`MIDGET' BEATS DISNEY; JUDGE SAYS STUDIO MUST PAY KATZENBERG BONUS, INTEREST.

Byline: Peter Hartlaub Daily News Staff Writer

Once scorned in testimony as ``the little midget,'' Jeffrey Katzenberg won a measure of revenge Wednesday against Walt Disney Co. head Michael Eisner when a court referee said Disney breached its fiduciary duty and owes him interest worth millions of dollars.

The decision by retired Judge Paul Breckenridge does not specify how much Katzenberg will receive, but the former studio chief claims he is owed more than $250 million from a profits-based bonus of 2 percent.

The exact amount will be decided in the trial's next phase, set to begin June 1.

``We are just thrilled with the decision,'' said Katzenberg lawyer Bonnie Eskenazi, declining to elaborate until the end of the trial.

Disney's lawyers referred comment to a company spokesman who did not return phone calls late Wednesday afternoon.

The company that Mickey Mouse built was victorious in at least one regard. Breckenridge dismissed Katzenberg's fraud claim against the company, calling it irrelevant.

In a seven-page ruling, however, Breckenridge said Disney failed in its fiduciary duty to treat Katzenberg fairly in business matters, and the judge ordered the company to pay interest on the yet-to-be-determined bonus.

Because of past relationships with Eisner and former Disney President Frank Wells, Katzenberg ``to some extent reposed trust and confidence in Disney,'' Breckenridge wrote, and he said the studio was required to account to him.

The judge found Disney owed Katzenberg the bonus on or about Oct. 1, 1994, but broke its contract by not paying. No decision was made about when the interest would start to accrue.

Breckenridge also ruled that the studio owes Katzenberg a share of profits for merchandise it sells in its theme parks, retail stores and other ``self-sourced'' outlets.

The judge said other issues will be determined later in the trial, including an added payout to account for inflation and whether Katzenberg will get a share of revenues from the upcoming ``Toy Story 2.''

While there was little emotion in his writing, Breckenridge for the most part backed Katzenberg in the ruling, coming to what he called the inescapable conclusion that the former studio chief was entitled to his bonus.

The dry wording contrasted with what at times was emotional, dramatic testimony from two of the most powerful men in Hollywood.

Katzenberg said during the trial that he brought the studio ``from worst to first'' during his reign from 1984 to 1994, cranking out hits like ``The Lion King'' and ``Sister Act.''

He sued in 1996 after Disney declined to pay his 2 percent bonus on the profits of those hits, claiming he forfeited the bonus when he quit two years before the end of his contract.

In a 1997 settlement, Disney agreed to pay Katzenberg an undisclosed sum, but several issues remained unresolved and the court referee was called in to determine the final payout.

On the witness stand earlier this month, Eisner said Katzenberg had his moments of poor performance, too, and stuck to his assertion that he forfeited the bonus when he left early.

The ruling did not mention the soured relationship, as evidenced in testimony from Eisner and Katzenberg.

Questioned by Katzenberg's lawyer Bert Fields, Eisner admitted he may have said ``I think I hate the little midget'' to a writer who was taking notes for his autobiography.

Katzenberg, who is at least a half-foot shorter than Eisner, went on to form DreamWorks SKG with partners Steven Spielberg and David Geffen.

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Photo: (color) Katzenberg