F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

L O U I S I A N A M U N I C I P A L P O L I C E E M P L O Y E E S ’ R E T I R

E M E N T S Y S T E M ; B O I L E R M A K E R S L O D G E N O

. 154 R E T I R E M E N T F U N D ; M A R

Y A N N E S O L A K ; E X C A

V A T O R S U

N I O N L O C A L 731 W E L F A

R E F U N D , Plaintiffs-Appellants

,

v

.

S T E P H E N A. W Y

N N ; L I N D A C H E

N ; R U S S E L L G O L D S M I T H ; RA Y R. I R A N I ; J O H N A. M O R

A N ; R O B E R

T J

. M I L L E R ; M A R C D. S C H O R

R ; A L V I N V. S H O E M A K E R ; D. B O O

N E W A Y S O N ; A L L A N Z E M A N ; E L A I N E P. W Y

N N ; W Y N N R E S O R

T S L I M I T E D , Defendants-Appellees. N o. 14-15695

D.C. No. 2:12-cv-00509- J CM-GW F

OPI NI ON

Appeal from the United States District Court for the District of Nevada J ames C. Mahan, District J udg e, Presiding

Arg ued and Submitted May 12, 2016 San F rancisco, California

F iled J uly 18, 2016L MPERS V

. W Y N N 2

B efore: J erome F arris, Diarmuid F . O’Scannlain,

and Morg an Christen, Circuit J udg es.

Opinion by J udg e O’Scannlain

SUMMARY *

Shareholder Derivative L aw suit

The panel affirmed the district court’s dismissal under F ed. R. Civ. P. 23.1 of a shareholder d e r i vative lawsuit alleg ing that W y

nn Resorts board of director defendants breached their fiduciary

duties.

A d dressing jurisdictional issues, the panel held that d i v e r sity jurisdiction under 28 U.S.C. § 1332(a)(2) wa s improper because there were American citiz ens on both sides of t he case. The p anel a lso held that diversity jurisdiction under 28 U.S.C. § 1332(a)(3) was foi l e d by one of the d e f e n dants who was a United States citiz en, 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 F ed. R. Civ. P. 19. Under Fe d

. R. Civ. P. 21, the panel e x e r ci s e d its discretion to dismiss the defendant from the suit in order to p er f e ct diversity j u risdiction. The panel concluded that diversity jurisdictio n was thereby established under § 1332(a)(3).

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b eenp rep ared b y

co urt staf

f f o r th e co n v en i en ce o f

th e read er.L MPERS V

. W Y N N 3

B e fore bring ing a suit o n b e h alf of the corporation, shareholders are required either to make a dem a n d o n the board of directors or to ex p lain why such demand would be futile. The shareholders argued that demand would be futile.

Th e p anel held that the district court did not a buse its discretion in determining th a t the shareholders failed to comply with Rule 2 3.1 or state law g overning demand futility

. Specifically

, the panel h e ld that the shareholders did
not g ive sufficiently particulariz e d alleg ations to support an inference that a majority of the b oard of directo r s l a c k ed independence. The panel also re jected the shareholders’ theory that demand was ex cused based on alleg ations that the directors faced a substantial likelihood of pers o n a l liability f or any wrong doing

. The p anel also rejected t h e shareholders’ a

rg ument that demand was futile based on the directors not g e tting the benefit of the business judg ment rule if a questionable stock redemption were challeng ed in court, because u n der Nevada law it w as not reaso n a ble to a ssume the board was acting

dishonestly

.

F inally

, the panel held that there was no reversible error if the d istrict court c onside r e d m a terials e x traneous to the complaint.

COUNSEL

R i chard A. Speirs (arg

ued) and Christopher L ometti, Cohen Milstein Sellers & Toll PL L C, New York, New York; Daniel S. S o m mers, a

nd Eliz abeth A. Aniskevich, Cohen Milstein Sellers & Toll PL L C, W as hing ton, D.C.; for PlaintiffAppellant Ex cavators Union L ocal 731 W elfare F und.L MPERS V

. W Y N N 4

F elipe J

. Arroy o ( argued), Shane P. Sanders, and Gina Stassi, Robbins Arroy o L L P, San Di e g o, California, for PlaintiffAppellant B oilermakers L odg e No. 154 Retirement F und.

J o h n T

. J asnoch, Scott + Scott Attorney s at L aw L L P, Sa n D i e go , C a l i f

o rnia, for Pla i n t i f

f- Ap p e l l a n t L o u i s i a n a Municipal Police Employ ees’ Retirement Sy stem.

Geoffrey M. J ohnson, Scott + Scott Attorney s at L a w L L P, Cleveland Heig hts, Ohio, for Plaintiff-Appellant L o uisiana Municipal Police Employ ees’ Retirement Sy stem.

J ohn P. Aldrich, Aldrich L aw F irm L td, L as Veg as, Nevada, for Plaintiffs-Appellants.

Todd L

. B ice (arg

ued), J ames J

. P i sanelli, and Debra L

. Spinelli, Pisanelli B ice PL L C, L as Veg as, Nevada; Paul K

. Rowe, B r adley R. W ilson, and Grant R. Mainland, W achtell, L ipton, Rosen & Katz
, New Y o r k, New York; Robert L

. Shapiro, Glaser W eil F ink Howard Avchen & Shapiro L L P, L os A ng e les, California; for Defendants-Appellees L inda Chen, Russell Goldsmith, Ray R

. I r a n i, J o hn A. Moran, R o b e rt J

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

. B oone W ay son, and Allan Z eman.

