It’s one ugly feud

Although high-profile feuds and power struggles are almost a rite of passage in Hollywood’s executive suites, Michael Ovitz has waged an unusually large number of them. Over the years, the onetime super-agent has accumulated a list of powerful enemies, including network chiefs, billionaire business partners, and -- perhaps most famously -- his former boss, Walt Disney Co. chief executive Michael Eisner.

But when it comes to sheer nastiness, documented in exhaustive and now public detail, it’s tough to beat Ovitz’s latest battle -- this time against Cathy Schulman, a former employee who’s scarcely known outside the film business. Through a series of twists, a seemingly routine contract dispute has blown up into more than two years of legal proceedings, with multimillion-dollar attorney bills and 5,000 transcript pages, featuring testimony from dozens of Hollywood figures, including Universal film boss Stacey Snider and directors Martin Scorsese and Richard Donner. Recently, the Creative Artists Agency cofounder won a decisive victory. Case closed? Not quite. It’s a measure of his hold on Hollywood’s imagination that even now industry insiders are buzzing about this latest adventure in Ovitziana.

As difficult as it may be to recall now, Ovitz was during the 1980s and early ‘90s a genuine Hollywood colossus -- transforming talent agents from behind-the-scenes string-pullers into Armani-clad powerbrokers. After a catastrophic stint as Eisner’s top lieutenant in the mid-’90s, Ovitz set out to revive his status with a daring new business plan.

The plan went awry, and the dispute with Schulman provides perhaps the most complete narrative thus far of what happened and why. The feud also offers a rare look inside the dream factory: what can happen to an ambitious young executive caught in a crumbling empire, as well as the painful realities faced by a once powerful titan who’s faded into a bit player.

Schulman, the 39-year-old former president of Ovitz’s largely defunct Artists Production Group, was ordered in early July to pay a $3.6 million judgment to APG after an arbitrator found that she had attempted to steal confidential documents, interfered with Ovitz’s business dealings by falsely claiming rights to film projects, and planted inaccurate and deliberately damaging stories in the media. The details of the case were made public late last month when Ovitz’s lawyers filed a legal motion to confirm the award. Schulman has since filed papers to set aside the ruling; that motion is pending.

Ovitz and the remnants of his businesses have seen a great deal of negative press in recent years, some of it generated by Ovitz himself. Against that backdrop, the Schulman case has counted as a rare vindication in which the ex-agent once known as the most powerful man in Hollywood could play victim rather than instigator.

This was Ovitz vanquishing not an industry titan such as Eisner but rather a low-profile film executive who has told friends she’ll have to file for bankruptcy if the arbitration award stands. Such is the antipathy toward Ovitz that on the day the arbitrator’s award became public, flowers and commiserating calls poured into Schulman’s new office at Bull’s Eye Entertainment, a production company in which she’s partnered with multimillionaire financier Bob Yari.

Yet private sympathy in Hollywood is relatively cheap. Virtually none of two dozen individuals contacted by The Times would comment, including some who testified during the arbitration proceeding, such as Snider, Fox executive vice president Hutch Parker and former studio chief and former APG boss Mark Canton. One exception is Yari, who in a statement to The Times described Schulman as a person of “integrity and [with] a sincere commitment to her projects.”

Schulman declined to comment, citing the confidential nature of the ongoing proceedings. A source close to Schulman said she “clearly has disputes” with the arbitrator’s findings and will address them in legal proceedings. Ovitz also declined to talk, although James Ellis, APG’s counsel and spokesman, issued a statement to The Times: “This was a private dispute that was properly adjudicated in a neutral and confidential forum. It is now the subject of a pending court confirmation proceeding. In light of the foregoing, APG declines to comment.”

The arbitrator, retired judge Campbell Lucas of Long Beach, said his award “speaks for itself” and that he would not answer further questions.

Legal questions aside, the public record in the case, along with private observations from those involved, sketch an unflattering picture of executive life in Hollywood, where truth is often “Rashomon”-like.

