Antitrust Law Daily Wrap Up, TOP STORY—N.D. Cal.: Anti-solicitation conspiracy claims against Microsoft rejected as untimely, (Apr 13, 2015)

By Greg Hammond, J.D.

Two former employees who filed a putative class action against Microsoft Corp. failed to state timely claims that Microsoft conspired with other technology companies in agreements to suppress compensation. Claims brought under the Sherman Act, the California Cartwright Act, the California Unfair Competition Law (UCL), and the California anti-covenant not to compete law (California Business and Professions Code Section 16600) were therefore dismissed (Ryan v. Microsoft Corp., April 10, 2015, Koh, L.).

Background. The former employees, including Deserae Ryan and Trent Rau, filed their class action complaint in October 2014, alleging that, in 2007, Microsoft entered into express anti-solicitation agreements with various other technology companies, precluding the companies from attempting to recruit each other’s employees. Specifically, Microsoft allegedly agreed to be a party to an anti-solicitation scheme that prohibited the parties from directly cold calling employees at other companies, a supposedly “essential and effective recruiting method.” Microsoft additionally was alleged to have entered into a restrictive hiring agreement, in which the technology companies agreed not to pursue manager level and above candidates for product, sales, or general and administrative roles, even if they applied to any of the other parties to the anti-solicitation agreement. The plaintiffs alleged that Microsoft entered into the agreements with the intent and effect of suppressing compensation and mobility of its employees.

Microsoft moved to transfer venue and, alternatively, to dismiss the Sherman Act, Cartwright Act, UCL and covenant not to compete claims.

Transfer of venue. The court first denied Microsoft’s motion to transfer venue, finding unpersuasive the companies’ arguments that the plaintiffs’ employment agreements select the Western District of Washington forum and that the convenience of the parties and witnesses and the interest of justice favor transfer.

Specifically, the court found that the forum selection clauses in the plaintiffs’ employment agreements did not apply in the instant action because the instant claims do not “arise out of” the employment agreements. Microsoft failed to demonstrate that the class action claims cannot be decided without determining whether the parties were in compliance with the contract. The forum selection clauses, which cover “any action arising out of” the plaintiffs’ employment agreements, did not cover the instant dispute, which alleges that Microsoft engaged in anticompetitive behavior by conspiring with other technology companies to suppress employee compensation and restrict mobility.

Moreover, Microsoft failed to carry its burden of demonstrating that transfer of venue was warranted. In viewing the totality of the circumstances, the court found that the action could have been brought in the Western District of Washington, but that the interest of justice and convenience of the parties did not call for the transfer of the class action. The motion to transfer was therefore denied.

Claims dismissed. Nevertheless, the court granted Microsoft’s motion to dismiss, finding that all four claims were barred under the applicable four-year statutes of limitations. First, the court determined that the Sherman Act, Cartwright Act, and UCL all provide for a four-year statute of limitations. Using California’ catch-all statute of limitations, the court also applied a four-year limit to the anti-covenant not to compete claim.

Next, the court found that the Sherman Act claim was barred because the claim began to accrue in 2007, but the complaint was not filed until October 2014. The narrow exception for unascertainable damages was inapplicable because the plaintiffs failed to show they would not have been able to allege the fact of damages at the time Microsoft allegedly entered into the anticompetitive agreements. The “continuing violations” exception also was inapplicable. The “bald assertion” that Microsoft’s conspiracy was a continuing violation that “repeatedly invaded” their interests was insufficient as a matter of law because the plaintiffs failed to plead that Microsoft engaged in an overt act that inflicted new and accumulating injury.

Third, the court determined that the Sherman Act claim could not be tolled under the fraudulent concealment doctrine, because Microsoft had no duty to affirmatively disclose its alleged illicit conduct, and the plaintiffs’ allegations concerning fraudulent concealment failed to meet the heightened pleading standard under Federal Rule of Civil Procedure 9(b). Specifically, the plaintiffs failed to allege when, where, or to whom Microsoft purportedly provided false and misleading explanations, or the content of such misleading explanation for hiring, recruiting, and compensation decisions made under the conspiracy.

The Cartwright Act, the UCL, and the anti-covenant not to compete law claims, which accrued in 2007, were also time barred, the court concluded, because the plaintiffs failed to identify any circumstances warranting a deviation from the default common law last element accrual rule.

The case number is 14-CV-04634-LHK.

Attorneys: Jeffrey Lee Hogue (Hogue Belong) for Deserae Ryan. Robert J. Maguire (Davis Wright Tremaine LLP) for Microsoft Corp.

Companies: Microsoft Corp.

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