Wynn Resorts, Ltd. v. Eighth Judicial Dist. Court of Nev.

• Decision Date: 27 July 2017
• Docket Number: No. 70452,No. 70050,70050
• Parties: WYNN RESORTS, LIMITED, Petitioner, v. The EIGHTH JUDICIAL DISTRICT COURT of the State of Nevada, IN AND FOR the COUNTY OF CLARK; and the Honorable Elizabeth Goff Gonzalez, District Judge, Respondents, and Kazuo Okada; Universal Entertainment Corp. ; and Aruze USA, Inc., Real Parties in Interest. Wynn Resorts, Limited, Petitioner, v. The Eighth Judicial District Court of the State of Nevada, in and for the County of Clark; and the Honorable Elizabeth Goff Gonzalez, District Judge, Respondents, and Kazuo Okada; Universal Entertainment Corp. ; and Aruze USA, Inc., Real Parties in Interest.
• Court: Nevada Supreme Court

399 P.3d 334

WYNN RESORTS, LIMITED, Petitioner,

v.The EIGHTH JUDICIAL DISTRICT COURT of the State of Nevada, IN AND FOR the COUNTY OF CLARK; and the Honorable Elizabeth Goff Gonzalez, District Judge, Respondents,andKazuo Okada; Universal Entertainment Corp. ; and Aruze USA, Inc., Real Parties in Interest.

Wynn Resorts, Limited, Petitioner,

v.The Eighth Judicial District Court of the State of Nevada, in and for the County of Clark; and the Honorable Elizabeth Goff Gonzalez, District Judge, Respondents,andKazuo Okada; Universal Entertainment Corp. ; and Aruze USA, Inc., Real Parties in Interest.

No. 70050

No. 70452

Supreme Court of Nevada.

FILED JULY 27, 2017

Pisanelli Bice, PLLC, and Todd L. Bice, James J. Pisanelli, and Debra L. Spinelli, Las Vegas; Wachtell, Lipton, Rosen & Katz and Paul K. Rowe and Bradley R. Wilson, New York, New York; Glaser Weil Fink Howard Avchen & Shapiro, LLP, and Robert L. Shapiro, Los Angeles, California, for Petitioner.

Morris Law Group and Steve L. Morris and Rosa Solis–Rainey, Las Vegas; Holland & Hart LLP and J. Stephen Peek, Bryce K. Kunimoto, and Robert J. Cassity, Las Vegas; Buckley Sandler LLP, and David S. Krakoff, Benjamin B. Klubes, and Adam Miller, Washington, D.C., for Real Parties in Interest.

BEFORE THE COURT EN BANC.¹

By the Court, HARDESTY, J.:

OPINION

In these related original petitions for extraordinary writ relief arising from the same underlying district court action, we consider whether documents otherwise protected by the attorney-client privilege must be disclosed when the business judgment rule is asserted as a defense and under what circumstances a document may be protected by the work-product privilege even if it is at issue in the litigation. In Docket No. 70050, we conclude that the district court erred when it compelled petitioner Wynn Resorts, Limited, to produce certain documents from its attorneys with the law firm Brownstein Hyatt Farber Schreck, LLP (Brownstein Hyatt) based solely on Wynn Resorts' assertion of the business judgment rule as a defense. Therefore, we grant Wynn Resorts' petition for writ relief in Docket No. 70050.

In Docket No. 70452, we agree with the district court that Wynn Resorts waived the attorney-client privilege by placing a report (the Freeh Report) at issue in the initial litigation. However, the work-product privilege may apply to some of the documents compiled in the preparation of the Freeh Report. We take this opportunity to join the majority of jurisdictions that utilize a "because of" test with a "totality of the circumstances" standard for determining whether work was done "in anticipation of litigation." As such, we grant in part Wynn Resorts' petition for writ relief in Docket No. 70452 and direct the district court to apply the "because of" test to determine whether the work-product privilege applies to the documents underlying the Freeh Report.

FACTS AND PROCEDURAL HISTORY

Real party in interest Kazuo Okada owned approximately half of Wynn Resorts' stock through Aruze USA, Inc., of which he is the principal. Okada also served on Wynn Resorts' board of directors (the Board). Wynn Resorts alleges in the underlying litigation that it developed concerns about the suitability of Aruze, Okada, and Aruze's parent corporation, Universal Entertainment Corp. (collectively, the "Okada Parties"), as shareholders of Wynn Resorts after Okada began developing a casino resort in the Philippines. In particular, the Board asserts that it believed that Aruze's continued ownership of its stock could put Wynn Resorts' gaming licenses at risk.

The Board conducted an investigation over several years into the business climate in the Philippines and Okada's involvement there. The Board alleges it ultimately determined that any involvement by Okada in the Philippines was ill advised; however, Okada advised the Board that he was proceeding with his project in the Philippines.

