How Kirkland's Top Guns Shot Down Expose

Chiquita had known for months that the Enquirer was working on a major story, and had designated Kirkland & Ellis hotshot Thomas Yannucci and his partner, James Basile, to act as liaisons between the company and the newspaper. Repeatedly, in a six-month series of letters, Yannucci had been warning the Enquirer's lawyers - Cincinnati's Graydon, Head & Ritchey - that the Enquirer's lead reporter on the Chiquita story, Michael Gallagher, appeared biased, and that the sources to whom Gallagher kept attributing information seemed suspect. Then, when the stories were published, Yannucci says, Chiquita was convinced that Gallagher had been out to get the company from the beginning. And the voicemails, general counsel Olson and the Kirkland lawyers realized, might be just the way to prove it. The Chiquita camp suspected that Gallagher himself, with help from Chiquita insiders, had tapped into the company's voicemail system and taped the messages.

Proving it, they theorized, would make their defamation case a certainty. Malice, in libel cases, is defined as knowingly printing false and defamatory material or as showing a reckless disregard for the truth. Secretly taping the voicemails, and then printing them without warning, Yannucci and Basile believed, showed not only a general malicious intent, it also satisfied both legal elements of malice under libel law. The reporter, they assert, never told Chiquita he had voicemails, did not ask Chiquita for context that would have explained some of the apparently damaging messages he printed, and printed messages that he knew were taken out of context.

"If the reporter is stealing, that goes right to the heart of whether there is malice and bias," insists Yannucci. "This is a guy who was a thief. Thieves don't treat people fairly. He was stealing from us because he wanted to write a big story." Gallagher's lawyer, Patrick Hanley of Covington, Kentucky, says his client is no thief. "The definition of theft is when you take something from someone and deprive him of it," he says. "What you have here is not theft, but allegations of improper access." Hanley declines to comment on those allegations. As for the truth of Gallagher's Chiquita stories, says Hanley, "time will tell."

Nevertheless, the Enquirer's late June surrender to Chiquita was unconditional: Without Chiquita ever filing a complaint against the newspaper, the Enquirer retracted the stories, printed a three-day, front-page, banner-headline apology to Chiquita, and paid Chiquita more than $10 million. It's impossible to say for sure why the Enquirer and its parent, Gannett Co., Inc., caved in so quickly and so unequivocally, particularly considering that not all of the stories depended on the allegedly purloined voicemails, and that some of them - at least according to a July 17 analysis in The New York Times - have the ring of truth. No officials or outside counsel for Gannett or the Enquirer would comment.

But to Olson and the Kirkland team the answer is simple. They say the alleged theft of the voicemails just made it easier to prove to Gannett and the Enquirer what the Kirkland team had been arguing in their prepublication letters warning the Enquirer about Gallagher. There were no novel theories in the presentations they made in settlement discussions; Yannucci and Basile say they regarded this as an old-fashioned libel suit, just with an extra-persuasive proof of malice.

"This was not Food Lion," asserts Yannucci, referring to the supermarket chain's fraud case against ABC's PrimeTime Live, which resulted in a jury verdict of $5.6 million in 1997. "This was a defamation case."

"Would We Cooperate?"

Yannucci, 48, is as smooth and polished as a river rock, successful enough that he has become the head of Kirkland's Washington office and a member of the Chicago-based firm's executive committee. He is a civil litigator who has established a niche in advising corporate clients with media problems, beginning five years ago when Yannucci and Basile led the investigation and drafted the complaint that resulted in Dateline NBC's admission that it had rigged the explosion of a General Motors pickup truck. Since then, Yannucci, assisted by a trio of younger Kirkland partners, has advised about 50 clients concerned about media coverage. He was involved, for instance, in persuading 60 Minutes that his client, Brown & Williamson Tobacco Corporation, could claim that the show's producers had induced whistle-blower Jeffrey Wigand to breach a confidentiality agreement in 1995. He counseled the Boston Celtics after The Wall Street Journal published a report on the death of Celtics star Reggie Lewis. Yannucci has dealt with journalists from virtually every television newsmagazine and most major newspapers.

In about half the matters he's handled, clients have come to him before pieces about them were published or broadcast - a situation that he says he prefers, since his goal is to head off, or at least minimize, bad news. Yannucci helps clients decide how much cooperation to give reporters; acts as a liaison between client and journalists and sits in on interviews; and drafts or reviews written responses to questions. In situations in which he's gotten involved after stories came out, Yannucci says, he tries to get corrections, retractions, or apologies without resorting to libel suits. He has a reputation for being extremely aggressive and very intense, but he is considered effective because he has a good sense of what it takes to change minds.

Last summer, when Chiquita - a longtime Kirkland & Ellis client - heard that Enquirer reporters Gallagher and Cameron McWhirter were traveling around Central America asking questions about Chiquita's operations there, general counsel Olson asked Yannucci and Basile, who were already involved in another Chiquita matter, to intervene. The company was wary; Yannucci and Olson say that Chiquita felt that its hometown newspaper had in the past written unfairly critical stories about the banana company and its majority shareholder, Cincinnati business titan Carl Lindner. Moreover, Chiquita knew, from the money the newspaper was obviously spending, that the Enquirer wasn't working on a routine story. "We had to make a threshold decision:  Would we cooperate?" says Yannucci.  Ultimately, the Kirkland lawyers advised Chiquita to talk with the newspaper. "That way we could make sure [Chiquita's] side of the story was represented in the articles," Yannucci says.

