by Joe Shea
American Reporter Correspondent
August 14, 2001
LOS ANGELES, August 14, 2001 -- Two of the most famous lawyers in America quietly collided Monday in a California courtroom over royalty payments on one of the most famous and lucrative literary characters ever created, with Hollywood superlawyer Bert Fields saying the owners of U.S. and Canadian rights to exploit Winnie The Pooh are owed hundreds of millions of dollars by the Walt Disney Co. on a contract first negotiated by Walt Disney himself, and the other, O.J. Simpson nemesis Daniel Petrocelli, saying anything owing under an agreement with the man who created Mickey Mouse and Donald Duck has already been paid.
The long-running court battle began in September 1991 over the royalties on a vast spectrum of products that feature the likeness of Winnie The Pooh, Tigger, Rabbit, Christopher Robin and other children's characters created by English author A.A. Milne, which Disney projected would earn some $6.2 billion in gross revenues this year.
It is finally nearing an end, both lawyers told The American Reporter, with a trial date likely some time in early 2001.
Field and Petrocelli spoke separately with the reporters after an all-day court hearing on an independent audit conducted at the request of Superior Court Judge Ernest Hiroshige. The audit covered two representative years, 1988 and 1994, and was designed to determine whether the Disney Co. underpaid Stephen Slesinger Inc. - the heirs of Stephen Slesinger, who bought the rights from Milne in 1929 - for its use of the characters on everything from toothbrushes to computer programs.
Disney claims an audit showed one royalty payment of more than $600,000 was due on $93 million of unreported revenues from Pooh items sold in theme parks, which it paid along with about $5,000 found in other audited areas. "We don't believe that they are owed anything," said Petrocelli. =
In testimony on the first of a planned two-day hearing, the independent audit referee, former California State Supreme Court Justice David Eagleson, court-appointed auditor John J. Costello and CPA Michael Miskei seemed to side with Disney on a number of counts that the Slesinger heirs complained about.
All three rejected claims that the independent audit was fatally flawed by missing or incomplete records, or by auditor bias toward Disney as "their client," or that the heirs were "frozen out" of discussions between Disney executives and the independent auditors.
With Miskei on the stand, Petrocelli argued that Slesinger's heirs have tried to engage in "double dipping" by demanding a royalty fee both when a Pooh product is licensed to a manufacturer and when those products are sold in retail shops, such as in Disney theme parks here and abroad and at the Walt Disney Stores.
Fields later said the contract calls for Slesinger to participate at both stages. Petrocelli admitted that Disney "may or may not be" be the manufacturer in some cases, but said that doesn't matter. Fields said Disney does own some toy manufacturers from whom it buys the toys it sells in its retail operations, and that his clients are due royalties on both revenue streams.
"[Slesinger] doesn't like the court's proposed method of extrapolating," Petrocelli said, and instead wants another method that "yeilds wild numbers, completely ridiculous numbers that are only designed to achieve a total windfall. They have no basis in reality."
Meanwhile, potential evidence gleaned by Slesinger attorney Elizabeth Moriarty from some 400 bozes stored in a Disney warehouse and produced in discovery was ruled inadmissible by Hiroshige after the attorney admitted she could not tell from the documents, including shipping invoices, whether or not any transactions involving Pooh products had actually been consumnated.
Hiroshige left Fields room to re-argue the matter if he can provide a foundation for the documents, such as testimony from someone familiar with their normal use.
Much of the slow-moving morning session of Monday's hearing was taken up by an hour-long conference in Hiroshige's chambers between Petrocelli, who gained national prominence when he won a huge judgment against Simpson in the civil case brought against the accused football great by the families of Nicole Brown and Ron Goldman.
Fields most recently starred in the highly-publicized corporate breakup of former Disney president Jeffrey Katzenberg and Walt Disney chairman Michael Eisner, with Katzenberg finally winning a sumthat Field said Monday was more than $300 million, and maybe as much as $500 million.
"I can't quote the figure," he said. "It's not $50 or $100 million. It's big." The Pooh case, Fields said, "is in the same ballpark. Maybe more."
Disney has never made a settlement proposal, but didn't do so in the Katzenberg case, either, Fields noted.
An accounting expert is scheduled to testify today for Slesinger on the independent audit and a proposed "extrapolation theory" that would apply an error rate between 13.6 percent -- the rate found by auditors in the 1988 Disney payments -- and 0.8 percent, the rate found in the 1994 payments.
The two years were selected as representative of a period governed by a renewed 1983 contract. The first contract was negotiated in 1961 between Walt Disney and Stephen Slesinger's heir, Shirley Slesinger Lasswell, who was at the hearing Wednesday. The elderly Tampa, Fla., woman was later married to "Snuffy Smith" creator Fred Lasswell, who died at their home in March of this year.
At the end of yesterday's hearing, Mrs. Lasswell called Disney's behavior "disappointing," and vowed to stay with the case. "This is absolute piracy," she said.
Petrocelli drew a sharp distinction between the accounting reports in Monday's hearing and other issues in the case, such as Disney's on-again, off-again payments on Winnie The Pooh videos and computer software. Those are contract issues that have to be decided by the judge or at trial, he indicated.
"Disney's position will be completely vindicated on every issue," Petrocelli predicted.
Fields said a letter from a senior vice-president of Disney, Vince Jeffers, shows that the company knew it was obligated to pay royalties on videos and computer software, which Disney stopped paying in the 1980sas they started to become a huge market segment, Fields said.
Sales of Pooh videos have been estimated at $880 million over the past 10 years.
"The other thing that hurts them is that in the old days before video they paid on film and Super 8 cassettes," Fields said.