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In re Animation Workers Antitrust Litigation
Citations: 87 F. Supp. 3d 1195; 2015 WL 1522368Docket: Master Docket No.:14-CV-04062-LHK
Court: District Court, N.D. California; April 3, 2015; Federal District Court
The Court has granted the joint motion to dismiss filed by Defendants, which include major animation studios such as DreamWorks Animation, The Walt Disney Company, Lucasfilm, Pixar, and others. This case involves a consolidated class action initiated by former employees who allege that these studios engaged in antitrust violations, specifically a conspiracy to suppress employee compensation and limit employee mobility. The Court assessed the motion based on the uncontroverted allegations in the Consolidated Amended Complaint (CAC) and relevant legal precedents, presuming the truth of the plaintiffs’ claims for the purpose of the ruling. The defendants are identified as various animation and visual effects studios based in California and Delaware. The plaintiffs, Robert A. Nitsch, Jr., Georgia Cano, and David Wentworth, are former employees seeking to represent a class of individuals who worked for the listed studios from 2004 to the present, excluding certain senior personnel. The complaint also references significant overlap with the case In re High-Tech Employees Litigation and investigations by the Department of Justice concerning similar antitrust claims against several technology companies, including Pixar and Lucasfilm, which are relevant to the current motion to dismiss. From 2009 to 2010, the DOJ's Antitrust Division investigated the hiring practices of major Silicon Valley tech companies, including Adobe, Apple, Google, Intel, Intuit, Pixar, and Lucasfilm. In September 2010, civil complaints were filed against these companies, which led to stipulations agreeing that the complaints stated claims under federal antitrust law. The involved companies consented to prohibitions on entering agreements that restricted employee recruitment. In 2011, the High-Tech plaintiffs initiated state court actions and subsequently filed a consolidated complaint alleging antitrust violations related to suppressed employee compensation and restricted mobility. They claimed that the defendants engaged in a conspiracy through express agreements, notably a “Do Not Cold Call” agreement that prevented companies from soliciting each other’s employees. The plaintiffs asserted that the defendants conspired to suppress compensation in two primary ways: by agreeing not to actively solicit each other's employees and by colluding on compensation discussions to maintain limited salary ranges for employees. The alleged anti-solicitation scheme included prohibitions on contacting employees unless they had proactively applied for job openings, thus restricting competition for skilled labor. The defendants also reportedly notified each other about job applications from their employees and coordinated on counteroffers, often requiring permission before hiring from one another. Plaintiffs allege that a conspiracy to restrain competition for skilled labor between Pixar and Lucasfilm originated in the mid-1980s after George Lucas sold Lucasfilm’s computer division to Steve Jobs, leading to the creation of Pixar. Key executives from both companies, including Ed Catmull, established an agreement to avoid bidding wars for employees, which included terms such as refraining from cold calling each other's employees, notifying each other of offers to employees, and not making counteroffers. This anti-solicitation agreement allegedly expanded to include other studios, facilitated by informal agreements not to poach employees from one another. Specifically, the agreement with DreamWorks was reinforced through direct communications between Jobs and CEO Jeffrey Katzenberg, as well as emails confirming mutual non-poaching practices. After Disney acquired Pixar in 2006, Catmull ensured compliance with these anti-recruitment practices, including agreements to avoid recruiting from ImageMovers Digital and other studios. Moreover, the plaintiffs claim that Catmull sought to establish similar practices with Sony Pictures Imageworks, which had been aggressively recruiting talent. Following a meeting between Catmull and Sony executives, an agreement was allegedly reached to limit direct solicitation of employees, which also resulted in Sony moderating its salary offers to maintain competitive restraint. Blue Sky Studios allegedly participated in a conspiracy to restrict employee recruitment by not soliciting from or allowing other studios to recruit from them. In 2005, Blue Sky reportedly declined to hire a desirable DreamWorks employee to avoid conflict with CEO Jeffrey Katzenberg. Blue Sky's HR Director, Linda Zazza, discussed employee retention with Pixar's McAdams, who reassured her that Pixar was not trying to poach Blue Sky's staff. The ImageMovers Defendants are also accused of joining the conspiracy. Catmull communicated in a January 2007 email that ImageMovers would not target Pixar, yet they allegedly continued to recruit from other studios, including DreamWorks, with higher salaries. Catmull later met with ImageMovers' Steve Starkey, who claimed that they would not raid ILM. Catmull subsequently sought compliance from Disney executives regarding anti-solicitation agreements, with assurances that ImageMovers had agreed to the rules. Digital Domain is also alleged to have joined the conspiracy, having anti-solicitation agreements with DreamWorks, Lucasfilm/ILM, and Sony. Its HR head, Lala