J ohn B

. Quinn and Michael T. Z eller, Quinn E m an u el Urquhart & Sullivan L L P, L os Ang e les, California, for Defendant-Appellee Elaine P. W y nn.

Donald J

. Campbell and J

. Colb y W i l liams, Campbell & W illiams, L as Veg as, Nevada, fo r Defendant-Appellee Stephen A. W y

nn.L MPERS V

. W Y N N 5

OP INION

O’SCANNL AI

N, Circuit J udg e:

W e must decide whether shareholders may pursue a derivative lawsuit ag ains t a c orporation’s board of directors despite their failure to demand that the board in i t i a t e this litig ation itself.

I

This is a shareholder d erivative suit. The plai n tiffs a re shareholders of Wy

nn Resorts, L imited (“W y nn Resorts”), a Nevada c orporation that ow n s and operates casinos in L a s Veg as and Macau, the latter t hroug h its subsidiary

, W y nn Macau, L imited. The defendants are W y nn Resorts itself a

nd

e l e v e n individuals who sit or sat on its board of directors

. The shareholders wish to challeng e two a c t i o ns the board took o n behalf of its subsidiary Wy nn Macau: a 2011 decision
to donate $135 million to the University of Macau Development F oundation, and a 2 012 decision to redeem the shar e s held by a former director named Kaz uo Okada, w ho was the only

director to vote ag ainst the donation.

W e recite the facts as alleg ed in the shareholders’ amended complaint, a

nd we assume them t o b e true for purposes of this appeal.

A

I n 20 0 6 W y

nn Resorts opened its first hotel in Macau, China under a lease from the Macau g overnment with a term from 2 002–2022. Also in 2 006 W y nn Resorts applied to the Macau g overnment f

o r a second l e as e ag reement to build aL MPERS V

. W Y N N 6

n e w resort a

nd casino. Central to the present dispute is th e University of Macau and its D evelopment F oundation, which is presided over by many of the same g overnment officials who h ave substantial control over g aming matters and the real estate industry

in Macau.

F ive y ears after W y

nn Resorts submitted i t s a pplication for a second lease ag reement, the Macau g overnment still h ad

n o t approved it, but in May 2 011 the board author i z ed a donation to the De v e l opment F oundation totaling $135 million over a ten y ear period. Okada w as the only director

on the eleven-member board to vote ag ainst the donation. 1 About a m o n t h after the donation, the Macau g overnment accepted W y

nn Resorts’s application for a second lease.

I n F ebruary 2012, the U.S. Securities and Ex chang e Commission (“SEC”) launched an info rm a l inquiry into the Macau donation. The shareholders do n o t a l l eg e that the SEC’s investig ation escalated into a formal e n f o rcement proceeding

, and in fact, the shareholder s a c knowledg e that after they filed this suit, the SEC concluded its investig ation without taking further a ction. The Nevada Gaming Commission B oard (“GCB ”) also undertook an investig ation i nto the Macau donation, but the shareholders’ complaint acknowledg es that the G CB had terminated its investig ation, finding no vio l a t i o ns of state law, by the time the shareholders broug

ht this suit.

Meanwhile, in October or November 2011, Okada b eg an demanding a separate investig ation into the Macau donation.

1 T h e bo ard at th e tim e co n sisted o f Stev e W y n n , Elain e W y

n n , Ru ssell Go ld sm ith

, J o h n Mo ran , Mark D. Sch o rr, A l lan Z em an , Kazu o O ka d a , Ray Iran i, Ro b ert Miller, A lv in Sh o em ak er, an d D. B o o n e W ay so n

.L MPERS V

. W Y N N 7

Around the same time, in November 2011, Steve W y n n—the
company ’s Chairman and CEO—hired f o r mer F B I director L o u is F reeh to investig ate alleg ations that Okada had mad e improper g ifts to g aming regulators in the Phillippines. F reeh concluded that O kada was “unsuitable” to own shares o f W y n n Resorts, under Nevada l aw and the c orporation’s A rticles of I n corporation, and so the corporation for c i b l y redeemed Okada’s $2.77 billion equity stake in the company in ex chang e for a promisory no t e w o rth $1.9 billion. The Okada redemption is the subject of separate lawsuits b etween Steve W y nn and Okada in Nevada state court.

B

Their ey ebrows raised by these decision s , the shareholders decided to sue the W y nn Resorts b o ard. I n the

s h a r e h o l d e r s ’ e stimation, the Macau donation was nothing but

a quid pro quo bribe, and the Okada redemption h a d no leg itimate business purpose but was mere l y a g ambit Steve W y n n used to oust a dissenting director a nd intimidate the others into comply ing with his wishes from there on out.

The shareholders filed their derivative acti o n in federal d istrict court in 2012, and a fter it was d ismissed, they amended their compl aint in April 2013. At the time the shareholders filed their amended c ompl a i nt, the W y nn Resorts b oard of directors had eig ht members: St e v e W y nn, Elai ne W y

nn, Robert Miller, D

. B oone W ay son, J

. Edward Virtue, J ohn Hag enbuch, Ray I r ani, a nd A l v i n Shoemaker. F our of the defendants who are still parties to the suit—L inda Chen, Russell G oldsmith

, J ohn Moran, and Allan Z e man—are f

ormer members o f the board, and had ceased to be directors by the time the shareholders filed their amended complaint.L MPERS V

. W Y N N 8

The c omplaint allege s that the director defendants breached their fiduciary duties and committed corporate

w a s t e b y approving the Macau donation because, th e shareholders alleg e, the donation caused the company to incur leg al ex penses a

nd be e x posed to potential liability

. T h e complaint also alleg es that the defendants breached their fiduciary duties by redeemin g Ok a d a’s shares b ecause, the shareholders alleg e, such action had no leg itimate p u r pose and merely e ncumbered the company with a hig h e r d ebt load.

