Disney Settles $20-Million ‘Whistle-Blower’ Lawsuit

Walt Disney Co. has settled a $20-million “whistle-blower” lawsuit brought against the company by a longtime executive who alleged she was ousted for refusing to help the entertainment giant cheat the IRS.

Judy Denenholz sued Disney in March 2001, saying she was wrongfully terminated after a series of clashes with the company’s chief lawyer, who allegedly was angered by her refusal to sign off on Disney’s response to an IRS audit. In her suit, Denenholz said the company had substantially understated what it owed the IRS.

The case, scheduled to go to trial Jan. 27, was settled late last week. The terms were not disclosed. On Wednesday, the lawyer at the center of the case, Disney general counsel Louis Meisinger, announced his retirement. He said he was leaving to serve as an advisor to a Los Angeles law firm and would continue to be a consultant to Disney.

A Disney executive, who asked not to be named, said Sunday that there was no connection between Meisinger’s departure and the settlement of the case, calling it “coincidental.” Previously, Disney said it had investigated the allegations leveled by Denenholz -- who was senior vice president of the company’s worldwide anti-piracy division -- and found them to be “shameful and untrue.”

When contacted by phone Sunday, Denenholz said she could not comment on the case. Meisinger could not be reached.

Denenholz contended in her suit that her ouster was the culmination of a decade-long conflict with Meisinger, beginning before he was hired as Disney’s general counsel in 1998.

In 1990, she challenged $800,000 in legal fees Meisinger’s law firm had allegedly charged Disney and other studios as excessive. At the time, Meisinger was representing the studios in connection with anti-piracy litigation, according to the complaint.

Meisinger’s firm, the suit states, subsequently slashed its bill by several hundred thousand dollars. Meisinger, however, continued to represent studios in other matters.

After he joined Disney, Meisinger and Denenholz repeatedly clashed. Denenholz said he frequently brought up the billing incident, according to the lawsuit.

Tensions came to a head amid Disney’s response to an IRS audit. The audit focused on how Disney was accounting for taxes stemming from legal and professional expenses incurred in copyright and trademark lawsuits for 1993, 1994 and 1995.

Denenholz said her bosses were angered when she refused to approve a statement to the IRS indicating that Disney owed back taxes of $676,000. She believed the company was omitting millions of dollars in legal expenses.

Soon after, in January 2000, Meisinger told Denenholz that her services were no longer needed, according to the suit, ending a nearly 20-year career at Disney.

She sued under the state’s labor code that protects a whistle-blower from retaliation by his or her employer. In the suit, Denenholz also accused another former colleague and Disney attorney of sexual harassment.

Disney has said Denenholz was not fired, only that her contract was not renewed after it expired and that her allegations were baseless. A source close to the company said IRS investigators found no evidence to support her claims.

Last May, Disney disclosed in a filing with the Securities and Exchange Commission that the IRS was auditing the company’s income tax returns for 1993 through 1995 and that the agency planned to dispute some of the company’s tax filings.

A Disney executive said there was no connection between that audit and the one referenced by Denenholz in her suit.