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For the past few years, The Walt Disney Co. has been embroiled in legal controversy over an alleged conspiracy that the Justice Department once asserted had the effect of denying those in the visual effects community better work opportunities and better compensation. The company, along with DreamWorks Animation, Sony Pictures and Blue Sky Studios, is now fighting a putative class action claiming a violation of the Sherman Antitrust Act. On Wednesday, however, a California magistrate judge handed down an extraordinary decision that came to the conclusion that secret documents involving former Pixar general counsel Lois Scali don’t establish a criminal or fraudulent scheme.
The seeds of this controversy date back to the 1980s when George Lucas sold his computer division to Steve Jobs, and the two reached an agreement to restrain competition for skilled labor at both Pixar and Lucasfilm. Other companies are said to have been brought into the fold — some operating under a “gentleman’s agreement” not to cold call each other’s employees, provide notifications when making offers, and make no counteroffers. In 2010, after an investigation, the Justice Department reached a settlement with Apple, Google, Intel, Adobe and Pixar that forbade the anti-poaching pacts. Civil lawsuits commenced. The tech companies arrived at a $415 million settlement with former employees while Pixar and Lucasfilm came to a $9 million one. But that wasn’t enough to stop more lawsuits from happening. Last August, U.S. District Judge Lucy Koh refused to dismiss a consolidated class action led by Robert Nitsch Jr.
The case is now in the discovery stage, where a fairly novel side dispute erupted over which documents were shielded by attorney-client privilege.
The plaintiffs in the case aimed to see the Scali documents and argued for something called the “crime-fraud exception,” under which communications aren’t privileged if they are made with the intention of committing or covering up a crime or fraud.
“The existence of Pixar’s conspiracy cannot be disputed,” wrote plaintiff’s lawyers in a motion to compel. “A Department of Justice investigation concluded that Pixar and Lucasfilm ‘agreed to a three-part protocol that restricted recruiting of each other’s employees,’ an agreement that the DOJ deemed ‘a naked restraint of trade that was per se unlawful under Section 1 of the Sherman Act.”
“Nor can Scali’s involvement in, and furtherance of, Pixar’s then-ongoing conspiracy be doubted,” added the plaintiffs. “Indeed, Pixar’s own internal documents and sworn testimony confirm as much.”
In response, Disney framed the the motion as an attempt “to cripple the attorney-client privilege in civil antitrust cases by advancing a sweeping, novel, and unsupported view of the crime-fraud exception. At bottom, Plaintiffs are attempting to shoehorn the critical and contested merits of this entire lawsuit — whether a preponderance of the evidence demonstrates the defendants civilly violated antitrust law as alleged in the complaint — into an early-stage discovery dispute.”
Despite the opposition, U.S. Magistrate Judge Paul Grewal ordered Disney to submit documents for an in-camera review. The outcome, though, might be better than what the defendant expected.
On Wednesday, Grewal wrote in an order that the DOJ’s conclusions were “never admitted or established” and are “irrelevant for purposes of establishing whether the crime-fraud exception applies.”
But even better for Disney’s Pixar, Grewal adds, “Critically, nothing in the documents reviewed moves Plaintiffs closer to the goal line. Put another way, these documents do not establish a Section 1 violation by a preponderance of the evidence any more than the materials previously considered. This does not mean that Plaintiffs are out of luck on the underlying claim — that is a question for a finder of fact on a complete record. It does mean that, on the record assembled and presented to the undersigned, Plaintiffs have not persuaded the undersigned that a per se violation is more likely than not.”
Pixar won’t have to turn over these documents.
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