Katz, Mouse in battle over 'bifurcation' cheese

By VARIETY STAFF

Though the thunderous exchange of rhetoric has been building in Jeffrey Katzenberg's suit against the Walt Disney Co., it's becoming increasingly clear that the two most important, if mundane, words associated with the case are "bifurcation agreement."

The extensive pre-trial publicity surrounding Katzenberg's suit has helped to portray the litigation as a legal no-brainer, with the former studio chief fighting for money he is owed, but that the studio is refusing to pay.

After all, the conventional wisdom says, he helped build a moribund studio into one of the industry's top entertainment conglomerates: taking it from $244 million in revenues in 1984 to $4.8 billion in 1994. Now, all he wants is the studio to honor the terms of his employment contract.

But the Katzenberg vs. Disney court file contains a series of little-noticed but revealing motions and other significant documents that suggest a different picture.

It also suggests the studio's position is stronger than most realize --- despite the spin from Katzenberg's counsel, Bertram Fields --- and that, at most, the studio may owe the former studio chief a fraction of the $250 million he claims he is due in the colorful lawsuit filed April 9, 1996.

Neither Fields nor Disney's attorney Louis Meisinger would comment on their strategy for the trial, which is scheduled to begin Nov. 20. However, the file's seemingly most significant document is the bifurcation agreement, a pact reached between Fields and Meisinger to separate the case into two phases: a trial and an arbitration --- the latter taking place assuming a Katzenberg victory at trial.

Paying on time

So even if a trial determines that Disney breached Katzenberg's contract and it owes him money, the conglom will be able to postpone any payment for several years while it exhausts all trial-related appeals.

The bifurcation pact also allows that any amount of damages that Disney might owe would be calculated in a post-trial arbitration procedure, not in the trial itself.

That approach permits Disney to minimize its exposure. As a result, it won't have to fear a potentially lopsided monetary award bestowed on Katzenberg by jurors who might be well-meaning but unsavvy as to the ways of Hollywood dealmaking.

Arbitration also would make it easier for Disney attorneys to conduct financial aspects of the case behind closed doors.

So those trial-watchers hoping for a behind-the-scenes look into the workings of the Mouse House may instead find a dry, uninteresting gander at the dealmaking minutiae contained in employment agreements.

The terms of the trial beg the question of why Fields, a veteran litigator who is considered the poster boy for savvy courtroom navigators, would sign off on the bifurcation deal.

Katzenberg's lawyers apparently had to agree to the arbitration phase because his employment contract, signed in 1988, calls for mandatory arbitration in disputes over bonuses.

If a jury ruled in favor of Katzenberg, Disney would of course be allowed to appeal the verdict. The process could take years and all appeals would have to be exhausted before arbitration could begin, according to the terms of the bifurcation agreement.

The agreement, signed Oct. 17, 1996, stipulates that a trial would be confined to two issues: Whether Disney is contractually obligated to pay Katzenberg "post-termination bonuses" he claims he is owed, and whether "Disney breached Katzenberg's employment agreement by failing to provide him with reasonable supporting documentation related to bonuses reported to Katzenberg" while he worked at Disney.

Katzenberg's claims

The heart of Katzenberg's claims are those so-called post-termination bonuses, incorporated into the two employment pacts covering his 10-year run at the studio.

Katzenberg was chairman of Walt Disney Studios, where he led the film and TV arms. Following the death of Frank Wells in a helicopter crash, Walt Disney Co. chairman Michael Eisner refused to promote Katzenberg to president of the parent company. Katzenberg left Disney on Sept. 30, 1994. He is now a principal of DreamWorks, the company he founded with Steven Spielberg and David Geffen.

In the suit, Katzenberg asserted that his contract entitled him to 2% of estimated future profits from the films and TV series that began production or were acquired for distribution while he was chairman.

This product included such animated pics as "The Little Mermaid," "Aladdin" and "The Lion King," as well as other animated and live-action feature films and TV productions.

Katzenberg's complaint claimed that his 2% of the future revenues is worth $250 million.

But in their response to the lawsuit filing, attorneys for Disney claimed Katzenberg forfeited the bonuses because he exited the studio two years before his pact expired.

Because he chose to resign in 1994 rather than extend his stay to 1996 as provided by an extension to his original contract, Katzenberg triggered a clause that stripped him of a share of estimated future profits, according to the Disney team.

"It doesn't matter whether he or Disney decided to terminate the agreement," Fields said. "I don't believe any judge or jury will interpret it the way that Disney sees it."

The studio's motion also claims that the only allowable dispute under the contract is whether the bonuses paid to Katzenberg while he was at Disney were calculated accurately.

Not enough documentation

Katzenberg's team asserted that Disney had not provided enough documentation to determine whether the bonuses he already has received were sufficient.

To resolve that part of the dispute, L.A. Superior Court judge John Oderkirk ruled June 23 that Disney must provide accountings of the studio's projects commissioned during Katzenberg's regime.

The accountings shed new light on the studio's take for a slate of live-action films, most of which lost money at the box office.

In fact, for the years calculated, the studio's animated fare, such as "Fantasia," "101 Dalmatians" and the more recent "Beauty and the Beast," helped offset the live-action losses and kept the studio in the black.

In the lawsuit's several previous court appearances, the lion's share of attention has centered on how much financial info Disney is required to turn over to Katzenberg.

Making book

A referee has since been assigned to hear discovery disputes and recently ordered studio attorneys to turn over copies of Eisner's notes for his upcoming book. Sources say, however, that fewer than 15 of the more than 300 pages in the book refer to Katzenberg and are of little value or relevance to the litigation.

Attorneys representing studios often privately acknowledge that they fear jurors will tend to side with individuals, because they are perceived as underdogs against a huge corporation.

Since the studio is also still smarting over the exit windfall landed by Michael Ovitz, it would like to put as much distance between the post-Ovitz stockholder uproar and any multimillion-dollar settlement with Katzenberg.

Ovitz, the former Hollywood superagent hired by Eisner to help run the media giant, earned up to an estimated $100 million in severance pay last December when he stepped down after only 14 months on the job.

Many observers believe that the largesse of the Ovitz pact forced Disney to refuse to settle with Katzenberg.

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http://www.variety.com/article/VR1116675080.html

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