Disney Shareholders Sue Over Pooh16 Aug, 2002 By: Holly J. Wagner
Walt Disney Co. shareholders have sued the company and CEO Michael Eisner and CFO Thomas Staggs, alleging they withheld information about potential financial exposure in a lawsuit over royalties from Winnie-the-Pooh.
Although a Disney spokesman said the suit is groundless, attorney Lionel Glancy will seek class status for shareholders in the lawsuit filed in U.S. District Court in Los Angeles.
The complaint contends Disney “did not disclose the Pooh litigation or the magnitude of its potential claims against the company.”
Disney disclosed the 11-year-old lawsuit in a filing with the Securities and Exchange Commission (SEC) May 15. A corporate spokeswoman said at the time that the company didn't believe it was important to disclose the long-running case to shareholders until a trial date was set.
“As various media sources reported this news, Disney stock price fell, declining 28 percent in the two months after the [SEC] filing,” the complaint alleges.
”Throughout the entire 11-year history of a case which might cost the company hundreds of millions of dollars in damages or the rights to an industry worth $6 billion a year, Disney never disclosed to its stockholders the existence of the Slesinger action.”
Published reports have estimated that Winnie-the-Pooh products and licenses generate as much as 25 percent of Disney's bottom line each year.
The result of not disclosing the Slesinger suit, the shareholder action contends, “operated as a fraud and deceit upon the purchasers and/or acquirers of the company's stock in an effort to maintain artificially high market prices for Disney stock.&quo;&quo;The lawsuit has no merit and we will defend ourselves vigorously,” said John Spelich, VP of Corporate Communications at The Walt Disney Co. “We are confident in the final outcome.”
Disney attorney Daniel Petrocelli has downplayed the plaintiffs' claims in the underlying case, saying the Pooh home video royalties are covered under filmed entertainment rights Disney owns. But the plaintiffs in that case – heirs of literary agent Stephen Slesinger, who bought the North American merchandising rights from A.A. Milne in 1930 – contend Disney has underpaid what it owes for merchandise and that home video is part of the license they own. Their attorney, Bonnie Eskenazi, has said her clients are owed hundreds of millions of dollars.