Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 1 of 63 1 ROBBINS ARROYO LLP BRIAN J. ROBBINS (190264) 2 brobbins@robbinsarroyo.com KEVIN A. SEELY (199982) 3 kseely@robbinsarroyo.com GINA STASSI (261263) 4 gstassi@robbinsarroyo.com MICHAEL J. NICOUD (272705) 5 mnicoud@robbinsarroyo.com 600 B Street, Suite 1900 6 San Diego, CA 92101 Telephone: (619) 525-3990 7 Facsimile: (619) 525-3991 8 Attorneys for Plaintiff 9 [Additional Counsel on Signature Page] 10 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION 11 12 13 EUGENE F. TOWERS, Derivatively on Behalf of THE WALT DISNEY 14 COMPANY, Plaintiff, 15 16 v. Case No. 5:15-cv-04609-BLF VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT 17 ROBERT A. IGER, ALAN BERGMAN, EDWIN CATMULL, JAMES A. RASULO, 18 THOMAS O. STAGGS, SUSAN E. ARNOLD, JOHN S. CHEN, JACK 19 DORSEY, FRED H. LANGHAMMER, AYLWIN B. LEWIS, MONICA C. 20 LOZANO, ROBERT W. MATSCHULLAT, SHERYL SANDBERG, ORIN C. SMITH, 21 and RICHARD W. COOK, Defendants, 22 23 – and – 24 THE WALT DISNEY COMPANY, a Delaware corporation, 25 Nominal Defendant. DEMAND FOR JURY TRIAL 26 [REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED] 27 28 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 2 of 63 1 Plaintiff Eugene F. Towers ("Plaintiff"), by and through his undersigned attorneys, hereby 2 submits this Verified Amended Stockholder Derivative Complaint (the "Complaint") for the benefit 3 of nominal defendant The Walt Disney Company ("Disney" or the "Company") against certain 4 current and/or former members of its Board of Directors (the "Board"), executive officers, and other 5 individuals, seeking to remedy defendants' breaches of fiduciary duties and unjust enrichment from 6 2006 to the present (the "Relevant Period"). Plaintiff alleges the following based on his counsel's 7 investigation, including a review of legal and regulatory filings, press releases, analysts' calls, 8 industry publications, and other documents. Plaintiff's allegations are also based, in part, on internal 9 corporate records obtained pursuant to two stockholder inspection demands made by Plaintiff 10 pursuant to 8 Delaware General Corporation Law Code Section 220 ("Section 220").1 11 NATURE OF THE ACTION 12 1. This action concerns the Company's participation in an illegal conspiracy to suppress 13 the compensation of its skilled labor. Specifically, the Company, under the Individual Defendants' 14 (as defined herein) direction and on their watch, participated in an illegal wage suppression 15 conspiracy with numerous competitors including: Pixar, Blue Sky Studios, Inc. ("Blue Sky"), 16 DreamWorks Animation SKG, Inc. ("DreamWorks"), Two Pic MC LLC f/k/a ImageMovers Digital 17 LLC ("ImageMovers"), Lucasfilm Ltd., LLC ("Lucasfilm") and its division Industrial Light & 18 Magic ("ILM"), Sony Pictures Animation, Inc. and Sony Pictures Imageworks, Inc. (collectively, 19 "Sony") (collectively with Disney, the "Co-Conspirators"). 20 2. The Individual Defendants established and enforced secretive "gentleman's 21 agreements" with other peer and competitor companies to artificially restrict competition for labor 22 and thus illegally restrain trade and deflate compensation for employees (the "Anticompetitive 23 24 1 While Plaintiff and Plaintiff's counsel have conducted their own independent investigation pursuant to Section 220, some of the facts alleged herein are based on allegations, testimony, and 25 other documents contained and/or referenced in the Second Consolidated Amended Class Action 26 Complaint filed in In re Animation Workers Antitrust Litigation, Master Docket No. 14-cv-4062LHK (N.D. Cal.) (the "Animation Action"). 27 28 -1VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 3 of 63 1 Agreements"). The Anticompetitive Agreements consisted primarily of agreeing to stop the 2 practice of cold calling into other companies, in exchange for the same. Cold calling, where 3 employers call employees working for another company seeking to recruit or "poach" them, is a 4 vital tool for acquiring skilled labor, particularly in competitive fields. The Anticompetitive 5 Agreements prevented this practice in order to keep costs down and prevent bidding wars. These 6 artificial restraints on a free competitive marketplace for employers and employees violated 7 antitrust laws. 8 3. The Individual Defendants and Co-Conspirators' actions caused these companies, 9 including Disney, to become the subjects of various costly legal actions such as antitrust class 10 actions (including the Animation Action) and investigations and actions brought by the U.S. 11 Department of Justice (the "DOJ"). 12 4. The roots of the illegal conspiracy to suppress the compensation of skilled labor in 13 animation studios reaches back to the mid-1980s when George Lucas ("Lucas"), the former 14 Lucasfilm Chairman of the board of directors and Chief Executive Officer ("CEO"), sold 15 Lucasfilm's "computer division," then a "tech, research and development company," to Steve Jobs 16 ("Jobs"), who had recently left his prior employment at Apple Inc. ("Apple") as its CEO. Jobs 17 named his new company "Pixar."2 Disney has admitted that Pixar and Lucasfilm entered into an 18 agreement not to recruit each other's employees.3 19 5. Lucas and Jobs' deputy, Pixar's President defendant Edwin Catmull ("Catmull"), 20 along with other senior executives, subsequently reached an agreement to restrain their competition 21 for the skilled labor that worked for the two companies. According to the Animation Action, Pixar 22 drafted the terms of the agreement and communicated those terms to Lucasfilm; both then 23 24 2 As discussed herein, in 2006, Disney agreed to purchase Co-Conspirator Pixar in an all-stock 25 transaction worth $7.4 billion (the "Pixar Merger"). 26 3 Disney made this and other relevant admissions in its answer to the Second Consolidated Amended Class Action Complaint in the Animation Action. 27 28 -2VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 4 of 63 1 communicated the agreement to senior executives and select human resources ("HR") and recruiting 2 employees. 3 6. Although the conspiracy began with Pixar and Lucasfilm (both of which are now 4 wholly-owned subsidiaries of Disney), other companies joined the conspiracy under defendant 5 Catmull's leadership. Companies later joining the conspiracy include, at least, Disney and its studio 6 Walt Disney Animation Studios, DreamWorks, ImageMovers, Sony and Blue Sky. 7 7. Disney was a participant in the Anticompetitive Agreement conspiracy at least as far 8 back as September of 2005. An e-mail from within Pixar confirmed that Pixar would not recruit 9 workers out of Disney or other studios. It noted specifically that "[t]his agreement is mutual." 10 8. Disney's participation deepened in 2006, when it purchased Pixar and appointed 11 defendant Catmull (one of the architects of the conspiracy from the beginning) to run Walt Disney 12 Animation Studios. 13 9. Plaintiff obtained internal documents from Disney through a Section 220 books and 14 records request that 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 5 of 63 1 2 3 4 As 5 documented throughout, emails demonstrate that defendants Cook and Catmull, who presented to 6 the Board throughout this process, were actively involved with the illegal Anticompetitive 7 Agreements. 8 10. Indeed, the then-Chairman of Disney, defendant Richard W. Cook ("Cook") 9 explicitly approved Pixar and Disney's participation in the anti-solicitation scheme when informed 10 of it. Specifically, according to the Animation Action, defendant Catmull explained to defendant 11 Cook that "all of the companies up here – Pixar, ILM, Dreamworks, and couple of smaller places 12 [sic] – have conscientiously avoided raiding each other" and explained that the concern was that 13 companies offering employees "a substantial salary increase" will "seriously mess[] up the pay 14 structure." Defendant Cook responded succinctly: "I agree." He promised to "reaffirm our position 15 again" with ImageMovers, a joint venture in which Disney participated. 16 11. The interaction between defendants Cook and Catmull is just one of many examples 17 of the way in which the Co-Conspirators' conspiracy operated over the years. The conspiracy was 18 actually quite simple and employed two distinct (and illegal) methods and tactics aimed at 19 suppressing compensation: (i) the Co-Conspirators affirmatively agreed not to solicit each other's 20 employees; and (ii) the Co-Conspirators engaged in collusive discussions and meetings in which 21 they exchanged competitively sensitive compensation information and agreed upon compensation 22 ranges, in order to limit the compensation offered to current and prospective employees. 23 12. The illegal conspiracy eventually caught up with the Co-Conspirators starting in 24 2009, when the DOJ began an investigation of some of their hiring practices (the "DOJ 25 Investigation"). After about a year of investigating their hiring practices, on September 24, 2010, 26 the DOJ filed a complaint against Pixar, a wholly owned subsidiary of Disney, Adobe Systems 27 Incorporated ("Adobe"), Apple, Google Inc. ("Google"), Intel Corporation ("Intel"), and Intuit Inc. 28 -4VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 6 of 63 1 ("Intuit"). On December 21, 2010, a similar but separate suit was filed against Lucasfilm, another 2 wholly owned subsidiary of Disney (collectively, the "DOJ Actions"). 3 13. The DOJ Actions alleged that these companies employed anti-poaching agreements, 4 which amounted to restraints of trade that were per se unlawful under the antitrust laws. The DOJ 5 found that the agreements were "facially anticompetitive because they eliminated a significant form 6 of competition to attract high tech employees, and, overall, substantially diminished competition to 7 the detriment of the affected employees who were likely deprived of competitively important 8 information and access to better job opportunities." The DOJ further found that the agreements 9 "disrupted the normal price-setting mechanisms that apply in the labor setting." The companies 10 sued by the DOJ settled in 2010. 11 14. Following the DOJ Investigation and Actions, a number of class actions were filed 12 against the above-named companies. In September 2011, these actions were consolidated in this 13 Court under the caption In re: High-Tech Employee Antitrust Litigation, No. 11-CV-2509-LHK 14 (N.D. Cal.) (the "Silicon Valley Class Action"). In October 2013, Intuit, Pixar, and Lucasfilm 15 reached a tentative settlement agreement wherein Pixar and Lucasfilm (i.e., Disney) agreed to pay 16 $9 million in damages, and Intuit agreed to pay $11 million in damages. In May 2014, the Court 17 approved the $20 million settlement between Lucasfilm, Pixar, and Intuit and their current or 18 former employees. On September 2, 2015, this Court approved the remaining parties' agreement to 19 settle the Silicon Valley Class Action for $415 million. 20 15. Though the DOJ and Silicon Valley Class Actions named Disney's subsidiaries— 21 Lucasfilm and Pixar—as defendants, there was nothing publicly known at that time to implicate 22 Disney (and Disney's directors and officers) in the wrongful conduct. Even as to those subsidiaries, 23 the allegations mainly concerned conduct before Disney acquired them. That began to change in 24 May 2013, when certain court documents were made public in the DOJ Investigation and Actions. 25 Further, in March 2014, the Silicon Valley Class Action made additional documents public. The 26 documents from both cases include certain portions of trial and deposition transcripts and contain 27 28 -5VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 7 of 63 1 evidence of a conspiracy involving numerous additional companies, including Disney (as discussed 2 above). 3 16. Accordingly, in light of Disney's (and others') newly-uncovered involvement in the 4 illegal conspiracy, on September 8, 2014, a former industry employee initiated the Animation 5 Action in this Court and sued Disney, Pixar, Lucasfilm, and several other animation companies on 6 behalf of all employees that worked at those companies at any time from 2004 to the present. The 7 Animation Action contains similar allegations to those made in both the Silicon Valley Class Action 8 and the DOJ Actions. 9 17. The Animation Action alerted Plaintiff to the fact that Disney itself faced serious and 10 substantial harm in light of the anti-competitive practices. It was then that Plaintiff first made an 11 inspection demand on the Company. After negotiating with the Company, Plaintiff received certain 12 of Disney's books and records related to Disney's involvement in the allegations in the Animation 13 Action and the Board's knowledge and responsibility for those actions. Plaintiff later made a 14 second books and records demand to uncover additional documents relating to the wrongdoing 15 alleged herein. 16 18. On August 20, 2015, the Honorable Lucy H. Koh ("Judge Koh") of this Court issued 17 an order, which denied the motion to dismiss in the Animation Action (the "Animation MTD 18 Order"). Judge Koh found that the plaintiffs in the Animation Action had "successfully alleged a 19 single conspiracy to suppress the compensation of Defendants' [including Disney's] employees." 20 MTD Order at 55.4 21 19. Regarding the illegal conspiracy, this Court made numerous findings against the 22 defendants (including Disney) including, inter alia: 23  24 "[T]he factual allegations here plausibly suggest that the purpose of information sharing and the anti-solicitation scheme was to suppress wages." Id. at 54. 25 26 4 Citations to the Animation MTD Order shall appear in the following format: "MTD Order at __." 