Posted on: March 8, 2023, 02:03h.
Last updated on: March 8, 2023, 02:09h.
Former workers of Casino Queen Inc. notched a legal victory earlier this week when the US District Court for the Southern District of Illinois rejected a motion to dismiss a suit brought by the ex-staffers who claim former board members dumped shares of the gaming company’s equity into an employee retirement plan at artificially high prices.
Defendants Charles Bidwell III and Timothy Rand believed the suit exhausted the six-year statute of limitations set forth by the Employee Retirement Income Security Act (ERISA). The court didn’t concur, noting it rejected that claim in a prior decision. James Koman — the other defendant — saw his motion for judgment on the pleadings dismissed as well. Bidwell, Koman, and Rand are named as “alleged founders” of Illinois-based Casino Queen.
In October 2012, the aforementioned defendants and others created Casino Queen Holding Company (CQHC) for Casino Queen Inc. Two months later, they established an employee stock ownership plan designed to purchase the outstanding shares in the holding entity. Later in December 2012, the employee stock plan borrowed $170 million to purchase shares from CQH.
Plaintiffs allege that the 2012 Stock Purchase and 2013 Asset Sale were conducted in violation of the Defendant’s fiduciary duties under ERISA. Specifically, as to the 2012 Stock Purchase, Plaintiffs allege that the ESOP paid significantly more than fair market value for the stock, which was the ESOP’s only asset,” according to a court filing.
The plaintiffs assert the price the workers’ stock plan paid for the equity was too high based on the gaming company’s future financial forecasts.
Illinois Competition Hurt Casino Queen
The legal complaint notes that while Casino Queen was initially a successful company, it was hindered by the rapid expansion of the Illinois casino-gaming market, which is now one of the largest in the country outside of Las Vegas.
The plaintiffs claim that from 2005 through 2011, Casino Queen attempted to sell itself on multiple occasions, but was unsuccessful. In 2012 and 2013, the founders proceeded to break up the company, including the sale of the Illinois riverboat casino to Gaming and Leisure Properties (GLPI) for $140 million. Casino Queen agreed to lease the venue back from GLPI for $210 million over 15 years though the estate had an assessed value of just $12.1 million at the time.
“This transaction was made on behalf of the Board of Directors and CQH without regard to how any of the employees would vote because at that time, the majority of CHQ’s stock (which was now owned by the ESOP) was unallocated and thus voted on by the Co-Trustees who had the power to vote unallocated shares under the Plan,” according to the filing.
GLPI typically owns gaming real estate and leases those properties to operator clients. However, it also owns a small number of casinos, including Casino Queen, which today is operated by an employee management group.
Casino Queen Defendants’ Flimsy Argument
The US District Court for the Southern District of Illinois takes issue with Bidwell’s and Rand’s claims the employee ownership plan exhausted its ERISA entitlements because six years lapsed. The court points out that there are exemptions for the time limit in instances of fraud and concealment.
Additionally, counsel for the defendants attempted to argue that the statute of repose is a jurisdictional matter, but other courts previously ruled that “statutes of limitations and repose are both non-jurisdictional claims-processing rules.”
The Illinois court also noted that while the plaintiffs didn’t expressly address the defendants’ dismissal claims, they are entitled to more discovery before the court rules on the motion to dismiss. The plaintiffs do argue that fraud and/or concealment are at play in this case.