Louisiana Municipal Police Employees' Retirement System v. Wynn

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LOUISIANA MUNICIPAL POLICE No. 14-15695

EMPLOYEES’ RETIREMENT SYSTEM;

BOILERMAKERS LODGE NO. 154 D.C. No.

RETIREMENT FUND; MARYANNE 2:12-cv-00509-

SOLAK; EXCAVATORS UNION LOCAL JCM-GWF

731 WELFARE FUND,

Plaintiffs-Appellants,

OPINION

v.

STEPHEN A. WYNN; LINDA CHEN;

RUSSELL GOLDSMITH; RAY R. IRANI;

JOHN A. MORAN; ROBERT J. MILLER;

MARC D. SCHORR; ALVIN V.

SHOEMAKER; D. BOONE WAYSON;

ALLAN ZEMAN; ELAINE P. WYNN;

WYNN RESORTS LIMITED,

Defendants-Appellees.

Appeal from the United States District Court

for the District of Nevada

James C. Mahan, District Judge, Presiding

Argued and Submitted May 12, 2016

San Francisco, California

Filed July 18, 2016

2 LMPERS V. WYNN

Before: Jerome Farris, Diarmuid F. O’Scannlain,

and Morgan Christen, Circuit Judges.

Opinion by Judge O’Scannlain

SUMMARY*

Shareholder Derivative Lawsuit

The panel affirmed the district court’s dismissal under

Fed. R. Civ. P. 23.1 of a shareholder derivative lawsuit

alleging that Wynn Resorts board of director defendants

breached their fiduciary duties.

Addressing jurisdictional issues, the panel held that

diversity jurisdiction under 28 U.S.C. § 1332(a)(2) was

improper because there were American citizens on both sides

of the case. The panel also held that diversity jurisdiction

under 28 U.S.C. § 1332(a)(3) was foiled by one of the

defendants who was a United States citizen, but who was a

permanent resident of Macau and was not domiciled in a

State. The panel concluded that the defendant was a

dispensable party under Fed. R. Civ. P. 19. Under Fed. R.

Civ. P. 21, the panel exercised its discretion to dismiss the

defendant from the suit in order to perfect diversity

jurisdiction. The panel concluded that diversity jurisdiction

was thereby established under § 1332(a)(3).

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

LMPERS V. WYNN 3

Before bringing a suit on behalf of the corporation,

shareholders are required either to make a demand on the

board of directors or to explain why such demand would be

futile. The shareholders argued that demand would be futile.

The panel held that the district court did not abuse its

discretion in determining that the shareholders failed to

comply with Rule 23.1 or state law governing demand

futility. Specifically, the panel held that the shareholders did

not give sufficiently particularized allegations to support an

inference that a majority of the board of directors lacked

independence. The panel also rejected the shareholders’

theory that demand was excused based on allegations that the

directors faced a substantial likelihood of personal liability

for any wrongdoing. The panel also rejected the

shareholders’ argument that demand was futile based on the

directors not getting the benefit of the business judgment rule

if a questionable stock redemption were challenged in court,

because under Nevada law it was not reasonable to assume

the board was acting dishonestly.

Finally, the panel held that there was no reversible error

if the district court considered materials extraneous to the

complaint.

COUNSEL

Richard A. Speirs (argued) and Christopher Lometti, Cohen

Milstein Sellers & Toll PLLC, New York, New York; Daniel

S. Sommers, and Elizabeth A. Aniskevich, Cohen Milstein

Sellers & Toll PLLC, Washington, D.C.; for Plaintiff-

Appellant Excavators Union Local 731 Welfare Fund.

4 LMPERS V. WYNN

Felipe J. Arroyo (argued), Shane P. Sanders, and Gina Stassi,

Robbins Arroyo LLP, San Diego, California, for Plaintiff-

Appellant Boilermakers Lodge No. 154 Retirement Fund.

John T. Jasnoch, Scott + Scott Attorneys at Law LLP, San

Diego, California, for Plaintiff-Appellant Louisiana

Municipal Police Employees’ Retirement System.

Geoffrey M. Johnson, Scott + Scott Attorneys at Law LLP,

Cleveland Heights, Ohio, for Plaintiff-Appellant Louisiana

Municipal Police Employees’ Retirement System.

John P. Aldrich, Aldrich Law Firm Ltd, Las Vegas, Nevada,

for Plaintiffs-Appellants.

Todd L. Bice (argued), James J. Pisanelli, and Debra L.

Spinelli, Pisanelli Bice PLLC, Las Vegas, Nevada; Paul K.

Rowe, Bradley R. Wilson, and Grant R. Mainland, Wachtell,

Lipton, Rosen & Katz, New York, New York; Robert L.

