Ferris et al v. Wynn Resorts Limited et al
Filing
119
ORDER Granting 67 and 71 Motions to Dismiss; and Granting 105 , 107 , 111 , and 116 Motions for Leave to Submit Supplemental Authority. Plaintiffs are Granted Leave to Amend within 21 days. Signed by Judge Gloria M. Navarro on 5/27/2020. (Copies have been distributed pursuant to the NEF - DRS)
Case 2:18-cv-00479-GMN-DJA Document 119 Filed 05/27/20 Page 1 of 37
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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JOHN V. FERRIS, et al.,
)
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)
)
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)
)
)
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Plaintiffs,
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vs.
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WYNN RESORTS LIMITED, et al.,
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Defendants.
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Case No.: 2:18-cv-00479-GMN-DJA
ORDER
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Pending before the Court is the Motion to Dismiss the Amended Class Action
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Complaint, (ECF No. 67), filed by Defendant Kimmarie Sinatra. 1 Plaintiffs John V. Ferris,
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JoAnn M. Ferris, and Jeffrey Larsen (collectively, “Plaintiffs”) filed a Response, (ECF No.
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96), 2 and Sinatra filed a Reply, (ECF No. 98).
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Also pending before the Court is the Motion to Dismiss, (ECF No. 71), filed by
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Defendants Wynn Resorts Limited (“Wynn Resorts” or the “Company”); John J. Hagenbuch,
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Robert J. Miller, Patricia Mulroy, Clark T. Randt Jr., Alvin Shoemaker, Daniel B. Wayson, Jay
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L. Johnson, Ray R. Irani, and J. Edward Virtue, Matthew O. Maddox, and Craig Scott Billings
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(collectively, “Wynn Resorts Defendants”). 3 Defendants Stephen Cootey and Stephen A.
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Wynn filed Joinders, (ECF Nos. 73, 75). 4 Plaintiffs filed a Response, (ECF No. 96), to the
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Sinatra additionally filed a Request for Judicial Notice, (ECF No. 68), and the Declaration of Christine E.
Hanley, (ECF No. 69), in support of Sinatra’s Motion to Dismiss, (ECF No. 67).
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Plaintiffs also filed a Request for Judicial Notice, (ECF No. 68).
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Additionally, Wynn Resorts Defendants filed the Declaration of V.R. Bohman, (ECF No. 72), a Request for
Judicial Notice, (ECF No. 86), and several volumes of exhibits, (ECF Nos. 76–85), in support of their Motion to
Dismiss, (ECF No. 71).
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Wynn Resorts Defendants’ Motion to Dismiss, (ECF No. 71), is also joined by Defendant Sinatra. (Sinatra
Mot. Dismiss at 1, ECF No. 67) (“In moving to dismiss the Amended Complaint, Ms. Sinatra joins the Motion to
Dismiss filed by [Wynn Resorts Defendants].”).
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Motion to Dismiss. Wynn Resorts Defendants filed a Reply, (ECF No. 99). 5 Defendants
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Cootey and Wynn filed individual Replies, (ECF Nos. 102, 103).
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Also pending before the Court is Wynn Resorts Defendants’ Motion for Leave to Submit
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Supplemental Authority, (ECF No. 105), in Support of the Motion to Dismiss, (ECF No. 71).
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Sinatra filed a Joinder, (ECF No. 106).
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Also pending before the Court is Wynn Resorts Defendants’ Motion for Leave to Submit
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Supplemental Authority, (ECF No. 107), in Support of the Motion to Dismiss, (ECF No. 71).
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Plaintiffs filed a Response, (ECF No. 108).
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Also pending before the Court is Wynn Resorts Defendants’ Motion for Leave to Submit
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Supplemental Authority, (ECF No. 111), in Support of the Motion to Dismiss, (ECF No. 71).
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Plaintiffs filed a Response, (ECF No. 112), and Wynn Resorts Defendants filed a Reply, (ECF
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No. 113).
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Also pending before the Court is Wynn Resorts Defendants’ Motion for Leave to Submit
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Supplemental Authority, (ECF No. 116), in Support of the Motion to Dismiss, (ECF No. 71).
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Defendant Wynn filed a Joinder, (ECF No. 117). Plaintiffs filed a Response, (ECF No. 118). 6
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I.
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BACKGROUND
Plaintiffs bring this putative securities class action against Wynn Resorts and certain of
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its directors and executive officers, on behalf of all persons who purchased or otherwise
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acquired Wynn Resorts’ securities between February 28, 2014, and February 12, 2018 (the
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“Class Period”). 7 (First Am. Compl. (“FAC”) ¶ 1, ECF No. 52). Plaintiffs claim that during the
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Additionally, Wynn Resorts Defendants’ filed the Declaration of Michael Shipley, (ECF No. 100), and a
Request for Judicial Notice, (ECF No. 101), in support of their Reply, (ECF No. 99).
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Good cause appearing, the Motions for Leave to Submit Supplemental Authority, (ECF Nos. 105, 107, 111,
116), are granted.
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The Court accepts Plaintiffs’ factual allegations as true. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
308, 322 (2007) (“[F]aced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must, as with any
motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual allegations in the
complaint as true.”); In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1136 (9th Cir. 2017) (“We take as true
the complaint’s plausible and properly pleaded allegations[.]”).
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Class Period, Defendants made several misleading statements and omissions, thereby
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concealing the alleged sexual misconduct of then Chief Executive Officer, Defendant Stephen
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Wynn. (See id. ¶¶ 1, 3). As a result, Wynn Resorts’ securities traded at an inflated price during
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the Class Period. (See, e.g., id. ¶¶ 238, 249, 253). Plaintiffs allege that news of Defendant
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Wynn’s alleged sexual misconduct caused Wynn Resorts’ share prices to decline, resulting in a
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financial loss to class members. (Id. ¶¶ 10, 239).
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A.
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Plaintiffs are persons who purchased the Company’s securities at allegedly inflated
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The Parties
prices during the Class Period. (Id. ¶¶ 15, 16).
Wynn Resorts is a developer, owner, and operator of casino resorts that integrate hotel
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accommodations and a wide range of amenities. (Id. ¶ 2). It owns and operates Wynn Las
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Vegas and Encore in Las Vegas, Nevada, and Wynn Macau and Wynn Palace in Macau, China.
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(Id.). Wynn Resorts is currently constructing a new $2.4 billion property in Massachusetts.
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(Id.). Its securities trade on NASDAQ under the ticker symbol “WYNN.” (Id. ¶ 17).
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Defendant Stephen Wynn is the founder of Wynn Resorts and served as its CEO and
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Chairman from 2002 to 2018. (Id. ¶ 18). Defendant Matthew Maddox joined Wynn Resorts in
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2002, served as its President since November 2013, and served as its CEO since February 2018.
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(Id. ¶ 19). Defendant Kimmarie Sinatra served as Executive Vice President, General Counsel,
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and Secretary of Wynn Resorts from February 2006 until her resignation in July 2018. (Id.
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¶ 22). Defendant Stephen Cootey served as the Company’s CFO and Senior Vice President
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from 2014 to 2017. (Id. ¶ 18). Defendant Craig Billings has served as Wynn Resorts’ CFO
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since March 2017. (Id. ¶ 25).
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Defendants John Hagenbuch, Dr. Ray Irani, Jay Johnson, Robert Miller, Patricia
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Mulroy, Clark Randt, Alvin Shoemaker, Edward Virtue, and Boone Wayson are former and
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current directors of Wynn Resorts. (Id. ¶¶ 29–41).
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B.
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Beginning in 2012 and throughout the Class Period, Wynn Resorts was party to a major
The Okada Litigation
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lawsuit in Nevada state court. (Id. ¶ 96). The lawsuit, styled as Wynn Resorts, Limited v. Kazuo
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Okada, et al., No. A-12-656710-B (the “Okada Litigation”), involved the Company and some
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of its largest shareholders, including Elaine Wynn, 8 ex-wife of Defendant Stephen Wynn. (Id.
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¶¶ 96, 156); (Elaine Wynn Counterclaim, Ex. 11 to Bohman Decl., ECF No. 77-1).
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On March 28, 2016, Elaine Wynn filed the First Amended Answer of Elaine P. Wynn to
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Aruze and Universal’s Fourth Amended Counterclaim; Fifth Amended Counterclaim and
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Crossclaim of Elaine P. Wynn (the “Elaine Wynn Counterclaim”) in the Okada Litigation.
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(FAC ¶ 156); (Elaine Wynn Counterclaim, Ex. 11 to Bohman Decl.). The Elaine Wynn
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Counterclaim contained various allegations and described a “multi-million-dollar payment” by
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Defendant Stephen Wynn following allegations that he engaged in “serious misconduct” “on
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company property against an employee.” (FAC ¶ 157). It also detailed a “pattern of reckless
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risk-taking” behavior by Defendant Wynn that “left the directors and the Company vulnerable
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to potential liability and regulatory exposure.” (Id.). As discussed further below, Wynn Resorts
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subsequently issued press releases denying Elaine Wynn’s allegations.
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C.
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On January 26, 2018, the Wall Street Journal (“WSJ”) published an article titled
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“Dozens of People Recount Pattern of Sexual Misconduct by Las Vegas Mogul Steve Wynn,”
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alleging that in 2005, Defendant Wynn paid a Wynn Resorts employee $7.5 million after the
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employee accused Defendant Wynn of forcing her to have sex with him. (Id. ¶¶ 4, 196). The
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WSJ article detailed additional sexual misconduct allegations by Wynn Resorts employees.
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(Id.).
Wall Street Journal Article and Regulatory Investigations
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Elaine Wynn is not a party to the instant action.
