Vol. 22, No. 5,514 - The American Reporter - September 7, 2016



by Joe Shea
American Reporter Correspondent
Hollywood, Calif.
January 4, 2001
Exclusive: DISNEY PETITION REVEALS 'CRIPPLING' SANCTIONS

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LOS ANGELES, Jan. 4, 2002 -- A set of "potentially crippling" secret sanctions levied by Los Angeles Superior Court Judge Ernest Hiroshige against the Walt Disney Co. for destroying key evidence in the long-running lawsuit brought by owners of the commercial rights to Winnie The Pooh for unpaid royalties was revealed today in the studio's rejected petition for a writ of mandate from California's Second District Court of Appeal, which was obtained by The American Reporter after Disney unsuccessfuly sought to keep it concealed.

So far as is known, Disney has also not revealed its potential liability in the case to stockholders as required by securities law. Under another of the potential remedies granted by the court in response to a third amended complaint, according to a source familiar with Judge Hiroshige's decision on admitting the complaint, the plaintiffs can terminate its contract with Disney for the U.S. and Canadian commercial rights to Pooh.

Also, Disney now appears more likely to have to pay out royalties on the sale of at least $900 million in Pooh videos, since the court ordered that Disney cannot argue it had not promised to pay the money.

The sanctions say "representations made by Jefferds [sic] to Slesinger and Lasswell that SSI would receive royalties on videocassettes shall be deemed to have been made," and "Disney shall be prohibited from introducing evidence disputing SSI's version of Jefferds' said representations," according to Disney's own summary of the sanctions. As recently as August, a Pooh video was listed in most trade publications as the best-selling video in the world.

The studio's lawyers, led by Daniel M. Petrocelli of O'Melveny & Myers, outlined two sets of sanctions in a 40-page petition filed on Nov. 7, 2001, and denied by the higher court on Dec. 27 because the studio failed to describe "extraordinary circumstances" for relief after filing the petition too late for consideration under ordinary cirsumstances.

Due to arriving late at the court's offices, however, the American Reporter obtained copies of only the later set of sanctions, handed down in Superior Court on Aug. 20, 2001.

The following verbatim excerpt from Disney's petition for a writ of mandate contains a one-paragraph opening statement followed by six bulleted one-paragraph summaries by the studio's lawyers captioned in boldface and underlined, "The Second Sanctions Order." The petition refers extensively to "Jefferds," the name of a Disney licensing executive named Vince Jefferds who died in the early 1990's.

"52. On August 20, 2001, the trial court issued the second sanctions order. Tab GG. Despite the absence of evidence, the court imposed a vast array of issue, evidence, and monetary sanctions against Disney, granting almost all the sanctions SSI sought - and in many instances going well beyond them. For Disney, these arbitrary and punitive sanctions are potentially crippling. Specifically, the trial court ordered:

  • "In the event of a jury trial, the jury will be instructed that the court found: (a) 'Disney misued the pretrial discovery process in this case by destroying evidence that it knew or should have known was sought by SSI in discovery and made false and evasive responses to SSI's discovery requests and unduly delayed disclosing destruction of evidence for 11 months after it discovered said destruction and had a duty to immediately notify SSI'; and (b) 'Disney's destruction of evidence was at least due to its gross negligence.' Id. at 0600.
  • "In the event of a jury trial, the jury will be instructed that '[c]ertain representations made by Jefferds [sic] to Slesinger or Lasswell that SSI would receive royalties on videocassettes shall be deemed to have been made,' and 'Disney shall be prohibited from introducing evidence disputing SSI's version of Jefferds' said representations.'Id.
  • "In the event of a jury trial, the jury will be instructed that Jefferds promised SSI that "SSI would receive royalties for promotional uses of Winnie the Pooh under the 1983 Agreement,' and 'Disney shall be prohibited from introducing evidence disputing SSI's version of Jefferds' said representation.' Id. at 0601.
  • "If the jury finds that Jefferds made a representation to either Slesinger or Lasswell (or both) that Disney had not received any royalties for promotional uses of Pooh prior to the signing of the 1985 Agreement, then the jury shall be instructed that such representation was knowingly false when made.' Id. at 0600-01.
  • "In the event of a jury trial, the jury will be instructed that Jefferds promised Slesinger and Lasswell that 'Disney would pay SSI royalties based on wholesale for Winnie the Pooh merchandise manufactured and sold by Disney licensees,' and 'Disney shall be prohibited from introducing evidence disputing SSI's version of Jefferds' said representations." Id. at 0601.
  • "Disney must pay monetary sanctions 'in the amount of $90,000 for attorney fees and costs expended in the Motion for Sanctions. Id.."

The sanctions accompany others issued a year earlier in the case. In addition to those, a third amended complaint filed by the Slesinger family asks as a remedy to allow the Slesingers to terminate their contract with Disney, which would allow them to sell their U.S. and Canadian commercial rights to a competitor, or seek a management partnership that might not be to Disney's liking.

The judge's opinion is still under seal, but reportedly says the Slesingers may terminate the rights granted to Disney if fraud or breach of contract is proven.

Theoretically, that might allow a competitor - another theme park operator like Vivendi International, for example, to gain the right from the Slesingers to sell Winnie the Pooh merchandise, videos and tv shows in domestic markets. In turn, that could severely cramp Disney's revenue stream, now about $25 billion a year.

In various statements and news articles, Disney executives have attributed as much as 20 percent of its revenues to Pooh characters created by the late English writer A.A. Milne and licensed by literary agent Stephen Slesinger in 1929.

As an illustration of the power of Pooh, one poster in the window of the Walt Disney Store at the El Capitan Theatre in Hollywood offers reduced prices in a "Disney All-Character Sale," but the only characters represented on two large posters in the main display window are those of Milne's favorite creatures from the Hundred-Acre Wood. Pooh sales are believed to have long ago eclipsed those for characters created by Walt Disney, including Mickey Mouse.

Disney filed a second motion to have their petition for a writ of mandate kept secret, arguing that it did not want to violate the lower court's 1991 order sealing the case.

The court denied that request without comment, but it had become moot Dec. 10 when Judge Hiroshige, responding to motions by the Los Angeles Times, The American Reporter and two New York City publications, unsealed the entire case pending a review of any sensitive documents filed earlier.

Hearings on those documents are scheduled for Jan. 11 and Feb. 10.

Copyright 2016 Joe Shea The American Reporter. All Rights Reserved.

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