27 28 -6VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 8 of 63 1  "In sum, the Court finds that Plaintiffs have sufficiently alleged facts showing that Defendants reached an agreement to conspire. Here, Plaintiffs have alleged that Defendants systematically shared information, agreed not to solicit each other's employees, and that the purpose of the information sharing and no-poach scheme was to suppress wages." Id. at 54-55.  "With the above principles in mind, the Court finds that Plaintiffs' allegations, taken as a whole, have stated a plausible claim that Defendants took 'affirmative acts' to mislead the Plaintiffs." Id. at 32.  "In the instant case, the Court finds that Plaintiffs have sufficiently alleged that Defendants both made misleading, pretextual statements and took affirmative steps to keep the alleged conspiracy a secret." Id. at 33. 2 3 4 5 6 7 8 9 10 11 12 13 14 20. Action plaintiffs' motion for class certification (the "Class Cert Order").5 In the Class Cert Order, Judge Koh confirmed that "Plaintiffs have set forth copious common evidence in the form of Defendants' internal work documents, deposition transcripts, and email exchanges between Defendants' directors, officers, and senior managers, all of which support Plaintiffs' allegations that Defendants entered into express agreements not to compete for another's employees and to coordinate compensation policies." Cert Order at 29. 15 16 17 18 19 20 21. 23 24 On June 8, 2016, Disney and some of the other defendants in the Animation Action filed a brief seeking an interlocutory appeal of the Court's Class Cert Order. Disney argued, inter alia, that class certification was not appropriate in the Animation Action because the plaintiffs needed to establish fraudulent concealment of the illicit scheme. On August 29, 2016, however, the Ninth Circuit Court of Appeals denied Disney's request seeking permission to appeal the Class Cert Order. 21 22 On May 25, 2016, Judge Koh issued an Order that granted, in part, the Animation 22. Accordingly, this Court has already found that the Animation Action sufficiently alleged a claim based on substantially the same allegations as pled herein that the Company, under the Individual Defendants' direction and on their watch, was involved in an illegal conspiracy to unlawfully suppress compensation for the entire industry's employees. Significantly, more than half 25 26 5 Citations to the Class Cert Order appear in the following format: "Cert Order at __." 27 28 -7VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 9 of 63 1 of the members of the Board have served as directors of the Company since at least 2006, which, as 2 discussed above, is the timeframe during which Disney became highly active participants in the 3 scheme. 4 5 6 7 8 In addition, Plaintiff's own investigation found e-mails alerting the highest 9 individuals at the Company of the illegal actions, including the e-mail to defendant Cook, described 10 above. Thus, because over half of the Board knew or were reckless in not knowing that under their 11 direction and on their watch the Company was engaging in illegal conduct, demand is excused on 12 this basis alone. 13 23. Finally, because Disney, "actively concealed and ensured the secrecy of the 14 conspiracy," the Company's Relevant Period financial statements and certifications, which failed to 15 disclose the conspiracy, were false and misleading when made. Additionally, because more than 16 half of the Board have served as directors of the Company since 2006 and signed each of the 17 Company's annual reports filed with the U.S. Securities and Exchange Commission (the "SEC"), a 18 majority of the Board have signed and/or certified false and misleading statements and, thus, face a 19 substantial likelihood of liability, which likewise independently excuses a demand. 20 21 JURISDICTION AND VENUE 24. This Court has jurisdiction over this action pursuant to 28 U.S.C. §1332(a)(2) in that 22 Plaintiff and defendants are citizens of different states and the matter in controversy exceeds 23 $75,000, exclusive of interests and costs. This action is not a collusive one to confer jurisdiction on 24 a court of the United States which it would not otherwise have. 25 25. Venue is proper in this district because a substantial portion of the transactions and 26 wrongs complained of herein, including defendants' participation in the wrongful acts detailed 27 herein, occurred in this district. Additionally, defendants have received substantial compensation in 28 -8VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 10 of 63 1 this district by engaging in numerous activities and conducting business here, which had an effect in 2 this district. 3 4 INTRADISTRICT ASSIGNMENT 26. Pursuant to Civil Local Rule 3-2(c) and (e), assignment of this case to the San Jose 5 Division of the United States District Court for the Northern District of California is proper because 6 a substantial part of the events and omissions giving rise to Plaintiff's claims occurred within the 7 San Jose Division. 8 9 THE PARTIES 27. Plaintiff is a current stockholder of Disney and has been continuously since 2003. 10 Plaintiff is a citizen of New Jersey. 11 28. Nominal defendant Disney is a Delaware corporation with principal executive 12 offices at 500 South Buena Vista Street, Burbank, California. Accordingly, Disney is a citizen of 13 Delaware and California. Disney, with its subsidiaries, is a diversified worldwide entertainment 14 company with operations in five business segments: Media Networks, Parks and Resorts, Studio 15 Entertainment, Consumer Products, and Interactive. As of October 3, 2015, Disney employed 16 approximately 185,000 people. 17 29. Defendant Robert A. Iger ("Iger") is Disney's Chairman of the Board and has been 18 since March 2012; CEO and has been since October 2005; and a director and has been since 19 January 2000. Defendant Iger was also Disney's President from January 2000 to at least January 20 2013 and Chief Operating Officer ("COO") from January 2000 to October 2005. Prior to defendant 21 Iger's appointment as Disney's COO, he served as President of Walt Disney International and 22 Chairman of the ABC Group, both Disney subsidiaries. Disney paid defendant Iger the following 23 compensation as an executive: 24 25 26 27 28 -9VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 11 of 63 1 2 3 4 5 6 7 Defendant Iger is a citizen of California. 8 30. Defendant Alan Bergman ("Bergman") is President of The Walt Disney Studios and 9 has been since December 2005. Defendant Bergman previously served in a variety of positions at 10 The Walt Disney Studios including Executive Vice President, Chief Financial Officer ("CFO"), and 11 Senior Vice President. Defendant Bergman is a citizen of California. 12 31. Defendant Catmull is President of Walt Disney Animation Studios of Disney and has 13 been since at least June 2006 and President of Pixar Animation Studios and has been since January 14 2001. Defendant Catmull was also a co-founder of Pixar Animation Studios. Defendant Catmull is 15 a citizen of California. 16 32. Defendant James A. Rasulo ("Rasulo") is an advisor to Disney's Chief Executive 17 Officer, defendant Iger, and has been since July 2015. Defendant Rasulo was also Disney's Senior 18 Executive Vice President and CFO from January 2010 to June 2015 and Chairman of Walt Disney 19 Parks and Resorts from 2000 to December 2009. Disney paid defendant Rasulo the following 20 compensation as an executive: 21 22 23 24 25 26 Defendant Rasulo is a citizen of California. 27 28 - 10 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 12 of 63 1 33. Defendant Thomas O. Staggs ("Staggs") was an advisor to Disney's CEO, defendant 2 Iger, from May 2016 to October 2016. Defendant Staggs was also Disney's COO from February 3 2015 to May 2016. Defendant Staggs was also Chairman of Walt Disney Parks and Resorts 4 Worldwide from January 2010 to February 2015; Disney's Senior Executive Vice President from 5 May 1998 to December 2009; and CFO from May 1998 to December 2009. Disney paid defendant 6 Staggs the following compensation as an executive: 7 8 9 10 11 12 Defendant Staggs is a citizen of California. 13 34. Defendant Susan E. Arnold ("Arnold") is a Disney director and has been since May 14 2007. Defendant Arnold is also Chairman of Disney's Compensation Committee and has been since 15 at least January 2013 and a member of that committee and has been since at least January 2008. 16 Disney paid defendant Arnold the following compensation as a director: 17 18 19 20 21 22 23 Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 Fees Paid in Cash $135,000 $130,000 $125,000 $118,242 $90,000 $90,000 $90,000 $78,750 $31,113 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $82,949 $83,971 $66,000 $24,890 Option Awards $56,006 $18,593 $5,800 - All Other Compensation $21.545 $28,419 $21,714 $13,378 $7,528 $7,476 $3,678 $1,620 - Total $336,595 $330,813 $296,131 $283,209 $237,847 $236,431 $196,242 $152,170 $56,003 Defendant Arnold is a citizen of Ohio. 24 35. Defendant John S. Chen ("Chen") is a Disney director and has been since January 25 2004. Defendant Chen is also a member of Disney's Audit Committee and has been since at least 26 January 2015. Defendant Chen was a member of Disney's Compensation Committee from at least 27 28 - 11 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 13 of 63 1 January 2007 to at least January 2014; and was a member of Disney's Audit Committee in 2006. 2 Disney paid defendant Chen the following compensation as a director: 3 4 5 6 7 8 9 Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Fees Paid in Cash $115,000 $110,000 $110,000 $110,000 $90,000 $90,000 $90,000 $78,750 $75,000 $75,000 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $82,949 $84,773 $70,124 $68,104 $60,000 Option Awards $56,006 $54,694 $48,791 $48,206 $168,360 All Other Compensation $1,509 $5,553 $15,120 $2,862 $4,044 $816 $7,091 $3,089 $5,016 - Total $296,559 $287,947 $274,537 $264,451 $234,363 $229,771 $236,558 $200,754 $196,326 $303,360 10 11 12 13 14 15 Defendant Chen is a citizen of California. 36. Defendant Jack Dorsey ("Dorsey") is a Disney director and has been since December 2013. Defendant Dorsey is also a member of Disney's Governance and Nominating Committee and has been since at least January 2015. Disney paid defendant Dorsey the following compensation as a director: Fiscal Year 2015 2014 16 17 Fees Paid in Cash $115,000 $83,650 Stock Awards $180,050 $134,059 Total $295,050 $217,709 18 Defendant Dorsey is a citizen of California. 19 37. Defendant Fred H. Langhammer ("Langhammer") is a Disney director and has been 20 since January 2005. Defendant Langhammer is a member of Disney's Audit Committee and has 21 been since at least March 2015. Defendant Langhammer was also Chairman of Disney's 22 Compensation Committee from at least January 2008 to at least January 2012; and was a member of 23 that committee from at least January 2006 to at least January 2007 and from at least January 2013 to 24 at least March 2015. Disney paid defendant Langhammer the following compensation as a director: 25 26 27 28 - 12 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 14 of 63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Fees Paid in Cash $115,000 $110,000 $110,000 $116,758 $105,000 $105,000 $105,000 $93,750 $85,042 $75,000 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $82,949 $85,389 $68,640 $67,027 $60,000 Option Awards $56,006 $49,157 $35,788 $31,886 $168,360 All Other Compensation $34,391 $22,028 $23,498 $15,850 $16,936 $5,829 $7,309 $5,357 $2,220 - Total $329,441 $304,422 $282,915 $284,197 $262,255 $249,784 $246,855 $203,535 $186,175 $303,360 Defendant Langhammer is a citizen of Arizona. 38. Defendant Aylwin B. Lewis ("Lewis") is a Disney director and has been since January 2004. Defendant Lewis is also a member of Disney's Audit Committee and has been since at least January 2015 and a member of the Compensation Committee and has been since at least January 2006. Defendant Lewis was Chairman of Disney's Governance and Nominating Committee from at least January 2010 to at least January 2014 and was a member of that committee from at least January 2006 to at least January 2009. Disney paid defendant Lewis the following compensation as a director: Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Fees Paid in Cash $125,000 $126,917 $135,000 $135,000 $115,000 $115,000 $108,376 $88,750 $85,000 $85,000 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $82,949 $84,773 $70,124 $68,267 $60,000 Option Awards $56,006 $54,694 $48,791 $48,206 $168,360 All Other Compensation $5,416 $5,477 $54 $536 - Total $305,050 $299,311 $284,417 $292,005 $260,796 $254,009 $247,843 $207,665 $202,009 $313,360 23 Defendant Lewis is a citizen of Illinois. 24 39. Defendant Monica C. Lozano ("Lozano") served as a Disney director from 25 September 2000 until March 2016. 26 Compensation Committee. Defendant Lozano also served as a member of Disney's Defendant Lozano was Chairman of Disney's Governance and 27 Nominating Committee from at least January 2006 to at least January 2009 and a member of that 28 - 13 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 15 of 63 1 committee during 2010; and a member of the Audit Committee from at least January 2006 to at 2 least January 2007 and from at least January 2011 to at least January 2014. Disney paid defendant 3 Lozano the following compensation as a director: 4 5 6 7 8 9 10 Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Fees Paid in Cash $115,000 $110,000 $110,000 $110,000 $90,000 $90,000 $96,625 $93,750 $94,361 $100,000 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $82,949 $83,971 $71,909 $79,138 $60,000 Option Awards $56,006 $54,694 $52,090 $56,367 $168,360 All Other Compensation $26,651 $29,134 $22,987 $17,753 $18,396 $17,956 $19,512 $17,093 $12,298 - Total $321,701 $311,528 $282,404 $279,342 $248,715 $246,911 $254,802 $234,842 $242,164 $328,360 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Defendant Lozano is a citizen of California. 