Going on the Defensive

On Oct. 1, 2017, Stephen Paddock shot and killed 58 people and injured approximately 500 others attending the Route 91 Harvest Festival in Las Vegas, Nevada. On July 13, 2018, several MGM entities, which owned the concert venue and hotel from where the shooting took place, took a unique position by filing a declaratory judgment action in federal court, asking the court to determine if MGM could be held liable for the 2,500 filed or threatened lawsuits against it since the mass shooting. This is the first lawsuit of its kind and, if successful, it will have a significant impact on the retail and hospitality industry, including how it handles large events and how it defends against mass shootings.

The Declaratory Judgment Action

The declaratory judgment action, MGM Resorts Int’l, et al. v. Acosta, et al. (Court No. 18-cv-1288), was filed in the U.S. District Court of Nevada. It names as defendants approximately 245 people who have filed or threatened to file lawsuits against the MGM entities for personal injuries sustained in the mass shooting. The declaratory judgment is based on the Support Anti-Terrorism by Fostering Effective Technologies Act of 2002, §§ 441-444 (SAFETY Act), which was passed after the 9/11 attacks. The act is intended to shield specially certified security services and manufacturers from liability if they fail to prevent a terrorist attack. The companies must be certified by the Department of Homeland Security (DHS) to be protected under the SAFETY Act.

According to the declaratory judgment, the act creates a federal cause of action for claims arising out of or relating to an act of mass violence and gives the federal court exclusive jurisdiction over such claims. Most importantly, the act also only allows the cause of action to be brought against the “seller” of the qualified anti-terrorism technology; not the buyers, downstream users, or seller’s suppliers. In other words, under the theory provided in the declaratory judgment, only the seller of the security services—which, in this case, is Contemporary Services Corp. (CSC)—could be sued under the act for the injuries related to the mass shooting.

Based on the personal injury lawsuits that have been filed to date, MGM argues that the lawsuits implicate the security services provided by CSC because they allege negligence as to the security provided at the concert, including training, emergency response, evacuation, and adequacy of egress. MGM asserts such claims are subject to the SAFETY Act because they arise from and relate to an act of mass violence; CSC provided security at the concert, deploying services certified by the DHS under the SAFETY Act to protect against or respond to such an attack; and the claims may result in a loss to CSC as the seller of the certified services.

The declaratory judgment next argues that the SAFETY Act applies because the claims are “arising out of, relating to, or resulting from an act of terrorism.” According to the complaint, an act meets the requirements of terrorism under the SAFETY Act if it is (i) “unlawful” (ii) “causes harm to a person…in the United States,” and (iii) “uses or attempts to use…weapons…designed or intended to cause mass…injury.” 6 U.S.C. § 444(2)(B). The complaint asserts that there is no requirement in the statute or regulations of an ideological motive or objective for the attack for it to meet the requirements of the SAFETY Act and be considered an act of terrorism, and the DHS is not required to formally certify the incident as an act of terrorism for it to be such an act. Even so, the complaint asserts that the DHS has made public statements inferring the attack meets the requirements of the SAFETY Act.

In conclusion, the complaint asks the court for a judicial declaration as to whether the defendants’ claims arising from the Paddock attack are subject to and governed by the SAFETY Act; whether the SAFETY Act precludes any finding of liability against the plaintiffs for any claim of injuries arising out of or related to Paddock’s attack, without prejudice to defendants’ rights to pursue claims against the “seller” under the SAFETY Act, including to obtain proceeds of insurance that any such seller was required by the SAFETY Act to maintain; and whether plaintiffs have no liability of any kind to defendants, or any of them, arising from Paddock’s mass attack.

Reputation Risk

From a legal defense perspective, all avenues of the law for MGM should be explored just as plaintiffs’ attorneys exercise that same due diligence. In essence, it is a request to decide the magnitude of MGM’s defense. While the preemptive declaratory judgment is what a solid defense team should explore, it has to be weighed with the potential public view of the corporation. From a reputation standpoint, it has the potential downside risk of outcry from the public as well as from the plaintiffs and their families. The media is also an integral part of moving the reputation response needle as it relates to the shooting investigation and the legal exercise of MGM’s defense.

Reputation risk, in its truest sense, is the threat to the profitability or sustainability of a business that is caused by unfavorable public perception of the organization, its actions, products, or services. In June 2015, MGM Resorts International was named as one of America’s most reputable companies in the hospitality and travel industry, according to findings of research by Reputation Institute, a leading global source on corporate reputation. So MGM’s reputation was strong up until and around the date of the shooting.

From the financial reputational perspective and profitability, MGM Resorts stock fell less than four percent after the shooting at Mandalay Bay, but rebounded in January 2018 to a high of over $37 per share price. At press, it is now at the post-shooting event share price of between $31-$32 per share. In addition, no major institutional investor in MGM Resorts has left due to the shooting. This includes but is not limited to Vanguard, BlackRock, and TRowe Price. Thus, the financial reputation risk following the shooting and the announcement of the declaratory judgment action has not had an adverse effect on MGM’s profitability overall.

Following the shooting, MGM brought in crisis management and public relations firm Joele Frank to assist in responding to questions from the media and investors regarding the investigation into the shooting. Following the tragic event, MGM ran a 30-second television spot set to a version of “This Little Light of Mine” sung by Odetta. The ad closes with the hashtag #VegasStrong. (This was after MGM pulled marketing ads with the bylines “Together We Shine,” and “Together We Rise,” which were not well received in social media and construed as being too festive.) Even the #VegasStrong spot received some criticism. There was an increased security presence not just at Mandalay Bay, but at many of Las Vegas’ iconic hotels and casinos. From a reputation response, MGM was taking the initiative to begin the crisis management response.

However, mere minutes after July’s declaratory judgment action filing by MGM, the hashtag #BoycottMGMResorts appeared on Twitter. This social media response was established to encourage visitors and customers to not patronize the largest casino owner on the Las Vegas Strip or its other properties across the U.S. MGM has not reported a discernable decrease in bookings, reservations, or an increase in cancellations, however.

It can only be assumed that reputation risk had to be weighed carefully by MGM prior to going forward with the declaratory judgment action. Those involved in the decision-making process could have included MGM’s board of directors, the CEO, inside public relations and communications leaders, the outside crisis management team, the insurance carriers’ claims defense teams, and other outside professionals brought in to form the crisis response team. It was a weighty decision and, from the legal side, it was a pre-emptive move. From the reputation risk side, the question is, “Will it have an adverse effect on MGM?” Time will tell.

The Mandalay Bay active shooter case outcome will have wide implications on the retail, hospitality, and the entertainment industries and is not likely to be fully resolved for some time. It would not be surprising if it reached the highest court. The legal and reputation risks associated with this litigation and defense make it a case to watch going forward.