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Business Week Vs. The Judge


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BUSINESS WEEK VS. THE JUDGE

Bloody gloves and shoe prints it wasn't. But as First Amendment cases go, this proved pretty taut courtroom drama:

"Mr. Holley, what is your home telephone number?"

"254-8159."

"Mr. Holley, did you receive a call at your home on the afternoon of Sept. 13 from someone at BUSINESS WEEK?"

In a Cincinnati federal court on Sept. 27, some thought they saw Steven L. Holley blanch under the cross-examination. It surely was an unlikely moment: A star antitrust litigator, Holley had made partner in 1991, at age 33, at Sullivan & Cromwell, a top-drawer Wall Street law firm. Now, he was in trouble. Having already admitted to providing BUSINESS WEEK with a copy of sealed court documents from a case involving his firm's client, Bankers Trust Co., Holley was about to be confronted with phone records contradicting his assertion that he didn't learn the papers were confidential until more than a week later.

Holley's seemingly damning testimony had New York's legal crowd buzzing. Yet ultimately, it barely affected the outcome of a three-week constitutional battle pitting BUSINESS WEEK against Bankers Trust, Procter & Gamble Co., and U.S. District Court Judge John Feikens, who on Sept. 13 had enjoined the magazine from printing a story based on the documents Holley provided.

On Oct. 3, Feikens granted a motion by P&G to add civil racketeering charges to its derivatives-related claim against Bankers Trust, unsealing the much-discussed documents to all parties, including BUSINESS WEEK. At the same time, though, ruling that the magazine had acted "unlawfully," the judge made permanent his injunction against the magazine's use of the original set of documents. "I cannot permit BUSINESS WEEK to snub its nose at court orders," he wrote. "The integrity of a court and the entire judicial system requires that its orders be acknowledged and obeyed."

Feikens' decision sent a mixed, controversial message. "This is a judge who apparently thinks he's splitting the baby," said Kenneth M. Vittor, general counsel of BUSINESS WEEK's parent, The McGraw-Hill Companies. BUSINESS WEEK, after all, was allowed to print its story; the injunction did not prevent the magazine from obtaining a new copy of the now-public papers. "This is a victory in that we are now able to publish the story," says Stephen B. Shepard, editor-in-chief.

Yet Feikens left unresolved the essential First Amendment question: Does freedom of the press supercede other concerns, notably preserving the sanctity of the court? The Supreme Court has ruled consistently that it does, specifically in a 1978 decision allowing Landmark Communications Inc. to publish information about a confidential investigation of a Judicial Review Commission in Virginia. Feikens' injunction is "absolutely at odds with 100 years of American law," says attorney Floyd Abrams, because it collides head-on with the prior-restraint doctrine, barring the government from blocking publication in almost all circumstances.

Ironically, the testimony in Feikens' courtroom, along with reams of supporting notes, internal electronic-mail messages, and other documents, dealt little with the First Amendment question. Rather, the judge simply wanted to establish how the sealed documents had escaped his court in the first place. A clear answer emerged. Yet conflicting testimony--often setting the magazine's journalists against their own sources--left some unsettling loose ends.

CONTRADICTIONS. The tale: On Aug. 31, according to his own notes, BUSINESS WEEK Cleveland Bureau Manager Zachary Schiller took a call from Gregory Rossiter, a supervisor of corporate communications at P&G. Rossiter told Schiller that P&G would be making a filing in its Bankers Trust case, likely the next day. "He was telling me, `You should get this because if you're doing some sort of story, you're going to want to include this,"' Schiller recalls. In his testimony, Rossiter denied that this conversation took place, even when presented with Schiller's copious notes of the exchange.

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" I cannot permit BUSINESS WEEK to snub its nose at court orders....The integrity of a court...requires that its orders be obeyed."

--JOHN FEIKENS, U.S. District Court Judge

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In fact, P&G did file the motion on Sept. 1 to amend its claim. Some 300 pages of supporting documents were sealed under an earlier protective order. That order, however, was unnoted anywhere in the public, three-page motion obtained on Sept. 6 from the U.S. District Court clerk's office by Joseph Levy, a freelance journalist working for BUSINESS WEEK. Schiller says he did not learn the papers had been sealed until the next day; Rossiter testified he told Schiller on Sept. 6 that the papers were confidential--again contradicting Schiller's notes.

