Disney the Winner in a Hunny of a Lawsuit

A Los Angeles County Superior Court judge Monday abruptly ended more than a decade of legal wrangling over merchandising royalties for Winnie the Pooh, handing Walt Disney Co. a major victory and taking a powerful swipe at the family that claimed it had been cheated out of hundreds of millions of dollars.

Judge Charles W. McCoy accused the Slesinger family -- which holds the lucrative merchandising rights -- of trying to gain an edge by stealing confidential Disney documents and then lying and altering court papers to cover up the thefts.

The plaintiffs’ “willingness to tamper with, and even corrupt, the litigation process constitutes a substantial threat to the integrity of the judicial process,” the judge wrote. “The court finds that [the plaintiffs’] misconduct was willful, tactical, egregious and inexcusable.”

Disney’s victory comes at a crucial time for Chief Executive Michael Eisner, who has been fending off a campaign to oust him after 20 years at the helm of the Burbank entertainment giant. Losing the case could have cost the company several hundred million dollars and provided more fodder for critics. Eisner met with the family last summer to discuss a settlement, but talks were abandoned.

“After 13 years in the courts, the Winnie the Pooh case is finally over,” said Daniel Petrocelli, Disney’s lead attorney. “Our position has been vindicated in its entirety.”

The judge’s scorching ruling stunned the heirs of Stephen Slesinger, a New York literary agent and a pioneer in the business of marketing cartoon characters. He had acquired the Winnie the Pooh merchandising rights for $1,000 in 1930 from A.A. Milne, the author of the children’s stories about the honey-loving bear and his forest friends.

Slesinger’s widow, Shirley Slesinger Lasswell, granted Disney the merchandising rights to the characters in 1961 in exchange for royalties. Pooh is now Disney’s most profitable character, raking in more than $1 billion annually for the company and outmuscling Mickey Mouse as a money maker.

In 1991, Lasswell and her daughter, Patricia Slesinger, sued Disney, claiming that the company had failed to pay them millions of dollars in royalties for videos, computer software and other merchandise.

The family, in a statement Monday, vowed to appeal: “This decision unfortunately sends a strong message to corporate America that it is OK for companies like Disney to steal and renege on its contractual promises.”

The Disney motion that led to the dismissal did not attack the merits of the Slesingers’ case but rather the family’s behind-the-scenes conduct in obtaining confidential documents that provided insights into the company’s legal strategy. Disney lawyers contended that the papers were stolen. The Slesingers said the documents were legally taken from publicly accessible trash bins.

During a five-day hearing that concluded this month, Terry Lee Sands, an unlicensed private investigator, testified that he had been hired by Patricia Slesinger’s husband to find discarded documents. He said he found them in dumpsters behind a satellite Disney building in Burbank.

On Monday, Judge McCoy said in his 28-page ruling that he simply did not believe Sands.

Among other things, the judge said, key Disney executives and attorneys involved in the lawsuit did not work at Disney’s Buena Vista Plaza complex in Burbank, making it unlikely that their trash would have been found in dumpsters there. Also, the judge said the volume and highly sensitive nature of the documents made it virtually impossible that they all ended up in one cluster of dumpsters.

Reached at his Van Nuys home, Sands stood by his story.

“It’s all lies,” he said. “I did not steal any documents.”

Sands added: “My assignment was to find out whether Disney was discarding documents.... I was supposed to go to their businesses and see where their trash was being dumped and how much was being dumped. I got everything from the garbage.”

The judge didn’t buy it. He said Sands was trespassing on private property, and thus, stealing. They “had no right to break laws to obtain evidence,” McCoy wrote.

McCoy’s decision does not erase Disney’s obligations to continue to pay the Slesingers royalties -- at least for a while. The company is pursuing a separate copyright claim in federal court that, if successful, would terminate the payments.

During the last two decades, Disney paid the family more than $82 million. In recent years the royalties have averaged about $11 million a year.

The case, one of the longest-running in Los Angeles County, has taken several twists and turns along the way. More than three judges and a dozen law firms have been involved, filing hundreds of thousands of documents. Publications from around the globe, including the Times of London and the South China Morning Post, have written about the fracas.

There has been plenty of mudslinging and allegations of wrongdoing on both sides.

In 2001, Disney found itself fending off allegations of misconduct. A judge sanctioned the company $90,000 after it destroyed more than 40 boxes that contained Pooh papers. The company contended that the destruction was unintentional. Still, the judge ruled that jurors could be told of the disposal at trial -- a disclosure that would not reflect well on Disney.

The following year, Disney got its first big break. During an October 2002 deposition, Petrocelli questioned Patricia Slesinger about the role of a private investigator she had hired a decade earlier. Slesinger testified that she did not know what the investigator did on her behalf. Petrocelli pressed for his name: Terry Sands.