Gavgavian, was informed by Pixar's Jim Morris about the anti-solicitation agreement. Gavgavian and senior staff allegedly instructed employees not to solicit from other defendants. Plaintiffs assert that all defendants collaborated to recruit new studios into the conspiracy. They also claim that defendants regularly met to discuss and agree on compensation ranges, with annual meetings organized by the Croner Company to set wage and salary parameters. These meetings included senior HR personnel from various studios who allegedly went beyond mere job matching to set wage agreements during informal gatherings. Side meetings also occurred at the Siggraph conference, where co-conspirators sought to strengthen relationships to maintain the conspiracy's effectiveness. Plaintiffs allege that Defendants engaged in regular communication regarding salary ranges, indicating a pattern of collusion to suppress compensation. On May 13, 2005, DreamWorks requested salary data from Disney, which responded promptly. In the following spring, DreamWorks sought similar information from Pixar and Disney, clarifying it was surveying multiple studios. On September 2, 2009, Blue Sky’s HR Director also requested salary information from Pixar. A 2007 email from DreamWorks’ Head of Compensation acknowledged sharing general compensation information to maintain inter-studio relationships. Plaintiffs assert these communications extended beyond isolated exchanges to include group emails with sensitive compensation data. For instance, on November 17, 2006, Pixar's McAdams solicited salary increase budget information from several studios, and in January 2009, DreamWorks sought insights on overtime practices from other companies. Regular telephone communications among human resources personnel further facilitated this collusion. The Plaintiffs cite emails reflecting a camaraderie among HR staff from various studios, which, according to them, enabled the conspiracy to suppress wages. They reference press coverage indicating the DOJ's investigation into anti-solicitation agreements among high-tech firms, but no mention of similar scrutiny for animation companies until a September 2010 report linked Pixar to an investigation, with Lucasfilm later implicated in December 2010. Plaintiffs assert that until certain court filings were unsealed, there was no public indication of collusion among the other Defendants. The claims include violations of Section 1 of the Sherman Act, California’s Cartwright Act, and California’s Unfair Competition Law, with Plaintiffs seeking damages, interest, attorney’s fees, and a permanent injunction. The procedural background outlines key developments in the related High-Tech case and the current action, focusing on significant motions, court rulings, and settlements. In the High-Tech case, the defendants removed the initial state-court action on May 23, 2011. The Court's rulings included a partial grant and denial of the defendants’ motion to dismiss on April 18, 2012, and a similar outcome for the plaintiffs’ motion for class certification on April 5, 2013. The plaintiffs’ supplemental motion for class certification was granted on October 24, 2013, but the defendants’ appeal of this order was denied by the Ninth Circuit on January 14, 2014. Early settlements were reached with Intuit, Lucasfilm, and Pixar, leading to preliminary and final approval of their settlement in late 2013 and mid-2014. The remaining defendants, Adobe, Apple, Google, and Intel, filed various motions for summary judgment, all of which were denied by March 2014. A motion for preliminary approval of a settlement with these defendants was denied in August 2014 due to unreasonableness. The defendants later sought a writ of mandamus, which was dismissed in early February 2015. A new settlement proposal, exceeding the previous one by $90.5 million, received preliminary approval on March 3, 2015, with a final approval hearing set for July 9, 2015. In the instant action, Nitsch filed a complaint on September 8, 2014, and Cano and Wentworth followed with their complaints later that month and in October, respectively. These actions were all related to the High-Tech case, and on November 5, 2014, the Court consolidated the three cases into one, titled In re Animation Workers Antitrust Litigation. The plaintiffs submitted a consolidated amended complaint on December 2, 2014. On January 9, 2015, Defendants filed a joint motion to dismiss, a request for judicial notice, and an administrative motion to seal exhibits related to their motion. Plaintiffs opposed this motion, and Defendants submitted a reply. Additionally, a motion to compel arbitration by Defendants, also filed on January 9, 2015, is scheduled for a hearing on April 23, 2015, but is not addressed in this order. The legal standard for evaluating a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) focuses on whether the complaint states a plausible claim for relief, accepting all factual allegations as true while disregarding conclusory statements or those contradicting judicially noticeable facts. A claim is plausible if the allegations allow for reasonable inference of the defendant's liability. Claims of fraud are subject to heightened pleading under Rule 9(b), requiring specific details about the fraudulent conduct, including time, place, content of misrepresentations, and identities of involved parties. While intent and knowledge do not need to be stated with particularity, the plaintiff must clearly articulate what was false or misleading. If the complaint is dismissed, the court must consider