United States District Court, D. Nevada
LOUISIANA MUNICIPAL POLICE EMPLOYEES RETIREMENT SYSTEM, Plaintiff,
STEPHEN A. WYNN, et al., Defendants.
JAMES C. MAHAN, District Judge.
Presently before the court is a motion to dismiss filed by defendants Stephen A. Wynn ("S. Wynn"), Linda Chen ("Chen"), Russell Goldsmith ("Goldsmith"), Ray R. Irani ("Irani"), Robert J. Miller ("Miller"), John A. Moran ("Moran"), Mark D. Schorr ("Schorr"), Alvin V. Shoemaker ("Shoemaker"), D. Boone Wayson ("Wayson"), Elaine P. Wynn ("E. Wynn"), Allen Zeman ("Zeman"), and Wynn Resorts, Limited ("Wynn Resorts"). (Doc. # 130). Plaintiff Louisiana Municipal Police Employees' Retirement System ("LMPERS") filed a response in opposition (doc. # 135), and defendants have replied (doc. # 137).
I. Factual background
This is a shareholder derivative action on behalf of nominal defendant Wynn Resorts against eleven members of the twelve-person board of directors. The director defendants are S. Wynn, Chen, Goldsmith, Irani, Miller, Moran, Schorr, Shoemaker, Wayson, E. Wynn, and Zeman (collectively, "defendants").
In 2006, Wynn Resorts opened a hotel in Macau under a land concession agreement granted by the Macau government, with a term running from 2002 to 2022. (Doc. # 95, at 3). In February 2006, the company announced that it had submitted an application to the Macau government for a second land concession agreement to build a new casino resort. (Doc. # 95, at 3). After five years, the second land concession agreement had still not been approved. (Doc. # 95, at 3).
In May 2011, defendants approved a $135 million donation to the University of Macau's development foundation (the "Macau donation"). (Doc. # 95, at 4). Every member of Wynn Resorts' board of directors (the "board") approved the donation except for director Kazuo Okada ("Okada"). (Doc. # 95, at 4).
The Macau donation consisted of a $25 million charitable transfer made in 2011, and a commitment to make additional transfers of $10 million per year for each of the calendar years between 2012 and 2022. (Doc. # 95, at 3). In February 2012, the Securities and Exchange Commission (the "SEC") notified Wynn Resorts that it had commenced an informal inquiry into the Macau donation. (Doc. # 95, at 4). Plaintiffs do not allege that the SEC escalated its inquiry to an enforcement action or determined that the Macau donation was unlawful. (Doc. # 130, at 5). Furthermore, in February 2013, the Nevada Gaming Control Board ("GCB") investigated the Macau pledge and found no violations. (Doc. # 130, at 6)
Plaintiffs allege that the Macau donation represented an improper attempt by defendants to influence the Macau government to expedite approval of the second land concession agreement. (Doc. # 135, at 2). Plaintiffs allege that defendants breached their fiduciary duties and committed corporate waste by approving the Macau donation resulting in "the cost of defending Wynn Resorts against government investigations and the penalties, fines and other liabilities and expenses associated with those investigations." (Doc. # 95, at 48).
In relation to the Macau donation, Okada called into question whether the magnitude of the donation was an appropriate use of corporate funds. (Doc. # 95, at 24). Okada also demanded to investigate the company's records related to the donation. (Doc. # 95, at 24).
In November 2011, the board retained Freeh Sporkin & Sullivan, LLP ("Freeh") to investigate whether Okada was "suitable" to own shares of Wynn Resorts. (Doc. # 95, at 4). Based on Freeh's conclusions, the board forcibly redeemed Okada's $2.77 billion stake in exchange for a promissory note worth $1.9 billion. (Doc. # 95, at 5, 26). The board's justification for removing Okada as an "unsuitable" shareholder was that he was a threat to the company's Nevada gaming license. (Doc. # 95, at 25-26). In February 2012, the board sued Okada and the two entities he controls-Aruze and Universal Entertainment Corp.-for breach of fiduciary duty. (Doc. # 95, at 25). Plaintiffs claim that the redemption wasted the company's assets because it encumbered the company with a $1.9 billion liability and caused it to incur legal fees. (Doc. # 95, at 29).
Plaintiffs allege four causes of action against defendants: (1) breach of fiduciary duty, (2) waste of corporate assets, (3) permanent injunction, and (4) unjust enrichment.
II. Legal standard for motion to dismiss
A court may dismiss a plaintiff's complaint for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). A properly pled complaint must provide "[a] short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed factual allegations, it demands "more than labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citation omitted).
"Factual allegations must be enough to rise above the speculative level." Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual matter to "state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (citation omitted).
In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, the court must accept as true all well-pled factual allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth. Id. at 1950. Mere recitals of the elements of a cause of action, supported only by conclusory statements, do not suffice. Id. at 1949.
Second, the court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 1950. A claim is facially plausible when the plaintiff's complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 1949.
Where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has "alleged - but not shown - that the pleader is entitled to relief." Id. (internal quotations omitted). When the allegations in a complaint have not crossed the line from conceivable to plausible, plaintiff's claim must be dismissed. Twombly, 550 U.S. at 570.
The Ninth Circuit addressed post- Iqbal pleading standards in Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). The Starr court stated, "First, to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively. Second, the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Id.
III. Legal standard for shareholder derivative claim
Federal Rule of Civil Procedure 23.1(a) imposes a heightened pleading standard when "one or more shareholders or members of a corporation or an unincorporated association bring a derivative action to enforce a right that the corporation or association may properly assert but has failed to enforce." Fed.R.Civ.P. 23.1(a). Under this standard, the complaint must "state with particularity: (A) any effort by the plaintiff to obtain the desired action from the directors or comparable authority and, if necessary, from the shareholders or members; and (B) the reasons for not obtaining the action or not making the effort." Fed.R.Civ.P. 23.1(b)(3); see also Potter v. Hughes, 546 F.3d 1051, 1056 (9th Cir. 2008) (explaining that a plaintiff is able to bring a shareholder derivative lawsuit if: (1) the plaintiff owned shares in the corporation at the time of the disputed transaction; and (2) the plaintiff alleged with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors). This requirement operates as a threshold to ensure that plaintiffs exhaust intracorporate remedies so that courts may properly focus on the motivations fueling a board's decision rather than the decision's merits. See Iron Workers Local No. 25 Pension Fund ex rel. Monolithic Power Sys., Inc. v. Bogart, 2012 WL 2160436, at *2 (N.D. Cal. 2012).
Rule 23.1 does not establish the circumstances under which demand would be futile; rather, the law of the Wynn Resorts's incorporating state, Nevada, sets that standard. In re Silicon Graphics, Inc. Secs. Litig., 183 F.3d 970, 989-90 (9th Cir. 1999), abrogated on other grounds as ...