors controlled the reporting of stock prices and there was no way for employees to know the value.
She said directors told employees the value increased 20 percent a year.
She said they adopted the amendment right before they told employees the stock was worthless.
“Chronology matters,” she said.
Norwood said, “A lot of things happened between 2012 and 2019…That’s the nature of every investment. It goes up, it goes down.”
He said there was no allegation his clients promised anything to anybody.
He said an employee ownership plan can have great value and Casino Queen hoped it would be a great benefit.
“When you invest in a single security, there is a risk in that,” Norwood said.
Dugan took it under advisement.