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From Antitrust Law Daily, May 26, 2016

Class certified in wage suppression antitrust suit against DreamWorks, Disney

By Greg Hammond, J.D.

Former employees of various animation studios have obtained class certification in an action alleging that the studios conspired to suppress employee compensation to artificially low levels by agreeing to refrain from soliciting each other’s employees and by exchanging employee compensation information. The federal district court in San Jose concluded that the former employees met the requirements of Federal Rule of Civil Procedure 23(a) and that questions common to the class are likely to predominate over any individual questions (Nitsch v. DreamWorks Animation SKG Inc., May 25, 2016, Koh, L.).

Former employees of Blue Sky Studios, Inc., DreamWorks Animation SKG, Inc., Two Pic MC LLC, Lucasfilm Ltd., LLC, Pixar, Sony Pictures Animation Inc., Sony Pictures Imageworks, Inc., and The Walt Disney Company (collectively, the studios) claim that the studios conspired to suppress, and actually did suppress, employee compensation to artificially low levels. The studios allegedly accomplished this by: (1) entering into a scheme not to actively solicit each other’s employees; and (2) engaging in “collusive discussions in which the studios exchanged competitively sensitive compensation information and agreed upon compensation ranges,” which would purportedly artificially limit compensation offered to the studios’ current and prospective employees. The case—which alleged violations of Section 1 of the Sherman Act, California’s Cartwright Act, and California’s Unfair Competition Law—was before the court on the former employees’ motion for class certification.

After quickly finding that the former employees met the requirements of Federal Rule of Civil Procedure 23(a), the court focused its discussion on Rule 23(b)(3)’s predominance requirement, ultimately finding that questions common to the class are likely to predominate over any individual questions. The studios had claimed that the former employees could not meet the predominance requirement because antitrust impact, antitrust damages, fraudulent concealment, and issues regarding arbitration or release of claims agreements cannot be proven on a classwide basis.

Antitrust violation. First, the court found that the documentary evidence supported the former employees’ contention that common legal and factual issues will predominate as to whether the studios maintained a conspiracy not to recruit each other’s employees and to improperly share compensation information through industry surveys, in-person meetings, and email exchanges. The evidence demonstrated that the studios exchanged extensive compensation information outside of in-person meetings; the studios began changing their behavior following Department of Justice investigations because they allegedly recognized that these exchanges of compensation information through in-person meetings and emails were collusive; and the studios colluded on compensation policies through industry surveys, annual closed-door in-person meetings, and emails.

Antitrust injury. Next, the court found that the former employees’ documentary evidence, along with the expert report and statistical analyses that rely on this evidence, establish that common issues between class members will predominate over individual issues in proving antitrust injury. In particular, the evidence and expert report supported the former employees’ theory that the studios had company-wide compensation structures that placed a premium on internal equity; suggested that the studios engaged in collusive communications directly and through a survey to benchmark their compensation structures against each other; and supported the former employees’ argument that these antisolicitation agreements and collusive communications resulted in suppressed compensation that affected all members of the class.

Antitrust damages. The damages model produced by the former employees’ expert—Dr. Ashenfelter—was deemed capable of calculating classwide damages and therefore satisfied the predominance standard, the court also found. Dr. Ashenfelter concluded that common evidence and a regression analysis could be used to create a model for quantifying the estimated cost to class members resulting from the studios’ challenged conduct. The model estimated the effect of the alleged conspiracy by contrasting compensation during the periods when the conspiracy was in effect with compensation after the conspiracy ended, incorporating a range of variables designed to account for factors, including age, years at the company and previous year’s compensation; the effects on compensation caused by the alleged conspiracy; the effects caused by factors specific to each studio; and macroeconomic effects. The model, according to the court, produced consistent results when modified to respond to the studio’s expert’s concerns and were supported by economic literature.

Fraudulent concealment, arbitration. Common issues would also predominate as to fraudulent concealment, according to the court, because the overwhelming majority of the evidence upon which the former employees will rely to show concealment is common proof. The potential for a small number of individualized inquiries concerning affirmative defenses with regard to some class members did not alter the court’s conclusion that classwide issues would predominate.

Finally, the court concluded that the existence of the arbitration and release of claims agreements raised by the studios did not change the fact that common issues would predominate in this case, the court determined. Rather, to the extent the releases from the High-Tech Employee Litigation and individual employment agreements preclude recovery by a particular class member against a particular studio, those damage allocation issues can be resolved during individualized damages proceedings at a later phase, together with any individualized issues that remain concerning fraudulent concealment.

Finding that common issues are likely to predominate over individual issues and that the former employees met the superiority requirement of Rule 23(b)(3), the court certified a modified class consisting of: “All animation and visual effects employees employed by defendants in the United States who held any of the jobs listed in Ashenfelter Reply Report Amended Appendix C during the following time periods: Pixar (2004-2010), Lucasfilm Ltd., LLC (2004-2010), DreamWorks Animation SKG, Inc. (2004-2010), The Walt Disney Company (2004-2010), Sony Pictures Animation, Inc. and Sony Pictures Imageworks, Inc. (2004-2010), Blue Sky Studios, Inc. (2007-2010) and Two Pic MC LLC f/k/a ImageMovers Digital LLC (2007-2010). Excluded from the Class are senior executives, members of the board of directors, and persons employed to perform office operations or administrative tasks.”

The case is No. 14-CV-04062-LHK.

Attorneys: Daniel A. Small (Cohen Milstein Sellers & Toll PLLC) for Robert A. Nitsch, Jr. Daniel Glen Swanson (Gibson, Dunn & Crutcher LLP) for DreamWorks Animation SKG Inc.

Companies: DreamWorks Animation SKG Inc.; Blue Sky Studios, Inc.; Two Pic MC LLC; Lucasfilm Ltd., LLC; Pixar; Sony Pictures Animation Inc.; Sony Pictures Imageworks, Inc.; The Walt Disney Company

MainStory: TopStory Antitrust CaliforniaNews

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