Betting Against the House and Wynn-ing
After six years of fiercely contested litigation, Pomerantz achieved a $70 million settlement with defendants in a securities class action against Wynn Resorts Ltd. and several of its officers. This is one of the largest – if not the largest – settlements to date of Section 10b-5 claims arising solely from #MeToo allegations.
Wynn Resorts owns and operates luxury hotels and destination casino resorts, including Wynn Las Vegas and Encore in Las Vegas, Nevada; Wynn Boston Harbor in Everett, Massachusetts; and Wynn Macau and Wynn Palace in Macau, China.
Briefly, the case arises from a decades-long pattern of sexual abuse and harassment by the company’s billionaire founder and former Chief Executive Officer, Stephen (Steve) Wynn that was unchecked, tacitly permitted, and eventually covered up by defendants. In March 2016, Elaine Wynn, Steve Wynn’s ex-wife and co-founder of Wynn Resorts, claimed in a legal filing in a separate litigation that Mr. Wynn had engaged in “serious misconduct” against at least one employee on company property, that the company’s general counsel knew about it and helped to cover it up, and that this information had not been disclosed to the company’s gaming regulators.
The same day, the company issued a press release vehemently denying Ms. Wynn’s allegations and stating that any suggestion that Wynn Resorts had concealed information from its regulators was “patently false.”
Almost two years later, in January 2018, the Wall Street Journal published an article exposing allegations of sexual abuse against Mr. Wynn, including that he had paid an employee $7.5 million dollars to settle her claim of being raped by him in 2005. The WSJ article was based on interviews with dozens of Wynn Resorts employees and others who “described a CEO who sexualized his workplace and pressured workers to perform sex acts.” They also noted Mr. Wynn’s power, including his growing political profile. “After Mr. Trump’s 2016 election, Mr. Wynn became the Republican National Committee’s finance chairman.” Wynn’s Resorts’ stock price tanked over 10% in response to the WSJ article’s allegations.
The company issued another statement that day claiming that the WSJ article had been instigated by Ms. Wynn, that the company had a hotline for fielding complaints about such conduct, and that no one had ever submitted a complaint about Mr. Wynn to that hotline, which falsely implied that no complaints had ever been made about him. Two weeks later, the Las Vegas Metropolitan Police Department disclosed that it had received two additional complaints about Mr. Wynn. The stock price again declined.
Gaming regulators in Nevada and Massachusetts immediately opened an investigation into the WSJ article’s allegations, which they ultimately con-firmed through interviews with company personnel and Wynn Resorts’ own internal documents. The company admitted to having failed to investigate and report known complaints about Mr. Wynn’s alleged misconduct. Mr. Wynn eventually stepped down.
This case had numerous twists and turns from the outset. We filed our First Amended Complaint in March 2019, but the district court dismissed the claims, granting us leave to amend. Several months after dismissing the case, the district court judge recused herself without explanation, and a new judge was assigned – Judge Andrew Gordon.
We filed our Second Amended Complaint in July 2020, and in July 2021, Judge Gordon upheld the claims regarding the 2016 press release referenced above by the company denying any misconduct by Mr. Wynn, as well as two other public statements issued by the company and Mr. Wynn denying the Wall Street Journal’s allegations and claiming that the company “had a hotline in place for reporting harassment and similar misconduct.”
“[T]he plaintiffs have sufficiently alleged that [defendants] were aware of information contradicting their statements that denied misconduct allegations,” held Judge Andrew P. Gordon. “The inference that these defendants were aware of Wynn’s alleged misconduct at the time of their statements is cogent and compelling.”
Then, just as discovery was beginning and we were set to go after the defendants for their internal documents which we knew would incriminate them, the presiding Magistrate Judge recused himself from the case (again without explanation). The case was randomly assigned to Magistrate Judge Elayna Youchah.
Unbeknownst to us at the time, Judge Youchah had previously represented Wynn Las Vegas and Wynn Resorts as defendants in a federal lawsuit filed by Angelica Limcaco. Ms. Limcaco’s allegations arose from some of the same allegations at issue in our case. She alleged that while she was a salon manager at Wynn Las Vegas, one of the salon manicurists told Ms. Limcaco that Mr. Wynn had raped and impregnated her, and that she was reprimanded and eventually fired after she reported the alleged rape to Wynn Resorts’ human resources department. The alleged rape victim Ms. Limcaco referred to was the same employee mentioned in the explosive WSJ article.
Judge Youchah did not divulge this prior representation to us. Meanwhile, defendants requested that the court bifurcate discovery (i.e., split discovery into two stages – class certification discovery and then merits discovery only if class certification was granted). Judge Youchah granted their request, which significantly delayed the time by which defendants would have to hand over the damaging documents that we needed to prove our case.
Thereafter, we discovered Judge Youchah’s prior representation of Wynn. Out of an abundance of caution, we promptly filed a motion for recusal pursuant to 28 U.S.C. § 455(b)(2) which requires federal judges, including magistrates, to recuse themselves from any case where “in private practice [s]he served as lawyer in the matter in controversy.” Section 455(b) separately provides that a judge shall also disqualify herself in any proceeding where: “(1) [s]he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding,” or “(2) in private practice [s]he served as lawyer in the matter in controversy, or a lawyer with whom [s]he previously practiced law served during such association as a lawyer concerning the matter, or the judge or such lawyer has been a material witness concerning it.”
On October 27, 2022, Magistrate Judge Youchah recused herself from Wynn, and Magistrate Brenda Weksler was assigned to the case. All told, six judges recused themselves from the case over the course of the litigation.
On March 2, 2023, Judge Gordon granted our motion for class certification. This was a critical win in the case because defendants had hoped to cut our class period in order to limit their damages by hundreds of millions of dollars. Defendants attempted to capitalize on the defendant-friendly Supreme Court ruling in 2021, Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 594 U.S. 113 (2021), where the Court held that plaintiffs cannot certify a class unless they can show a match between the alleged misstatements and the corrective disclosure. Accordingly, defendants argued that there is a “mismatch” between the company’s general denials of misconduct and the more specific disclosures contained in the WSJ article. The court rightly agreed with us, however, noting that a corrective disclosure need not be a mirror image of the prior fraudulent statements, and that it is sufficient that the disclosure renders “some aspect” of the prior statements false or misleading. This decision is one of the first plaintiffs’ wins in the post Goldman world.
Even though we now had a green light on merits discovery, defendants fought us relentlessly on producing any documents of substance. Meanwhile, they filed a highly premature motion for summary judgment, which again tried to knock out the corrective disclosure that held hundreds of millions of dollars in damages. We countered by asking the court to deny defendants’ motion because they still had not produced the documents needed to decide the motion. At the same time, we moved to compel the defendants to produce the relevant documents.
We won on both counts. First, the new magistrate judge granted in large part our motion to compel. A few days later, the district court denied the defendants’ motion for summary judgment and forbade them from refiling it until they had produced all the discovery we were lacking. Shortly after these two significant wins, the parties mediated and achieved the highly favorable $70 million settlement.
According to Partner Murielle Steven Walsh, who leads the case, there are two important takeaways. “First,” she says, “it serves as a warning to corporations and their officers that talk is not, in fact, cheap. Investors care about corporate integrity and accountability, and companies that are accused of making statements to cover up or deny allegations of serious misconduct by executives face a potentially steep financial reckoning. Second, don’t give up the good fight even when the odds seem stacked against you. Eventually, justice will prevail.”
The case is Ferris v. Wynn Resorts Ltd., No. 2:18-cv-00479 (D. Nev.).