Sincerely yours, Robert Todd Lang
In addition to depending on Weil, Gotshal & Manges to investigate David Begelman's crimes, Columbia Pictures Industries looked to the firm to outline and analyze the corporation's legal options for resolving the
Begelman
problem. Thus, while Peter Gruenberger and his team were poring over canceled checks at The Burbank Studios, other lawyers in New York, under the direction of Todd Lang, were preparing memoranda to aid the deliberations of the board of directors. Was the company legally required to fire Begelman? To sue him? To prosecute him? Could it reinstate him to his position in the company? If so, under what circumstances? What were the corporation's and the individual directors' potential liabilities under the various courses of action open to them? How much information had to be disclosed to the Securities and Exchange Commission and to the public?
In two confident
ial memoranda—a forty-eight-page
document laden with legal citations and an eleven-page tract that was less formal and more candid and pointed—Weil, Gotshal & Manges told the Columbia board that its actions in the
Begelman
matter were governed by the so-called "business-judgment rule"—a principle that has evolved in American corporate law and jurisprudence over many years. Under the rule, a corporate board of directors has considerable freedom in deciding any issue before it as long as the decision represents the board's genuine "business judgment" of what is best for the corporation. Courts ordinarily will not challenge such a judgment unless the board's ability to make the judgment is somehow impaired, or the judgment is tainted by bad faith, breach of trust or fraud, or the judgment can be shown to be "grossly unsound." To the extent that a judgment is flawed in any of these ways, the directors who made the judgment risk suits by shareholders, law-enforcement actions, and other assertions of legal liability.
The threshold decision of whether to sue or prosecute David
Begelman
was within the ambit of the business-judgment rule, Weil. Gotshal said, and since
Begelman
was in the process of repaying the money he had stolen from Columbia, the company was not legally obligated to sue or prosecute him. (Left unstated was the company's obvious right to sue or prosecute if it chose to do so.)
Beyond that, in the lawyers' opinion. Columbia had three options, each of which could be deemed a legitimate exercise of business judgment under certain conditions. The company could terminate
Begelman
's employment unequivocally. It could terminate his employment and retain him instead a
s an independent film producer,
without an employer-employee relationship. Or it could reinstate him as head of the studio. (The lawyers based their analysis on the assumption that Begelman would not be reinstated as a director or officer of the parent corporation under any circumstances.)
Since reinstating
Begelman
in his studio post obviously would raise the most questions about the company's business judgment, the lawyers devoted most of their analysis to that issue. Reinstatement was within Columbia's rights, the lawyers advised, if the company decided that Begelman was "in large measure" responsible for its success and that losing him therefore would harm the company. If it reinstated him, however, the company would have to take account of several potentially negative ramifications of that decision. It would be obliged to impose restraints on Begelman sufficient to prevent recurrence of his misdeeds—perhaps restricting his authority to sign checks and commit large sums of money. And in imposing such restrictions, it would be obliged to consider whether the restrictions would impair his ability to run the studio.
Apart from
Begelman
himself, the lawyers noted, certain negative effects on the company at large would be more likely if he were reinstated than if he were not reinstated. The SEC would be more likely to insist on public disclosure of the details of
Begelman
's embezzlements. The SEC also would be more likely to launch its own investigation of the company's handling of the
Begelman
affair, as well as a broader inquiry into Columbia's executive perquisites. An
d (he financial community, i.e.
Columbia's lenders and underwriters, would be more likely to react adversely, possibly impairing Columbia's ability to obtain financing and underwriting services.
Todd Lang disseminated the legal material on Monday afternoon. November 14.
Since legal advice is not rendered in a vacuum, but instead is often given to people under the severe pressure of difficult decisions, the advice can have unpredictable, unexpected, and unintended results. Clients sometimes expect more from lawyers than can reasonably be expected. Clients sometimes want lawyers to make decisions that the clients must make themselves. In Columbia Pictures' case, Todd Lang's memoranda had the effect of further inflaming the already highly contentious atmosphere.
By the middle of November, of course. Alan Hirschfield had discussed the
Begelman
case with Todd Lang many times in many se
ttings—their homes in Scarsdale,
their automobiles, their offices.
Lang, in several unguarded moments, when he was speaking personally rather than as the corporation's lawyer, had made clear that he felt that it would be unwise to reinstate Begelman. Hirschfield, eager for support, had tended to blur the distinction between Todd Lang, the person, and Todd Lang, the lawyer, and had come to expect that Lang, at the appropriate time, would take a formal stance against Begelman in advising the board of directors. Hirschfield depended on Lang's advice as a last resort if Alan's own sway with Herbert Allen proved insufficient, and indeed Alan had already begun predicting to Herbert that Lang would advise against reinstating
Begelman
for legal reasons.
When Lang's formal advice finally was committed to writing and disseminated, therefore, Hirschfield was surprised and deeply disappointed that the memoranda contained no clear recommendation that
Begelman
be fired. And Herbert Allen was delighted to see that the reinstatement of
Begelman
was after all a genuine legal alternative. He accused Hirschfield of having misled him for weeks on the legal issues involved. The memoranda, of course, contained no recommendation of what the board ultimately should decide. That would have exceeded the appropriate role of the legal advice under the circumstances. Alan and Herbert, however, proceeded to seize upon those portions of the memoranda that tended to support their respective points of view. And in the process their opposed positions hardened.