40. Defendant Robert W. Matschullat ("Matschullat") is a Disney director and has been since at least December 2002. Defendant Matschullat is also Chairman of Disney's Audit Committee and has been since at least January 2013 and a member of that committee and has been since at least January 2009; and a member of the Governance and Nominating Committee and has been since at least January 2010. Defendant Matschullat was also previously Chairman of Disney's Audit Committee from at least January 2006 to at least January 2009. Disney paid defendant Matschullat the following compensation as a director: Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Fees Paid in Cash $145,000 $140,000 $140,000 $130,989 $100,000 $100,000 $95,583 $85,208 $90,000 $90,000 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $82,949 $83,971 $71,613 $74,699 $60,000 Option Awards $56,006 $54,694 $52,090 $52,235 - All Other Compensation $18,860 $44,070 $27,076 $12,076 $20,535 $11,270 $1,935 $2,516 $2,406 - Total $343,910 $356,464 $316,493 $294,654 $260,854 $250,225 $236,183 $211,427 $219,340 $150,000 27 Defendant Matschullat is a citizen of Connecticut. 28 - 14 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 16 of 63 1 41. Defendant Sheryl Sandberg ("Sandberg") is a Disney director and has been since 2 March 2010. Defendant Sandberg is a member of Disney's Governance and Nominating Committee 3 and has been since at least January 2011. Disney paid defendant Sandberg the following 4 compensation as a director: 5 Fiscal Year 2015 2014 2013 2012 2011 2010 6 7 8 9 Fees Paid in Cash $115,000 $110,000 $110,000 $110,000 $90,000 $50,250 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $45,449 All Other Compensation $12,075 $5,176 $13,409 $13,544 - Total $295,050 $294,469 $264,593 $274,998 $243,863 $95,699 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Defendant Sandberg is a citizen of California. 42. Defendant Orin C. Smith ("Smith") is Disney's independent Lead Director and has been since March 2012 and a director and has been since January 2006. Defendant Smith is also Chairman of Disney's Governance and Nominating Committee and has been since at least January 2015 and a member of the Compensation Committee and has been since at least March 2015. Defendant Smith was Chairman of Disney's Audit Committee from at least January 2009 to at least January 2012 and a member of that committee from at least January 2007 to at least January 2008 and from at least January 2013 to at least March 2015. Disney paid defendant Smith the following compensation as a director: Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Fees Paid in Cash $190,000 $173,472 $160,000 $146,621 $105,000 $105,000 $105,000 $87,292 $75,000 $75,000 Stock Awards $180,050 $172,394 $149,417 $151,589 $140,319 $82,949 $85,386 $67,501 $62,594 $60,000 Option Awards $56,006 $39,530 $26,343 $20,036 $168,360 All Other Compensation $30,408 $23,802 $15,000 $9,155 $7,356 $74 $14 $783 - Total $400,458 $369,668 $324,417 $307,365 $252,675 $244,029 $229,930 $181,136 $158,413 $303,360 27 Defendant Smith is a citizen of Washington. 28 - 15 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 17 of 63 1 43. Defendant Cook was Chairman of The Walt Disney Studios of Disney from 2 February 2002 to September 2009. Defendant Cook is a citizen of California. 3 44. Collectively, defendants Iger, Bergman, Arnold, Chen, Catmull, Dorsey, 4 Langhammer, Lewis, Lozano, Matschullat, Sandberg, Cook, Staggs, Rasulo, and Smith shall be 5 referred to herein as the "Individual Defendants." 6 45. Collectively, defendants Chen, Langhammer, Lewis, Smith, Lozano, and Matschullat 7 shall be referred to herein as the "Audit Committee Defendants." 8 46. Collectively, defendants Dorsey, Matschullat, Sandberg, Lewis, Lozano, and Smith 9 shall be referred to herein as the "Governance and Nominating Committee Defendants." 10 11 THE INDIVIDUAL DEFENDANTS' DUTIES 47. By reason of their positions as officers, directors, and/or fiduciaries of Disney and 12 because of their ability to control the business and corporate affairs of Disney and its subsidiaries, 13 the Individual Defendants owed Disney and its stockholders fiduciary obligations of good faith, 14 loyalty, and candor, and were and are required to use their utmost ability to control and manage 15 Disney in a fair, just, honest, and equitable manner. The Individual Defendants were and are 16 required to act in furtherance of the best interests of Disney and its stockholders so as to benefit all 17 stockholders equally and not in furtherance of their personal interest or benefit. Each director and 18 officer of the Company owes to Disney and its stockholders the fiduciary duty to exercise good 19 faith and diligence in the administration of the affairs of the Company and in the use and 20 preservation of its property and assets, and the highest obligations of fair dealing. 21 48. The Individual Defendants, because of their positions of control and authority as 22 directors and/or officers of Disney, were able to and did, directly and/or indirectly, exercise control 23 over the wrongful acts complained of herein. Because of their advisory, executive, managerial, and 24 directorial positions with Disney, each of the Individual Defendants had knowledge of material, 25 non-public information regarding the Company. 26 49. To discharge their duties, the officers and directors of Disney were required to 27 exercise reasonable and prudent supervision over the management, policies, practices, and controls 28 - 16 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 18 of 63 1 of the Company. By virtue of such duties, the officers and directors of Disney were required to, 2 among other things: 3 (a) exercise good faith to ensure that the affairs of the Company and its 4 subsidiaries were conducted in an efficient, business-like manner so as to make it possible to 5 provide the highest quality performance of their business; 6 (b) exercise good faith to ensure that the Company and its subsidiaries were 7 operated in a diligent, honest, and prudent manner and complied with all applicable federal and state 8 laws, rules, regulations and requirements, and all contractual obligations, including acting only 9 within the scope of its legal authority; and 10 (c) when put on notice of problems with the Company's or its subsidiaries' 11 business practices and operations, exercise good faith in taking appropriate action to correct the 12 misconduct and prevent its recurrence. 13 50. Pursuant to the Company's Standards of Business Conduct (the "Code of Conduct"), 14 which applies to every member of the Board, "[i]ntegrity, honesty, trust, respect, playing by the 15 rules, and teamwork—these define not only the operating principles of our Company, but also the 16 spirit of our diverse global workforce and how we function." Regarding the privacy of employees, 17 the Code of Conduct stated: "[a]ny decisions related to hiring, evaluating performance, promoting, 18 disciplining or terminating Cast Members and employees are made fairly, with discretion and 19 respect for privacy." Finally, with regard to compliance with antitrust laws, the Code of Conduct 20 specifically stated: 21 22 23 Antitrust laws (sometimes called "competition laws" or "unfair trade laws") prohibit agreements that unreasonably restrict competition. Don't enter into any agreement or understanding, whether formal or informal, with a competitor, customer or supplier to: set prices or price-related terms, also known as "fixing prices." 24 25 26 51. Pursuant to the Company's Corporate Governance Guidelines (the "Governance Guidelines"), the Board is specifically responsible for, inter alia: 27 28 - 17 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 19 of 63 1 (a) overseeing the conduct of the Company's business and evaluating whether the 2 business is being properly managed; 3 (b) assessing major risk factors relating to the Company and its performance, and 4 reviewing measures to address and mitigate such risks; and 5 (c) reviewing and, where appropriate, approving the Company's major financial 6 objectives, plans, and actions. 7 52. Pursuant to the Audit Committee's Charter, the Audit Committee Defendants are and 8 were required, inter alia, to: 9 (a) review the Company's policies and practices related to compliance with laws, 10 ethical conduct, and conflicts of interest; 11 (b) discuss with management, management auditors, and the Company's 12 independent auditors concerning any deficiencies in the Company's policies and procedures that 13 could adversely affect the adequacy of internal controls and the financial reporting process, review 14 any special audit steps adopted in light of any material control deficiencies, and the timeliness and 15 reasonableness of proposed corrective actions; 16 (c) review material litigation involving the Company; 17 (d) review significant issues between the Company and regulatory agencies; 18 (e) review cases of conflicts of interest, misconduct, or fraud; 19 (f) review draft quarterly and annual financial statements and discussing their 20 appropriateness with management and the Company's independent auditors; and 21 22 (g) 53. review earnings press releases. Pursuant to the Governance and Nominating Committee's Charter, the Governance 23 and Nominating Committee Defendants are and were required, inter alia, to: 24 (a) monitor the implementation and operation of the Governance Guidelines; 25 (b) review the adequacy of the Governance Guidelines in light of broadly 26 accepted practices of corporate governance, emerging governance issues and market and regulatory 27 28 - 18 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 20 of 63 1 expectations, and advise and make recommendations to the Board with respect to appropriate 2 modifications; and 3 (c) identify and review measures to strengthen the operation of the Governance 4 Guidelines. 5 BACKGROUND 6 A. Overview of the Company and Its Policies 7 54. According to Disney's 2015 Annual Report on Form 10-K filed with the SEC on 8 November 25, 2015 ("2015 Form 10-K"), the Company, "together with its subsidiaries, is a 9 diversified worldwide entertainment company with operations in five business segments: Media 10 Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive." Two of 11 the Company's subsidiaries include Co-Conspirators Pixar and Lucasfilm. Pursuant to the 2015 12 Form 10-K, as of October 3, 2015, the Company employed approximately 185,000 people. 13 55. Due to the size of the Company's workforce, the Individual Defendants have 14 repeatedly recognized the significant adverse effects that employment costs can have on the 15 Company and the Individual Defendants' "active" efforts to "control increases" in those costs. For 16 instance, in the Company's 2015 Form 10-K (and in prior Annual Reports), the Individual 17 Defendants have warned the following regarding employee costs: 18 Sustained increases in costs of pension and postretirement medical and other employee health and welfare benefits may reduce our profitability. 19 20 21 22 23 24 25 26 27 28 With approximately 185,000 employees, our profitability is substantially affected by costs of pension benefits and current and postretirement medical benefits. We may experience significant increases in these costs as a result of macro-economic factors, which are beyond our control, including increases in the cost of health care. In addition, changes in investment returns and discount rates used to calculate pension expense and related assets and liabilities can be volatile and may have an unfavorable impact on our costs in some years. These macroeconomic factors as well as a decline in the fair value of pension and postretirement medical plan assets may put upward pressure on the cost of providing pension and postretirement medical benefits and may increase future funding requirements. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce the profitability of our businesses. - 19 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 21 of 63 1 56. Likewise, in the Company's public filings, the Individual Defendants have repeatedly 2 conceded that any labor disputes may disrupt the Company's operations and affect its profitability. 3 For instance, in the 2015 Form 10-K (and in prior Annual Reports) the Individual Defendants 4 stated: 5 6 7 8 9 10 11 12 13 14 Labor disputes may disrupt our operations and adversely affect the profitability of any of our businesses. A significant number of employees in various of our businesses are covered by collective bargaining agreements, including employees of our theme parks and resorts as well as writers, directors, actors, production personnel and others employed in our media networks and studio operations. In addition, the employees of licensees who manufacture and retailers who sell our consumer products, and employees of providers of programming content (such as sports leagues) may be covered by labor agreements with their employers. In general, a labor dispute involving our employees or the employees of our licensees or retailers who sell our consumer products or providers of programming content may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs. 57. Accordingly, the Individual Defendants knew of the importance of monitoring the 15 costs of their employees and of the significant negative effects that would result if a labor dispute 16 were to occur. Thus, by the Individual Defendants' own admissions (which they have made in 17 every Annual Report since at least 2006), the Individual Defendants were not only motivated to 18 keep employee costs as low as possible (which they admittedly "actively sought to control"), but 19 also to affirmatively conceal their actions to, inter alia, avoid any costly labor dispute. 