In the early fall the two sides negotiated a protocol for handling the Enquirer's questions to Chiquita: Gallagher would relay his questions to Yannucci and Basile, who would forward them to the appropriate sources within Chiquita. Answers would be routed back through the lawyers. Yannucci and Basile's first and only meeting with Gallagher took place on October 6 in a conference room at the Enquirer's offices in downtown Cincinnati. The meeting had been requested by the Enquirer, and was attended by a phalanx of Enquirer representatives: executive editor Lawrence Beaupre; metro editor David Wells; reporters Gallagher and McWhirter; and Graydon, Head lawyers John Flanagan and John Greiner. Only Yannucci and Basile attended for Chiquita. "We didn't want any ambush interviews," says Yannucci. "This was the agreement: We would gather the facts to answer their questions, and we would ask questions about their questions." At the request of Gallagher and Flanagan, both sides tape-recorded the session, which sprawled over several hours on two successive days.

Most of the questions came from Gallagher and McWhirter, say Yannuccci and Basile, although the Enquirer's outside counsel weighed in occasionally. "If I would say there was bias in the questions, [Flanagan] would say [that we should] address legal questions to him," says Yannucci. "It made it this deposition-like setting."

Gallagher made a vivid impression at the meeting, Yannucci adds: "He said he didn't need any man, including any lawyer, to tell him what to do to do his job right. That told me [Gallagher] would be hard for them to supervise." After the October meeting, the Kirkland lawyers heard from the reporter about once a month, they say, when he would contact them with additional questions. Following the protocol they'd established, they would pass the questions on to Chiquita officials, who would compile answers and supporting documents. Then Kirkland would forward the information - it eventually filled several binders - to the reporter, along with cover letters to the Enquirer's lawyers at Graydon, Head.

Occasionally, over the next six months, the cover letters would include warnings to the Enquirer counsel. On November 12, for instance, Yannucci warned Graydon, Head that some information that Gallagher claimed had been provided by his sources was so inaccurate that it cast doubt on the credibility of the sources. And in a long letter dated December 23, Yannucci informed Flanagan again that the Enquirer's purported sources continued to provide wildly inaccurate information. He also told the newspaper's lawyer that Chiquita was suspicious of Gallagher's methods. Chiquita would take action, he warned, if Gallagher was improperly inducing sources to give the Enquirer information. More warning letters from Yannucci to Flanagan (with copies sent to a libel lawyer at Gannett) followed in January, February, and April. Says Yannucci: "We wanted to try to correct problems before the stories ran. As a highest goal, we wanted to show that the reporter had bias and they shouldn't do the story. A second goal was that they should carefully review what he was doing."

Beyond boilerplate assurances that the reporter was doing nothing wrong, say Yannucci and Basile, the Enquirer's law firm did not respond to the substance of Kirkland's charges. Graydon, Head partner John Flanagan declines all comment on the case. His partner John Greiner declines to comment on the firm's responses to Kirkland's letters. Graydon, Head, it turns out, has been the Enquirer's libel counsel only since 1996, when it replaced longtime outside counsel Richard Creighton, Jr., of Keating, Muething & Klekamp - the firm that had represented the Enquirer since Carl Lindner owned the paper in the 1970s. (Gannett bought the Enquirer in 1979.) Creighton, whose firm remains closely allied with Lindner, says he was dismissed without explanation in March 1996 by executive editor Beaupre. Flanagan, the Graydon, Head partner who became the Enquirer's lead outside counsel, is married to longtime Enquirer executive Martha Flanagan, the newspaper's assistant to the publisher. But Enquirer publisher Harry Whipple says that Martha Flanagan had nothing to do with the selection of her husband's firm, a decision that Whipple says was made by executive editor Beaupre after Beaupre interviewed several Cincinnati firms.

Graydon, Head was not well known in Cincinnati for its First Amendment work. Before it got the Enquirer as a client, says Graydon, Head partner Greiner, the firm's media experience consisted of its representation of a local public television station and a holding company that owns and operates several radio stations. The firm was apparently unimpressed by Yannucci's bullying letters. "They decided it was brinkmanship and didn't respond," he says.

An Investigation Begins

By May 3, when the Enquirer published its stunning Chiquita stories, general counsel Olson had already launched an investigation into problems with his company's voicemail. Though Chiquita hadn't yet traced the intrusion to specific telephone numbers, Olson and the Kirkland lawyers believed that Gallagher himself had done the taping.