Shapiro, Glaser Weil Fink Howard Avchen & Shapiro LLP,

Los Angeles, California; for Defendants-Appellees Linda

Chen, Russell Goldsmith, Ray R. Irani, John A. Moran,

Robert J. Miller, Marc D. Schorr, Alvin V. Shoemaker, D.

Boone Wayson, and Allan Zeman.

John B. Quinn and Michael T. Zeller, Quinn Emanuel

Urquhart & Sullivan LLP, Los Angeles, California, for

Defendant-Appellee Elaine P. Wynn.

Donald J. Campbell and J. Colby Williams, Campbell &

Williams, Las Vegas, Nevada, for Defendant-Appellee

Stephen A. Wynn.

LMPERS V. WYNN 5

OPINION

O’SCANNLAIN, Circuit Judge:

We must decide whether shareholders may pursue a

derivative lawsuit against a corporation’s board of directors

despite their failure to demand that the board initiate this

litigation itself.

I

This is a shareholder derivative suit. The plaintiffs are

shareholders of Wynn Resorts, Limited (“Wynn Resorts”), a

Nevada corporation that owns and operates casinos in Las

Vegas and Macau, the latter through its subsidiary, Wynn

Macau, Limited. The defendants are Wynn Resorts itself and

eleven individuals who sit or sat on its board of directors.

The shareholders wish to challenge two actions the board

took on behalf of its subsidiary Wynn Macau: a 2011 decision

to donate $135 million to the University of Macau

Development Foundation, and a 2012 decision to redeem the

shares held by a former director named Kazuo Okada, who

was the only director to vote against the donation.

We recite the facts as alleged in the shareholders’

amended complaint, and we assume them to be true for

purposes of this appeal.

A

In 2006 Wynn Resorts opened its first hotel in Macau,

China under a lease from the Macau government with a term

from 2002–2022. Also in 2006 Wynn Resorts applied to the

Macau government for a second lease agreement to build a

6 LMPERS V. WYNN

new resort and casino. Central to the present dispute is the

University of Macau and its Development Foundation, which

is presided over by many of the same government officials

who have substantial control over gaming matters and the real

estate industry in Macau.

Five years after Wynn Resorts submitted its application

for a second lease agreement, the Macau government still had

not approved it, but in May 2011 the board authorized a

donation to the Development Foundation totaling $135

million over a ten year period. Okada was the only director

on the eleven-member board to vote against the donation.1

About a month after the donation, the Macau government

accepted Wynn Resorts’s application for a second lease.

In February 2012, the U.S. Securities and Exchange

Commission (“SEC”) launched an informal inquiry into the

Macau donation. The shareholders do not allege that the

SEC’s investigation escalated into a formal enforcement

proceeding, and in fact, the shareholders acknowledge that

after they filed this suit, the SEC concluded its investigation

without taking further action. The Nevada Gaming

Commission Board (“GCB”) also undertook an investigation

into the Macau donation, but the shareholders’ complaint

acknowledges that the GCB had terminated its investigation,

finding no violations of state law, by the time the

shareholders brought this suit.

Meanwhile, in October or November 2011, Okada began

demanding a separate investigation into the Macau donation.

1

The board at the time consisted of Steve Wynn, Elaine Wynn, Russell

Goldsmith, John Moran, Mark D. Schorr, Allan Zeman, Kazuo Okada,

Ray Irani, Robert Miller, Alvin Shoemaker, and D. Boone Wayson.

LMPERS V. WYNN 7

Around the same time, in November 2011, Steve Wynn—the

company’s Chairman and CEO—hired former FBI director

Louis Freeh to investigate allegations that Okada had made

improper gifts to gaming regulators in the Phillippines. Freeh

concluded that Okada was “unsuitable” to own shares of

Wynn Resorts, under Nevada law and the corporation’s

Articles of Incorporation, and so the corporation forcibly

redeemed Okada’s $2.77 billion equity stake in the company

in exchange for a promisory note worth $1.9 billion. The

Okada redemption is the subject of separate lawsuits between

Steve Wynn and Okada in Nevada state court.

B

Their eyebrows raised by these decisions, the

shareholders decided to sue the Wynn Resorts board. In the

shareholders’ estimation, the Macau donation was nothing but

a quid pro quo bribe, and the Okada redemption had no

legitimate business purpose but was merely a gambit Steve

Wynn used to oust a dissenting director and intimidate the

others into complying with his wishes from there on out.

The shareholders filed their derivative action in federal

district court in 2012, and after it was dismissed, they

amended their complaint in April 2013. At the time the

shareholders filed their amended complaint, the Wynn

Resorts board of directors had eight members: Steve Wynn,

Elaine Wynn, Robert Miller, D. Boone Wayson, J. Edward

Virtue, John Hagenbuch, Ray Irani, and Alvin Shoemaker.

