The Keys to the Kingdom (57 page)

A couple of days later, Eisner announced another series of ambiguous changes at the company. ABC chief Bob Iger was named chairman of the ABC Group and president of Walt Disney International. Some in the media speculated that the succession question was now resolved. The forty-eight-year-old Iger was now at least nominally in charge of ABC as well as Disney's international divisions, including film, video, consumer products, and theme parks. Disney was about to make a major thrust into China and other foreign countries, so it seemed that Iger had a lot of important turf.

But other reports—notably the account in the
New York Times
—suggested that Iger was being kicked upstairs. Why would Eisner reward Iger for failing to turn ABC around? Eisner simultaneously promoted ESPN/ABC sports chief Steve Bornstein to take over the troubled network and some saw him as the real winner in the reorganization. Bornstein, forty-six, had started at ESPN in 1980 and taken over ABC Sports in 1996. He was a relentlessly tough deal maker in the Eisner mode.

Eisner denied that anyone had been anointed at all. Meanwhile, observers wondered who was really in charge at ABC. “I will meddle, Bob will meddle, others will meddle,” Eisner said when asked about this issue.

Perhaps the situation was perfect. Iger was an extremely presentable if not a strong-willed executive. He certainly looked like a prospective successor, though there was no danger that he would trample on Eisner's prerogatives. Someone else would get a shot at fixing ABC. And Eisner could continue to rule, and rule alone.

 

IN MARCH, JUST
days before the second phase of Katzenberg's trial was about to begin, Disney and DreamWorks went head-to-head over the industry's most important creative report card—the Oscars. Disney's Miramax unit had two films—
Life Is Beautiful
and
Shakespeare in Love
—contending for the Best Picture award. At DreamWorks and Paramount, there was deep anxiety that the latter film could upset
Saving Private Ryan,
which had appeared to be a sure thing.

There was a swirl of rumors that Miramax was trying to “buy” the Oscar by violating the Academy's restrictive rules against running elaborate campaigns. Miramax did take out expensive ads but that was defensible because
Shakespeare in Love
was still in the theaters. There were also reports that Miramax had hired a “planter” whose job was to place negative items about
Saving Private Ryan
in the media. DreamWorks and its partner, Paramount,
tried to counter, both by rereleasing
Private Ryan
and complaining bitterly about Miramax's alleged tactics.

Whether an Oscar can be “bought” is doubtful. Certainly
Saving Private Ryan
seemed like the sort of serious fare the Academy usually embraced, but maybe
Shakespeare in Love,
which had been released later in the year, was fresher in the voters' minds. Or maybe it simply seemed to be fresher material. In the end, Spielberg had to settle for Best Director's honors. It wasn't the ending that he or his partners at DreamWorks would have written.

 

THE SECOND PHASE
of the Katzenberg trial was scheduled for April 1999. Months ahead of that date, a dogged
Variety
reporter named Janet Shprintz started trying to rally members of the press behind an effort to have the court proceedings opened to the public. The case was being heard by a referee or rent-a-judge, so it was assumed that the trial would be closed. That was part of the deal between Katzenberg and Disney. But Sphrintz thought the case should be open to the public, as are most cases tried in court. At first, she had difficulty finding any other media organization to join her—and she couldn't find a lawyer who would take the case.

She made her first approach to the
New York Times
. In Los Angeles, the
Times
was represented in such matters by Kelli Sager, who also happened to represent ABC. This presented an obvious conflict for Sager. She offered an informal opinion, however, that the media was fighting a losing battle. Sager also represented the
Los Angeles Times
and the
Wall Street Journal,
both of which were unresponsive when Sphrintz tried to get them involved. Several other lawyers concurred with Sager's opinion that opening the trial was hopeless.

About a month before the trial's start date in April, Garry Abrams from the
Los Angeles Daily Journal
—a legal publication—joined Sphrintz's effort. They wrote a letter to the court asking to be admitted to the proceedings. To their surprise, Judge Ouderkirk responded with an encouraging letter suggesting that they file a formal motion.

