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Good Faith and Synnful Behavior: California Association of Underpaid College Professors
Pension Fund (on its own behalf and on behalf of Synn Resorts Limited) v. Steve Synn and the
Board of Directors of Synn Resorts Limited.
This exercise provides you with the opportunity to demonstrate your ability to identify and analyze the
balance between the core duties and responsibilities that bear on a corporate director’s performance and
the principal legal shield that may insulate the director from liability for alleged breaches of these core
Our hypothetical scenario is a thinly-veiled adaptation of our favorite, currently unfolding corporate soap
opera: the saga of Steve Wynn and his Wynn Resorts Limited. The scenario for our exercise involves the
fictional Steve Synn and the gambling giant he founded and, until recently, commanded as Chief
Executive Officer and Chairman of the Board of Directors, Synn Resorts Limited (“Synn Resorts” or
Among the Company’s institutional investors is the California Association of Underpaid College
Professors Pension Fund (the “Pension Fund”). The Pension Fund has filed a lawsuit, in a California
court, known as a “derivative” suit, by which shareholders may assert legal claims on behalf of the
company itself, often against members of the company board and/or executive management (who, after
all, would not be expected to bring such a lawsuit against themselves). For the purpose of this exercise,
assume that the Company is a California corporation and that California law is the governing law of the
The opening paragraph of the lawsuit, provided below, summarizes nicely the main factual assertions
advanced by the plaintiff shareholders.
“This action asserts derivative claims on behalf of Synn Resorts Limited (“Synn Resorts” or “Company”) to
redress the injury and losses sustained by the Company as a result of egregious breaches of fiduciary duty,
abuses of fiduciary power and violations of law involving the Company committed by the Company’s
founder, Chairman and Chief Executive Officer, Stephen Synn (“Mr. Synn”), and breaches of fiduciary duty
by the Company’s Board of Directors. As alleged more particularly herein, Mr. Synn engaged in a pervasive
pattern of egregious misconduct involving the Company in his positions of leadership, and the Company’s
Board of Directors turned a blind eye and continued to: endorse Mr. Synn’s leadership of the Company and
Mr. Synn’s continued positions as director, Chairman of the Board and Chief Executive Officer and
suitability as a gaming operator; pay extraordinary lavish compensation and benefits to Mr. Synn; assure
the stockholders that the Company’s risk, compliance and governance controls were extensive and
effective to detect, prevent and remedy such misconduct, in seeking votes in favor of their continuation as
directors; and expose the Company to existential jeopardy in its business and licensing, which are
fundamentally important to the Company’s existence and value. Mr. Synn’s reported decades of sustained
egregious misconduct involving the Company in his position and the Board’s intentional disregard of the
misconduct, as alleged herein, has caused substantial losses and injury to the Company, the value of the
business and expansion projects and the continued operation and licensure of the Company’s core
business. The actions and inactions by Defendants alleged herein constitute knowing and intentional
breaches of their fiduciary duties as Directors and/or Officers of the Company and involved intentional
misconduct, fraud or a knowing violation of law, for which Defendants are liable personally to the Company.
Further, the compensation and benefits paid to Mr. Synn and the directors during their fiduciary misconduct
unjustly enriched them at the expense of the Company.”
The final section of a legal complaint is often referred to as a “Prayer for Relief.” This part specifies what it
is that the plaintiff is asking the court to do. The Plaintiff’s Prayer for Relief in the Synn case is provided
below and it highlights what is at stake for the Defendants; potential personal liability for the loss in the
Company’s value caused by the revelations of Mr. Synn’s behavior, which the Defendants failed to
prevent – a sum that could amount to billions of dollars.