Four of the defendants who are still parties to the suit—Linda

Chen, Russell Goldsmith, John Moran, and Allan

Zeman—are former members of the board, and had ceased to

be directors by the time the shareholders filed their amended

complaint.

8 LMPERS V. WYNN

The complaint alleges that the director defendants

breached their fiduciary duties and committed corporate

waste by approving the Macau donation because, the

shareholders allege, the donation caused the company to incur

legal expenses and be exposed to potential liability. The

complaint also alleges that the defendants breached their

fiduciary duties by redeeming Okada’s shares because, the

shareholders allege, such action had no legitimate purpose

and merely encumbered the company with a higher debt load.

C

Before bringing their suit on behalf of the corporation,

however, the shareholders were required either to make a

demand on the board of directors or to explain why such

demand would be futile. The shareholders did not make a

demand. Instead, they argued that demand would be futile,

for three reasons: first, Steve Wynn is “interested”—meaning

he cannot be expected to exercise impartial judgment about

whether it is in the corporation’s best interests to sue the

board as the shareholders wish to do—and a majority of the

board is alleged to be “beholden” to him and therefore

likewise incapable of exercising impartial judgment about

whether to sue the board; second, the directors allegedly

cannot be impartial because they face a substantial likelihood

of incurring personal liability for their decision to approve the

Macau donation; and third, the directors allegedly cannot be

impartial because there is a reasonable doubt as to whether

their decision to redeem Okada’s shares would be given the

benefit of the business judgment rule if it were challenged in

court.

The district court disagreed, and dismissed the amended

complaint under Federal Rule of Civil Procedure 23.1. The

LMPERS V. WYNN 9

district court found Steve Wynn to be interested, but held that

the shareholders had not adequately alleged a majority of the

board to be “beholden” to him. The district court also held

that the shareholders had not sufficiently alleged a substantial

likelihood that the directors would incur personal liability for

approving the Macau donation. Finally, the district court held

that the shareholders had not alleged enough to create a

reasonable doubt about whether the Okada redemption would

be given the benefit of the business judgment rule if it were

challenged in court.

The shareholders timely appealed.

II

Before turning to the merits, we must address two issues

with respect to our jurisdiction to hear this case.2

This suit arises entirely under state law, with the

shareholders bringing state-law causes of action for breach of

fiduciary duty and waste of corporate assets, and seeking in

response a permanent injunction and restitution for unjust

enrichment. The shareholders’ complaint alleges federal

jurisdiction exclusively under 28 U.S.C. § 1332(a)(2), part of

the diversity jurisdiction statute which covers suits between

“citizens of a State and citizens or subjects of a foreign state.”

There are two problems with that jurisdictional pleading.

2

We recognize that our decision in Potter v. Hughes, 546 F.3d 1051,

1054–55 (9th Cir. 2008), suggests that where shareholders have failed to

comply with Rule 23.1, and their derivative suit is also plagued by an

independent jurisdictional defect, we can choose either ground as a basis

for dismissing their action. Because in this case we can cure any

jurisdictional problems, however, we have no need to rely on Potter.

10 LMPERS V. WYNN

A

First, § 1332(a)(2) is an improper basis because the

plaintiffs are alleged to be American citizens, and the

defendants are alleged to be a mix of American citizens and

foreign citizens. Because there are American citizens on both

sides of the case, jurisdiction cannot be grounded in

§ 1332(a)(2). See, e.g., Newman-Green, Inc. v. Alfonzo-

Larrain, 490 U.S. 826, 828–29 (1989) (explaining that

“[s]ubsection 1332(a)(2), which confers jurisdiction in the

District Court when a citizen of a State sues aliens only, . . .

could not be satisfied because [one of the defendants] is a

United States citizen,” and that such defendant’s “United

States citizenship destroy[s] complete diversity under

§ 1332(a)(2)”); Harris v. Rand, 682 F.3d 846, 848 & n.1 (9th

Cir. 2012). Instead of § 1332(a)(2), the shareholders should

have invoked § 1332(a)(3), which provides jurisdiction over

suits between “citizens of different States and in which

citizens or subjects of a foreign state are additional parties.”

28 U.S.C. § 1332(a)(3).

This defect could be fixed without difficulty if diversity

jurisdiction would have been proper under § 1332(a)(3). See

28 U.S.C. § 1653 (“Defective allegations of jurisdiction may

be amended, upon terms, in the trial or appellate courts.”).

But that leads us to the second problem.

B

One of the defendants—Linda Chen, a former director of

Wynn Resorts—is neither a citizen of a State nor a citizen of

a foreign state. Specifically, in response to a sua sponte order

by this court, the defendants have filed a declaration by Chen

in which she swears that she is a United States citizen but

LMPERS V. WYNN 11

“do[es] not reside in the United States and ha[s] not been a

permanent resident of any state in the United States since

approximately 2004.” Indeed, Chen swears that by the time

the plaintiffs first filed their complaint in August 2012, she

had already become “a permanent resident of Macau,” a

status she claims she still retains.

