Eisner Gets to Keep Pooh's Honey Pot

A California judge's surprising and scathing dismissal of a long-runni ng royalties suit could save Disney hundreds of millions of dollars

Walt Disney CEO ( DIS <javascript: void showTicker('DI S')> ) Michael Eisner, in the midst of fighting off angry shareholders who would like to see him go, received some welcome news on Mar. 29, when a California court threw out a 13-year-old suit by heirs to the estate that controls the popular . Winnie the Pooh franchise. ·

The decision by Judge Charles W. McCoy Jr. is all the more spellbinding because, until recently, it appeared that the Slesinger family was winning the case, and that Disney would have to pay hefty royalties to continue selling T-shirts, videos, and other products featuring Winnie, Piglet, and the rest of the characters created in 1926 by British author A.A. Milne. Indeed, in its most recent 10-K financial filings with securities regulators, Disney said that if the Slesinger family prevailed,"damages...could total as much as several hundred millions dollars and adversely impact the value to the company of any future exploitation of the licensed rights."

BIGGER THAN MICKEY? Now, that appears unlikely. McCoy's decision makes it clear that he believes representatives of the Slesingers, including private investigators they hired, illegally obtained many of the documents they were using to press their claim. Indeed, McCoy said the family's "misconduct is so egregious that no remedy short of terminating sanctions can effectively remove the threat and project the institution of justice and [Disney]."

In a statement, representatives of the Slesinger family, which will continue to earn an estimated $12 million a year from Pooh, said it was "appealing to get our Pooh rights back." Disney analysts believe that Pooh has surpassed even Mickey Mouse as Disney's hottest-selling character. By some estimates, the sweet and bear brings in as much as $100 million in annual royalties.

Little wonder that the Slesingers say they will appeal. The family also claimed that the court's decision "unfortunately sends a strong message to Corporate America that it is O.K. for companieslike Disney to steal and renege on its contractual promises, and [that it is] just fine to destroy a million pages of evidence along the way." ' .

QUESTIONS OF CREDIBILITY. The family previously claimed that it is owed closed to $1 billion in unpaid royalties, largely because Disney expanded its use of Pooh to videos and other outlets not contemplated in 1961, when Disney bought the licensed U.S. rights from Patty Slesinger, whose late

. husband Stephen held them.

Until this decision, the Slesinger family seemed to have Disney on the run. The family claimed that Disney, in internal documents, had promised that the family's royalties would be expanded to include home video and other new outlets. In 2002, a different judge, Ernest M. Hiroshige, found that Disney had hidden some of the pertinent documents. Judge Hiroshige later turned over the case to Judge McCoy.

After reviewing the transcript, Judge McCoy found that the Disney documents the Slesingers used to press their case were acquired through "deception." In his decision, McCoy found that a private investigator hired by the Slesingers "does not impress the court as a person who considers himself constrained by trespass laws." The judge said the private investigator committed "multiple trespasses" to get Disney documents and also took documents from a plant in Canoga Park, Calif., where trash was taken from Disney to be "pulverized." The judge then says the Slesingers and their attorneys "secretly read Disney's privileged thinking on a core issue in this litigation."

PR BLITZ. The judge also cast grave doubts on the testimony by the 82-year-old Patty Slesinger, who testified in open court that the documents her family received came from legitimate sources, and that she hadn't removed designations marking them "confidential and priveleged" "Her demeanor on the witness stand when making those denials, coupled with evidence directly linking her to the documents, convinces the court that Ms. Slesinger's denials were false," wrote the judge. A Slesinger family spokesman says Ms. Slesinger was truthful.

Where the lawsuit goes next is uncertain. The case was dismissed "with prejudice," meaning that the Slesingers cannot resubmit their claims. Thus, the family have to rely on a state appeals court to overturn the judge's decision.