In the few weeks before the opening arguments were set to begin, everything fell into place. Attorney Pierce O'Donnell—who had represented Barbara Chase-Riboud in her suit against Spielberg over
Amistad
—took the case (with some behind-the-scenes prompting from Katzenberg attorney Bert Fields, who reasoned that his hand would be strengthened if Disney knew it was facing a public proceeding). Shprintz sent a copy of Ouderkirk's
letter to the
Wall Street Journal,
and in response got a call saying the paper would join in after all. Then came
Time
magazine and finally—belatedly—the
Los Angeles Times
. The effort to open the proceedings prevailed over Disney's resistance. The new turn of events made it seem even more certain that the Katzenberg case would once again be settled. But Disney was knee-deep in the Big Muddy and kept moving on.

I
N JANUARY
1999, a few months before his trial's April start date, Katzenberg bumped into former Capital Cities/ABC chairman Tom Murphy at a fund-raising event for Save the Children. After his company's sale to Disney, Murphy sat on the Disney board. The two spent some time talking about Katzenberg's case. Murphy clearly believed it should be settled. Later, Katzenberg called Murphy, tracking him down on a golf course in Savannah. “Can't you please talk to Michael?” he asked.

Disney was hewing to the position that it might owe Katzenberg between $25 million and $50 million. “I think the number is closer to $300 million,” Katzenberg told Murphy earnestly. “I'm not expecting to get what I'm asking for, but I'm very confident that this number is going to have a two, or be very close to having a two, in front of it. I think Michael is being very badly advised as to what the liability is.”

A few hours later, Murphy called back. “I talked to Michael and they'd like to get together and meet,” he said. But before Disney lawyer Lou Meisinger went further, he tried to impose a condition. The Disney team didn't want Helene Hahn, the rock-ribbed lawyer who had served as Katzenberg's top business-affairs executive at Disney and who was now in that role at DreamWorks, to attend the meeting. Katzenberg refused to exclude her. He and Hahn were a team and both thought Disney wanted her out of the room because she had too much insight into Disney's modus operandi.

Finally, the parties—including Hahn—gathered at Bert Fields's offices. As usual, they were kept apart, and the settlement judges shuttled back and forth. Katzenberg's team thought the judges had led them to believe that Disney had moved into a new range of settlement numbers. But Disney wasn't increasing its figures at all. The meeting was a failure; when it broke up, all the parties were incensed.

Fields began to complain to Katzenberg that the repeated, fruitless meetings were hampering his ability to prepare for trial. Attempts to cut a deal were dropped.

 

AFTER THE PARTIAL
settlement of his case, Katzenberg's suit against Disney slipped off Hollywood's radar. But behind the scenes, the battle over how to determine Katzenberg's payout raged on, as bitterly as ever. There were endless fights over which Disney documents could be admitted as evidence. And Disney resisted answering countless questions that were raised in depositions. After several frustrated efforts, Judge Campbell Lucas had to sit in on these sessions so he could make on-the-spot decisions about which questions Katzenberg's attorneys were permitted to ask the witnesses. He attended nearly 160 depositions and was flown to New York and London as part of the process.

The trial was to start on April 1 but it was delayed when Disney's Meisinger suffered an outbreak of shingles. Things finally got under way on April 16. The first day was to be devoted to dry procedural matters, but Katzenberg was there with his wife, Marilyn, at his side. “I've been waiting five years for this,” he said grimly. As it turned out, once Meisinger recovered from his shingles, Fields developed laryngitis. After one day of proceedings, the trial was put off until April 26.

Katzenberg was in the courtroom throughout most of the trial, which continued on and off for the better part of thirty-three days. He was flanked by Helene Hahn and his wife, making up a diminutive trio. Marilyn Katzenberg, an attractive fifty-one, was one of the more understated Hollywood wives. Her dark hair was cut short and she was simply dressed, wearing little jewelry. On the first day, as the judge somewhat awkwardly entered the “chambers” without the benefit of a magistrate, Marilyn glanced at the team of lawyers seated at Disney's table. “They should all be wearing ears,” she murmured disdainfully.

The case was being heard by a referee—the grandfatherly, bespectacled retired judge Paul Breckenridge—so it was not held at the downtown courthouse. Instead, the parties convened in the lawyers' offices. The two teams of attorneys worked in buildings that were mere blocks apart in Century City, a cluster of towering high-rises on the west side of Los Angeles. One week, the trial took place in the mock courtroom at Fields's firm, Greenberg, Glusker, Fields, Claman & Machtinger; the following week in the
more spacious offices of Disney's attorneys, Troop Steuber Pasich Reddick & Tobey.

