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The legal controversy over secret agreements in the entertainment industry to deny animation workers better work opportunities got a lot more serious on Thursday when a judge agreed to certify a class action against Disney and its subsidiaries. However, it was not all bad news for the Mickey Mouse company in court on Thursday. In a separate lawsuit brought by a shareholder over these anti-poaching pacts, Disney’s board members were granted a motion to dismiss.
Last September, Eugene Towers brought a stockholder-derivative complaint on behalf of the company that targeted Disney CEO and chairman Bob Iger, Twitter CEO Jack Dorsey (who joined Disney’s board in 2013), Facebook COO Sheryl Sandberg (on Disney’s board since 2009), former Starbucks CEO Orin Smith (since 2006) and others.
The lawsuit alleged that the 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 caused “internal control failures.”
On Thursday, U.S. District Judge Beth Freeman went ahead with a ruling she informed the parties she’d be making at a hearing on May 19 that the plaintiffs failed to establish sufficient facts regarding the Disney board’s knowledge of any conspiracy.
The motion to dismiss is granted with leave to amend, meaning that the plaintiffs can try again with an amended complaint, but the judge has struck down a couple of theories that would have moved this lawsuit forward.
That includes one board member allegedly discussing the conspiracy with other companies. “However, under Delaware law, one director’s knowledge does not impute to any other for demand futility purposes,” writes the judge.
And how about Disney’s acquisition of Pixar? The plaintiffs argued that due diligence should have revealed what was happening. “An allegation that a defendant should have known of misconduct does not constitute particularized facts of actual knowledge,” responds Freeman.
Disney board members are for the time safe from liability, and a lawsuit that was demanding restitution to Disney plus orders to reform and improve the company’s corporate governance won’t head into any sort of discovery. But the company still faces the prospect of a trial in the now certified class action from animation workers themselves that will examine the time period between 2004 and 2010 when Pixar and Lucasfilm entered into a gentleman’s agreement with each other and other companies like Sony and DreamWorks to avoid a bidding war over employees. The alleged anti-competitive practices ended once the Justice Department initiated an investigation and later entered into a settlement agreement.
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