Eisner Assailed as Katzenberg Presses Compensation Case

The dogfight that Hollywood had expected to witness last year between Jeffrey Katzenberg and Michael Eisner, his former boss at Walt Disney Co., broke out Monday in a surprising opening to the latest phase of their contentious dispute.

Katzenberg attorney Bert Fields launched a full-scale assault on Eisner in opening arguments at a hearing on the former studio chief’s $250-million suit against Disney, held in a mock courtroom at Fields’ Century City law firm.

Fields said Eisner was personally responsible for Disney’s failure to pay Katzenberg what he was due.

“The evidence will show it’s the personal animosity of one man,” Fields said, delivering more than three hours of remarks to a packed room. Outside, a bank of TV cameras was lined up along Avenue of the Stars.

Katzenberg and his wife, Marilyn, were also present at the heavily secured event, which is being presided over by retired Superior Court Judge Paul Breckenridge.

Fields accused Eisner, Disney Senior Executive Vice President Sanford Litvack and Irwin Russell, a Disney board member and Eisner’s personal attorney, of making misleading and false statements about Katzenberg’s contract.

The three “came up with a story,” Fields said. “Each story is patently untrue. I don’t say that lightly.”

Responding to Fields’ remarks, Disney lawyer Lou Meisinger said that if this were a movie, it would have to include a disclaimer saying, “The story you just heard is fiction.”

Monday’s opening session was surprisingly personal. Many observers thought that this second phase of the trial would be dry and focused primarily on the financial details of what Disney owes Katzenberg.

In the first phase, Disney conceded that, within certain limits, the company did owe the former studio chief a substantial check.

Fields said Monday that Katzenberg was due a bonus two years after he left in 1994 amounting to 2% of the profits from about 700 movies and TV shows produced during his 10 years at the studio.

Fields said that when Katzenberg joined Disney in 1984, he was told that because Eisner and late Disney President Frank Wells had received such generous stock option plans, Disney’s board probably would not approve his getting one. Katzenberg received the 2% incentive bonus plan instead, which Fields said Wells described once as “like an annuity for your kids.”

In 1988, two years before Katzenberg’s contract was to expire, Fields said, Disney sought to renew his deal. At that point, the lawyer noted, Katzenberg had built the profits of Disney’s studio from $2 million in 1984 to $186 million in 1988, putting him in a strong negotiating position.

To bolster his point, Fields showed excerpts from Eisner’s annual shareholder reports lauding Katzenberg.

In a letter to shareholders, Eisner said: “I can think of nothing but superlatives in describing the stunning performance of the entire Walt Disney Studios team, starting with Chairman Jeffrey Katzenberg . . . “

Fields said that during those 1988 negotiations, Disney tried offering Katzenberg several lucrative alternatives to the 2% bonus, such as a rich stock option plan. Fields said Katzenberg held firm to the bonus plan.

Using notes from Eisner’s recent autobiography, Fields tried to show that Eisner attempted to rewrite history by saying he would never have approved such a lucrative deal.

Fields showed a quote from Wells’ notes calling the Katzenberg incentive plan “a big deal--residual value of new films,” which he wrote was valuable because “it follows the product.”

His notes also included a line saying, “Cannot emphasis strongly enough that this is a tremendous concept.”

Fields contended that Disney executives concocted a secret plan called “Project Snowball” intended to deny Katzenberg his bonus and that Eisner was fully aware of it.

The attorney challenged Eisner’s testimony in a deposition in which the Disney chief said he had only recently heard of the plan.

Both sides reached for favorable interpretations of negotiations conducted by Wells.

Fields argues that Wells negotiated a very generous package that supports Katzenberg’s claims, while Meisinger claims Wells never would have agreed to such a deal.

Meisinger said Eisner had engaged in “no deceptive conduct.” He chided Fields for focusing on issues that were already settled in the first phase of the trial. Acknowledging that Katzenberg will get a check, he said this phase is about evaluating the amount.

Meisinger said Katzenberg is trying to portray himself as a “hapless victim,” when he’s well-known for being a hard-charging negotiator who had several lawyers and accountants working on his behalf on contract issues.

The lawyer also criticized Fields for “cherry picking”--sifting statements from memos and letters to support his case--and for using the hearing to personally attack Eisner.

Late in the day, Meisinger also got personal, saying that Eisner had misgivings about Katzenberg and that during his tenure the live-action division operated in the red.

Meisinger acknowledged that Katzenberg was a valuable leader but said he was hardly alone in making the studio a success.

He said Katzenberg did not show Roy Disney the proper respect and took too much credit in the press for the company’s animated films.

And Meisinger said that, for someone who made more than $100 million from Disney through various bonus plans, stock options and a $5-million beach house, Katzenberg, by his claims, sets “a new standard for arrogance in an industry that already has a high mark in this area.”

While Fields came out with guns blazing, presumably to pressure Eisner into an early settlement, there was no indication that the Disney chief plans to fold at this stage.

Unlike in November, when he settled phase one in the 11th hour--when Disney could have faced an open-ended judgment--sources say Eisner has little or no incentive to settle now.

Disney has conceded liability on the contract claim, but the parties agreed to have a retired judge determine the damages.

Both Eisner and Katzenberg enter this phase with a certain comfort level.

Katzenberg knows he’s going to get a fat check, while Disney knows there’s at least some limit to what it will have to shell out.

Although there’s no cap for Disney, sources previously said the company will pay a “modest discount” on the amount the court determines Katzenberg is owed.

This second phase of the trial divides into three main segments. The first involves interpreting terms of Katzenberg’s contract, deciding the parameters of things Disney owes him for, and also whether Disney committed fraud in its contract dealings with the former studio chief.

Another issue is expected to be whether Disney should pay Katzenberg when new technologies create additional streams of revenue for the movies he oversaw.

Once it is decided what Disney owes Katzenberg for, a value will be computed using the testimony of experts from each side.