“Based on the foregoing, Plaintiff prays that the Court rule as follows:
1. Find that Stephen A. Synn knowingly and intentionally breached his fiduciary duties as an officer
and director;
2. Find that the other members of the Board (Sleepy, Geezer, Scrooge, Nimrod, Dopey, Dufus,
Hopeless, Clueless and Careless) have knowingly and intentionally breached their fiduciary
duties to Synn Resorts;
3. Find against all Defendants and in favor of the Company for the amount of any and all damages
sustained by the Company and unjust profits obtained from the Company as a result of
Defendants’ breaches of fiduciary duty in the maximum amount allowed by law;
4. Find against all Defendants and in favor of the Company for all relief and compensation as
permitted by law, including compensation to the Company for the diminution of the value of the
Company caused by Defendants;
5. Direct the Company to take all necessary actions to reform and improve its internal controls and
Board oversight concerning sexual harassment;
6. Award Plaintiff the cost and disbursements of this action, including reasonable attorneys’ and
expert’s fees; and
7. Granting such other and further relief and compensation as the Court deems just and proper.”
Exercise Directions: In no less than three pages explain whether California’s Business Judgment Rule is
likely to shield our Defendants (Synn, Sleepy, Geezer, Scrooge, Nimrod, Dopey, Dufus, Hopeless,
Clueless and Careless) from liability for breaches of their duties of loyalty and care.
The source of California’s Business Judgment Rule is California Corporations Code section 309, which is
replicated on slide 27 of our Corporate Governance – Introduction powerpoint. Courts generally will not
intervene in corporate decisions if the decision-makers acted in good faith and with the reasonable belief
that their actions were in the corporation’s best interest. Put another way, California law applies a
presumption that directors’ decisions are based on sound business judgment. Thus, shareholders
claiming a breach of the duties of loyalty or care have the burden of overcoming this presumption.
Therefore, this exercise compels you to rely on facts (as alleged by the Plaintiff) that demonstrate that
such a presumption isn’t warranted in this case.
Provided in the following pages are various facts as alleged by the Plaintiff concerning the behavior of the
Defendants that you may find useful in your analysis.
Your analysis is due by March 10 via the Turnitin app on our Model page. Enjoy.
1. Mr. Synn’s 11.8% of the stock of the Company had a market value of approximately $2.4 billion
as of January 25, 2018. Mr. Synn is considered by some as integral to the Company’s success.
Mr. Synn is so ingrained into the identity of the Company that his signature is the Company’s
logo. In a recent securities filing citing possible risks to the business, the Company said, “If we
lose the services of Mr. Synn, or he is unable to devote sufficient attention to our operation for
any reason, our business may be significantly impaired.”
2. In a court filing in May 2017, Elaine Synn (Mr. Synn’s former wife) said, “The Synn Board may be
the most compliant board of any major public company…In only three instances in the history of
the Company has a director voted against Mr. Synn’s position on any issue.”
3. The Board has previously come under fire for its weak corporate governance and deference to
Mr. Synn. Specifically, the Board has been criticized for overpaying Mr. Synn and other
executives while allowing perks such as corporate jets and a land deal between the Company
and Synn. In 2013, the New York Times reported that Mr. Synn had enjoyed more than a million
dollars’ worth of personal travel in 2012 on the Company’s private jet.
4. In 2015 and 2016, Institutional Shareholder Services, Inc. (“ISS”), a shareholder advisory firm,
recommended withholding votes to re-elect members of the Board’s Compensation Committee.
ISS cited Mr. Synn’s sizable pay packages compared with other CEOs and a severance
agreement equating to $330 million that “exceeds the upper parameter of acceptable amounts,”
according to a report from ISS last year.
5. Glass Lewis & Co, another advisory firm, also recommended that shareholders vote against the
Company’s compensation package, citing “poor overall design” and “performance disconnect.” In
fact, Glass Lewis gave the Company an “F” for its pay-for-performance practices for the last two
6. In 2017, ISS gave Synn Resorts its worst ranking for governance risk.
7. Shareholder advisory firms Vanguard Group and Blackrock Inc. also point to a lack of current
corporate experience on the board. In addition to Defendant Geezer, a former head of a regional
water authority, the Synn Resorts Board includes a former Nevada Governor, a former U.S.
ambassador to China, the retired heads of three big businesses and three heads of smaller firms.
Defendant Careless, the lead independent director, has never worked for a business, according
to his Synn Resorts biography.
8. On January 26, 2018, the Wall Street Journal published a report (“WSJ Report”) setting forth
accounts of former employees of Mr. Synn describing a decades long pattern of sexual
misconduct with Company employees by Mr. Synn. The Wall Street Journal reportedly contacted
more than 150 people who work or had worked with Mr. Synn. Most of those who spoke with the
Journal stated they worried that doing so could hurt their future employment options because of
Mr. Synn’s influence in the casino industry.
