WALT DISNEY'S ANSWER TO JEFF KATZENBERG'S BREECH OF CONTRACT COMPLAINT
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
CASE NO. BC 147 864
THE WALT DISNEY COMPANY
DEFENDANT THE WALT DISNEY COMPANY'S ANSWER TO COMPLAINT
and DOES 1 through 20,
Defendant the Walt Disney Company ("Disney"), for itself and for no
other defendant, hereby responds to the complaint filed by Plaintiff Jeffrey
Katzenberg ("Katzenberg") and admits, denies and alleges as follows:
1. In 1984, Jeffrey Katzenberg commenced employment at Disney pursuant
to a written employment agreement in which, among other things, Disney
agreed to pay Katzenberg an annual bonus based upon motion picture and
television product produced during his employment. As of 1988, however,
Katzenberg had not yet earned any such bonus given the performance of the
product produced. Nonetheless, during those years, Disney paid Katzenberg
millions of dollars in discretionary bonuses.
2. In 1988, Katzenberg and Disney began to negotiate a new employment
agreement, including a substantial increase in Katzenberg's stock options
and salary. Although Disney wanted the new employment agreement to cover
a fixed term through September 1996, Katzenberg insisted upon an option
to terminate his employment two years earlier. Disney agreed to that request
with two provisos: (1) Disney had to have the same option; and (2) if Katzenberg's
employment ended in 1994, rather than in 1996, he would not receive, as
he otherwise would have, any bonus based on the future performance of motion
pictures and television programs produced during his employment. Accordingly,
the 1988 contract specifically provides that if Katzenberg elects to leave
Disney's employ in 1994, as he did, he would be entitled only to whatever
bonus he may have earned through 1994. He would not receive any bonus based
upon income from the FUTURE performance of Disney films and television
3. In August 1993, having been expressly reminded of the consequences
of his decision, Katzenberg nonetheless notified Disney of his intention
to end his employment in September 1994. In accordance with that election,
Katzenberg left Disney's employ in September, foregoing any bonus based
on the future performance of Disney motion pictures and television programs
produced during his employment, in favor of what Katzenberg contemplated
would be even more profitable and prestigious entrepreneurial opportunities.
At the time of his departure, Disney paid Katzenberg the full amount of
bonus compensation due to him and accelerated and paid him substantial
deferred bonuses that would not have been payable for several years.
4. Having made the choice to leave Disney in 1994, knowing the consequences,
Katzenberg is simply not entitled to the enormous sums of money he now
ANSWER TO FIRST CAUSE OF ACTION
5. Referring to paragraph 1, Disney denies the allegations thereof,
except Disney admits that (a) Plaintiff has been a motion picture and television
executive and a resident of Los Angeles County; (b) Disney is a Delaware
corporation; and (c) Disney affiliates and subsidiaries do business in
Los Angeles County and elsewhere as producers and distributors of motion
pictures and television programs, as owners and operators of theme parks
and as proprietors of other businesses.
6. Referring to paragraph 2, Disney denies the allegations thereof for
lack of sufficient information or belief.
7. Referring to paragraph 3, Disney denies the allegations thereof,
except admits that in or about October 1984, Disney and Katzenberg entered
into a written employment agreement (the "1984 contract") pursuant to which,
among other things, Katzenberg was given the title of Chairman of the Walt
Disney Studios. Disney further and affirmatively alleges that the 1984
Contract is the best evidence of its contents.
8. Referring to paragraph 4, Disney denies the allegations thereof,
except admits that prior to the expiration of the 1984 Contract, Disney
and Katzenberg executed a new written employment agreement dated as of
October 1, 1988 (the "1988 Contract"), which provides for an employment
term ending on September 30, 1994. Disney further and affirmatively alleges
that the 1988 Contract is the best evidence of its contents, and specifically
provides, unlike the 1984 Contract, for an automatic two- year extension
of its term (until September 30, 1996) unless either Katzenberg or Disney
elected not to extend the term (the"Opt-Out Provision").
9. Referring to Paragraph 5, Disney denies the allegations thereof,
and further and affirmatively alleges that the 1984 and the 1988 Contracts
are the best evidence of their respective contents. Disney admits that
the 1988 Contract contains provisions respecting the potential payment
to Katzenberg of an "Incentive Bonus," but denies that the "Incentive Bonus"
provided for in the 1988 Contract (the "1988 Bonus") is like the "Incentive
Bonus" contained in the 1984 Contract (the "1984 Bonus") and alleges that
the 1984 Bonus and the 1988 Bonus provisions are, in respects determinative
of this action, materially different from one another. Most critically
(and conspicuously omitted from Katzenberg's Complaint), the 1988 Contract
(at Para. 9 thereof) contains express provisions that limit Disney's obligations
with respect to the 1988 Bonus if Katzenberg elects, as he did, to cut
short by two years the term of his employment under the 1988 Contract.
In particular, the 1988 Contract, by its present terms, limits Disney's
obligation under such circumstances to the payment of the 1988 Bonus based
only upon income earned during the years PRIOR to the expiration of Katzenberg's
employment (i.e., September 30, 1994). Disney further and affirmatively
alleges that when Katzenberg elected to terminate his employment in 1994,
he was fully aware of these contract provisions and accepted the consequences.
