The Ninth Circuit Court of Appeals – a U.S. federal court with appellate jurisdiction over district courts – upheld on Monday the dismissal of a lawsuit filed against casino operator Wynn Resorts Ltd and its board in a case related to a donation to the University of Macau.
In May 2011, Wynn Macau Ltd, the local casino unit of U.S.-based Wynn Resorts, pledged to donate the equivalent of US$135 million – to be disbursed over 10 years – to the University of Macau Development Foundation. The donation was announced at a time when the firm was awaiting the outcome of a Macau government decision on its request for land for a new resort on Cotai. The new casino resort – called Wynn Palace – is due to open on August 22.
The lawsuit had been filed in Las Vegas District Court in 2012 by the Louisiana Municipal Police Employees’ Retirement System, described as a holder of Wynn Resorts stock. But the case was dismissed in 2013 and the shareholders appealed to the Ninth Circuit Court of Appeals.
The case was a “shareholder derivative action,” where a shareholder sues on behalf of the company when it contends that directors and officers have not done their job of managing the company in the best interests of investors.
The lawsuit asked not only for financial damages but also a stop to any further donations to the University of Macau, reported on Monday the Las Vegas Review-Journal newspaper.
The Louisiana Municipal Police Employees’ Retirement System said in the complaint that the Wynn Resorts board “breached its fiduciary duties and committed corporate waste by approving the Macau donation because … the donation caused the company to incur legal expenses and be exposed to potential liability”. That, the shareholders argued, included a possible violation of the U.S. Foreign Corrupt Practices Act, a law that bars U.S. companies from paying off officials to win business overseas.
In Monday’s ruling, the appeals court panel said it agreed with the district court that the plaintiffs’ allegations were “not sufficient to show that the [Wynn Resorts] directors face a substantial likelihood of personal liability for any wrongdoing”.
Under existing laws, 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 in the complaint that such demand would have been futile because of the lack of independence of the Wynn Resorts board.
In affirming the district court’s decision, the appeals court panel held that the shareholders “did not give sufficiently particularised allegations to support an inference that a majority of the board of directors lacked independence”.
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Analyst at Roth Capital Partners