C

B e fore b ring ing their s u i t on behalf of the corporation, however, the shareholders w e r e required e ither to make a demand on the board of d i r e c tors or to ex plain why such demand would be futile. The sha r e h o l d e r s did not make a demand. I nstead, they argued that demand w o uld b e futile, for three reasons: first, Steve W y nn is “interested”—meaning he cannot be ex pected to e x ercise imparti a l judg ment about whether it is in the corporation’s best inte r e s t s to sue the board as the shareholders wish to do—an d a m a j ority of the board is alleg ed t o b e “beholden” to him and therefore likewise incapable of ex ercising impartial j u d gment about whether to sue the board; second, the directo r s alleg edly
cannot be impartial because they face a substantial likelihood of incurring p ersonal liability for their d ecision to approve the Macau donation; and third, the directors alleg edly cannot be impartial because t h e r e is a reasonable doubt as to whether their decision to redeem Okada’ s shares would be g iven the benefit of the b usiness judg ment rule if it were c halleng e d in
court.

The d i strict court disag reed, and dismissed the amended complaint under F ederal Rule of Civil Procedure 23.1. TheL MPERS V

. W Y N N 9

district court found Steve W y nn to be interested, but held that the shareholders had not adequately alleg ed a majority of the board to b e “ b e h o lden” to him. The district court also h eld that the shareholders had not sufficiently alleg ed a substantial likelihood that the directors would incur personal liability for approving the Macau donation. F inally

, the district court h eld that t h e s h a reholders had not alleg ed enoug h to create a reasonable d oubt about whether the Okada redemption would be gi v e n the benefit of the business judg ment rule if it were challeng ed in court.

The shareholders timely

appealed.

I I

B e fore turning to the merits, we must address two issues with respect to our jurisdiction to hear this case. 2

This suit arises entirely u n d e r state law, with the shareholders b ring ing state-law causes of action for breach o f fiduciary duty and waste o f c orporate a s sets, and seeking in
response a permanent injunction and re s t itution for unjust enrichment. The shareholders’ complaint alleg es federal jurisdiction ex c lusively under 28 U.S.C. § 1332(a)(2), p art o f the diversity j u r i sdiction statute which covers suits b etween “citiz e ns of a State and citiz ens or subjects of a foreig n state.” There are two problems with that jurisdictional pleading

.

2 W e reco g n i ze th at o ur d ecisio n in Po tter v. Hu g h es , 5 4 6 F. 3 d 1 0 5 1
, 1 0 5 4

– 5 5 (9 th Cir. 2 0 0 8 ), su g g ests th at w h ere sh areh o l d ers h av e f

ailed to

co m ply w ith Ru le 2 3 .1
, an d th eir d er iv ativ e su it is also p lag u ed b y an in d ep en den t j urisd ictio n al def ect, w e can ch o o se eith er g ro un d as a b asis f o r d ism i ssin g th eir actio n

. B ecau se i n t hi s case w e can cu re an y j urisd ictio n al p ro b lem s, h o w ev er, w e h av e n o n eed to rely o n Po tter

.L MPERS V

. W Y N N 10

A

F irst, § 1332(a)(2) is an improper basis becau se the plaintiffs are alleg ed t o b e American citiz ens, and the defendants are alleg ed to b e a mix of American citiz ens a nd foreig n c itiz ens. B ecause there are American citiz e ns o n both

s ides of the case, jurisdiction cannot be g rounded in § 1332(a ) ( 2 )

. See, e.g. , Newman-Green, I nc. v. AlfonzoLarrain
, 490 U.S. 8 2 6
, 828–29 ( 1989) (ex p laining that “[ s] ubsection 1332(a)(2), which confers jurisdiction in the District Court when a citiz e n of a State sues aliens only

, . . . could n o t b e satisfied because [ one o f the defendants] is a United States citiz en,” and that s uch defendant’s “United States citiz e n s h i p destroy [ s] complete diversity under § 1332(a)(2)”); Harris v. Rand

, 682 F

. 3d 846, 848 & n.1 (9th Cir. 2012). I nstead of § 1332(a)(2), the shareholders should have invoked § 1332(a)(3), w hich provides jurisdiction over suits between “citiz e n s of different S t a tes and in which citiz ens o r subjects of a foreig n state are additional parties.” 28 U.S.C. § 1332(a)(3).

This defect could b e fix ed without dif f i cu lty if diversity jurisdiction would have b een proper under § 1332(a)(3). See 28 U.S.C. § 1653 (“Defective a lleg ations of jurisdiction may be amended, u

pon te r ms, in the trial or appellate courts.”). B ut that leads us to the second problem.

B

One o f the defendants—L inda Chen, a former director o f W y n n Resorts—is neither a citiz en of a State nor a c itiz en o f

a foreig n 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 citiz en butL MPERS V

. W Y N N 11

“do[ es] not reside i n the United States and ha[ s] not b een a p e r m a n ent resident of any state in the United States since
approx imately 2004.” I ndeed, Chen swears that b y the time the plaintiffs f

i r st filed their complaint in Aug ust 2 012, she had a lready become “a permanent resi d e n t o f Macau,” a status she claims she still retains.

