Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: DreamWorks enforces arbitration clause in employee wage suppression suit, (Apr 27, 2015)

By Greg Hammond, J.D.

DreamWorks Animation SKG, Inc. was able to enforce an arbitration clause in an animator’s employment agreement over claims that DreamWorks conspired to fix and suppress employee compensation and to restrict employee mobility. The federal district court in San Jose partially granted DreamWorks’ motion to compel arbitration, finding that there was a colorable argument that the dispute relates to “payment” under the arbitration agreement and the arbitrator has the power to rule on his or her own jurisdiction (Nitsch v. DreamWorks Animation SKG, Inc., April 24, 2015, Koh, L.).

Background. Animator Robert A. Nitsch, Jr. and two others filed a class action against their former employers, including DreamWorks, The Walt Disney Co.; Lucasfilm Ltd., LLC; Pixar; Image Movers, LLC; Two Pic MC LLC; Sony Pictures Animation Inc.; Sony Pictures Imageworks Inc.; and Blue Sky Studios, alleging that the various animation studios engaged in a conspiracy to fix and suppress employee compensation and to restrict employee mobility. Specifically, the plaintiffs alleged that the animation studios suppressed compensation by entering into a scheme not to actively solicit each other’s employees and engaging in “collusive discussions” regarding competitively sensitive compensation information and agreed upon compensation ranges. The defendants collectively argued that Nitsch is bound by an arbitration agreement with DreamWorks and that the court should issue an order: (1) compelling Nitsch to arbitrate his claims against DreamWorks; (2) compelling Nitsch to arbitrate his claims against the other defendants pursuant to the doctrine of equitable estoppel; and (3) staying the prosecution of Nitsch’s claims pending completion of the arbitration.

DreamWorks claims. The arbitration provision in Nitsch’s employment agreement incorporated the American Arbitration Association rules, according to the court, which instills in the arbitrator the power to rule on his or her own jurisdiction, including objections concerning the existence, scope, or validity of the arbitration agreement. Nitsch conceded that the defendants’ claim of arbitrability was not wholly groundless, and the court found that the defendants raised at least a colorable argument that Nitsch’s claim against DreamWorks is related to “payment” under the employment agreement. Consequently, the motion to compel arbitration as to Nitsch’s claims against DreamWorks arising out of his employment at DreamWorks was granted.

Sony Pictures related claims. DreamWork’s motion to compel arbitration relating to Nitsch’s employment at Sony Picture Imageworks was denied, however, because these claims did not fall within the scope of the arbitration clause in Nitsch’s employment agreement with DreamWorks.

Equitable estoppel. The motion to compel arbitration was also denied with regard to the remaining defendants and their theory of equitable estoppel. First, the defendants failed to demonstrate that Nitsch’s claims “rely on” any term of the employment agreements. Specifically, the court found that while Nitsch’s allegations that the defendants engaged in a conspiracy to artificially depress employee compensation and mobility might refer to the employment agreements, they were independently cognizable under the Sherman Act, Cartwright Act, and UCL.

Further, the court found that the defendants’ argument that the arbitration agreement should be enforced to achieve greater efficiency failed to recognize the underlying purpose of the doctrine. The defendants asserted that it would be “unfair” for an arbitrator to resolve the factual and legal questions concerning DreamWorks’ purported participation in a conspiracy that depressed Nitsch’s compensation, and for the court to also resolve the same issues with respect to the other defendants. “Defendants confuse efficiency for fairness,” the court found, noting that potentially duplicative proceedings were not factors to be weighed in the equitable estoppel analysis. The motion to compel was therefore denied with regard to the remaining defendants.

Scope of stay. The court consequently granted a limited stay of Nitsch’s claims against DreamWorks arising out of his employment at DreamWorks. However, he could continue to prosecute his claims against DreamWorks arising from his employment at Sony Pictures. In addition, the request to stay Nitsch’s claims was denied with regard to the remaining defendants.

The case number is 14-CV-04062-LHK.

Attorneys: Daniel A. Small (Cohen Milstein Sellers & Toll PLLC) for Robert A. Nitsch, Jr. Daniel Glen Swanson (Gibson, Dunn & Crutcher LLP) for DreamWorks Animation SKG Inc. Emily Johnson Henn (Covington & Burling LLP) for Pixar, Lucasfilm Limited LLC, and The Walt Disney Co. Stephen V. Bomse (Orrick Herrington & Sutcliffe) for Sony Pictures Animation.

Companies: DreamWorks Animation SKG Inc.; Pixar; Lucasfilm Limited LLC; The Walt Disney Co.; Sony Pictures Animation

Cases: Antitrust CaliforniaNews