On Sept. 6, Schiller told the magazine's legal affairs editor, Linda Himelstein, about the Racketeer-Influenced & Corrupt Organizations Act (RICO) filing--and indicated, before knowing about the protective order, that he had been unable to locate the supporting documents. Himelstein agreed to try to find the papers independently. The two say they did not talk again until Sept. 13.

In the meantime, Himelstein placed a call to Holley. The two had talked regularly for two years: Holley had aggressively courted the media on behalf of the rock band Pearl Jam, which filed an antitrust complaint against Ticketmaster Corp., the giant ticket agency Himelstein profiled in June. He also had represented Microsoft Corp. in its antitrust battles.

NO WARNING. Holley returned Himelstein's call on Sept. 12 and agreed to locate a copy for her of P&G's RICO motion. According to his testimony, Holley got the papers from Richard C. Pepperman II, an associate assigned to the Bankers Trust case. Pepperman, Holley testified, did not ask why Holley wanted the papers, nor did he mention the protective order. Pepperman declined to be interviewed, referring BUSINESS WEEK to Ricardo A. Mestres Jr., Sullivan & Cromwell's chairman. Mestres did not return calls.

Himelstein received the documents via messenger at 5 p.m. that day. After skimming the contents, she and Kelley Holland, BUSINESS WEEK's money and banking editor, began a story on P&G's RICO charges. Only the next morning, both reporters say, did they find on the filing's fourth page the statement: "Filed under seal pursuant to protective order."

That afternoon, Himelstein called Holley's residence to alert him to her discovery. McGraw-Hill phone records indicate that a call from her phone to his lasted nearly two minutes. Himelstein says that when Holley learned of the protective order, he exclaimed, "Oh, shit!," then asked that the story not be run. When Himelstein said it would be published, she testified, Holley asked that his role be kept secret. She agreed.

In court on Sept. 27, Holley denied this conversation ever took place, even after being confronted with the McGraw-Hill computerized phone records. He testified that on Sept. 13 he left New York to visit his parents in Muskegon, Mich., where he read only The Muskegon Chronicle; he heard nothing about the BUSINESS WEEK injunction, he told the court, until Sept. 21. In fact, the Chronicle published a brief account of the BUSINESS WEEK case on Sept. 15.

If Holley knew that the protective order had been breached but failed to inform the court, both he and Sullivan & Cromwell, as parties to the dispute via their client, Bankers Trust, would have violated the terms of the order, although neither has been charged.

Bankers Trust and Procter & Gamble learned of the prospective story on Sept. 13 and asked Feikens for an injunction that would bar BUSINESS WEEK from publishing the piece. The order arrived without prior warning--violating federal rules governing civil procedure--on Vittor's fax machine at 6 p.m. After failing to contact Feikens, McGraw-Hill's local counsel in Cincinnati reached Danny J. Boggs, a judge of the Sixth Circuit Court of Appeals. But Boggs declined to act on the injunction. Shepard and Vittor decided to hold the story. "We followed the same strategy as The New York Times did in the Pentagon Papers case--obey the injunction, then fight it immediately in court," Shepard says.

STRONGER SHIELD. McGraw-Hill pursued a formal appeal to the Sixth Circuit, which on Sept. 19 decided on procedural grounds not to act, and then to Justice John Paul Stevens of the Supreme Court. In legal circles, that strategy was controversial. Vittor argues that, faced with an apparently permanent order that could not be legally or factually sustained,

McGraw-Hill was obliged to appeal immediately. Even so, the company should have given Feikens "a chance to correct his mistake," says Burt Neuborne, a professor of law at New York University and former legal director of the American Civil Liberties Union. Indeed, in refusing to stay the injunction on Sept. 21, Stevens reprimanded McGraw-Hill for not seeking remedy with Feikens first.

BUSINESS WEEK landed back in the courtroom of Feikens, who, noting that the magazine had "doggedly avoided such a proceeding," seemed annoyed that he had been bypassed. At the Sept. 21 hearing, Himelstein was called on to identify her source; on 10 occasions during cross-examination, she invoked the First Amendment and state shield laws to protect her confidential relationship with Holley. The judge did, however, compel her to place the source in New York State.

