Court Opinion

ID: 4016808
Source: CourtListenerOpinion
Date Created: 2016-07-18 17:01:06.303184+00
Date Added: 2024-06-11T13:38:43.126164
License: Public Domain

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.