Animation and visual effects artists and engineers are the lifeblood of any animation studio.  They create the images and effects that we know and love in movies from Shrek to Harry Potter. These talented artists and engineers are in high demand, but unknown to them, their employers suppressed their pay for years though a conspiracy hatched in the mid-1980s by Steve Jobs as head of Pixar and George Lucas as head of Lucasfilm, as alleged by plaintiffs.  Over time, the conspiracy expanded to cover virtually the entire industry.  The conspirators agreed not to poach each other’s employees, and to coordinate their salary structures through their participation in an industry-wide compensation survey.  The conspiracy depressed their employees’ pay a total of $553 million from 2001 through 2010, according to plaintiffs’ expert.

Through their initiative and insights, co-lead counsel uncovered and thoroughly investigated the conspiracy before filing the case.  After filing, they defeated a motion to dismiss, even though the entirety of the class’s claims was subject to a difficult statute of limitations defense.  Co-lead counsel then obtained certification of a diverse class of over 10,000 employees, ranging from producers and directors to animators and software engineers.  Further, co-lead counsel vigorously pursued discovery, retained experts, and prepared the case for trial.  Eventually, they resolved the case for $168.5 million in four different settlements.  To our knowledge, In re Animation Workers Antitrust Litigation (N.D. Cal.) (Koh, J.) is the most successful no-poach case ever filed, achieving an average recovery per class member of nearly $14,000.  In comparison, the related High-Tech litigation before Judge Koh recovered $6,753 per class member, less than half the per-class-member recovery in our case.

Case Overview

Defendants were the major animation and visual effects studios:  Pixar, Lucasfilm, DreamWorks, Walt Disney, Blue Sky and ImageMovers.  Their anti-solicitation scheme included an agreement (a) not to cold call each other’s employees, (b) to notify a co-conspirator when making an offer to its employee (who had applied of his/her own initiative), and (c) not to counteroffer if the current employer matched or exceeded this offer.  Pixar’s Vice President of Human Resources, Lori McAdams, summarized the essence of this agreement in a 2005 email: “With regard to ILM [a division of Lucasfilm], Sony, Blue Sky, etc., . . . we have a gentleman’s agreement not to directly solicit/poach from their employee pool.” Defendants also exchanged compensation information, and agreed upon compensation ranges through their participation in an industry compensation survey. For example, McAdams sent an email to Disney and other competitors on May 1, 2007 asking them to “share with me your base salary range [for the Supervising Animator position], perhaps how many of these folks you have (we have 7) and a general idea of actual median base pay? Also knowing any other comp they are eligible for (e.g. bonuses or stock) would be helpful.”

Defendants moved to dismiss the consolidated complaint, and the court granted the motion without prejudice, holding that plaintiffs’ claims were time-barred because plaintiffs had not adequately alleged fraudulent concealment.  Plaintiffs filed an amended complaint which contained additional, detailed acts of fraudulent concealment, sufficient to withstand a second motion to dismiss.  Plaintiffs then successfully moved for class certification.  The court certified a class of all animation and visual effects employees employed by defendants in the United States.  Defendants petitioned for immediate review of the ruling by the Ninth Circuit.  Plaintiffs opposed the petition, and the Ninth Circuit denied review.  Over a period of about a year, plaintiffs negotiated four separate settlements, with Blue Sky for $5.95 million, with Sony for $13 million, with DreamWorks for $50 million, and with Disney, Pixar, Lucasfilm, and Two Pic MC LLC (successor to ImageMovers) for $100 million.

Challenges

Co-lead counsel’s efforts were not without significant hurdles.  Indeed, we litigated against the backdrop of DOJ investigating but taking no action against three companies we sued--DreamWorks, Sony and Blue Sky.  Following were some of our specific challenges. 

  • Statute of Limitations: Plaintiffs’ first consolidated complaint was dismissed as time-barred.  This case almost ended at the outset with no recovery.  The Justice Department’s Antitrust Division had investigated recruiting practices in Silicon Valley beginning in 2009, and the investigation was broadly reported in the media.  The investigation involved Pixar, Lucasfilm, DreamWorks, Sony and Blue Sky, among other companies.  The DOJ investigation led to the High-Tech antitrust class action in 2011 against multiple technology companies including Pixar and Lucasfilm, albeit based on a different but related conspiracy.  Plaintiffs filed their first complaint in September 2014, which alleged that the four-year statute of limitations should be deemed tolled on fraudulent concealment grounds.  On defendants’ motion to dismiss, the court concluded that plaintiffs had not adequately alleged fraudulent concealment and dismissed the consolidated complaint without prejudice. Fortunately for plaintiffs, co-lead counsel had convinced the court at the initial case management conference to order defendants to promptly produce the documents they had produced to DOJ.Plaintiffs quickly reviewed those documents, conducted further investigation of public information, found numerous, detailed instances of fraudulent concealment, and alleged them in a new complaint within the short deadline for filing it. The court found the new allegations sufficient to toll the statute of limitations and denied defendants’ second motion to dismiss.

 

  • Class Certification:  Denial of the second motion to dismiss, however, did not put the statute of limitations issue to rest.  Defendants argued in opposition to class certification that fraudulent concealment raised numerous individual issues that precluded class certification.  As the court later noted in granting certification, no case in the Ninth Circuit had considered whether certification is permissible when the plaintiff class must prove fraudulent concealment to overcome the statute of limitations.  And the Fourth Circuit had reversed a $390 million class action judgment because it found that tolling analyses raised individual questions. While we overcame the statute of limitations issue on class certification, it still remained a challenge in the case, as defendants claimed that discovery revealed that some class members had knowledge of aspects of the conspiracy outside the limitations period, and defendants assuredly would have presented such evidence at trial.

 

  • Damages:  Plaintiffs’ damages case hinged on their ability to prove that suppression of cold calls to a fraction of the class would suppress the pay of every one of the 10,000+ class members, from a color stylist and assistant lighter to a concept artist and the producer.  Plaintiffs engaged a compensation expert who explained how defendants’ formalized pay structures meant that suppression of pay of those who would have received cold calls shifts the employer’s entire compensation structure downward.  This challenging causation issue was critical to proving damages, and establishing common impact for class certification.  Plaintiffs also faced the fact that the Pixar and Lucasfilm settlement in High-Tech likely released many of the claims against the Disney defendants in this case.

 

Public Interest

Co-lead counsel’s high-profile and successful pursuit of defendants’ powerful cartel put other employers on notice of the illegality of no-poach agreements, benefiting workers nationwide.

This case is also part of the mounting evidence that no-poach agreements have contributed to wage stagnation in this country.  The DOJ and FTC jointly issued guidelines in October 2016 for human resources personnel in which DOJ announced that it intends to proceed criminally against no-poach agreements, finding that such agreements “eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers ….”

Co-lead counsel’s efforts also advanced Ninth Circuit jurisprudence by clarifying the requirements for adequately pleading fraudulent, and establishing that fraudulent concealment is not a per se bar to class certification.

 

The case is styled: In re: Animation Workers Antitrust Litigation; Case No. 5:14-cv-04062; U.S. District Court for the Northern District of California