United States District Court, D. Nevada
In re WYNN RESORTS, LIMITED DERIVATIVE LITIGATION, This Relates to All Actions
J. Dawson United States District Judge.
before the Court is Defendants' Motion to Stay
Shareholder Derivative Action (#51). Plaintiffs filed a
response in opposition (#62) to which Defendants replied
(#71). Also before the Court is Plaintiffs' Motion to
Enter Order Denying Defendants' Motion to Dismiss
after publication of an article in the Wall Street
Journal on January 26, 2018, discussing the alleged
misconduct by officers and directors of Wynn Resorts,
Plaintiffs Rickey A. Broussard (No. 2:18-CV-00293) and the
City of Dearborn Heights Act 345 Police & Fire Retirement
System (No. 2:18-CV-00439) filed derivative complaints on
behalf of Wynn Resorts. On March 29, 2018, this Court ordered
consolidation of the Broussard and Dearborn actions under the
caption In re Wynn Resorts, Limited Derivative Litigation,
No. 2:18-CV-00293, and appointed the City of Dearborn Heights
as Lead Plaintiff in the consolidated action. ECF No. 33
(Mar. 29, 2018 Consolidation Order). On April 27, 2018,
Plaintiffs filed a consolidated amended complaint (#38)
Consolidated Complaint alleges that the directors of Wynn
Resorts knew about and did not disclose an alleged pattern of
sexual misconduct. See generally ECF No. 38
¶¶ 1-14. Particularly, Plaintiffs contend that the
directors of Wynn Resorts breached their fiduciary duties by
causing Wynn Resorts “to issue public reports to
shareholders and gaming regulators alike that concealed
adverse material information about the Company's
namesake, Steve Wynn. Defendants' false and misleading
statements and material omissions breached their fiduciary
duties and related legal obligations.” Id.
¶ 11. According to Plaintiffs, the directors
“exposed Wynn [Resorts] to billions of dollars of
losses and risks of loss” associated with the federal
securities class action and an application for a gaming
license. See id. In addition to alleging purported
breaches of fiduciary duties, Plaintiffs also allege that the
directors of Wynn Resorts violated Section 14(a) of the
Securities Exchange Act of 1934 (the “Exchange
Act”) and Rule 14a-9 by making false or misleading
statements in proxy statements that failed to disclose a
supposed pattern of sexual harassment and failing to disclose
that information to gaming regulators. Id.
action names as defendants the former Chief Executive Officer
(“CEO”) and Chairman of Wynn Resorts, Stephen A.
Wynn (“Wynn”), former Chief Financial Officer
(“CFO”) and current CEO Matthew Maddox
(“Maddox”), General Counsel and Senior Vice
President Kimmarie Sinatra, and current or former directors
John J. Hagenbuch, Jay L. Johnson, Robert J. Miller, Patricia
Mulroy, Clark T. Randt, Jr., Alvin V. Shoemaker, J. Edward
Virtue, D. Boone Wayson, and Ray Irani. Id.
¶¶ 25-36. The complaint also names Wynn Resorts as
a nominal defendant. Id. ¶¶ 22-24.
February 20, 2018, five days after the present derivative
action was filed, Plaintiffs John V. Ferris and Joann M.
Ferris filed a federal securities class action, Ferris v.
Wynn Resorts, No. 2:18-CV-00479-GMN-CWH, against Wynn
Resorts and individual defendants Steve Wynn, Matthew Maddox,
current CFO Craig Billings, and former CFO Stephen Cootey.
Similar to this derivative action, the complaint in the
securities class action alleges these defendants violated
certain federal securities laws-Sections 10(b) and 20(a) of
the Exchange Act and Rule 10b-5- by allegedly failing to
disclose a “pattern of sexual misconduct.”
Id. ¶ 4. The securities complaint alleges that
in numerous public filings, the defendants “had a
duty” to disclose details about ongoing alleged sexual
misconduct, and that their failure to do so resulted in
artificially inflated prices for Wynn Resorts stock.
Id. ¶¶ 4, 73. The plaintiff claims that
when “the truth” was supposedly revealed in the
Wall Street Journal article, Wynn Resorts stock price
dropped, causing investors to suffer losses. Id.
¶¶ 5, 6, 11, 50-52. Just as in this derivative
case, the issues raised by the securities class action
concern what information the individual defendants had and
when, and whether they had any duty to disclose it.
See, e.g., id. ¶¶ 4, 23,
71; see also id. ¶ 62 (identifying among the
issues to be resolved in the securities case whether the
individual defendants caused the company to issue false and
have now moved to stay this action asserting that proceeding
when the related securities class action is pending is not in
Wynn Resorts' best interest or its shareholders'
interest. Defendants argue that proceeding would divert
resources from the securities class action. Moreover,
Defendants argue that Plaintiffs in this action, nominally
Wynn Resorts, will be seeking to prove the very allegations
that it is defending against in the securities class action.