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The day the article was published, Wynn Resorts’ share price fell $20.31, or
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10.12 percent, to close at $180.29 on January 26, 2018. (Id. ¶ 197). The stock’s high trading
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volume and price decline continued for several days, and the stock closed at $163.48 on
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January 29, 2018. (Id.).
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Defendant Wynn denied the WSJ article’s allegations stating that the “idea that I ever
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assaulted any woman is preposterous. The instigation of these accusations is the continued
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work of my ex-wife, Elaine Wynn, with whom I am involved in a terrible and nasty lawsuit in
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which she is seeking a revised divorce settlement.” (Id. ¶ 198). On February 6, 2018, the
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Company announced that Defendant Wynn had resigned as CEO and Chairman of the Board,
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effective immediately. (Id. ¶¶ 8, 208).
Moreover, shortly after the WSJ article’s publication, both the Nevada Gaming Control
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Board and the Massachusetts Gaming Commission commenced investigations into the article’s
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sexual misconduct allegations. (Id. ¶ 6).
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Then, on February 12, 2018, the Las Vegas Metropolitan Police Department (LVMPD)
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revealed that two women had recently filed reports against Defendant Wynn alleging that he
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had sexually assaulted them in the 1970s. (Id. ¶¶ 63, 215). On this news, Wynn Resorts’ share
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price closed at $162.92 on February 12, 2018. (Id. ¶ 216). Compared to the February 9, 2018
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closing price ($166.22), this was a drop of $3.30, or 2 percent. (Id.). Compared to its January
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25, 2018 closing price ($200.60), this was a drop of $37.68, or 18.8 percent. (Id.).
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D.
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On January 25, 2019, the Nevada Gaming Control Board (the “NGCB”) filed a
Nevada Gaming Control Board Complaint and Settlement
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disciplinary complaint (the “NGCB Complaint”) and accompanying settlement against the
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Company and Wynn Las Vegas, LLC, relating to the NGCB’s investigation of the response of
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certain Wynn Resorts employees to sexual misconduct allegations against Defendant Stephen
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Wynn. (Id. ¶ 222).
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The NGCB Complaint alleged that, “[i]n 2005, Employee 1, employed in the WYNN
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Salon, alleged to various individuals at the WYNN that she had been raped by Mr. Wynn and
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that she became pregnant as a result.” (Id. ¶ 224). Subsequently, “Mr. Wynn reached a private,
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confidential settlement with Employee 1 in which she and her husband were paid $7.5 million
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through a separate legal entity funded personally by Mr. Wynn.” (Id.).
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The NGCB Complaint alleged eight instances of sexual harassment claims by employees
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against Defendant Wynn that were not investigated by the Company, and further stated that
8
certain former executives knew of sexual harassment allegations made by female employees
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and did not investigate. (Id. ¶ 223). Moreover, pursuant to the accompanying settlement, the
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NGCB Complaint’s respondents 9 admitted nearly all of the allegations set forth in the NGCB
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Complaint. (Id.). In February 2019, the Company was fined $20 million by Nevada gaming
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regulators for failing to investigate claims of sexual misconduct against Defendant Wynn. (Id.
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¶ 234).
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E.
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Plaintiffs allege that during the Class Period, Defendants made several materially
Alleged False and Misleading Statements
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misleading statements and omissions in SEC filings, earnings calls, and press releases. These
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statements fall into the following categories:
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1.
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Code of Conduct statements
Up to and throughout the Class Period, Wynn Resorts made available to investors its
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Code of Business Conduct and Ethics (“Code of Conduct” or “Code”). (Id. ¶ 88). The Code’s
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stated purposes were “to comply with federal securities laws” and “to reinforce and enhance the
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Company’s commitment to an ethical way of doing business.” (Id. ¶ 89). The Code stated, in
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relevant part, that “[a]ll reported violations . . . will be taken very seriously and promptly
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investigated,” and that “[h]arassment or discrimination of any sort will not be tolerated.” (Id.
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9
Plaintiffs’ Amended Complaint does not name or otherwise identify the NGCB Complaint’s respondents.
Page 6 of 37
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¶¶ 92, 93). Additionally, the Code of Conduct purported to apply to “all employees, officers,
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directors, agents, and representatives of the Company and its affiliates.” (Id. ¶ 91). The
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Company’s annual reports on Form 10-K from 2013 to 2016 each contained a similar assertion:
4
“As part of the Company’s commitment to integrity, the Board of Directors has adopted a Code
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of Business Conduct and Ethics applicable to all directors, officers and employees of the
6
Company and its subsidiaries.” (Id. ¶¶ 107, 124, 146, 173).
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Plaintiffs allege the Code of Conduct and references thereto were materially false and
8
misleading, because the Code was not applied to “all employees, officers, directors and
9
officers . . . .” (See, e.g., id. ¶¶ 95, 108, 125, 147). Instead, Defendants “turned a blind eye” to
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Defendant Stephen Wynn’s alleged sexual misconduct. (Id.). Plaintiffs claim that Defendants
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did not take seriously or promptly investigate the alleged sexual misconduct. (Id. ¶ 95).
12
Additionally, Defendants “failed to report these incidents to the applicable gaming regulators,
13
as required by law, thus jeopardizing the Company’s critically needed gaming licenses.” (Id.).
14
Lastly, Plaintiffs allege that “contrary to the Code’s statement that ‘[h]arassment’ and
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‘discrimination of any sort will not be tolerated’ and its requirement that violators will be
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disciplined, in fact such conduct by Defendant Wynn was tolerated and condoned at the highest
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levels of management, and he was never disciplined” until the WSJ article “revealed the extent
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of his egregious conduct and forced his ouster from the Company.” (Id.).
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2.
statements regarding compliance with applicable laws
Several of Wynn Resorts’ SEC filings made during the Class Period provided the
following statements regarding compliance:
On February 18, 2012, the Board of Directors of Wynn Resorts received a report
from Freeh, Sporkin & Sullivan, LLP detailing numerous instances of conduct
constituting prima facie violations of the Foreign Corrupt Practices Act (the
“FCPA”) by Kazuo Okada (formerly the largest beneficial owner of our shares)
and certain of his affiliates . . . . The Company has provided the Freeh Report to
applicable regulators and has been cooperating with related investigations of such
regulators. The conduct of Mr. Okada and his affiliates and the outcome of any
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resulting regulatory findings could have adverse consequences to the Company.
A finding by regulatory authorities that Mr. Okada violated the FCPA on
Company property and/or otherwise involved the Company in criminal or civil
violations could result in actions by regulatory authorities against the Company.
Relatedly, regulators have and may pursue separate investigations into the
Company’s compliance with applicable laws in connection with the Okada matter
. . . . While the Company believes that it is in full compliance with all applicable
laws, any such investigations could result in actions by regulators against the
Company, which could negatively affect the Company’s financial condition or
results of operations.
....
(Id. ¶¶ 122, 148, 175); (quoting 2014 10-K); (2015 10-K); (2016 10-K).
Other regulators may pursue separate investigations into the Company’s
compliance with applicable laws arising from the allegations in the matters
described above and in response to the Counterclaim and other litigation filed by
Mr. Okada suggesting improprieties in connection with the Company’s donation
to the University of Macau. While the Company believes that it is in full
compliance with all applicable laws, any such investigations could result in
actions by regulators against the Company.
(Id. ¶¶ 101, 113, 115, 117, 122); (see also id. ¶ 111) (alleging similar statement).
Plaintiffs maintain these statements were “false and/or misleading” because Defendants
16
knew that the Company was not “in full compliance with all applicable laws” because
17
Defendant Wynn was “in violation of gaming regulations due to his ‘unsuitability,’ and in turn,
18
the Company had violated Nevada gaming regulations by failing to report the incidents
19
involving Defendant Wynn to regulators, as required,” and “covering up” the alleged
20
misconduct. (Id. ¶¶ 102, 118, 123, 136, 139, 144).
21
3.
statements disclosing regulatory risks
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During the Class Period, several of the Company’s SEC filings explained the
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consequences of violating gaming laws in Nevada and Massachusetts. For example, if the
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Nevada Gaming Commission or the Massachusetts Gaming Commission determined that Wynn
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Resorts violated the particular state’s gaming regulations, the Company’s registrations and
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gaming licenses could be limited, suspended, or revoked. (See, e.g., id. ¶¶ 105, 128). Further,
3
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Any person who fails or refuses to apply for a finding of suitability . . . after being
ordered to do so by the Nevada Gaming Commission . . . or who refuses or fails
to pay the investigative costs incurred by the Nevada Gaming Authorities in
connection with the investigation of its application, may be found
unsuitable. . . . Any person found unsuitable and who holds, directly or indirectly,
any beneficial ownership of any voting security or debt security of a registered
company beyond the period of time as may be prescribed by the Nevada Gaming
Commission may be guilty of a criminal offense.
8
9
10
11
12
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(Id.). Additionally, the SEC filings provided the following regarding Massachusetts company
registration requirements and “qualifiers”:
the following entities and person are deemed to be “qualifiers” subject to
investigation: all members, transferees of a member’s interest, directors and
managers of the licensee . . . . As a result, Wynn Resorts, its key employees and
its directors were therefore subject to a suitability investigation. Wynn Resorts
and all individual qualifiers were found suitable by the MGC.
14
15
(See, e.g., id. ¶¶ 128, 152, 179). Moreover, during an earnings call on July 25, 2017, Defendant
16
Wynn said the following regarding the licensing process in Massachusetts:
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I remember when we were being licensed to Massachusetts, the question was,
well, Macau has a reputation that may be questionable in some quarters,
especially in Massachusetts. . . . we said, wait a minute, let’s put this matter to
rest. We told each of our operators that, in addition to being licensed in Macau,
they had to go to the organized crime criminal division of the Hong Kong Police
Department and get certificates of clean bill of health certificates.
