What happens when the villain runs out of cards

Just got the Rook City expansion today and was playing against The Chairman with 4 heroes. Towards the end of the game we eventually ran out of cards in the villain deck and weren’t sure where to go from there. Should the villain discard be shuffled and reused? If so, do the thugs get shuffled back in as well or do they get left in the discard like the start of the game? OR should we have kept on playing and just disregarded the villain draw phase as well as the Operative’s “Deploy an Underboss” power? If so, that makes the game very boring because the heroes are just pounding on the villains and the only damage being dealt is the Chairman’s counter-attack once per turn.

The first case would make playing the Chairman much more difficult but the second case also makes for a very boring end to the game.

The rules state that any time a deck is empty and cards need to be drawn, the trash is shuffled and becomes the new deck.

Makes sense. Does that mean that the Thug cards would get shuffled in as well or do they remain in the trash like the initial starting condition?

The starting condition is just that. The entire trash gets reshuffled.

To clarify on TheJayMann’s point, the starting condition only takes effect at the start of the game. If The Chairman runs out of cards, the Thugs cards stay wherever they are. If they’re in play, they remain in play. If they’re in the trash, they get shuffled, too. And if they’re under Savage Mana or something similar, they stay under Savage Mana.