Fox Says Netflix Dispute May Disrupt Business Operations at Highest Level

The studio demands an appellate court move quickly in deciding the legality of its employment agreements with its most senior executives.
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Rupert Murdoch

Twenty-First Century Fox is requesting that a California appellate court intervene in its dispute with Netflix over executive poaching. The Rupert Murdoch-led company doesn't believe Netflix should be allowed to challenge the legality of its fixed-term employment agreements. Last month, a Los Angeles Superior Court judge disagreed

In a writ petition filed on Tuesday, Fox told the appeals court, "Unless reviewed now, the order will unleash months and possibly years of litigation and uncertainty over the enforceability of agreements affecting Fox's executive workforce, and disrupting Fox's business operations at the highest level — which of course is an essential purpose of Netflix's cross-complaint. And not just Fox's operations — the order also casts a shadow over all the California employers and employees who depend on fixed-term agreements for the mutual stability they provide."

Fox also wanted the proceedings over Netflix's claims halted at the lower court, but California's 2nd Appellate District didn't take long to reject a stay request due to an "inadequate showing of urgency."

That doesn't mean Fox won't get a pause anyway. (More on that in a moment.) But as Fox's lawyer Daniel Petrocelli makes clear in appellate papers, there's some immediate risk that the hunting season on Fox executives has begun.

First, some background.

Fox sued Netflix in September with the allegation that the streamer had induced programming executive Tara Flynn and marketing executive Marcos Waltenberg to breach their employment agreements.

That provoked Netflix to counterclaim that Fox's "take it or leave it" deals with executives amounted to "involuntary servitude" in violation of California Business and Professions Code Section 16600.

Fox attempted to stop Netflix's cross-complaint by two methods.

The first was an anti-SLAPP motion that argued that Netflix's cross-complaint was based on protected activity — Fox's enforcement of its employment contracts. Los Angeles Superior Court Judge Gerald Rosenberg rejected this by reasoning that Netflix was only challenging "the alleged use of agreements that unlawfully restrict[s] the mobility of employees" rather than "the means of enforcement whether by cease and desist letter or litigation."

Fox also tried to stop Netflix via a demurrer that raised the issue of whether Netflix had properly stated a claim of an "unlawful" or "unfair" business practice. Fox attempted to challenge Netflix's standing to bring its claims as well as questioned Netflix's interpretation of the relevant statutes. Rosenberg denied Fox here as well. The case proceeds, but how exactly?

California's SLAPP statute has an automatic right of appeal, meaning that Fox will be able to present its arguments to a higher authority. Because of this, Fox will also get to stop discovery as it relates to the counterclaims during the pendency of the appeal. But if Fox can't convince the 2nd Appellate District that Netflix's cross-complaint is based on its protected litigation activity, the appeals court justices needn't bother to address the merits of Netflix's challenge to fixed-term employment agreements.

That's why in a petition for writ of mandate, Fox is demanding a California appeals court not only take up Rosenberg's SLAPP decision, but also scrutinize his order concerning the demurrer. For the latter, Fox needs the 2nd Appellate District to grant review. Interlocutory appeals — ones before final judgment are rendered — often are denied, so there's the possibility that hundreds of Fox's contracts with its most senior business managers will hang in limbo over the next few years.

Stressing the stakes, Petrocelli urges intervention.

"Netflix's claims also may encourage others to attempt to induce Fox employees to breach those agreements, causing harms that a decision years from now declaring Fox's contracts valid will not be adequate to remedy," he writes. "There is no reason to risk those consequences or allow that uncertainty to linger, when Netflix's theory is wrong as a matter of law."