They actually would investigate someone and then come to a conclusion and
make a statement in writing that that person was free of any criminal association.
And every one of our operators went instantly and did it without hesitation. And
that impressed the folks in Boston. We were happy to do it because we wouldn’t
want to do business with anybody that couldn’t pass such an examination. So, the
regulatory issue is the one that I think is at stake here.
(Id. ¶ 188).
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Plaintiffs allege these statements were “false and/or misleading” because, while
2
informing investors that Defendant Wynn and all “individual qualifiers” were found “suitable”;
3
“warning investors generally of the consequences of violating gaming laws”; and implying that
4
the Company would not do business with unsuitable individuals, the statements “failed to
5
disclose that Defendant Wynn had engaged in a pattern of sexual misconduct (rendering him
6
‘unsuitable’ under applicable gaming regulations and jeopardizing the Company’s critical
7
gaming licenses), and that senior Wynn Resorts management was aware of this conduct” yet
8
failed to investigate or report this alleged misconduct to gaming regulators although required to
9
do so under gaming regulations. (See, e.g., id. ¶¶ 106, 129, 153, 189).
10
4.
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statements regarding Defendant Wynn’s skills and possible departure
from the Company
12
Wynn Resorts’ annual reports on Form 10-K contained statements emphasizing
13
Defendant Wynn’s skills and the consequences of his possible departure from the Company:
14
15
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We believe that Steve Wynn is the preeminent designer, developer and operator
of destination casino resorts and has developed brand name status. Mr. Wynn’s
involvement with our casino resorts provides a distinct advantage over other
gaming enterprises.
....
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The loss of Stephen A. Wynn could significantly harm our business.
Our ability to maintain our competitive position is dependent to a large degree on
the efforts, skills and reputation of Stephen A. Wynn, the Chairman of the Board,
Chief Executive Officer and one of the principal stockholders of Wynn Resorts.
Mr. Wynn’s employment agreement expires in October 2020. However, we
cannot assure you that Mr. Wynn will remain with Wynn Resorts, Limited. If we
lose the services of Mr. Wynn, or if he is unable to devote sufficient attention to
our operations for any other reason, our business may be significantly impaired.
23
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(See, e.g., id. ¶¶ 103, 126); (see also id. ¶ 177) (alleging the Company’s 2016 10-K contained
25
similar statements).
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In 2014, the Company’s Proxy Statement described Defendant Wynn as the “founder
2
and creative and organizational force of Wynn Resorts” and “the preeminent designer,
3
developer and operator of destination casino resorts.” (Id. ¶ 109). Further, the 2014 Proxy
4
Statement indicated, inter alia: “Mr. Wynn’s involvement with our casino resorts provides a
5
distinct advantage over other gaming enterprises. As founder, Chairman and Chief Executive
6
Officer, he has a unique perspective into the operations and vision for the Company.” (Id.).
7
The Company’s 2015, 2016, and 2017 Proxy Statements contained identical or nearly identical
8
statements. (Id. ¶¶ 130, 154, 181).
9
Plaintiffs characterize these statements as “false and/or misleading” because, while
10
touting the “distinct advantage” Defendant Wynn provided and warning investors generally of
11
the risks of the possible loss of Defendant Wynn, Defendants failed to disclose that “Defendant
12
Wynn had engaged in a pattern of sexual misconduct (rendering him ‘unsuitable’ under
13
applicable gaming regulations and jeopardizing the Company’s critical gaming licenses),” and
14
that “senior Wynn management was aware of this conduct” yet failed to investigate or report
15
this alleged misconduct to regulators although required to do so under gaming regulations. (See,
16
e.g., id. ¶¶ 104, 110, 131, 182).
17
5.
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statements about corporate culture
On March 24, 2015, the Company filed a Schedule 14A attaching a presentation from
19
the Board to the Company’s shareholders. (Id. ¶ 132). The presentation included the following
20
statements regarding the Company’s commitment to diversity:
21
WYNN RESORTS HAS A TRACK RECORD OF PROMOTING
DIVERSITY
22
Wynn Resorts’ commitment to diversity is reflected by the number of women in
senior leadership roles throughout the Company. In fact, 34% of employees at
the Vice President and above level and 38% of employees at the Executive
Director or Assistant Vice President level are women.
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(Id.).
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Plaintiffs contend this statement was false and misleading because “while boasting about
2
the Company’s ‘track record’ and ‘commitment’ to diversity, Defendants failed to disclose that
3
Defendant Wynn had created a hostile work environment for Wynn’s female employees, which
4
was known to, but condoned by, senior management.” (Id.). Plaintiffs further allege the
5
statement was misleading “because Defendant Wynn had placed his own interests ahead of his
6
duty to the Board by repeatedly violating company policy and Nevada law.” (Id. ¶ 133).
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On October 15, 2015, the Company held an earnings call, during which Defendant
Wynn stated:
In 45 years, I’ve never had a layoff. I think we once dropped 100 people in this
company. 45 years. We don’t do layoffs. People come to work for us. They get
job security. And I’ve never broken a promise about job security to my
employees in my entire career, and I don’t like facing that possibility one bit.
(Id. ¶ 140).
Plaintiffs claim this statement was “false and/or misleading because it failed to disclose
14
that Defendant Wynn had engaged in a pattern of sexual misconduct towards female Wynn
15
employees which created a hostile work environment and undermined their job security.” (Id.).
16
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6.
press release statements concerning allegations by Elaine Wynn
On March 28, 2016, following the filing of the Elaine Wynn Counterclaim in the Okada
18
Litigation, Wynn Resorts issued a press release titled “Statement from Wynn Resorts in
19
Response to Elaine Wynn’s Recent Filing” stating, in relevant part:
20
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Ms. Wynn’s latest allegations regarding our Board, its composition and its
independence are simply not true and are rehashed from her previous, unfounded
statements made during her proxy campaign.
Our company has nine
distinguished directors, seven of whom are independent under NASDAQ
standards.
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Throughout her campaign, in which she directly communicated with shareholders
via numerous personal letters, she never once raised the new allegations set forth
in her recent complaint. Her allegations regarding the use of company assets are
without merit. The use of company assets is governed by many internal policies
and is closely supervised both by the Audit Committee, which is comprised solely
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of independent directors, and our external auditors. As outlined in recent proxy
statements, Mr. Wynn reimburses the Company for his accommodations at the
hotel, his personal use of corporate aircraft and all other company assets subject
to company policy. These policies and any perquisites he receives have always
been set forth in our proxy statements.
4
5
6
As a leader in a highly regulated industry, Wynn Resorts prides itself on its
transparency and full disclosure to regulators and shareholders. Allegations made
by Ms. Wynn that the company would hide any relevant activities from our
regulators are patently false.
7
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By any measure, Wynn Resorts has ascended to a position of unrivaled stature
and it is a symbol of unquestioned excellence and quality the world over. None
of what Wynn Resorts has accomplished would be possible without its
extraordinary employees and the sense of family and community that Mr. Wynn
has created. Ms. Wynn’s actions today run counter to the culture of everything
Mr. Wynn has worked so hard to create.
11
12
(Id. ¶ 158). Plaintiffs contend that this statement was false and misleading because the
13
Company was not transparent with regulators, and Defendant Wynn had not created a “sense of
14
family and community” at Wynn Resorts. (Id. ¶ 159). Instead, Plaintiffs allege he created a
15
coercive and hostile work environment for Wynn’s female employees. (Id.).
16
On April 4, 2016, Elaine Wynn issued a press release reiterating accusations that
17
Defendant Wynn “engaged in reckless, risk-taking behavior, leaving himself vulnerable to
18
allegations of serious wrongdoing—that he made a multi-million-dollar payment and used
19
Company resources to silence,” “that he did not properly disclose to the Board of Directors,”
20
and that Defendant Sinatra acted as his co-conspirator. (Id. ¶ 160).
21
The following day, Wynn Resorts issued a press release titled “Statement from Wynn
22
Resorts in response to Elaine Wynn’s news release of April 4, 2016” once again denying Elaine
23
Wynn’s allegations:
24
25
Elaine Wynn continues to rehash the same accusations she has made, accusations
which will be fully adjudicated when heard by the court early next year. Neither
her nor the company’s recent filings contain any new facts or revelations, as she
so passionately claims. Ms. Wynn’s comments regarding our Board of Directors,
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1
2
3
4
5
6
their independence and their actions in this matter are false. Our company has
nine distinguished directors, seven of whom are independent under NASDAQ
standards, each deeply committed to the best interests of our shareholders.
Ms. Wynn’s allegations about Mr. Schorr’s departure from the company are not
true. Her previous allegations that Mr. Wynn applied company resources for
personal use are false; Mr. Wynn’s use of company assets is fully audited by both
the Board and our external auditors, as well as completely outlined in our proxy
statements.
7
(Id. ¶ 161). Plaintiffs allege this press release was false and misleading because it implied that
8
Elaine Wynn’s allegations regarding Defendant Stephen Wynn were “not credible” and
9
“motivated by improper reasons.” (Id. ¶ 162).
10
11
7.
other statements
During an earnings call on February 3, 2015, Defendant Stephen Wynn made statements
12
indicating that the Company “worked very hard to compete for the right to operate in
13
Massachusetts, . . . it was expensive to do that process, and time-consuming.” (Id. ¶ 119).
14
Defendant Wynn stated, inter alia:
15
16
17
18
Our promises for that, that are separate and apart from the construction and that
project budget. We are going to be the one of the top five private employers in
the history of the State of Massachusetts. We’re going to be responsible for $50
million a month in revenue for the state, probably another $50 million in related
revenues to all the surrounding communities. We’re going to employ thousands
and thousands of people.