“That’s when the dam broke,” Petrocelli told the judge during the hearing earlier this month.

That name matched one in an anonymous tip made to Disney’s security office in 1994. The caller told Disney security guards that he and an investigator named Terry Lee Sands had been hired to steal documents related to Winnie the Pooh.

Disney didn’t make much of it -- security couldn’t find any evidence of any break-ins. But Petrocelli pursued it.

His associates began looking for accomplices to the garbage raids, a search that would take them into California prisons. They found a cellmate of a man who participated in the raids. They also tracked down Richard Dale Holman, who admitted making the call. Although Holman later recanted, the admission helped Petrocelli unravel the plaintiffs’ stories, and led to Monday’s ruling.

Judge McCoy was particularly troubled that the plaintiffs altered Disney papers that they knew they weren’t supposed to have. In those documents, which Patricia Slesinger eventually turned over to the court, the words “confidential” and “attorney work product” had been removed. The judge also took issue with her testimony.

“Her demeanor on the witness stand when making those denials, coupled with evidence linking her directly to the documents, convinces the court that Ms. Slesinger’s denials were false,” McCoy wrote. “Conduct of this sort strikes at the heart of the judicial process.”

Legal expert Laurie Levenson said a reversal would be difficult to win. Appellate courts typically follow the findings of trial court judges, particularly when a judge uncovers facts undermining someone’s credibility.

“It will be a Mt. Everest-uphill battle for the Slesingers to get this order overturned,” the Loyola Law School professor said. “Now instead of just fighting the defense -- Disney -- the plaintiffs are also fighting the judge. It doesn’t get any worse than this.”

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Battle for the bear

Allegations of wrongdoing were raised by both sides during the 13-year fight in Los Angeles Superior Court over royalties related to the Winnie the Pooh character. Some key moments:

* February 1991: Heirs of Stephen Slesinger, who acquired merchandising rights to Winnie the Pooh from creator A.A. Milne in 1930, sue Walt Disney Co., alleging that the company skimped on royalty payments. Files on the case are soon ordered sealed.

* June 1994: Disney’s security office receives a tip from an anonymous caller about alleged break-ins and thefts of documents related to Winnie the Pooh merchandise. Disney is unable to substantiate the claims.

* June 2000: Superior Court Judge Ernest Hiroshige rules that Disney deliberately destroyed more than 40 boxes of internal documents, including papers related to Pooh licensing agreements. The judge says attorneys for the Slesinger family can tell jurors about the destruction. Disney’s outside lawyers withdraw from the case because they may be called as witnesses.

* November 2000: Disney hires lawyer Daniel Petrocelli and a team from his firm, O’Melveny & Myers. Among his earlier cases, Petrocelli successfully won a civil suit against O.J. Simpson on behalf of murder victim Ronald Goldman’s family.

* August 2001: Judge Hiroshige orders Disney to pay $90,000 in legal fees stemming from the hearings on document destructions.

* December 2001: Hiroshige orders the case unsealed, based on a motion by The Times.

* October 2002: During depositions, Petrocelli questions key witnesses, including Stephen Slesinger’s daughter, Patricia Slesinger, about an unlicensed investigator they hired and how they obtained confidential legal documents from Disney. The witnesses deny knowledge of the investigator’s activities.

* November 2002: The California Court of Appeal lets stand Hiroshige’s ruling that jurors can be told that Disney destroyed boxes of evidence. The California Supreme Court later refuses to hear an appeal by Disney.

* May 2003: A federal judge rejects a Disney-backed bid by Milne’s granddaughter Clare Milne to reclaim merchandising rights to Winnie the Pooh from the Slesingers and then transfer them to Disney.

* July 2003: Prominent entertainment attorney Bertram Fields, one of a number of lawyers who have represented the Slesinger family over the years, withdraws from the case without explanation.

* September 2003: Judge Hiroshige removes himself from the case. Los Angeles County Superior Court Judge Charles W. McCoy of the complex litigation division takes over.

* October 2003: After firing another law firm, the Slesingers hire Johnnie Cochran.

* February/March 2004: A five-day hearing is held into Disney’s motion that the case be dismissed because, the company alleges, documents were stolen from its Burbank offices by the Slesingers’ investigator, with their knowledge.

* Monday: Judge McCoy dismisses the case, saying that the Slesingers had lied about their knowledge of the thefts and that their behavior was “willful, tactical, egregious and inexcusable.”

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Graphics reporting by Times research librarian John J. Jackson and staff writer Meg James

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Times staff writer Chuck Philips contributed to this report.