EAST ST. LOUIS – Casino Queen employees lack standing to sue former casino president Jeffrey Watson over the collapse of their stock ownership plan because they suffered no harm, Watson claimed at U.S. district court on Feb. 25.
His counsel Joel Rice of Chicago claimed the financing of an employee ownership plan “was for the primary benefit of the participants.”
Watson currently presides as a St. Clair County associate judge.
Rice represents him along with former casino executive Robert Burrows, casino directors, and administrators of the employee ownership plan.
Rice’s brief claimed plaintiffs Tom Hensiek and Jason Gill waived or released their right to bring their claims outside of arbitration.
That claim failed last year, when District Judge David Dugan denied enforcement of an arbitration provision in the employee ownership plan.
Dugan found Hensiek and Gill received no consideration in exchange for the provision.
In 2020, Hensiek and Gill filed a class action complaint against Watson, Burrows, directors, and former owners Charles Bidwill, Timothy Rand, and James Koman, alleging fraud and breach of fiduciary duty.
They claim the casino succeeded at first but revenue suffered when other casinos opened nearby.
They also claim that an Illinois smoking ban and removal of a $500 loss limit in St. Louis put Casino Queen at a disadvantage in competition with Missouri casinos.
Bidwill, Rand, and Koman allegedly pitched the property to possible buyers from 2006 to 2011, without success.
The owners allegedly created a holding company and the directors created an employee ownership plan. The plan covered between 512 and 631 participants.
The plan purchased the holding company’s stock for $170 million and the holding company loaned $170 million to the plan.
Trustees of the plan sold the property for $140 million and the holding company entered a lease for $210 million over 15 years.
Trustees allegedly didn’t announce the plan to employees until they completed the transaction.
Defendants allegedly told employees they could purchase vacation homes with money from the plan.
Watson allegedly told employees, “This transaction offers us the opportunity to reorganize our capital structure with a long term solution that provides stability for our employee owners.”
The plaintiffs claim that an annual report in 2019 indicated that the value of shares decreased by 95 percent.
Defendants moved for arbitration and Dugan held a hearing.
Michelle Yau of Washington, representing Hensiek, said his account for six years as a manager was less than $3,000.
Koman’s counsel Lars Golumbic of Washington said management hoped the plan would be a great benefit for employees.
"But when you invest in a single security, there’s inherent risk in that kind of investment,” Golumbic said.
After Dugan denied arbitration, Bidwill, Rand, and Koman moved to dismiss. They claimed that a statute of limitations ran out and that Hensiek and Gill failed to perform due diligence.
Dugan denied the motion in January, finding allegations of fraud and concealment triggered an exception to a statutory limit of six years.
He found due diligence wasn’t required on a pleading of concealment.
All defendants filed answers on Feb. 25.
Rice admitted for his clients that Casino Queen had outstanding debt of $35 million prior to the transaction.
He denied that they didn’t tell employees about the transaction until they completed them.
He admitted that Watson told employees the transaction would provide stability.
Dugan has set trial to start in October.