Hensiek v. Bd. of Dirs. of Casino Queen Holding Co.
| Decision Date | 25 January 2021 |
| Docket Number | Case No. 3:20-CV-377-DWD |
| Citation | 514 F.Supp.3d 1045 |
| Court | U.S. District Court — Southern District of Illinois |
| Parties | Tom HENSIEK, et al., Plaintiffs, v. BOARD OF DIRECTORS OF CASINO QUEEN HOLDING COMPANY, INC., et al., Defendants. |
Bryan L. Bleichner, Christopher P. Renz, Jeffrey D. Bores, Karl L. Cambronne, Chestnut Cambronne PA, Karen Hanson Riebel, Kate M. Baxter-Kauf, Stephen Matthew Owen, Lockridge Grindal Nauen PLLP, Minneapolis, MN, Charles Hale Van Horn, Pro Hac Vice, Lauren S. Frisch, Pro Hac Vice, Berman Fink Van Horn PC, Atlanta, GA, Gary F. Lynch, Pro Hac Vice, Jamisen A. Etzel, Pro Hac Vice, Carlson Lynch Sweet & Kilpela, LLP, Kevin W. Tucker, Pro Hac Vice, East End Trial Group LLC, Pittsburgh, PA, for Plaintiff.
Jeffrey J. Lindquist, Gries Lenhardt Allen, St. Michael, MN, Maria Boelen, Pro Hac Vice, Baker & Hostetler LLP, George J. Tzanetopoulos, Pro Hac Vice, Baker Hostetler, Chicago, IL, Paul G. Karlsgodt, Pro Hac Vice, Baker & Hostetler LLP, Denver, CO, for Defendant.
Before the Court is the Motion to Compel Arbitration (Doc. 45) filed by Defendants Rand, Koman and Bidwill, joined by Defendants (Doc. 47) Board of Directors of CQ Holding Company, Inc., Administrative Committee of the Casino Queen Employee Stock Ownership Plan, Jeff Watson, and Robert Barrows (collectively referred to as the "Motion to Compel").
The parties have provided Court with briefs and arguments in support of their respective positions.
According to the Complaint, Plaintiffs are former employees of the Casino Queen ("CQ") and participants in the Casino Queen ESOP that was created in 2012 for the sole purpose of purchasing 100% of the outstanding common stock of CQ because the shareholders were unable to sell that asset elsewhere. (Doc. 1, ¶ 7-8) To effectuate the sale of stock, the Board of Directors (Bidwill, Rand, Koman, Watson and Barrows) selected two of their own (Watson and Barrows) to be Co-Trustees of the ESOP and vested them with the authority to purchase from the selling shareholders (Bidwill, Rand, and Koman) all of the outstanding stock for the sum of $170 million. The Co-Trustees were instructed to take directions from a newly created Administrative Committee which consisted of Board members and officers of CQ. The Board retained the power to dismiss the Co-Trustees, an assertion that the Plaintiffs contend is the functional equivalent of the power and control over their decision making as Co-Trustees. (Doc. 1, ¶ 9). The Plaintiffs believe that because of this retention of control, the members of the Board attained a fiduciary status toward the Plaintiffs. (Doc. 1, ¶ 11).
The Plaintiffs go on to allege that two transactions, the terms of which were largely concealed from the participant group, served to benefit the selling shareholders who orchestrated and directed the transactions while acting in their fiduciary capacity. In the first, Plaintiffs assert that the price paid for the shares was inflated because previously CQ was unable to find a buyer due to local competition and low-income projections. (Doc. 1, ¶ 13-14). The purchase of the shares resulted in the incurrence of a debt of $170 million for the ESOP that is guaranteed by CQ. This transaction the Plaintiffs claim was imprudent and not in the best interests of the ESOP. The second transaction pointed to is the sale of "virtually all of" CQ's real property to pay off in an accelerated fashion debt owed to the Selling Shareholders. The real property sold at a price of $140 million. (Doc. 1, ¶¶ 17 and 92). This property was sold to Gaming and Leisure Properties ("GLPI") which refinanced all of the ESOP's debt owed to the Selling Shareholders. (Doc. 1, ¶ 113-114). CQ then agreed to enter into a "triple net lease agreement" to lease the same property back from GLPI for $210 million over 15 years. (Doc. 1, ¶ 116-118).
The Plaintiffs contend that these transactions were conducted in violation of the Defendants’ fiduciary duties to the participants of the ESOP and that the Plaintiffs were unaware of the events for several years until 2019 when the shares of stock were reported to have suffered a significant loss in value. Plaintiffs allege generally that the Defendants undertook acts to hide their breaches by concealing and misrepresenting their violations of the Employment Retirement Income Security Act ("ERISA") 29 U.S.C. §§ 1104, 1105 & 1106 et. seq. (See generally, Doc. 1, ¶ 160-169) Plaintiffs filed their six-count complaint seeking class certification and to recover damages. The Defendants responded with their Motion to Compel Arbitration.