19
(Id.). Further, on April 25, 2017, the Company held an earnings call. (Id. ¶ 183). During that
20
call, Defendant Stephen Wynn stated:
21
22
23
24
25
[T]hen we’re going to open this place in Boston in two dozen months, and we’re
going to have a case study of how a grand hotel, built in a major metropolitan
city, can change the neighborhood for the better. And be the largest private
investment in the Commonwealth of Massachusetts and the second largest
employer in the Commonwealth of Massachusetts, behind Mass General
Hospital.
So I’d like the direction we’re in and I’m feeling comfortable about the pace of
our growth. And, you know, I don’t feel like anybody’s after us. I think we’re
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1
moving along exactly the way we should be. And my colleagues join me in that
confidence.
2
3
(Id.).
Plaintiffs allege that these statements were “false and/or misleading” because
4
5
Defendants failed to disclose that at the time the statements were made, Defendant Wynn “had
6
engaged in a pattern of sexual misconduct,” and that senior Wynn management was aware of
7
this conduct but did not investigate or report this misconduct to regulators although required to
8
do so under gaming regulations.” (Id. ¶¶ 120, 184).
F.
9
Procedural History
10
On February 20, 2018, Plaintiffs John V. Ferris and JoAnn M. Ferris brought this
11
securities class action against Defendants in the U.S. District Court for the Southern District of
12
New York. (Compl., ECF No. 1). On March 13, 2018, this case was transferred to the District
13
of Nevada. (Transfer Order, ECF No. 14). On December 4, 2018, John V. Ferris and Joann M.
14
Ferris were named lead plaintiffs. (Order on Mot. Lead Pls., ECF No. 45). Plaintiffs
15
subsequently filed an Amended Complaint, (ECF No. 52), which alleges two causes of action:
16
(1) Violation of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants; and
17
(2) Violation of Section 20(a) of the Exchange Act against Defendants Wynn, Maddox, Sinatra,
18
Cootey, and Billings. Defendants now move to dismiss the Amended Complaint.
19
II.
JUDICIAL NOTICE
20
Before reaching the merits, the Court first addresses the parties’ respective requests for
21
judicial notice. Defendant Sinatra requests the Court take judicial notice of ten Statements of
22
Changes in Beneficial Ownership on Form 4 filed with the SEC. (Def. Sinatra Req. Judicial
23
Notice (“RJN”), ECF No. 68).
24
25
Wynn Resorts Defendants request that the Court judicially notice 45 exhibits in support
of their Motion to Dismiss. (Wynn Resorts Defs. RJN, ECF No. 86). These exhibits include
several news articles; Forms 8-K filed with the SEC; a Complaint filed in Arrowsmith, et al. v.
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1
Mirage Hotel Casino, No. 2:97-cv-00638-RLH-LRL; a May 24, 2018 pleading filed in In re
2
Wynn Resorts Deriv. Litig., No. A-18-769630-B (Dist. Ct. Nev.); press releases; Form 10-K
3
annual reports filed with the SEC; the Elaine Wynn Counterclaim filed in Wynn Resorts, Ltd. v.
4
Kazuo Okada, Case No. A-12-656710-B (Dist. Ct. Nev.); Statements of Changes in Beneficial
5
Ownership on Form 4 filed with the SEC; Schedule 14As filed with the SEC; Wynn Resorts’
6
Code of Conduct; Wynn Resorts’ Share Pricing from January 2, 2018, to May 30, 2018; Form
7
10-Q quarterly reports filed with the SEC; and several exhibits attached to SEC 8-K filings.
8
(Id.); (see also ECF Nos. 76–85) (containing numerous volumes of exhibits).
9
Further, Wynn Resorts Defendants request that the Court take judicial notice of six
10
exhibits used to support their Reply. (Wynn Resorts Defs. Reply RJN, ECF No. 101); (Shipley
11
Decl., ECF No. 100). These exhibits include a February 26, 2019 settlement between the
12
Nevada Gaming Control Board and Wynn Resorts; Wynn Resorts’ Code of Ethics, adopted
13
November 2003 and filed publicly with the SEC; Hewlett Packard’s Code of Ethics, pulled
14
from the docket in Retail Wholesale & Department Store Union Local 338 Retirement Fund v.
15
Hewlett-Packard Co., 845 F.3d 1268 (9th Cir. 2017); a January 25, 2019 Complaint filed by the
16
Nevada Gaming Control Board; and a May 2019 Wynn Resorts press release. (Id.). Plaintiffs
17
do not object to Defendants’ requests for judicial notice.
18
Generally, district courts may not consider material outside the pleadings when
19
assessing the sufficiency of a complaint under Federal Rule of Civil Procedure 12(b)(6). Lee v.
20
City of L.A., 250 F.3d 668, 688 (9th Cir. 2001). When matters outside the pleadings are
21
considered, the 12(b)(6) motion converts into a motion for summary judgment. Khoja v.
22
Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). This rule does not apply to the
23
incorporation by reference doctrine and judicial notice under Federal Rule of Evidence 201.
24
Khoja, 899 F.3d at 998.
25
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1
Rule 201 permits a court to take judicial notice of an adjudicative fact “not subject to
2
reasonable dispute,” that is “generally known” or “can be accurately and readily determined
3
from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b).
4
Specifically, a court may take judicial notice: (1) of matters of public record, Khoja, 899 F.3d
5
at 999; (2) that the market was aware of information contained in news articles, Heliotrope
6
Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999); and (3) publicly
7
accessible websites whose accuracy and authenticity is not subject to dispute, Daniels-Hall v.
8
Nat’l Educ. Ass’n, 629 F.3d 992, 998–99 (9th Cir. 2010).
9
Incorporation by reference treats certain documents as though they are part of the
10
complaint itself. Daniels-Hall, 629 F.3d at 998. These are situations where the complaint
11
“necessarily relies” upon a document or where the complaint alleges the contents of the
12
document and the documents authenticity and relevance is not disputed. Coto Settlement v.
13
Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). A defendant may seek to incorporate a
14
document into the complaint “if the plaintiff refers extensively to the document or the
15
document forms the basis of the plaintiff’s claim.” Khoja, 899 F.3d at 1002.
16
Upon review and consideration, the Court grants Defendants’ Requests for Judicial
17
Notice, (ECF Nos. 68, 86, 101). Defendants’ exhibits consist of SEC filings, matters of public
18
record, and news articles, each of which the Court may properly judicially notice. See Dreiling
19
v. Am. Express Co., 458 F.3d 942, 946 n.2 (9th Cir. 2006); Heliotrope Gen., Inc., 189 F.3d at
20
981 n.18. Moreover, several of the exhibits are excerpted or referenced in Plaintiffs’ Amended
21
Complaint. As such, these documents are incorporated by reference. Khoja, 899 F.3d at 1002.
22
The Court now turns to Plaintiffs’ Request for Judicial Notice, (ECF No. 97). In support
23
of their Response, Plaintiffs request that the Court judicially notice four Wynn Resorts Proxy
24
Statements filed with the SEC and two exhibits attached to SEC 10-K annual reports. (Exs. 1–6
25
to Pls.’ RJN, ECF No. 97). Defendants do not oppose Plaintiffs’ request as to these six
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1
exhibits. “SEC filings are judicially noticeable documents which may be considered on a
2
motion to dismiss.” Richardson v. Oppenheimer & Co. Inc., No. 2:11-cv-02078-GMN, 2014
3
WL 1304343, at *3 (D. Nev. Mar. 31, 2014) (citing Dreiling, 458 F.3d at 946 n.2). Therefore,
4
Plaintiffs’ request for judicial notice is granted as to these documents.
5
Plaintiffs also request judicial notice of an April 30, 2019 Order issued by the
6
Massachusetts Gaming Commission’s Investigations and Enforcement Bureau (the “MGC
7
Order”). (Ex. 7 to Pls.’ RJN, ECF No. 97). Plaintiffs submit that “it is a matter of public record
8
whose accuracy is not in dispute.” (Pls.’ Resp. to Mots. Dismiss (“Resp.”) at 17 n.2, ECF No.
9
96) (citing Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank, 136 F.3d 1360, 1364
10
(9th Cir. 1998)). Plaintiffs further request that “[t]o the extent that the MGC Order may be
11
noticeable only for the fact of its publication and not for its contents, Plaintiffs respectfully
12
request leave to amend the complaint to address this newly issued decision.” (Id.).
13
Wynn Resorts Defendants do not dispute the authenticity of the MGC Order. Thus, the
14
Court will take judicial notice of its existence and publication. Indeed, judicial notice is limited
15
to the existence and terms of the record; it does not extend to the truth of statements quoted in
16
the record or to factual findings. Wyatt v. Terhune, 315 F.3d 1108, 1114 n.5 (9th Cir. 2003),
17
overruled on other grounds by Albino v. Baca, 747 F.3d 1162 (9th Cir. 2014). “[T]aking
18
judicial notice of findings of fact from another case exceeds the limits of Rule 201.” Id.
19
at 1114. As such, the Court’s judicial notice does not extend to the MGC Order’s findings of
20
fact for their truth. Nevertheless, as stated in Part IV.C infra, Plaintiffs will have leave to
21
amend their complaint. Thus, Plaintiffs’ request for “leave to amend the complaint to address
22
this newly issued decision” is granted. Further, Plaintiffs’ Request for Judicial Notice, (ECF
23
No. 97), is granted consistent with the foregoing.
24
///
25
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1
III.
LEGAL STANDARD
2
A.
3
Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action
Rule 12(b)(6) Motion to Dismiss
4
that fails to state a claim upon which relief can be granted. See N. Star Int’l v. Ariz. Corp.