Wynn retains the Freeh Group

The Board hired former federal judge and FBI director Louis J. Freeh and his firm (the Freeh Group) to investigate and report on Okada's business in the Philippines. The Freeh Group's letter of engagement indicates that the Freeh Group was hired as legal counsel to investigate Okada and present its findings to the Board in order to determine if Okada's activities violated Wynn Resorts' policies and potentially placed Wynn Resorts' gaming licenses in jeopardy.

The Freeh Group's investigation resulted in the 47–page Freeh Report, which included allegations of misconduct by Okada in the development of his Philippines project. The Freeh Group presented its findings to the Board, providing all directors other than Okada with a copy of the Freeh Report. The Board also received advice from two law firms, including Brownstein Hyatt, regarding the contents of the Freeh Report and the Okada Parties' potential suitability issues.

The Board ultimately adopted resolutions finding the Okada Parties to be "[u]nsuitable persons" under Wynn Resorts' Articles of Incorporation, Article VII, § 1(l )(iii). It thereafter exercised its "sole discretion" and redeemed Aruze's Wynn Resorts stock, pursuant to Article VII, § 2(a) of its Articles of Incorporation, in exchange for a promissory note with a principal value of $1.9 billion, which the Okada Parties allege is only a fraction of the value of the redeemed stock.

The next day, Wynn Resorts filed a complaint against the Okada Parties for declaratory relief, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. The complaint stated that the Board relied on the Freeh Report and the advice of its gaming attorneys in redeeming Aruze's shares. The Freeh Report was also attached to the complaint. The Okada Parties filed counterclaims seeking declaratory relief and a permanent injunction rescinding the redemption of the stock, and alleging claims for breach of contract, breach of Wynn Resorts' articles of incorporation, and various other tort-based causes of action.

Wynn Resorts filed notice of its lawsuit with the Securities and Exchange Commission, and attached a copy of the Freeh Report. Wynn Resorts also allegedly provided a copy of the Freeh Report to the Wall Street Journal.

Motion to compel: Brownstein Hyatt documents (Docket No. 70050)

In March 2016, the Okada Parties filed a motion to compel Wynn Resorts to produce documents Brownstein Hyatt generated in the course of developing and rendering its advice to the Board. The Okada Parties argued that Wynn Resorts had waived the attorney-client privilege and the attorney-work-product protection, claiming that Wynn Resorts placed Brownstein Hyatt's advice at-issue in the litigation. Wynn Resorts contended that merely stating that the directors sought and received legal advice prior to making their business decision did not place the substance of the legal advice at issue.

The district court granted the Okada Parties' motion to compel, stating that because Wynn Resorts asserted the business judgment rule as a defense,² Wynn Resorts put the attorneys' advice at issue, and accordingly ordered Wynn Resorts to produce all documents that Brownstein Hyatt provided for the Board's use in considering Okada's suitability and the possible redemption of shares.³

Motions to compel: Freeh Report documents (Docket No. 70452)

In September 2015, the Okada Parties filed a motion to compel Wynn Resorts to produce evidence and documents underlying the Freeh Report. Wynn Resorts had previously responded to the Okada Parties' requests for the documents on which the Freeh Report was based with a privilege log listing approximately 6,000 documents that it withheld or redacted on the basis of the attorney-client privilege or work-product doctrine. The Okada Parties argued that the Freeh Group's work was not protected by either the attorney-client privilege or work-product doctrine because Wynn Resorts attached the Freeh Report to its complaint and provided it to a newspaper to broadcast its accusations against Okada.

The district court granted, in part, the Okada Parties' motion to compel the Freeh Report documents. The district court found that some of the documents may be protected under the attorney-client privilege, but that because the Freeh Report documents were not prepared in anticipation of litigation, the work-product doctrine did not apply. The district court also noted that when Wynn Resorts attached the Freeh Report and its appendices to the complaint, it was not a wholesale waiver of privilege. The district court then ordered that Wynn Resorts had 15 days to supplement the privilege log in accordance with the court's findings.

In January 2016, the Okada Parties filed a second motion to compel Wynn Resorts to produce the Freeh Report documents. The Okada Parties argued that Wynn Resorts was withholding documents in violation of the district court's prior order, and that those documents were not privileged due to either waiver of the attorney-client privilege or at-issue waiver. After conducting an in camera review of approximately 25 percent of the documents, the district court granted the Okada Parties' second motion to compel in part, ordering that because the work was not done in anticipation of litigation, the work-product doctrine did not apply to any Freeh Report documents created prior to February 22, 2012 (the date when preparation of the appendices to the Freeh Report was completed), and that Wynn Resorts waived any attorney-client privilege of the documents by public disclosure of the Freeh Report and under the at-issue waiver doctrine.

DISCUSSION

In these petitions seeking writs of prohibition or mandamus, Wynn Resorts argues that the district court erred in granting, in part, the Okada Parties' motion to compel the production of the Brownstein Hyatt documents (Docket No. 70050), and by granting, in part, the Okada Parties' motion to compel the production of the Freeh Report documents (Docket No. 70452). As part of this argument, Wynn Resorts contends that the...