Meanwhile, Eisner has one fewer concern as he faces down shareholders disappointed by Disney's earnings and the way he has run the Mouse empire formore than 15 years. The CEO, several board members, and even public-relations executives have swung into high gear to defend Disney's future financial prospects. At least one prospect just got better. For now, the honey-loving bear is no longer a bother. ·

Pooh case gets flushed

Judge deals Disney surpr_ise win

By JANET SHPRINTZ <http://www.variety.com/index.asp?layout=bio&peopleID=1144>

This article was updated at 7:24 p.m.

With an astounding ruling in the long-running Winnie the Pooh case, a judge dismissed the Slesinger family's claims for additional royalties as a punishment for their "egregious" and "dishonest" misconduct, handing Disney n unexpected victory.

The conclusion to the case at the trial court level was hailed by Disney and criticized by the Slesinger family, which vowed to appeal and characterized the ruling as "just another twist" in what is believed to be the oldest civil case in Los Angeles Superior Court.

The case involves whether the Mouse House is paying enough royalties to the Slesinger family,which licenses to Disney the rights for Winnie the Pooh and other characters from author A.A. Milne's series of children's books. Pooh has become Disney's single most lucrative character.

Until Monday's ruling, Disney had suffered a string of defeats in pre-trial motions, including a tough·sanction order by the previous judge, which most observers felt would make it impossible to win the case before a jury.

Following the ruling by Superior Court Judge Charles McCoy, Disney attorney Daniel Petrocelli said: "After 13 long years in the courts, the Winnie the Pooh case is finally over. Every one of the Slesingers' claims has been dismissed with prejudice, and Disney's position has been vindicated in its entirety. Needless to say, we are all extremely pleased."

In a statement, the Slesinger family said: "Of course, we are appealing to take our Pooh rights back. This decision unfortunately sends a strong message to corporate America that it is OK for companies like Disney to steal and renege on its contractual promises, and just fine to destroy a million pages of evidence along the way."

The Slesinger statement continued: "This is just one round in a very long and complicated relationship and another delay of justice. What is in the garbage documents is that Disney committed fraud and the judge has thrown out the baby with the bathwater. This has not removed Disney's ongoing obligation to pay royalties to the Slesingers or remedy. its unauthorized uses of Pooh."

Jurist upbraids clan

The 28-page opinion by McCoy castigated the Slesingers for conduct "so egregious that no remedy short of terminating sanctions can protect the institution of justice and Disney."

The opinion comes a month after a weeklong hearing in which Disney asked the court to dismiss the royalty dispute, claiming the Slesingers had hired a private investigator who stole thousands of documents from Disney's trash bins an'd then lied about it to cover up the fact that they possessed crucial privileged documents.

At the hearing, the Slesingers' attorneys told the court that the Slesingers turned to a private investigator only after years of frustration with Disney's stonewalling on document production. They also claimed that no laws were broken because documents were taken from trash bins located on public property.

McCoy's opinion reveals that he did not believe the testimony of any of the Slesingers' witnesses. In a strongly worded conclusion, McCoy considers and rejects sanctions less severe than terminating the case. ·

He rejects having the Slesingers return privileged documents because they have already been seen and because he doesn't believe they will comply. He rejects monetary sanctions as insufficient to deter further misconduct. Stephen Slesinger Inc. "is dishonest and shows no remorse," concludes McCoy.

Testimony. rejected

As outlined in his opinion, Pati Slesinger and her husband David Bentson hired private investigator Terry Sands to find helpful documents. At the hearing, Sands testified that he was careful to take Disney documents only from the one garbage bin that was publicly accessible. McCoy rejected Sands' testimony as not credible and rejected the plaintiffs' claim that the binwas on public property.

Among the documents Sands found were several privileged ones including an analysis of the litigation and a summary of third-party merchandising licenses.

The Slesingers ultimately produced to Disney two versions of the merchandising summary -- one stamped confidential and one without a stamp.

