EAST ST. LOUIS – Former Casino Queen owners Charles Bidwill, Timothy Rand, and James Koman must defend claims that they cheated employees out of their pensions, U.S. District Judge David Dugan ruled on Jan. 28.
He rejected arguments for applying a time limit on litigation under national pension law, finding none of the arguments held water.
In rejecting an argument that employees didn’t conduct due diligence, he found due diligence isn’t required when a plaintiff pleads active concealment.
Former employees Tom Hensiek and Jason Gill sued the casino, Bidwill, Rand, and Koman in 2020, alleging fraud and breach of fiduciary duty.
They also sued former casino president Jeffrey Watson, who by then had taken a position as associate judge in St. Clair County.
They also sued former casino executive Robert Barrows.
Hensiek and Gill claimed the casino succeeded at first, but revenue suffered when other casinos opened nearby.
The suit claims Bidwill, Rand, and Koman pitched the property to possible buyers from 2006 to 2011, without success.
In 2012 and 2013, the owners allegedly created a holding company and the directors created an employee stock ownership plan.
Directors of the holding company selected Watson and Barrows as co-trustees of the plan, and the plan purchased the holding company’s stock for $170 million.
The suit claims that shareholders of the holding company loaned $170 million to the plan and the holding company guaranteed the loan.
Plan trustees sold the property for $140 million and the holding company allegedly entered a “triple net lease” for $210 million over 15 years.
The trustees allegedly told employees at company meetings that the plan would provide significant retirement savings, and that they could purchase vacation homes with money from the plan.
Management allegedly told Gill he made a big mistake leaving Casino Queen in 2018, because the plan would provide the best retirement he could have.
The suit claims that the annual report in October 2019 indicated that the value of shares decreased by 95 percent.
All five defendants moved to compel individual arbitration.
Bidwill, Rand, and Koman also moved to dismiss, claiming a limit of six years in national pension law ran out in 2018 or 2019.
At a hearing on arbitration in 2020, plaintiff counsel Michelle Yau of Washington said, “Just after the statute of limitations expired, the stock plummeted.”
She said Hensiek’s account for six years as a manager was worth less than $3,000.
Koman’s counsel Lars Golumbic of Washington said an employee ownership plan at a brewery in Colorado paid out more than $100 million.
Golumbic said when the company was sold each participant who remained in the plan received $100,000.
“I’m sure Casino Queen, at the time that the company management, not my client, made those representations, hoped that this would be a great benefit for their employees as well,” he said.
“But when you invest in a single security, there’s inherent risk in that type of investment.”
Dugan denied the arbitration motion last January for lack of consideration.
“Consideration exists only if there is a grant of advantage or the bargained for acceptance of a disadvantage,” Dugan wrote.
He found defendants took advantages for themselves and imposed disadvantages on Hensiek and Gill by stripping them of rights under the plan.
Defendants petitioned for review at the Seventh Circuit, but the parties agreed to dismiss the appeal in October and the suit returned to Dugan.
In his order on the motion to dismiss the owners, Dugan wrote that allegations of fraud and concealment triggered an exception to the limit of six years.
He found Hensiek and Gill adequately alleged that misrepresentations in annual reports and meetings assured them that the value of the plan was growing.
He found they didn’t become concerned until 2019.
He rejected an argument of the owners that they didn’t conceal the terms of the property transaction.
“Plaintiffs charge defendants with misrepresenting the real property transaction’s effects, not its terms,” Dugan wrote.
He found Hensiek and Gill alleged that annual statements fraudulently concealed fiduciary breaches by misrepresenting the value of shares.
“If defendants wish to argue that misrepresenting the value of the stock did not in fact conceal defendants’ breaches, they may pursue their theory in discovery,” he wrote.
Ronald Norwood of St. Louis represents Bidwill and Rand.
Joel Rice of Chicago represents Watson and Barrows.
Dugan has set trial to start in October.