Tuesday, July 3, 2018
Assault on Studio’s Fixed-Term Contracts Not a SLAPP—Court of Appeal
Netflix, Sued for Poaching Two Top Executives, Counters That Fox Violates UCL by Tying Employees To Contracts; Opinion Says Cross-Complaint Does Not Stem From Protected Conduct
By a MetNews Staff Writer
The Court of Appeal for this district has affirmed the denial of an anti-SLAPP motion by Twentieth Century Fox in response to a cross-complaint against it by Netflix challenging the studio’s efforts to enforce long-term employment contracts.
Although its enforcement efforts include pre-litigation and litigation conduct, Div. Five said in an unpublished opinion Friday, the gravamen of the complaint is that Fox has a practice of tying employees to contracts, keeping their services off the market. The opinion, by Justice Lamar Baker, affirms the denial by Los Angeles Superior Court Judge Gerald Rosenburg of a special motion to strike, finding that protected conduct is not implicated.
The action by Fox alleges that streaming service Netflix, which is now producing its own films, pirated two of its vice presidents—Marcos Waltenberg and Tara Flynn—who were under contract to it. Netflix’s cross complaint alleges that Fox is in violation of the Unfair Competition Law (“UCL”) by preventing others from competing for services of persons employed by Fox.
Three Statutory Bases
The UCL bars practices that are “unlawful,” “unfair” or “fraudulent.” Netflix maintains that Fox’s conduct violates two of the alternative prongs.
It alleges unlawfulness in the form of an improper restraint on trade, in derogation of Business and Professions Code §16600, and unfairness by precluding employee mobility in the workplace and daunting efforts of would-be employers to hire those working for Fox. Netflix alleges that Fox’s anticompetitive intent can be discerned from its practice of releasing some employees from their contracts, but not if the purpose is to go to work for a competitor.
Fox asserted that “enforcement” of contracts with employees necessarily entails prelitigation demands and litigation, and that such activity has been held to be “protected” conduct under Code of Civil Procedure §425.16, the anti-SLAPP statute. Where a lawsuit stems from protected conduct, the burden shifts to the plaintiff or cross-complainant to show a probability of prevailing on the merits.
First Prong Unsatisfied
However, Baker saw no need to reach the second step, declaring that protected conduct had not been shown. He wrote:
“In our independent judgment, Netflix’s cross-claims do not arise from Fox’s prelitigation communications or litigation activity. Rather, Netflix’s claims are predicated on Fox’s business practices related to the fixed-term agreements. As alleged in the cross-complaint, those business practices consist of: (1) requiring certain employees to sign employment agreements that bind the employee to work at Fox for a specified number of years, allow Fox to unilaterally extend the term of the agreement, and purport to give Fox the right to obtain an injunction against the employee to prevent him or her from leaving Fox’s employ; and (2) selectively consenting to the termination of some, but not all, such agreements, depending in part on whether the employee seeking to depart intends to work for a competitor. Though the cross-complaint does contain allegations regarding prelitigation communications by Fox, those communications do not serve as a basis for Fox’s asserted liability and they are incidental to Netflix’s claims. Because we conclude Netflix’s claims do not arise from protected activity, we affirm the denial of the anti-SLAPP motion.”
The case is Twentieth Century Fox Film Corp. v. Netflix, Inc., B280607.
Attorneys on appeal are Daniel M. Petrocelli, Molly M. Lens, J. Hardy Ehlers, and Jonathan Hacker of O’Melveny & Myers for Fox and Eric A. Shumsky, Karen G. Johnson-McKewan, and Lynne C. Hermle of Orrick, Herrington & Sutcliffe for Netflix.
Fox issued a statement pointing out that the decision “has no bearing on the merits of Fox’s claim that Netflix has illegally solicited and induced employees to break their fixed-term employment contracts,” adding:
“As Netflix has reluctantly admitted during this litigation, fixed-term employment contracts are enshrined in the California Labor Code, and Fox looks forward to vindicating its position in Court.”
“We appreciate the court’s careful consideration of the arguments and are pleased to see that the decision fully supports Netflix. Fox has prevented Netflix from litigating its challenge to Fox’s illegal employment practices, and this decision puts an end to that delay. This is an important case and we are encouraged that it now can move forward.”
A trial setting conference in the case, being heard in Santa Monica, has been slated for July 24. Former Los Angeles County Bar Association President Richard Chernick has been designated as discovery referee.
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