Both sides hired small armies of security guards to monitor who came and went. At the beginning of the trial, about two dozen reporters showed up, including a clutch of television cameras outside the building that taped the parties coming and going. There was even a skirmish when it came to attending to the creature comforts of the press. When the trial opened at the Fields firm, no concessions were made to reporters, even though Katzenberg's team was the one that had wanted the press to be present. The next week, Disney's firm put out a buffet of coffee, bagels, and fruit. The week after that, when the trial returned to the Fields offices, not only were there coffee and bagels, but Hahn had baked cookies.

In every sense, Katzenberg's team was smaller than Disney's. Katzenberg had fewer lawyers in the room; by now, he was represented by Fields and his partners, Bonnie Eskenazi and Brian Edwards. Disney began with general counsel Lou Meisinger in the lead role, but he was almost always surrounded by eight or more colleagues.

The two lead lawyers were a study in contrasts. Fields, a graying seventy, was thin to the point of gauntness while fifty-six-year-old Meisinger, though hardly obese, was heard to complain that he looked fat on television. In his free time, the Harvard-educated Fields amused himself by writing racy thrillers under a pen name, although his most recent book had been a serious study of the true character of Richard III. He was an accomplished cook. In court, he was polite to the brink of sarcasm.

Meisinger was much more of a regular guy. A UCLA graduate, he was an avid golfer and bowler. Having made a name for himself as an entertainment attorney, he left his firm in July 1998 to become Disney's general counsel. In court, however, he had a rather hectoring style—so much so that during the trial's first phase, a
Newsweek
reporter who was having lunch with a Disney executive in the studio's corporate dining room stopped by the table where Eisner and Litvack were eating to pose a question. “Is having a sweaty, clumsy lawyer supposed to work for you?” she asked with a smile.

“Sweaty and clumsy. That's our strategy,” Eisner replied promptly.

 

PERVERSELY, THE TRIAL'S
first phase focused on the very issues Disney had seemingly laid to rest in 1997 when it had agreed to give Katz
enberg his bonus. Having yielded on that critical issue, Disney now balked at paying interest on whatever Katzenberg ultimately would receive. Katzenberg argued that he was entitled to interest starting from 1996, when the lump sum had been due to him. Disney said it had never admitted breaching his contract and therefore did not owe him any interest.

This meant that Katzenberg's lawyers would have to prove that his contract had been breached. Also at issue was whether Disney had to pay Katzenberg for all the merchandise based on his projects. Disney said it would remunerate Katzenberg for toys and other products that had been licensed to other companies such as Mattel, but not for items it had manufactured and sold under its own label. Katzenberg said he had never been told that merchandise would be split into categories and that he wouldn't receive income from any subset of Disney products. Wells had assured him to the contrary, his attorneys argued.

If Katzenberg's side was going to tackle the breach-of-contract question, things were going to get personal quickly. When Fields began his opening argument, he took just minutes to home in on Eisner. Under Katzenberg's leadership, he said, Disney had sprung from being “a moribund place” to being first among studios, with income that had increased by four hundred times. And yet Katzenberg was still fighting to get his money. “Why did [Disney] treat Mr. Katzenberg in such a harsh manner?” Fields asked. “The evidence will show that it is the personal animus of one man.”

Fields continued to hammer this point, referring to “Mr. Eisner's position” and “Mr. Eisner's claim” that Katzenberg was not entitled to be paid. Whenever he might normally have said “Disney,” he generally focused instead on the chief executive. How could Eisner be believed, Fields asked, when he denied knowing about Project Snowball? Fields had copies of memos on the secret project that had been copied to Eisner. And Eisner had been briefed on Snowball. “It's not the kind of word you'd forget about, your honor,” Fields told the court. “We have got a real credibility problem with this fellow.”

Fields had a quiverful of documents that seemed to support his central argument that Wells had promised Katzenberg his payment even if he left in 1994. He propped up blowups of two sets of “strikingly similar” handwritten notes taken by Wells and Katzenberg's attorney, Arthur Emil, covering a June 1988 phone discussion of Katzenberg's contract. (Wells's notes were all but indecipherable; his scrawl was so atrocious that Katzenberg's
team relied on a former assistant—subsequently employed by Dream-Works—to make sense of them.)

