Business Judgments And Privilege Waivers

The Nevada Supreme Court considered the interrelationship between the business judgment rule and assertions of attorney-client privilege

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.

The case

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…

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(/)(iii)…

Litigation ensued.

As to the Freeh report, the court concluded

Wynn Resorts disclosed the Freeh Report by voluntarily and intentionally placing protected information into the litigation. Wynn Resorts voluntarily filed its complaint, seeking to have the court affirm its business decision and, in doing so, attached a copy of the Freeh Report. Like the disclosed presentation in In re OM, the disclosed Freeh Report describes the reason for the investigation, directly quotes concerns and observations, summarizes the content of emails from identified individuals, identifies persons interviewed, and sets forth investigative results. Further, not only did Wynn Resorts provide this specific information to the court and regulatory agency, but, like in In re OM, the disclosure led to a public announcement when Wynn Resorts allegedly disclosed the Freeh Report to the press.

Therefore, we conclude that the district court did not err in finding that Wynn Resorts waived the attorney-client privilege in regard to the Freeh Report and the documentation compiled in the preparation of the Report. However, disclosure of some of the underlying Freeh Report documents may be protected by the work-product privilege. 

The two decisions in Wynn Resorts Ltd. v. District Court (Okada) should be found here.

There has been extensive coverage of the Wynn- Okada dispute. This article by David McKee is called Wynn v. Okada: Payback Time.  More here from the Las Vegas Review-Journal. The Review-Journal also covered the role of the former Mrs . Wynn. 

Nasdaq.com recently reported that Mr. Okada;s attorney withdrew from the representation. (Mike Frisch)