The way they were

Virtually the only thing both sides can agree on in Ovitz vs. Schulman is that the relationship began with hope.

When Schulman joined APG in 1999, the firm was riding high on optimism stoked by the economic boom. Ovitz had recently formed Artists Management Group, a company that aimed to revolutionize Hollywood. AMG would represent major talents such as Scorsese and Leonardo Di Caprio, produce a broad slate of TV and movie projects and distribute content in innovative ways, such as over the Internet. AMG was Ovitz’s first major project since Disney.

Schulman, at the time an executive for the now-defunct Lobell/Bergman Productions, was hired away to run APG, the movie production wing of AMG. For Schulman, this was a shot at the big time. For all the controversy he had engendered over the years, Ovitz had access to major clients and movie projects. Schulman was also handsomely compensated: By the end of her time at APG, she was making $600,000 plus bonus, according to court papers.

“When she was offered this spot she was completely impassioned about the possibilities. [Ovitz] had a vision, and he enlisted her,” says Schulman close friend and casting director Sarah Finn. “She went to work in his living room, and I watched her work 18 hours a day.”

At least at first, Ovitz and his new film executive appeared to get on quite well. When Schulman and her husband, a political consultant on environmental issues, needed to attend to urgent personal business in another state, Ovitz paid for a private jet to transport the family back to Los Angeles.

But problems soon enveloped AMG and its affiliated companies, including APG. Ovitz failed to find outside investors to bolster his plans; proposed deals with AT&T; and mogul Barry Diller fell apart at the last minute. The stock market tanked, foreign markets crumbled and other potential sources of investment dried up. Ovitz also reportedly suffered soured relations with a number of Hollywood heavyweights, including former CAA partner Ron Meyer (who left to run Universal’s movie studios) and billionaire investor Ron Burkle, who partnered with Ovitz on several ventures.

When no rich backers materialized, Ovitz himself was on the hook for many of the costs related to TV shows produced by Artists Television Group, another one of his production companies. One insider estimates that Ovitz spent roughly $100 million of his own fortune helping fund the shows, none of which made it past its first season. (Ovitz’s current net worth is estimated to be between $100 million and $500 million.) In fall 2001, Ovitz dismantled ATG. A few months later, he began negotiating to sell most of AMG’s assets to the Firm, a rival management company.

Ovitz still had APG, however, and theoretically it was a bright spot. That was in large part because of a three-year joint venture with Studio Canal, a division of the French media giant Canal Plus. The deal, signed in July 2000, provided that the companies would collaborate on at least a dozen pictures over a three-year term. Studio Canal would kick in $8 million annually for overhead and development and retained the option to pick up foreign rights in return for putting up 60% of a film’s budget. The joint venture would be overseen by Schulman.

The relationship between Schulman and Ovitz began to fray. According to the arbitrator’s report, Schulman repeatedly interfered with relations between AMG managers and their clients. During a negotiation for a new employment contract with Ovitz, Schulman was accused of ripping up a draft and throwing it in a lawyer’s face. Her staff complained about her management style and at a lunch with Ovitz and two other AMG executives in May 2001, Schulman was warned that she had to fix the problems or she faced a “staff revolt.” In January 2002, Ovitz brought in former Columbia studio chief Canton over Schulman. A few days later, Schulman was informed that the company would probably not pick up the extra year on her contract, due to expire that July.

According to the arbitrator’s findings, Schulman became hysterical and told her staff that she had been fired. She officially resigned two days later, according to the arbitrator, and her lawyer sent a letter to Ovitz to start talks to settle her contract. Schulman later contended that she never resigned.

This is where the case gets complicated.

It so happened that around the time Schulman was nearing the end of her career with Ovitz, Vivendi-Universal -- the French-based conglomerate that owned Studio Canal -- ordered an audit of the joint venture with APG.

