The Case of Wage Fixing in the Animation Industry and its Implications
Introduction by the Needy Animator
Personally, this topic has been of big interest to me as an artist, especially with how the outcome of this case could really determine the standards of the animation industry and how artists are treated. As we dig deeper into the Antitrust Law case and wage fixing in animation, entertainment lawyer Lee Morin sheds light into the hot topic of the ongoing case with insights to how this could affect the direction of the animation industry. While this series might be longer than most, it is very relevant that we as artist follow closely as a community. I believe that it is important to foster awareness and self protection for our industry as a whole so that the career path of an artist is a livable one where we can be passionate about what we do without sacrificing our livelihoods. We are most grateful to Lee for putting so much time and energy to do this in-depth research for us! Because of the length of this article and content that might be hard to digest, this article has been divided into 4 sections with leading key point for each.
In re Animation Workers Antitrust Litigation
by Lee Morin, Esq.
SECTION 1: OVERVIEW OF THE ANTITRUST LAW CASE
Antitrust Law has shaped the entertainment industries since the 1940s. It is the reason why performance rights organizations like ASCAP and BMI do not collect royalties from United States theaters(1)Alden–Rochelle, Inc. v. ASCAP, 80 F.Supp. 888, 894–96 (S.D.N.Y. 1948). on behalf of songwriters and publishers, and why production companies license the exhibition of their films in theaters(2)United States v. Paramount, 334 U.S. 131 (1948)..
Antitrust Law originated in the Sherman Antitrust Act of 1890, and protects consumers by preserving competition in the marketplace and prohibiting restraints on trade and monopoly. Companies, whose collusive agreements stifle competition because of price-fixing or wage suppression of their employees, are liable for damages and stiff penalties under this law. States also developed their laws of unfair competition, to address grievances within their boundaries. The plaintiffs before Judge Lucy Koh of the Northern District of California are stating claims under state and federal laws(3)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1190 (N.D. Cal. 2015)..
This is not the first time Judge Koh has heard such claims from disgruntled employees. In 2015, she approved a $415 million settlement from Apple, Google, Intel, Adobe, Pixar, Lucasfilm, and others to be paid to software tech employees alleging the same conduct as animation workers are now(4)In re High–Tech Employee Antitrust Litig., 856 F.Supp.2d 1103 (N.D. Cal. 2012).. The average payout per plaintiff was $4,000 for income lost because these companies suppressed salaries up to 15% of their market value. Plaintiffs, now artists and engineers, allege similar losses up to 30% of their market value(5)Anne Bucher, Animation Workers Seek Cert. for Anti-Poaching Class Action, Top Class Actions, February 15, 2016. because companies like Sony, DreamWorks, Walt Disney, and ImageMovers Digital, a division of Lucasfilm, allegedly conspired to suppress wages by agreeing not to solicit employees and collusively discussing their compensation(6)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1181 (N.D. Cal. 2015)..
In May 2016, Judge Koh will hear arguments to certify class members, who will benefit from any damages awarded against the Defendants DreamWorks Animation SKG, Inc., The Walt Disney Company, Lucasfilm Ltd., LLC, Pixar, Two Pic MC LLC (f/k/a ImageMovers Digital), Sony Pictures Animation, Inc., Sony Pictures Imageworks, Inc., and Blue Sky Studios(7)Id. at 1179.. Plaintiffs Robert Nitsch, Georgia Cano, and David Wentworth propose that class members include animation and visual effects artists employed by Pixar between 2001 and 2010; Lucasfilm between 2001 and 2010; DreamWorks between 2003 and 2010; Disney between 2004 and 2010; Sony Pictures between 2004 and 2010; Blue Sky between 2005 and 2010; and Two Pic between 2007 and 2010(8)See Anne Bucher, supra..
KEYPOINTS BY NEEDY ANIMATOR
- Antitrust Law protects consumers by ensuring there are no restraints on trade nor monopolization in the marketplace.
- Animation studios such as PIXAR, SONY, WALT DISNEY, and IMAGEMOVERS DIGITAL (a division of Lucasfilm) are being sued for conspiring not to poach each others’ employees (anti-soliciting scheme) and openly sharing compensation information to lower animation employees’ value (wage-fixing) by allegedly 30% what it is worth in a competitive marketplace.
- In May 2016, a federal judge will decide which persons will be represented in this case. These persons may have been negatively impacted if employed by one of the named studios during an estimated time range of 2001-2010.