Chen’s declarations e stablish that she is not domiciled in

a State. See M

iss. Band of Ch o c t a w I

ndians v. H

olyfield

, 490 U .S. 30, 48 (1989) (“F or adult s , d o m icile is e stablished by phy sical presence in a pla c e in connection with a c ertain
state of mind concerning one’s intent to remain there.”). She therefore c annot b e a c i t i z en o f a State for purposes o f diversity jurisdiction. Newman-Green
, 490 U.S. at 828 ( “I n order to be a citiz en of a State within the m e an i n g o f the diversity statute, a natural person must both b e a c itiz en o f the United States a nd be domiciled within the State.”). B ecause Chen is “ a United States citiz en, [ but] has no domicile in any State,” she i s “‘stateless’ for purposes o f § 1332(a)(3).” Id. Such “‘stateless’ status d estroy [ s] complete d i v ersity under § 1332(a)(3).” Id. a t 829.

I n short, Chen’s c ontinued p resence in the suit necessarily foils the plaintiffs’ attempt to comply with § 1332(a)(3).

C

F ortunately

, the j u

r i s d i c t i o n al d e f

ects described above can be remedied without need for a r e m and. F irst, even thoug h Chen is a n o ndiverse party , Rule 2 1 of the F ederal Rules o f Civil Pr ocedure g ives us discretion to dismiss her from the suit in order to perfect diversity jurisdiction, p rovided that she is not an indispensable par t y u n d e r Rule 19. Id. at 837 (holding that, under Rule 21, “ the courts of a ppeals have theL MPERS V

. W Y N N 12

authority to dismiss a dispensable nond iverse party ”); Sams

v

. Beech Aircraft Corp.
, 625 F .2d 273, 277 (9th Cir. 1980) (“Rule 21 g rants a federal district o r appellate court the disc r e t ionary power to p erfect its diversity jurisdiction b y dropping a nondiverse party provided the nondiverse party is not indispensable to the action under Rule 19.”).

W e have no trouble concluding that Chen is a dispensable party under Rule 19. She was not a m e m b e r of the W y nn R e s orts board when the shareholders filed their amende d complaint; n or was she a member o f the W y nn Resorts board that approved the Macau d onation. The shareholders have
not m a d e a sing le a lleg ation about h er during the c ourse o f this appeal, a

nd 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 b y [ her] dismissal.” Newman-Green
, 4 90 U.S. at 838. There is no sug g estion that h er presence p r o v i d e d the shareholders “ with a tactical a dvantag e,” id.

, or that any party would be prejudiced by her dismissal. B e cause “[ n] othing but a waste o f time and resources would be eng endered b y remanding to the District Court o r by forcing these parties to beg in a new,” id.

, we e x ercise our d iscretion to dismiss Chen from the suit without prejudice.

Second, in sup p l emental filing s with our court, the shareholders a cknowledg ed that jurisdiction would b e proper under § 1332(a)(3) if we were to dismiss Chen from the c ase. B ecause we h ave decided to do ex actly that, we construe the shareholders’ supplemental brief as a request to amend their jurisdictional alleg a tion from § 1332(a)(2) to § 1 3 3 2 ( a)(3). W e g rant such motion, dismiss Chen from the suit, a nd conclude that federal jurisdiction is thereby established under § 1332(a)(3).L MPERS V

. W Y N N 13

I I I

“A shareholder seeking to vindicate the inter e s ts of a corporation throug h a derivative suit must first demand action f r om the corporation’s d irectors or plead with particularit y the reasons why such deman d w o uld have been futile.” Rosen b loom v

. Pyott
, 765 F .3d 1137, 1148 (9th Cir. 2 014) (quoting In re Silicon Graphics Inc. Sec. Litig.
, 183 F .3d 970, 989 (9th Cir. 1999) ( as amended)). Such requirement follows from “the g eneral rule of American law

. . . that the board o f directors controls a corporation.” Potter v. Hughes

, 546 F .3d 1051, 1058 (9th Cir. 2 008). The board’s control includes a nd
oug ht to include the decision whether to pursue litig ation when the c o rporation may have suffered harm. Hence, “[ a] bsent sufficient reason to doubt th e d i r e ctors’ ability to make disinterested a

nd indepen d e n t d e c i s i o n s a b o ut l i t i g ation, the board is not only empowered but optimally positioned to make decisions on b ehalf of the corporation and, if appropriate, pursue litig ation.” La. M un. Police Emps.’ Ret. Sys. v. Pyott
, 46 A.3d 313, 3 39 (Del. Ch

. 2012), rev’d sub nom. on other grounds Pyott v. La. Mun. Police Emps.’ R e t. Sys. , 74 A.3d 612 (Del. 2013).

