Ruling: Wage suits can name executives

By Michael Mishak

Thursday, July 30, 2009 | 2 a.m.

Station Casinos now counts itself among a number of Las Vegas gaming companies in or near bankruptcy, ratcheting up fears among thousands of workers concerned for their livelihoods in a fragile economy.

A federal appeals court offered a degree of comfort this week with a landmark decision allowing workers to sue individual, high-level managers for unpaid wages — regardless of their companies’ financial status.

The case stems from the bankruptcy of the Castaways Hotel, Casino and Bowling Center, which filed for Chapter 11 protection in 2003 and then Chapter 7 liquidation the following year.

Three former employees sued three of the casino’s top executives for owed wages and accrued vacation and holiday pay in the wake of the company’s collapse. The U.S. District Court dismissed the lawsuit though, concluding that the Castaways executives did not qualify as “employers” under Nevada law or the federal Fair Labor Standards Act.

The workers and the Culinary Union appealed that decision to the 9th U.S. Circuit Court of Appeals. In an opinion issued Monday, the appeals court said that although managers are not liable as “employers” under state law, they can be held responsible for owed compensation under federal law — even in cases of corporate bankruptcy.

Federal law defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” In issuing its opinion, the court relied on a number of cases, including one in which chief executives were found liable because they had “significant ownership interest with operational control of significant aspects of the corporation’s day-to-day functions.”

Notably, the Castaways managers — CEO Dan Shaw, Chief Financial Officer James Van Woerkom and Michael Villamor, who was “responsible for handling labor and employment matters,” according to the opinion — never contested their status as employers, instead arguing that any fiduciary duty to the employees ended when the company filed for Chapter 7 liquidation.

Constance Akridge, the counsel on record for the three executives, referred questions to the Rooker Rawlins law firm, which she said had taken over the case since she argued it in 2007. Rooker Rawlins did not return a call seeking comment.

The executives had argued that any action, including the recovery of wages, should be directed to the Chapter 7 trustee, suggesting that the “automatic stay,” or freezing of a company’s assets, protects them against claims. The appeals court rejected that argument, saying, for the first time, that the managers were independently liable under federal law and that the bankruptcy had no effect on that liability.

In essence, the court said the workers were not seeking money to which the company’s creditors would have a right in bankruptcy court.

Richard McCracken, the attorney for the employees and the union, hailed the court’s opinion as a landmark decision for workers. “Usually all claims affecting business operations end up in bankruptcy court, where they’re litigated and adjusted,” he said. “What this means is that workers don’t have to go through that. They can proceed against individuals outside bankruptcy court. That’s extremely important.”

Labor law experts agreed.

Bill Gould, law professor emeritus at Stanford University and former chairman of the National Labor Relations Board, said the court had issued a sweeping opinion that would have a major effect on labor law litigation throughout the United States. The opinion, he predicted, would be heavily cited elsewhere.

David Rosenfeld, a professor of labor and employment law at UC Berkeley, said the ruling is particularly important because of the number of companies filing for bankruptcy protection today — both in Las Vegas and across the country.

Still, he said the opinion would not effect a sea change in litigation because those who are often responsible for financial wrongs are lower-level supervisors, who wouldn’t have the resources to pay judgments against them.

“The people who are really responsible often don’t have the ability to pay, and those who do have the money, it’s hard to show they had operational control,” Rosenfeld said. “In short, you won’t always be able to nail the people who have the money.”

The case now returns to U.S. District Court in Nevada, where a jury — or a settlement — will determine the fate of the Castaways workers’ claims.