Judge Fails to Oust Katzenberg Legal Team in Disney Suit

Walt Disney Co. on Friday failed to oust former studio chief Jeffrey Katzenberg’s lawyers in his $250-million breach of contract lawsuit against the company after unsuccessfully arguing that a member of Katzenberg’s legal team illicitly obtained a potentially damaging “road map” memo detailing Disney’s internal accounting practices.

The hearing is the latest skirmish in one of the most closely watched legal feuds ever in Hollywood. Attempting to remove the lawyers, a relatively rare legal maneuver, illustrates Disney’s commitment to fighting the lawsuit at every step as well as the rising level of animosity in the case.

In the Friday hearing, Los Angeles County Superior Court Judge John W. Ouderkirk did not buy arguments from Disney’s lawyers that he should remove Katzenberg’s lawyers from the case. Disney argued that Helene Hahn, a former top Disney studio lawyer and business affairs executive who now works for Katzenberg at rival DreamWorks SKG, had improperly coaxed the memo from former Disney financial executive Bill Clark earlier this year. Hahn has been working with Katzenberg’s defense team on the case.

Clark, who could not be reached for comment, is a former Disney senior vice president for finance and controllership who worked on profit participation issues at the studio until he left in November 1994.

According to lawyers at the hearing, he also headed a Disney team that for a few weeks in late 1994 tried unsuccessfully to negotiate a settlement with Katzenberg, who left Disney that year in a falling out with Disney Chairman Michael Eisner. Clark just joined Universal Studios Inc.’s home video division as executive vice president and chief operating officer.

According to lawyers at the hearing, Clark drafted a memo for Hahn while working at Spelling Entertainment after leaving Disney.

Disney lawyer Lou Meisinger, who said it was the first time in his 30-year legal career that he had attempted to disqualify an opposing legal team, argued that Clark wrote the memo at Hahn’s urging and that it represented a “betrayal” of confidence and lawyerly ethics. Furthermore, Meisinger argued, because Hahn passed the memo on to the rest of Katzenberg’s defense team, the entire legal team has been tainted.

“That memo was a road map on how she could win the case,” Meisinger said.

But Katzenberg lawyer Bert Fields said that Clark offered it to Hahn, hoping that he could use it to generate business with DreamWorks by gaining favor with the company. He also noted that the memo was drafted long after both Hahn and Clark had left the company and did not involve stealing secrets or information from the company.

He added that the memo contains the kind of suggestions that he would normally follow as a lawyer who has dealt often with stars, directors and others disputing studio profit participation deals.

Exactly what is in the memo is unclear because Ouderkirk has allowed it to remain under seal.

Based on comments from lawyers in the case, the memo appears to be a former insider’s suggestions on strategies and pressure points that Katzenberg’s team could probe to possibly gain advantage, such as how Disney determines costs charged to a film, Disney’s criteria for settling disputes and determining revenue that films generate via affiliated businesses, such as theme parks and company stores.

Katzenberg is suing for at least $250 million that he claims he is owed by Disney. Katzenberg is arguing that his contract entitled him to 2% of the future value of films he put into production, including those that will still reap substantial future revenue. In addition, he is seeking an extensive evaluation on whether bonuses he was paid were computed properly.

Fields also argued that it would cause Katzenberg undue hardship to find new lawyers, given that his legal team has spent an estimated 9,000 hours on the case. The case is set for trial on Nov. 18. Fields said that new lawyers would need significant time getting up to speed and accused Disney of using the hearing to try to stall for more time.

The hearing began with Disney lawyers asking Ouderkirk to close the proceedings. A lawyer representing The Times and Dow Jones & Co. objected. But the point was moot after Ouderkirk, following a brief closed-door hearing, decided to open the hearing.