5
Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule
6
12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not
7
give the defendant fair notice of a legally cognizable claim and the grounds on which it rests.
8
See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the
9
complaint is sufficient to state a claim, the Court will take all material allegations as true and
10
construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792
11
F.2d 896, 898 (9th Cir. 1986).
12
The Court, however, is not required to accept as true allegations that are merely
13
conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden
14
State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). A formulaic recitation of a cause of action
15
with conclusory allegations is not sufficient; a plaintiff must plead facts showing that a
16
violation is plausible, not just possible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
17
Twombly, 550 U.S. at 555).
18
If the court grants a motion to dismiss, it must then decide whether to grant leave to
19
amend. The court should “freely give” leave to amend when there is no “undue delay, bad
20
faith[,] dilatory motive on the part of the movant . . . undue prejudice to the opposing party by
21
virtue of . . . the amendment, [or] futility of the amendment . . . .” Fed. R. Civ. P. 15(a); Foman
22
v. Davis, 371 U.S. 178, 182 (1962). Generally, leave to amend is only denied when it is clear
23
that the deficiencies of the complaint cannot be cured by amendment. See DeSoto v. Yellow
24
Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).
25
///
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1
B.
2
Beyond meeting the demands of Rule 12(b)(6), a plaintiff asserting securities fraud
Rule 9(b) and the PSLRA Pleading Standard
3
claims must satisfy the heightened pleading requirements of Federal Rule of Civil Procedure
4
9(b) and the Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4(b), in
5
order to survive a motion to dismiss. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
6
308, 321–24 (2007).
7
Under Rule 9(b), “a party must state with particularity the circumstances constituting
8
fraud . . . .” Fed. R. Civ. P. 9(b). To comply with the rule, the complaint must state with
9
particularity the circumstances constituting the fraud, including an account of the “time, place,
10
and specific content of the false representations as well as the identities of the parties to the
11
misrepresentation.” Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004).
12
“[A]llegations of fraud must be ‘specific enough to give defendants notice of the particular
13
misconduct which is alleged to constitute the fraud charged so that they can defend against the
14
charge and not just deny that they have done anything wrong.’” Bly–Magee v. California, 236
15
F.3d 1014, 1019 (9th Cir. 2001) (internal punctuation omitted). Where several defendants are
16
alleged to be part of the fraud, “Rule 9(b) ‘does not allow a complaint to . . . lump multiple
17
defendants together but require[s] plaintiffs to differentiate their allegations when suing more
18
than one defendant.’” Destfino v. Reiswig, 630 F.3d 952, 958 (9th Cir. 2011).
19
The PSLRA requires that a complaint must “specify each statement alleged to have been
20
false or misleading, the reason or reasons why the statement is misleading, and, if an allegation
21
regarding the statement or omission is made on information and belief, the complaint shall state
22
with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u–4(b)(2). Further,
23
where recovery is dependent on a showing that defendant acted with a particular state of mind,
24
“the complaint shall, with respect to each act or omission alleged . . . state with particularity
25
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1
facts giving rise to a strong inference that the defendant acted with the required state of mind.”
2
Id.
3
IV.
DISCUSSION
4
Defendants argue that Plaintiffs’ Section 10(b) and Rule 10b-5 claim should be
5
dismissed because Plaintiffs fail to adequately plead actionable false statements, scienter, and
6
loss causation. (See Def. Sinatra’s Mot. Dismiss (“Sinatra MTD”) at 11–16, ECF No. 67);
7
(Wynn Resorts Defs.’ Mot. Dismiss (“Wynn Resorts MTD”) at 2, ECF No. 71). Defendants
8
further argue that because Plaintiffs fail to state a claim for a predicate primary violation of
9
Section 10(b) against any Defendant, the Section 20(a) claim necessarily fails. (Sinatra MTD at
10
17–19); (Wynn Resorts MTD at 24). The Court addresses each of Plaintiffs’ claims in turn.
11
A.
12
Section 10(b) makes it unlawful “for any person . . . [t]o use or employ, in connection
Claim 1 - Section 10(b) and Rule 10b-5
13
with the purchase or sale of any security . . . any manipulative or deceptive device or
14
contrivance in contravention of such rules and regulations as the Commission may prescribe as
15
necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C.
16
§ 78j. Rule 10b–5 promulgated by the Securities and Exchange Commission (SEC) under the
17
authority of Section 10(b), in turn makes it unlawful for any person,
18
19
20
21
22
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person, in connection with the purchase or
sale of any security.
23
17 C.F.R. § 240.10b–5. To avoid dismissal of a claim for relief under § 10(b), a plaintiff must
24
allege: (1) defendant made a material misrepresentation or omission, (2) with scienter or intent
25
to defraud, (3) in connection with the purchase or sale of a security, (4) plaintiff relied on that
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1
misrepresentation, (5) plaintiff suffered economic loss, and (6) that loss was caused by the
2
misrepresentation or omission. See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341 (2005).
3
1.
4
false statements and omissions
To adequately plead a material misrepresentation or omission under § 10(b), the PSLRA
5
requires plaintiffs to “specify each statement alleged to have been misleading, the reason or
6
reasons why the statement is misleading, and, if an allegation regarding the statement or
7
omission is made on information and belief, the complaint shall state with particularity all facts
8
on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1)(B); see In re Tesla Motors, Inc. Sec.
9
Litig., 75 F. Supp. 3d 1034, 1041–42 (N.D. Cal. 2014). “[A] statement is misleading if it would
10
give a reasonable investor the ‘impression of a state of affairs that differs in a material way
11
from the one that actually exists.’” Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985 (9th
12
Cir. 2008) (quoting Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002)).
13
To be misleading, a statement must be “capable of objective verification.” Or. Pub. Emps. Ret.
14
Fund v. Apollo Grp. Inc., 774 F.3d 598, 606 (9th Cir. 2014).
15
A material misrepresentation differs from corporate puffery. Puffery is an expression of
16
opinion, while a misrepresentation is a knowingly false statement of fact. Id.; Grossman v.
17
Novell, Inc., 120 F.3d 1112, 1119 (10th Cir. 1997) (finding that puffery includes statements
18
“not capable of objective verification”). “[V]ague, generalized, and unspecific assertions” of
19
corporate optimism or statements of “mere puffing” cannot state actionable material
20
misstatements of fact under federal securities laws. See Glen Holly Entertainment, Inc. v.
21
Tektronix. Inc., 352 F.3d 367, 379 (9th Cir. 2003). Moreover, the Ninth Circuit has noted that
22
investors do not rely on puffery when making investment decisions. In re Cutera Sec. Litig.,
23
610 F.3d 1103, 1111 (9th Cir. 2010). Finally, “mildly optimistic, subjective
24
assessment[s] . . . [do not] amount[ ] to a securities violation.” Id.
25
///
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1
2
(a)
statements regarding corporate culture and other statements
Here, Defendants argue that many of the allegedly false statements are inactionable
3
puffery. (Wynn Resorts MTD at 14 n.10). The Court agrees with Defendants that the
4
statements Defendant Wynn made during earnings calls expressing that he “like[d] the
5
direction we’re in,” was “feeling comfortable about the pace of our growth,” and touting the
6
Company’s newly earned right to operate in Massachusetts are examples of puffery and
7
corporate optimism. (FAC ¶¶ 119, 183). These statements are not definitive positive
8
projections. Indeed, courts have previously rejected similar statements projecting “excellent
9
results,” a “blowout winner” product, “significant sales gains,” and “10% to 30% growth rate
10
over the next several years.” In re Cornerstone Propane Partners, L.P., 355 F. Supp. 2d 1069,
11
1087 (N.D. Cal. 2005) (citing Grossman, 120 F.3d at 1119).
12
Defendants further argue that culture statements regarding the Company’s commitment
13
to diversity, (FAC ¶ 132), and employee job security, (id. ¶ 140), are similarly inactionable as
14
they constitute puffery. (Wynn Resorts MTD at 15). Defendants rely on Footbridge Ltd. v.
15
Countrywide Home Loans, Inc., No. 09-CIV-4050 (PKC), 2010 WL 3790810, at *24 (S.D.N.Y.
16
Sept. 28, 2010), for the proposition that “[s]tatements about corporate culture and integrity are
17
typically considered to be inactionable puffery.” (Id.). Plaintiffs did not respond to this
18
argument and thus have consented to granting that portion of the Motion. See D. Nev. Local
19
Rule 7-2(d); Gayle v. Bank of Am., N.A., No. 2:18-cv-913-APG-NJK, 2019 WL 1410889, at *2
20
(D. Nev. Mar. 27, 2019).
21
22
(b)
Code of Conduct statements
Here, Defendants maintain that the Code of Conduct and references to the Code of
23
Conduct contained in the Company’s annual reports are “inherently aspirational,” and
24
therefore, cannot support a claim for securities fraud. (Wynn Resorts MTD at 9–10). In making
25
this argument, Defendants primarily rely on Retail Wholesale & Department Store Union Local
Page 23 of 37
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1
338 Retirement Fund v. Hewlett-Packard Co., 845 F.3d 1268 (9th Cir. 2017). There, the
2
defendant-organization’s code of conduct contained statements regarding honesty, using good
3
judgment, reporting misconduct, treating others with respect, avoiding unlawful discrimination,
4
and refusing to tolerate harassment. Id. at 1273. The Ninth Circuit found that the code of
5
conduct statements were not objectively verifiable and were inherently inspirational. Id. at
6
1276. “Such a code expresses opinions as to what actions are preferable, as opposed to
7
implying that all staff, directors, and officers always adhere to its aspirations.” Id. (citing
8
Andropolis v. Red Robin Gourmet Burgers, Inc., 505 F. Supp. 2d 662, 685–86 (D. Colo. 2007)).