The “ demand futility rule” is also refl e cted in the heig htened pleading standard set fo r t h i n Rule 23.1 of the F ederal R u l e s o f C i v i l 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 o r comparable a uthority a nd, if necessary , from the shareholders o r members; and ( B) t h e reasons for not obtaining the action or not makin g the effort.” F ed. R. Civ. P. 23.1(b)(3).L MPERS V

. W Y N N 14

B e cause Nevada is W y n n Resorts’s state of incorporation, Nevada law g overns whether the shareho l d e rs have adequately alleg e d deman d futility

. Kamen v. Kemper Fin. Servs., I nc. , 500 U.S. 90, 108–09 (1991). Nevada, in turn, looks to Delaware law on shareholder demand futility

. Shoen

v. SAC Holdi n g C o r

p. , 137 P.3d 1171, 1184 (Nev. 2006). According ly

, “ [ w] hen evaluating demand futility

, Nevada

c o u r t s m u s t e x a m i n e w h e t h e r p a r t i c u l a r i z e d f ac t s demonstrate: (1) in those cases i n w hich the directors approved the c halleng ed transactions, a reasonable doubt that the d irectors were disinterested or that the business judg ment rule o t h e r w i se protects the c h alleng e d decisions; or (2) in those c ases in which th e challeng ed transactions did not involve board action or the board of directors h as chang ed 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

. Z i m merman , 906 A.2d 776, 786 (Del. 2 006). As suc h

, t h e shareholders must alleg e that at least half of the board, as it

was c o n s tituted when the shareholders filed the amended complaint, was incapable of entertaining a pre-suit demand. Such board consisted of eig h t members: S. W y nn, E. W y

nn, Mil l er, W ay son, Virtue, Shoemaker, Hag enbuch, and I rani. The d efendants c oncede for purposes of this a ppeal that S. W y n n and E. W y

nn are not independent. H ence, to pl ead dema n d futility

, the shareholders must make sufficient alleg ations that at least two of the remaining six d irectors lackL MPERS V

. W Y N N 15

independence. The shareholders focus on three: Miller, W a y son, and Virtue. 3

The shareholders offer three principal theories as to why
t hey believe demand was futile. F irst, the shareholder s

m aintain that a majority of the board is beholden to S t e v e W y n n. Second, the shareholders argue that the directors face

a substantial likelihood of personal liability for approving the Macau d onation. T hird, the shareholder s arg ue that there is

a reasonable d oubt that the directors would g et the b enefit o f the b u s iness judg ment r

ule if the O kada redemption were challeng ed in court.

The d istrict court’s deter m i n a tion that the shareholders failed to comply with Rule 23.1 o r state law g overning demand f utility is reviewed for abuse of discretion. Potter
, 546 F .3d at 1056. 4

A

T o prevail, the shareholders must g ive sufficiently particulariz ed alleg ations to support an in f e r e nce that a majority of the board lacks independence. The shareholders

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

3 In lig h t o f th e Bra d

d o ck r u le, th e sh areh o ld ers’ alleg atio n s ab o u t Mo ran are n o t relev an t b ecau s e Mo ran w as n o t a m em b er o f th e bo ard at th e tim e th e sh areh o ld ers f iled th eir am en d ed co m

p lain t.

4 T h e sh areh o ld ers ack

n o w led g e as m

u ch

, b u t arg u e th a t t h e d istrict

co urt’ s d ecisio n s h o u ld b e rev iew ed d e n ov o

. It g o es w i th ou t say in g th at

o ur p an el h as n o p ow er t o rej ect cir cu it p reced en t o n o ur o w n

. In an y case, ev en if th ere are p lau sib l e arg u m en t s th at d e n o v o rev iew w ou ld b e

m o re ap p ro p riate th an rev iew f o r ab u se o f discretio n in cases lik e th is, w e are satisf i ed th at th e stan d ard o f

rev iew m ak es n o d if

f eren ce h ere.L MPERS V

. W Y N N 16

directors Miller, W ay son, and Virtue. To s h o w a lack o f independence, shareholders must alleg e “facts that show that the majority [ of directors] is ‘beholden to’ directors who

. . . [ are] unable to consider a d e m a n d o n its merits.” Shoen

, 137 P.3d at 1183. This test requires the shareholders to “plead facts that would support the inference that because o f the nature of a relationship or additional circumstances other than the interested director’s stock o w nership or voting
power, the n on- i n t e rested director would be more w illing to risk his or her reputa t ion than risk the relationship with the interested director.” Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart
, 845 A .2d 1040, 105 2 ( De l

. 2004).

I mportantly

, “the simple fact that there are some financial ties b etween the interested p arty a nd t h e director is not disqualify ing .” In re MFW S’holders Litig.
, 67 A.3d 496, 509 (Del. Ch. 2013). To that end, “a plaintiff seeking to show that

a d irector was not independent must meet a materi a l i ty st a n d ard, under which the court must conclude that the director in question’s material ties to the per s o n w hose proposal or acti o n s she is evaluating a re sufficiently substantial that she cannot o b j ectively fulfill her fiduciary duties.” Id. A s to materiality

, the Delaware Supreme Court “has rejected the sug g estion that t h e c o rrect standard for materiality is a ‘reasonable person’ standard; rather, it is
necessary to look to the fina n cial circumstances of the director in question to d etermine materiality .” Id. at 510. The same mater i a l i t y requirement applies “in the contex t o f personal, rather than financial relationships.” Id. at 5 09 n.37. Such non-financial relati o n ships must be “contex tually material.” Id. at 513 n.64.

