Duking It Out Over Disney Dollars

With the first leg of Jeffrey Katzenberg’s very public breach-of-contract lawsuit against Walt Disney Co. over, one can hear sighs of relief through Hollywood.

This was like a boxing match that began as sporting fun to watch but eroded into a bloody brawl with people averting their eyes from the bruises and gashes.

As anyone in and around the industry knows, for all of the lifetime achievement and humanitarian awards that Hollywood executives heap on themselves every year, the reality is that a lot of them really hate one another. But it’s never aired in public as it was here.

Had it been a jury trial, Katzenberg and his lawyer, Bertram Fields, by now would have won a technical knockout in their brass-knuckles quest to get Disney to fork over the $250 million or more that the former Disney studio chief believes he is due stemming from a bonus clause in his contract.

It was bad enough that Sanford Litvack, one of Disney’s most senior executives, continually referred in his testimony to Frank Wells, the company’s respected late president, as “a dead body,” sounding like a jaded detective testifying about a homicide.

Then came one of the worst court performances in memory, from Disney Chairman Michael Eisner, usually exceptionally poised in public. He nearly lost it when he scolded Fields from the stand after being pressed on whether he told the coauthor of his autobiography that he viewed Katzenberg as “the end of my pompom” and that “I hate the little midget.”

Inexplicably, Disney portrays Katzenberg as the world’s highest-paid flunky, a “retriever,” to use Eisner’s word. Katzenberg purportedly lost $231 million of the company’s money making live-action films and was skeptical of reviving the animated films that proved to be a gold mine. Yet Disney showered him with rich contract offers.

Implausible explanations are the norm in this trial, including the claim that Eisner may or may not have made the disparaging Katzenberg remarks--but that, if he did, it was only after being cornered by the coauthor of his autobiography. Eisner also couldn’t recall if he or Disney paid the guy.

Not that Katzenberg’s side gets off clean. They have a habit of hyping and recycling conspiracy theories to play to the press. One example is a memo made public by a judge back in 1997 that was written by a former Disney executive trying to get in good with Katzenberg’s DreamWorks SKG studio. He listed ways that Disney may have dinged Katzenberg in reporting revenues and costs of films and TV shows he oversaw.

With enough spin, an old, underwhelming laundry list suddenly becomes a fresh bombshell that may inspire everyone who has ever worked for Disney to question their accounting statements.

Such hype by Katzenberg’s side is disingenuous. In 1997, Disney tried to get Fields disqualified from the case by saying that he improperly obtained the memo. At that time, Fields argued that it didn’t tell him anything he didn’t already know as someone who regularly represents people claiming studios are ripping them off.

Memos and court cases that promise to bring Hollywood to its knees over bogus accounting practices come and go all the time without delivering the goods, the last one a now-defunct lawsuit brought by the heirs of former New Orleans Dist. Atty. Jim Garrison over the film “JFK.” If anyone knows that, Fields does, since he represented a studio in that case.

Katzenberg’s side also continues to portray him as a victim, a stretch given that it has been established that he made $100 million at Disney and, as it turns out, has been paid $117 million more in a partial settlement of his Disney lawsuit.

No one will shed tears for Katzenberg or Disney if they come up short. Better to let the case stand as an interesting, provocative contract dispute involving two of Hollywood’s most powerful executives.

Among other things, the trial has vividly shown the inadequacy of today’s corporate disclosure laws.

After a guessing game that resembled the “warmer” and “colder” exercise children play, the press has now, through sources, finally confirmed that Katzenberg received two checks totaling $117 million in the partial settlement as an advance against the eventual amount Disney has to pay.

Under Securities and Exchange Commission disclosure laws, Disney shareholders have no right to know that $117 million of their money--and possibly a lot more--is being paid out. However, they do have the right to know that actor Sidney Poitier, a Disney director, owns 3,899 shares and options to acquire 7,200 more.

The trial has also shown the shallowness of the term “partial settlement.” When the two sides reached one in late 1997, the case was supposed to segue to another stage that would decide only what Katzenberg deserves.

One nagging question hanging over the whole trial so far has been: “So what exactly was settled?” All the anger and accusations spilled out anyway.

The heart of the case still remains whether Katzenberg deserves a whopping lump-sum bonus amounting to 2% of the profits that hundreds of movies and TV shows created under him will make for Disney from now into perpetuity, including a cut from the stuffed animals sold, Internet sites that feature character logos and a batch of other businesses. And, if so, how much does it all add up to?

For now, the trial is in recess while a retired Los Angeles Superior Court judge decides what items Katzenberg deserves to be paid for.

Then a parade of high-paid accountants and even-higher-paid consultants will guess about how much money “Aladdin,” “Sister Act” and “Beauty and the Beast” will make years after all of the combatants here have died.

It should be emphasized that it is a judge, not a jury, that will decide what Katzenberg gets.

To use the boxing analogy again, referees don’t always call a fight the way the crowd sees it. So embarrassments may not have much currency.

Disney fought hard to keep this portion of the trial closed to the media, citing “trade secrets” as if an Adam Sandler movie is analogous to the Coke formula.

A more effective argument might have been that this is an industry with more than its share of huge ego clashes, immature behavior and unreasonable conduct. And leaving all that venom behind closed doors, rather than displaying its ugliness to the world, might actually serve the public interest.