Chen’s declarations establish that she is not domiciled in

a State. See Miss. Band of Choctaw Indians v. Holyfield,

490 U.S. 30, 48 (1989) (“For adults, domicile is established

by physical presence in a place in connection with a certain

state of mind concerning one’s intent to remain there.”). She

therefore cannot be a citizen of a State for purposes of

diversity jurisdiction. Newman-Green, 490 U.S. at 828 (“In

order to be a citizen of a State within the meaning of the

diversity statute, a natural person must both be a citizen of the

United States and be domiciled within the State.”). Because

Chen is “a United States citizen, [but] has no domicile in any

State,” she is “‘stateless’ for purposes of § 1332(a)(3).” Id.

Such “‘stateless’ status destroy[s] complete diversity under

§ 1332(a)(3).” Id. at 829.

In short, Chen’s continued presence in the suit necessarily

foils the plaintiffs’ attempt to comply with § 1332(a)(3).

C

Fortunately, the jurisdictional defects described above can

be remedied without need for a remand. First, even though

Chen is a nondiverse party, Rule 21 of the Federal Rules of

Civil Procedure gives us discretion to dismiss her from the

suit in order to perfect diversity jurisdiction, provided that she

is not an indispensable party under Rule 19. Id. at 837

(holding that, under Rule 21, “the courts of appeals have the

12 LMPERS V. WYNN

authority to dismiss a dispensable nondiverse party”); Sams

v. Beech Aircraft Corp., 625 F.2d 273, 277 (9th Cir. 1980)

(“Rule 21 grants a federal district or appellate court the

discretionary power to perfect its diversity jurisdiction by

dropping a nondiverse party provided the nondiverse party is

not indispensable to the action under Rule 19.”).

We have no trouble concluding that Chen is a dispensable

party under Rule 19. She was not a member of the Wynn

Resorts board when the shareholders filed their amended

complaint; nor was she a member of the Wynn Resorts board

that approved the Macau donation. The shareholders have

not made a single allegation about her during the course of

this appeal, and in their supplemental briefing before us, they

have not attempted to argue that she is indispensable. Given

those circumstances, it is “evident that none of the parties will

be harmed by [her] dismissal.” Newman-Green, 490 U.S. at

838. There is no suggestion that her presence provided the

shareholders “with a tactical advantage,” id., or that any party

would be prejudiced by her dismissal. Because “[n]othing

but a waste of time and resources would be engendered by

remanding to the District Court or by forcing these parties to

begin anew,” id., we exercise our discretion to dismiss Chen

from the suit without prejudice.

Second, in supplemental filings with our court, the

shareholders acknowledged that jurisdiction would be proper

under § 1332(a)(3) if we were to dismiss Chen from the case.

Because we have decided to do exactly that, we construe the

shareholders’ supplemental brief as a request to amend their

jurisdictional allegation from § 1332(a)(2) to § 1332(a)(3).

We grant such motion, dismiss Chen from the suit, and

conclude that federal jurisdiction is thereby established under

§ 1332(a)(3).

LMPERS V. WYNN 13

III

“A shareholder seeking to vindicate the interests of a

corporation through a derivative suit must first demand action

from the corporation’s directors or plead with particularity

the reasons why such demand would have been futile.”

Rosenbloom v. Pyott, 765 F.3d 1137, 1148 (9th Cir. 2014)

(quoting In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970,

989 (9th Cir. 1999) (as amended)). Such requirement follows

from “the general rule of American law . . . that the board of

directors controls a corporation.” Potter v. Hughes, 546 F.3d

1051, 1058 (9th Cir. 2008). The board’s control includes and

ought to include the decision whether to pursue litigation

when the corporation may have suffered harm. Hence,

“[a]bsent sufficient reason to doubt the directors’ ability to

make disinterested and independent decisions about litigation,

the board is not only empowered but optimally positioned to

make decisions on behalf of the corporation and, if

appropriate, pursue litigation.” La. Mun. Police Emps.’ Ret.

Sys. v. Pyott, 46 A.3d 313, 339 (Del. Ch. 2012), rev’d sub

nom. on other grounds Pyott v. La. Mun. Police Emps.’ Ret.

Sys., 74 A.3d 612 (Del. 2013).

The “demand futility rule” is also reflected in the

heightened pleading standard set forth in Rule 23.1 of the

Federal Rules of Civil Procedure, which requires shareholders

who bring derivative suits to “state with particularity (A) any

effort by the plaintiff to obtain the desired action from the

directors or comparable authority and, if necessary, from the

shareholders or members; and (B) the reasons for not

obtaining the action or not making the effort.” Fed. R. Civ.

