United States District Court, D. Nevada
NASSER MORADI, et al. Plaintiffs,
SHELDON GARY ADELSON, et al., Defendants.
ORDER DENYING MOTION TO DISMISS AND GRANTING REQUEST FOR STAY
(DKT. NO. 116).
ANDREW P. GORDON, District Judge.
In April 2011, Plaintiffs commenced three separate shareholder derivative actions in this Court which have since been consolidated. One month prior, on March 9, 2011, a similar case was filed in Nevada state court. That case is now pending in the state business court division. On April 18, 2011, yet another similar case was filed in state court. The second state case has since been consolidated into Kohanim, the first-filed state case. In short, the federal cases have been consolidated into the instant case and the state cases have been consolidated into Kohanim.
All of these cases were filed shortly after LVS disclosed that the Securities and Exchange Commission ("SEC") had issued a subpoena in February 2011 requesting that LVS produce documents relating to its compliance with the Foreign Corrupt Practices Act ("FCPA") for its operations in Macau.
LVS is a "multinational, multi-use resort development and gaming company" with properties and operations worldwide. Its stock is listed on the New York Stock Exchange. Through its majority-owned subsidiary, Sands China Limited ("SCL"), LVS owns several casino resort properties in Macau.
Plaintiffs plead four claims for relief in their Consolidated Complaint: (1) breach of fiduciary duty; (2) abuse of control; (3) waste of corporate assets; and (4) civil conspiracy. The defendants are the nine members of LVS's board of directors at the time of the alleged illegal conduct: Sheldon G. Adelson, Jason N. Ader, Irwin Chafetz, Wing T. Chao, Charles D. Forman, George P. Koo, Michael A. Leven, Jeffrey H. Schwartz, and Irwin A. Siegel (collectively, the "Board" or the "Defendants"). Ader, Schwartz, and Siegel also serve on LVS's Audit Committee (collectively, the "Audit Committee Defendants"). Adelson is also LVS's Chairman of the Board, Chief Executive Officer, and controlling shareholder. In addition, Adelson is the Chairman of the Board of SCL.
The crux of Plaintiffs' claims is that Defendants breached their fiduciary duties by failing to implement sufficient internal controls to ensure compliance with the FCPA and with state gaming regulations that prohibit state gaming licensees from entering into "unsuitable" associations. Plaintiffs further contend that the Audit Committee Defendants had a heightened duty because the Audit Committee Charter made them responsible to oversee LVS's compliance with legal and regulatory requirements. Specifically, the Audit Committee Defendants were charged with reviewing "the adequacy of the Company's internal controls and its procedures designed to ensure compliance with laws and regulations and any special audit steps adopted in light of material control deficiencies, " and reviewing "with management and the independent registered public accounting firm any reports or disclosures submitted by management to the Audit Committee, ... including management's assessment of the Company's internal control over financial reporting[.]"
Plaintiffs also assert that Adelson breached his fiduciary duty by directing Steven C. Jacobs- the then-CEO of SCL-"to engage in illicit business practices that would have violated the FCPA." Adelson allegedly directed Jacobs to
(i) use "improper leverage" against senior Macau government officials to obtain and sell strata-title of The Four Season Apartments in Macau;
(ii) threaten to withhold business from Chinese banks unless they pressured senior Macau government officials to deliver strata-title for the Four Seasons Apartments to Sands, and give the company "favorable treatment" with regards to labor quotas and table limits;
(iii) conduct discrete investigation[s] of senior Macau government officials in order to discover adverse information it could later use to influence the same officials for the benefit of Sands;
(iv) hire [Leonel] Alves, who was a local Macau attorney and also a Macau government official,  as SCL's Legal Advisor notwithstanding apparent violations of the FCPA arising from Alves' position in the Macau government; and
(v) refrain from disclosing material information to SCL's Board including the Company's involvement with junket business led by the [Chinese organized crime] Triads.
Plaintiffs contend that Adelson fired Jacobs (with approval by Leven, Siegel, and Schwartz) after Jacobs refused to engage in the allegedly illegal practices. Shortly after Jacobs was fired,  SCL rehired Leonel Alves ("Alves") as its Legal Advisor.
Because of the Board's failure of oversight and Adelson's conduct, Plaintiffs allege, LVS is now exposed to and the subject of costly investigations by the SEC, Department of Justice ("DOJ"), Federal Bureau of Investigations ("FBI"), and Nevada Gaming Control Board ("NGCB"). Although Plaintiffs plead violations of the FCPA, their claims do not necessarily depend on proving those violations. At root, Plaintiffs' fiduciary duty claim lies in tort-that Defendants' breach of fiduciary duties (Adelson's actions and the Board's inaction) exposed LVS to such a substantial risk of violating the FCPA and Nevada gaming regulations that the breach effectively caused the costly government investigations. Put another way, if the Board had implemented sufficient internal controls and properly overseen Adelson, then the government investigations would not have occurred.
As to the other claims, Plaintiffs contend that (i) Defendants' misconduct "constituted an abuse of their ability to control and influence Sands, for which they are legally responsible"; (ii) Defendants caused LVS to "waste valuable corporate assets"; and (iii) Defendants, "by acting in concert, intended to accomplish an unlawful objective for the purpose of harming plaintiffs."
In November 2011, Defendants moved to dismiss or stay the instant case pending the resolution of the allegedly parallel state proceeding and the investigation by the Board's special litigation committee ("SLC"). In August 2012, the Court granted in part and denied in part the First MTD. The Court stayed the case until October 30, 2012 to ...