Appeals court affirms dismissal of anticompetition conspiracy suit against Walt Disney Co.

By Gabriel Neves | Dec 31, 2018

SAN FRANCISCO — Shareholders of the Walt Disney Company concerned about agreements being made by the board of directors have suffered a loss in court.

U.S. Appeals Judge Milan Smith Jr., on the bench of the U.S. Court of Appeals for the Ninth Circuit, issued a 19-page ruling on Dec. 26 affirming the U.S. District Court for the Northern District of California's decision in a lawsuit filed by Eugene Towers against Disney CEO Bob Iger as well as Alan Bergman, Edwin Catmull, James Rasulo, Thomas Staggs, Susan Arnold, John Chen, Jack Dorsey, Fred Langhammer, Aylwin Lewis, Monica Lozano, Robert Matschulllat, Sheryl Sandberg, Orin Smith and Richard Cook, and The Walt Disney Company.

The ninth circuit affirmed the district court decision that dismissed a derivative suit filed by Disney's shareholders that did not meet the Federal Rule of Civil Procedure Rule 23.1 futility requirement.

The shareholders sued Disney alleging that several members of the company's board of directors participated in a conspiracy aimed at enacting illegal anticompetitive agreements between Disney and other animation studios.

As stated in the ruling, "The conspiracy allegedly began in the mid-1980s, when George Lucas, then-head of alleged co-conspirator Lucasfilm Ltd., LLC (Lucasfilm), sold his company’s computer division to Steve Jobs, former CEO of Apple Computer, Inc. (Apple).1  Jobs named the new company 'Pixar,' and both studios agreed not to recruit each other's employees."

Through the coming years, the process allegedly continued.

"In subsequent years, Pixar’s president, Defendant-Appellee Edwin Catmull, and others allegedly expanded the conspiracy to include Disney, its subsidiary Walt Disney Animation Studios, DreamWorks Animation SKG, Inc, Two Pic MC LLC (formerly known as ImageMovers Digital LLC), Sony Pictures Animation, Inc., Sony Pictures Imageworks, Inc., and Blue Sky Studios, Inc," the ruling said.

The conspiracy, per the ruling, "involved the establishment and enforcement of 'gentlemen’s agreements' to 'artificially restrict competition for labor and thus illegally restrain trade and deflate compensation for employees,'" consisting of "of agreeing to stop the practice of cold calling into other companies, in exchange for the same," in order to keep costs down and "prevent bidding wars."

After a U.S. Department of Justice investigation, many employees filed a class-action lawsuit questioning the scheme.

In his ruling, judge Smith stated that the plaintiff "did not constitute particularized facts demonstrating demand futility," and that "whether the Disney Board’s alleged misconduct was characterized as conscious inaction, or active connivance, plaintiff needed to demonstrate that a majority of the Director defendants knew of the conspiracy—and plaintiff failed to do so."

U.S. Court of Appeals for the Ninth Circuit Case number 17-15770

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