by Joe Shea
American Reporter Correspondent
February 4, 2002
ARTHUR ANDERSEN & CO. WORKED POOH CASE DURING SHREDDING AT DISNEY, LAWYERS SAY
HOLLYWOOD, Feb. 4, 2002 -- Arthur Andersen & Co., the accounting firm that oversaw the shredding of Enron Corporation records, was hired as the outside accounting expert in the long-running Winnie the Pooh royalties case and worked on it at the Walt Disney Co. from 1994 to at least 1998, a period when thousands of pages of documents related to the case were destroyed in violation of a court order, The American Reporter has learned.
"I do understand there was someone from Arthur Andersen involved with Disney on the Winnie The Pooh case," said Bonnie Eskenazi, a lawyer for heirs of licensing pioneer Stepehen Slesinger, who acquired commercial rights to Winnie the Pooh from British author A.A. Milne in 1930 and 1932. Eskenazi said the Andersen involvement came before she and Hollywood superlawyer Bert Fields were hired by the Slesingers in 2000.
In fact, the American Reporter has learned, Disney was represented by Arthur Andersen & Co. at more than a dozen court hearings during the most intensive period of document destruction in the case.
It is not clear whether Andersen employees ordered or participated in the destruction, which Disney says came about as a normal function of its record retention program.
However, in a second ruling on sanctions against Disney handed down last August, the judge in the case made note of the fact that Disney had concealed the existence of some records from the court until the day they were destroyed.
Disney's attorney in the case, who was also hired in 2000, would not directly say that Andersen was Disney's outside auditor, but called the report "completely irresponsible."
"The whole idea of trying to make a connection between Arthur Andersen and document destruction is like something out of a movie script," said Daniel Petrocelli, the high-profile lawyer who won but never collected a $35 million judgment from O.J. Simpson, the former football great charged and acquitted of murdering Nicole Brown Simpson and Ron Goldman in a sensational 1994 double slaying.
Both attorneys questioned whether there are any documents available to the public in the case file that would support the report.
Virtually all the documents related to the accounting issues in the case remain under seal at Disney's request. The case was formally unsealed on Dec. 10, but case files were not turned over to reporters until Jan. 18, and those still under seal await a hearing on April 1 before a decision will be made about opening them.
Ironically, the existence of a relationship between the accounting firm, Disney and the Pooh case has been methodically erased from all public records of the case except one - Disney's 15-page list of documents it wants to keep suppressed after the court's Dec. 10 order unsealing the case file, which was faxed to AR's offices in Hollywood and mailed to American Reporter attorney Alexander J. Petale after this publication joined in the successful Los Angeles Times> motion to get the case unsealed.
In that document, a cryptic mention is made of a "Fax Cover Letter to Janet Dhillon from Christopher Paskach, with attached Royalty Audit Program."
While other figures in the list of some 154 documents occur repeatedly, Paskach occurs just once. Nothing else in the 45 volumes of legal paperwork that have been made public identifies him, but his unusual name and apparent accounting background quickly led to his identification as a longtime Arthur Andersen % Co. partner who had worked on the Disney case for years.
The firm appeared at more than a dozen court hearings as the studio's accounting representative during that time, reliable sources close to the case now say.
The full extent of Andersen's involvement in the case may never be known because Disney has asked the court to keep under seal the documents that describe accounting activity.
In the high-profile Enron case, the Andersen firm admitted it shredded thousands of pages of documents related to the energy trader's outside partnerships, and Arthur Andersen partner David B. Duncan claimed the protection of the Fifth Amendment to avoid discussing the firm's role in Enron's collapse.
Andersen has also been implicated in other questionable accounting cases, including the collapse of Irvine, Calif.-based Lincoln Savings in 1989, when along with lawyers, advisors and two other Big 7 accounting firms it was forced to pay more than $235 million to bank customers victimized by a Ponzi scheme involving high-interest - but uninsured - investment certificates.
