Federal Court Denies Class Certification In High Tech Employees' Price-Fixing Lawsuit

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By Eleanor S. Tyler

Two proposed classes of employees from Silicon Valley firms alleged to have conspired to drive down workers' pay cannot be certified, although the employees may amend their motion in light of discovery produced since the first attempt was filed, the U.S. District Court for the Northern District of California ruled April 5 (In re High-Tech Emp. Antitrust Litig., N.D. Cal., No. 5:11-cv-02509, 4/5/13).

In a partially redacted opinion, Judge Lucy H. Koh concluded that the employees did not demonstrate that common issues of law and fact predominate on the issue of anti-competitive impact on the members of either proposed class.

However, because much of the companies' opposition to class certification was not timely produced in discovery, she granted leave to amend the employees' motion to certify class if late-breaking information bears on that issue.

Past Proceedings
A group of software engineers brought class action claims under Sherman Act Section 1 (15 U.S.C. § 1) against their former employers, Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc., Lucasfilm Ltd., and Boxer, based on the companies' agreements not to solicit or hire each others' employees.

The employees alleged that the companies' agreements were part of an “overworking conspiracy” to eliminate competition among them for skilled labor, with the intent and effect of suppressing the compensation and mobility of their employees.

Based on an investigation by the Justice Department, the employees learned that pairs of defendants had entered into express bilateral agreements not to compete for each other's workers. The employees maintained that these agreements “were developed to prevent a 'bidding war' for talent that would drive up wages across the Defendants.”

The companies memorialized these nearly identical agreements in CEO-to-CEO mails and other documents, including “do not call” lists, putting each firm's employees off-limits to other firms. The bilateral agreements applied to all employees of a given pair of companies, and were neither related to a specific collaboration among the companies nor limited by geography, job function, product group, or time period.

The employees contended that the companies' anti-solicitation agreements eliminated competition for employees and suppressed employees' compensation and mobility, thereby inflicting classwide harm. They moved to certify a nationwide class of everyone employed by one of the defendants during specified periods between January 2005 through December 2009.

The employees also moved to certify a nationwide class of “[a]ll natural persons who work in the technical, creative, and/or research and development fields that are employed on a salaried basis” by the defendants during the same specified class periods from 2005 through 2009. Excluded from either proposed class are: retail employees; corporate officers, members of the boards of directors, and senior executives.

The companies opposed the motion to certify and also moved to strike the report of employees' expert, Dr. Edward E. Leamer.

The employees moved to strike the expert report of Kevin M. Murphy, along with certain employee declarations proffered by the companies.

Class Certification
While Koh denied the employees' motion for class certification, she granted leave to amend the motion and reurge it in light of significant discovery that may bear on the predominance requirement for certification.

Koh's analysis focused almost entirely on predominance under Rule 23(b) of the Federal Rules of Civil Procedure, with a lengthy discussion leading to the conclusion that the employees failed to show that the proposed classes met this requirement.

The court weighed conflicting arguments for and against Leamer's use of “conduct regression” to propose a common method for evaluating damages among class members, along with additional methodological attacks on the employees' evidence, and generally concluded that the methods would sufficiently provide a common answer on issues important to the employees' Section 1 claims. The court also declared the employees' documentary evidence of predominance “compelling.”

In the end, however, the court was not entirely satisfied that the proposed classes met Rule 23. “The Court is most concerned about whether the evidence will be able to show that Defendants maintained such rigid compensation structures that a suppression of wages to some employees would have affected all or nearly all Class members,” Koh wrote. “The Court is also concerned that Plaintiffs' proposed classes may be defined so broadly as to include large numbers of people who were not necessarily harmed by Defendants' allegedly unlawful conduct.”

Specifically, the court determined that the class has not demonstrated that common issues of law and fact predominate over individual ones on the issue of anti-competitive impact among members of either proposed class. It agreed with the companies that the “common factors analyses” the employees' expert undertook do not support their theory that all or nearly all class members' compensation necessarily would have been impacted by the anti-solicitation agreements.

However, the court “finds that Plaintiffs have satisfied their burden for predominance on the first and third elements of Plaintiffs' Section 1 antitrust claim--antitrust violation and damage.” But, because the court “has concerns about the capacity of Plaintiffs' evidence and proposed methodology to prove impact” in both classes, it denied certification.

The court found that, for both the “all employee” and “technical” classes, class members' interests weigh in favor of having this case litigated as a class action. In addition, it said, “the nature of Defendants' alleged overworking conspiracy and the desirability of concentrating the litigation in one forum weigh heavily in favor of finding that class treatment is superior to other methods of adjudication of the controversy.”

However, the court declined to rule explicitly on superiority for the moment based on the classes' failure to satisfy Rule 23(b)'s predominance requirement.

Because “the Court believes that some of the recently produced discovery may affect Plaintiffs' ability to satisfy the predominance requirement for one or both of their proposed Classes,” it granted leave to amend the employees' motion.

Lastly, while finalizing the appointment of four firms as class counsel, Koh declined to appoint the employees as class representatives “at this time.”

Expert Opinions

The court next denied the companies' motion to strike Leamer's report under Daubert and the plaintiffs' motion to strike Murphy's report in part.

The companies moved to strike the opinion of Leamer on the grounds that it ignores “the messy facts of [the] case” and the market and is methodologically flawed. The court, however, concluded that the companies' attacks on Leamer's report can be dealt with using contrary evidence at trial and that Leamer's methodology is not so flawed as to warrant exclusion. Accordingly, the court declined to exclude the report under Daubert.

For their part, the plaintiffs sought to strike Murphy's report for relying on interviews with the companies' employees as its sole data for concluding that the challenged agreements did not damage the market for employees among the defendants. The employees also seek to exclude Murphy's report because they contended that the employee interviews have never been adequately disclosed, in violation of Rule 26(a)(2)(B)(ii) of the Federal Rules of Evidence.

The court, taking the word of defense counsel that Murphy neither took notes during interviews nor relied on anyone else's notes in drafting his opinion, denied the employees' motion to strike Murphy's report on that basis.

Finally, the court rejected most of the plaintiffs' motion to strike declarations by the companies' employees as a sanction against the companies for failing to disclose the witnesses or provide their documents in discovery. However, it did conclude that the companies failed to disclose one declarant in violation of Rule 26 of the Federal Rules of Civil Procedure and therefore struck that employee's declaration.

By Eleanor S. Tyler

Text of the opinion is available at http://www.bloomberglaw.com/public/document/In_re_HighTech_Employee_Antitrust_Litigation_Docket_No_511cv02509/2.

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