20 B. The Company Requires Specialized Employees to Operate Properly 21 58. One of Disney's chief lines of business is the creation of visual effects and animation 22 for motion pictures. That business depends on the labor of thousands of skilled animators, graphic 23 artists, software engineers, and other technical and artistic workers. Major animated films and films 24 with significant visual effects require hundreds of workers with special training and millions, if not 25 tens of millions, of dollars of investment in the visual effects and animation. 26 59. Visual effects and animation workers frequently obtain formal specialized schooling 27 and training for their craft and then gain invaluable experience and skills specific to the industry 28 - 20 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 22 of 63 1 throughout their careers. They develop and use specialized software and other tools unique to the 2 industry. 3 C. The Co-Conspirators Begin a Massive, Affirmatively Concealed, Illegal Conspiracy 60. The roots of the antitrust conspiracy date back to the mid-1980s when Lucas, the 4 5 6 former Lucasfilm Chairman of the Board and CEO, sold Lucasfilm's "computer division," then a 7 "tech, research and development company," to Jobs, who had recently left the employ of Apple as 8 CEO. Jobs named his new company "Pixar." Defendant Catmull (Lucas' and Jobs' deputy, and 9 Pixar's President), along with other senior executives, subsequently reached an agreement to restrain 10 their competition for the skilled labor that worked for the two companies. 11 61. Although the conspiracy began with Pixar and Lucasfilm, other companies joined the 12 conspiracy under defendant Catmull's leadership. Companies that later joined the conspiracy 13 include, at least, Disney and its Walt Disney Animation Studios, DreamWorks, ImageMovers, 14 Sony, and Blue Sky. 15 62. As Pixar's Vice President of HR, Lori McAdams ("McAdams") wrote in 2005: "With 16 regard to ILM, Sony, Blue Sky, etc., we have no contractual obligations, but we have a gentleman's 17 agreement not to directly solicit/poach from their employee pool." An internal "Competitors List" 18 created by Pixar listed anti-solicitation rules for each of the Co-Conspirators, among other visual 19 effects and animation studios. Walt Disney Animation Studios, Blue Sky, DreamWorks, 20 ImageMovers, and Sony were all listed with directions not to "recruit directly" or "solicit or poach 21 employees." 22 63. Similarly, defendant Catmull explained that the conspiracy was more comprehensive 23 and included a "couple of smaller places" as well as Pixar, Lucasfilm/ILM, and DreamWorks: "[w]e 24 have avoided wars up here in Norther[n] California because all of the companies up here – Pixar, 25 ILM, Dreamworks, and couple of smaller places [sic] – have conscientiously avoided raiding each 26 other." 27 28 - 21 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 23 of 63 1 64. As discussed above, Disney joined the conspiracy soon after. As revealed in the 2 Animation Action, an internal Pixar e-mail from September of 2005 confirmed that Pixar would not 3 recruit workers out of Disney or other studios. Further, this agreement was not one-sided; 4 McAdams pointed out to her colleagues at Pixar, one of whom had complained that someone 5 "might not be up on the details of our restrictions with Disney," that "[t]his agreement is mutual": 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 22 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 24 of 63 1 65. Disney's participation deepened in 2006, when it purchased Pixar and appointed 2 defendant Catmull (i.e., one of the original architects of the conspiracy) to run Walt Disney 3 Animation Studios. Indeed, Disney Chairman defendant Cook explicitly approved Pixar's and 4 Disney's participation in the anti-solicitation scheme when informed of the scheme. Specifically, 5 defendant Catmull explained to defendant Cook that "all of the companies up here – Pixar, ILM, 6 Dreamworks, and couple of smaller places [sic] – have conscientiously avoided raiding each other" 7 and explained that the concern was that companies offering employees "a substantial salary 8 increase" will "seriously mess[] up the pay structure": 9 10 [IMAGE ON NEXT PAGE] 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 23 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 25 of 63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 66. Defendant Cook responded succinctly: "I agree" and promised to "reaffirm our 24 position again," as the following e-mail shows: 25 26 27 28 - 24 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 26 of 63 1 2 3 4 5 6 7 8 9 10 11 67. Similarly, an e-mail revealed in the Animation Action quotes a Walt Disney 12 Animation Studios Director of Animation Resources asking ILM to observe "the Gentlewomen's 13 agreement" concerning the recruiting of digital artists at Disney in 2006. 14 68. Other Co-Conspirators understood that Disney had joined the conspiracy and acted 15 accordingly. For instance, in October 2009, Karen Toliver, VP of Animation at Twentieth Century 16 Fox, e-mailed Brian Keane ("Keane"), COO of Blue Sky, regarding a Disney employee who "would 17 really like to explore opportunities with Blue Sky." Given the agreement between Blue Sky and 18 Disney, however, Keane could not directly recruit the employee: "Of course because he is currently 19 at Disney we need to be sensitive and not reach out in a way that could get back to Disney." 20 69. ImageMovers joined the conspiracy as well. In January 2007, defendant Catmull 21 wrote to defendant Cook that he knew "Zemeckis' company [ImageMovers] will not target Pixar." 22 70. However, ImageMovers was still recruiting employees from other conspiring studios 23 such as DreamWorks and the Orphanage, "offering higher salaries," in defendant Catmull's words. 24 Pixar recognized that the industry would benefit (by less competition) if they could avoid 25 ImageMovers "raiding other studios." And so defendant Catmull advised defendant Cook that he 26 would meet with Steve Starkey ("Starkey"), one of the founders of ImageMovers. Defendant Cook 27 responded: "I agree." 28 - 25 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 27 of 63 1 71. Accordingly, defendant Catmull met with Starkey later that month, who told 2 defendant Catmull that he had "told George [Lucas] that he would not raid ILM." Defendant 3 Catmull impressed upon Starkey "how important it is that we not have a hiring war." The resulting 4 agreement applied "to any type of position," as an October 10, 2008 Lucasfilm e-mail confirmed. 5 ILM Recruiter Lori Beck further confirmed that potential recruits were simply "not available" when 6 "working at IMdigital [sic]." 7 72. Defendant Catmull also advised Walt Disney Studios' President defendant Bergman 8 and Senior Vice President of HR Marjorie Randolph ("Randolph") to require ImageMovers to abide 9 by the terms of the anti-solicitation scheme. Defendant Catmull specifically asked for 10 ImageMovers to stop recruiting from conspiring studios like The Orphanage. He noted that "[t]his 11 kind of relationship has help [sic] keep the peace in the Bay Area and it is important that we 12 continue [sic] use restraint." Defendant Catmull acknowledged the problems caused by the 13 Anticompetitive Agreements, noting that he was worried that "the pressures of production" caused 14 ImageMovers to "be forced to disregard the guidelines in order to get their people": 15 16 [IMAGE ON NEXT PAGE] 17 18 19 20 21 22 23 24 25 26 27 28 - 26 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 28 of 63 1 2 3 4 5 6 7 8 9 10 11 12 13 73. Randolph responded that Disney had, in fact, gotten ImageMovers to agree to the 14 "rules" of the anti-solicitation scheme. 15 D. The Mechanics of the Illegal Conspiracy to Illegally Suppress Wages 16 74. As shown above, the Company, under the Individual Defendants' direction and on 17 their watch, conspired with the other Co-Conspirators to suppress the compensation paid to their 18 respective workers. In order to accomplish their goals, the Individual Defendants caused or 19 permitted the Company to enter into a scheme not to actively solicit its "competitors'" employees. 20 In fact, this Court has already found that the similar allegations pled in the Animation Action 21 sufficiently stated such a claim. Additionally, the Individual Defendants also engaged in or 22 permitted collusive discussions in which they exchanged competitively sensitive compensation 23 information and agreed upon compensation ranges, in order to limit the compensation offered to 24 current and prospective workers. Finally, the Individual Defendants affirmatively concealed the 25 Company's involvement in the illegal conspiracy, thus rendering all of Disney's Relevant Period 26 financial statements false and/or misleading. 27 28 - 27 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 29 of 63 1 1. 2 75. Agreement Not to Solicit Competitors' Employees As part of the conspiracy alleged herein, the Company competed with its so-called 3 "competitors" (i.e., the Co-Conspirators) for the services of highly skilled employees, but agreed to 4 severely limit its competition by abandoning one of the most effective ways of recruiting 5 employees—active solicitation of employees from the other Co-Conspirators. Specifically, as has 6 been successfully alleged in the Animation Action, the Company agreed not to contact their Co7 Conspirators' employees to inform them of available positions unless that individual employee had 8 applied for a job opening on his or her own initiative. 9 76. Such solicitation, often called "cold calling," is a key competitive tool in a properly 10 functioning labor market, especially for skilled labor.6 Competing studios' employees represent one 11 of the main pools of potential hires with the appropriate skills for an open position, and who may be 12 unresponsive to other forms of recruiting. And compared to unemployed workers or employees 13 actively seeking new employment, employees who are not actively seeking to change employers are 14 more likely to be among the most sought after employees. Because they are not looking for other 15 jobs, they are difficult to reach without active solicitation. 16 77. The Company's scheme to restrain competition included notifying each of the 17 Company's competitors when an employee of one of its competitors applied for a job at Disney, and 18 agreed to limit counteroffers in such situations.7 In these circumstances, when an employee at one 19 of the Co-Conspirators contacted a second Co-Conspirator and the second Co-Conspirator decided 20 to make an offer, it would typically: (i) notify the first Co-Conspirator; and (ii) decline to increase 21 its offer if the current employer outbid it.8 22 23 6 See, e.g., Timothy M. Gardener, Jason Stansbury, & David Hart, The Ethics of Lateral Hiring, Business Ethics Quarterly, 20:3, 341-369 (July 2010) (demonstrating that cold calling plays critical 24 role in efficient labor markets). 25 26 7 Disney has admitted that Pixar and Lucasfilm agreed not to "cold call" each other's employees. 8 Disney's answer to the second consolidated amended class action complaint in the Animation 27 Action acknowledged that "if Lucasfilm extended an offer of employment to a current employee of 28 - 28 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 30 of 63 2. 1 Disney and the Other Co-Conspirators Engaged in Direct, Collusive Information Exchanges and Agreed-Upon Compensation Ranges 2 78. The Co-Conspirators' methods to successfully achieve the objects of their conspiracy 3 went beyond their illicit anti-solicitation scheme. For instance, the Co-Conspirators directly 4 communicated and met regularly to discuss and agree upon compensation ranges and 5 communicated directly on an industry-wide basis about their respective internal compensation 6 plans. 7 79. At least once per year, some or all of the Co-Conspirators (including Disney) met in 8 either Northern or Southern California to discuss job positions in common among their studios, in 9 order to set the parameters of a compensation survey. The survey provides wage and salary ranges 10 for the studios' technical or artistic positions, broken down by position and experience level. The 11 Animation Action contains the testimony of McAdams (Pixar's Vice President of HR), which 12 explained that the meeting and survey were instituted "so we can each confirm or adjust our salary 13 ranges." 14 80. This meeting was attended by senior HR and recruiting personnel and other studio 15 executives from Disney, DreamWorks, Pixar, Lucasfilm/ILM, ImageMovers, Sony, Twentieth 16 Century (which includes within it Blue Sky), and Digital Domain, among others. Disney cannot 17 deny its participation in this meeting given its admission in the Animation Action that Disney, 18 Pixar, and Lucasfilm employees attended salary survey meetings. 19 81. The Co-Conspirators used the opportunity presented by the meetings to discuss, 20 agree upon, and set wage and salary ranges during meals, drinks, and other social gatherings that 21 they held outside of the official meetings. As DreamWorks Head of HR Kathy Mandato 22 ("Mandato") said in an e-mail to her counterparts at Disney, Pixar, Blue Sky, and Sony, the survey 23 meeting "presents an opportunity for an intimate group of us to get together." ILM's Senior 24 25 26 Pixar, Lucasfilm would not counter-offer if that candidate received a different offer from Pixar (and vice-versa), and that Pixar and Lucasfilm would notify each other after making an offer to an 27 employee of the other company." 