This will require Plaintiffs to discredit key witnesses in
the securities class action who are needed for Wynn
Resorts' defense in this action.
STANDARD FOR ISSUING A STAY
district court has the inherent power to stay cases to
control its docket and promote the efficient use of judicial
resources. Landis v. North Am. Co., 299 U.S. 248,
254-55 (1936); Dependable Highway Exp., Inc., v.
Navigators Ins. Co., 498 F.3d 1059, 1066 (9th Cir.
2007). When determining whether a stay is appropriate pending
the resolution of another case - often called a
“Landis stay” - the district court must
weigh: (1) the possible damage that may result from a stay,
(2) any “hardship or inequity” that a party may
suffer if required to go forward, and (3) “and the
orderly course of justice measured in terms of the
simplifying or complicating of issues, proof, and questions
of law” that a stay will engender. Lockyer v.
Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005).
However, contrary to Plaintiff's argument, the Court need
not find “exceptional circumstances[.]” Intel
Corp. v. Advanced Micro Devices, 12 F.3d 908, 912 (9th
Cir. 1993) (analyzing a stay under the Colorado
River doctrine which only applies when staying a federal
action in favor of an ongoing state court proceeding.) In
this action, a stay would be issued in favor of the ongoing,
federal securities class action, not the concurrently
proceeding state court derivative actions.
action, the factors weigh in favor of a Landis stay.
The hardship and inequity Wynn Resorts would suffer should
this case be permitted to proceed now weigh strongly in favor
of a stay. A derivative suit allows shareholders to bring
claims to enforce a company's rights against its
directors. Fed.R.Civ.P. 23.1. In bringing such claims, the
derivative plaintiffs are seeking to act as the company's
fiduciaries and have a duty to act in the company's best
interest. See In re Ormat Techs., Inc. Deriv.
Litig., 2011 WL 3841089, at *5 (D. Nev. Aug. 29, 2011)
(staying derivative case in favor of pending securities class
action); see also In re STEC, Inc. Deriv. Litig.,
2012 WL 8978155, at *4 (C.D. Cal. Jan. 11, 2012) (same,
noting that a plaintiff bringing a derivative action is a
“fiduciary and has a duty to act in the company's
the derivative action would divert the company's
financial and management resources from the pending
securities class action. Moreover, proceeding with this
action now would require Plaintiffs to prove the very same
alleged misconduct that is the basis of the securities class
action, and to attack the credibility of witnesses also named
as defendants in that action. These efforts-whether or not
meritorious or successful-could undermine Wynn Resorts'
defense of the securities class action, and courts have
stayed derivative actions in favor of securities class
actions for this reason. See, e.g., In
re Ormat, 2011 WL 3841089, at *4 (staying federal
derivative action in part because “Defendants are
witnesses that [the company] will rely upon in the Securities
Class Action”); see also Rosenblum v. Sharer,
2008 WL 9396534, at *23-24 (C.D. Cal. Jul. 28, 2008) (staying
derivative action because “it seems likely that the
officers and director Defendants in the derivative action
would be important witnesses in the securities class action,
[which] could potentially result in the liability of the
officers being imputed to the corporation”; and
“denying a stay will potentially cause substantial harm
to [the company], the party on whose behalf this derivative
action has been brought”); Cucci v. Edwards,
2007 WL 3396234, at *2 (C.D. Cal. Oct. 31, 2007) (staying
derivative action because it “would likely conflict
with [the company's] defense” of a securities class
action, because plaintiffs “would need to prove
allegations that would seriously undermine [the
company's] defense of the class action”);
Breault v. Folino, 2002 WL 31974381, at *2 (C.D.
Cal. Mar. 15, 2002) (holding that the company “would be
harmed by Plaintiffs' pursuit of this derivative action
now” because “Defendants are likely witnesses who
[the company] will rely upon in the pending cases” and
“Plaintiffs will need to undermine Defendants'
credibility to pursue this action”); In re
STEC, 2012 WL 8978155, at *4 (“Courts generally
stay a shareholder derivative suit until the culmination of a
securities class action when the cases arise from the same
factual allegations and the evidence in the former could
jeopardize the company's defense in the latter.”).
same considerations apply in the present actions. There is no
doubt that the federal securities claims are almost identical
and will require nearly identical evidence to prove their
claims. This puts the nominal Plaintiff, Wynn Resorts, in the
position of attempting to prove the claims it is defending in
the securities class action. To “avoid ...