W e consider each of the three relevant directors in turn.L MPERS V

. W Y N N 17

1

The shareholders’ complaint alleg es the following about Miller: he is a partner in a p arent company ( “Nevada Rose”)

o f a g roup of companies that sell rose nectar used at W y n n Resorts in Macau; he is a director of a company (“I G T”) that makes c asino g ames use d at W y nn Resorts; Steve W y

nn helped Miller win reelection as g overnor of Nevada in 1994 by donating $70,000 to h is campa i gn and by try ing (unsuccessfully

) to discoura g e a potential rival from challeng ing Miller in the primary ; in 1997, Miller testified on Steve W y nn’s behalf at a libel suit W y nn had broug ht ag ainst the author of an unauthoriz ed biog r aphy

, and during his testimony Miller described himself as a “23 y ear old friend o f W y n n’s”; a nd finally

, Steve Wy

nn and W y

nn Resorts provided campaig n contributions to Miller’s son when he ran for Nevada secretary of state between 2006 and 2012.

W e ag ree with the d istrict court that these alleg a tions a re in sufficiently particulariz ed to p lead Miller’s beholdenness to Steve Wy nn. The alleg ations about Miller’s financial ties to W y n n are inadequate because they fa il to alleg e materiality

, as they “do[ ] nothing

. . . to compar e the actual economic

c ircumstances of [ Miller] to the ties [ the shareholders] contend affect [ h is] impartiality .” I n re MFW

, 67 A.3d at 510. I n other words, li k e the shareholders in MFW
, the

s hareholders here “have ig nored a key teaching o f [ t h e Delaware] Supreme Court, requiring a showing that a specific director’s independence is comp r omised by factors material
to her.” Id. Similarly

, with respect to W y nn’s ca m p aig n contribu t ions, the shareholders fail to alleg e the relative importance ( that is, the con t e x tual materiality ) of W y n n’s $70,000 contribution or o f the pressure Wy nn ex erted on o ne of Miller’s potential primary challeng ers—who never evenL MPERS V

. W Y N N 18

heeded W y

nn’s request, and wound up losing “by a w ide
marg in” any

way

. Moreover, the p a ssag e of time—nearly 20
y ears—would seem to dilute whatever materiality s uch aid mig ht h ave had in the first p lace. Miller’s decision to testify

on W y nn’s b ehalf at a trial in 1997, and W y nn’s contributions
t o Miller’s son’s campaig ns, are too insubstantial a nd a r e likewise devoid of alleg ations as to materiality

.

2

The shareholders’ complaint alleg es the following about W a y son: Wy

nn’s father and W ay son’s fathe r o p erated a bing o hall tog ether in the 1950s; W ay son’s brother and sister have worked with Steve W y n n in various capacities o ver the
y ears; W a y son has worked at Wy

nn-controlled enterprises for
many y e ars and has “received substantial monetary compensation” for doing so; and W a y son has an unspecified “business interest in W y nn-related g aming activity in Pennsy lvania.”

As with Miller, w e conclude that the complaint’s alleg ations about W a

y son are not enough to plead a lack o f independence. Ag ain, any financial or economic ties are not alleg ed to be material. Nor do the s o c i a l ties support an infe r e n c e that W ay son and W y nn are “as thick as blood relations,” In re M

FW
, 67 A.3d at 5 09 n.37, or that Way son’s relationship with W y

nn is otherwi s e material to him in any way

. Taken tog ether, we do not see how the a lleg ations with
reg ard to W ay son cast his impartiality into doubt. I t c ertainly

was not an abuse of discretion for the district court to conclude that they

do not.L MPERS V

. W Y N N 19

3

F inally

, the shareholders’ complaint alleg es the following about Virtue: that w hen he joined the W y nn Resorts board, he received a nearly $ 1 million o wnership stake, which was g iven to h im p artly to compensate him for having to close
accounts h e had previously manag ed at a private equity firm called MidOcean Partners; a nd i n the late 1990s and e arly 2000s, Virtue worked at Deutsche B ank, and Deutsche B a nk provided financing

to Steve W y

nn for various ventures.

These alleg ations strike us a s the w eakest of all. The complaint has no alleg ations as to the materiality of Virtue’s $1 million stock options, an d in any event the inference would seem to cut ag a i n s t the shareholders, insofar a s Virtue’s interest in the financial he alth of W y n n Resorts would incline him to pursue its intere s ts rather than

su b o r dinate them to Steve W y nn’s personal interests. L ikewise, the alleg ations of vag ue and impersonal business

r elationships more than a decade and a half ag o a r e t o o insubstantial to call into question Virtue’s independence. See Beam
, 845 A.2d at 1051 (“Alleg a tions that [ the controller] and the o ther directors

. . . developed business relationships before joining the b oard

. . . are insufficient, without more, to rebut the presumption of independence.”).

4

F inally

, the sharehol d ers’ complaint advances a g eneraliz ed theory that Steve W y nn dominates the entire board because, the complaint alleg es, “each member o f t he B oard has been hand-pick e d b y Stephen W y nn, is v irtually
g uaranteed e lection to the B o ard b y v irtue of the voting
ag reement and, therefore, is beholden to Stephen W y nn f o rL MPERS V

. W Y N N 20

his o r her nomination and selection to the B oard and will not t a k e a c tion ag ainst him.” T he complaint also alleg e s that W y n n caused O kada to be ousted from the B oard after Okada opposed the Macau donation. I n their brief, the shareholders
arg ue that such alleg ations support “the reasonable inference that S. Wy

nn would, and could, rem o v e any directors w ho
oppose him,” and they argue that the district cou r t erred in failing to draw such inference.