28 - 29 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 31 of 63 1 Director of HR Sharon Coker ("Coker") (soon to become Director of HR at Disney and 2 ImageMovers) termed this annual side meeting the "Director's meeting." These meetings provided 3 the officials an opportunity to discuss compensation ranges in a private setting and collude on the 4 amount they wished to pay employees. 5 82. The Co-Conspirators, including Disney, were successful at using these meetings and 6 other communications to depress compensation throughout the industry. The Co-Conspirators used 7 the Director's meeting to discuss salary changes at other studios and the rates that were being 8 offered. For example, it was at a January 2007 meeting that Pixar learned that ImageMovers was 9 recruiting employees from other studios at a higher salary, leading defendant Catmull to ask 10 Disney's Chairman to step in, as discussed above. As defendant Catmull put it: "The HR folks from 11 the CG studios had their annual get together in the bay area last week. At that time, we learned that 12 the company that Zemeckis is setting up in San Rafael has hired several people away from 13 Dreamworks at a substantial salary increase." This disclosure prompted defendant Catmull and 14 Disney to take action to rein in ImageMovers' hiring, telling its founder Starkey "how important it is 15 that we not have a hiring war," as well as arrange a meeting directly between Starkey and Lucas. 16 83. As alleged in the Animation Action, the Co-Conspirators' HR and recruiting 17 personnel met in addition to the opportunities presented by the meetings. For example, the Co18 Conspirators held a similar "annual HR Directors dinner" in connection with the Siggraph 19 conference, a major visual effects industry conference, which was attended by senior HR personnel 20 of Blue Sky, Pixar, DreamWorks, Lucasfilm and Sony. The heads of HR also met with each other 21 one-on-one on many occasions. 22 84. Similarly, the senior members of the Co-Conspirators' HR departments frequently 23 sought to create new relationships when one of their counterparts was replaced at a Co-Conspirator 24 to ensure the efficacy of communications about the conspiracy. One example revealed in the 25 Animation Action concerned an incident when ILM hired a new head of HR in 2005 and McAdams 26 promptly set up a dinner meeting with her. 27 28 - 30 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 32 of 63 1 85. In addition to their in-person meetings, the Co-Conspirators also communicated 2 through various other means throughout the year about compensation for their workers to 3 implement and enforce the conspiracy.9 For instance, the Co-Conspirators regularly e-mailed each 4 other with specific salary ranges for individual positions, allowing each Co-Conspirator to conspire 5 to suppress wages so that it did not pay workers more than it absolutely needed to. For example, the 6 Animation Action cited a May 13, 2005 e-mail, in which DreamWorks requested that Disney 7 provide "[a]ny salary information you have" on three positions. Disney responded the same day 8 with pay ranges for the positions. 9 86. According to the Animation Action, DreamWorks made a similar request of Pixar 10 the following spring, requesting Pixar's "range of pay" for various positions and making clear that 11 DreamWorks "will be happy to share ours too." At the same time, it contacted Disney and made 12 clear it was surveying multiple studios; Disney responded by providing an exact salary range and 13 offered to "get further into the details" over the telephone. 14 87. The Co-Conspirators' information exchanges and collusive compensation setting was 15 not limited to wages and salaries, but extended to other benefits and terms of employment. For 16 example, DreamWorks Head of HR, Mandato, e-mailed McAdams, Coker, and Disney HR, Vice 17 President Ann Le Cam ("Le Cam") on April 11, 2007, asking whether they would "be so kind as to 18 tell me your match on your 401K. Ours is 50% of 4%. And we are hoping to increase it but need to 19 know what others are doing." McAdams responded within half an hour, explaining that Pixar's 20 401K match "is 50% on 5%, with no vesting attached, contributed weekly.... We're looking at 21 modifying our program to to [sic] improve the company contribution, but probably not before 22 2009." Disney responded with similarly detailed information the following day, expressing that it 23 "[h]ope[s] this info helps with your decision." 24 25 26 9 Disney previously admitted that Pixar and Lucasfilm personnel communicated with each other about the companies' agreement not to recruit each other's employees. 27 28 - 31 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 33 of 63 1 88. McAdams made a similar request of industry colleagues in January 2008, including 2 Dan Satterthwaite, the new Head of HR at DreamWorks, as well as Le Cam, Coker, and Lucasfilm 3 Vice President of HR Jan van der Voort. Specifically, according to McAdams, Pixar was "looking 4 to develop a consistent practice with regard to memberships we might cover for our employees. I'm 5 wondering how other studios handle it.... [D]o you have a policy or practice on whether you 6 reimburse for memberships and if so, is it determined by position, or seniority or cost or ???" 7 89. As DreamWorks' Head of Compensation explained in a 2007 e-mail specifically 8 noting collusive discussions with Sony, "We do sometimes share general comp information (ranges, 9 practices) in order to maintain the relationships with other studios and to be able to ask for that kind 10 of information ourselves when we need it." As alleged in the Animation Action, this collusive 11 exchange of compensation information is also reflected in internal Lucasfilm documents (again, in 12 2012, Disney acquired Lucasfilm), including its 2006 Merit Budget Recommendations from 13 January 2005, which includes a chart of fiscal year 2004 and fiscal year 2005 salary for various 14 competitor studios including Twentieth Century Fox, Disney, and Sony. The chart specifically 15 notes that "updates" of these figures were "ongoing." Such ongoing updates would only be 16 available from the Co-Conspirators themselves (including Disney), demonstrating that they 17 continued to collude on wages throughout the Relevant Period. 18 90. These collusive efforts to coordinate compensation were not limited to one-off, 19 bilateral discussions; rather, the Co-Conspirators openly e-mailed each other in large groups with 20 competitively sensitive confidential current and future compensation information. For example, on 21 November 17, 2006, Pixar's McAdams e-mailed the following message to senior HR personnel at 22 DreamWorks, Sony, Imageworks, Lucasfilm, Walt Disney Animation Studios and others: 23 Quick question from me, for those of you who can share the info. 24 What is your salary increase budget for FY '07? Ours is [REDACTED] but we may manage it to closer to [REDACTED] on average. Are you doing anything close, more, or less?" 25 26 27 28 - 32 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 34 of 63 1 91. In other words, Pixar's top HR executive e-mailed six direct competitors with the 2 future amount that Pixar would be raising salaries and then requested the same information from 3 the other studios. 4 92. Another example revealed in the Animation Action concerned a February 14, 2007 5 e-mail from McAdams to HR personnel at DreamWorks, Sony, Disney, ILM, and another studio to 6 find out the "base salary range" for a "manager of archives position." McAdams explained that 7 Pixar intended to put the position "in the $60K-80K base" range, but wanted to "do a reality check 8 as we head into salary discussions." 9 93. McAdams explained this strategy to Pixar's compensation department, asking staff in 10 March 2007 to "work with you on getting the MCC position descriptions updated, and from there 11 we can talk with Disney or other studios & post houses to ensure that our salary ranges for the 12 positions are correct." 13 94. McAdams sent a similar e-mail on May 1, 2007, regarding salary ranges for a 14 Supervising Animator position. In the e-mail, McAdams asked Disney and others to "share with me 15 your base salary range, perhaps how many of these folks you have (we have 7) and a general idea of 16 actual median base pay? Also knowing any other comp they are eligible for (e.g. bonuses or stock) 17 would be helpful." 18 95. McAdams sent yet another e-mail requesting "updated survey data" for the position 19 of Director of Public Relations on November 4, 2009. 20 96. McAdams's e-mails made it clear that the purpose of the Co-Conspirator's collusion 21 on compensation was to keep compensation low. As McAdams wrote to Coker in June 2008, 22 "[s]ince money can always be a factor, that's the other thing we should consider (e.g., we wouldn't 23 want to offer a lateral move more money than you, and vice versa)." 24 97. Similarly, despite his concern that it was "taboo" to do so, DreamWorks' Head of 25 Production Technology e-mailed the heads of HR at Disney, ILM, Sony, and Pixar in January 2009 26 to learn how they handled overtime—an issue that was competitively sensitive in an industry where 27 workers are regularly asked to work dozens of hours of overtime a week. He sought to see if the 28 - 33 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 35 of 63 1 other companies were "as generous[.]" A Sony executive called him after e-mailing him the subject 2 was not "taboo" for her. 3 98. HR and recruiting executives and personnel of the Co-Conspirators (including 4 Disney) also communicated regularly by telephone and other means. The Co-Conspirators' 5 communications were so consistent that Pixar's McAdams wrote to her counterparts at Disney, 6 Sony, ILM, DreamWorks, and Blue Sky in early 2007 that "[c]hatting with all of you each day is 7 really becoming a fun habit. I'm thinking it'd be a great resolution for 2007 that we all just have a 8 short conference call each morning to start our days off right." Walt Disney Animation Studios' 9 Vice President of HR responded with a similar comment, saying that "[i]t is fun to hear from you all 10 on a daily basis." 11 99. Those communications as well as the meetings and events provided the means and 12 opportunities for the Co-Conspirators to collude and to implement and enforce the conspiracy to 13 suppress workers' compensation. 14 100. Absent an agreement not to compete on compensation, any studio sharing such 15 information would be handing its competitors specific information about how to best compete with 16 them for employees and candidates. Such behavior only makes sense in the context of an unlawful 17 conspiracy to suppress compensation. The only possible benefit to Disney (and its wholly-owned 18 subsidiaries, Pixar and Lucasfilm) from such actions was the unlawful facilitation of an agreement 19 to suppress compensation. 20 E. The DOJ Actions and Silicon Valley Class Action 21 101. Starting in 2009, the DOJ initiated the DOJ Investigation into the hiring practices at 22 various Silicon Valley-based technology companies. On September 24, 2010, the DOJ filed a 23 complaint against Pixar (at that time a wholly owned subsidiary of Disney), Adobe, Apple, Google, 24 Intel, and Intuit. On December 21, 2010, a similar but separate suit was filed against Lucasfilm, an 25 independent company at the time, but now a wholly owned subsidiary of Disney. 26 102. The DOJ Actions alleged that these companies' anti-poaching agreements amounted 27 to restraints of trade that were per se unlawful under the antitrust laws. In the DOJ's complaint, the 28 - 34 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 36 of 63 1 DOJ alleged that the agreements were "facially anticompetitive because they eliminated a 2 significant form of competition to attract high tech employees, and, overall, substantially 3 diminished competition to the detriment of the affected employees who were likely deprived of 4 competitively important information and access to better job opportunities." 5 103. The DOJ further found that the agreements "disrupted the normal price-setting 6 mechanisms that apply in the labor setting." The companies sued by the DOJ settled in 2010. 7 104. Following the DOJ Investigation and Actions, a number of class actions were filed 8 against the above-named companies. In September 2011, these actions were consolidated in this 9 Court to form the Silicon Valley Class Action. In October 2013, Intuit, Pixar, and Lucasfilm 10 reached a tentative settlement agreement wherein Pixar and Lucasfilm agreed to pay $9 million in 11 damages, and Intuit agreed to pay $11 million in damages. In May 2014, the court approved the 12 $20 million settlement between Lucasfilm, Pixar, and Intuit and their current or former employees. 13 105. Most relevant, in May 2013, certain court documents that were uncovered in the DOJ 14 Investigation and Actions were made public. The Silicon Valley Class Action made additional 15 documents public in March 2014. The documents from both cases, which include certain portions 16 of trial and deposition transcripts, contain evidence of a conspiracy involving numerous additional 17 companies that were not previously named, including Disney (as discussed in detail above). 