SECTION 2: THE FACTORS THAT MAKE A CASE
For the case to proceed as a class action, the former animation employees must show that their class members are numerous, that claims share common questions of law or facts and representative claims or defenses, and that they will fairly and adequately represent their interests(9)Fed. R. Civ. P. 23(a).. Plaintiffs argue that a class action in this case is superior to other methods of adjudicating this controversy(10)Fed. R. Civ. P. 23(b).. They seek damages, pre- and post-judgment interest, attorney’s fees and expenses, and a permanent injunction(11)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1190 (N.D. Cal. 2015)., to require the Defendants cease unlawful conduct and adhere to the principles of law codified under Section 1 of the Sherman Act(12)15. U.S.C.A. § 1 (West)., Section 16720 of the Cartwright Act(13)Cal. Bus. & Prof. Code § 16720 (West)., and state Unfair Competition Law (14)Cal. Bus. & Prof. Code § 17200 (West)..
It has been a long and winding road for Plaintiffs to reach this stage. Initially, they each filed complaints in late 2014, consolidated in early 2015. Judge Koh dismissed without prejudice the first Consolidated Amended Complaint(15)In re Animation Workers Antitrust Litig., 87 F.Supp.3d 1195, 1217 (N.D. Cal. 2015)., finding the claims time barred under Antitrust Law, which requires claims alleging a continuing violation that injures a plaintiff be brought within four years(16)15 U.S.C.A. § 15b (West). of the last overt act(17)Pace Indus., Inc. v. Three Phoenix Co., 813 F.2d 234, 236 (9th Cir. 1987).. An overt act displays conspicuous conduct. Among the Plaintiffs, the last overt act occurred in 2007(18)In re Animation Workers Antitrust Litig., 87 F.Supp.3d 1195, 1211 (N.D. Cal. 2015). , which meant that the statute of limitations ran in 2011. Not dissuaded, the Plaintiffs filed a Second Amended Consolidated Complaint thirty days later on May 15, 2015.
In contrast to the first complaint, the second one successfully alleged facts under the doctrine of fraudulent concealment(19)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175 (N.D. Cal. 2015).. The fraudulent concealment doctrine prevents concealment of a fraud until such time as the party committing the fraud could plead the statute of limitations to protect it(20)Bailey v. Glover, 88 U.S. (21 Wall.) 342, 349 (1874).. Thus, claims that defendants fraudulently concealed conduct are not time barred like those alleging continuing violations. To plead fraud, the law requires that plaintiffs state claims with “particularity(21) Fed. R. Civ. P. 9(b).,” of the circumstances constituting fraud, to give defendants notice of alleged misconduct to afford them an opportunity to form a defense(22)Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985).. Fraud claims must allege the time, place, and specific content of false representations as well as the identities of the parties to such misrepresentations(23)Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007)..
On August 20, 2015, Judge Koh issued her opinion denying Defendants’ motion to dismiss(24)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175 (N.D. Cal. 2015).. The nature of a 12(b)(6) motion to dismiss requires that a court test the legal sufficiency of a complaint (25)Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001).. The court examines the claims to insure that they contain enough factual material if taken as true are plausible on their face (26)Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007).. A claim has facial plausibility when it allows the court to reasonably infer the defendant is liable for alleged conduct (27)Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).. A claim is plausible when it is more than a mere possibility, but less than probable, that the defendant acted unlawfully (28)Id.. The former animation employees did not need to prove the veracity of their claims. Rather, Judge Koh was required to assume they were true in this type of procedure to determine whether they were without legal merit.
KEYPOINTS BY NEEDY ANIMATOR
- For there to be a class, the plaintiffs (people who file the complaint) must show they represent numerous people in the same situation with the same claims and defenses, and that they can fairly and adequately represent the interests of others.
- When the plaintiffs first filed their complaint in September 2014, the judge dismissed it because it passed the expiry date to file a complaint, which is a 4-year statute of limitations from when the last visible act of wrongdoing occurred.
- The second time plaintiffs filed in April 2015 it was not dismissed because under “fraudulent concealment,” the statute of limitations tolls to give plaintiffs a chance to file a complaint depending on when they discovered wrongdoing.
