The Pooh Papers
JUDGE IN POOH CASE ORDERS NEW ACCOUNTING
by Joe Shea
American Reporter Correspondent
LOS ANGELES, Oct. 21, 2002 -- As suggested here last February, Los Angeles Superior Court Judge Ernest Hiroshige has now ordered a new accounting of royalties paid by the Walt Disney Co. to the owners of commercial rights to Winnie the Pooh, the studio's hottest-selling character. The judge finalized a ruling Friday that accused the accountants appointed by the court of bias against the owners of the Pooh rights.
In the ruling, Judge Hiroshige also revamped a critical portion of his August 19 ruling to order that a fresh set of auditors be given access to Disney's books - including some chosen by Stephen Slesinger Inc., the family-owned branding firm that licensed the Pooh rights to Disney in 1961 - so they can come to their own conclusion about how much money Disney may owe the heirs for retail and theme park sales of Pooh merchandise.
In statements to Variety, the entertainment industry trade newspaper, lawyers for both sides reacted with approval.
The judge had tried to avoid the time and expense of a new accounting after the last one took nearly five years to litigate, but was convinced by Disney lawyers - who with the Slesingers had asked for a new accounting after a four-day hearing in August 2001 - to give them one. His finding that the the first audit was flawed provided the basis for the new decision.
In the ruling made final by Friday's action, Hiroshige repeatedly excoriated Disney and the court-appointed Gursey, Schneider forensic accounting firm for bias and sloppy thinking, and also for excluding Slesinger accountants from the audit.
Unable to determine from the work conducted in the first audit what percentage of commingled character royalties for such items as Pooh dolls sold at Disneyland or Disney World should be granted to the plaintiffs, Hiroshige's tentative ruling had set the figure at 12.5 percent. Disney argued in court papers that the ruling would cost it $200 million without being based on actual numbers, and in his final ruling the judge agreed.
The turn of events, however, could mean an even larger payday for the Slesinger heirs, who have conducted extensive research into the royalties issue in Asia, Europe and the United States.
They have reportedly learned, according to sources that have proved reliable in the past, that Pooh sales far outstripped the 12.5 percent figure granted by Hiroshige, especially in recent years.
"In most cases it was a third, and in some cases it was a hundred percent" of such sales, a Slesinger family member who did not wish to be identified told The American Reporter this past summer.
Disney general counsel Lou Meissinger said this past March that at least $6 billion was earned by Pooh merchandise at third-party retail outlets around the world. In an interview with a legal Website, Law.com, he implied that a comment by Merrill Lynch analyst Jessica Reif Cohen to Forbes magazine in March 2000 describing Pooh sales by the company as reaching $6 billion that year was incorrectly understood to be Disney's own revenues.
But other comments made separately by Disney chairman Michael Eisner and studio president Robert Iger attributed Disney revenues from Pooh as $3.3 billion and $4 billion, and both Meissinger and Disney attorney Daniel Petrocelli have recently tried to rein in that figure to "about $1 billion," the two have said.
Armed with extensive documentation and access to Disney's books, the heirs may now be able to prove their claim against Disney and raise the stakes even higher. Bert Fields, the Hollywood "superlawyer" who represents the Slesingers, told Reuters in September that the case could cost Disney as much as $1 billion, and also the rights to Pooh. The judge has said the heirs would have the right to terminate their licenjse to Disney if fraud ior breach of contract was proven at trial, and Fields told the American Reporter in an exclusive interview in August 2001 that the heirs would try to terminate those rights.
The accounting addressed in Hiroshige's final order Friday covers only undisputed royalty sources, while a trial earlier set for May 2003 - which may now be delayed another six months - will cover Pooh revenues Disney says it does not have to pay royalties for, such as computer software, DVDs and videocassette sales. Those have been extremely lucrative in recent years, when Pooh videos have been at the top of the best-seller charts.
In another development, attorneys for Slesinger have filed objections to a planned deposition by this reporter and his wife, claiming that conversations between the Slesingers and this reporter were subject to California's journalistic shield law. That law protects journalists from having to name their sources for stories on civil matters.
The brief also argues that this reporter's wife enjoys a marital privilege with respect to her conversations with her husband about the case.
Mireya Shea was formerly a maid in the Slesingers' home until she was fired over a word that appeared in an article by this reporter about Judge Hiroshige's tentative ruling. This reporter formerly worked for a publication owned by a Slesinger family member.
The Sheas have not yet acquired legal counsel.