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Jeff Katzenberg's 4/96 Breach Of Employment Contract Complaint Against The Walt Disney Co.

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SUPERIOR COURT FOR THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES

CASE NO. BC147864

JEFFREY KATZENBERG,
Plaintiff,

vs.

THE WALT DISNEY COMPANY and DOES 1 through 20,
Defendants.

COMPLAINT FOR BREACH OF CONTRACT

Plaintiff alleges as follows:

FIRST CAUSE OF ACTION
(Breach of contract as to Post-Termination Payments -- Against All Defendants)

1. Plaintiff is a motion picture and television executive and resident of Los Angeles County. Defendant The Walt Disney Company ("Disney") is a Delaware corporation doing business in Los Angeles County and throughout the world as a motion picture and television production and distribution company, a theme park owner and operator and the proprietor of other businesses.

2. The true names or capacities, whether individual, corporate, associate or otherwise, of the defendants named herein as Does 1 through 20 are unknown to plaintiff, who therefore sues said defendants by such fictitious names, and plaintiff will amend this complaint to show their true names and capacities when the same have been ascertained.

3. In or about October, 1984, Katzenberg entered into the employ of Disney as Chairman of The Walt Disney Studios, a division of Disney, pursuant to a six-year contract (the "1984 Contract"). By the terms of the 1984 Contract, Katzenberg was given the responsibility to supervise and direct worldwide production, maketing and distribution of all Disney's live action and animated motion pictures and television programs ("Product"). A key element of Katzenberg's compensation under the 1984 Contract was an Incentive Bonus provision designed to compensate him to the extent he was able to achieve success in managing the Disney operations that were placed under his direction. The Incentive Bonus provision provided for payment to Katzenberg by Disney of 2% of the gross receipts less cost as defined by the contract ("Profits") derived by Disney from all Product as defined by the contract put into production or acquired for distribution during the term of his employment ("1984 Eligible Product"). As provided by the 1984 Contract, payment of the 2% Incentive Bonus with respect to Profits earned from the exploitation by Disney of 1984 Eligible product subsequent to expiration of the term of employment would continue to be paid to Katzenberg pursuant to procedures provided for in the 1984 Contract.

4. In 1988, prior to expiration of the term of the 1984 Contract, Disney solicited Katzenberg to enter into a new long-term written employment contract and Disney and Katzenberg thereafter entered into such a written employment contract subscribed by Disney and Katzenberg as of October 1, 1988 (the "1988 Contract"). The term of the 1988 Contract was six years, expiring September 30, 1994, subject to renewal, on the assent of both parties, for an additional two years, expiring September 30, 1996. The 1988 Contract provided for Katzenberg to continue to be employed as Chairman of The Walt Disney Studios and to continue the broad responsibilities he had been performing under the 1984 Contract.

5. Once again, a key element of Katzenberg's compensation under the 1988 Contract was an Incentive Bonus provision providing for payment to Katzenberg by Disney of 2% of Disney's Profits from Product put into production or acquired for distribution during Katzenberg's employment under either the 1988 Contract or the 1984 Contract ("Eligible Product"). Once again, the 1988 contract provided for payment of such 2% Incentive Bonus subsequent to the end of the term of the contract with respect to Profits earned by Disney after the term of the contract derived from Product that had been put into production or acquired for distribution during Katzenberg's employment going back to October of 1984.

6. In the entertainment industry, revenues from live action and animated feature films and television programming often lag by many years, even decades, after the efforts and expenditures that are incurred to produce such products. For example, because of the lengthy time period that can elapse between commencement of production of an animated film, such as those for which Disney is note, and distribution of the film, the first revenues from the film may not be received until years after production commences. Notable films can continue to generate large revenues for decades thereafter, either by way of theatrical re-release or in other media such as the sale of videotapes. By way of example, in 1994, Disney's video re-release of "Snow White," an animated feature first released over fifty years earlier, generated gross revenues of some $800 million and profits of over $500 million. Likewise, successful television shows can realize large syndication revenues years or even decade after production commenced.

7. For this reason, continued payment of the 2% Incentive Bonus with respect to Profits realized by Disney after the end of the term of Katzenberg's employment from the exploitation of Product put into production or acquired as a result of his efforts during the term of his employment ("Post-Termination Payments") was of the essence of the agreements between Katzenberg and Disney.

8. The 1988 contract provided for such Post-Termination Payments to be made in the following manner:

(a) For each of the two fiscal years occurring subsequent to termination of Katzenberg's employment, Disney was required to pay the Incentive Bonus calculated as 2% of Profits from Eligible Product earned in that fiscal year. 1.2 % of such Profits was to be paid within three months after the end of the fiscal year and the remaining .8% was to be paid (with interest) in 16 quarterly installments thereafter commencing within six months after the end of the fiscal year. Disney's fiscal years run from October 1 to September 30. The 1988 Contract employment term expired on September 30, 1994 unless extended to September 30, 1996.

(b) With respect to all years thereafter--i.e., the decades during which Disney would continue to earn Profits from Eligible Product put into production or acquired during Katzenberg's employment--an estimate of future profits from eligible Product was to be established on the second anniversary of the termination of the 1988 Contract. Disney was then required promptly to pay to Katzenberg in a lump-sum the net present value of 2% of that estimated future amount.