SECTION 3: IMPLICATIONS OF AN ANTI-SOLICITATION AGREEMENT
Despite what was likely counsel against a motion to dismiss that had potential to backfire, the Defendants never the less filed their response. Defendants generally get two bites at the apple to dismiss a case while avoiding a full-blown, public trial. One argues failure to state a claim (29)Fed. R. Civ. P. 12(b)(6).; the other involves summary judgment (30)Fed. R. Civ. P. 56. . The former occurs before discovery and asserts no legal merit to a complaint; the latter occurs after discovery and asserts no triable issues of fact to be determined. Defendants demonstrated that they wished to avoid a public trial, but were unsuccessful in their efforts (31) Nitsch v. DreamWorks Animation SKG Inc., 100 F.Supp.3d 851 (N.D. Cal. 2015)..
The heightened pleading standard for fraud requiring specificity, the procedural requirement that factual allegations be taken as true, and the public forum of the California District Court formed the trifecta of all public relations nightmares. It is a staggering account that details the identities of the highest-profile executives and their alleged nefarious conduct, which is as far-reaching as it is deep, beginning allegedly in the 1980s(32)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1181 (N.D. Cal. 2015).. George Lucas, Ed Catmull, and other senior executives are named as co-conspirators in an anti-solicitation scheme, which means they reached an agreement to not cold call each other’s employees, notified each other when making an offer to the other company’s employee, and made no counter offers, but asserted rather that any offer by them was “final (33)Id. at 1182..”
After allegedly starting the conspiracy, Pixar President Ed Catmull allegedly invited other animation studios to participate in the anti-solicitation agreement (34)Id.. These companies allegedly had strict guidelines for how to adhere to respective “anti-solicitation rules (35)Id. .” Judge Koh’s opinion comprehensively documents email conversations between senior executives and human resources personnel at DreamWorks, Disney, Sony Pictures Animation, Sony Pictures Imageworks, Blue Sky, and ImageMovers Digital that if true, she could reasonably infer the existence of an anti-solicitation agreement between the animation studio giants (36)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1184 (N.D. Cal. 2015)..
In addition to an anti-solicitation scheme, the opinion documents details suggesting Defendants artificially depressed salaries for employees. Plaintiffs allege that human resources personnel met frequently, spoke daily, or used group emails to request and disclose compensation and benefits packages (37)Id. at 1187., which financial information is typically a guarded competitive secret. The most outrageous alleged fact is attributed to Sony, who in 2008 and 2009, laid off hundreds of employees and hired them back at lower rates squarely in the range discussed in secret meetings. Sony allegedly made sure that its co-conspirators knew not to match its previous, higher rates by telling other studios that Sony was “rehiring folks back at a lower rate than when they left” and encouraging the co-conspirators to “stand firm in [their] offers to ex-Sony candidates and not worry too much about matching their last Sony rate(38)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1214 (N.D. Cal. 2015)..”
KEYPOINTS BY NEEDY ANIMATOR
- The animation studios tried to keep the case from becoming a public trial but were unsuccessful. The two ways they attempted to do this was through:
a) Staying the district court case and proceeding instead under private arbitration, which failed because the claims involved defendants, who did not have an arbitration agreement under an employment contract with Plaintiff; and,
b) Failure to state a claim: When the plaintiff fails to establish a legally sufficient claim to state a case under the law, then the court dismisses the complaint before it enters the discovery period, which ultimately leads to trial.
- George Lucas and Pixar’s Ed Catmull were named among the co-conspirators, who allegedly invited other studios to participate in the anti-solicitation agreement.
- Sony alledgedly rehired employees they fired at lower rates, and encouraged other studios not to make better offers than Sony’s rates to ex-Sony candidates.
SECTION 4: THE ELEMENTS OF FRAUDULENT CONCEALMENT
Judge Koh found that Plaintiffs alleged sufficient facts that if true, could state a viable claim of fraudulent concealment against Defendants. Facts alleged supported three main elements: the defendant took affirmative acts to mislead plaintiff, the plaintiff did not have “actual or constructive knowledge” of the facts giving rise to its claim, and plaintiff acted diligently in trying to uncover the facts giving rise to its claim (39)Id. at 1187..
Factual allegations submitted by the Plaintiffs in support of affirmative acts suggest the animation studios conspired to avoid detection, by disclosing the do not solicit agreement to top executives and human resources personnel only, by confining discussions to telephone or in person meetings, using code names to refer to the scheme, referring matters to lawyers, orally training hiring staff in anti-solicitation practices, and using personal email accounts in lieu of business ones to share sensitive information (40)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1200-03 (N.D. Cal. 2015).</fn>.