At the time the notes were made, the two negotiators apparently were starting afresh after earlier talks had stalled. Emil had written “Blank Slate” at the top of his notes. Wells had put down, with a flourish of erudition that fell short, “Tabula Erasa.” (The correct Latin term is
tabula rasa
—blank slate.) Wells and Emil had each noted to themselves that Katzenberg had a right to leave the company in 1994. Each had also written that the 2 percent bonus remained in place. If Katzenberg opted out of his contract in 1994, he would lose a portion of the $4 million that Disney had offered to pay toward the building of his beach house. He also stood to lose out on some stock options. But neither set of notes said anything about Katzenberg forfeiting his 2 percent payment. Wells had also noted that the final bonus was “a tremendous concept” and that the payout—which as of 1988 had been nothing—“should increase by a big amount” in the coming years—as in fact it did. Emil's notes also said the bonus was a “big point.”

Fields produced notes from a June 27, 1988, briefing that Wells had given to Irwin Russell, Eisner's longtime lawyer, who had also served on the Disney board and the compensation committee. Those notes, too, seemed to reflect that the 2 percent bonus was in place.

As a centerpiece of his case, Fields displayed an enlargement of a deal memo that Wells had sent to Emil on July 1, 1988. Having spoken to the board, Wells had wanted to bring the negotiation to an end. “It is with no little joy that I write to confirm the terms of the agreement,” Wells had written. Among those terms was an “ongoing participation in the 2 percent bonus,” even if Katzenberg opted out early.

Fields returned to his attack on Eisner, pointing to notes from a conversation between Eisner and his coauthor, Tony Schwartz. “Frank wrote them a deal memo which is completely on [Katzenberg's] side,” Eisner had told Schwartz. “I went in to Frank and said I won't make this deal.” If Eisner had ordered Wells to change the deal, Fields contended, then Wells had defied him on August 26, 1988, when Wells sent Katzenberg's lawyer a draft of a final contract. The contents, Wells had written, followed his own July 1 deal memo—the same memo that Eisner insisted he had refused to approve. Wells even highlighted the “most important changes” to Katzenberg's existing 1984 deal. There was no mention of a forfeiture of the 2 percent bonus, which clearly Katzenberg would have considered important.

Fields addressed another claim that Eisner had made in depositions: that Wells had assured him repeatedly that Katzenberg's bonus would never be worth anything. Wells's notes of his conversation with Emil showed that Wells had called the bonus “a tremendous concept” that should increase dramatically. Fields also had an October 1988 letter in which Wells had addressed Katzenberg's disappointment at receiving no significant payment from his annual 2 percent participation. Wells assured Katzenberg that his expectations had been “perfectly reasonable” given the studio's performance and urged Katzenberg to wait, adding that the final payout was likely to be big.

“Many of [the] pictures still have substantial revenues forthcoming,” he wrote, “and of course, will continue ‘forever.'” The company would collect at least $100 million from
The Golden Girls
alone, he added. The letter was copied to Eisner with the notation, “Probably worth a quick read.”

Wells had told Katzenberg that the bonus would have great value, which Eisner must have known if he had read the memo that had been copied to him by his second-in-command. And Eisner had steadily maintained in depositions that he was in extremely close touch with Wells during Katzenberg's contract negotiations: “He kept me constantly informed,” Eisner had said. “We spoke twenty times a day. I knew everything Mr. Wells was doing.” If Eisner actually believed, based on Wells's assurance, that the bonus would always be worthless, then he must also have thought that Wells was deliberately misleading Katzenberg. But Fields suggested that Eisner never believed that the bonus was worthless.

And, Fields argued, if Eisner really thought the bonus had no value, then his refusal to approve any payment to Katzenberg if he left in 1994 put him in an odd position. He supposedly had demanded that Katzenberg be stripped of a worthless bonus. Fields raised the specter of Project Snowball to suggest that, far from thinking Katzenberg's bonus would always be worthless, the company was in fact deeply concerned.

Disney's only evidence to support its contention that Katzenberg had forfeited the bonus was the final 1988 contract. It contained a provision that Fields conceded was “ambiguous.” While setting out a schedule for paying Katzenberg the money, the contract stated that if he left in 1994, Disney was obligated to pay him any bonus due “in respect of years prior to September 30, 1994, which is payable after such date by company.” Disney would argue that this language restricted the bonus to profits realized before 1994 and effectively eliminated the lump-sum payment based on future
income. But Fields described the provision as murky to the point of meaninglessness. The memos and notes from Wells made it clear that Katzenberg was not meant to forfeit his money if he left in 1994, he said.