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The Mice That Roared

No one in the land of handshake deals expected Jeffrey Katzenberg's quarter-billion-dollar dispute with Disney to go public; now that it has, the town is transfixed.

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One of the more durable maxims in Hollywood is, It's not what someone can do for you that matters but what someone can do against you. Right now, and for the next six weeks or so, a textbook example of this is unfolding inside the mock courtrooms at the offices of the most powerful entertainment-business law firms. Aptly -- or is it sadly? -- two of the industry's most formidable moguls, Jeffrey Katzenberg and Michael Eisner, have unleashed two of the town's most formidable attorneys to hurl turgid insults at each other's clients along with charges and countercharges of fraud and deceit. Not to mention the X-Files-like references to "Project Snowball," variously understood as either a clandestine scheme to deny a brilliant executive his rightful payout from the Disney Company film and TV divisions he'd resuscitated or an innocent accountant's apt description of the Byzantine byways of Katzenberg's 1988-1994 employment contract.

This case turns on the interpretation of that document, whose 22 pages detailed the myriad ways in which he could profit from success (discretionary, incentive, and the intriguingly named "super" bonuses, along with the obligatory stock options, stock grants, and Malibu beach house). While some people consider themselves lucky to earn $100,000 a year, Jeffrey Katzenberg considered himself unlucky in having reputedly pocketed only $100 million in bonus money, which is all Disney apparently wants to compensate him for the ten years he spent as Eisner's No. 3.

Katzenberg insists that his contract entitles him to 2 percent of the net profits generated by such monster hits as Beauty and the Beast and The Lion King and, equally important, every gift-shop and burger-joint item that was spun off those properties. Disney says that'll happen when the Pirates of the Caribbean freezes over. Especially since the company maintains that Katzenberg's contribution to the balance sheet during this time was hundreds of millions of dollars in red ink.

For both sides, this public brawling represents a dangerous legal strategy, and not just because it's filled with malevolent thrust-and-parry out there for all to gleefully observe (Eisner portrayed as a scheming liar, Katzenberg as an incompetent kvetch). These two Neros are fiddling while Rome burns. Indeed, there's something more than a little surreal about Katzenberg and Eisner's duking it out in 1999, when the industry they're battling over -- the eighties Hollywood, the Greed Decade Hollywood, the let's-all-make-a-lot-of-money Hollywood -- is all but gone. For today the town is a ruin in which issues like super-bonuses are all past. And profits? That archaic word has no relevance today, when too many big-budget movies bomb, too many unfunny sitcoms fail, and too many executives are just trying to hold on to their jobs while their companies' shareholders watch entertainment stocks stagnate as the Dow soars past 10,000.

How unseemly it was that during the first week of the showdown, Disney shareholders were told that the company's earnings had plunged 41 percent in the first quarter, its merchandising and video divisions a shambles. And that years of uninterrupted losses on Frank Mancuso's watch finally cost him his job at MGM. And that Sony, once upon a time flush with cash when it bought Columbia Tri-Star studios, was now peering down a 26 percent fall in its motion-picture business for the first quarter. (Viacom is the only truly healthy entertainment giant; Time Warner's recent gains having been credited to cable holdings.)

How fitting as well that no one at the "trial" is being coddled in comfort. The stuffy room is not much bigger than your average mogul's walk-in closet. The forced intimacy actually favors Katzenberg. Sunk down in the Naugahyde witness chair, he appears even more diminutive than usual. The fluorescent lighting makes him, dressed in his Polo rep tie and Oliver Peoples eyeglasses, look even more boyish, like the kid dogged by toughs as he makes his way up Park Avenue to private school.

That is exactly the image Katzenberg wants to present to the court as he recounts his glory days in the eighties, when he helped bring Disney's film and television divisions from last to first place among Hollywood studios: the victimized naïf. Alternatively charming, sometimes surprisingly bewildered, Katzenberg repeatedly yessirs hotshot Disney counsel Lou Meisinger during grueling cross-examination even though the two men are no doubt contemporaries. Meisinger -- a middle-aged, mustachioed street fighter à la Alan Dershowitz, with a machine-gun delivery and a weakness for bowling -- was having none of it: "You have a reputation, sir, of being a very tough guy, tough negotiator," the lawyer said. "You don't consider yourself a patsy, do you? You can take care of yourself?"

Yet when the tall and very imposing Eisner, the Disney chairman, takes the stand this week, the up-close-and-personal nature of the setting is certain to play to his strengths as well. He will undoubtedly seem more approachable and merely mortal in such quotidian environs.

But don't be fooled into thinking either of these guys is just folks. In this corporate game of extreme chicken, someone is lying, a point that Katzenberg's lawyer, the impeccably tailored Bertram Fields -- who not only advises clients Tom Cruise, Jim Cameron, and David Geffen and has never lost a case but also conducts American-history salons in his Bel-Air living room -- tried to drive home again and again as he spun a riveting web of deceit on Disney's part.

