Katzenberg vs. Eisner: Fireworks About to Fizzle?

On the eve of the most-anticipated trial in Hollywood, key people close to Walt Disney Co. Chairman Michael Eisner and to his former studio chief, Jeffrey Katzenberg, believe the feuding moguls will settle their differences before the fireworks begin.

They say Eisner is warming ever so slightly to the possibility of settling the case, in which Katzenberg alleges Disney owes him at least $250 million in profit sharing stemming from movies and TV shows he oversaw during his 10 years as head of the studio.

Sources say that after much prodding, Eisner has reluctantly agreed to give Disney Senior Executive Vice President and veteran lawyer Sanford Litvack and Disney’s outside attorney in the case, Lou Meisinger, flexibility to see if they can work out a settlement.

That doesn’t mean a deal is at hand. But the mere fact that Eisner has gotten Litvack more directly involved--joining the litigation team in anticipation of the trial when originally he wasn’t going to--is a significant turn of events in a case that has seemed destined for the courtroom. Though the trial is scheduled to begin in less than three weeks, people close to the situation note, momentum can be gained quickly if the two sides get serious about working things out.

Publicly and privately, however, principals in the case say they expect to see each other in court on Nov. 18. Katzenberg and Disney declined to comment.

There’s also no assurance that Eisner and Katzenberg, two of Hollywood’s most competitive executives, could ultimately bring themselves to sign off on a settlement in which they have to compromise. People close to both men say that each remains convinced he is right. Another major factor is the personal animosity each has toward the other, which could scuttle any eleventh-hour deal.

“Michael and Jeffrey are both stubborn and have big egos, especially on these issues. That will make it difficult for the lawyers to settle it,” said one executive.

Civil lawsuits often settle before trial because each side can usually justify giving up something in a settlement to avoid the risk of a much larger loss at the hands of a jury. For Katzenberg, the biggest risk is that after all of the effort, he could get nothing. It’s unlikely he would settle for less than a substantial portion of the $250 million.

For Disney, the biggest risk is that it not only might have to pay out a huge amount, but also that disclosure of its business practices could prove embarrassing.

“Typically, in a business case, it’s just about money, and there’s always some compromise where both sides can walk away happy--as opposed to both sides running the risk of a disaster where someone wins or loses. I don’t see this case as a typical business dispute. I see it more as an emotional divorce, and as a result those are the kind of cases that don’t typically settle,” said Bonnie Eskenazi, a lawyer assisting Katzenberg attorney Bert Fields in the case.

Although it seems that Eisner may be more open than in the past to the possibility of a settlement, sources caution that he’s unpredictable. And there’s no guarantee that either side could agree on a number for a settlement.

For both Eisner and Katzenberg, the case is highly personal. The two executives have a complicated relationship dating back 19 years, when they worked together at Paramount Pictures, then later at Disney. Katzenberg was a critical member of the Eisner-led team that revived the moribund company in the 1980s, building it into the global entertainment empire it is today.

Katzenberg left in 1994 after nearly a decade at the studio after he unsuccessfully lobbied to become the studio’s No. 2 executive. Katzenberg was seeking to become Disney’s president after the death in 1994 of Frank G. Wells in a helicopter crash. Not long after leaving, Katzenberg formed the DreamWorks SKG studio with director Steven Spielberg and entertainment mogul David Geffen.

Shortly after Katzenberg left, representatives of Disney and Katzenberg met to discuss a possible settlement. Former Disney President Michael Ovitz purportedly also tried to get the case settled.

In April 1996, Katzenberg sued Disney, alleging that the company reneged on an employment agreement providing him a bonus of 2% of the profits generated by Disney movie and TV shows put into production while he ran the studio. That would include such major hits as “The Lion King” and “Pretty Woman.”

People close to Eisner say his relationship with Katzenberg was strained for years even before the issue of the company presidency arose. They say Eisner was often livid because of Katzenberg’s high profile and what he believed was Katzenberg’s aggressiveness at grabbing sole credit for projects.

At the same time, Eisner has publicly praised Katzenberg’s contributions to Disney. In a Sept. 24 interview with PBS’ Charlie Rose, Eisner said: “I don’t have any animosity toward him. I think he did a fabulous job.”

People close to Katzenberg call Eisner’s remarks disingenuous.

Of the lawsuit, Eisner, who has refrained from discussing any specifics of the case, said on the Rose show: “This is a contractual conflict, and it will be resolved in the way contractual conflicts are usually resolved--which is either in a settlement or in a court of law.”

One theory as to why Eisner has been reluctant to settle with Katzenberg is the blistering criticism he received over Ovitz’s cash-and-stock severance package from Disney, now valued at more than $100 million. On the Rose show, Eisner said “the Ovitz thing is a completely separate situation.”

Many Hollywood lawyers and executives--including people in Disney’s and in Katzenberg’s camp--are predicting that the case could literally be settled on the courthouse steps minutes before the trial starts as it becomes apparent how much the trial will cost in money, executive time and erosion of public image.

Both sides risk being embarrassed by testimony under hostile questioning. Neither man would enjoy losing such a highly public fight.

That helps explain why much of the case has so far been fought in the press, with an ample amount of spin control from both sides.

Rumors of explosive “smoking guns” have surrounded the case, some of which have turned out much less than advertised.

Disney, for example, sought to disqualify Katzenberg’s legal team for obtaining from an ex-Disney executive what the Disney lawyers called a “road map” for their case against the studio.

The document, recently unsealed, is a generic list of potential areas in which studio revenue could be underreported or expenses reported too high, but with no references to specific movies or projects. Katzenberg’s lawyers have said that the document contains nothing they didn’t already know.

Then there was a mysterious conspiratorial reference to something called “Project Snowball,” allegedly a Disney scheme to deny Katzenberg money after the company realized the 2% he was promised would earn him far more money than expected. In a brief portion of an Eisner deposition unsealed last month, the Disney chief was asked if he is familiar with “Project Snowball.”

Eisner replied: “I have no recollection of anybody ever telling me, discussing with me, analyzing with me, some secret project called ‘Snowball.’ ”

In another instance, word of a “mock trial” leaked out in which Katzenberg’s lawyers purportedly convinced jurors he is owed money, relying on an alleged memo written by the late Wells.

Likewise, Katzenberg’s lawyers have been irked by reports that they made a tactical mistake when they agreed to split the case into two parts, one to determine if Katzenberg is owed money and the other an arbitration procedure to decide how much. They say they lost no advantage by agreeing to those terms.

Hollywood insiders believe that it’s in both Katzenberg’s and Eisner’s best interests to settle the case because it’s such a distraction. Eisner is running one of the world’s biggest entertainment empires, and Katzenberg is working to build the fledging DreamWorks into a major Hollywood force.

“Neither one of them should take this to court. They’ll tear each other to shreds,” said one executive close to the situation.