The Keys to the Kingdom (58 page)

Fields had another potentially awkward point to address. In 1993, when Katzenberg had stated his intention to leave the following year, Wells had sent him a letter stating that he would be forfeiting $97.6 million, including his final lump-sum payment (estimated by Disney at that time to be $23.7 million).

In conversations around that time, as Katzenberg had boasted that he was “blowing Michael's mind” with his threatened departure, he had seemingly conceded in conversations with Eisner and others that he was walking away from $100 million. As Fields knew, Disney could argue that those conversations demonstrated Katzenberg's awareness that he was giving up his bonus by leaving in 1994. (After all, Disney had taken the position that he would be giving up $97.6 million if he left—a number very close to $100 million—and Disney's figure had included his final bonus.) But Fields said Katzenberg's comments referred to other money—a fuzzy estimate of what Katzenberg would make from a new contract, from stock options that he would have collected in 1995 and 1996, and from salary for those years. Katzenberg never intended to walk away from his 2 percent payment, Fields said. It was an odd coincidence that he had talked of giving up $100 million, Fields conceded, but it was only a coincidence.

 

LOU MEISINGER TOOK
off his jacket as he stood to respond. Fields's version of events was “fiction,” he said. Fields's allegation that the case was about Eisner's personal animus was simply untrue. Meisinger had some choice words for Katzenberg, who, he suggested, was not only “greedy” but had also been a credit grabber when it came to the animated hits. He had not treated Roy Disney “with the respect he was entitled to,” Meisinger complained. “He was not allowing Mr. Eisner to have the role that Mr. Eisner wanted for himself.” And Meisinger attacked the notion that Disney had tried to dupe Katzenberg by slipping an “ambiguous” provision into the final version of his contract that stripped him of his bonus. How, Meisinger asked, could Katzenberg—“the smart, dogged negotiator who fancied himself capable of being president of the entire Walt Disney Company”—fall victim to such a ploy?

During his tenure at Disney, Katzenberg had received more than $100
million in compensation, Meisinger observed. “Let's not get too sorry about Mr. Katzenberg,” he said. His demands set “a new standard for arrogance in an industry which already has a rather high mark in that area.”

But whoever deserved credit, the animated hits were an established fact and Disney was going to have to cut Katzenberg in—possibly with interest. And Meisinger had nothing to illustrate the negative: he had no memos or materials to rebut the documents and handwritten notes that seemed to say that Wells had assured Katzenberg of the bonus even if he left in 1994. “Mr. Eisner's book notes suggest, ‘I wouldn't make that deal,'” Meisinger said. “According to us, he didn't.”

The centerpiece of Meisinger's case was the contract. The forfeiture of the bonus wasn't “some last-minute contrivance on the part of Disney,” he said. The deal memo and notes that seemed to show a different intent on Wells's part were irrelevancies, now being used for legal gamesmanship. “Mr. Katzenberg [is] cherry-picking from among any number of negotiations” while “ignoring the actual deal,” Meisinger argued.

And Meisinger touched on the fact that Frank Wells, a key witness, was not able to speak for himself—to speak for Disney. “Conveniently, Katzenberg's case now focuses on the acts and the words of a man who is no longer here to defend himself,” Meisinger said.

He questioned Katzenberg's claim that when a Disney lawyer sent word in May 1993 that he would not receive his bonus if he left the following year, he calmly went to Wells and walked away believing that Wells would correct Eisner's misunderstanding about the deal. “How convenient,” Meisinger observed, “that Mr. Wells is not here.” But if Katzenberg had really been told that the bonus was gone, he asked, one would have expected him to go to Wells in “some kind of rage” rather than have the friendly encounter that Katzenberg had described.

In Katzenberg's scenario, he added, it was hard to tell who was “the heavy”—Eisner or Wells. But it would have been unseemly for Meisinger to attack Wells—the late patron saint of Disney. The furthest he could go was to assure the court that “in no circumstances can Mr. Eisner be claimed to have engaged in any type of deceptive conduct.”