18 F. The Animation Action Is Sustained and the Company Is Subjected to Significant Damages 106. On September 8, 2014, a former employee initiated the Animation Action in this 19 20 21 Court and sued Disney, Pixar, Lucasfilm, and several other animation companies on behalf of all 22 employees that worked at those companies at any time from 2004 to the present. The Animation 23 Action has substantially similar allegations to those made in the Silicon Valley Class Action and the 24 DOJ Actions. 25 107. On August 20, 2015, Judge Koh of this Court entered the Animation MTD Order, 26 which found that the plaintiffs in the Animation Action had "successfully alleged a single 27 28 - 35 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 37 of 63 1 conspiracy to suppress the compensation of the Defendants' [including Disney's] employees." MTD 2 Order at 55. 3 108. Regarding the illegal conspiracy, Judge Koh made numerous findings against the 4 defendants (including Disney) including, inter alia: 5  "[T]he factual allegations here plausibly suggest that the purpose of information sharing and the anti-solicitation scheme was to suppress wages." Id. at 54.  "In sum, the Court finds that Plaintiffs have sufficiently alleged facts showing that Defendants reached an agreement to conspire. Here, Plaintiffs have alleged that Defendants systematically shared information, agreed not to solicit each other's employees, and that the purpose of the information sharing and no-poach scheme was to suppress wages." Id. at 54-55.  "With the above principles in mind, the Court finds that Plaintiffs' allegations, taken as a whole, have stated a plausible claim that Defendants took 'affirmative acts' to mislead the Plaintiffs." Id. at 32.  "In the instant case, the Court finds that Plaintiffs have sufficiently alleged that Defendants both made misleading, pretextual statements and took affirmative steps to keep the alleged conspiracy a secret." Id. at 33.  "These factual allegations raise the reasonable inference that Defendants took affirmative steps to conceal the details of their conspiracy by intentionally choosing to meet in-person or over the telephone, rather than risk memorializing details about the alleged conspiracy." Id. at 35.  "In sum, the Court finds that Plaintiffs have adequately alleged the elements of a fraudulent concealment claim. Plaintiffs have pled specific facts showing that certain Defendants took affirmative steps to conceal the existence of Plaintiffs' claims." Id. at 41. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 109. Accordingly, this Court has already found that the Animation Action sufficiently 22 pled a claim that Disney, under the Individual Defendants' direction and on their watch, was 23 involved in an illegal conspiracy to unlawfully suppress compensation for the entire industries' 24 employees. Significantly, more than half of the Board served as directors of the Company since at 25 least 2006, which, as discussed above, is the timeframe that Disney became highly active 26 participants in the scheme. 27 28 - 36 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 38 of 63 1 110. On May 25, 2016, this Court issued the Class Cert Order that granted, in part, the 2 Animation Action plaintiffs' motion for class certification. In the Class Cert Order, Judge Koh 3 confirmed that "Plaintiffs have set forth copious common evidence in the form of Defendants' 4 internal work documents, deposition transcripts, and email exchanges between Defendants' 5 directors, officer, and senior managers, all of which support Plaintiffs' allegations that Defendants 6 entered into express agreements not to compete for another's employees and to coordinate 7 compensation policies." Cert Order at 29. 8 111. On June 9, 2016, Disney and some of the other defendants in the Animation Action 9 filed a brief seeking an interlocutory appeal of the Court's Class Cert Order. Disney argued, inter 10 alia, that class certification was not appropriate in the Animation Action because the plaintiffs 11 needed to establish fraudulent concealment of the illicit scheme. 12 112. On August 29, 2016, the Ninth Circuit Court of Appeals, "in its discretion, denie[d] 13 the petition for permission to appeal the district court's May 25, 2016 order granting in part and 14 denying in part class action certification."10 15 G. Disney Likewise Faces Massive Exposures in Connection with Pixar's and Lucasfilm's Involvement in the Illegal Conspiracy 113. As discussed above, in 2006, Disney agreed to purchase Co-Conspirator, Pixar, in an 16 17 18 all-stock transaction worth $7.4 billion. Pursuant to the terms of the Pixar Merger, Pixar's former 19 Chief Technical Officer, defendant Catmull, took over as President of Pixar Animation Studios. As 20 discussed above, defendant Catmull was one of the chief architects of the antitrust conspiracy from 21 the outset. 114. 22 In connection with the Pixar Merger, the Board (more than half of which was 23 comprised of current directors) was required to conduct due diligence on Pixar, which must have 24 25 10 Significantly, after the Court's ruling on class certification, Sony and Blue Sky agreed to terms to settle the Animation Action. Pursuant to these terms, Blue Sky was forced to pay $5.95 million and 26 Sony was forced to pay $13 million. On July 6, 2016, the Court in the Animation Action preliminarily approved a settlement of that action as to Sony and Blue Sky. A final fairness hearing 27 of the settlement involving Sony and Blue Sky is currently scheduled for November 10, 2016. 28 - 37 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 39 of 63 1 revealed Pixar's participation in the illegal conspiracy to the Board (in addition to the fact that the 2 Board should have already been alerted to the conspiracy given Disney's heavy involvement). 3 Additionally, because Pixar is now a wholly-owned subsidiary of Disney, Disney is now on the 4 hook for all of Pixar's liabilities related to the illegal antitrust conspiracy, in addition to the 5 Company's separate liability for engaging in the conspiracy. 6 115. Further, as discussed above, in 2012, Disney likewise acquired Lucasfilm (the 7 "Lucasfilm Merger"). Again, as with the Pixar Merger, more than half of the Board served as 8 directors of the Company at the time of the Lucasfilm Merger and, thus, should have been alerted to 9 Lucasfilm's involvement in the illegal conspiracy through due diligence. Likewise, given that 10 Lucasfilm is now a wholly owned subsidiary of Disney like Pixar, Disney is liable to cover all of 11 Lucasfilm's exposures related to its involvement in the illegal conspiracy. 12 116. Thus, as a result of the Individual Defendants' breaches, the Company is now on the 13 hook for damages related to its own conduct and faces further liability in connection with its role in 14 the conspiracy. 15 H. The Individual Defendants' False and Misleading Statements 16 117. During the Relevant Period, the Individual Defendants caused Disney to file 17 numerous Quarterly and Annual Reports with the SEC, including an Annual Report each year filed 18 on Form 10-K (collectively, the "Forms 10-K"). Each of the Forms 10-K filed during the Relevant 19 Period contained a certification pursuant to the Sarbanes-Oxley Act of 2002, signed by the 20 Company's then-CEO and CFO, all of which were substantially similar to the following from the 21 Company's 2015 Form 10-K: 22 1. I have reviewed this annual report on Form 10-K of the Company; 23 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 24 25 26 27 28 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects - 38 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 40 of 63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 26 * * * 27 In connection with the Annual Report of The Walt Disney Company (the Company) on Form 10-K for the fiscal year ended October 3, 2015 as filed with - 39 - 28 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 41 of 63 the Securities and Exchange Commission on the date hereof (the Report), I, [Robert A. Iger, Chairman and Chief Executive Officer of the Company/Christine M. McCarthy, Senior Executive Vice President and Chief Financial Officer of the Company], certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. 1 2 3 4 5 118. 6 Similarly, the Individual Defendants have each signed at least one of the Company's 7 Forms 10-K filed with the SEC during the Relevant Period. Most importantly, more than half of the 8 Board has signed each of the Company's Forms 10-K since 2006. 119. 9 Significantly, the Individual Defendants did not, at any time during the Relevant 10 Period, cause the Company to disclose in its SEC filings that the Company's internal controls were 11 not sufficient and that the Company, under the Individual Defendants' direction and on their watch, 12 was affirmatively involved in an illegal antitrust conspiracy. Accordingly, throughout the Relevant 13 Period, the Individual Defendants have caused the Company to issue false and misleading financial 14 statements each and every year, which affirmatively concealed the Company's involvement in the 15 illegal antitrust conspiracy. DERIVATIVE AND DEMAND ALLEGATIONS 16 120. 17 Plaintiff brings this action derivatively in the right and for the benefit of Disney to 18 redress the breaches of fiduciary duty, unjust enrichment, and other violations of law by the 19 Individual Defendants. 121. 20 Plaintiff will adequately and fairly represent the interests of Disney and its 21 stockholders in enforcing and prosecuting its rights. 122. 22 At the time the Action was initiated, the Board consisted of the following eleven (11) 23 individuals: defendants Iger, Arnold, Chen, Dorsey, Langhammer, Lewis, Lozano, Matschullat, 11 24 Sandberg, and Smith, and non-defendant Maria Elena Lagomasino. Plaintiff has not made any 25 26 11 Defendant Lozano resigned from the Board effective March 2016 and non-defendant Mark Parker joined the Board in January 2016. 27 28 - 40 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 42 of 63 1 demand on the present Board to institute this action because such a demand would be a futile, 2 wasteful, and useless act, for the following reasons. 3 A. Internal Materials from Board Meetings Demonstrate the Culpability of a Majority of the Directors Currently Serving on the Board 123. The Board's challenged misconduct at the heart of this case constitutes unlawful 4 5 6 activity or the facilitation of illegal activity. In essence, as the "ultimate decision-making body" of 7 the Company, the Board affirmatively adopted, implemented, and/or condoned a business strategy 8 based on violations of law. Breaking the law is not a legally protected business decision and such 9 conduct can in no way be considered a valid exercise of business judgment. Significantly, a 10 majority of the Board at the time the Action was initiated (defendants Iger, Chen, Langhammer, 11 Lewis, Lozano, Matschullat, and Smith)12 have served as directors of the Company since 2006, 12 which, as discussed above, is when the Company's participation in the conspiracy was in full effect. 13 Further, more than half of the Board served as directors at the time of both the Pixar Merger and 14 Lucasfilm Merger and, thus, pursuant to their due diligence in connection with each, were or should 15 have been alerted to the illegal conspiracy, which they likewise participated in (thereby subjecting 16 the Company to even more damages). 17 124. Simply put, violating the law, approving the violations of applicable law by others, 18 or looking the other way while refusing to prevent others under the Board's control from violating 19 the law are all forms of misconduct that cannot under any circumstance be examples of legitimate 20 business conduct. Because condoning a business strategy predicated on breaking the law cannot be 21 a valid exercise of business judgement, demand upon the Board is excused. 22 23 12 While Plaintiff respectfully submits that the relevant Board members for a demand futility 24 analysis are the Board members at the time the Action was initiated, it is worth noting that even a 25 majority of the current Board served as directors since 2006 (defendants Iger, Chen, Langhammer, Lewis, Matschullat, and Smith). Thus, it is mathematically irrelevant whether the demand futility 26 analysis is performed as to the Board at the time the Action was initiated or the Board as it is currently comprised. 27 28 - 41 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 43 of 63 1 125. 2 3 4 5 6 7 126. 8 9 10 11 12 13 14 13 15 16 127. 17 18 19 20 21 22 23 24 13 The co-production agreement, dated February 24, 1997, has a section as follows: 20. NON-SOLICITATION. During the Term and continuing for a period of two (2) years thereafter, Pixar and Disney shall not engage the services of any person who was employed by Pixar or Disney, as the case may be, during the prior six (6) months before such engagement, without prior approval of the applicable party. 25 Plaintiff believes the only public disclosure of even this portion of the anticompetitive aspects of 26 Disney and Pixar's conduct was in connection with Pixar's 10-K for the fiscal year ending December 31, 1996. Plaintiff believes that Disney has never publicly disclosed this aspect of the 27 agreement. 28 - 42 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 44 of 63 1 2 3 4 5 6 7 8 9 128. 10 11 12 13 14 15 16 129. 17 18 19 20 21 22 23 24 25 26 27 28 - 43 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 45 of 63 1 2 3 130. 4 5 6 7 8 9 10 11 12 13 14 131. 15 16 17 18 19 20 21 22 23 132. 24 25 26 27 28 - 44 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 46 of 63 1 2 3 4 5 6 7 133. 8 9 10 134. 11 12 13 14 15 16 135. 