Animation workers further alleged that studios routinely provided pretextual, incomplete or materially false and misleading explanations for compensation decisions and recruiting and retention practices. An example of a pretextual statement is asserting “fair” and “competitive salaries” or suggesting that salaries were set by outside surveys, or that salaries were set based on performance, skills, and proficiency, without mention of collusion. Plaintiffs further listed specific pretextual statements for modest increases, in organizational policies, and in Securities and Exchange Commission (SEC) filings (41)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1200-03 (N.D. Cal. 2015)..
The former animation employees alleged that they had no actual or constructive knowledge of the alleged conduct by the studios, and acted diligently to uncover facts once they did (42)Id. at 1205.. When the Department of Justice investigated and filed complaints against the High-Tech defendants, it is possible that Pixar and Lucasfilm ceased their conduct to endure heightened scrutiny. None of the court records in High-Tech were available for public inspection until the court unsealed them in 2013 (43)In re Animation Workers Antitrust Litig., 123 F. Supp. 3d 1175, 1190 (N.D. Cal. 2015).. Plaintiffs claim that Pixar and Lucasfilm filed protective orders over every court document as “Attorneys’ Eyes Only” to restrict access to the public (44)Id.. It was these court records and a journal article that allegedly alerted Plaintiffs that Pixar and Lucasfilm were suspected of wrongdoing under antitrust laws (45)In re Animation Workers Antitrust Litig., 123 F. Supp. 3d 1175, 1186-87 (N.D. Cal. 2015)..
Despite their efforts at exculpating themselves (46)In re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175, 1205-11 (N.D. Cal. 2015)., Defendants would be held jointly and severally liable if found in violation of Antitrust Law. This is the nature of the conspiracy legal doctrine. Conspiracy by its nature does not require that all parties play the same part at the same time in an act to conspire, only that they play some part at some time (47) Beltz Travel Serv., Inc. v. Int’l Air Transp. Ass’n, 620 F.2d 1360, 1366–67 (9th Cir.1980). . Any co-conspirator is subject to liability for all acts committed in furtherance of the conspiracy to restrain trade (48)Id.. Defendants would thus be held jointly and severally liable to the certified class members.
KEYPOINTS BY NEEDY ANIMATOR
- Elements of fraudulent concealment included that only senior execs and HR were privy to the anti-solicitation agreement, used code names for the scheme, and used personal instead of business emails to share such conversations among other concealing behaviors.
- During a similar case (High-Tech), animation studios filed protective orders on court records to restrict access to the public. The effort to conceal every record, no matter how small, contributed to making Plaintiffs suspicious and led them to dig deeper.
- Any co-conspirator regardless of when and how much a part they play in a conspiracy is held equally and fully liable to Plaintiffs.
SECTION 5: WHAT’S NEXT?
What’s next? Discovery, a formal process of exchanging information between the parties about witnesses and evidence to be presented at trial, is scheduled to continue until mid-October. Afterwards, experts retained by each side will prepare their reports, rebut their opponents’ reports, and the aforementioned motions for summary judgment will likely rear their heads by February 2017. If neither party wins their motion to dismiss, nor reaches a confidential settlement agreement, then a trial will follow in mid-2017(49) Brian Gabriel, What Is the Animation Wage-Fixing Lawsuit?, Cartoon Brew, January 19, 2016. If you are now super jazzed to read the full opinion containing all the gory details, be my guest.
SUMMARY OF THE ANTITRUST LAW CASE by the Needy Animator
PIXAR and DREAMWORKS, among other studios, are being sued by former employees for allegedly fixing wages and sharing employee compensation data that allegedly artificially depressed salaries for artists, animators, and VFX artists. Although the court dismissed the complaint the first time that it was filed, it reexamined the second complaint under the legal doctrine of fraudulent concealment. There will be a hearing in May of 2016 for the judge to decide what parties will be represented by the former animation employees. Those that may have been affected include workers employed by the named animation studios from an estimated time range of 2001-2010. If by February 2017 there is no move to settle nor dismissal under summary judgment, there will be a public trial mid-2017.
DISCLAIMER: THE INFORMATION CONTAINED IN THIS BLOG IS FOR INFORMATION PURPOSES ONLY AND IS NOT LEGAL ADVICE.
Principal Attorney Lee Morin is founder and owner of MORIN Entertainment Law, a boutique practice based in metro Atlanta that specializes in Art & Entertainment Law, Business & Intellectual Property Law, & Nonprofit Law. We serve a wide array of creative industries, including music, film & television, game design, book publishing, theatre & performing arts, visual arts, and fashion design. Please sign up for our monthly newsletter to receive news, events, & special reports delivered quarterly to your inbox. Thank you for your interest!