A judge on Wednesday scolded attorneys suing MGM Resorts International and told them to knock off what he suggested were abusive litigation tactics.
At issue Wednesday was a group of suits filed in 2009 by shareholders and bondholders claiming they lost money by investing in Las Vegas-based MGM Resorts’ securities when the value of the securities declined from 2007 to early 2009.
The plaintiffs say their losses resulted from MGM Resorts’ officials making misleading statements and failing to disclose financial problems the company faced at the time, including construction problems at the $8.5 billion CityCenter casino resort complex on the Las Vegas Strip.
MGM Resorts has denied wrongdoing in the lawsuits, saying the stock price fell because of the brutal global recession that resulted in tourism declines to Las Vegas and a freezing of money markets.
The plaintiff securities attorneys were in federal court in Las Vegas on Wednesday claiming that MGM Resorts had concealed from them and the court that potentially important evidence in their case had been lost or destroyed.
This happened in a pending state court lawsuit in which CityCenter builder Perini Building Co. is suing CityCenter over unpaid invoices and CityCenter is pursing claims that the unused 26-story Harmon hotel tower at CityCenter is defective and, as a safety hazard, it will have to be demolished.
In the state court case, CityCenter — half owned by MGM Resorts — informed the judge and other parties in February that the court-approved company storing documents in the massive case had been victimized by an internal theft and that hundreds of boxes of CityCenter-related papers were missing.
An inventory later determined that about 500 of 900 boxes deposited by CityCenter in the repository were missing and that they apparently had been stolen by a repository employee so the papers could be sold for shredding and recycling.
MGM Resorts attorneys say the papers involved the work product of lower-level employees and weren’t crucial in either the CityCenter or securities lawsuits, as the key documents in those cases had been preserved elsewhere.
Nevertheless, attorneys in the securities lawsuit filed a motion May 11 saying they learned of the theft May 8 and asking that they be allowed to conduct discovery — a fact-finding exercise — into the document theft.
They also claimed that an MGM Resorts and CityCenter attorney was aware of the theft in February but had concealed that information from the federal court and the shareholders’ attorneys.
During Wednesday’s hearing, U.S. Magistrate Judge Cam Ferenbach criticized the shareholders’ attorneys for claiming the document theft had been concealed from the court as the theft was common knowledge in the legal community and had been the subject of a March 2 story by the Las Vegas Review-Journal.
“The court’s very troubled by the accusations of concealment,” the judge said.
“This (hearing) didn’t have to happen. Everyone knew this had happened in state court,” Ferenbach told the plaintiffs’ attorneys. “Be aware there are serious sanctions for abusive litigation practices.”
Ferenbach said he was disappointed two shareholders’ attorneys important to the case, local counsel Ross Goodman in Las Vegas and one of the lead attorneys, Ramzi Abadou in San Francisco, didn’t attend the hearing.
The judge said he wanted to question Goodman about what he knew about the document destruction and the discovery motion, which was filed by Abadou.
The document destruction wasn’t mentioned in a routine request for a status conference filed by the plaintiffs’ attorneys April 17, well after the issue had been aired publicly in the state case.
“Much of this hearing today and all this time spent by the court could have been prevented if plaintiffs’ lead counsel consulted regularly with liaison counsel, particularly Mr. Goodman,” Ferenbach told the securities plaintiffs’ attorneys at the hearing. “Our local rules require participation by local counsel, and in the future you’re going to ignore those requirements to your peril.”
“I know Mr. Goodman knows what’s going on in the state court — that’s one of the reasons local counsel are appointed, so they know what’s going on in the courts of our community,” the judge said.
“There’s no doubt in my mind that Mr. Goodman knew exactly what had happened in the Perini litigation,” Ferenbach said.
Goodman couldn’t immediately be reached for comment on whether he knew about the document destruction and whether he had communicated that information to the other attorneys in the securities lawsuit around the country.
In the end, Ferenbach denied the plaintiffs’ motion that they be allowed to conduct discovery of the document-destruction issue, saying there’s nothing on the record to suggest that MGM Resorts hasn’t complied with its document-retention duties.
The parties will now wait for U.S. District Judge Gloria Navarro to rule on MGM Resorts’ motion that the plaintiffs’ amended securities lawsuit be dismissed. If she refuses to dismiss the suit, discovery may get under way on the plaintiffs’ claims after a nearly three-year delay.
Discovery in these cases isn’t allowed until dismissal motions are decided. That way, companies being sued are protected from “fishing expeditions” and aren’t coerced into settling frivolous suits by the prospect of spending money on expense litigation procedures, Ferenbach said.
MGM Resorts’ attorneys say that their client’s role in the CityCenter document theft is that of a victim of a bizarre crime in which some 1,000 boxes of documents from various lawsuits were sold to a recycler for about $1,000.
Finally, Ferenbach told both sides Wednesday to refrain from personal attacks on opposing counsel that he had detected in their briefs.
“Writing like that does not help this court understand the issues that it has to decide, the facts that apply or the law. It’s unprofessional and you should stop doing it,” he said.