17 14 18 19 20 21 22 23 24 25 26 14 All of whom served on the Board at the time of the original complaint and continue to do so now, making any distinction between the two Boards for demand futility purposes meaningless. 27 28 - 45 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 47 of 63 1 136. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 137. 18 19 20 21 22 23 24 25 26 27 28 - 46 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 48 of 63 1 2 3 138. 4 5 6 7 139. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 140. 24 25 26 27 28 - 47 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 49 of 63 1 15 2 3 B. Demand Is Excused Because a Majority of the Board Faces a Substantial Likelihood of Liability 141. Defendants Iger, Arnold, Chen, Dorsey, Langhammer, Lewis, Lozano, Matschullat, 4 5 6 Sandberg, and Smith (i.e., the entire Board) signed at least one of the Company's Forms 10-K filed 7 with the SEC during the Relevant Period. Further, a majority of the Board have served as directors 8 of the Company since at least 2006 and thus have signed each and every one of the Company's 9 Relevant Period Forms 10-K. The Company's Forms 10-K (signed by a majority of the Board) 10 were false and misleading as none of the Relevant Period Forms 10-K mentioned that the Company 11 was being operated illegally and each of the Forms 10-K certified that the Company's internal 12 controls were sufficient. Thus, defendants Iger, Arnold, Chen, Dorsey, Langhammer, Lewis, 13 Lozano, Matschullat, Sandberg, and Smith each face a substantial likelihood of liability, rendering 14 any demand upon them futile. 15 142. Every member of the Board is required to comply with the Code of Conduct and the 16 Governance Guidelines. The Code of Conduct expressly prohibits the entering of "any agreement 17 or understanding, whether formal or informal, with a competitor, customer or supplier to: set prices 18 or price-related terms…" Additionally, the Code of Conduct requires that "[a]ny decisions related 19 to hiring, evaluating performance, promoting, disciplining or terminating" any of the Company's 20 employees be "made fairly, with discretion and respect for privacy." Likewise, the Governance 21 Guidelines requires each of the directors to, inter alia, oversee "the conduct of the Company's 22 business and evaluate[] whether the business is being properly managed." Each member of the 23 Board permitted individuals at all levels of the Company (including then-Chairman defendant 24 15 25 Perhaps most egregiously, upon information and belief, 26 27 28 - 48 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 50 of 63 1 Cook) to engage in the illegal conduct described above, thereby abdicating their fiduciary duties to 2 the Company, and severely damaging the Company. Therefore, every member of the Board faces a 3 substantial likelihood of liability for their breaches of fiduciary duties and any demand upon them is 4 futile. 5 143. During the Relevant Period, defendants Chen, Langhammer, Lewis, Smith, Lozano, 6 and Matschullat (a majority of the Board) served as members of the Audit Committee. Pursuant to 7 the Company's Audit Committee Charter, the members of the Audit Committee were and are 8 responsible for, inter alia, reviewing: (i) the Company's policies and practices related to compliance 9 with laws, ethical conduct, and conflicts of interest; (ii) material litigation involving the Company; 10 (iii) cases of misconduct; and (iv) the Company's Quarterly and Annual reports (i.e., the Forms 1011 K) filed with the SEC. Defendants Chen, Langhammer, Lewis, Smith, Lozano, and Matschullat 12 breached their fiduciary duties of due care, loyalty, and good faith, because the Audit Committee, 13 inter alia, allowed or permitted the Company to affirmatively violate antitrust laws, allowed or 14 caused the Company to disseminate false and misleading statements in the Company's SEC filings 15 and other disclosures, which affirmatively concealed the Company's illegal activities, and caused 16 the above-discussed internal control failures. Therefore, defendants Chen, Langhammer, Lewis, 17 Smith, Lozano, and Matschullat each face a substantial likelihood of liability for their breach of 18 fiduciary duties and any demand upon them is futile. 19 144. During the Relevant Period, defendants Dorsey, Matschullat, Sandberg, Lewis, 20 Lozano, and Smith (a majority of the Board) served as members of the Governance and Nominating 21 Committee. Pursuant to the Company's Governance and Nominating Committee Charter, the 22 members of the Governance and Nominating Committee were and are responsible for, inter alia, 23 monitoring the implementation and operation of the Governance Guidelines and identifying and 24 reviewing measures to strengthen the operation of the Governance Guidelines. Defendants Dorsey, 25 Matschullat, Sandberg, Lewis, Lozano, and Smith breached their fiduciary duties of due care, 26 loyalty, and good faith, because the Governance and Nominating Committee, inter alia, allowed or 27 permitted the Company to affirmatively violate antitrust laws, allowed or caused the Company to 28 - 49 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 51 of 63 1 disseminate false and misleading statements in the Company's SEC filings and other disclosures, 2 and caused the above-discussed internal control failures. Stated another way, under defendants 3 Dorsey, Matschullat, Sandberg, Lewis, Lozano, and Smith's direction and on their watch, the 4 Company was not being operated "properly," nor have these defendants taken any steps to improve 5 the Governance Guidelines, as they are required to do. Therefore, defendants Dorsey, Matschullat, 6 Sandberg, Lewis, Lozano, and Smith each face a substantial likelihood of liability for their breach 7 of fiduciary duties and any demand upon them is futile. 8 145. The Individual Defendants also face a substantial likelihood of liability for failure to 9 institute and maintain an adequate system of internal controls. Plaintiff's first inspection demand 10 sought books and records of Disney from January 1, 2004 onwards concerning a number of topics. 11 For example, Plaintiff sought "the policies in place at Disney that relate to employee recruitment or 12 hiring from companies other than Disney, including, without limitation, policies regarding cold13 calling and other contact with prospective employees." 14 15 16 Similarly, Plaintiff sought "all books and records regarding the Company's compliance 17 with antitrust laws in relation to hiring, compensating, or retaining employees." 18 19 20 21 22 23 24 25 The Individual Defendants thus failed to ensure a robust, appropriate, and 26 functioning set of internal controls, which led to the harm alleged herein. 27 28 - 50 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 52 of 63 1 146. The Individual Defendants also face a substantial likelihood of liability for allowing 2 or permitting the Company to affirmatively violate antitrust laws. 3 147. Demand upon the Board would be futile because the Animation Action has 4 progressed past a motion to dismiss. Given that the Animation Action is proceeding to discovery 5 and beyond, for the Board to take action here would mean undermining the defense of the 6 Animation Action. Thus, demand upon the Board is excused. 7 C. Demand Is Excused as to Defendant Iger Because He Lacks Independence 8 148. At the time the action was initiated, the principal professional occupation of 9 defendant Iger was (and currently is) his employment with Disney as its CEO, pursuant to which he 10 has received and continues to receive substantial monetary compensation and other benefits. In 11 addition, in the Company's Definitive Proxy Statement filed January 15, 2016 (the "2016 Proxy"), 12 Defendants concede that Iger is not independent. Specifically, as Defendants admit in the 2016 13 Proxy, "Mr. Iger is considered an insider Director because of his employment as a senior executive 14 of the Company." Thus, defendant Iger lacks independence from demonstrably interested directors, 15 rendering him not disinterested and therefore incapable of impartially considering a demand to 16 commence and vigorously prosecute this action. 17 149. Plaintiff has not made any demand on stockholders of Disney to institute this action 18 since such demand would be a futile and useless act because: (i) Disney is a publicly held company 19 with over 1.6 billion shares outstanding, and thousands of stockholders; (ii) making demand on such 20 a number of stockholders would be impossible for Plaintiff who has no way of finding out the 21 names, addresses, or phone numbers of stockholders; and (iii) making demand on all stockholders 22 would be impracticably costly, assuming all stockholders could be individually identified. 23 24 THIS ACTION IS TIMELY 150. This stockholder derivative action is not barred by the statute of limitations because 25 Plaintiff has brought this complaint within the applicable statute of limitations. 26 27 28 - 51 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 53 of 63 1 151. Alternatively, the statute of limitations was tolled because Plaintiff was not on 2 inquiry notice of his claims until at the earliest 2014, and the Individual Defendants fraudulently 3 concealed their wrongdoing. 4 A. Plaintiff Was Not on Inquiry Notice of His Claims Until at Least 2014 5 152. Unlike other companies involved in establishing and enforcing anticompetitive 6 agreements amongst competitors and peers, Disney's involvement was not unveiled through the 7 DOJ Investigation and Actions. The DOJ's complaint in September of 2010 named only Pixar, 8 Adobe, Apple, Google, Intel, and Intuit. A further complaint filed by the DOJ on December 21, 9 2010, named Lucasfilm separately as one of the companies involved in the Anticompetitive 10 Agreements. 11 153. While Pixar became a Disney subsidiary, there was nothing in the initial DOJ 12 complaint that the scheme was part of a broader scheme at the Company. Further, Lucasfilm did 13 not become a subsidiary of Disney until 2012, after it had already settled with the DOJ. 14 154. The DOJ Investigation into employment practices at high tech companies in general 15 was not sufficient to trigger inquiry notice. If anything, the lack of any mention of Disney by the 16 DOJ was reassuring for stockholders. No reasonable suspicion would be triggered by the general 17 allegations that companies involved in high tech industries were engaging in the Anticompetitive 18 Agreements. 19 155. It was not until late 2014, when claims were brought against Disney for the same 20 type of Anticompetitive Agreements seen in the Silicon Valley Class Action that a reasonable 21 stockholder would have been on inquiry notice of their claims. Beginning on September 8, 2014, 22 antitrust actions alleging violations of the Sherman Act, the Cartwright Act, and California's Unfair 23 Competition Law were brought against defendants including Disney. These actions were the first 24 time a reasonable stockholder would have had reason to suspect the fiduciaries of Disney were 25 involved with the Anticompetitive Agreements. Thus, this action was brought well within the 26 statute of limitations. 27 28 - 52 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 54 of 63 1 2 B. The Statute of Limitations Was Also Tolled Because of Fraudulent Concealment 156. Part of the reason why Plaintiff was not on inquiry notice until at least late 2014 was 3 that the Individual Defendants fraudulently concealed their involvement in setting up and enforcing 4 the Anticompetitive Agreements at Disney. 5 157. The Individual Defendants affirmatively misled the stockholders of Disney and the 6 public at large into believing that Disney and its fiduciaries were not involved with the 7 Anticompetitive Agreements. These affirmative misrepresentations contributed to the fact that 8 stockholders did not have actual or constructive knowledge of the wrongdoing alleged herein. 9 Plaintiff diligently pursued this action once he had suspicion of Disney's involvement. 10 158. Judge Koh recently ruled in the Animation Action, where Disney is a defendant, that 11 the plaintiffs had "adequately pled fraudulent concealment and the statute of limitations may be 12 tolled." MTD Order at 24. Judge Koh concluded "that Plaintiffs' allegations of pretextual 13 statements regarding compensation, in combination with Plaintiffs' allegations that Defendants 14 actively concealed and ensured the secrecy of the conspiracy, are sufficient to allege 'affirmative 15 acts' [to conceal Defendants wrongdoing]." Id. at 32. Judge Koh also found that "Plaintiffs have 16 sufficiently alleged that Defendants both made misleading, pretextual statements and took 17 affirmative steps to keep the alleged conspiracy a secret." Id. at 33. The same conclusion applies 18 here. 19 159. Among the ways in which the Individual Defendants fraudulently concealed the 20 wrongdoing alleged herein was in the secretive nature of the agreements made with other 21 companies. These "gentleman's agreements" were called that because they were meant to be kept 22 secret and made over a handshake rather than a formal document. 23 160. The need to keep these agreements a secret was obvious to those involved. For 24 example, in 2007, Eric Schmidt, the CEO of Google at the time, sent an e-mail to the Vice President 25 of HR at the time, Shona Brown, notifying her that he "would prefer" the agreements be done 26 verbally, in order to avoid being sued: 27 28 - 53 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 55 of 63 1 2 3 4 5 6 7 8 9 10 161. Similarly, and also in 2007, Paul Otellini, the CEO and President of Intel at the time, 11 made clear that the Anticompetitive Agreements were to be kept secret, and that the agreements 12 were non-verbal: 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 162. While these examples were from other companies, the nature of the Anticompetitive Agreements was largely the same at each of the companies involved. Though the exact details of the agreements between the companies varied, the secretive, "gentleman's agreement" nature of the agreements did not change. 