P. 23.1(b)(3).

14 LMPERS V. WYNN

Because Nevada is Wynn Resorts’s state of incorporation,

Nevada law governs whether the shareholders have

adequately alleged demand futility. Kamen v. Kemper Fin.

Servs., Inc., 500 U.S. 90, 108–09 (1991). Nevada, in turn,

looks to Delaware law on shareholder demand futility. Shoen

v. SAC Holding Corp., 137 P.3d 1171, 1184 (Nev. 2006).

Accordingly, “[w]hen evaluating demand futility, Nevada

courts must examine whether particularized facts

demonstrate: (1) in those cases in which the directors

approved the challenged transactions, a reasonable doubt that

the directors were disinterested or that the business judgment

rule otherwise protects the challenged decisions; or (2) in

those cases in which the challenged transactions did not

involve board action or the board of directors has changed

since the transactions, a reasonable doubt that the board can

impartially consider a demand.” Id.

The relevant board is the board as it was constituted when

the shareholders filed their amended complaint. Braddock v.

Zimmerman, 906 A.2d 776, 786 (Del. 2006). As such, the

shareholders must allege that at least half of the board, as it

was constituted when the shareholders filed the amended

complaint, was incapable of entertaining a pre-suit demand.

Such board consisted of eight members: S. Wynn, E. Wynn,

Miller, Wayson, Virtue, Shoemaker, Hagenbuch, and Irani.

The defendants concede for purposes of this appeal that S.

Wynn and E. Wynn are not independent. Hence, to plead

demand futility, the shareholders must make sufficient

allegations that at least two of the remaining six directors lack

LMPERS V. WYNN 15

independence. The shareholders focus on three: Miller,

Wayson, and Virtue.3

The shareholders offer three principal theories as to why

they believe demand was futile. First, the shareholders

maintain that a majority of the board is beholden to Steve

Wynn. Second, the shareholders argue that the directors face

a substantial likelihood of personal liability for approving the

Macau donation. Third, the shareholders argue that there is

a reasonable doubt that the directors would get the benefit of

the business judgment rule if the Okada redemption were

challenged in court.

The district court’s determination that the shareholders

failed to comply with Rule 23.1 or state law governing

demand futility is reviewed for abuse of discretion. Potter,

546 F.3d at 1056.4

A

To prevail, the shareholders must give sufficiently

particularized allegations to support an inference that a

majority of the board lacks independence. The shareholders

need to pick up at least two of the three non-interested

3

In light of the Braddock rule, the shareholders’ allegations about

Moran are not relevant because Moran was not a member of the board at

the time the shareholders filed their amended complaint.

4

The shareholders acknowledge as much, but argue that the district

court’s decision should be reviewed de novo. It goes without saying that

our panel has no power to reject circuit precedent on our own. In any

case, even if there are plausible arguments that de novo review would be

more appropriate than review for abuse of discretion in cases like this, we

are satisfied that the standard of review makes no difference here.

16 LMPERS V. WYNN

directors Miller, Wayson, and Virtue. To show a lack of

independence, shareholders must allege “facts that show that

the majority [of directors] is ‘beholden to’ directors who . . .

[are] unable to consider a demand on its merits.” Shoen,

137 P.3d at 1183. This test requires the shareholders to

“plead facts that would support the inference that because of

the nature of a relationship or additional circumstances other

than the interested director’s stock ownership or voting

power, the non-interested director would be more willing to

risk his or her reputation than risk the relationship with the

interested director.” Beam ex rel. Martha Stewart Living

Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1052 (Del.

2004).

Importantly, “the simple fact that there are some financial

ties between the interested party and the director is not

disqualifying.” In re MFW S’holders Litig., 67 A.3d 496, 509

(Del. Ch. 2013). To that end, “a plaintiff seeking to show that

a director was not independent must meet a materiality

standard, under which the court must conclude that the

director in question’s material ties to the person whose

proposal or actions she is evaluating are sufficiently

substantial that she cannot objectively fulfill her fiduciary

duties.” Id. As to materiality, the Delaware Supreme Court

“has rejected the suggestion that the correct standard for

materiality is a ‘reasonable person’ standard; rather, it is

necessary to look to the financial circumstances of the

director in question to determine materiality.” Id. at 510.

The same materiality requirement applies “in the context of

personal, rather than financial relationships.” Id. at 509 n.37.

Such non-financial relationships must be “contextually

material.” Id. at 513 n.64.

We consider each of the three relevant directors in turn.

