Towers v. Iger, 122618 FED9, 17-15770

Docket Nº:17-15770
Opinion Judge:MILAN D. SMITH, JR. JUDGE
Party Name:Eugene F. Towers, Derivatively on Behalf of The Walt Disney Company, Plaintiff-Appellant, v. Robert A. Iger; Alan Bergman; Edwin Catmull; James A. Rasulo; Thomas O. Staggs; Susan E. Arnold; John S. Chen; Jack Dorsey; Fred H. Langhammer; Aylwin B. Lewis; Monica C. Lozano; Robert W. Matschullat; Sheryl Sandberg; Orin C. Smith; Richard W. Cook; ...
Attorney:Steven M. McKany (argued), Gina Stassi, Kevin A. Seely, and Brian J. Robbins, Robbins Arroyo LLP, San Diego, California, for Plaintiff-Appellant. Allen J. Ruby (argued), Richard S. Horvath Jr., and Jack P. DiCanio, Skadden Arps Slate Meagher & Flom LLP, Palo Alto, California; Cliff C. Gardner, Sk...
Judge Panel:Before: SIDNEY R. THOMAS, Chief Judge, MILAN D. SMITH, JR., Circuit Judge, and ELAINE E. BUCKLO, District Judge.
Case Date:December 26, 2018
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Eugene F. Towers, Derivatively on Behalf of The Walt Disney Company, Plaintiff-Appellant,

v.

Robert A. Iger; Alan Bergman; Edwin Catmull; James A. Rasulo; Thomas O. Staggs; Susan E. Arnold; John S. Chen; Jack Dorsey; Fred H. Langhammer; Aylwin B. Lewis; Monica C. Lozano; Robert W. Matschullat; Sheryl Sandberg; Orin C. Smith; Richard W. Cook; The Walt Disney Company, a Delaware corporation, Nominal Defendant, Defendants-Appellees.

No. 17-15770

United States Court of Appeals, Ninth Circuit

December 26, 2018

Argued and Submitted November 14, 2018

Appeal from the United States District Court for the Northern District of California Beth Labson Freeman, District Judge, Presiding No. 5:15-cv-04609-BLF

Steven M. McKany (argued), Gina Stassi, Kevin A. Seely, and Brian J. Robbins, Robbins Arroyo LLP, San Diego, California, for Plaintiff-Appellant.

Allen J. Ruby (argued), Richard S. Horvath Jr., and Jack P. DiCanio, Skadden Arps Slate Meagher & Flom LLP, Palo Alto, California; Cliff C. Gardner, Skadden Arps Slate Meagher & Flom LLP, Wilmington, Delaware; for Defendants-Appellees.

Before: SIDNEY R. THOMAS, Chief Judge, MILAN D. SMITH, JR., Circuit Judge, and ELAINE E. BUCKLO, [*] District Judge.

SUMMARY[**]

Shareholder Derivative Action

The panel affirmed the district court's dismissal of a shareholder derivative suit on behalf of The Walt Disney Company because of plaintiff's failure to satisfy Fed.R.Civ.P. 23.1's demand futility requirement.

Plaintiff alleged that Disney's Board of Directors and several corporate officers participated in a conspiracy to enact illegal anticompetitive agreements between Disney and other animation studios. Plaintiff, admittedly, did not make a demand on the Board, and therefore, needed to plead the reasons why such demand would have been futile.

The panel held that plaintiff's amended complaint did not constitute particularized facts demonstrating demand futility. The panel further held 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.

OPINION

MILAN D. SMITH, JR. JUDGE

Plaintiff-Appellant Eugene F. Towers (Plaintiff) brought a shareholder derivative action on behalf of The Walt Disney Company (Disney), alleging that its board of directors and several corporate officers participated in a conspiracy to enact illegal anticompetitive agreements between Disney and other animation studios. The district court dismissed the suit, concluding that the action could not be maintained because Plaintiff failed to satisfy Federal Rule of Civil Procedure 23.1's demand requirement. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

I. Factual Background

Plaintiff is a stockholder of Disney, a Delaware corporation headquartered in Burbank, California. Plaintiff's amended complaint alleged that Disney and other leading animation studios and special effects firms engaged in a long-running, illicit conspiracy to suppress the compensation of skilled technicians.

A. The Alleged Conspiracy

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." At that time, Pixar and Lucasfilm agreed to refrain from recruiting each other's employees. 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 (Disney Animation Studios), DreamWorks Animation SKG, Inc. (DreamWorks), Two Pic MC LLC (formerly known as ImageMovers Digital LLC) (ImageMovers), Sony Pictures Animation, Inc., Sony Pictures Imageworks, Inc., and Blue Sky Studios, Inc.

According to Plaintiff's amended complaint, the conspiracy primarily 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 . . . . The [] Agreements consisted primarily of agreeing to stop the practice of cold calling into other companies, in exchange for the same." Plaintiff explained that "[c]old calling, where employers call employees working for another company seeking to recruit or 'poach' them, is a vital tool for acquiring skilled labor, particularly in competitive fields." Entering into agreements to prohibit cold calling allowed the conspirators to "keep costs down and prevent bidding wars."

B. Disney's Role

As of the date of the filing of Plaintiff's amended complaint, Defendants-Appellees Robert A. Iger, Susan E. Arnold, John S. Chen, Jack Dorsey, Fred H. Langhammer, Aylwin B. Lewis, Robert W. Matschullat, Sheryl Sandberg, and Orin C. Smith (together with Defendant-Appellee Monica C. Lozano, 2 the Director Defendants) served on Disney's board of directors (the Board). According to the complaint, the remaining individual Defendants-Appellees were current or former officers of Disney or its subsidiaries and divisions: Catmull was president of Disney Animation Studios, Alan Bergman was president of The Walt Disney Studios (Disney Studios), James A. Rasulo was an advisor to Disney's CEO and was formerly senior vice president and CFO, Thomas O. Staggs was formerly COO and an advisor to the CEO, and Richard W. Cook was formerly chairman of Disney Studios (collectively, the Officer Defendants, and together with the Director Defendants, Defendants). In addition to serving on the Board, Iger was also Disney's chairman and CEO, and previously served as its president and COO.

Plaintiff alleged that Disney participated in the conspiracy since at least 2005, as evidenced by an internal Pixar email confirming that Pixar would not recruit workers from Disney. The email noted that "[t]his agreement is mutual." In 2006, Disney purchased Pixar and appointed Catmull-the purported architect of the conspiracy-to run Disney Animation Studios. As part of the purchase negotiations, Disney allegedly agreed to abide by the conspiracy, with the then-chairman of Disney Studios, Cook, explicitly endorsing the scheme in an email exchange with Catmull.

C. The DOJ Investigation and Subsequent Litigation

Beginning in 2009, the Department of Justice (DOJ) conducted an investigation of hiring practices in the high-tech sector (the DOJ Investigation). On September 24, 2010, the DOJ filed a complaint against Pixar (by then a wholly owned subsidiary of Disney), Apple, Adobe Systems Inc., Google Inc., Intel Corp., and Intuit Inc.; three months later, it filed a similar suit against Lucasfilm. In these actions, the DOJ alleged that the companies employed anti-poaching agreements that were per se unlawful restraints of trade under antitrust laws. The companies settled with the DOJ in 2010, and final consent judgments were disclosed when the actions were publicized. These consent judgments...

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