whether to grant leave to amend under Rule 15(a), which encourages amendments unless there is undue delay, bad faith, repeated failures to address deficiencies, undue prejudice to the opposing party, or futility of amendment. Defendants' motion to dismiss argues that: (1) Plaintiffs' claims are barred by statutes of limitations; (2) Plaintiffs do not sufficiently allege a per se antitrust claim based on wage-fixing agreements; (3) Plaintiffs fail to state plausible claims against specific defendants; (4) the requested remedies are unavailable under the Unfair Competition Law (UCL); and (5) Plaintiffs lack standing for injunctive relief. The Court will first examine if Plaintiffs' claims are time-barred. Defendants assert that Plaintiffs’ claims are barred by the four-year statute of limitations applicable to the Sherman Act, Cartwright Act, and California's Unfair Competition Law (UCL). The parties disagree on when the claims accrued, the validity of a continuing violation argument, and the sufficiency of allegations for fraudulent concealment to toll the statute. The Court confirms that the four-year limitation applies uniformly across these statutes, highlighting that no claims barred by existing law on the effective date of these statutes can be revived. The key issue revolves around the accrual rule for the claims. The parties dispute whether claims accrue at the time of injury (the injury rule) or upon discovery of the injury (the discovery rule). Under established Supreme Court and Ninth Circuit precedent, antitrust claims accrue when the defendant's actions result in injury to the plaintiff's business, meaning the statute of limitations begins to run from the time the harmful act occurs. This position is supported by the treble-damage statute, which states that each act causing injury gives rise to a separate cause of action. The Ninth Circuit has clarified that in antitrust cases, the plaintiff's knowledge of the injury is typically irrelevant to when the statute of limitations begins to run, confirming the injury rule over the discovery rule. The Court distinguishes the relevant findings from cases discussing civil RICO, affirming that the accrual of Sherman Act claims is strictly based on the occurrence of injury. Both the Ninth Circuit and U.S. Supreme Court adhere to the principle that antitrust claims accrue at the time of injury, negating the necessity for a different accrual rule. The Court dismisses plaintiffs' arguments based on the general applicability of the discovery rule in federal litigation, citing established authority that supports the injury occurrence rule instead. While acknowledging that the Seventh Circuit has applied the discovery rule in antitrust cases, this Court is bound by conflicting Ninth Circuit precedent, which emphasizes that antitrust claims are triggered by the occurrence of injury, not the discovery of it. Various circuit courts have reinforced this position, consistently ruling that the statute of limitations for antitrust claims begins when the injury occurs, irrespective of the plaintiff's awareness of the injury or the actions causing it. The Court also respectfully disagrees with a recent decision from its District that applied the discovery rule to Sherman Act claims, arguing that the issue had not been adequately briefed in that case. However, defendants concede that the discovery rule or fraudulent concealment can toll antitrust statutes of limitation. The Court agrees with Defendants that Plaintiffs’ antitrust claims accrued at the time of injury, irrespective of Plaintiffs' awareness of that injury. The same applies to Plaintiffs' UCL claim based on alleged anticompetitive conduct. Plaintiffs' argument for the application of the discovery rule under *Aryeh v. Canon Bus. Solutions, Inc.* is rejected by the Court, which clarifies that the discovery rule is not a requirement for all UCL claims but may apply under specific circumstances. The *Aryeh* court indicated that the UCL's nature might not warrant the discovery rule for unfair competition claims, a category into which Plaintiffs' UCL claim falls. The Court finds that Plaintiffs’ claims began to accrue as early as 2004-2005, with the latest accrual in 2007, leading to a conclusion that the four-year statute of limitations expired by 2008 or, at best, in 2011. Consequently, Plaintiffs’ claims are time-barred unless they can demonstrate that Defendants engaged in "continuing violations" after September 8, 2010, or that there was fraudulent concealment to toll the statute of limitations. Regarding the continuing violations doctrine, Plaintiffs assert that Defendants' actions constitute ongoing violations that justify the timeliness of their claims. Defendants counter that Plaintiffs have not demonstrated any "overt acts" that would reset the statute of limitations, arguing that the allegations do not meet the standards set by *Twombly* and are implausible given prior investigations and judgments. The Court explains that a continuing violation occurs when plaintiffs’ interests are repeatedly harmed, with each overt act potentially restarting the statutory period if it is a new act causing new injury. The Ninth Circuit requires that such an act must be independent and not just a reaffirmation of prior conduct. The Court concludes that the Plaintiffs' assertion of a continuing violation due to Defendants' alleged repeated invasions of their interests is inadequate. The Plaintiffs claim that Defendants maintained anticompetitive agreements, but upon review, the factual allegations do not include wrongful