McCoy concluded that Pati Slesinger altered the document to hide the fact that she possessed privileged Disney documents and that she lied in court when she denied it. McCoy also found that there was no justification for the years in which the Slesingers failed to disclose that they had Disney's privileged documents.

Lesser sanction not enough

two wrongs cannot be placed in the balance so as to generate a single corrective right."

Long-running battle

The Slesinger family sued Disney in 1991 after members became convinced that Disney was cheating it on royalties. Stephen Slesinger originally obtained North American rights to Pooh from author Milne in the 1930s. Shirley Slesinger Lasswell, his wife, licensed Pooh to Disney in the 1960s. With Pooh as Disney's most lucrative character, and damage estimates running as high as $1 billion, the case has been a nightmare for Disney.

· The House of Mouse has endured Hiroshige's crippling sanctions for document destruction, which an appellate court refused to set aside, and an abortive attempt in federal court to terminate the Slesingers' license on Pooh.

Hiroshige transferred the case to McCoy in October. McCoy is head of the complex litigation unit of the L.A. Superior Court, which handles lengthy cases.

The Slesingers have been represented by 1O different law firms over the years. While the case proceeded in obscurity for many years, it took on a higher profile when the family hired Bert Fields in 1999 after his successful settlement of Jeffrey Katzenberg's breach of contract case against Disney.

Fields withdrew in 2003 for undisclosed reasons. After that, the Slesingers were represented briefly. by Jones Day; they are currently represented by Johnnie Cochran Jr.'s firm and by Patrick Cathcart

of Hancock, Rathert & Bunshoft.

Judge pooh-poohs lawsuit over Disney licensfng feesBy Michael McCarthy, USA TODAY

Walt Disney (D I S) won a major victory Monday when a California state judge threw out a 13-year-old lawsuit over rights to Winnie the Pooh that could have cost the company as much as $1 billion.

Will Winnie the Pooh and Piglet, too, make it back to 100 AcreWood before an appeal is filed?

Disney and CEO Michael Eisner have been under attack from critics over management of the firm. But the decision to duke it out in court over U.S. merchandising rights to the Pooh character appeared vindicated when California Superior Court Judge Charles McCoy dismissed the lawsuit with prejudice.

That means Stephen Slesinger Inc., which holds the rights, is barred from suing again on the same claim. Although McCoy's ruling is likely to be difficult to overturn, lawyers at SSI plan to appeal.

New York literary agent Stephen Slesinger acquired the merchandising rights from Pooh's British creator, A.A. Milne, in 1930. The family firm SSI later licensed those rights to Disney, which pays the company about $11 million a year. The family sued Disney in 1991, claiming it reneged on an agreement to pay

THE NATION

Disney the Winner in a Hunny of a Lawsuit• A long tussle over Pooh royalties ends with the judge accusing plaintiffs of stealing documents.

By Meg James, Times Staff Writer

A Los Angeles County Superior Court judge Monday abruptly ended more than a decade of legal wrangling over merchandising royalties forWinnie the Pooh, handing Walt Disney Co. a major victory and taking a powerful swipe at the family that claimed it had been cheated out of hundreds of millions of dollars.

Judge Charles W. McCoy accused the Slesinger family -which holds the lucrative merchandising rights · of trying to gain an edge by stealing confidential Disney documents and then lying and altering court papers to cover up the thefts.

The plaintiffs' "willingness to tamper with, and even corrupt, the litigation process constitutes a substantial threat to the integrity of the judicialprocess," the judge wrote. "The court finds that [the plaintiffs'] misconduct was willful, tactical, egregious and inexcusable."

Disney's victory comes at a crucial time for Chief Executive Michael Eisner, who has been fending off a campaign to oust him after 20 years at the helm of the Burbank entertainment giant. Losing the case could have cost the company several hundred million dollars and provided more fodder for critics. Eisner met with the family last summer to discuss a settlement, but talks were abandoned.