Fields: "Would you agree with Mr. Meisinger's statement that in your ten years of running the live-action division it was operating negatively?"

Katzenberg: "That's absolutely false. In the live-action division, we were in the black by hundreds of millions of dollars."

When Meisinger pointed out that the division, upon Katzenberg's departure, was running a $231 million deficit, Katzenberg replied: "I've been in the movie business long enough to know that the day you put that movie out, you lose a tremendous amount of money, and that it takes years, in some instances decades, to recoup it. I know this to be fact."

Meisinger: "You're saying that five years after you left the company, a $231 million deficit has been eliminated, and you've never seen one piece of paper to demonstrate how these films have performed?"

Katzenberg: "I know this to be a fact."

One can go too far even in Hollywood, and the fact is that this showdown could do permanent damage not just to Eisner and Katzenberg but to the larger entertainment industry as well. Perhaps the most vital fact testified to by Katzenberg is that he doesn't think he ever even read the final version of his contract, and that he trusted the contents of a one-page deal memo sent to him by sainted Disney president and COO Frank Wells. Meisinger countered by noting that not only did Katzenberg have four lawyers and as many accountants overseeing his nearly yearlong negotiation in 1988 -- he micromanaged every aspect of the bargaining. Pointing to a note that Katzenberg sent to one of his attorneys about one bonus, Meisinger quoted Katzenberg: "I suggest that you be an absolute killer on this." When asked about the note, Katzenberg replied, "I wanted him to protect me."

This seemingly minor exchange in court goes to the heart of the way that Hollywood has always conducted its business: This is a handshake town. Movies with $100 million budgets are routinely green-lighted as a result of static-filled, cell-phone-conducted oral agreements, scantily sketched-out deal memos, and personal relationships that began in the William Morris mailroom.

For as long as possible, for the most part, the lawyers were kept at arm's length for no other reason than that they would complicate the process. Sure, they were there to dot the i's and cross the t's. But the real heavy lifting in the negotiations was conducted by moguls and agents. For better or worse, an honor system prevailed. The guy on the other end of the telephone might be a son of a bitch, but he was your son of a bitch, a sibling in the dysfunctional Hollywood family.

Even today, when fresh-from-the-bar-exam lawyers and business-affairs bean counters and even a star's best friend turned manager have elbowed their way inside every deal for a cut of the action, this notion of trust remains so integral that movies are shot and TV pilots are cast even though the actual contracts aren't ready for signing until just a few days before the film is sent to theaters or the sitcom is aired.

Edit out the bombast in Katzenberg v. Disney and you have a tale of betrayal of trust on an epic scale. We may always have known there were no innocents on Dopey Drive, but now even the memory of Wells -- Eisner's much-admired field general, whose death in a helicopter crash in 1994 set in motion all the events surrounding the Eisner-Katzenberg split -- is being sullied. We in the media weren't quite prepared for Bert Fields's assertions that (a) no one at Disney ever told the truth, (b) everyone was suspect, (c) a plot to swindle Katzenberg swirled around the executive suite without his knowledge, and (d) even a mega-million-dollar, seemingly ironclad employment contract wasn't worth the paper it was printed on. Or for Meisinger's rebuttal -- that no one at Disney ever lied, cheated, or stole from Katzenberg, but if they did, it was all spelled out in the infamous "Paragraph 9" of his 22-page contract and perfectly legitimate.

Can an entertainment giant like Disney conduct business as usual in the face of explosive allegations made not by some wannabe outsider hoping to scare up some easy cash but by one of its highest-ranking insiders, who presumably should know? There are holes and inconsistencies in each of the stories. Both sides call upon the folklore of Disney's legendary corporate culture -- the meanest, toughest mouse who ever lived, teetering on the brink of rat-hood -- to bolster their claims.

Katzenberg argues that Wells was scrupulously honest when it came to negotiating his Disney contract. And yet, his case turns on the premise that Wells helped engineer the "Project Snowball" swindle. Even Meisinger, asking Katzenberg about Paragraph 9, admitted, "So it wasn't slipped by you, was it, even if that was Mr. Wells's intent?"

What's at stake in Katzenberg v. Disney is not just the disbursement of a few (or a few hundred) million dollars. Even Disney acknowledged at the start of the trial that it was probably going to write a check. Instead, both sides' goal increasingly appears to be the wholesale humiliation and annihilation of the reputations of the principals, who until last Monday's courtroom joust got under way were two of the most respected executives in the business.

Rather than fighting this personal Armageddon, Eisner, a Disney shareholder would hope, might be spending every waking hour and every resource trying to get his screwed-up corporation back on track. And even though DreamWorks is a private partnership funded mostly with other people's money, Katzenberg should be not stewing in trial but turning his nascent studio into an entertainment powerhouse. It's a case of ultimate narcissism, and if both men were truly great executives, or even good ones, they would have gotten past this personal nonsense a long time ago. For once they could have stopped doing something against each other and done something for Hollywood as a whole -- and each of their companies would be better off for it.


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