As Ovitz’s management and production empire slowly unraveled, one of the most damaging assertions that swirled through the press was that the audit discovered financial irregularities at the joint venture.

Ovitz has always denied there were serious accounting problems at APG or the joint venture. Even today, the dispute continues. At least one source insists that financial irregularities were found, enough so that Vivendi/Universal was able to terminate the deal early. Yet two other sources familiar with the situation say auditors found only relatively minor accounting issues. Gregory Geisert, a Vivendi-Universal auditor, testified during proceedings that the audit found financial irregularities that several sources say led to the dissolution of the joint venture. A Universal spokesman confirmed Geisert’s position as an auditor but declined further comment.

In any case, not long after negative headlines concerning the audit began to appear, major clients began leaving AMG, one insider says.

Meanwhile, according to the arbitrator, Schulman tried to remain attached to the films she had developed. APG soon reacted, hand-delivering Schulman a letter on Feb. 14 confirming her resignation and also firing her for cause. One of the firm’s attorneys found her in her office after hours removing documents, including “confidential proprietary information.” She was escorted from the building.

The arbitrator found that Schulman later agreed to a settlement that would have paid her $135,000, although her own lawyer disputed this, stating a letter he’d sent to Ovitz had been merely a “conditional acceptance.” No $135,000 check ever arrived, according to multiple sources.

Schulman and Ovitz did negotiate a settlement, according to Lucas’ findings. But that did nothing to dispense with the matter. Ovitz’s side claimed she violated the settlement agreement by interfering with APG business. Schulman said the settlement was “procured by fraud” and was no longer relevant.

Thus began a blizzard of legal proceedings. In September 2002, Ovitz filed a request for arbitration. The following month, Schulman filed a suit against Ovitz in Los Angeles Superior Court. (Schulman’s employee contract had a binding arbitration provision, and APG successfully argued that the case belonged before an arbitrator.)

By that time, Ovitz and Schulman were fighting over the corporate history of a company in its death throes. The joint venture between Studio Canal and APG ended with a whimper, yielding such financial disappointments as “Timeline.” Ovitz sold AMG to the Firm in 2002.

Bad to worse

Schulman was not the only former employee to sue Ovitz. For example, Eric Tannenbaum, the highly regarded head of ATG, also filed litigation against his former boss. But that case was quietly settled.

The Schulman case, by contrast, had an ugly and personal tone from the start -- and got worse. Wrapping herself in the mantle of a whistle-blower, Schulman claimed Ovitz had fired her “in a rage” after she told the auditor that the “Studio Canal monies were being used improperly.” She said she was punished because she “effectively told Vivendi that APG was stealing from Vivendi.”

“The most terrifying moment of her life was deciding to take [Ovitz] on,” says Schulman’s friend Finn. “When she embarked on this, there were a lot of people that were supportive and sympathetic. For whatever reason, that vanished the second the suit really began.”

Ovitz, meanwhile, advanced the position that Schulman was an ineffective executive, whose lies hurt the company.

Lucas cites a laundry list of misdeeds, many sounding like garden-variety Hollywood posturing, the kind of bluff-and-bluster tactics used by producers trying to stay attached to projects. For instance, she “inserted herself into meetings that she knew she was not authorized to attend.” She contacted outside parties and threatened to disrupt development and production “by commencing and publicizing litigation to protect her non-existent rights.”

It’s still unclear which side will ultimately prevail -- or whether victory is even possible in a case that has already caused so much agony and consumed so much time and money for such relatively limited stakes.

Nor may Schulman vs. Ovitz ever yield the final truth about how the initial promise of AMG came crashing down in recriminations and lawsuits.

There is, however, an irony in Ovitz’s insistence that he was done in by the lies of a disloyal and incompetent lieutenant. In a letter to Ovitz shortly before he left Disney, Eisner harshly criticized his No. 2. Colleagues “never knew when you were telling things as they were,” Eisner wrote Ovitz, adding: “The truth was often hard to decipher.”