Ovitz Is Sued by Another Former Top Exec of AMG

Onetime super-agent Michael Ovitz is being sued again by a former top executive.

Cathy Schulman, the former president of Ovitz’s film production division at now-defunct Artists Management Group, said in court papers that her former boss flew into a “rage” and fired her for telling auditors that she suspected Ovitz of “improperly allocating” film company funds.

The lawsuit, which seeks more than $4 million in damages for wrongful termination and breach of contract, also accuses Ovitz of denying her producing credits and fees.

The lawsuit filed Monday in Los Angeles County Superior Court comes nearly six months after Ovitz was sued by the former president of his television division. In that suit, Eric Tannenbaum is seeking $9.6 million, claiming breach of contract, fraud and defamation. Ovitz has since countersued Tannenbaum, accusing him of fiscal irresponsibility. Those cases are pending.

Once considered Hollywood’s most powerful agent, Ovitz was forced to sell Artists Management Group in May after the television business failed and investors, including Vivendi Universal’s StudioCanal, backed out. What followed was a stunning meltdown in which Ovitz claimed he was the victim of a well-orchestrated attack by Hollywood’s “gay mafia” and other enemies. Ovitz later apologized for the comment.

Schulman’s lawsuit names Ovitz, StudioCanal and Ovitz’s feature film unit, Artists Production Group. The lawsuit cites 11 causes of action, including wrongful termination, breach of contract, fraud and defamation.

Representatives of Ovitz and Vivendi declined to comment, saying they had not seen the lawsuit.

The lawsuit centers on an agreement between APG and StudioCanal under which StudioCanal paid $8 million a year to cover overhead and film project development costs. In return, StudioCanal would receive foreign distribution rights and share in the profit of films produced by the joint venture.

The joint venture began unraveling this year after a routine audit by Vivendi Universal raised questions about how more than $2 million was spent.

According to the complaint, Schulman was interviewed by a Vivendi Universal auditor Feb. 4 and disclosed that she and other APG employees were using StudioCanal funds “developing projects in which StudioCanal had no interest.” She also relayed suspicions to auditors that “APG was improperly allocating and billing these non-venture related time and expenditures to StudioCanal.”

Schulman’s attorney, Randy Sunshine, said that until Schulman’s firing there was no indication that she was performing inadequately.

“She answered questions truthfully as she was obligated to do, and for that she was fired,” he said.

Schulman, who joined Ovitz’s company shortly after its inception, was responsible for overseeing the development and production of feature films. Her contract was renewed for three years in January 2001, at which time she was given “up to a 10% equity interest” in the film company, $600,000 a year in salary and a promise of producing fees and credits on movies that the film unit developed and produced, the complaint states.

Less than a month before Schulman’s termination, the suit says, Ovitz “lauded APG’s progress in a nationally televised interview.” It was a reference to Ovitz’s interview on the Jan. 23 Charlie Rose show, during which Ovitz said, “The theatrical production business is going really, really well.”

The following day, though, Ovitz announced he had hired former Columbia Pictures chairman-turned producer Mark Canton as chairman and chief executive of APG, a move that vaulted him over Schulman, who had been running the division since 1998.

A week later, Schulman began negotiating her exit from her presidency post to become a producer at APG.

“We didn’t mention Mr. Canton in the complaint, but he obviously did enter the picture and may have relevant testimony to give,” Sunshine said.

Schulman stated in the complaint that she had become frustrated by Ovitz’s efforts to “prevent her from using funds” from StudioCanal to develop and produce movies and hire staff for the joint venture. She stated she also was “thwarted by Ovitz and the various financial managers within APG, who cited imaginary budgetary overages as the reason to deny Schulman’s requests.”

It is at that point, Schulman said, that she “began to suspect that the overhead moneys contributed by StudioCanal that were supposed to be used for venture-related projects were neither being used nor allocated in a proper manner,” the lawsuit claims.

She also alleges that Ovitz never invested the “millions of dollars annually” toward overhead and development that were “required” under the joint agreement.

When Ovitz learned that Schulman had told auditors she believed money was being used improperly, he immediately fired her and she was escorted out of the building on Feb. 14, according to the suit.

Schulman also is seeking credits on the more than 40 projects that she says she developed at APG. One of the more high-profile films is Michael Crichton’s “Timeline,” which is scheduled to be released by Paramount Pictures in May.

The complaint could be problematic for Paramount, because one of its most important films has been caught in litigation cross fire. It would not be unusual for attorneys to ask for an injunction on the release of the film. Sunshine declined to comment on whether he would pursue such a tactic.

Just as Tannenbaum did in his complaint, Schulman also alleges that Ovitz “lured” her and other executives to his company “under false representations of unlimited financial resources and promises of running and owning a significant share” of the company.

Schulman also alleges that her ex-boss is using her as a “scapegoat,” claiming, among other things, that she was “responsible for APG’s fraudulent financial reportings to StudioCanal.”