LMPERS V. WYNN 17

1

The shareholders’ complaint alleges the following about

Miller: he is a partner in a parent company (“Nevada Rose”)

of a group of companies that sell rose nectar used at Wynn

Resorts in Macau; he is a director of a company (“IGT”) that

makes casino games used at Wynn Resorts; Steve Wynn

helped Miller win reelection as governor of Nevada in 1994

by donating $70,000 to his campaign and by trying

(unsuccessfully) to discourage a potential rival from

challenging Miller in the primary; in 1997, Miller testified on

Steve Wynn’s behalf at a libel suit Wynn had brought against

the author of an unauthorized biography, and during his

testimony Miller described himself as a “23 year old friend of

Wynn’s”; and finally, Steve Wynn and Wynn Resorts

provided campaign contributions to Miller’s son when he ran

for Nevada secretary of state between 2006 and 2012.

We agree with the district court that these allegations are

insufficiently particularized to plead Miller’s beholdenness to

Steve Wynn. The allegations about Miller’s financial ties to

Wynn are inadequate because they fail to allege materiality,

as they “do[] nothing . . . to compare the actual economic

circumstances of [Miller] to the ties [the shareholders]

contend affect [his] impartiality.” In re MFW, 67 A.3d at

510. In other words, like the shareholders in MFW, the

shareholders here “have ignored a key teaching of [the

Delaware] Supreme Court, requiring a showing that a specific

director’s independence is compromised by factors material

to her.” Id. Similarly, with respect to Wynn’s campaign

contributions, the shareholders fail to allege the relative

importance (that is, the contextual materiality) of Wynn’s

$70,000 contribution or of the pressure Wynn exerted on one

of Miller’s potential primary challengers—who never even

18 LMPERS V. WYNN

heeded Wynn’s request, and wound up losing “by a wide

margin” anyway. Moreover, the passage of time—nearly 20

years—would seem to dilute whatever materiality such aid

might have had in the first place. Miller’s decision to testify

on Wynn’s behalf at a trial in 1997, and Wynn’s contributions

to Miller’s son’s campaigns, are too insubstantial and are

likewise devoid of allegations as to materiality.

2

The shareholders’ complaint alleges the following about

Wayson: Wynn’s father and Wayson’s father operated a

bingo hall together in the 1950s; Wayson’s brother and sister

have worked with Steve Wynn in various capacities over the

years; Wayson has worked at Wynn-controlled enterprises for

many years and has “received substantial monetary

compensation” for doing so; and Wayson has an unspecified

“business interest in Wynn-related gaming activity in

Pennsylvania.”

As with Miller, we conclude that the complaint’s

allegations about Wayson are not enough to plead a lack of

independence. Again, any financial or economic ties are not

alleged to be material. Nor do the social ties support an

inference that Wayson and Wynn are “as thick as blood

relations,” In re MFW, 67 A.3d at 509 n.37, or that Wayson’s

relationship with Wynn is otherwise material to him in any

way. Taken together, we do not see how the allegations with

regard to Wayson cast his impartiality into doubt. It certainly

was not an abuse of discretion for the district court to

conclude that they do not.

LMPERS V. WYNN 19

3

Finally, the shareholders’ complaint alleges the following

about Virtue: that when he joined the Wynn Resorts board, he

received a nearly $1 million ownership stake, which was

given to him partly to compensate him for having to close

accounts he had previously managed at a private equity firm

called MidOcean Partners; and in the late 1990s and early

2000s, Virtue worked at Deutsche Bank, and Deutsche Bank

provided financing to Steve Wynn for various ventures.

These allegations strike us as the weakest of all. The

complaint has no allegations as to the materiality of Virtue’s

$1 million stock options, and in any event the inference

would seem to cut against the shareholders, insofar as

Virtue’s interest in the financial health of Wynn Resorts

would incline him to pursue its interests rather than

subordinate them to Steve Wynn’s personal interests.

Likewise, the allegations of vague and impersonal business

relationships more than a decade and a half ago are too

insubstantial to call into question Virtue’s independence. See

Beam, 845 A.2d at 1051 (“Allegations that [the controller]

and the other directors . . . developed business relationships

before joining the board . . . are insufficient, without more, to

rebut the presumption of independence.”).

4

Finally, the shareholders’ complaint advances a

generalized theory that Steve Wynn dominates the entire

board because, the complaint alleges, “each member of the

Board has been hand-picked by Stephen Wynn, is virtually

guaranteed election to the Board by virtue of the voting

agreement and, therefore, is beholden to Stephen Wynn for

20 LMPERS V. WYNN

his or her nomination and selection to the Board and will not

take action against him.” The complaint also alleges that

Wynn caused Okada to be ousted from the Board after Okada

opposed the Macau donation. In their brief, the shareholders

argue that such allegations support “the reasonable inference

that S. Wynn would, and could, remove any directors who

oppose him,” and they argue that the district court erred in

failing to draw such inference.