9. Among other allegations, the WSJ Report stated that in 2005, a manicurist who worked at Synn
Las Vegas was forced by Mr. Synn to have sex with Mr. Synn after giving him a manicure in his
office suite. According to the WSJ Report, Mr. Synn repeatedly pressured the manicurist to take
her clothes off and lie on a massage table, despite the manicurist’s protests that she did not want
to have sex and was married, and Mr. Synn persisted in his demands.
10. According to the WSJ Report, following the encounter, the manicurist returned to the on-site
salon visibly distressed and informed her supervisor of what occurred, and the supervisor filed a
detailed report to the Company’s human-resources department recounting the episode. The salon
manager said she got a call from a Company executive castigating her for submitting the filing to
HR. The former manager said no one followed up with her about the matter. The manicurist soon
left the Company and Synn ultimately paid her a $7.5 million settlement. The Las Vegas ReviewJournal reported that the $7.5 million settlement involved a paternity claim by the manicurist.
11. Allegations of such egregious fiduciary misconduct by the Company’s Chairman and CEO
involving the Company could not be ignored without an investigation by fiduciaries acting in good
faith based on any proper rational business purpose. The Synn Board knowingly failed to
investigate the credible allegations and continued to support Mr. Synn’s positions of leadership,
compensation and suitability as a gaming operator. The Las Vegas Review- Journal also reported
that Elaine Synn learned of the incident in 2009 while preparing documents for her divorce filing.
Elaine Synn then spoke with two company officials who already had knowledge of the allegations
and shared the information with about the conversations with her divorce lawyers. Likewise, the
WSJ Report stated that Elaine Synn raised the issue internally when she learned of it. A CNBC
article reported that Elaine Synn brought it to the attention of a representative of the Board
immediately after learning about it. Ms. Synn herself was a member of the Board in 2009.
12. In addition, the allegations of egregious misconduct by Mr. Synn involving the Company were
referenced in the lawsuit in which Elaine Synn sought to lift restrictions on the sale of her stock in
Synn Resorts. In the lawsuit between the Synns, Ms. Synn cited a “multimillion dollar payment”
made by Mr. Synn following allegations he had engaged in “serious misconduct” on company
property against an employee. A filing said Ms. Synn had learned of the settlement in 2009. The
amended complaint in the litigation alleges that Sinatra, the Company’s General Counsel, knew
about the settlement. Elaine Synn’s attorneys have argued that in making the settlement in 2005
without telling the Board, Mr. Synn recklessly exposed the Company and other directors to
liability. The Board, however, eventually learned of the allegations of egregious misconduct
involving the Company. Ms. Synn’s lawsuit also accuses Mr. Synn of using the Company “to fund
his lavish lifestyle and personal politics” and displaying “reckless risk-taking behavior” that places
the Company in jeopardy and has exposed it to legal challenges. Thus, regardless of whether Mr.
Synn initially concealed the settlement and allegations of egregious misconduct involving the
Company, the Board knew of the settlement and allegations of patently egregious misconduct
involving the Company by at least 2015 and failed to act and continued to support and
recommend to the stockholders Mr. Synn’s continued leadership and compensation. The Board
knowingly failed to investigate the allegations of patently egregious misconduct by the Chairman
and CEO and Mr. Synn’s suitability for his fiduciary positions and regulatory compliance and his
suitability as a gaming operator. Knowing failure to act by the Board on the allegations of such
egregious misconduct involving the Company constituted a knowing and intentional violation of its
fiduciary duties to the Company for which the Director Defendants are liable.
13. Former employees reported that they have resorted to entering fake appointments in the books to
help other female workers get around a request for services in Mr. Synn’s office or arranged for
others to pose as assistants so they wouldn’t be alone with him. They told of female employees
hiding in the bathroom or back rooms when they learned he was on the way to the salon.
“Everybody was petrified,” said a former artistic director at the salon, who also reported that he
and others repeatedly told high-level company executives Mr. Synn’s sexual advances were
causing a problem, but “nobody was there to help us.”