9
In response to Defendants’ argument, Plaintiffs contend that statements that the Code of
10
Conduct applied to “all” employees; that “[a]ll reported violations of the Code will be taken
11
seriously and promptly investigated”; and that “[h]arassment . . . of any sort will not be
12
tolerated” are nevertheless actionable under Hewlett-Packard Co. because they are specific
13
factual assertions which could be established or disproved through discovery and capable of
14
objective verification. (Resp. at 31) (citing Salazar v. Honest Tea, Inc., 74 F. Supp. 3d 1304
15
(E.D. Cal. 2014)). However, as noted above, these are precisely the type of statements which
16
the Hewlett-Packard court deemed aspirational.
17
Moreover, as Defendants point out, “[l]ike every publicly traded company, Wynn
18
Resorts is required to ‘[d]isclose whether [it] has adopted a code of ethics’ and, if so, publish
19
it.” (Wynn Resorts MTD at 10) (citing 17 C.F.R. § 229.406(a), (c)); (see Wynn Resorts Reply
20
at 7, ECF No. 99). And pursuant to NASDAQ Rule 5610, “[e]ach Company shall adopt a code
21
of conduct applicable to all directors, officers and employees, which shall be publicly
22
available.” (Id. at 7 n.16) (emphasis added). Thus, “it simply cannot be that every time a
23
violation of that code [of conduct] occurs, a company is liable under federal law for having
24
chosen to adopt the code at all, particularly when the adoption of such a code is effectively
25
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1
mandatory.” Andropolis, 505 F. Supp. 2d at 686. Plaintiffs’ arguments are unavailing.
2
Accordingly, the Code of Conduct statements are inactionable.
3
(c)
statements regarding compliance with all applicable laws
4
Defendants argue that statements indicating “the Company believes that it is in full
5
compliance with all applicable laws,” when read in context, are not false or misleading as
6
Plaintiffs claim. (Wynn Resorts MTD at 10–11). Relying on the Company’s 2013 10-K annual
7
report, Defendants explain as follows:
8
9
10
11
12
13
14
15
16
17
18
19
Plaintiffs excerpt the italicized language in the Amended Complaint, but omit the
language directly above, stripping the statement of crucial context:
In the U.S. Department of Justice’s Motion to Intervene and for
Temporary and Partial Stay of Discovery in the Redemption Action, the
Department of Justice states in a footnote that the government also has
been conducting a criminal investigation into the Company’s donation to
the University of Macau discussed above. The Company has not received
any target letter or subpoena in connection with such an investigation. The
Company intends to cooperate fully with the government in response to
any inquiry related to the donation to the University of Macau.
Other regulators may pursue separate investigations into the Company’s
compliance with applicable laws arising from the allegations in the
matters described above and in response to the Counterclaim and other
litigation filed by Mr. Okada suggesting improprieties in connection with
the Company’s donation to the University of Macau. While the Company
believes that it is in full compliance with all applicable laws, any such
investigations could result in actions by regulators against the Company.
20
(Id. at 11) (citing 2013 10-K, Ex. 10 to Bohman Decl., ECF No. 76-10); (FAC ¶ 101). Thus,
21
Defendants submit that the reference to “all applicable laws” refers to laws implicated in the
22
Okada Litigation; more specifically, “Mr. Okada’s alleged violations of the Foreign Corrupt
23
Practices Act and the Department of Justice’s investigation into the Macau donation.” (Id.).
24
Defendants also point to similar language preceding compliance statements in the Company’s
25
10-K annual reports for 2014, 2015, and 2016. (Id.); (see also FAC ¶¶ 122, 148, 175).
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1
Plaintiffs counter that “nothing in the wording [of the compliance statements] suggests
2
such a limitation.” (Resp. at 34). But Plaintiffs offer no facts or analysis to back their
3
contention. While Plaintiffs argue that the MGC Order rejected Defendants’ exact argument by
4
dismissing it is as an “overly narrow interpretation,” said order reveals no such thing. (Id. at 34)
5
(citing “supra at 15” without any additional information); (see generally MGC Order, Ex. 7 to
6
Pls.’ RJN, ECF No. 97-7). 10
7
The Court agrees with Defendants that the compliance statements, when viewed in
8
context, are not misleading. A court evaluates alleged false statements in the context in which
9
they were made, especially with respect to contemporaneous qualifying or clarifying language.
10
Xu v. Chinacache Int’l Holdings Ltd., No. 2:15-CV-7952-CAS-RAOX, 2016 WL 4370030, at
11
*5 (C.D. Cal. Aug. 15, 2016) (citing In re Syntex Corp. Sec. Litig., 95 F.3d 922, 929 (9th Cir.
12
1996) (finding statements non-actionable where the “statement in full and in context at the
13
time” acknowledged uncertainty)). Here, the statements contained in numerous SEC filings
14
which provide that “the Company believes that it is in full compliance with all applicable
15
laws,” immediately follow language discussing the Okada Litigation. Noticeably absent is any
16
reference to Defendant Wynn or his alleged sexual misconduct. Indeed, “a statement is
17
misleading if it would give a reasonable investor the ‘impression of a state of affairs that differs
18
in a material way from one that actually exists.’” Hewlett-Packard, 845 F.3d at 1275. When
19
read in context, no reasonable investor would infer from the challenged compliance statements
20
that Defendant Wynn had not engaged in sexual misconduct. Nor can the statement be
21
reasonably construed as an assurance regarding Defendant Wynn’s suitability under gaming
22
regulations.
23
24
25
10
To be sure, page 19 of the Massachusetts Gaming Commission’s order states that Defendant Sinatra’s
interpretation of a document request from the Massachusetts Gaming Commission’s counsel was “an overly
narrow interpretation.” (MGC Order at 19). However, the Court cannot discern how this would be related to the
compliance statements at issue and Plaintiffs make no attempt to establish such a connection. (See also Part II
supra) (addressing judicial notice of MGC Order).
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1
Defendants and Plaintiffs also disagree as to which pleading standard should be applied
2
when addressing falsity and the compliance statement allegations. In Omnicare, Inc. v.
3
Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175 (2015), the U.S. Supreme
4
Court established three standards for pleading falsity of opinion statements:
5
First, when a plaintiff relies on a theory of material misrepresentation, the
plaintiff must allege both that “the speaker did not hold the belief she professed”
and that the belief is objectively untrue. Second, when a plaintiff relies on a
theory that a statement of fact contained within an opinion statement is materially
misleading, the plaintiff must allege that “the supporting fact [the speaker]
supplied [is] untrue.” Third, when a plaintiff relies on a theory of omission, the
plaintiff must allege “facts going to the basis for the issuer’s opinion . . . whose
omission makes the opinion statement at issue misleading to a reasonable person
reading the statement fairly and in context.”
6
7
8
9
10
11
City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605,
12
615–16 (9th Cir. 2017) (citing Omnicare, 575 U.S. at 1327, 1332). 11 Defendants argue that the
13
first standard applies, while Plaintiffs contend the third applies. Looking at the Amended
14
Complaint, Plaintiffs maintain these statements were “false and/or misleading” because
15
Defendants knew that the Company was not “in full compliance with all applicable laws[.]”
16
(See FAC ¶¶ 118, 123). Thus, Plaintiffs’ allegations fall under a theory of material
17
misrepresentation, and the applicable standard is the first standard—Plaintiffs must allege both
18
that the speaker did not hold the belief the speaker professed, and that the belief is objectively
19
untrue. However, Plaintiffs only offer conclusory allegations and fail to provide any particular
20
facts showing that Defendants did not hold the belief that the Company was in compliance with
21
all applicable laws or facts showing that said belief was objectively untrue (i.e., that the
22
Company was in fact not in compliance with all applicable laws). As such, the Court grants the
23
Motions to Dismiss as to the compliance statements.
24
25
11
In City of Dearborn Heights, the Ninth Circuit explained that even though “Omnicare concerned Section 11
claims, . . . the Supreme Court’s reasoning is equally applicable to Section 10(b) and Rule 10b-5 claims.” 856
F.3d at 616.
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1
2
(d)
statements disclosing regulatory risks
Plaintiffs’ Amended Complaint alleges that Defendants’ statements regarding gaming
3
regulations, the consequences of violating gaming regulations, suitability requirements,
4
qualifiers, and other regulatory risk statements were “false and/or misleading” because while
5
informing and warning investors, Defendants “failed to disclose” Defendant Wynn’s alleged
6
sexual misconduct, which rendered him unsuitable under gaming regulations. (See, e.g., id.
7
¶¶ 106, 129, 153, 189). Plaintiffs also allege that Defendants failed to disclose that senior
8
Wynn Resorts management was aware of this conduct yet failed to report it to regulators. (Id.).
9
Defendants, however, argue that these statements do not give rise to a securities fraud
10
claim because Defendants had no duty to disclose Defendant Wynn’s alleged conduct. (Wynn
11
Resorts MTD at 7). It is well-settled that Section 10(b) and Rule 10b–5 “do not create an
12
affirmative duty to disclose any and all material information.” Matrixx Initiatives, Inc. v.
13
Siracusano, 563 U.S. 27, 44 (2011). Disclosure is required only when “necessary . . . to make
14
statements made, in light of the circumstances under which they were made, not misleading.”
15
17 C.F.R. § 240.10b–5(b). “In other words, a duty to provide information exists only where
16
statements were made which were misleading in light of the context surrounding the
17
statements.” Hewlett-Packard Co., 845 F.3d at 1278.