These allegations are inadequate to show a lack of

independence. First, the complaint acknowledges that Wynn

in fact lacked the unilateral power to remove Okada; and

second, the complaint acknowledges that the board had

objective, independent evidence of Okada’s potentially illegal

activities unrelated to the Macau donation, which served as

the basis for his share redemption. What remains of the

shareholders’ broad-based domination theory is simply too

speculative and insufficiently particularized to satisfy the

heightened pleading requirements of Rule 23.1.5

5

We reject the shareholders’ argument that the district court committed

reversible error by failing to identify the correct legal standard. The

district court’s formulation of the legal standard is entirely consistent with

the governing law that “mere allegations that directors are friendly with,

travel in the same social circles, or have past business relationships with

the proponent of a transaction or the person they are investigating, are not

enough to rebut the presumption of independence.” In re MFW, 67 A.3d

at 509. Moreover, the district court’s subsequent analysis makes clear that

it did not labor under the mistaken premise that any social or business

relationship, no matter how close, would be insufficient to disqualify a

director. Finally, the shareholders repeatedly assert that the district court

erred by considering the complaint’s allegations separately rather than in

combination. We disagree. As explained in more detail above, the

allegations leveled at each director fail individually and collectively. The

district court’s analysis was not unduly piecemeal.

LMPERS V. WYNN 21

B

In addition to arguing that demand was futile because a

majority of the board is beholden to Steve Wynn, the

shareholders argue that demand was futile because the

directors face a substantial likelihood of personal liability for

approving the Macau donation, which, they allege, “caused

Wynn Resorts to pursue profit at the expense of complying

with the law.” The parties agree that director liability under

such circumstances would require “intentional misconduct,

fraud or a knowing violation of law” on the part of the

directors. Nev. Rev. Stat. § 78.138(7)(b). The complaint

acknowledges that Steve Wynn had obtained a legal opinion

blessing the donation, but alleges that the directors did not

request to see the opinion before the vote.

In addition, the shareholders allege more generally that

“Macau has been plagued by political corruption and

organized crime,” and “the Wynn Resorts board was well

aware of [this] corrupt environment”; that the directors had

received FCPA training; and that the directors knew that

some of the people who would benefit from the Macau

donation were the same people who were in a position to

influence Wynn’s access to gaming licenses in Macau.

We agree with the district court that the above allegations

are not sufficient to show that the directors face a substantial

likelihood of personal liability for any wrongdoing. Most

importantly, even assuming that the Macau donation did in

fact violate the FCPA, the allegations do not create a

reasonable inference that any of the individual directors

intended or knew that it would do so, as Nevada law would

require. Indeed, the complaint’s principal allegation is that

the defendants “voted in favor of the donation to the

22 LMPERS V. WYNN

Foundation without any evidence that this donation was

compliant with the law and the Company’s policies.” Even

if the complaint can be read to allege with particularity that

the directors were negligent with respect to the Macau

donation’s legality, such would not be sufficient to establish

a substantial likelihood of director liability, because Nevada

law requires knowledge or intent before director liability

attaches. And the fact that the complaint acknowledges that

the Nevada state investigation terminated without any

enforcement proceedings severely undermines the

shareholders’ speculation that the directors face a substantial

likelihood of liability. We therefore reject the shareholders’

theory that demand is excused based on allegations that the

directors face a substantial likelihood of liability for

approving the Macau donation.

C

The shareholders’ final theory is that demand is futile

because there is a reasonable doubt that the directors will be

entitled to the business judgment rule if the Okada

redemption is challenged in court.

Nevada law provides that “[d]irectors and officers, in

deciding upon matters of business, are presumed to act in

good faith, on an informed basis and with a view to the

interests of the corporation.” Nev. Rev. Stat. § 78.138(3). To

overcome such presumption, the shareholders “must plead

particularized facts sufficient to raise (1) a reason to doubt

that the action was taken honestly and in good faith or (2) a

reason to doubt that the board was adequately informed in

making the decision.” In re Walt Disney Co. Derivative

Litig., 825 A.2d 275, 286 (Del. Ch. 2003); see also Shoen,

LMPERS V. WYNN 23

137 P.3d at 1181 (citing Delaware law to define content of

Nevada business judgment rule).

In their attempt to overcome the business judgment rule’s

presumption, the shareholders rely on their allegation that the

Okada redemption was in bad faith because the decision to

convert Okada from an equity holder to a debt holder could

not have done anything to protect the company’s gaming

license if indeed Okada was an “unsuitable” shareholder.

“[B]ecause the redemption could not have protected the

Company’s gaming licenses,” the shareholders contend, “the

redemption had no legitimate business purpose and is not

protected by the business judgment rule.”

