Katzenberg, Disney Lawyers Still Battling Over the Take

Hollywood’s most talked about legal battle in years may have faded from memory, but Jeffrey Katzenberg’s $250-million lawsuit against the Walt Disney Co. is raging on in a series of private legal proceedings that are more grueling than anyone expected.

It’s hard to believe it’s been a full year since Katzenberg won round one in his highly public suit against his former employer, entitling him to a piece of the profits from movies and TV shows produced during his decade as head of Disney Studios.

Katzenberg filed a breach-of-contract suit in 1996, claiming Disney owed him 2% of whatever the company realizes from those projects. Disney’s original position was it didn’t owe him a penny, but at the eleventh hour, before the case was to be tried by a jury, the parties reached a partial settlement. Disney conceded that it owed him substantially more than a penny.

Just how much Katzenberg is owed is being hotly contested by the lawyers representing each side. They’ve been wrangling about it since last November, and who knows how many more months it will take before they can agree on a number?

At the heart of the dispute is how much money these productions are expected to generate in the future. For example, one of the debates is how new technologies--including such delivery systems as digital versatile disc and other formats--will affect the value of these properties.

An estimated 75 or so depositions--about twice that of the first phase--will be taken by the time a private arbitration hearing gets underway on March 1 that will determine the debt to Katzenberg.

The trial that never happened was among the most highly anticipated Hollywood courtroom dramas in recent memory. The case was further distinguished by the personal, as well as professional, battle that erupted between two titans of entertainment--Katzenberg and his longtime boss, Disney Chairman Michael Eisner.

By settling out of court, Disney avoided opening its books to public scrutiny and having top-secret details of contracts, salaries and deals spelled out in court.

And both Katzenberg and Eisner--who bitterly parted ways in 1994, when the studio chief lost his bid for the Disney presidency--would have risked being publicly embarrassed under harsh grilling on the witness stand.

Instead, a partial settlement was reached, yielding Katzenberg a guaranteed minimum--perhaps as much as $100 million--as an advance against the amount he would eventually receive and appointing a “rent-a-judge” to decide how much Disney must pay Katzenberg. (Retired Superior Court Judge Paul Breckenridge will preside over the hearing.)

Just as the two sides came to terms at the last possible moment in round one, they may reach another eleventh-hour settlement before next year’s hearing.

“Does either side really want to put their fate into the hands of someone who’s not an expert in entertainment?” noted one industry insider who’s close to the case.

Meanwhile, lawyers are deep in the details of discovery, having already begun the labor-intensive process of taking depositions and producing tons of documents.

They’re busy trudging their way through the financials on about 175 feature films as well as dozens of TV shows and direct-to-video movies that were made from 1984 through 1994, when Katzenberg headed the studio.

It’s not simply a question of how hit animated films such as “The Lion King,” “Aladdin,” “The Little Mermaid” and “Beauty and the Beast” performed at the box office but how much revenue they generated and will continue to generate in other venues, including theatrical productions, ice shows, theme parks and ancillary sales from videocassettes, merchandise, interactive games and more.

Katzenberg’s claim is that Disney was obligated to pay him “post-termination bonuses” after he left the company in 1994. Disney had originally argued that Katzenberg forfeited all bonuses when he left the studio two years earlier than his contract permitted.

Both sides have enlisted outside experts to construct financial models to estimate future earnings.

Barring an early settlement, the question will be decided in a private hearing in the law office of one of the participating attorneys rather than in a courtroom.

Disney was irate about all the pretrial publicity last year, and both parties have sought to keep the final phase of the case far from the public eye.

Katzenberg and Eisner had worked together 19 years, first at Paramount Pictures, then Disney, where with the company’s late president, Frank Wells, they built the moribund studio, which had revenue of $244 million in 1984, into a global entertainment conglomerate with $4.8 billion in revenue a decade later.

Over the years, the relationship between Eisner and Katzenberg deteriorated. When Wells was killed in a helicopter crash in 1994 and Katzenberg lobbied strenuously to be his successor, the friendship soured beyond repair and resulted in the studio chief leaving in September 1994.

About a month after he left, Katzenberg teamed up with Steven Spielberg and David Geffen to form DreamWorks SKG, which is proving to be a pesky competitor to Disney in animation. It recently released its first offering, “Antz,” and is poised to bring out “The Prince of Egypt” for Christmas.