Three decades ago, George Lucas sold a computer division of Lucasfilm to Steve Jobs and thus, Pixar was born. At the time, the two companies agreed not to poach each others’ workers. Many years later, Lucasfilm and Pixar would each be acquired by Disney, which is now facing civil lawsuits asserting antitrust violations over the very same Lucas-Jobs anti-poaching pact that was allegedly extended to other companies in the visual effects industry.
In fact, the legal intrigue circling arrangements to not cold call employees now haunts other tech titans, including Facebook COO Sheryl Sandberg and Twitter CEO Jack Dorsey, both of whom are on Disney’s board of directors. In September, Disney stockholder Eugene Towers brought a stockholder-derivative complaint on behalf of the company. He is asserting Sandberg, Dorsey and other directors breached their fiduciary duties for having “allowed or permitted the Company to affirmatively violate antitrust laws, allowed or caused the Company to disseminate false and misleading statements in the Company’s SEC filings and other disclosures” and to have caused “internal control failures.”
On Tuesday, Disney board members led by Robert Iger demanded an end to the shareholder lawsuit.
In a motion to dismiss filed Monday, the board members say that the lawsuit is fatally flawed because Towers never made a demand on the board of directors to investigate and determine whether the corporation should bring action against its very directors and officers.
While the plaintiff may believe the directors are conflicted and don’t have the independence to pursue such an action over their own alleged failure to properly oversee Disney, the motion to dismiss continues by knocking Towers for failing to allege enough particularized facts to prove that directors engaged in bad-faith conduct in their oversight duties.
In 2010, the Justice Department brought a lawsuit over arrangements to freeze wages and not poach employees in the visual effects community. The DOJ lawsuit ended after several companies agreed to not enforce anti-poaching pacts for a period of five years. To settle a civil lawsuit, Pixar and Lucasfilm came to a $9 million settlement, though that hasn’t stopped new claims from being made.
Dorsey, Sandberg and financial services executive Maria Elena Lagomasino joined Disney’s board of directors only recently — after the prohibition on anti-poaching pacts was accepted — so they are probably surprised to be caught up in a dispute that stretches back.
The defendants say Towers has admitted the presence of oversight systems and controls at Disney including the existence of an audit committee as well as a governance and nominating committee along with a conduct policy cautioning Disney employees to comply with antitrust laws.
The board members also attack the lack of support for the proposition they were presiding over “knowingly illegal conduct.” The lawsuit alleges that when Disney acquired Pixar in 2006, the board of directors “should have been alerted” to the anti-poaching pacts. The motion says this falls short of triggering a red flag. And when Disney acquired Lucasfilm in 2012, the motion says that by this time, the “complained-of conduct would have ceased.”
In fact, in an effort to have the Towers lawsuit dismissed, the Disney board members are pointing to the primary inconsistency looming over this action. To survive the statute of limitations, the complaint alleges that anti-poaching practices were “kept secret” and “known only by those necessary to ensure their enforcement,” but if that’s the case, were enough board members sufficiently knowledgeable about what was happening to do anything?
Here’s the full motion to dismiss. The lawsuit demands that the board members provide restitution to Disney plus orders to reform and improve the company’s corporate governance. Disney board members are represented by Jack DiCanio at Skadden, Arps.