Los Angeles Superior Court Judge Ernest M. Hiroshige has levied severe evidence sanctions against Disney for destroying 40 boxes of documents, including one marked "Winnie the Pooh, legal problems" that wereshredded in 1998.
The judge also levied monetary damages of $90,000 against Disney in that case.
The studio could face more sanctions for shredding hundreds ofother boxes and thousands of pages of Pooh-related shipping documents ofits Hong Kong manufacturing arm.
A secret injunction ordering Disney to stop shredding was handed down by Superior Court Judge Ernest Hiroshige in June 2001 and only came to light when the case was unsealed in January.
At the close of a conference call for investors Thursday, Disney Chairman Michael Eisner announced that the firm would no longer use its outside auditors, PricewaterhouseCoopers, as outside consultants but made no mention of the long relationship with Arthur Andersen & Co.
During the time that an Arthur Andersen partner identified as Chris Paskach served as Disney's outside auditor during some of the lengthy accounting procedures in the discovery process for the case, at least 230 boxes of documents at Disney's Canasa Trading subsidiary were destroyed by Disney shredders, court records show.
Paskach, the Andersen partner, did not respond to a voicemail message left for him at Arthur Andersen & Co.'s offices in Los Angeles, although a secretary confirmed that he was in his office. He was not in his office Monday morning, the secretary said.
John A. Donovan, the attorney representing Disney in accounting aspects of the case, also did not return a phone call on Friday or Monday morning requesting comment. Donovan heads West Coast litigation for the nation's largest law firm, Skadden, Arps, Slate, Meagher & Flom.
With Andersen admitting that its auditors had taken part in shredding financial documents at Enron and another firm, its involvement in another high-profile case involving shredding is highly sensitive and potentially devastating to Disney's already-weakened case.
Florida licensing firm Stephen Slesinger Inc., which filed suit against the studio for allegedly cheating it of hundreds of millions in royalties, claimed in court papers released last month that an examination of remaining Canasa documents by Slesinger attorney Elisabeth Moriarty revealed extensive manufacturing, distribution, licensing and royalty information about Winnie the Pooh merchandise Canasa made for sale at Disney theme parks and stores in the United States and Europe.
It is unclear whether Disney retained Andersen & Co. through 1999, when Skadden, Arps, the studio's law firm at the time, abruptly quit as Disney's counsel after working many years on the case. That unusual turn of events came about after Slesinger's attorneys sought to have Donovan called to testify against the studio about the document destruction.
Rather than testify against their client, Skadden, Arps withdrew from the case, which has to be one of the most lucrative ever. More than 11 law firms and half a dozen judges have been employed in the case, which was completely under seal until Jan. 11 of this year.
Disney, now represented by Petrocelli of O'Melveny & Myers, has filed a motion with the California Supreme Court seeking pre-trial review of the sanctions denied by an appeallate court in December.
Slesinger is represented by Eskenazi and famed entertainment attorney Bert Fields, of Greenberg, Glusker, Fields, Claman, Machtinger & Kinsella. Fields represented former Disney president Jeffrey Katzenberg in the latter's highly-publicized suit against the studio for promised participation in motion picture revenues and won several hundred million dollars from company in a settlement.
The Pooh case (BC022365), which is seeking hundreds of millions in damages and the right to terminate the Pooh contract with Disney, was filed by the widow and daughter of licensing pioneer Stephen Slesinger on Feb. 27, 1991. They have not commented on the case in recent years.
Slesinger acquired a wide range of rights to the popular childen's character from British author A.A. Milne in 1930 and 1932, and licensed the rights to Disney in 1961. That contract was renegotiated in 1983 after a $750,000 settlement was paid by the studio for past-due royalties. Merrill Lynch media analyst Jessica Reif Cohen told Forbes Magazine in March 2000 that she estimated that the Pooh characters generate $6 billion a year for Disney, about a fourth of its revenue. That money could go elsewhere if the Slesingers are permitted by a jury to terminate the contract.