DocumentTerminating Order March 29, 2004(Acrobat file)

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COURT RUUNGSWINN E THE POOH CHARACTERWALT DISNEY COWINN E THE POOH CHARACTER ROYALTIWALT D SNEY CO THE NATION

Stephen Slesinger, a New York literary agent and a pioneer in the business of marketing cartoon characters. He had acquired the Winnie the Pooh merchandising rights for $1,000 in 1930 from A.A. Milne, the author of the children's stories about the honey-loving bear and his forest friends.

Slesinger's widow, Shirley Slesinger Lasswell, granted Disney the merchandising rights to the characters in 1961 in exchange for royalties. Pooh is now Disney's most profitable character, raking in more than $1 billion annually for the company and outmuscling Mickey Mouse as a money maker.

-In 1991, Lasswell and her daughter, Patricia Slesinger, sued Disney,claiming that the company had failed to pay them millions of dollars in royalties for videos, computer software and other merchandise.

The family, in a statement Monday, vowed to appeal: "This decision unfortunately sends a strong message to corporate America that it is OK fot companies like Disney to steal and renege on its contractual promises."

The Disney motion that led to the dismissal did not attack the merits of the Slesingers' case but rather the family's behind-the-scenes conduct in obtaining confidential documents that provided insights into the company's legal strategy. Disney lawyers contended that the papers were stolen. The Slesingers said the documents were legally taken from publicly accessible trash bins.

During a five-day hearing that concluded this month, Terry Lee Sands, an unlicensed private investigator, testified that he had been hired by Patricia Slesinger's husband to find discarded documents. He said he found them in dumpsters behind a satellite Disney building in Burbank.

On Monday, Judge McCoy said in his 28-page ruling that he simply did no believe Sands.

Among other things, the judge said, key Disney executives and attorneys involved in the lawsuit did not work at Disney's Buena Vista Plaza comple: in Burbank, making it unlikely that their trash would have been found in dumpsters there. Also, the judge said the volume and highly sensitive natut of the documents made it virtually impossible that they all ended up in one cluster of dumpsters.

and thus, stealing. They "had no right to break laws to obtain evidence," McCoy wrote.

McCoy's decision does not erase Disney's obligations to continue to pay the Slesingers royalties -at least for a while. The company is pursuing a separate copyright claim in federal court that, if successful, would terminate the payments.

During the last two decades, Disney paid the family more than $82 million. In recent years the royalties have averaged about $11 mllion a year.

The case, one of the longest-running in Los Angeles County, has taken several twists and turns along the way. More than three judges and a dozen law firms have been involved, filing hundreds of thousands of documents. Publications from around the globe, including the Times of London and the South China Morning Post, have written about the fracas.

There has been plenty of mudslinging and allegations of wrongdoing on both sides.

In 2001, Disney found itself fending off allegations of misconduct. A judge sanctioned the company $90,000 after it destroyed more than 40 boxes that contained Pooh papers. The company contended that the destruction was unintentional. Still, the judge ruled that jurors could be told of the disposal at trial -a disclosure that would not reflect well on Disney.

The following year, Disney got its first big break. During an October 2002 deposition, Petrocelli questioned Patricia Slesinger about the role of a private investigator she had hired a decade earlier. Slesinger testified that she did not know what the investigator did on her behalf. Petrocelli pressed for his name: Terry Sands.

"That's when the dam broke," Petrocelli told the judge during the heanng earlier this month.

That name matched one in an anonymous tip made to Disney's security office in 1994. The caller told Disney security guards that he and an investigator named Terry Lee Sands had been hired to steal documents related to Winnie the Pooh.

Disney didn't make much of it -security couldn't find any evidence of any

papers that they knew they weren't supposed to have. In those documents, which Patricia Slesinger eventually turned over to the court, the words "confidential" and "attorney work product" had been removed. The judge also took issue with her testimony.

"Her demeanor on the witness stand when making those denials, coupled with evidence linking her directly to the documents, convinces the court that Ms. Slesinger's denials were false," McCoy wrote. "Conduct of this sort strikes at the heart of the judicial process."