14. Mr. Synn’s conduct and repeated pattern of sexual harassment was pervasive and well known.
As alleged above, the Board of Directors knew the allegations of egregious misconduct as a
result of Elaine Synn, then a Company Board member, learning of the misconduct in 2009 and
alerting a representative of the Board regarding the 2005 $7.5 million settlement. In addition, Mr.
Synn’s conduct was referenced in the lawsuit filed by Elaine Synn that the Board cited as the
reason for removing her from the Board. Moreover, numerous former employees have stated that
they reported the sexual misconduct to management of Synn Resorts. In fact, a Company
spokesman confirmed that the Board knew of allegations and when questioned whether the
Board investigated the allegations when it learned of them, did not respond to the question. In
addition, Company counsel stated that the Company intentionally did not disclose the $7.5 million
settlement to Massachusetts gaming regulators in the licensing process which is continuing for
the Synn Boston Harbor. The Board knowingly turned a blind eye to allegations of patently
egregious misconduct by Mr. Synn involving the Company, taking no action to protect the
Company and its suitability for regulatory compliance and to discharge the directors’ known
fiduciary duties to the Company to do otherwise until the WSJ Report shed light to the public, and
even then the Board is merely conducting an internal investigation. Additionally, the Board
continued to approve of licensing applications to gambling authorities that omitted Synn’s conduct
as the Board continued to take no action to investigate the allegations of egregious misconduct
involving the Company.
15. In the wake of the WSJ Report, the Board, saying it is “deeply committed to ensuring the safety
and wellbeing” of all employees reportedly formed a special committee comprised of allegedly
independent directors to investigate the allegations. An independent Board acting in good faith to
protect the Company would have engaged a truly independent investigation. Defendant Nimrod
will serve as chair of the special committee. Defendants Dufus and Clueless will also serve on the
special committee. The creation of a special committee in response to the WSJ Report evidences
that the Synn Board has not previously investigated allegations of Mr. Synn’s patently egregious
misconduct involving the Company and knowingly turned a blind-eye as the directors and Mr.
Synn continued to reap substantial compensation and benefits at the Company’s expense and
the Company continued with a cancerous existential threat from its Chairman and CEO.
16. As detailed below, Defendants’ knowing and intentional breaches of duty have caused significant
losses and harm to date, with the potential for more.
17. Shares of Synn Resorts fell 10% on January 26, 2018, the day the WSJ Report was released. On
the following Monday, shares fell an additional 9.3%.
18. On January 30, 2018, Standard Poor’s Global Rating revised its outlook for Synn Resorts to
“negative” from “stable.” The ratings downgrade reflected the “Significant uncertainty” over the
resolution of the various investigations into Synn’s misconduct discussed below. The ratings
agency further stated that the misconduct allegations “could impair the Company’s brand and
ability to maintain or review its gaming licenses.”
19. Joseph Genius, an analyst with J.P. Morgan, projected shares could drop to around the $150
level before the fallout is over. “Steve’s name is on each one of his resorts in Las Vegas and
Macau and therefore they are potentially susceptible to downward swings in patronage,” Greff
said in his report. “Such allegations (in the Journal article) can’t be helpful to Synn in competitive
integrated resort license and development globally, such as in Japan, or in gaming license
renewals in Macau and Nevada.”
20. The WSJ Report has already triggered investigating by gaming regulators in Nevada,
Massachusetts and Macau.
21. On January 30, 2018, after a preliminary review of the accusations against Mr. Synn, the Nevada
gambling regulators opened a formal investigation into the sexual-misconduct allegations.
“Nevada regulators have a broad range of options when it comes to potential disciplining of a
licensee,” Don Corleone, former chairman of the Nevada Gaming Control Board, the state’s main
regulatory body, stated. “These include things like complaints, fines, and even Gaming regulators
in Massachusetts, where Synn Resorts is building a $2.4 billion property on Boston Harbor, are
also investigating the allegations. Massachusetts gambling commissioners met on January 31,
2018 to discuss the allegations against Mr. Synn. Synn Resorts was granted a license based on a
2011 state law which required the gambling commission to consider the “integrity, honesty, good
character and reputation of the applicant” when considering bids for a gambling license. The law
also notes that licensees “shall have a continuing duty to maintain their integrity and financial
stabil …
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