What Chiquita ultimately wanted was an apology and a complete retraction, but it would take several weeks to complete the trace of the voicemail tampering. In the meantime, as Chiquita's investigation into its voicemail break-in continued, general counsel Olson sent a three-paragraph statement to the Enquirer complaining of inaccuracies in the articles. The paper printed the statement on Monday. That day Olson sent out another statement, focusing on the theft of the voicemails. The Enquirer printed Olson's second statement alongside a publisher's note signed by Harry Whipple that noted that the paper's source had been a Chiquita executive with authority over the voicemail system. Olson responded with a statement pointing out that there was no such executive and, when the newspaper didn't print the statement, re-sent it over Chiquita president Steven Warshaw's signature. Neither the paper nor its lawyers responded.

The results of Chiquita's investigation changed all that. "There is no question," says Yannucci, "that Gallagher is culpable." (He and Olson, citing the criminal investigation, won't say exactly what their evidence is; there have been reports that Chiquita pinpointed calls coming from phone booths near Gallagher's office and home.) "The pattern from outside calls assured us that Gallagher was making the calls," Yannucci says. On May 15 Yannucci wrote a letter to Graydon, Head's Flanagan, informing him that Chiquita had evidence that someone from the Enquirer had broken into Chiquita's voicemail system.

"Shortly after," Yannucci continues, "I had a series of conversations with Flanagan. He would say, 'Maybe we ought to sit down.' They didn't have the phone records yet, and he offered some excuses, like, 'Maybe the reporters called over to get reactions.' But we were talking about maybe 50 calls in the ten days before the stories ran. It just wasn't credible."

How much did the Graydon, Head lawyers know? The Enquirer has publicly insisted that everyone was deceived by reporter Gallagher, who, in Whipple and Beaupre's published words, gave "assurances to his editors prior to publication that he obtained his information in an ethical and lawful manner."  But The Wall Street Journal, in a July 17 story, reported that back in October 1997, apparently soon after the incursions into the Chiquita voicemail system had begun, Gallagher told editor Beaupre that he had tapped into the system to verify the authenticity of messages he was getting from a source. Beaupre, the Journal reported, reprimanded Gallagher and reported the incident to the newspaper's outside counsel.

Yannucci asserts that anyone who listens to the tapes can tell they're not made by a highly placed source: "You can hear Gallagher speaking on them!" says Yannucci, who listened to tapes held by the Enquirer's lawyers after the settlement. "You can hear a young child in the background on a regular basis, and Gallagher has a young child. I don't think anyone pressed Gallagher about the tapes [before the stories came out]."

In any event, there was no celebrating at Chiquita when investigators turned up the evidence that pointed toward the reporter, only grim satisfaction. "I thought it was clearly an untenable position for Gannett," Yannucci says. "We thought they would not try to argue around it or justify it."

Yannucci's instincts were correct: On June 17 representatives from the Enquirer and Gannett, as well as outside counsel for each (Gannett is represented by Robert Bernius of the Washington, D.C., office of Nixon, Hargrave, Devans & Doyle), came to Chiquita's offices for a meeting with Yannucci, Basile, Olson, and Chiquita president Warshaw. The Chiquita lawyers showed off some charts they had made, with titles like "An Example of How the Enquirer Stole - And Then Published - Voicemail Messages from Chiquita's Voicemail System," and "Anatomy of an Unlawful Invasion of Chiquita's Voicemail System," which diagramed how, on April 29, an outsider phoned in to Chiquita's system, hopped into four different mailboxes (including general counsel Olson's), and listened to 19 messages before hanging up almost 12 minutes later.

But as befits their insistence that they viewed the case as a classic defamation suit, the Kirkland lawyers say that they also called attention at the meeting to what they considered to be the inaccuracies in the stories. It's just that the other camp listened to their arguments about bias and unfairness more closely than they probably would have if there had been no evidence of voicemail tampering. "It completely changed the complexion of the case," concedes Olson.

In several sessions in the week after the June 17 meeting, the two sides negotiated the details of their settlement. For three days beginning on June 28, the Enquirer ran an apology to Chiquita that both the Kirkland lawyes and Enquirer brass had a hand in drafting:  "The Enquirer has now become convinced that the above representations, accusations, and conclusions are untrue and created a false and misleading impression of Chiquita's business practices," the apology says. "The facts now indicate that an Enquirer employee was involved in the theft of this information in violation of the law."

The apology has not ended the matter. A special prosecutor is investigating the voicemail theft as is, reportedly, the Hamilton County sheriff's office and the FBI. According to The New York Times, the SEC - which a source supplied with some of the Chiquita voicemail tapes - is looking into Chiquita's business practices. On July 2 Chiquita filed suit against Gallagher in federal court in Cincinnati, accusing him of defamation, conspiracy, fraud, and nine other counts. Depositions have begun in that case. Chiquita's lawyers say that the company doesn't want money from Gallagher, who was fired from the Enquirer, but instead wants the tapes back and wants to know who Gallagher gave copies to.

Yannucci, meanwhile, believes that in the end the Enquirer settlement shows that there is a need for "self-policing" by the media. He says that the Enquirer settlement sets no new standard, but simply acknowledges that reporters cannot steal information. "The people at the top of the chain never attempted to defend the conduct or the bias of the stories once they looked at them," Yannucci says. "It's too bad it came to that."  

This article is reprinted with permission from the September, 1998 issue of The American Lawyer, 1998
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