Legal expert Laurie Levenson said a reversal would be difficult to wiq. Appellate courts typically follow the findings of trial court judges, particularly when a judge uncovers facts undermining someone's credibility.

"It will be a Mt. Everest-uphill battle for the Slesingers to get this order · overturned," the Loyola Law School professor said. "Now instead of just fighting the defense -Disney -the plaintiffs are also fighting the judge. It doesn't get any worse than this."

**(BEGIN TEXT OF INFOBOX)

Battle for the bear

Allegations of wrongdoing were raised by both sides during the 13-year fight in Los Angeles Superior Court over royalties related to the Winnie the Pooh character. Some key moments:

• February 1991: Heirs of Stephen Slesinger, who acquired merchandising rights to Winnie the Pooh from creator A.A. Milne in 1930, sue Walt Disney Co., alleging that the company skimped on royalty payments. Files on the case are soon ordered sealed.

• June 1994: Disney's security office receives a tip from an anonymous caller about alleged break-ins and thefts of documents related to Winnie the Pooh merchandise. Disney is unable to substantiate the claims.

• June 2000: Superior Court Judge Ernest Hiroshige rules that Disney deliberatelv destroved more than 40 boxes of internal documents_ inclnrlim:r

• August 2001:Judge Hiroshige orders Disney to pay $90,000 in legal fees stemming from the hearings on document destructions.' .

• December 2001:Hiroshige orders the case unsealed, based on a motion by The Times.

• October 2002: During depositions, Petrocelli questions key witnesses, including Stephen Slesinger's daughter, Patricia Slesinger, about an unlicensed investigator they hired and how they obtained confidential legal documents from Disney. The witnesses deny knowledge of the investigator's activities.

• November 2002: The California Court of Appeal lets stand Hiroshige's ruling that jurors can be told that Disney destroyed boxes of evidence. The California Supreme Court later refuses to hear an appeal by Disney.

• May 2003:A federal judge rejects a Disney-backed bid by Milne's granddaughter Clare Milne to reclaim merchandising rights to Winnie the Pooh from the Slesingers and then transfer them to Disney.

• July 2003: Prominent entertainment attorney Bertram Fields, one of a number of lawyers who have represented the Slesinger family over the years, withdraws from the case without explanation.

• September 2003: Judge Hiroshige removes himself from the case. Los Angeles County Superior Court Judge Charles W. McCoy of the complex litigation division takes over.

• October 2003:After firing another law firm, the Slesingers hire Johnnie Cochran.

• February/March 2004: A five-day hearing is held into Disney's motion that the case be dismissed because, the company alleges, documents were stolen from its Burbank offices by the Slesingers' investigator, with their knowledge.

• Monday: Judge McCoy dismisses the case, saying that the Slesingers had lied about their knowledge of the thefts and that their behavior was "willful, tactical, egregious and inexcusable."

*

Disney winner in Pooh dispute13-year royalty case is thrown out because plaintiff had detective dig in

, company's trash.

By Joyzelle Davis and Alex ArmitageBloomberg NewsMarch 30, 2004

LOS ANGELES -- Walt Disney Co., the second-largest U.S. media company, has won the dismissal of a 13-year-old lawsuit brought by the owners of Winnie the Pooh merchandising rights.

Superior Court Judge Charles McCoy dismissed the suit after concluding that Stephen Slesinger Inc., the family-owned company that

· controls the rights to Pooh, Piglet and other characters from A.A. Milne's children's books, "tampered with the administration of justice" by hiring a private investigator to take documents from Disney's trash bins.

Monday's ruling spares Disney from having to pay royalties and damages that might have totaled "several hundred million dollars," according to company filings.

Patrick Cathcart, a lawyer for Slesinger, said the judge didn't addressthe underlying merits of the family company's claims. He said Slesinger will appeal the ruling.

"Termination of a case that's this long and hard-fought is wrong," Cathcart said.

