Hesiek v. Bd. of Dirs. of Casino Queen Holding Co.

• Decision Date: 08 March 2023
• Docket Number: 20-cv-377-DWD
• Parties: TOM HENSIEK, et al., Plaintiffs, v. BD. OF DIRECTORS OF CASINO QUEEN HOLDING CO., INC., et. al., Defendants. BD. OF DIRECTORS OF CASINO QUEEN HOLDING CO., INC., et. al., Crossclaim/Third-Party Plaintiffs, vs. CHARLES BIDWILL, III, et al., Crossclaim/Third-Party Defendants. CHARLES BIDWILL, III, TIMOTHY J RAND, Defendants/Counterclaimants, Crossclaim/Third Party Plaintiffs, vs. TOM HENSIEK, et. al., Counterclaim/Crossclaim/Third-Party Defendants. JAMES G. KOMAN, Crossclaim Plaintiff, vs. BD. OF DIRECTORS OF CASINO QUEEN HOLDING CO., INC., et al. Crossclaim Defendants.
• Court: U.S. District Court — Southern District of Illinois

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TOM HENSIEK, et al., Plaintiffs, v. BD. OF DIRECTORS OF CASINO QUEEN HOLDING CO., INC., et. al., Defendants.

BD. OF DIRECTORS OF CASINO QUEEN HOLDING CO., INC., et. al., Crossclaim/Third-Party Plaintiffs, vs. CHARLES BIDWILL, III, et al., Crossclaim/Third-Party Defendants. CHARLES BIDWILL, III, TIMOTHY J RAND, Defendants/Counterclaimants, Crossclaim/Third Party Plaintiffs, vs. TOM HENSIEK, et. al., Counterclaim/Crossclaim/Third-Party Defendants. JAMES G. KOMAN, Crossclaim Plaintiff, vs. BD. OF DIRECTORS OF CASINO QUEEN HOLDING CO., INC., et al. Crossclaim Defendants.

No. 20-cv-377-DWD

United States District Court, S.D. Illinois

March 8, 2023

MEMORANDUM AND ORDER

DAVID W. DUGAN, DISTRICT JUDGE

Plaintiffs Tom Hensiek, Jason Gill, and Lillian Wrobel bring this action pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001-1461 (“ERISA”), on behalf of a proposed class of participants and beneficiaries in the Casino Queen Employee Stock Ownership Plan, an ERISA-protected retirement plan.

In April 2022, Plaintiffs filed an amended complaint, adding several new defendants whom Plaintiffs claim were former shareholders of CQI and “parties in interest” under 29 U.S.C. § 1002(14) (Doc. 144, ¶¶ 64-66). Plaintiffs allege that these parties engaged in prohibited transactions in violation of 29 U.S.C. § 1106(a) and received proceeds from the prohibited transactions which Plaintiffs seek to reclaim (Doc. 144 ¶¶ 198-212). Now before the Court are several Motions to dismiss filed by these new parties:

1. Doc. 231: Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) and 12(b)(7) brought by Defendant Charles Bidwill, III as Trustee of the Bidwill Succession Trust;

2. Doc. 234 Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b) brought by Defendants the William J. Koman Jr. Irrevocable Trust and the William J. Koman, Sr. Living Trust;

3. Doc. 252: Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) brought by Defendants Patricia Bidwill and Brian Bidwill;

4. Doc. 267: Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) by Defendant Shauna Valenzuela;

5. Doc. 319: Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(4) and 12(b)(6) brought by Defendants Janis Koman n/k/a Janis Forsen, Karen Koman, and Elizabeth Koman as Beneficiaries of the Janis A. Koman Irrevocable Trust, Karen L. Hamilton Irrevocable Trust, and the Elizabeth S. Koman Irrevocable Trust;

6. Doc. 327: Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) brought by Defendants the James G Koman Irrevocable Trust, and Gregory Smith, the Trustee of the James G. Koman Irrevocable Trust;

7. Doc. 362: Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) brought by Defendants the Janis A. Koman Irrevocable Trust, Karen L. Hamilton Irrevocable Trust, the Elizabeth S. Koman Irrevocable Trust, and Peter Hamilton, as the Trustee of the Janis A. Koman Irrevocable Trust, Karen L. Hamilton Irrevocable Trust, and the Elizabeth S. Koman Irrevocable Trust; and

8. Doc. 395: Plaintiffs' Motion to Withdraw Defendants Bidwill Kasino Trust, its Trustee, and any Beneficiaries of said Trust, and the Beneficiaries of the Bidwill Succession Trust.

Periodically throughout this Order, the Court will refer to these Defendants collectively as the “Moving Defendants” or “Selling Shareholders.”

Background

The allegations in Plaintiffs' Amended Complaint (Doc. 144) are more fully described in the Court's Order disposing of the Motion to Dismiss (Doc. 155) and Motion for Judgment on the Pleadings (Doc. 159) filed by Defendants Charles Bidwill III, Timothy J. Rand, and James G. Koman. Thus, in this Order, the Court will only highlight those allegations particularly relevant to the Moving Defendants.

Plaintiffs are former employees of Casino Queen Hotel & Casino, and participants and beneficiaries of the Casino Queen Employee Stock Ownership Plan (“ESOP”). Plaintiffs allege that the ESOP's fiduciaries committed multiple ERISA violations related to two transactions generally referred to as the 2012 Stock Purchase and 2013 Asset Sale (Doc. 144).