18
On this basis, Defendants argue that “[e]ven assuming the Directors and Officers were
19
aware of these [sexual misconduct] accusations before the market,” Defendants did not have a
20
duty to disclose them because none of the challenged statements suggested there would be no
21
misconduct by Defendant Wynn or anyone else. (Wynn Resorts MTD at 7–8). Indeed, none of
22
the statements addressed Defendant Wynn’s behavior, and instead provided a general
23
discussion of applicable gaming regulations, suitability, etc. Azar v. Yelp, Inc., No. 18-CV-
24
00400-EMC, 2018 WL 6182756, at *10 (N.D. Cal. Nov. 27, 2018) (“Where a defendant ‘said
25
nothing about’ the subject of the alleged omission, ‘there is no duty to disclose, as [§ 10(b)]
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1
does not contain a freestanding completeness requirement.’”) (quoting In re Yahoo! Inc. Sec.
2
Litig., No. C 11-02732 CRB, 2012 WL 3282819, at *9 (N.D. Cal. Aug. 10, 2012), aff’d, 611 F.
3
App’x 387 (9th Cir. 2015)); see also Matrixx, 563 U.S. at 45 (noting that information that a
4
reasonable investor might consider material need not always be disclosed; companies can
5
control “what they have to disclose under [§ 10(b)] by controlling what they say to the
6
market.”).
7
Defendants further contend that they did not have a duty to disclose the alleged
8
misconduct because the allegations were “uncharged, unadjudicated wrongdoing.” (Wynn
9
Resorts MTD at 9) (citing In re Paypal Holdings, Inc. S’holder Derivative Litig., No. 17-CV-
10
00162-RS, 2018 WL 466527, at *3 (N.D. Cal. Jan. 18, 2018)); see also Veal v. LendingClub
11
Corp., 423 F. Supp. 3d 785, 806 (N.D. Cal. 2019) (“Defendants were not required to ‘confess’
12
to the uncharged allegation.”); In re Facebook, Inc. Sec. Litig., 405 F. Supp. 3d 809, 836 (N.D.
13
Cal. 2019) (“[C]ompanies are not required to engage in ‘self-flagellation’ by disclosing
14
unproven allegations.”). Plaintiffs disagree and provide caselaw supporting the proposition that
15
a company “may be compelled to disclose uncharged wrongdoing if its statements are or
16
become materially misleading in the absence of disclosure.” (Resp. at 9–10) (citing Menaldi v.
17
Och-Ziff Capital Mgmt. Grp. LLC, 164 F. Supp. 3d 568, 581 (S.D.N.Y. 2016)); (Singer v.
18
Reali, 883 F.3d 425, 441 (4th Cir. 2018)). Plaintiffs nevertheless fail to allege sufficient facts
19
showing that the regulatory risk disclosure statements became materially misleading due to the
20
non-disclosure of the alleged sexual misconduct.
21
To be actionable, “an omission must be misleading; in other words it must affirmatively
22
create an impression of a state of affairs that differs in a material way from the one that actually
23
exists.” Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002) (citing
24
McCormick v. The Fund American Cos., 26 F.3d 869, 880 (9th Cir. 1994)). If an omission does
25
not make the statement misleading, “a company need not supplement the statement ‘even if
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1
investors would consider the omitted information significant.’” In re Facebook, 405 F. Supp.
2
3d at 833 (quoting In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 880 n.8 (9th Cir. 2012)).
3
Thus, for example, the statement indicating “[a]ny person found unsuitable and who holds,
4
directly or indirectly, any beneficial ownership of any voting security or debt security of a
5
registered company beyond the period of time as may be prescribed by the Nevada Gaming
6
Commission may be guilty of a criminal offense,” (FAC ¶ 128), is not misleading because it
7
does not affirmatively intimate that Defendant Wynn had never been accused of sexual
8
misconduct by a Wynn Resorts employee. See Brody, 280 F.3d at 1006 (“Often a statement will
9
not mislead even if it is incomplete or does not include all relevant facts.”). For these reasons,
10
the statements regarding regulatory risk did not create a duty to disclose Defendant Wynn’s
11
alleged misconduct. As such, the statements are inactionable.
12
13
14
(e)
statements regarding Defendant Wynn’s skills and his possible
departure
The Amended Complaint alleges that statements emphasizing Defendant Wynn’s skills
15
and warning of his possible departure from the Company are “false and/or misleading” because
16
in making these statements, Defendants failed to disclose that “Defendant Wynn had engaged
17
in a pattern of sexual misconduct[.]” (See, e.g., FAC ¶¶ 104, 110, 131). As discussed in
18
Part IV.A.1.d supra, Section 10(b) and Rule 10b–5 “do not create an affirmative duty to
19
disclose any and all material information.” Matrixx Initiatives, Inc., 563 U.S. at 44. Disclosure
20
is required only when “necessary . . . to make statements made, in light of the circumstances
21
under which they were made, not misleading.” 17 C.F.R. § 240.10b–5(b).
22
Defendants argue that statements regarding Defendant Wynn’s skills and qualifications
23
are not actionable or misleading because nothing about Defendant Wynn’s alleged misconduct
24
suggests that he lacked “entrepreneurial and managerial skills” or was not a “unique and
25
integral component[]” of the Company’s success. (Wynn Resorts Reply at 1–2); (Wynn Resorts
MTD at 7–9, 12–13). To support this argument, Defendants rely on Fries v. N. Oil & Gas, Inc.,
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1
285 F. Supp. 3d 706 (S.D.N.Y. 2018). There, a company’s CEO was investigated by the SEC
2
for securities laws violations and was subsequently ordered to make disgorgement and penalty
3
payments. Id. at 712. The plaintiff challenged prior statements concerning the CEO’s
4
qualifications and expertise, including a statement that the CEO gave the company
5
“advantages.” Id. at 719. The plaintiff argued that investors had been misled by emphasizing
6
the CEO’s importance to the company while failing to disclose the CEO’s misconduct. Id. at
7
718. However, the court disagreed, explaining that “the omitted facts do not show that [the
8
company] did not rely on [the CEO’s] knowledge and expertise in the industry, that [he] did not
9
have the pedigree [the company] represented, or that [his] experience and expertise did not give
10
[the company] certain early advantages.” Id. at 719. Moreover, the statements did not suggest
11
that the CEO was not engaged in the undisclosed improper activities. Id. (citing In re ITT Educ.
12
Servs., Inc. Sec. & S’holder Derivatives Litig., 859 F. Supp. 2d 572, 579 (S.D.N.Y. 2012)
13
(finding that defendants’ “statements are not misleading because they do not suggest that the
14
undisclosed improper activity alleged by [p]laintiff was not occurring.”)). Thus, the court
15
found that the statements were inactionable. Id.
16
The rationale in Fries is instructive regarding the present case. Like in Fries, Plaintiffs
17
challenge statements concerning the skills and qualifications of the Company’s CEO (i.e.,
18
Defendant Wynn), arguing that the statements were misleading because they emphasized
19
Defendant Wynn’s importance to the Company without disclosing his alleged misconduct.
20
However, the omitted fact of Defendant Wynn’s alleged sexual misconduct does not show that
21
Wynn Resorts did not rely on Defendant Wynn’s skills and expertise or that Defendant Wynn
22
did not provide a “distinct advantage over other gaming enterprises.” (FAC ¶ 130). What is
23
more, the statements did not suggest that Defendant Wynn had not engaged in the undisclosed
24
misconduct. Because the alleged omissions did not make the statements regarding Defendant
25
Wynn’s skills, talent, and experience misleading, the statements are inactionable.
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1
As to the statements contained in the Company’s 10-K annual reports, which warned of
2
the consequences of Defendant Wynn’s possible departure, Defendants contend that they are
3
“forward-looking” statements protected by the PSLRA’s safe harbor provision and are
4
therefore inactionable. (Wynn Resorts MTD at 13 n.8). The Court agrees.
5
The safe harbor provision exempts, under certain circumstances, a forward-looking
6
statement, which is “any statement regarding (1) financial projections, (2) plans and objectives
7
of management for future operations, (3) future economic performance, or (4) the assumptions
8
underlying or related to any of these issues.” No. 84 Emp’r–Teamster Joint Council Pension
9
Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (internal quotation
10
marks omitted). Fraud liability for making a forward-looking statement cannot arise if the
11
statement is (1) “identified as a forward-looking statement, and is accompanied by meaningful
12
cautionary statements identifying important factors that could cause actual results to differ
13
materially from those in the forward-looking statement”; (2) “immaterial”; or (3) not made
14
“with actual knowledge . . . that the statement was false or misleading.” 15 U.S.C. § 78u-
15
5(c)(1)–(2); In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1141 (9th Cir. 2017).
16
Here, Plaintiffs submit that safe harbor is inapplicable because Defendants “fail to
17
identify any ‘meaningful cautionary statements identifying important factors that could cause
18
actual results to differ materially from those in the forward-looking statement.’” (Resp. at 24,
19
n.5) (quoting 15 U.S.C. § 78u–5(c)(1)(A)(i)). However, as Defendants explain, the Company’s
20
10-K annual reports listed dozens of risk factors “that could cause actual results to differ
21
materially from those we express in these forward-looking statements . . . .” (Wynn Resorts
22
Reply at 3 n.7). The first of many factors listed is “our dependence on Stephen A. Wynn.”
