Plaintiffs’ Motion for Class Certification Denied in Illinois ESOP Case

On February 26, 2024, the Court ruled on several motions, including Defendants’ Motion to Dismiss and Plaintiffs’ Motion for Class Certification.¹

The Court noted that the shareholders of Casino Queen, Inc. (CQI) attempted to sell CQI for several years (from 2005 to 2011), but they were unsuccessful. Therefore, in October 2012, the shareholders created Casino Queen Holding Company, Inc. (CQH) and exchanged their CQI stock for CQH stock. In December 2012, the shareholders sold their CQH stock to the Casino Queen ESOP (the “CQ ESOP”) for $170 million, which was financed by a $130 million secured loan from Wells Fargo, $15 million from a third party, and $25 million from the shareholders (the “2012 Stock Purchase”). In 2013, the CQ ESOP sold CQI’s real property to Gaming and Leisure Properties, Inc. (GLPI) for $140 million, and CQH agreed to lease the same property from GLPI for $210 million (over a 15-year period) (the “2013 Asset Sale”). The CQ ESOP used the proceeds from the 2013 Asset Sale to repay the shareholders’ loans from the 2012 Stock Purchase.

The Court stated that according to Plaintiffs, (i) the 2012 Stock Purchase and the 2013 Asset Sale violated Defendants’ fiduciary duties under ERISA, because the 2012 Stock Purchase was based on “inflated” and “unrealistic” financial projections and, as a result, the CQ ESOP paid more than fair market value for the CQH stock, and the 2013 Asset Sale was “unfavorable” to the CQ ESOP and caused CQH to be unable to service its remaining debt; (ii) the CQ ESOP’s purchase of the CQH stock in 2012, the shareholders’ loans to the CQ ESOP “at draconian interest rates,” and the repayment of the shareholders’ loans all were prohibited transactions; and (iii) Plaintiffs did not discover Defendants’ breaches of fiduciary duty until 2019, because Defendants “actively concealed” them through misrepresentations of the transactions’ terms and the effects of the transactions on the CQH stock.

With respect to Defendants’ Motion to Dismiss, the Court held that Defendants’ argument attempted to “delve into the merits of Plaintiffs’ injuries,” which is inappropriate to resolve prior to the completion of discovery.

With respect to Plaintiffs’ Motion for Class Certification, the Court held that Plaintiffs did not satisfy the commonality prerequisite of Rule 23(a), so it denied Plaintiffs’ Motion. More specifically, the Court stated that Plaintiffs’ claims would be time barred if not for ERISA’s fraud or concealment exception, and “the current record reveals that the alleged fraud and concealment efforts were made by various Defendants in various forms and at different times. Further, Plaintiffs were impacted by these concealment efforts in vastly different ways, with little, if any, apparent overlap.” For example, four different meetings regarding the 2012 Stock Purchase and four different meetings regarding the 2013 Asset Sale were held, and the content of those meetings was not identical. As a result, the Court concluded that individualized inquiries into each proposed class member’s circumstances would be needed.

We will update this blog as developments in the case occur.

¹ Memorandum & Order, Hensiek v. Board of Directors of Casino Queen Holding Company, Inc., No. 3:20-cv-00377-DWD (S.D. Ill. Feb. 26, 2024), ECF No. 510.