The Moving Defendants are alleged family members (or trust-related entities set up to benefit family members) of the five founding family groups of Casino Queen, Inc. (“CQI”) and its subsequent holding company Casino Queen Holding Company, Inc. (“CQH”) (Doc. 144, ¶¶ 2, 72). These groups included persons from the Bidwill family, the Rand family, the Koman family, the Kenny family, and the Gaughan/Toti group (Doc. 144, ¶ 2). Prior to the transactions at issue in this case, each of the five family groups owned an equal portion of CQI (20%) and controlled one of the five director seats on the CQI Board (Doc. 144, ¶¶ 2, 72). The Moving Defendants are alleged to be connected to the Koman and Bidwill family groups with James Koman and Charles Bidwill III serving as their designated CQI Board Member (Doc. 144, ¶ 73). Each of the Moving Defendants also owned a percentage of CQI, ranging from 0.88% to 10.200% (Doc. 144, ¶ 65).

From 2005 to 2011, the Moving Defendants, along with the other Selling Shareholders^[1], attempted to sell Casino Queen to various third parties but were not successful. Thus, in 2012 and 2013, the Selling Shareholders sold the Casino Queen and its assets in four general steps, which are more fully detailed in the Court's prior orders. Relevant to the Moving Defendants, in October 2012, they, and the other Selling Shareholders, created Casino Queen Holding Company, Inc. (“CQH”), a holding company for CQI (Doc. 144, ¶ 79). The Selling Shareholders then exchanged their CQI stock for CQH stock and placed three former CQI Board Members on the newly formed CQH Board (Id.). These board members included James Koman and Charles Bidwill III (Doc. 144, ¶¶ 41-42).

Then, in December 2012, the Selling Shareholders, acting in coordination with their family's CQH Board Member, established the Casino Queen Employee Stock Ownership Plan (the “ESOP”), and facilitated the ESOP's purchase of their then-outstanding CQH stock for a sum of $170 million (Doc. 144, ¶ 81). To facilitate the stock purchase, the ESOP borrowed $130 million in secured debt from Wells Fargo, $15 million from a third party, and $25 million from the Moving Defendants and the other Selling Shareholders (Id.). CQH guaranteed the debt which significantly increased its debt load (Doc. 144, ¶¶ 80, 115-116). Plaintiffs allege that the Selling Shareholders' loans made to the ESOP carried ”draconian interest rates as high as 17.5%.” (Doc. 144, ¶ 6). This transaction is generally referred to as the “2012 Stock Purchase.”

Finally, in 2013, the ESOP sold Casino Queen's real property to a third-party, Gaming and Leisure Properties, Inc. (“GLPI”) for $140 million (Doc. 144, ¶¶ 127-129). CQH then leased the same property back from GLPI for $210 million, to be paid over 15 years. This transaction is generally referred to as the “2013 Asset Sale.” The asset sale provided CQH and the ESOP with cash to pay off the ESOP's outstanding loans owed to the Selling Shareholders (Doc. 144, ¶¶ 134-135). Plaintiffs maintain that the Selling Shareholders' loans were fully repaid in 2014, and shortly thereafter, Defendants Bidwill and Koman relinquished their CQH Board memberships (Doc. 144, ¶¶ 145-46).

Plaintiffs allege that the 2012 Stock Purchase and 2013 Asset Sale were conducted in violation of the ESOP's fiduciaries' 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. Plaintiffs maintain that the price the ESOP paid for the CQH stock was dramatically inflated based on financial projections of Casino Queen's future profitability. They further contend that the Board of Directors knew or should have known this price was unrealistic because the Selling Shareholders had tried unsuccessfully for years to sell Casino Queen, and because Defendants knew that Casino Queen's revenue had dropped significantly due to the decreasing market share it held as more competitors grew in the area (Doc. 144, ¶¶ 108-111). Further, as for the 2013 Asset Sale, Plaintiffs claim this sale was based on unfavorable financial terms for the ESOP, and made, at least in part, to pay off the Selling Shareholder's loans to the ESOP (Doc. 144, ¶ 144). Plaintiffs contend this sale “left Casino Queen as a shell of a company that did not own any real property assets and which did not have sufficient cash flow to service its remaining debts.” (Doc. 144, ¶ 144).

In Count 1, Plaintiffs seek to reclaim the proceeds the Selling Shareholders received from the prohibited transactions they engaged in or received benefits from (Doc. 144, ¶¶ 198-212). Here, Plaintiffs allege that at least three ESOP transactions involving the Selling Shareholders were prohibited transactions in violation of 29 U.S.C. § 1106(a). This Section prohibits certain kinds of transactions between a plan and a “party in interest”, including transactions that constitute a “direct or indirect -

(A) sale or exchange, or leasing, of any property between the plan and a party in interest;

(B) lending of money or other extension of credit between the plan and a party in interest;

(C) furnishing of goods, services, or facilities between the plan and a party in interest;

(D) transfer to, or use by or for the benefit of a party in interest of any assets of the plan; or (E) acquisition, on behalf of the plan, of any employer security or employer real property in violation of section 1107(a) of this title.

29 U.S.C. § 1106(a)(1)(B). Plaintiffs contend that the following were prohibited transactions under Section 1006 the ESOP's purchase of the Selling Shareholders' CQH stock in 2012, the Selling Shareholder's subsequent loans to...