Katzenberg Sues Disney, Says He Is Owed $250 Million

One of Hollywood’s nastiest financial disputes broke open Tuesday when former Walt Disney Studios Chairman Jeffrey Katzenberg sued the entertainment giant for more than $250 million he alleges he is owed for overseeing the building of Disney’s Filmed Entertainment Division into the industry’s largest.

Although Katzenberg portrays the lawsuit as a contract dispute over a profit-sharing agreement--rather than as a personal vendetta against the company he left in 1994 after a bitter falling out--it nonetheless pits him head-on against Michael D. Eisner, Walt Disney Co.’s powerful chief executive and Katzenberg’s longtime colleague.

The lawsuit also makes for one especially sticky situation in that Katzenberg’s new company, DreamWorks SKG, is involved in a joint venture television deal with Disney’s recently acquired ABC television network.

Katzenberg and Eisner worked side by side for nearly 20 years, first at Paramount Pictures and later at Disney, which they both worked to transform from a struggling also-ran in 1984 into what today is the world’s biggest entertainment company.

As studio chief, Katzenberg revived the company’s lucrative animation franchise, which turned out such profitable hits as “Beauty and the Beast,” “Aladdin” and “The Lion King.” He had less success with Disney’s live-action films, including such bombs as “Cabin Boy,” although Disney did release such hits as “Sister Act” and “Pretty Woman.”

The lawsuit cites Securities and Exchange Commission filings by Disney showing that the Filmed Entertainment Division’s revenue soared from $244.5 million in 1984 to $4.8 billion in Katzenberg’s final year, with operating income rocketing from $2.2 million to more than $850 million.

“This lawsuit is about the past and is being filed simply to enforce the terms of my written contract. It should not be misconstrued as any kind of personal or punitive action,” said Katzenberg, 45, now a partner in DreamWorks SKG with director Steven Spielberg and entertainment mogul David Geffen.

Disney spokesman John Dreyer declined to comment on the specifics of the lawsuit, filed in Los Angeles Superior Court. In addition to its in-house lawyers, the company recently retained Los Angeles lawyer Louis M. Meisinger.

“We’re not going to play the spin control game. . . . Since the lawsuit has been filed, there will be plenty of facts for everyone to sift through rather than unattributed opinions,” Dreyer said.

Disney in the past has maintained that it does not let executives participate in future movie profits.

Katzenberg’s lawsuit comes after Disney President Michael S. Ovitz, the former top Hollywood agent who last fall became second in command to Eisner, worked behind the scenes to try to broker a peace agreement, according to Katzenberg lawyer Bertram Fields. Disney would not comment on Ovitz’s involvement.

In his lawsuit, Katzenberg alleges that Disney reneged on an employment agreement that he says provided him with a bonus of 2% of the profits generated by Disney’s movies and TV shows put into production or acquired for distribution in the 10 years he headed the company’s filmed entertainment unit. Entertainment executives said that performance bonuses are common for studio chiefs, although how they are calculated can vary.

At the heart of Katzenberg’s lawsuit is the fact that revenue and profits are often generated years after movies and TV shows are made, especially at a company like Disney where its successful animated movies provide the foundation of numerous future video, TV and merchandising opportunities. As an example, Katzenberg notes in the lawsuit, Disney’s video release of “Snow White” in 1994--which came more than 50 years after the film was first released--generated $800 million in revenue and about $600 million in profit for the company.

Katzenberg alleges that his contract called for a payment to be made after he left Disney, based on estimates of the future value of projects he oversaw while at the company. The lawsuit estimates that amount at $12.5 billion, although Fields said that $15 billion is probably more realistic.

Entertainment executives said that any estimate of the future value of movies and TV shows is difficult because sales sparked by new technology, such as digital videodiscs and video-on-demand systems, is difficult to calculate.

What makes Katzenberg’s lawsuit unusual is that it reached the stage of a court filing. Disputes over how much departing Hollywood executives should be paid are common, but are usually settled quietly.

Some Hollywood lawyers said they doubt that Disney would have let the case get to the filing stage if the issues had been as clearly defined as Katzenberg’s lawyers say they are.

But New York litigator Herbert M. Wachtell, also a member of Katzenberg’s legal team, said: “I’ve had many years of experience as a litigator and dealt with many contracts. The provisions of this written contract expressly requiring Disney to pay Mr. Katzenberg the profit-sharing in question are as clear and unambiguous as they can be.”

The long-simmering dispute has ticked like a time bomb since Katzenberg’s departure from Disney rocked Hollywood in August 1994. The breach between Katzenberg and Eisner was caused in part by Eisner’s irritation with Katzenberg’s push to be named to succeed Frank G. Wells as president of Disney in the months after Wells died in a helicopter crash.

In an interview, Fields said Disney had made no formal offer to settle, and said that Katzenberg’s lawyers have never sat down with Disney lawyers to discuss a settlement. He further took a swipe at Disney by saying that Wells, who negotiated Katzenberg’s contracts, would have made sure Disney lived up to its agreement.

“If Frank Wells were alive, this would never have happened. Jeffrey would have been paid. I don’t think Frank would have let it get to this stage,” said Fields, who added that a Wells’ memo supports Katzenberg’s case.