On May 27, 2020, in the latest #MeToo-related securities class action lawsuit to fail to survive initial pleading hurdles, Judge Gloria M. Navarro granted the defendants’ motion to dismiss the securities suit filed against Wynn Resorts based on allegations that the company had failed to disclose sexual misconduct of its former CEO, Stephen Wynn. The ruling joins several other recent dismissal rulings in #MeToo-related securities suits – although, as noted below, there have also been several noteworthy settlements in #MeToo suits as well. A copy of Judge Navarro’s opinion can be found here.
Wynn Resorts is a developer, owner, and operator of casino resorts. Stephen Wynn is the company’s founder and served as its CEO and Chairman from 2002 to 2018. In a separate unrelated lawsuit and in a January 26, 2018 Wall Street Journal article (here), reports emerged that Wynn had engaged in sexual misconduct involving company employees, including in particular that the company had paid a substantial monetary settlement to one particular employee who had raised sexual misconduct allegations.
The allegations of sexual misconduct allegations led to investigations of the company and of the allegations by gaming regulators in Massachusetts and Nevada. The Nevada investigation ultimately led to a disciplinary complaint against the company. The complaint alleged eight instances of sexual misconduct involving Wynn. The company ultimately was fined $20 million for failing to investigate the sexual misconduct claims against Wynn.
On February 20, 2020, plaintiff shareholders filed a securities class action lawsuit in the Southern District of New York against Wynn Resorts; Wynn; and certain of the company’s directors and officers. The action was later transferred from the New York federal court to the United States District Court for the District of Nevada. The action was filed on behalf of investors who purchased Wynn Resorts securities between February 28, 2014 and February 12, 2018. The complaint alleged that the defendants had violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint sought to recover alleged damages on behalf of the class.
In their complaint, the plaintiffs alleged that defendants had made several misleading statements and omissions concealing the Wynn’s alleged sexual misconduct. The complaint alleged that the company had made misrepresentation or omissions about the underlying alleged misconduct in statements about its code of conduct, compliance, regulatory risks, risks associated with Stephen Wynn’s departure from the company, and corporate culture. The defendants’ moved to dismiss the plaintiffs’ complaint.
The May 27, 2020 Order
On May 27, 2020, Judge Navarro granted the defendants’ motion to dismiss, albeit with leave for plaintiffs’ to attempt to amend their complaint. In ruling on the defendants’ motion, Judge Navarro held that none of the alleged misrepresentations and omissions on which the plaintiffs’ sought to rely are actionable.
In reaching these conclusions, Judge Navarro said that the company’s statements about its Code of Conduct were “inherently aspirational.” With respect to the company’s statement that it was in compliance with all applicable laws, Judge Navarro said that “read in context, no reasonable investor would infer from the challenged compliance statements that Defendant Wynn had not engaged in sexual misconduct.” Nor can “the statement be reasonably construed as an assurance regarding Defendant Wynn’s suitability under gaming regulations.” Judge Navarro added that “Plaintiffs offer only conclusory allegations and fail to provide any particular facts showing that Defendants did not hold the belief that the Company was in compliance with all applicable laws or facts showing that said belief was objectively untrue).”
The plaintiffs also sought to rely on various company statements regarding the company’s regulatory risks, including statements concerning the fact that if the company were to be found to have violated the relevant states’ regulatory requirements, the states could revoke the company’s gaming licenses. Judge Navarro said with respect to these allegations that the plaintiffs “fail to allege sufficient facts showing that the regulatory risk disclosure statements became materially misleading due to the non-disclosure of the alleged sexual misconduct.”
With the respect to the company’s statements about is reliance on the skills of defendant Wynn and the possible harm to the company that could be caused by his departure, in which the plaintiff alleged that the statements about Wynn’s importance to the company were misleading without disclosing his sexual misconduct, the statements “did not suggest that Defendant Wynn had not engaged in the undisclosed misconduct,” adding that “because the alleged omissions did not make the statements regarding Defendant Wynn’s skills, talent, and experience misleading, the statements are inactionable.” She also noted that the company’s disclosures about the risks to the company presented by the possibility of Wynn’s departure represent “precisely” the type of “meaningful cautionary statement “required by statutory and regulatory risk factor requirements.
The dismissal motion ruling in the Wynn Resorts case joins dismissals in several other #MeToo-related securities class action lawsuits. For example, as noted here, the dismissal motion in the #MeToo-related securities class action lawsuit filed against Papa John’s International was granted on grounds very similar to those relied on by Judge Navarro in the Wynn Resorts case. The motion to dismiss was also largely granted in the #MeToo securities lawsuit filed against CBS (although one count of the CBS lawsuit did, in fact, survive the dismissal motion).
To be sure, at least one #MeToo-related securities suit did survive dismissal and ultimately led to a significant settlement. As discussed here, the Signet Jewelers #MeToo-related securities suit settled for $240 million (although it should be noted that the Signet Jewelers securities suit also involved serious accounting misrepresentation allegations unrelated to the #MeToo allegations). There was of course a very significant settlement in the first of the #MeToo-related D&O lawsuits; as noted here, the #MeToo-related shareholder derivative lawsuit against the board of 21st Century Fox settled for $90 million.
The various #Me Too-related management liability lawsuits involving Wynn Resorts demonstrate in a very small sample set this divergence of outcomes. While on the one hand, the Wynn Resorts #MeToo-related securities class action lawsuit was dismissed (albeit without prejudice), the Wynn Resorts #MeToo-related shareholder derivative lawsuit settled for a payment to the company of $41 million in cash, including $20 million from Stephen Wynn personally, as well additional corporate therapeutics and corporate governance reforms that the plaintiff’s expert valued at an additional $49 million in value, as discussed on the plaintiffs’ counsel’s website (here).
It is fair to say, then, that the track record on the #MeToo-related D&O litigation is mixed. The plaintiffs have had a number of high profile successes, but a number of high-profile cases have also been dismissed.
The entire phenomenon may prove to have been short-lived. While there were a host of #MeToo related case filed in 2018 and early 2019, it has been more than 12 months since I have observed the filing of any additional #MeToo-related management liability lawsuits. Of course, there may have been cases filed of which I am unaware, but I feel comfortable saying that there have not been any high-profile #MeToo-related management liability lawsuits filed for many months.
In the end, the wave of #MeToo-related management liability lawsuits may prove to have been just a short chapter in the longer narrative of the recent rising wave of event-driven litigation (that is, litigation arising out of adverse events at the defendant company, rather than out of alleged accounting or financial misrepresentations).
We are currently in the midst of what appears to be the next chapter in the event-driven litigation narrative, which is the rise of the coronavirus pandemic-related D&O litigation. The plaintiffs’ lawyers in this country are nothing if not opportunistic; the surge of #MeToo-related litigation at the end of 2018 and the beginning of 2019 was just one example of the plaintiffs’ lawyers trying to take advantage of an outbreak of bad news involving a number of companies, just as the spread of coronavirus-related D&O claims in recent months is another example of the plaintiffs’ lawyers trying to ride the latest wave.