Defendants’ Motion to Compel asserts generally that the Casino Queen ESOP Plan Document ("Plan") was effectively amended on December 2, 2018 (Doc. 45-1 ¶ 6) ("Amendment") (Doc. 45-4) when the Board of CQ adopted an amendment proposed by CQ ESOP on January 1, 2017. The Amendment of concern here is entirely dedicated to changes to procedures regarding claims, mandatory arbitration, waiver of class actions and the establishment of limitations on the time period during which claims may be filed. In pertinent part, Section 11.03(a) of the Plan provides:
(a) Mandatory and Binding Arbitration Procedure . By seeking and accepting benefits under the Plan, and in consideration of such benefits, (i) any Employee becoming eligible to participate in the Plan, (ii) any Employee, Participant, Beneficiary or other person receiving or seeking to receive any contributions or forfeiture allocations to his or her Plan account, and/or (iii) any Employee, Participant, Beneficiary, or other person receiving or seeking to receive any other benefit under this Plan hereby agrees to be bound, and is hereby bound, to follow and comply with the provisions of this Mandatory and Binding Arbitration Procedure ("Arbitration Procedure") to resolve all Covered Claims. (Section 11.03 CQ ESOP)
Section 11.01(c) of the Plan defines "covered claims" as follows:
(c) Covered Claims . The term "Covered Claims" means, collectively, any claim by a Claimant made against any person which arises out of, relates to, or concerns this Plan, the Trust, or the Trust Fund, including, without limitation, any claim for benefits under the Plan, Trust or Trust Fund, including without limitation, any claim for benefits under the Plan, Trust or Trust Fund; any claim asserting a breach of or failure to follow, the Plan or Trust; and any claim asserting a breach of, or failure to follow, any provision of ERISA or the code, including without limitation, claims of breach of fiduciary duty related to the management of the Trust, claims related to prohibited transactions under ERISA § 406 or 407, ERISA § 510 claims, and claims for failure to timely provide notices or information required by ERISA or the Code.
Section 11.03(a)(ii) of the Plan also contains a "Class Action Waiver" and provides that "ALL COVERED CLAIMS MUST BE BROUGHT SOLELY IN THE CLAIMANT'S INDIVIDUAL CAPACITY AND NOT IN A REPRESENTATIVE CAPACITY OR ON A CLASS, COLLECTIVE, OR GROUP BASIS." (emphasis supplied)
In apparent anticipation of Plaintiffs’ argument that these amendments were adopted after the alleged wrong doings occurred, and should not, therefore, apply to the claims pleaded, the Defendants point to Article X, Section 10.01 of the Plan which provides: "The Board may amend this Plan, either prospectively or retroactively, at any time and from time to time in any manner the Board deems expedient or proper." Because the Amendment was implemented in a manner consistent with the authority provided for in Section 10.01, Defendants assert that the terms of the Amendment are enforceable. Defendants then argue that the Amendment, in concert with the Federal Arbitration Act, (FAA) 9 U.S.C. §§ 1 - 6, should compel the Plaintiffs to submit their claims through the arbitration procedures described in the Amendment.
Defendants go on to claim that the Plaintiffs’ breach of fiduciary duties claims clearly "arise out of, relate to or concern" the CQ ESOP and, consequently, "fall squarely within the scope of the arbitration provisions". (Doc. 47, P. 2). Defendants then argue that, since the amendment contains a class action waiver, the Plaintiffs must bring their arbitration claims on an individual basis. (Doc. 45, P. 2). But it might appear, at least initially, that the question of arbitrability of statutory ERISA claims will dictate whether the Defendants’ Motion to Compel is successful.
In one of the few areas of agreement, both sides recognize that the Seventh Circuit has not directly addressed the issue of whether statutory ERISA claims are arbitrable. The Defendants point to a number of cases from other Circuits that have reached the issue and determined that, indeed, statutory ERISA claims are subject to arbitration under the FAA when the parties have executed a valid arbitration agreement encompassing the claims at issue. (Doc. 46. P. 7). First among the cases cited is Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 7 F.3d 1110, 1112 n.1 (3d Cir. 1993). In that case, the Court took the opportunity to revisit its decision of just eight years prior where it determined that statutory ERISA claims are not subject to arbitration. The Court observed that in the intervening eight years, Supreme Court decisions had "substantially revised the rationale" it had once relied on. The Court went on to hold that ERISA claims are indeed subject to arbitration under the FAA. Ibid at 1112 and n.1. The Defendants here also point to several other cases in other Circuits which have concluded likewise and which provide some direction here.
In Dorman v. Charles Schwab Corp. , 934 F.3d 1107, 1109 (9th Cir. 2019) the Court found a nearly 35-year-old precedent for the proposition that ERISA claims are not arbitrable to no longer be good law. In Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc. , ...
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