conduct or communications occurring within the limitations period. Most allegations fall between 2004 and 2007, with no new actions or injuries after September 8, 2010, which is four years prior to the first complaint in this consolidated action. The Court notes the absence of specific dates in many allegations, and where dates are provided, the events predate the limitations period. While Plaintiffs argue that employment agreements during the alleged conspiracy resulted in ongoing antitrust injuries, the Court finds this "price-fixed compensation" theory unpersuasive. The Court emphasizes that to establish a continuing violation, Plaintiffs must demonstrate new overt acts by Defendants that caused new injuries, which they have failed to do. The mere assertion of repeated invasions without specific overt acts does not meet the legal requirements to extend the statute of limitations. Plaintiffs' compensation theory, based on alleged price-fixing by Defendants, is deemed insufficient by the Court because they fail to demonstrate any overt act by Defendants that would extend the statute of limitations. The alleged wrongful conduct occurred between 2004 and 2009, but Plaintiffs do not provide evidence that this conduct continued to affect their compensation after September 8, 2010. Although the Court accepts factual allegations in the complaint as true, the lack of claims indicating ongoing wrongful behavior post-2009 leads to the conclusion that Plaintiffs' compensation was not impacted after that date. Plaintiffs' reliance on the absence of Department of Justice actions against Defendants and expert assumptions regarding the cessation of anti-solicitation agreements are deemed irrelevant to the dismissal motion. The Court will not resolve factual questions about continued anticompetitive behavior at this stage but finds that Plaintiffs have not adequately alleged such behavior within the limitations period. Additionally, Plaintiffs' reference to a paragraph in the Consolidated Amended Complaint (CAC) regarding DreamWorks' practices and the Lucasfilm consent decree does not substantiate claims of ongoing misconduct. Lastly, the case of Oliver v. SD-3C LLC, cited by Plaintiffs, is distinguished from the current case due to its specific factual context regarding price-fixing agreements, which do not apply here. The Ninth Circuit determined in Samsung that the defendants' 2006 amended license agreement and their subsequent enforcement of the royalty agreement against the plaintiff constituted overt acts that reset the statute of limitations, despite the alleged conspiracy beginning in 2003. In Oliver, consumers alleged a price-fixing conspiracy regarding SD cards, claiming they were injured by unlawfully high prices within four years prior to their complaint. The court found that the Oliver plaintiffs had sufficiently alleged a continuing violation and an overt act within the limitations period. In contrast, the current case lacks allegations that the defendants continued to enforce unfair compensation practices, which is necessary for the continuing violations doctrine. The doctrine requires both ongoing violations of the plaintiffs' interests and an overt act by the defendants; otherwise, it would undermine the statute of limitations' purpose. The court concluded that the plaintiffs failed to demonstrate any new or independent acts inflicting further injury, resulting in their claims being time-barred. Regarding fraudulent concealment, the statute of limitations may be tolled if a defendant conceals the existence of a cause of action effectively enough that a reasonable plaintiff would not be aware of it. The burden lies with the plaintiff to plead and prove fraudulent concealment, requiring them to allege that the defendant took affirmative acts to mislead them, that they lacked knowledge of the underlying facts due to these acts, and that they acted diligently to uncover the facts. The court noted that the plaintiffs did not adequately allege any of these elements, particularly failing to demonstrate affirmative acts. While plaintiffs claimed that secret meetings and efforts to minimize written records constituted affirmative acts, the court found these insufficient to meet the required pleading standards. Defendants' alleged misleading conduct related to a secret conspiracy, including discussions by senior management, lacks the necessary affirmative action to prove fraudulent concealment of Plaintiffs' claims. The Court references key precedents, such as Guerrero and Volk, emphasizing that mere passive concealment does not toll the statute of limitations unless there is a fiduciary duty to disclose. The Ninth Circuit's ruling in Conmar is cited, clarifying that self-concealing actions do not equate to affirmative misrepresentation. While Plaintiffs provide specific details of meetings and discussions, these do not demonstrate any active steps taken by Defendants to mislead them about their claims. The Court concludes that the mere existence of a secret conspiracy, without additional affirmative efforts to mislead, is insufficient for tolling the statute of limitations. This reasoning underscores the importance of not allowing secret conspiracies to indefinitely extend legal claims, which could burden the courts with outdated evidence. The citation to In re Lithium Ion Batteries Antitrust Litigation further illustrates the inadequacy of Plaintiffs' allegations. Plaintiffs in the Lithium Ion case accused defendants of making false public statements regarding their compliance with antitrust laws and the presence of