Meisinger also tried to undermine the implications raised by Project Snowball. “There is nothing sinister about a company having a project to calculate a very complicated bonus,” he said. The name “Snowball” itself was innocent, coined by employee Cheryl Fellows to describe the burgeoning amount of work that she would have to do. The Katzenberg view of
Project Snowball revealed “a conspiracy mentality that would make Oliver Stone proud,” Meisinger contended.

“I hate to mix metaphors,” he said in an ungainly conclusion, “but it's a red herring.”

And Meisinger prepared the spin for the inevitable outcome of the trial. Thanks to the settlement, Disney would pay Katzenberg an “enormous” sum. But Meisinger said it would not be as much as Katzenberg was seeking. “The fact that Mr. Katzenberg receives a check is not going to make Mr. Katzenberg the prevailing party,” he said. Katzenberg's real aim in this part of the trial was “to embarrass people,” Meisinger said. But Meisinger predicted confidently, “We don't think there will be any Disney folks embarrassed here.”

 

KATZENBERG WAS THE
first to take the witness stand. He gave a seemingly straightforward account of his contract negotiation with Wells and Eisner in 1984 and 1988. His children, those infants who were to be the beneficiaries of the “annuity” that Wells had supposedly promised Katzenberg all those years ago, were recently in possession of driver's licenses. Katzenberg also testified that Michael Ovitz, during his brief tenure at Disney, had tried to settle his case for something between $50 million and $100 million. “He is the one specifically who said Michael Eisner ultimately forbid him to do it,” Katzenberg said.

On cross-examination, Meisinger tried to hammer home his point that Katzenberg was too smart and too ably assisted to have been duped by Disney.

“You have a reputation, sir, as being a very tough guy, a tough negotiator,” Meisinger said. “Is that the way you consider yourself?”

“No,” Katzenberg replied tersely.

Meisinger then asked if Katzenberg considered himself “a patsy.” Katzenberg again said no.

Meisinger focused on the implication that Wells had slipped a provision into Katzenberg's contract stripping him of his bonus if he opted out of his job in 1994. Didn't Katzenberg have qualified lawyers? he asked. Did he believe that Wells tried to slip a change into Katzenberg's contract? On this point Katzenberg tried to have it both ways. “I don't want to characterize what Mr. Wells was doing,” Katzenberg replied. “I think he was putting forward the [deal] and doing it fairly and honorably.”

Meisinger seized on the thank-you note that Katzenberg had sent to Eisner following the 1988 negotiation, in which Katzenberg had written, “You've handled my crap with extraordinary patience.”

“Did you cause him to incur a lot of your crap?” Meisinger asked ominously.

“Some, yes,” Katzenberg conceded.

Meisinger asked about the meeting in which Katzenberg, having been told that he would lose his bonus if he left in 1994, went to Wells and—by Katzenberg's account—was assured by Wells that he would handle the problem. “The only person left who had knowledge of the conversation in which he told you that he would take care of it…[is] you?” he asked.

“Yes,” Katzenberg replied.

If Wells did tell him that there was a misunderstanding with Eisner about Katzenberg's deal, Meisinger persisted, did Katzenberg ever bring that up with Eisner? Even after Wells had died? “Have you ever told anybody in the world about the conversation with Frank Wells, other than your wife and counsel?”

“No,” Katzenberg said. But he insisted that once Wells told him that he would take care of the matter, “I assumed he did.” Later, he said, Eisner never gave him a chance to explain the substance of his conversations with Wells.

As the testimony continued, Disney made good on its threat to attack Katzenberg's weakness in live-action film. Meisinger produced company documents purporting to show that after his ten-year run at the studio, the live-action film business had lost a staggering $231 million. Katzenberg tried to counter by saying that the company was not counting substantial income from his movies that was collected after his departure. “You're saying from the end of '94 until today, a $231 million deficit has been eliminated?” Meisinger asked.

“That is my opinion, yes,” Katzenberg replied. The films were profitable by “hundreds of millions of dollars,” he said. Despite an admitted lack of documentation, he insisted, “I know that to be a fact.”