23
(2013 10-K at 16–17, Ex. 10 to Bohman Decl., ECF No. 76-10); (2014 10-K at 16, Ex. 20 to
24
Bohman Decl., ECF No. 78-1); (2015 10-K at 15, Ex. 22 to Bohman Decl., ECF No. 80-1);
25
(2016 10-K at 15, Ex. 23 to Bohman Decl., ECF No. 81-1). “The loss of Stephen A. Wynn
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1
could significantly harm our business,” is further identified as a risk factor. (2013 10-K at 18);
2
(2014 10-K at 17); (2015 10-K at 16); (2016 10-K at 16). And as alleged in the Amended
3
Complaint, the 10-K annual reports went on to warn that: “Our ability to maintain our
4
competitive position is dependent to a large degree on the efforts, skills and reputation of
5
Stephen A. Wynn, the Chairman of the Board, Chief Executive Officer and one of the principal
6
stockholders of Wynn Resorts.” (Id.); (FAC ¶¶ 103, 126, 150, 177). Thus, as Defendants
7
correctly point out, the challenged statements regarding the consequences of Defendant Wynn’s
8
possible departure are precisely the “meaningful cautionary statements” required under 15
9
U.S.C. § 78u–5(c)(1). As such, these statements are protected by the safe harbor provision and
10
are therefore inactionable. 12
11
(f)
press release statements concerning allegations by Elaine Wynn
12
Defendants argue that some of the challenged statements contained in the Company’s
13
press releases are inherently aspirational, and therefore inactionable. “[V]ague, generalized,
14
and unspecific assertions” of corporate optimism or statements of “mere puffing” cannot state
15
actionable material misstatements of fact under federal securities laws. See Glen Holly
16
Entertainment, Inc., 352 F.3d at 379. “It is well-established that general statements about
17
reputation, integrity, and compliance with ethical norms are inactionable ‘puffery,’ meaning
18
that they are ‘too general to cause a reasonable investor to rely upon them.’” City of Pontiac
19
Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 183 (2d Cir. 2014). An
20
actionable statement must be capable of objective verification. In re Facebook, Inc. Sec. Litig.,
21
22
23
24
25
12
Defendants also argue that statements regarding Defendant Wynn’s skills and possible departure are risk
disclosures, which are not verifiable statements of fact, and are therefore per se inactionable. (Wynn Resorts
MTD at 12) (citing In re LeapFrog Enterprises, Inc. Sec. Litig., 527 F. Supp. 2d 1033, 1048 (N.D. Cal. 2007));
(see also Wynn Resorts Reply at 2). Plaintiffs counter that “this is not the law.” (Resp. at 24) (citing Siracusano
v. Matrixx Initiatives, Inc., 585 F.3d 1167, 1181 (9th Cir. 2009), aff’d, 563 U.S. 27 (2011)). This issue need not
be resolved in order to determine whether these statements are actionable. Therefore, the Court will not address
this argument.
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1
405 F. Supp. 3d at 833 (citing Hewlett-Packard Co., 845 F.3d at 1275 (“To be misleading, a
2
statement must be ‘capable of objective verification.’”)).
3
That “Wynn Resorts prides itself on its transparency and full disclosure to regulators and
4
shareholders” is not a statement capable of objective verification. Moreover, the assertion that
5
none of what the Company has accomplished would be possible without “the sense of family
6
and community that Mr. Wynn has created,” is a statement too general to cause reliance by a
7
reasonable investor and is also incapable of objective verification. Thus, the Court agrees with
8
Defendants that these statements are inactionable.
9
Regarding the remainder of the challenged statements denying Elaine Wynn’s
10
allegations, the Court finds that Plaintiffs fail to plead falsity with particularity. 13 To illustrate,
11
Plaintiffs assert that “[a]llegations made by Ms. Wynn that the company would hide any
12
relevant activities from our regulators are patently false” was a misleading and false statement
13
because the Company “had unlawfully withheld from [regulators] material information
14
regarding serious allegations of sexual misconduct by Defendant Wynn.” Plaintiffs, however,
15
fail to identify what each Defendant knew at the time this statement was made. Plaintiffs are
16
reminded that where several defendants are alleged to be part of the fraud, “Rule 9(b) ‘does not
17
allow a complaint to . . . lump multiple defendants together but require[s] plaintiffs to
18
differentiate their allegations when suing more than one defendant.’” Destfino v. Reiswig, 630
19
F.3d 952, 958 (9th Cir. 2011). Accepting the allegations as true at the pleading stage, all they
20
tend to establish is that at the time the statement was made, Defendants Sinatra and Wynn were
21
aware of the alleged misconduct and the accompanying settlement. 14 Furthermore, Plaintiffs
22
23
13
24
25
Defendants assert this statement referred to Elaine Wynn’s allegations about the circumstances of a former
director’s departure from the Company, and had nothing to do with Defendant Wynn. While it is plausible that
the statement concerned a former director’s departure, the statement could also be interpreted as a response to the
allegations against Defendant Wynn. Therefore, this argument fails under Rule 12(b)(6).
14
In Plaintiffs’ Response, Plaintiffs assert that “Defendant Maddox learned about the 2005 Settlement in ‘2016
after Ms. Wynn filed her amended cross-claim in the Okada litigation.’” (Resp. at 26). However, this is not
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1
fail to plead “specific facts indicating why” the statement at issue was false. Metzler Inv.
2
GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1070 (9th Cir. 2008); Ronconi v. Larkin, 253
3
F.3d 423, 434 (9th Cir. 2001). The Amended Complaint only indicates that the statement was
4
false because the Company had “unlawfully withheld from [regulators] material information
5
regarding serious allegations of sexual misconduct,” but it does not specify what was allegedly
6
withheld, why it was “unlawful,” why it was “material,” or who withheld it. “The PSLRA has
7
exacting requirements for pleading ‘falsity,’” and here, Plaintiffs have failed to meet those
8
requirements. Metzler, 540 F.3d at 1070. Plaintiffs have not adequately pled any actionable
9
false or misleading statement and therefore, Plaintiffs’ claim for violations of Section 10(b)
10
Rule 10b-5 is dismissed. 15
11
2.
scienter and loss causation
12
Because the Court holds that Plaintiffs have not adequately pled any actionable false or
13
misleading statement under Section 10(b) or Rule 10b-5, the Court has no occasion to address
14
Defendants’ alternative grounds for dismissal based on alleged deficiencies in Plaintiffs’
15
pleadings as to scienter and loss causation.
16
B.
17
To adequately state a claim under § 20(a) of the Exchange Act, a plaintiff must plead
Claim 2 - Section 20(a) of the Exchange Act
18
facts that show (1) a primary violation of the federal securities laws and (2) that the defendant
19
was a control person. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir.
20
2009). A control person is a person or entity that has actual power or influence over the
21
22
23
24
25
alleged in the Amended Complaint. As such, the Court does not accept this statement as true. (See also Part II
supra) (addressing judicial notice of MGC Order).
15
Defendant Sinatra also argues that the Section 10(b) claim against her fails as a matter of law because
Plaintiffs fail to allege that Sinatra made any alleged misstatement, or that any of the alleged misstatements were
otherwise attributed to her. (Sinatra MTD at 7–16); see Janus Capital Grp., Inc. v. First Derivative Traders, 564
U.S. 135, (2011) (“Under Rule 10b–5, it is unlawful for any person, directly or indirectly, . . . [t]o make any
untrue statement of a material fact’ in connection with the purchase or sale of securities.” (internal quotations
omitted)). Having found that Plaintiffs fail to allege any actionable false or misleading statements, the Court
need not reach this issue.
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1
primary violator. See id. “Section 20(a) claims may be dismissed summarily . . . if a plaintiff
2
fails to adequately plead a primary violation of [S]ection 10(b).” Id.
3
Because Plaintiffs have not stated a claim for a primary violation of the Exchange Act
4
by any control person, Plaintiffs’ claims against Defendants Wynn, Maddox, Sinatra, Cootey,
5
and Billings based on control person liability under § 20(a) are also incapable of surviving
6
Defendants’ Motions to Dismiss.
7
C.
8
Rule 15(a)(2) of the Federal Rules of Civil Procedure permits courts to “freely give
Leave to Amend
9
leave [to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2). The Ninth Circuit “ha[s]
10
held that in dismissing for failure to state a claim under Rule 12(b)(6), ‘a district court should
11
grant leave to amend even if no request to amend the pleading was made, unless it determines
12
that the pleading could not possibly be cured by the allegation of other facts.’” Lopez v. Smith,
13
203 F.3d 1122, 1127 (9th Cir. 2000) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir.
14
1995)).
15
The Court finds that Plaintiffs may be able to plead additional facts to support their first
16
and second causes of action. Accordingly, the Court will grant Plaintiff leave to file an
17
amended complaint. The Court, however, cautions that an amended complaint must plead
18
facts, with particularity, as to why statements were false or misleading at the time they were
19
made. Additionally, any allegations of scienter must be specific to a Defendant’s state of mind
20
at the time he or she made the statements. Moreover, Plaintiffs must differentiate their
21
allegations as to each Defendant and refrain from lumping multiple Defendants together.
22
Destfino v. Reiswig, 630 F.3d at 958.
23
Plaintiffs shall file their amended complaint within twenty-one (21) days of the date of
24
this Order if they can allege sufficient facts that plausibly establish Plaintiffs’ first and second
25
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1
causes of action. Failure to file an amended complaint by this date shall result in the Court
2
dismissing these claims with prejudice.
3
V.
4
5
6
7
CONCLUSION
IT IS HEREBY ORDERED that Wynn Resorts Defendants’ Motions for Leave to
Submit Supplemental Authority, (ECF Nos. 105, 107, 111, 116), are GRANTED.
IT IS FURTHER ORDERED that Defendants’ Motions to Dismiss, (ECF Nos. 67,
71), are GRANTED.
8
IT IS FURTHER ORDERED that Plaintiffs are GRANTED leave to amend consistent
9
with the foregoing. Plaintiffs shall have twenty-one (21) days from the date of this Order to file
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an amended complaint. Failure to file an amended complaint by this date shall result in the
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Court dismissing Plaintiffs’ claims with prejudice.
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DATED this _____ day of May, 2020.
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___________________________________
Gloria M. Navarro, District Judge
United States District Court
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