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Best of Liz Benston

Gaming Guru

Liz Benston

Labor Department: Castaways Workers Can't Recover Claims

3 January 2005

The U.S. Labor Department has officially closed an investigation into charges that the Castaways hotel and casino failed to pay medical claims for nonunion casino workers at the former property, confirming that some claims remain unpaid but that there is little the federal agency can do to reimburse workers.

The investigation, obtained recently through a Freedom of Information Act request by the Las Vegas Sun, concluded that there was no money left to pay worker claims after the Castaways filed for Chapter 11 bankruptcy in June 2003.

The property shut its doors early last year after its primary creditor, Vestin Mortgage, foreclosed on the property.

Rich Wandtke, a slot machine technician who says he is still owed several thousand dollars in unpaid medical bills, accrued vacation pay and wages, was among the hundreds thrown out of work.

"That's a lot of money when you're out of a job and didn't get your last paycheck," said Wandtke, who now works at Binion's Horseshoe.

Workers should be a priority for the company, not the bottom of the food chain, he said.

"It's terrible that this should happen," he said. "The workers should be protected better than that."

According to documents filed with the bankruptcy court, VSS Enterprises revealed that some $952,616 in medical claims remained unpaid. As of the bankruptcy period, the property owed $452,066 in accrued wages to employees and $484,934 in vacation benefits. These were part of $6.3 million in unsecured priority claims. Bankruptcy law allows no guarantee that any types of unsecured claims will be repaid.

In March 2003, around the time the Department of Labor began its investigation, 264 Castaways workers were participating in the company's self-insured medical plan, with about half of those workers generating claims for dependents. The Culinary Union and sister agency Bartenders Union, which represented about 400 of the property's 830 or so workers, paid health claims on behalf of union workers through a union health fund even though the Castaways was behind in payments to the fund.

According to a report obtained by the Sun, the Labor Department found that the Castaways "no longer has assets with which to make good the claims of the plan." The courts view unpaid claims under an unfunded medical plan as "benefits claims with respect to which the Secretary of Labor has no standing," the agency said.

"For these reasons, there appear to be no further actions by which the DOL might hope to obtain a recovery for the plan, and so a decision was made to close the investigation," the report concluded.

The DOL report is the latest chapter in the controversial meltdown of the Castaways, whose owners maintained the property foundered for economic reasons out of their control. Some workers and even Vestin have blamed mismanagement, saying managers squandered millions and made bad decisions that sabotaged the aging property's potential.

Downtown landmark Binion's Horseshoe also shut its doors but caught the eye of Harrah's Entertainment Inc., which paid off debts owed workers and vendors, including worker medical claims, in exchange for buying the rights to the Horseshoe brand and the valuable World Series of Poker franchise. The Castaways, purchased at auction by Vestin for $20.7 million in February, had no such backer.

At the time of the DOL investigation, VSS Enterprises had been trying for months to seek financing to upgrade the property so it could become a Holiday Inn franchise. While the company never obtained the $30 million it sought, a lender agreed to pre-fund $1 million to the company to pay medical claims. According to the company's medical plan administrator, $421,732.20 worth of claims were subsequently paid. From March 20 through June 25 of 2003, no further medical claims were funded.

"Company officials continued to express confidence that the company would be able to obtain the $30 million loan, including the remaining $500,000 that had been promised to fund the plan," the DOL report said. "The loan never materialized. During that time, company officials declined to seriously address the possibility that the company would not obtain the hoped-for financing, or to face the adverse consequences this would have on participants who had incurred and were continuing to incur claims under the plan," it said.

Former Castaways owners Dan Shaw and Michael Villamor could not be reached for comment by press time.

According to the DOL report, VSS Enterprises officials said the company's financial situation had grown worse during the bankruptcy period and funding for the plan had fallen further behind. Officials blamed the property's woes on the Sept. 11 attacks, the economic decline that followed and negotiations with the Culinary Union, which had demonstrated in front of the property prior to obtaining a contract that would have increased worker benefits.

VSS bought the property, then called the Showboat, in 2000 from Harrah's Entertainment for $23.5 million. The company refinanced an initial loan with a $20 million loan arranged by Vestn, which arranged another $2.2 million in emergency funds to keep the property afloat. VSS, which had met interest payments, still owed the lenders $22.2 million at the time of the bankruptcy. In October, Vestin sold the property to Station Casinos Inc. for $33.7 million, including $12 million to an investment group with a prior purchase agreement. Station Casinos hasn't yet announced whether it will resell the property, refurbish it or tear it down and rebuild.

Some workers' bills were sent to collections agencies, damaging their credit. Others paid their bills sooner but were financially strapped when they lost their jobs.

Dennis Fairchild, a former chef at the property, said the Culinary Union ended up paying bills for heart surgery that would have cost him at least $100,000. His wife, a nonunion casino cage cashier, racked up a couple thousand dollars in medical bills that ended up in collections.

"I ended up paying three and four collection agencies," Fairchild said. "My insurance would have paid her bills had I known they weren't getting paid. The writing was on the wall so we took a home equity loan before they went under so we could have some cash and it was a good thing we did, though we probably paid a higher interest rate from the collections (agencies)," he said.

Donald Bentz, a coin room employ6ee in the casino, said he and his wife managed to scrape together payments of $50 to $100 to pay down $600 in medical bills. Before the property closed, Bentz sent the company a medical bill and the company sent it back, saying it had been paid by insurance The same bill surfaced three months later, he said.

"They just ruined the whole thing -- and we had to pay for it," said Bentz, who moved with his wife to South Dakota last year.

Wandtke said the closure took employees by surprise.

"We knew things were kind of scary but didn't think they were that bad, to close the property right before Super Bowl when we had a lot of major events and bowling tournaments coming in," he said. "That was a great property and it didn't take long through mismanagement to drive it into the ground."

Labor Department: Castaways Workers Can't Recover Claims is republished from