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Netflix Loses Exec Poaching Battle With Fox; Appeal Almost Certain – Update

Dominic Patten

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UPDATED, 3:29 PM:  Fox won’t be getting its $1 in damages in the long-running executive-poaching battle with Netflix, but the streamer won’t be snagging any more employees of the now Disney-owned studio or maybe anyone else.

Two weeks after Judge Marc Gross issued a tentative ruling that seemed to snap off Netflix’s attempt to challenge industry employment contracts, the Los Angeles Superior Court official made it official Tuesday with a final ruling affirming the tentative.

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The court finds Fox is entitled to injunctive relief, as follows: Netflix shall not solicit employees who are subject to valid Fixed-Term Employment Agreements with Fox or induce such employees to breach their valid Fixed-Term Employment Agreements with Fox,” said Gross, as clear as day, in today’s 57-page ruling.

“Today’s ruling by the Court brings to an end years of unlawful practices by Netflix,” said Fox lead lawyer Daniel Petrocelli. “The Court’s decision not only condemns Netflix’s deliberate violations of the law, but just as importantly, reaffirms and protects the rights and choices of employees,” the O’Melveny & Myers LLP partner added, having last argued in front of Gross on the matter on November 25.

Representatives for Netflix did not respond to request for comment on the final ruling, except to cite their previous statement of November 25 (see below). However, sources close to the streamer have made it clear in the past and today that Netflix plans to appeal today’s ruling.

So, maybe Fox will get that $1 after all.

PREVIOUSLY, NOVEMBER 25 AM:  The more than three-year battle between Netflix and the now Disney-owned Twentieth Century Fox Film Corporation over two executives poached from the latter by the former looks like it won’t be going to trial next year after all. In fact, it might not be going anywhere at all, but to the legal dustbin, maybe

After a long-ish hearing this morning in Santa Monica, Judge Marc Gross said he would “take under submission” his dense 50-page tentative ruling of earlier that embraced Fox’s motion for an injunction over the employment contracts dust-up. On the flipside, the Los Angeles Superior Court judge’s draft inclination handed no damages to Fox and no inducement to breach on the part of Netflix when it comes to the snatching of Marcos Waltenberg and Tara Flynn.

“The court finds Fox is entitled to injunctive relief,” proclaims Judge Gross’ tentative ruling (read it here) that set the stage for today’s gathering, which was sparsely attended except for lawyers. “There can be no dispute that Netflix will likely interfere with Fox’s valid Fixed-Term Employment Agreements in the future if the misconduct is not enjoined,” the judge added. It is expected that Judge Gross will issue a final ruling in the next few days in what would an extra serving in Fox’s Thanksgiving.

Netflix put in a resolute face in what is looming to be a pretty big loss for the streamer in an even more increasingly competitive environment than when this case started.

“As Judge Gross wrote, Fox failed to prove it was hurt in any way when two executives decided to exercise their right to go to Netflix,” said a spokesperson for the streamer in a statement son after the hearing ended on Monday. “Fox’s illegal contracts force employees to remain trapped in jobs they no longer wish to do and at salaries far below market rate. We will continue to fight to make sure that people who work in the entertainment industry have the same rights as virtually every other Californian and can make their own choices about where they work.”

In their latest amended filing of last month, and certainly of note in a separate but similar suit with Viacom, Netflix took one last swing claiming that Fox’s contracts should be ripped up because they violate California’s famed seven-year rule and severely restrict employee mobility.

A patient Judge Gross wasn’t buying it from Netflix’s lawyer Karen Johnson-McKewan on Monday. “Your argument taken to its logical conclusion is that any fixed term contract restricts mobility,” Gross cautioned as the Orrick Herrington & Sutcliffe LLP added that Fox can’t stop the duo from “either quitting or taking jobs elsewhere,” noting that neither the now Netflix execs fall under the much more inhibiting clauses of “extraordinary” and one of a kind employees.

“Netflix isn’t trying to obliterate fixed term contracts,” Johnson-McKewan bluntly stated in an attempt to defang Fox’s primary thrust. However, the lawyer said that in her and Netflix’s opinion that Fox’s contracts run the risk of distorting an employee’s knowledge that they can quit before the contract is up.

“These contacts don’t exist anywhere outside of the entertainment industry in southern California,” Johnson-McKewan stated. “Business executives in the entertainment industry have fewer rights than any other category of employee in the state of California,” the attorney also emphasized, stressing that Fox “dresses it up” but “it wants to control its workforces.”

“I’m not here to condone all of their contract clauses,” Judge Gross replied, as Johnson-McKewan cited several elements that were not actually in Waltenberg and Flynn’s Fox deal. “I’m only here to rule on what is in front of me.”

Fox’s side were also there to argue what was in front of them, so to speak.

“The idea that an employee can break a contract without consequences is absurd,” Fox’s chief big game hunting attorney Daniel Petrocelli replied in part to the Netflix argument in court this morning. “We’re simply asking that the court declare what the law already says,” the O’Melveny & Myers LLP lawyer threw in, noting that the contracts provide that “if you want to leave, leave” but current employees can’t be solicited.

First filed by the then Rupert Murdoch-owned Fox back in September 2016, the matter was penciled in to go to trial on January 27, 2020. Of course, even if Judge Gross’ final ruling matches his tentative, this isn’t truly over. There is always the appeal process, one which Netflix seem strongly inclined to pursue if things truly don’t go there way, sources tell me.

That attitude is not unlike how back in the dying months of the Obama administration, the Reed Hastings-run home of House of Card slapped Fox back with a what-you-say-is-what-you-are counter-suit. At that time and still today, Netflix asserted that Fox was actually engaged in unlawful and anti-competitive business practices itself. With Olivia de Havilland’s name evoked and the overall status of employment contracts in the Golden State put in question, Netflix and Fox both dug in for what has been a long fight, often resulting in more head scratching than judicial traction over the years.

With Bob Iger and the elder Murdoch’s $71.3 billion deal for the House of Mouse to acquire a large slab of Fox’s assets becoming official earlier this year, many presumed that Disney might ditch the whole thing and “condemn and move on,” to quite HBO’s Succession paraphrasing the Australian media tribe.

That seemed almost unnecessary in June after Judge Gross TKO’d Netflix’s assertion that the contracts that now Waltenberg and Flynn had at Fox were basically elongated non-compete agreements. While that would seem to end things, the LASC Judge did allow the streamer to amend its pleading on the Fox fixed-term contracts and declaratory relief

Unsurprisingly, Netflix lurched a new version of their argument into the docket last month – which is what brought us to today.

As they have been for a while, the Fox/Disney assets are represented by Petrocelli plus his O’Melveny & Myers LLP colleagues Molly Lens and David Marroso. Netflix’s outside counsel is a team led by Johnson-McKewan from Orrick Herrington & Sutcliffe LLP.

It should be noted that in the past four years, Netflix has snared over a dozen Fox employees to its ranks in addition to Waltenberg and Flynn, it was noted in court. “Fox has not been harmed, Fox is OK,” Netflix outside attorney Johnson-McKewan almost chuckled as Petrocelli and lawyers for Fox and Judge Gross looked on.

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