163. The Anticompetitive Agreements at Disney were no exception to the rule of secrecy. For example, Coker, the Director of HR at Disney, Senior Director of HR at ILM, and the Senior Director of HR at Lucasfilm (at various times) testified in the Silicon Valley Class Action that "the - 54 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 56 of 63 1 agreement was termed a 'gentleman's agreement' … because it was not written down." Coker wrote 2 to a colleague in 2007, of the agreement between Lucasfilm and Pixar, that the "'gentleman's 3 agreement' [had been] forged a few years ago" and was "'informal.'" 4 164. Similarly, Danielle Lambert testified that she recalled a conversation she had with 5 McAdams "about executing a gentleman's agreement about Steve Jobs' role within the company in 6 the acquisition of Disney." She clarified that the gentleman's agreement set forth that "we were not 7 going to cold call each other's employees." 8 165. The informal nature of these "gentlemen's agreements" was entirely consistent with 9 an illicit arrangement. Indeed, the Company would have publicly touted these policies as 10 innovative if they were helpful to it and legal. Instead, the policies were kept to a low profile to 11 ensure they were not known about by anyone other than those necessary to fulfill the agreements. 12 166. Another way in which the Individual Defendants fraudulently concealed the 13 wrongdoing alleged herein was by asserting that the compensation paid to employees was solely the 14 product of a free, competitive marketplace. 15 167. For example, employee plaintiffs in the Animation Action alleged that "[t]he 16 recruiting websites and brochures for Pixar, Lucasfilm and Disney stated throughout the Class 17 period that their respective companies paid 'competitive salar[ies]' or 'competitive compensation' 18 while hiding from employees the fact that the competition that normally exists among rival 19 employers had been restrained by collusion." 20 168. These assurances of fair pricing based purely on market factors were echoed in 21 Disney's Code of Conduct. Defendant Iger told employees, through the Code of Conduct, that 22 "[i]ntegrity, honesty, trust, respect, playing by the rules, and teamwork—these define not only the 23 operating principles of our Company, but also the spirit of our diverse global workforce and how we 24 function." Yet, at the same time, the Individual Defendants were not honoring the "honesty, trust, 25 respect" aspects of these standards, by keeping vital information from their employees about 26 limitations on their careers that had been unknowingly placed on them. Similarly, the Individual 27 28 - 55 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 57 of 63 1 Defendants were violating the "playing by the rules" promise by breaking antitrust laws and seeking 2 to impose their own rules on hiring and employee mobility. 3 169. The Code of Conduct also boasted that the Individual Defendants ensured a culture 4 of teamwork. Under a headline "Teamwork: Our Commitment to Each Other," employees were told 5 that "[a]ny decisions related to hiring, evaluating performance, promoting, disciplining or 6 terminating Cast Members and employees are made fairly, with discretion and respect for privacy." 7 However, this was not accurate, as there is nothing fair about precluding your employees from 8 working for other companies based on secret agreements with competitors. Nor was it accurate that 9 hiring decisions were treated with discretion, as the Anticompetitive Agreements envisioned that the 10 companies would freely speak to each other—especially when compliance was lacking—to discuss 11 the hiring of specific employees and their compensation. 12 170. In reality however, the compensation structure at Disney and its Co-Conspirators 13 involved in the Anticompetitive Agreements was driven downwards by the intentional efforts of the 14 Individual Defendants and the Co-Conspirators to reduce the costs of hiring. For example, 15 defendant Catmull e-mailed defendant Cook in 2007, mentioning his fear of upsets in hiring causing 16 substantial salary increases and "seriously mess[ing] up the pay structure." Part of his proposed 17 solution was to ensure "the kind of relationship that Pixar has with Disney in that people cannot be 18 considered to move back and forth." 19 171. Disney's Code of Conduct even specifically reminded employees that part of the 20 admonition to "Play by the Rules" included being cognizant of the limitations imposed on 21 companies by antitrust laws. The standards set forth that "[a]ntitrust laws (sometimes called 22 'competition laws' or 'unfair trade laws') prohibit agreements that unreasonably restrict competition. 23 Don't enter into any agreement or understanding, whether formal or informal, with a competitor, 24 customer or supplier to: set prices or price-related terms, also known as 'fixing prices.'" Despite this 25 reminder to employees, the Individual Defendants were themselves violating this policy, and failing 26 to play by the rules they demanded their employees follow. 27 28 - 56 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 58 of 63 1 172. These agreements were not broadcast to the public as bold new initiatives the 2 Individual Defendants had spearheaded to improve hiring at the Company. The Individual 3 Defendants ensured these illegal agreements remained private, known only by those necessary to 4 ensure their enforcement. The efforts of the Individual Defendants to keep these agreements a secret 5 ensured that the public was not informed about these agreements prior to the involvement of the 6 DOJ. 7 173. Plaintiff acted reasonably in investigating these claims after learning of Disney's 8 potential involvement and timely filed this action. 9 COUNT I 10 Claim for Breach of Fiduciary Duty Against the Individual Defendants 11 174. Plaintiff incorporates by reference and realleges each and every allegation set forth 12 above, as though fully set forth herein. 13 175. Pursuant to their fiduciary duties of care and loyalty, each of the Individual 14 Defendants had a duty to ensure that: (i) Disney was operated in a lawful manner; (ii) Disney 15 disseminated accurate, truthful, and complete information to its stockholders; (iii) the Company's 16 financial statements were prepared in accordance with generally accepted accounting principles; 17 (iv) Disney's internal controls were adequate; and (v) when put on notice of problems with the 18 Company's business practices and operations, exercise good faith in taking appropriate action to 19 correct the misconduct and prevent its recurrence. 20 176. The Individual Defendants violated their fiduciary duties of care and loyalty by 21 causing or allowing the Company to be run in an illegal fashion and by causing or allowing the 22 Company to disseminate to Disney stockholders materially misleading and inaccurate information 23 through, inter alia, SEC filings, press releases, conference calls, and other public statements and 24 disclosures as detailed herein, which, as this Court has already held, affirmatively concealed 25 Disney's involvement in the illegal conspiracy. The Individual Defendants also willfully ignored 26 the obvious and pervasive problems with Disney's internal controls and practices and procedures, 27 28 - 57 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 59 of 63 1 and failed to make a good faith effort to correct these problems or prevent their recurrence. These 2 actions could not have been a good faith exercise of prudent business judgment. 3 177. As a direct and proximate result of the Individual Defendants' foregoing breaches of 4 fiduciary duties, the Company has suffered significant damages, as alleged herein. 5 COUNT II 6 Claim for Unjust Enrichment Against the Individual Defendants 7 178. Plaintiff incorporates by reference and realleges each and every allegation set forth 8 above, as though fully set forth herein. 9 179. By their wrongful acts and omissions, the Individual Defendants were unjustly 10 enriched at the expense of and to the detriment of Disney in the form of, inter alia¸ salaries, 11 bonuses, stock options, and/or other forms of executive compensation. 12 180. Plaintiff, as a stockholder and representative of Disney, seeks restitution from the 13 Individual Defendants, and each of them, and seek an order of this Court disgorging all profits, 14 benefits, and other compensation obtained by the Individual Defendants, and each of them, as a 15 result of their wrongful conduct and fiduciary breaches. 16 PRAYER FOR RELIEF 17 WHEREFORE, Plaintiff demands judgment as follows: 18 A. Against all of the Individual Defendants and in favor of the Company for the amount 19 of damages sustained by the Company as a result of the Individual Defendants' breaches of 20 fiduciary duties and unjust enrichment; 21 B. Awarding to the Company restitution from the Individual Defendants, and each of 22 them, and ordering disgorgement of all profits, benefits, and other compensation obtained by the 23 Individual Defendants; 24 C. Directing Disney to take all necessary actions to reform and improve its corporate 25 governance and internal procedures to comply with applicable laws and to protect the Company and 26 its stockholders from a repeat of the damaging events described herein, including, but not limited to, 27 putting forward for stockholder vote, resolutions for amendments to the Company's By-Laws or 28 - 58 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 60 of 63 1 Articles of Incorporation and taking such other action as may be necessary to place before 2 stockholders for a vote of the following Corporate Governance Policies: 3 1. a proposal to strengthen the Board's supervision of operations and develop 4 and implement procedures for greater stockholder input into the policies and guidelines of the 5 Board; 6 2. a provision to permit the stockholders of the Company to nominate at least 7 three candidates for election to the Board; 8 3. a proposal to strengthen the Company's oversight of its disclosure 9 procedures; and 10 4. a proposal to strengthen the Company's controls and oversight over human 11 resources and hiring to ensure policies and practices comply with applicable law and are fair and 12 competitive; 13 D. Extraordinary equitable and/or injunctive relief as permitted by law, equity, and state 14 statutory provisions sued hereunder, including attaching, impounding, imposing a constructive trust 15 on, or otherwise restricting the proceeds of the Individual Defendants' trading activities or their 16 other assets so as to assure that Plaintiff on behalf of Disney has an effective remedy; 17 E. Awarding to Plaintiff costs and disbursements of the action, including reasonable 18 attorneys' fees, accountants', consultants', and experts' fees, and expenses; and 19 F. Granting such other and further relief as the Court deems just and proper. 20 21 JURY DEMAND Plaintiff demands a trial by jury. 22 Dated: October 21, 2016 23 24 25 26 27 28 ROBBINS ARROYO LLP BRIAN J. ROBBINS KEVIN A. SEELY GINA STASSI MICHAEL J. NICOUD s/ Michael J. Nicoud MICHAEL J. NICOUD 600 B Street, Suite 1900 San Diego, CA 92101 - 59 - VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 61 of 63 Telephone: (619) 525-3990 Facsimile: (619) 525-3991 brobbins@robbinsarroyo.com kseely@robbinsarroyo.com gstassi@robbinsarroyo.com mnicoud@robbinsarroyo.com 1 2 3 4 PROFY PROMISLOFF & CIARLANTO, P.C. JOSEPH M. PROFY JEFFREY. J. CIARLANTO DAVID M. PROMISLOFF 100 N. 22nd Street, Unit 105 Philadelphia, PA 19103 Telephone: (215) 259-5156 Facsimile: (215) 600-2642 profy@prolawpa.com ciarlanto@prolawpa.com david@prolawpa.com 5 6 7 8 9 10 Attorneys for Plaintiff Eugene F. Towers 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 1132383 27 28 - 60 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 62 of 63 THE WALT DISNEY COMPANY VERIFICATION I, Eugene F. Towers, hereby verify that I am familiar with the allegations in the Amended Complaint, that I have authorized the filing of the Amended Complaint, and that the foregoing is true and correct to the best of my knowledge, information, and belief. Date:_ _:_/_t::J_ ._ . .)_(J_ - ___;;./6~ Case 5:15-cv-04609-BLF Document 49 Filed 10/21/16 Page 63 of 63 1 2 CERTIFICATE OF SERVICE I hereby certify that on October 21, 2016, I electronically transmitted the foregoing 3 document, and all attachments thereto, to the Clerk of the Court for filing using the ECF system, 4 which will send notification of such filing to all registered participants. 5 I further certify that I also caused the foregoing document, and all attachments thereto, to be 6 served on the following parties via electronic mail: 7 8 9 10 11 12 13 14 15 16 Jack P. DiCanio Allen J. Ruby SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 525 University Avenue Palo Alto, CA 94301 jack.dicanio@skadden.com allen.ruby@skadden.com Cliff C. Gardner SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP One Rodney Square 920 N. King Street Wilmington, Delaware 19801 cliff.gardner@skadden.com Attorneys for defendants 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, and nominal defendant The Walt Disney Company s/ Michael J. Nicoud MICHAEL J. NICOUD 17 18 19 20 21 22 23 24 25 26 27 28 VERIFIED AMENDED STOCKHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT Case No. 5:15-cv-04609-BLF