Thes e a l leg ations are inadequate to show a lack o f independence. F irst, the complaint acknowledg es that W y nn in fact lacked the u n i l a teral power to remove Okada; a nd

se c o n d

, the complaint acknowledg es that the board h ad objective, independent evidence o f Okada’s potent i a l l y i l l e g al activities unrelated to the Macau donation, which served a s the basis for his share redempti o n

. W hat remains of the shareholders’ b road-based d o mination t h e o r y is simply too speculative and insufficiently particulariz ed to satisfy the heig htened pleading

requirements of Rule 23.1. 5

5 W e rej ect th e sh areh o ld ers’ arg u m en t th at th e d istrict co urt co m m i tted

rev ersib le erro r by f

aili n g to id en tif

y th e co rrect leg al stan d ard

. T h e d istrict co urt’ s f

o rm u latio n of th e leg al stan d ard is en tirely co n sistent w i th th e g o v ern in g law th at “ m ere alleg atio n s th at directo rs are f rien d ly w ith

, trav el inth e sam e so cial circles, o r h av e p ast b u sin ess relatio n s h ip s w i th th e p ro po n en t o f a tran sactio n o r th e p erso n th ey are in v estig atin g , are n o t

en o u g h to reb u t th e p resu m p tio n o f i n d ep en den ce.” In re MFW
, 6 7 A .3 d
at 5 0 9

. Mo reo v er, th e d istrict co urt’ s s u b seq u en t an aly sis m ak es clear th at it d id n o t lab or un d er th e m istak en p r e m i s e t h at a n y so cial o r b u sin ess

r e l a t io n sh i p , n o m atter h o w clo se, w o u ld be in s u f f icien t to d isq u alify a d irecto r. Fin ally

, th e sh areh o ld ers rep eated ly assert th at th e district co urt erred b y co n sid erin g th e co m p lain t ’ s alleg atio n s sep arately rath er th an in

co m bin at io n

. W e d isag ree. A s ex p lain ed in m o re d etail ab o v e, th e alleg atio n s lev eled at each d irecto r f ail in div id u ally an d co llectiv ely

. T h e d istrict co urt’ s an aly sis w as n ot u n d u ly p iecem eal.L MPERS V

. W Y N N 21

B

I n addition to argu i n g t h a t demand was futile because a majo r i t y of the b o ard is b eholden to Steve Wy nn, the shareholders argue that demand was f utile because the directors face a substantial likelihood of personal liability for approving the Macau donation

, which, they a lleg e, “caused W y n n Resorts to pursue profit a t t h e ex pense of comply ing with the law.” The parties ag ree that director liability under such circumstances would requir e “intentional misconduct, frau d o r a k n owing violation of law” on the part of the directors. Nev. Rev. Stat. § 78.138(7)(b). The c o m p l aint acknowledg es that Steve W y nn had obtained a leg al opinion blessing the donation, but all e ge s t hat the directors did not request to see the opinion before the vote.

I n a ddition, the shareholders alleg e more g enerally that “Macau has b e en plag ued by political corruption a nd
org aniz ed crime,” a

n d “the W y

nn Resorts board was w ell

aware of [ this] corrupt environment”; that t h e d irectors h ad received F CPA training ; and that the directors knew that

some of the people who would benefit from the Macau donation w e r e the same people w ho were in a position to influence W y

nn’s access to g aming licenses in Macau.

W e ag r ee with the district court that the above alleg ations

are not sufficient to show that the directors face a substantial likelihood o f personal liability f o r a ny wrong doing

. Most importantly

, even assuming that the Macau donation d i d i n fact violate the FC P A
, the alleg ations do not create a reasonable inference that any of the individual dire ct ors i n t e n ded or knew that it would do so, as Nevada law w o u l d require. I ndeed, the complaint’s principal a lleg ation is that the defendants “voted in favor o f t h e donation to theL MPERS V

. W Y N N 22

F oundation without any evidence that this donation was compliant with the law a n d the Company ’s policies.” Even if the complaint can b e re a d to alleg e with particularity that
t he directors were neg lig ent with respect to the Mac a u donation’s leg ality , such would not be sufficient to establish a substantial likelihood of director liabi lity , because Nevada l aw r e quires knowledg e or intent before director liab i l i t y attaches. And the fact that the complaint acknowledg es that the N evada state in v e s t ig a tion terminated without any

e n f o r c e m e n t p r o c e e d i n g s s e v e r e l y u n d e r m i n e s t h e shareholders’ speculation that the directors face a substantial likelihood of liability

. W e therefore reject the shareholders’ the ory that demand is ex cused based on alleg a tions that the directors f

ace a substanti al 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

e ntitled to the business judg ment rule if the O kada redemption is challeng ed in court.

Nevada law provides that “[ d] i r ectors and officers, in deciding upon matters of business, are presume d to act in
g ood faith, on an informed b asis and with a view to the interests of the corporation.” Nev. Rev. Stat. § 78.138(3). T o

overcome such presumption, the sha reholders “must plead particulariz ed facts sufficient to ra i s e ( 1) a reason to doubt that the a ction was taken honestly and i n go o d faith or (2) a

reason to doubt that the board w as adequately inform ed in

m a k i n g the decision.” In re W a lt Disney Co. Derivativ e Litig.
, 825 A .2d 275, 286 (Del. Ch. 2003); see also Shoen

,L MPERS V

. W Y N N 23

1 3 7 P

. 3 d at 1181 (citing Delaware law to define c ontent o f Nevada business judg ment rule).