10. Referring to paragraph 6, Disney alleges that the allegations thereof
constitute evidentiary matter which is neither relevant nor material to
the issues or claims set forth in the Complaint and that no response to
such allegations is therefore necessary as a matter of law. If any response
is necessary, Disney denies the allegations of Paragraph 6.
11. Referring to paragraph 7, Disney denies the allegations thereof
and, in particular, denies that the interpretation of the 1984 Bonus and
the 1988 Bonus alleged therein is correct or was of the essence of either
the 1984 Contract or the 1988 Contract. Disney further and affirmatively
alleges that the 1988 Contract is the best evidence of its contents.
12. Referring to paragraph 8, Disney denies the allegations thereof
except admits that Disney's fiscal year runs from October 1 to September
13. Referring to Paragraph 9, Disney alleges that the allegations thereof
constitute evidentiary which is neither relevant nor material to the issues
or claims set forth in the Complaint and that no response to such allegations
is therefore necessary as a matter of law. If any response is necessary,
Disney alleges that its filings with the Securities and Exchange Commission
for the years 1984 through 1994 are accurate. Except as so expressly alleged,
Disney denies the remaining allegations of paragraph 9.
14. Referring to paragraph 10, Disney alleges that the 9188 contract
is the best evidence of its contents. Disney admits that Katzenberg had
the right to give notice that the 1988 Agreement would expire on September
30, 1994 and would not automatically be extended for an additional two
years. Disney further admits and alleges that on or about August 31, 1993,
Katzenberg provided Disney with such notice and, as a result, Katzenberg's
employment expired on September 30, 1994. Except as so expressly admitted
and alleged, Disney denies the remaining allegations of Paragraph 10.
15. Referring to paragraph 1.1, Disney admits, without prejudice, and
based upon its present information and belief, that Katzenberg has discharged
his duties under the 1988 Contract and alleges that Disney, exceeding its
contractual obligations, has more than fully compensated Katzenberg for
the performance of such duties in cash, stock and other consideration.
Disney further admits that the 1988 Contract continues to impose certain
obligations on Katzenberg notwithstanding its expiration. Except as so
expressly admitted and alleged, Disney denies the remaining allegations
of paragraph 11.
16. Referring to paragraph 12, Disney denies the allegations thereof.
17. Referring to paragraph 13, Disney alleges that any dispute between
the parties as to the determination of the present value of the estimated
future "Adjusted Operating Income" from "Eligible Product" (should that
issue ever become relevant) must be arbitrated as expressly agreed by the
parties in the 1988 Contract. Except as so expressly alleged, Disney denies
the remaining allegations of paragraph 13 and specifically denies that
Katzenberg has sustained any damage as a direct or proximate result of
any alleged act or omission by Disney.
ANSWER TO SECOND CAUSE OF ACTION
18. Referring to paragraph 14, Disney incorporates by reference the
admissions, denials and allegations of paragraphs 1 through 17, inclusive,
of this answer.
19. Referring to paragraph 15, Disney alleges that the 1984 Contract
and the 1988 Contract are the best evidence of their respective contents.
Except as so expressly alleged, Disney denies the remaining allegations
of paragraph 15.
20. Referring to paragraph 16, Disney denies the allegations thereof.
FIRST AFFIRMATIVE DEFENSE (Failure to State a Cause of Action)
21. The Complaint, and each purported cause of action alleged therein,
fails to state facts sufficient to constitute a cause of action against
Disney. SECOND AFFIRMATIVE DEFENSE (Contractual Arbitration - Lack of Jurisdiction)
22. Pursuant to the 1988 Contract, any dispute as to the present value
of the estimated future "Adjusted Operating Income" from "Eligible Product"
is subject to mandatory arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association as modified by the 1988 Contract.
Accordingly, this Court lacks jurisdiction over any such dispute and all
factual or legal issues incidental thereto.
THIRD AFFIRMATIVE DEFENSE (In the Alternative)
23. In the alternative, should the Court determine that, at the time
of contracting, Katzenberg and Disney did not share a common intent with
respect to the effect of Katzenberg's exercise of the Opt-Out Provision
on the 1988 Bonus, then there was no mutual assent ("meeting of the minds")
on that issue, and Disney has no obligation to Katzenberg as to any disputed
portion of the 1988 Bonus.
WHEREFORE, Disney prays for judgment as follows:
1. That Katzenberg take nothing by his Complaint and that the same be
dismissed with prejudice:
2. that Katzenberg's improper prayer for attorney's fees pursuant to
the inapplicable Code of Civil Procedure Section 128.5 be stricken and
3. For Disney's costs of suit incurred herein; and
4. For such other, further or different relief as the Court may deem
just and proper.
LOUIS M. MEISINGER,
ERIC A. BARRON
TROOP MEISINGER STEUBER & PASICH, LLP
10940 Wilshire Boulevard, Suite 800
Los Angeles, California 90024-3902
Telephone (310) 824-7000
By: Louis M. Meisinger
Attorneys for Defendant THE WALT DISNEY COMPANY