It quickly became clear how damaging Katzenberg found this line of questioning to be. The next day, Fields fought to introduce a document from a Disney expert showing that the live-action films in question had actually turned a profit of $400 million at the time of Katzenberg's departure. Leaping to his feet, Meisinger objected vigorously. But in one of the bitterest exchanges in the trial, Fields counterattacked. “It's been broadcast
all over the world that this poor guy cost Disney millions,” he argued. “It's just wrong to let them do this to this guy, broadcast it, spin it all over the world, and not bring out the truth. It's vintage Disney.” Judge Breckenridge allowed Fields to introduce the document into evidence.

Next on the witness stand was Katzenberg's longtime attorney, Arthur Emil, whose story tracked Katzenberg's in most respects. Meisinger homed in once again on the alleged conversation in which Wells had supposedly told Katzenberg that Eisner misunderstood his deal. “Did Wells tell you that Mr. Eisner had a misunderstanding?” he asked. “Did he ever tell you he would handle it?”

“I don't believe he ever told that to me in so many words,” Emil said.

Meisinger persisted: Was there any documentation of this important conversation between Katzenberg and Wells? Did Emil tell Katzenberg to make a note of it for his files? Did Emil make a note himself? “Not that I remember,” Emil replied. Even after Wells died, Emil testified, he did not discuss with Katzenberg any need to follow up on Wells's promise to “take care” of Eisner's “misunderstanding” of Katzenberg's contract.

 

IRWIN RUSSELL, A
portly, elderly man, was the first witness from Disney to take the stand. Russell was Eisner's personal attorney as well as a board member and a member of the compensation committee in 1988, when Wells was ironing out Katzenberg's deal. Fields asked Russell about notes that Wells had taken in June 1988 when he briefed Russell on the proposed new contract with Katzenberg. The notes reflected that Wells had said Katzenberg would lose stock if he left in 1994 but that his bonus would “continue.” Russell's own handwritten notes appeared to match the ones taken by Wells—and included the provision that Katzenberg's bonus would continue even if he left in 1994.

But Russell insisted this was simple error. Nervously chewing his glasses, he said that he had forgotten to write the word “loses” before the word “bonus.”

Fields questioned how Russell could have forgotten to write such an important word. “These were very quick notes strictly for my own purposes,” Russell said.

“You had enough time to write the word ‘loses,'” Fields pursued.

“Maybe, maybe not,” Russell replied.

Next up was Sandy Litvack, the burly, gray-haired chief of corporate
operations who now had the office—if not the titles—that once belonged to Wells. A former antitrust lawyer, the sixty-three-year-old Litvack had emerged as Eisner's privy counselor. He was particularly disliked by a number of top Disney executives who viewed him as a negative influence who constantly denigrated their ideas and played to Eisner's worst instincts. His apparent encouragement of Eisner's refusal to settle, his enemies said, was a prime example.

Fields turned to a series of letters Litvack had written to Katzenberg's lawyers from 1994 to 1996 as they pressed his case. The theme was always the same: Disney had not yet decided whether to pay Katzenberg the final 2 percent payment. In October 1994, for example, Litvack had written that it was “premature and unnecessary to take a position or reach a conclusion…as to whether Jeffrey is entitled to the additional payment under the contract.” On November 4, he wrote again that it was “premature and unnecessary” for the company to take a position. On November 14, another letter said that Disney had made “no determination” about Katzenberg's claim because it was “premature and unnecessary.” Disney had “not repudiated Jeffrey's right to a bonus,” the letter continued. In a letter to Fields, Litvack wrote, “We have not yet made any judgment about whether Jeffrey is owed any additional money under his contract.”

In his opening argument, Fields had referred to these letters as “the Litvack stall” and “the Litvack dodge.” Fields had said that when Litvack took the stand, he would say those letters actually did not mean that Disney had not taken a position on the dispute. In fact, Fields had said, Litvack would swear that Disney had already concluded that Katzenberg wasn't entitled to the money. But the company was deciding whether to pay Katzenberg anyway. Fields had observed that it was “a bizarre concept for a public company” to pay Katzenberg money that he wasn't owed. “[Litvack] must think we're children to think we would buy that construction,” Fields had said.

But now on the stand, Litvack stuck to his story. Confronted with his own seemingly unequivocal letters stating that Disney had not taken a position, Litvack said, “If that's what I wrote, that's what I wrote. It sounds familiar.” But he insisted, “We had determined that he was not entitled to [payment] under the contract but we were considering paying him.”