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"This is a victory in that we are now able to publish the story "

-- STEPHEN SHEPARD,

BUSINESS WEEK Editor-In-Chief

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That concession allowed Himelstein to claim confidentiality under New York State shield laws, which, unlike Ohio statutes, protect magazine, as well as newspaper, journalists. Later that day, apparently guided by a record in the firm's messenger log, a Sullivan & Cromwell partner asked Holley whether he was the source of the document. Holley admitted he was.

Holley remains at Sullivan & Cromwell. But his breach has produced unexpected ripple effects. In cross-examination by McGraw-Hill's outside counsel to establish the confidential nature of his relationship with Himelstein, which he denied, Holley was read Himelstein's detailed notes indicating that, in the midst of Microsoft's battle with Justice Dept. antitrust chief Anne K. Bingaman, he said that, "Everyone on [Bingaman's] professional staff thinks that she's out of her mind." Holley apologized to Bingaman in a letter Oct. 2, calling his remarks "inappropriate." Bingaman wrote back the next day: "Apology accepted!"

Ultimately, Feikens didn't buy BUSINESS WEEK's testimony. Accusing the magazine of "duplicity," he ruled that Schiller's knowledge of the protective order could be imputed to BUSINESS WEEK as an organization. Thus, he said, Himelstein's acquisition of documents the magazine knew to be confidential constituted an illegal act--justifying, Feikens said, his prior restraint of publication.

From a First Amendment perspective, it was a troubling conclusion, as was Justice Stevens' contention that "the manner in which BUSINESS WEEK came into possession of the information it seeks to publish may have a bearing on its right to do so." If the magazine's Oct. 3 appeal is heard, "I'm very dubious that the legality of the method of acquiring the information will end up being a factor in the development of prior restraint doctrine," says Lee C. Bollinger, a constitutional scholar and provost at Dartmouth College. More to the point, says BUSINESS WEEK's Shepard, "We're free to ask for things, and they're free to say no."

How the dispute is resolved may well prove precedent-setting. If the courts refuse to hear an appeal, or if they decide that maintaining confidentiality of discovery materials justifies prior restraint, they would retreat dramatically from precedent. It's an unlikely outcome--but for many journalists, even the possibility is unsettling.

(Sealed) Paper Trail

How Business Week became tangled in litigation between Procter & Gamble and Bankers Trust

AUGUST 31

Business Week Cleveland Bureau Chief Zachary Schiller learns that P&G will amend its case against Bankers Trust with a new filing. (In testimony, Schiller said this information comes from P&G spokesman Gregory Rossiter; Rossiter denied this.)

SEPTEMBER 1

P&G moves to add racketeering charges to its complaint. On Sept. 6, at Schiller's behest, freelance journalist Joseph Levy unearths P&G's motion in U.S. District Court in Cincinnati.

SEPTEMBER 7

Schiller confirms that at least portions of P&G's amended claim are under court seal.

SEPTEMBER 12

Legal Affairs Editor Linda Himelstein obtains the documents from Steven Holley, a partner at Sullivan & Cromwell, Bankers Trust's outside counsel. At the time, neither Himelstein nor Holley know the documents are sealed.

SEPTEMBER 13

Bankers Trust and P&G learn Business Week has obtained the sealed papers and ask District Court Judge John Feikens to enjoin publication of the resulting story. Feikens issues the order at 6 p.m. without giving the magazine prior warning; Business Week holds the story.

SEPTEMBER 19

The appeals court for the Sixth Circuit refuses a Business Week request to lift the restraining order.

SEPTEMBER 21

Supreme Court Justice John Paul Stevens refuses to stay the order, returning the case to district court. Before Feikens, Himelstein declines to identify Holley as her source. Later, confronted by partners, Holley admits to his action.

SEPTEMBER 27

Holley tells the court he breached the protective order but denies knowing before Sept. 21 that the papers had been sealed.

OCTOBER 3

Feikens allows the amended claim, making the documents public. But he makes permanent the injunction against Business Week. The magazine appeals.By Keith H. Hammonds in New York, with Catherine Yang in Washington


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