Newsweek
appeared Monday with an elaborate and lavishly illustrated seven-page cover story on
Close Encounters of the Third Kind.
Proclaiming that the film would command a "historic place in movie entertainment,"
critic
Jack Kroll wrote that
"Close Encounters
is the friendliest,
warmest
science fiction epic you've ever seen. It brings the heavens down to earth. . . . Never has a movie produced such an overwhelming, ever-changing rhapsody of light." There were separate articles on director Steven Spielberg, special-effects wizard Douglas Trumbull, and astronomer J. Allen Hynck, a UFO expert and the movie's technical adviser.
It was the sort of send-off that picture people constantly pray for and rarely get.
Upset by the lawyers' memoranda and by the board's reaction to it, Alan
Hirschfield
also was angered to learn that the directors, without consulting him, had invited David
Begelman
to appear at the Wednesday board meeting and present his "side of the story." Begelman had had two days to answer the charges when Peter Gruenberger had interrogated him at the Beverly Hills Hotel the previous week. Inviting him to the board meeting, in
Hirschfield
's view, represented an effort by Herbert Allen and Matty Rosenhaus to inject emotion and sympathy for
Begelman
into a meeting that was supposed to be a dispassionate discussion of the investigators' report.
Hirschfield
stated his feelings to Allen and Rosenhaus late Tuesday afternoon. They were unmoved, but reassured
Hirschfield
that they would support whatever decision he made on the fate of
Begelman
.
"Have you made up your mind yet, Alan?" Herbert asked.
"No."
"If you had to decide right this minute, what would your decision be? I think we have a right to know." "I don't have to decide right this minute." "Just hypothetically." "I wouldn't take him back."
"Will you still feel that way tomorrow, or next week." "I don't know."
In this atmosphere of rancor, Hirschfield, Rosenhaus, and Allen parted and prepared for the events of the evening, the world premiere of
Close Encounters of the Third Kind,
the most i
mportant evening in the fifty-se
ven-year history of Columbia Pictures.
TWENTY-SIX
The jarring juxtaposition of pleasure and pain on Tuesday night reminded Alan Hirschfield of the dinner at the Waldorf in September when he had received public acclaim from Brandeis University and private bad news from Mickey Rudin. It was much worse this time, however.
Tuesday night was a night of wonder. It was a night when a new motion picture transfo
rmed a black-tie audience of see
n-it-all celebrities and tycoons into a gaggle of wide-eyed children. It was a night when Alan Hirschfield, standing before that audience, was honored for his work as a trustee of the esteemed Cancer Research Institute and witnessed the establishment of an institute scholarship in his name. It was a night when Alan
Hirschfield
, sitting in that audience watching the film, finally sensed with absolute certainty that the corporation which he had led from the brink of bankruptcy to respectable but still modest prosperity would shortly become very rich and take its place as a truly important purveyor of entertainment to the world.
Tuesday night also was a night of menace. It was a night when Alan Hirschfield received a signal that the smoldering dispute over David Begelman—a dispute over one man's misdeeds, a dispute that had grown so gradually from the chance discovery of a single forged check—was about to explode into something much more ominous and much more consuming than a dispute over one man. Though the full dimensions of the confrontation were not yet evident that evening, it appeared that the dispute was on the verge of degenerating into a bitter, ugly, personal clash of wills between Alan
Hirschfield
and the Allen family. The circumstances momentarily were baffling. But the signal could hardly have been more sinister: It seemed that the board of directors of Columbia Pictures Industries was about to launch a serious attack on Alan Hirschfield's personal integrity, and on the personal integrity of his wife, Berte.
Having made their way past television lights and popping flash bulbs, the gowns, furs, and tuxedos jamme
d the garish lobby of the Ziegfe
ld Theater on Fifty-fourth Street, one of the largest and technically best-equipped movie th
eaters in New York. Alan and Bert
e
Hirschfield
and other Columbia personages mixed with the crowd, appearing casual and relaxed but knowing that this was their biggest premiere. They had been through
Funny Lady, Shampoo, Taxi Driver,
and
The Deep
—big films all—but
Close Encounters
was the biggest and they were excited.
Just before 7:30. the scheduled starting time. Todd Lang sought out Hirschfield and took him aside. Lang had talked to Peter Gruenberger, who had gotten a phone call from Irwin Kramer, the Allen in-law who was chairman of the Columbia audit committee and was the board's overseer of ihe investigation of David
Begelman
. It seemed that the audit committee was going to broaden the investigation. In addition to investigating Begelman, it was
going to investigate Alan and Berte
Hirschfield. More precisely, it was going to investigate a possible conflict of
interest in the employment of Be
rte Hirschfield by a company that conducted market research for Columbia Pictures.
Alan was stunned. "That's absurd," he said to Lang. "We cleared that with the board two years ago. It was clean as a whistle. You said so yourself."
"I know," Lang replied, "but they're determined to bring it up again. They claim they never got to the bottom of it."
"This is blackmail," Hirschfield asserted. "This is nothing but a lever to get me to cave on
Begelman
. It's out-and-out blackmail!"
The conversation was interrupted. Hirschfield was due inside the theater where the festivities were about to begin. He quic
kly whispered Lang's news to Berte
, and then took his place in front of the auditorium for the ceremonies in which he was to be honored by the Cancer Research Institute.