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From Antitrust Law Daily, August 21, 2015

DreamWorks, Disney, Pixar on hook for alleged non-solicitation agreements

By Greg Hammond, J.D.

A consolidated class action brought by three former employees against visual effects and animation studios for agreeing on wage and salary ranges and entering into non-solicitation agreements may proceed. The federal district court in San Jose, California has denied the studios’ motion to dismiss, finding that the federal and California antitrust claims were sufficiently pleaded and not time-barred (In re Animation Workers Antitrust Litigation, August 20, 2015, Koh, L.).

DreamWorks Animation, The Walt Disney Company, Lucasfilm, Pixar, ImageMovers, Sony Pictures, and Blue Sky Studios are in the business of creating visual effects and animation for motion pictures. Robert A. Nitsch, Georgia Cano, and David Wentworth were artists and engineers previously employed by one or more of the animation studios. In 2014, Nitsch, Cano, and Wentworth filed a series of class action complaints, asserting violations of Section 1 of the Sherman Act and California’ Cartwright Act and Unfair Competition Law (UCL). Specifically, the employees alleged that the defendants conspired to suppress employee compensation by entering into non-solicitation agreements and agreeing on salary ranges.

The court previously dismissed the employees’ antitrust claims as time-barred. The employees, however, filed a second amended complaint, alleging the defendants concealed the conspiracy, preventing the plaintiffs from timely filing their claims. The defendants then moved to dismiss the second amended complaint (SAC).

Fraudulent concealment. The court first found that allegations of pretextual statements regarding compensation—that salaries were based on performance, skills, and proficiency—in combination with allegations that defendants actively concealed and ensured the secrecy of the conspiracy, were sufficient to allege “affirmative acts.” According to the plaintiffs, the defendants opted for in-person meetings; they explained the non-solicitation agreement as a “gentleman’s agreement” because it was not in writing; and Lucasfilm made affirmative efforts to eliminate a paper trail regarding its code-named “DNR” agreements, including a requirement that all discussions of “DNR” needed to be conducted over the phone.

Second, the court found that the plaintiffs adequately alleged that they did not have actual or constructive knowledge of their claims, and they acted diligently once the claims were discovered. The employees claimed that they had no reason to know defendants conspired to suppress compensation until 2013, when incriminating documents were unsealed and filed publicly in the High-Tech Employees Antitrust Litigation. They also claimed that they diligently pursued and investigated their claims shortly after the documents disclosing the conspiracy were first released. Further, the employees claimed that they tried to obtain information that gave rise to their claims, but their inquiries were met with misrepresentations. Taking the allegations as true, the court determined that the fraudulent concealment claim was sufficient to toll the statute of limitations.

Plausible claims. Blue Sky and Sony Pictures separately moved to dismiss the employees’ claims on two grounds: (1) a failure to specifically allege fraudulent concealment against Blue Sky and Sony; and (2) failure to state a viable antitrust claim against Blue Sky and Sony as a matter of law.

The court first rejected the fraudulent concealment argument, finding that the plaintiffs are not obligated to allege fraudulent concealment as to each defendant. Rather, the plaintiffs were only required to make specific factual allegations with respect to each defendant’s alleged participation in the scheme as a whole, a requirement the plaintiffs met, the court concluded.

The employees also pleaded plausible claims for relief against Blue Sky and Sony. With regard to Blue Sky, the court found that, at a minimum, the inclusion of the company on Pixar’s anti-solicitation list rendered it plausible that Blue Sky was an active participant in the conspiracy. The plaintiffs further supported their claims, however, with allegations of conversations between Blue Sky’s Human Resources Director and other defendants concerning no-poaching.

Allegations that Sony participated in the alleged conspiracy were also sufficient. Specifically, the employees alleged that Sony and Pixar executives met and reached a “gentleman’s agreement” where neither company’s recruiters would approach the others’ employees, and there were numerous conversations with Sony’s recruiters to make sure they were still honoring the agreement. Evidence was also provided that Sony was included on Pixar’s “do not poach” list, and that Sony human resources representatives exchanged sensitive compensation information with competitors, including salary information, salary budgets, salary ranges, and overtime.

Per se claim. The defendants finally argued that plaintiffs failed to adequately plead a per se wage fixing claim. The parties disputed whether the conspiracy claims should be analyzed as a single conspiracy to suppress the compensation of putative class members, or two separate conspiracies: a no-poaching conspiracy and a wage-suppression conspiracy.

The court first noted that the defendants cited no authority for the proposition that the employees may not allege the existence of a single overarching conspiracy to suppress employees’ compensation. Further, the plaintiffs alleged sufficient facts to support a plausible per se claim that the defendants allegedly conspired to suppress the compensation of the putative class. They claimed that the defendants systematically shared information, agreed not to solicit each other’s employees, and that the purpose of the information sharing and no-poach scheme was to suppress wages. Taking the allegations and numerous examples as true, the court found a plausible inference that the defendants entered into an express agreement to suppress compensation.

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. Emily Johnson Henn (Covington & Burling LLP) for Pixar, Lucasfilm Ltd. LLC, The Walt Disney Co., and ImageMovers Digital. Stephen V. Bomse (Orrick Herrington & Sutcliffe LLP) for Sony Pictures Animation.

Companies: DreamWorks Animation SKG Inc.; Pixar; Lucasfilm Ltd. LLC; The Walt Disney Co.; ImageMovers Digital; Sony Pictures Animation

MainStory: TopStory Antitrust CaliforniaNews

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