Disney Loses Appeal On "Massive, Crippling" Damages

by Joe Shea

The decision, which could not be obtained by presstime but was reported in a front page story in today's editions of Daily Variety by legal reporter Janet Shprintz, leaves untouched a set of severe August 2001 sanctions, including jury instructions which Disney attorney Daniel J. Petrocelli described as "massive and crippling."

The sanctions could force the studio to pay damages of as much as $1 billion, Variety said, for non-payment of royalties under a 1983 contract on "new" media including videocassettes, DVDs and computer software using the image and likeness of the studio's best-selling version of the bear.

The trial judge has already found Disney liable for $200 million in back royalties on items it does not dispute it must pay for, but recently ruled that his decision should be reviewed by forensic accountants.

When the evidence and monetary sanctions were first handed down by the trial judge on Aug. 23, 2001, an attorney for the Slesinger firm, Bonnie Eskenazi, told The American Reporter, "This decision is devastating for Disney." Variety seemed of the same opinion Thursday morning. "Winnie Ruling Wallops Disney," its page one headline read, adding, "Jurors told Mouse willfully suppressed eveidence".

Disney destroyed boxes of evidence -- including one that was marked "Winnie the Pooh legal problems" -- that might have proved the case of plaintiffs Stephen Slesinger Inc., the trial judge said.

With the latest ruling, Disney now must listen as the jury at a trial scheduled for March 2003 is instructed that a senior executive who signed the 1983 contract, the late Vince Jefferds, promised the Tampa, Fla.-based licensing firm that it would be paid for videocassettes and other "future" uses of Pooh. Pooh DVDs were the top seller for the studio in 2001. Disney can only argue that Jefferds did not have the authority to make the promise, the trial judge ruled.

The appellate judges, who heard the case just last Friday, seemed peeved at Petrocelli, according to reports from people in the courtroom, when he argued that only a handful of documents had been destroyed. An attorney for Slesinger, Hollywood superlawyer Bert Fields, responded by reading a long list of the documents from a master index of those destroyed.

When Petrocelli seemed to plead with the judges for special consideration because of the importance and image of Disney and asked that he be permitted to brief the judges further, they rose, declined aloud to do so, and left the appellate chamber. Witnesses present at the appeal said they could not remember when an argument had failed quite so grandly.

"An extraordinarily capable and highly respected panel of the California Court of Appeal has done the right thing, and the demonstrably correct decisions of the trial judge will apply at the trial of this case," Fields told Daily Variety, "contrary to Disney's attempts to get out from under the sancions that were awarded against them for destruction of documents and what the trial judge found were false and misleading statements."

Judge Hiroshige found that Disney willfully suppressed evidence in the case and then waited almost 11 months to inform the court that documents under subpoena had been destroyed after it was issued. The judge also issued $90,000 in legal sanctions which the Slesinger firm waived as a tactical maneuver. Disney had tried to combine the appealable monetary sanctions with non-appealable evidence sanctions in its plea, but when the money was waived the jury instructions could not be appealed before trial, the justices ruled Wednesday.

In a statement to Variety, an unidentified Disney spokesman -- probably John Sprelich, who has been handling the matter lately -- said, "It is unfortunate that the rules did not permit the Court of Appeal to get to the underlying issue, but we're gratified the court saw that questions remain as to the correctness of the trial court's sanctions, and Disney will continue to challenge vigorously those sanctions."

As reported in the American Reporter, the studio has apparently persuaded the granddaughters of Pooh creators A.A. Milne and Ernest Shepard to agree to sign over to them the Slesinger firm's rights to Pooh, and has asked the U.S. District Court in Los Angeles for a ruling on whether or not it has achieved its goal of taking the rights away from the Slesinger firm.

Copyright expert Roger Zissu, however, pointed out that the law under which Disney acted, the 1998 Sony Bono Copyright Term Extension Act, specifically instructs heirs who terminate any rights under the Copyright Act that they may negotiate regarding those rights only with the party that was terminated for a two-year period from the time notice of termination is served. Zissu also pointed out that almost all the rights the Slesinger firm holds, such as trademark, contract and derivative rights -- are ones excluded from termination by the Bono law.

Court observers expect another setback for Disney in that matter shortly.