9. Katzenberg's tenure as head of The Walt Disney Studios--Disney's Filmed Entertainment Division--was one of unparalleled success. For fiscal 1984--the year prior to Katzenberg's assuming his responsibilities--Disney's Filmed Entertainment Division generated gross revenues of only $244.5 million and had an operating income of only $2.2 million. For fiscal 1994, the final year o9f Katzenberg's tenure as head of the division, gross revenues were some $4.8 billion, with operating income of over $850 million. Throughout his tenure, both gross revenues and operating income increased, without exception, each year. Moreover, the profit levels achieved by Katzenberg as head of the Filmed Entertainment Division became the driving force for Disney's overall growth in profitability. While, historically, revenue and profits of the Theme Park division had dwarfed those of the Filmed Entertainment division, by the end of Katzenberg's tenure both gross revenues and operating income of the Filmed Entertainment division far outstripped those of the Theme Parks. The following chart, the numbers of which are derived from Disney's filings with the Securities and Exchange Commission, shows the comparative results of Filmed Entertainment and Theme Parks for the ten fiscal years--1985-1994--that Katzenberg headed Filmed Entertainment.

DISNEY REVENUE AND INCOME: 1985-1994 (in millions)

Theme Parks..........Revenue............Operating Income

1985.................1,257.5............255.7
1986.................1,523.9............403.7
1987.................1,834.2............548.9
1988.................2,042.0............564.4
1989.................2,595.4............785.4
1990.................3,019.6............889.3
1991.................2,794.3............546.6
1992.................3,306.9............644.0
1993.................3,440.7............746.9
1994.................3,463.6............684.1

Filmed Entertainment

1985...................320.0............33.7
1986...................511.7............51.6
1987...................875.6............130.6
1988.................1,149.2............186.3
1989.................1,587.6............255.5
1990.................2,250.3............313.0
1991.................2,593.7............318.1
1992.................3,115.2............508.3
1993.................3,673.4............622.2
1994.................4.793.3............856.1

10. Pursuant to the terms of the 1988 Contract, Katzenberg was entitled to give one year's advance notice, in September 1993, that the 1988 Contract would expire as scheduled on September 30, 1994 and would not be renewed until September 30, 1996. In September 1993, Katzenberg gave Disney such notice. On September 30, 1994, the term of the 1988 Contract expired and Katzenberg's employment by Disney ended.

11. Katzenberg has done all things that have been required to be done by him under the 1988 Contract and he is in no manner or respect in breach thereof. At the time of Disney's acts of breach and repudiation hereinafter set forth, the 1988 Contract, but for Disney's breach, continued to impose obligations of performance upon Katzenberg.

12. Disney has committed the following acts of breach and repudiation of the 1988 Contract: Disney has repeatedly claimed that it has no obligation to make _any_ Post-Termination Payments to Katzenberg, thereby repudiating its said obligation. Thereafter, despite repeated demand by and on behalf of Katzenberg, Disney for over a year has refused to acknowledge its contractual obligation to make such Post- Termination Payments. Additionally, the first of Disney's fiscal years occurring subsequent to termination of Katzenberg's employment ended on September 30, 1995; Disney has failed and refused within three months of that date to make any Post-Termination Payment to Katzenberg for such fiscal year or to furnish any calculation to Katzenberg of the amount of any Post-Termination Payment for such fiscal year.

13. As a direct and proximate result of Disney's breach and repudiation of the 1988 Contract, Katzenberg has suffered and will suffer substantial monetary damage in a sum not presently susceptible to precise calculation. The Profits expected to be received by Disney with respect to those Products put into production or acquired for distribution during the term of Katzenberg's employment have a net present value believed to be well in excess of $12.5 billion. Katzenberg is informed and believes and, on that ground, alleges that he has suffered monetary damages in a sum which will exceed $250 million. As a result of Disney's bad faith conduct, Katzenberg has incurred and will incur substantial attorneys' fees.

SECOND CAUSE OF ACTION (Breach of Contract as to Pre-Termination Payments -- Against All Defendants)

14. Plaintiff incorporates by reference paragraphs 1 through 13 hereinabove as though fully set forth herein.

15. Both the 1984 Contract and the 1988 Contract required Disney to provide Katzenberg with supporting documentation and information enabling him to verify the accuracy of Disney's calculations or estimations of sums payable to him with respect to his Incentive Bonus.

16. Despite a reasonable request by Katzenberg for the supporting documentation and information enabling him to verify the accuracy of Disney's calculations or estimations in respect of his Incentive Bonus payable to him prior to termination, Disney has refused to provide any such documentation and information.

WHEREFORE, plaintiff prays judgment as follows:

1. For damages in the sum of $250 million or such greater sum as shall be found to have been caused by Disney's breach and repudiation;

2. For prejudgment interest at the highest lawful rate;

3. For plaintiff's attorneys' fees in this action pursuant to Code of Civil Procedure Section 128.5;

4. For an order requiring defendants to produce supporting documentation and information necessary to verify the accuracy of any calculations or estimations of plaintiff's Incentive Bonus; and

5. For costs of suit and such other relief as the court shall deem proper.

DATED: April 9, 1996

By /S/ BERTRAM FIELDS

BERTRAM FIELDS, CHARLES N. SHEPHARD, KEVIN L. JAMES
GREENBERG, GLUSKER, FIELDS, CLAMAN & MACHTINGER
1900 Avenue of the Stars, Suite 2200
Los Angeles, California 90067-4590
(310) 553-3610

HERBERT M. WACHTELL, THEODORE N. MIRVIS, EDWARD A. STELZER
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10171 (212) 403-1000

Attorneys for Plaintiff
Jeffrey Katzenberg

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