Slesinger sued in 1991, seeking additional royalties and the end of the Pooh licensing agreement. Disney filed its motion for sanctions more than a year ago. The hearing on the motion was delayed in part because Slesinger is on at least its third set of lawyers in the past year and the case was sent to another judge.

Disney lawyer Daniel Petrocelli said "Disney's position has beens completely vindicated."

"It's the death penalty," said Laurie Levenson, a professor at Loyola Law School in Los Angeles. "It happens, but not in a case that's lasted 13 years and there are billions of dollars on the line." ·

Slesinger argued that all of the papers were taken from publicly accessible dumpsters. The family company employed such methods only

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)isney Wins Bear Knuckled, 13-Year Fight Over Royalties

By BRUCE 0RWALL

ALT DISNEY CO.'S HONEY pot is safe.A Los Angeles County judge

abruptly ended a lawsuit that had 'retched for 13 years in which a family-owned mpany that controls some Winnie the Pooh mer- 1andise rights claimed that Disney had short- 1.anged it of hundreds of millions of dollars in yalties. The judge threw out the case, citing the cuser's use of a private detective who retrieved nfidential Disney documents from the compa ''s trash bins without telling Disney lawyers. Yesterday's ruling is a major relief for Disney, ice Pooh is one of the entertainment company's)St coveted franchises. The rotund bear, created author A.A; Milne and illustrator E.R Shep_ard the 1920s, has since spawned more than 7,000 prod ts generating an estimated $5.9 billion in world de retail sales. At Disney, Pooh and related char ters bring in about $1 billion in annual revenue:ough apparel; toys and other merchandise, ac mting for an even bigger share of Disney's con mer-products sales than Mickey Mouse and the 1er original.Disney characters.In its suit, Stephen Slesinger Inc., based in mpa, Fla., claimed that Disney had dramati ly underpaid royalties owed under the 1983 re.v al of a licensing agreement originally

struck:h Disney in the early 1960s; The small com- 1y, paid more than $80 million in Pooh royalties ce the· renewal, is named after the literary mt who paid Mr. Milne $1,000 plus royalties for

the rights to sell Pooh merchandise in the U.S.What began as a relatively simple spat over

royalties eventually grew into a legal marathon that saw the Slesingers use at least nine.different lawyers; the latest being high-profile attorney Johnnie Cochran. He didn't return calls Monday.

. Slesinger claimed tqat Disney should have been paying royalties not just on stuffed animals and other merchandise, but also on sales of video-

cassettes and digital video discs. Those products either didn't exist or weren't explicitly included when the 1983 agreement was struck.

Los Angeles County Superior Court· Judge Charles W. McCoy Jr.'s 28-page ruling dismissed the case with prejudice, meaning Slesinger can't bring legal action on the same claim again. The company's "misconduct was willful, tactical,

. egregious and inexcusable," the judge wrote, con cluding that its behavior had so throughly cor rupted the case that the only remedy was to toss out the suit.

Dan Petrocelli, an attorney representing Dis ney, says the ruling prohibits Slesinger from sim ply starting over in court. He calls the claims that Disney cheated Slesinger on Pooh royalties "ex pansive and, in our view, erroneous,"

. Pati Slesinger, Mr. Slesinger's daughter and the company's sole shareholder, says the judge's ruling is a "temporary" setback, adding that the company plans to appeal. "It saddens me because it kind of sends a message that it's OK.to dishonor your contractual commitments and just throw a lot of money and lawyers at a situation if you're a big company," she says.

Pooh wasn't yet a merchandising juggernaut when Mr. Slesinger bought the rights to sell Pooh inspired products in the U.S. Mr. Slesinger died·more than 50 years ago; but his 83-year-old widow, Shirley Lasswell, is the company's president. She·struck the first deal with Disney in the 1960s.

At some points in the case, it looked like Dis

Plea,se Turn to Page B7, Column 5 ·

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