Josephine Abady, the former Cleveland Playhouse director who served as artistic director of the now-defunct Circle in the Square in NY from 1994 to 1996, has filed a $2.65 million lawsuit against two of the company's board members, Ted Sayres and Marc Chaiken.

As first reported in the Daily News, the suit claims breach of contract, wrongful termination, damage to Abady's professional reputation and financial losses -- including deferred salary, bonuses of approximately $75,000 and a personal loan of $79,900 made to the theatre by Abady.

Abady, who had been given a five-and-a-half year contract when she took over the reins of Circle in the Square in 1994, was told in the summer of 1996 (while she was directing a play in London) that Gregory Mosher would take over the management of the theatre and that the theatre had cancelled the four-play season Abady had planned for 1996-97.

Mosher was able to mount only one production at Circle in the Square, Pam Gems' Stanley, a Royal National Theatre import starring Antony Sher (reprising his Olivier-winning role) as the troubled painter Sir Stanley Spencer. The drama, a critical but not financial success, ran from Feb.-April 1997. The theatre closed its doors shortly thereafter.

Lawyers for the case have declined to comment at this time. -- By Rebecca Paller