vigorous price competition. They also alleged that defendants engaged in actions to conceal evidence of collusive behavior, such as avoiding written records and using coded language. Similar claims were noted in the TFT-LCD and Cathode Ray Tube cases, where defendants provided misleading justifications for price increases while keeping their conspiracies secret. These cases highlight the significance of public misrepresentations and efforts to hide conspiracies in supporting fraudulent concealment claims. In contrast, the allegations related to the Croner survey were deemed insufficient. Plaintiffs claimed the survey misrepresented compensation data as "competitive" rather than "anticompetitive," but the court found this allegation fundamentally different from the public misrepresentations in the earlier cases. The court noted a lack of claims that the Croner survey's information was publicly accessible or that the defendants had any role in its publication. Furthermore, there were no allegations linking the survey to the type of public statements made in the Cathode Ray case, where defendants coordinated misleading communications about pricing. The court concluded that plaintiffs failed to provide specific factual details regarding the Croner survey or their reliance on it, and the vague allegations regarding pretextual or misleading statements did not meet the specificity requirements under Rule 9(b). Plaintiffs have failed to meet the pleading standards outlined in Twombly and Rule 9(b), as they did not adequately allege that Defendants actively misled them regarding the factual basis for their claims. Although Plaintiffs suggested that Defendants’ attempts to keep the anti-solicitation scheme secret may support a fraudulent concealment claim, the current allegations are insufficient, as they do not demonstrate that Defendants did more than passively conceal information. Consequently, because Plaintiffs did not establish a crucial element of fraudulent concealment and their claims are time-barred, the Court grants Defendants’ motion to dismiss the Consolidated Amended Complaint (CAC) without prejudice. Plaintiffs are permitted to amend their complaint within 30 days to address the identified deficiencies, failing which the case will be dismissed with prejudice. Any new causes of action or parties cannot be added without court approval or mutual stipulation. The Court also grants Defendants’ unopposed requests for judicial notice of various public records and documents relevant to the case, as well as Plaintiffs’ similar request for judicial notice of sealing orders and media reports. ILM, Lucasfilm, and Pixar have been owned by The Walt Disney Company since 2012, which also manages Walt Disney Animation Studios. Plaintiffs assert that members of the Settlement Class from a 2013 Settlement Agreement with Pixar and Lucasfilm are not bringing claims against these entities or Disney that were released in that agreement. Defendants argue that documentation from Delaware's Secretary of State disproves Plaintiffs' claim regarding ImageMovers LLC's involvement in a joint venture that created ImageMovers Digital, leading to the dismissal of ImageMovers LLC from the case. The Court deems ImageMovers’ involvement irrelevant due to this dismissal, which occurred without prejudice under a tolling agreement in January 2015. Additionally, Plaintiffs dismissed Digital Domain 3.0 under a similar agreement. According to California law, claims accrue based on the "last element rule" (completion of wrongdoing, harm, and causation) and the "discovery rule," which is an exception to this rule. The Court cites Aryeh v. Canon Business Solutions, indicating that federal interpretations of the Sherman Act can guide the interpretation of the Cartwright Act, with no opposing argument from Plaintiffs. Both Sherman and Cartwright Act claims are assessed for timeliness, with the resolution of the Sherman Act claim also resolving the Cartwright Act claim. Plaintiffs reference a prior court order in Plumlee v. Pfizer to support the application of the delayed discovery rule to UCL claims, but the Court clarifies that the ruling pertained specifically to claims involving fraudulent misrepresentations. The Court emphasizes that the delayed discovery rule is not universally applicable to all UCL claims. Furthermore, Defendants note that Blue Sky was not included in the initial complaint but was added later, and the Ninth Circuit in Oliver determined that the four-year statute of limitations under 15 U.S.C. § 15b did not apply since the plaintiffs sought only injunctive relief. The Ninth Circuit overruled Santa Maria in Socop-Gonzales v. INS on different grounds, specifically criticizing Santa Maria's stance on equitable tolling as inconsistent with Supreme Court precedent. However, Socop-Gonzales did not invalidate the requirement for affirmative misconduct in fraudulent concealment claims, which the Ninth Circuit has since reaffirmed in later cases. Plaintiffs introduced a new argument regarding Defendants' sealing requests as efforts to conceal information, but the Court refused to consider it since it was not included in the Consolidated Amended Complaint (CAC). Defendants sought to dismiss or strike the wage-fixing claim if their motion to dismiss was not granted, but this request was denied. The Court also rejected Defendants’ attempt to prevent the wage-fixing claim from moving into the discovery phase, noting that discovery had not been stayed and that Defendants were obligated to respond to discovery requests related to these claims.