The reason this allegation fails is that Nevada law does

treat equity holders and debt holders differently, and in a way

that leaves the corporation’s gaming license more secure if a

potentially unsuitable security-holder has debt rather than

equity. Compare Nev. Rev. Stat. § 463.643(4) (“Each person

who . . . acquires . . . more than 10 percent of any class of

voting securities of a publicly traded corporation registered

with the Commission . . . shall apply to the Commission for

a finding of suitability . . . .”) (emphasis added), with Nev.

Rev. Stat. § 463.643(2) (“Each person who acquires . . . any

debt security in a publicly traded corporation which is

registered with the Commission may be required to be found

suitable . . . .”) (emphasis added). As a consequence, it does

not follow logically, and it is not reasonable to infer, that the

board was acting dishonestly, in bad faith, or without an

informed basis—or otherwise had no legitimate business

purpose—when it voted to convert Okada’s shares from

equity to debt in response to the report of former FBI director

Freeh.

24 LMPERS V. WYNN

IV

Finally, the shareholders argue that the district court

should be reversed because, they claim, it illicitly considered

materials extraneous to the complaint. The shareholders

specify two such materials: a Wynn Proxy Statement the

district court allegedly relied on in rejecting the shareholders’

theory that director J. Edward Virtue is beholden to Steve

Wynn; and an SEC filing (a Form 8-K) which the district

court allegedly relied on in rejecting the shareholders’ theory

that the directors face a substantial likelihood of personal

liability.

The Supreme Court has instructed that courts ruling on a

motion to dismiss “must consider the complaint in its

entirety, as well as other sources courts ordinarily examine

when ruling on Rule 12(b)(6) motions to dismiss, in

particular, documents incorporated into the complaint by

reference, and matters of which a court may take judicial

notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308, 322 (2007). “[A] court may not take judicial

notice of a fact that is ‘subject to reasonable dispute.’” Lee

v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001)

(quoting Fed. R. Evid. 201(b)); see also Marder v. Lopez,

450 F.3d 445, 448 (9th Cir. 2006).

The defendants requested the district court to take judicial

notice of several documents, including the Wynn Proxy

Statement and the SEC Form 8-K, but the district court

declined to do so, reasoning that the requested documents “all

contain information that contradict key elements of plaintiffs’

claims in this case.” Nevertheless, the shareholders object

that the district court’s subsequent analysis drew on the

substance of those very same documents.

LMPERS V. WYNN 25

A

The shareholders may well be correct that when the

district court discussed Virtue’s independence, it may have

had in mind the Proxy Statement showing that directors other

than Virtue received comparable options awards (as in,

valued at around $1 million) when they joined the Wynn

Resorts board. Nonetheless, we are satisfied that any error on

the district court’s part was harmless, because the

shareholders failed to raise a reasonable doubt as to Virtue’s

independence in any event. In particular, and as discussed at

greater length above, the shareholders made no allegations

suggesting that the amount of Virtue’s options award was

material to him, whether or not such amount was typical of

other directors. Furthermore, the district court’s discussion

of Virtue’s independence rested on several different factors

which were analytically distinct and capable of sustaining its

conclusion even if the information from the Proxy Statement

were excluded. As the district court rightly concluded, the

shareholders’ allegations suggested little more than that “a

business agreement previously existed between [Virtue and

Steve Wynn] where both parties could benefit financially,”

which “does not suggest a relationship that would indicate

Virtue is beholden to S. Wynn.” Moreover, the shareholders

had the burden to plead particularized facts that at least two

of the non-interested directors was beholden to Steve Wynn;

thus, even if we were to reject the district court’s conclusion

that Virtue is independent, the shareholders’ beholdenness

theory would still fail.

B

We reach the same conclusion with respect to the district

court’s conclusion that the shareholders had not alleged

26 LMPERS V. WYNN

enough to suggest that the directors face a substantial

likelihood of personal liability. The shareholders emphasize

the district court’s mention of “[t]he fact that the SEC and

GCB determined there was no issue with the Macau

donation.” The shareholders appear to be right that in saying

the SEC investigation was closed, the district court must have

been referencing the content of the SEC’s Form 8-K.

Nevertheless, we conclude this was not reversible error for

three reasons. First, there is no dispute that the district

court’s statement is true, meaning that this particular fact

could have been judicially noticed. Fed. R. Evid. 201(b).

Second, the district court’s reasoning did not depend on the

knowledge that the SEC had closed its investigation; instead,

the district court offered the independent and alternative

ground that “the mere allegation that [the SEC] is

investigating the Macau donation is not enough to rise to the

level to impute substantial likelihood of personal liability on

the individually named defendants.” Hence, once again, even

if the district court’s reference to extrinsic materials were

excised, its analysis would still be sufficient to uphold its

conclusions. Third, the shareholders’ complaint itself states

that the GCB investigation had “concluded its investigation

. . . and found no violations.”

V

For the foregoing reasons, the judgment of the district

court is

AFFIRMED.