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Disney keeps defense as quiet as a Mouse

Lawyer sez Katzenberg team wants 'to embarass people'

In stark contrast to the fireworks put on for the past week by the Jeffrey Katzenberg legal team, Disney attorneys opted for a low-key, even legalistic defense Thursday in the controversial battle over the former studio chieftain’s exit bonus.

During opening arguments last week, Disney attorney Lou Meisinger accused Katzenberg attorney Bert Fields of turning the trial into a case about “personal animus.” He claimed that Fields was rehashing the issues settled in 1997 on the pretext of litigating the arcane but big-ticket issue of pre-judgment interest. Fields’ real purpose, said Meisinger, was “to embarrass people.”

At that time, Meisinger said the only legitimate issues for trial were what products should be valued, particularly the merchandising issue, and how certain contract terms such as “most favorable deal” should be interpreted.

Narrowing definition

In keeping with their opening, Disney’s lawyers aimed at narrowing the definition of eligible product for valuation. After brief testimony by four witnesses and readings from deposition transcripts, in fact, Disney rested its defense in this first portion of the trial.

Closing arguments on the so-called Phase IA are scheduled for Monday.

During the subdued proceedings Thursday, deposition testimony was read to strengthen Disney’s argument that it had a reasonable belief that Katzenberg would forfeit his 2% bonus if he left in 1994 during an “out” period in his contract rather than staying until it ended in 1996.

Testifying for Disney on Thursday were Rob Moore, a senior Disney financial executive; Art Levitt, president of Disney Regional Entertainment; Jake Weinbaum, chairman of Buena Vista Internet Group; and Tom Conforti, interim chief financial officer of consumer products for Disney.

Through Moore, Disney attacked Katzenberg’s claim to income from items like the film “Toy Story 2” (based on the original 1995 “Toy Story,” begun during Katzenberg’s reign), which will be released later this year.

With Levitt and Weinbaum, Disney disputed Katzenberg’s claim that he should share in income from music sales and from royalties for the use of Disney animated characters at theme parks, entertainment venues like the new Club Disneys and on Web sites such as Disney.com.

Katzenberg claims he is entitled to an imputed royalty from all uses of characters created during his tenure, such as parades at theme parks and their appearance as an icon on a Web site.

Conforti testified about differences between licensed and direct or self-source merchandise and the revenue-sharing agreement on characters created by the studios. Katzenberg claims he is entitled to a share of profits from all merchandising; Disney claims it is entitled to exclude self-sourced merchandising.

Long recess planned

After Monday’s closing arguments, it is expected that the trial will be in recess for as long as two weeks to allow retired L.A. Superior Court Judge Paul Breckenridge to render an opinion on which Disney product is in the pot to be valued in calculating Katzenberg’s 2% termination bonus and to resolve the issue of pre-judgment interest.

Phase IIB is the valuation part of the case, followed by Phase IIC, which addresses Katzenberg’s audit claims.

Phase I of the case was settled in 1997, just before trial, with Disney conceding that it owed Katzenberg his 2% bonus.

The parties agreed to conduct Phase II of the case before a retired judge, who would hear testimony from experts about the value all the products created during Katzenberg’s 10-year stint as head of Disney’s filmed entertainment division.

Under Katzenberg’s contract, he is entitled to 2% of the income for all eligible product projected in perpetuity and paid as a lump sum.

Katzenberg claims his share is worth $250 million. Disney claims it is worth less, but Katzenberg, has been paid over $100 million already, and there is no dispute that he will get more at the conclusion of Phase II.

(Reuters contributed to this report.)