I n their attempt to overcome the b usiness judg ment rule’s presumption, the shareholders rely on their alleg a tion that the Okada redemption was in bad f ai t h because the decision to convert Okada from an e quity holder to a debt holder could
not have done any

thing to p r o t e ct the company ’ s g aming license if i n d eed O kada was an “unsuitable” shareholder. “[ B ] ecause the redemption could not have p r o t ected the Company ’s g aming licenses,” the shareholders contend, “the redemption had no le gi t imate business purpose and is not protected by

the business judg ment rule.”

The reason this alleg ation fa i l s i s that Nevada law does
treat equity holders and debt holders differently

, and in a way that leaves the corporation’s g aming 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 a n y c l a s s o f voting securities of a publicly traded cor p o r a tion reg istered 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
reg istered w ith the Commission m ay be required to be f ound suitable

. . . .”) (emphasis added). As a consequence, it does
not follow log ically

, and it is n o t reasonable to infer, that the board was acting d ishonestly

, in bad faith, or w it h o u t an informed basis—or o t h e rwise had no leg itimate business purpose—when it voted to convert Okada’s s hares from equity to debt in response to the r eport of former F B I director F reeh.L MPERS V

. W Y N N 24

I V

F inally

, the shareh olders argue that the d istrict court should be reversed because, they c laim, it illicitly considered

m aterials ex traneous to the complaint. The shareholder s specify two s u c h m aterials: a W y nn Prox y Statement the district court alleg edly relied on in rejecting the shareholders’ theory that director J

. Edward Virtue is beholden to Steve W y nn; and an SEC filing (a F o rm 8-K) which the d i s t r i ct court alleg edly relied on in rejecting the shareholders’ theory that the directors face a sub s t antial likelihood of personal liability

.

The Supreme Court has instructed that courts ruling on a motion to dismiss “m ust consider the complaint in its enti rety , as well as other sources courts ordinarily ex amine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated int o t h e complaint b y reference, and matters of which a court m a y t ake judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd.

, 551 U.S. 308, 322 (2007). “[ A ] court m a y n o t take judicial notice of a fact that is ‘subject to reasonable dispute.’” Lee

v. City of Los Angeles

, 250 F .3d 668, 689 (9 t h Cir. 2 001) (quoting F ed. R. E vid. 201(b)); see a lso Mard e r v

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

The defendants requested the district court to take judicial notice of several documents, in cl u d ing the W y n n Prox y Statement a n d t h e SEC F orm 8-K, but the district court declined to do so, reasoning that the requested documents “ all contain information that c ontradict key elements of plaintiffs’ claims in this case.” N evertheless, the sha r eholders object
t h at the district court’s subsequent analy sis d rew on t h e substance of those very

same documents.L MPERS V

. W Y N N 25

A

The shareholders may well b e c orrect that w hen the district court d iscussed V irtu e ’ s independence, it may have had in mind the Prox y Statement showing that directors other than Virtue r e c eived comparable options a wards (as in, valued at around $1 m illion) when they joined the W y nn Resorts board. Nonetheless, we are satisfied that any error on the district c ourt’s part was harmless, because the shareholders failed to raise a reasonable doubt as to Virtue’s independence in any e v ent. I n particular, and as discussed at g reater leng th above, the shareholders made no a lleg ations
sug g esting that the amo u n t of V irtue’s options award was material to him, whether or not such amount wa s ty pical o f other directors. F u rthermore, the dist r ict court’s discussion of V i r t u e’s independence rested on several different f actors which were a

naly tically d istinct and capable of sustaining its conclusion e ven if the information from the Prox y Statement

were ex cluded. As the district c ourt rig htly con c l u d e d, the shareholders’ alleg ations sug g ested little m o re than that “a business ag reement previously e x isted betw e e n [ Virtue a nd Steve W y n n] where both parties could b e n e f i t financially

, ” which “does not sug g est a relationshi p t h a t would indicate Virtue is b eholden to S. Wy nn.” Moreover, the shareholders had the b ur d en to plead particulariz e d facts that at least two of the n on-interested directors was beholden to Steve Wy nn; thus, e ven if we w ere to reject the district court’s conclusion that Virtue is independent, the s hareholders’ beholdenness theory would still fail.

B

W e reach the same conclusion with respect to the district court’s conclusion that the sh a r eh olders had not alleg edL MPERS V

. W Y N N 26

enoug h to sug g est that the directors face a substantial likelihood of personal liability

. The shareholders emphasiz e the d istr i c t c o u r t’s mention of “ [ t] he fact that the SEC a nd GCB d e termined there was no issue with the Macau donation.” The shareholders appear to be rig ht that in say ing the SEC investig ation was closed, the district court must have been referencing the c o n t e n t of the SEC’s F orm 8-K. Nevertheless, we c o n cl u d e this was n ot reversible error for three r easons. F irst, there is no d isp u t e that the district court’s statement is true, meaning t h at this p articular fact could have been judicially n oticed. F e d. R. Evid

. 2 01(b). Second, the d istrict cou r t ’ s r e a soning did not depend on the knowledg e that the SEC had closed its investig ation; instead, the district court offered the independent and a l ternative
g round that “the mere alleg at i o n that [the SEC] is investig ating the Macau donation is not enoug h to rise to the level to impute substantial likelihood o f personal liability on the individually named defendants.” Hence, once a g ain, even i f the district court’s reference to ex trinsic materials we r e

ex c ised, its analy sis would still be sufficient t o u p hold its conclusions. Third, the shareholders’ complaint itself states that the GCB investig a tion had “con c luded its investig ation . . . and found no violations.”

V

F or the foreg oing reasons, th e judg ment o f the district court is

AF F IRMED.