The Pooh Papers
SECRET RULING 'DEVASTATING' TO DISNEY
by Joe Shea
American Reporter Correspondent
HOLLYWOOD, August 23, 2001 -- A still-secret decision on sanctions against the Burbank-based Walt Disney Co. for "willful destruction" of evidence in a long-running royalties battle is "devastating" to its claim that it owes no royalties on Winnie The Pooh videos, computer software and other commercializations of the world's most popular cartoon character, a plaintiffs' attorney familiar with the sealed opinion said Wednesday.
"This decision is devastating for Disney," said Bonnie E. Eskenazi, an attorney with Greenberg, Glusker, Fields, Claman, Machtinger & Kinsella of Los Angeles, who has read the ruling.
The firm, lead by Hollywood superlawyer Bert Fields and Eskenazi, is representing Stephen Slesinger Inc., the plaintiffs against Disney. Under the rules governing the case, neither side can discuss specific elements of the ruling handed down by Los Angeles County Superior Court Judge Ernest Hiroshige last week.
However, The American Reporter has learned from reliable sources who have read the Aug. 17 decision that as one sanction for the evidence destruction, Disney is prohibited from arguing at trial that it did not agree to pay royalties on tens of billions of dollars of sales revenues from video and other commercial uses of Pooh.
Disney's contention that it did not owe such royalties has been the central bone of contention since the case began a decade ago.
A spokesperson for Disney said she was unfamiliar with the ruling andwould respond. Later, Michelle Bergman, Disney's director of corporate communications, told The American Reporter the company would have no comment.
Last week, however, Bergman said that Disney does not pay the Slesinger firm for those rights. The 30-page document innocuously entitled "Order on Motion for Sanctions" follows a long series of secret briefs over the past two years surrounding Disney's admitted destruction of at least 40 boxes of potential evidence in the case, including one marked "Winnie The Pooh - Legal Problems."
Disney claimed as recently as last week that it does not have to pay Slesinger on some of the most lucrative uses of Pooh, who with his friends from the Hundred Acre Wood reportedly earned one-fifth of Disney's $25-billion revenues last year. One Pooh video is currently the top-selling video in America, according to several national publications that measure those sales.
The plaintiffs said much of the proof of the royalties they were owed was contained in the boxes of evidence, which were destroyed while under a protective order as the case was being heard.
Disney's former attorneys, Skadden, Arps, Slate, Meagher & Flom, withdrew from the case last year when it became evident they might have to testify against Disney, their client, on the issue last year. Disney is now represented by famed O.J. Simpson figure Daniel Petrocelli of O'Melveny & Myers. The case was filed in 1991 and is one of the longest-running in Los Angeles County, Petrocelli says.
Disney reported $1.1 billion of revenue to the Slesinger heirs in 2000, the company said in court last week. The heirs earned about $12 million in royalties on that sum, Fields told reporters during the hearing.
The plaintiffs are the heirs of literary agent Stephen Slesinger, including his elderly widow, Shirley Slesinger Lasswell, 79, who attended last week's hearings.
Stephen Slesinger, who also represented famed Western novelist Zane Grey, bought the U.S. and Canadian commercial rights to Pooh from English author A.A. Milne in 1929, and died in 1953. His widow licensed the rights to Walt Disney himself in 1961. The contract was renegotiated in 1983, a source familiar with the plaintiff's complaint said, after Disney promised to improve the accuracy of its royalties reports.
Eskenazi is prevented by the seal from disclosing the specific contents of the ruling, but called it "case-dispositive" - a decision that virtually renders moot the Disney case. Others familiar with the ruling said, however, that it does leave Disney room to argue that the executive who negotiated the contract with Slesinger's heirs in 1983 did not have the authority to do so.
Eskenazi and other observers predicted that Disney is likely to seek a writ from California's appellate courts to overturn the ruling, but added that such writs are rarely granted in non-emergency civil cases.
Eskenazi said the potential cost of the ruling to Disney, the world's second-largest media conglomerate, is in the "hundreds of millions." The ruling is still unknown to Disney stockholders, and likely will not be reported elsewhere until the trial.
The Aug. 17 order was handed down a day after an unrelated four-day hearing on "minor issues" in the case - defined here as some $35 million in back royalties Disney is alleged to owe on items it agrees it must pay for - that ended Thursday, Aug. 16. An order on that issue, a complex accounting matter, will likely come in several weeks. Judge Hiroshige has promised a ruling in September.
A hearing on the Aug. 17 ruling on sanctions is set for 9 a.m. on Sept. 21 in Dept. 54 of the downtown Los Angeles County Courthouse at 111 N. Grand Street.