Disney defeated in $250m court battle Katzenberg beats Disney in $250m

IN AN embarrassing setback for the Walt Disney Company, a judge in California has ruled that the media giant was in breach of agreement with its former film boss, Jeffrey Katzenberg, when it withheld his bonus when he left the company in 1994, two years before the end of his contract.

The decision, issued in a seven-page written statement by the retired Superior Court judge Paul Breckenridge, does not mark the end of the long- running and often bitter battle between Mr Katzenberg and Disney which has enthralled Hollywood. It has been viewed as the ultimate display of personal animus and greed in the topmost reaches of the entertainment industry. Some have dubbed it "Katz vs. Mouse".

Mr Katzenberg, who deserted the Disney ship to help to form the Dreamworks SKG studio with Steven Spielberg and David Geffen, claims that the company owes him $250m. The money would represent 2 per cent of earnings from all Disney products created during his four- year tenure there, including films such as The Lion King, and Aladdin, as well as spin-offs such as T-shirts, masks and games.

Judge Breckenridge, appointed to arbitrate in the dispute, has yet to rule on how much Disney will have to pay. But he agreed with Mr Katzenberg that he is owed compound interest on the undelivered sum. That interest could amount to tens of millions of dollars if the full $250m is awarded.

The judge, who also cleared Disney on some other points of contention, steered clear of the personal conflict between Mr Katzenberg and his erstwhile superior at Disney, Michael Eisner, which has frequently bubbled through testimony. Mr Katzenberg decided to quit the company when Mr Eisner refused to elevate him to the number two spot after the death of Frank Wells, Disney president.

Mr Eisner, who remains the chairman of Disney, has already testified in the case. All of Los Angeles was abuzz after he was forced to admit on the stand that he may once have said of Mr Katzenberg: "I think I hate the little midget." He told the judge, however, that he may have made the remark in the heat of his anger after Mr Katzenberg's resignation.

The next phase of the arbitration will begin immediately and will focus first on exactly how much Disney must pay Mr Katzenberg, and how far interest payments should be backdated. It is thought that the studio has already paid him more than $100m in a preliminary settlement reached in late 1994. Mr Katzenberg none the less went ahead and sued the company in 1996 for the full amount of the disputed bonus, leading to the deliberations now under way.

Not everything in the judge's initial determination went Mr Katzenberg's way. The judge disagreed with his contention that the studio had been guilty of fraud in attempting to deny him his bonus. He also placed some limits on the products on which Mr Katzenberg claims he is owed a percentage. Some of Disney's online products and its chain of children's adventure centres, called "Club Disney", should not be included in the consideration of the final amount owed, the judge said.

Both sides are barred from publicly discussing the case until it is fully resolved.

A lawyer for Mr Katzenberg, however, said that he was "thrilled" with the outcome of its first phase.

Disney also presented a contented front. "We think the ruling was fair and we think we prevailed on points critical to us," a spokesman said.