Government prosecutors may be investigating 21st Century Fox for quietly settling sexual harassment claims against former Fox News chief Roger Ailes without reporting it to the media giant's shareholders.
On Wednesday, during a hearing regarding former Fox News personality Andrea Tantaros' lawsuit against network executives before New York Supreme Court Judge David Benjamin Cohen, an attorney for Tantaros said he'd been served with a subpoena by federal prosecutors investigating sexual harassment allegations directed at Ailes. Tantaros, who once served as a co-host of the afternoon show The Five, alleges in her lawsuit that Fox News "operated like a sex-fueled, Playboy Mansion-like cult."
Tantaros' attorney Judd Burstein said he received the subpoena from federal investigators at the Department of Justice's New York Southern District, which is run by Preet Bharara, who with much fanfare was asked by President Donald Trump to stay on as a U.S. Attorney after aggressively prosecuting top government officials in New York as well as Wall Street veterans for insider trading.
The subpoena, he said, arrived two days ago. It apparently requests testimony from his client before a grand jury. (Burstein didn't identify the client. Burstein previously represented Ailes' former right-hand man, Brian Lewis, who, before coming to a settlement of his own, raised the specter of explosive revelations.)
"Once I saw that it was the securities prosecutors I understood immediately what was going on here, which is that what Fox has done is enter into agreement, after agreement, after agreement, with victims of sexual harassment, not reported them in any of their SEC filings," Burstein said.
Burstein appears to believe that the issue is related to the way Fox has been structuring settlements and keeping recipients as employees to avoid reporting obligations under securities law.
An attorney for Fox News, Andrew J. Levander, told the judge that his client hasn't received a subpoena and characterized Burstein's impromptu comments in open court as "beyond the pale." A later statement from a Fox News spokesperson (see below) acknowledged, however, that the company has been "in communication with the U.S. Attorney's office for months."
Burstein's shocking revelation came in the middle of a hearing to determine whether Tantaros had to arbitrate her claims. Ultimately, Fox News won a motion that sends her case to secretive proceedings before an arbitrator. But Burstein may have something else up his sleeve.
Tantaros alleges in her lawsuit that she was subjected to demeaning comments about her body from Ailes, given a "graveyard" on-air time slot when she rebuffed advances and also experienced sexual harassment from Fox News host Bill O'Reilly. The bulk of her complaint centers around allegations of retaliation. She has named as co-defendants Ailes' replacement Bill Shine, executive vp legal affairs Dianne Brandi, executive vp corporate communications Irena Briganti and executive vp programming and development Suzanne Scott on the basis that they allegedly condoned Ailes' actions through conduct and helped engineer unflattering stories about her in the media.
Fox News has painted Tantaros as an "opportunist," someone coming forward in the wake of the huge publicity generated by Gretchen Carlson's since-settled lawsuit, whose real motivation is to "get her picture in the paper yet again and hawk some copies of her book."
The legal issue that the parties came to discuss was an arbitration provision in Tantaros' employment agreement. Fox News was already engaged in arbitration with her over a book that the cable network asserts needed its authorization, and wanted to enforce the arbitration provision to cover her pending claims.
Burstein brought the argument that unexpected tortious behavior like "harassment" or "retaliation" can't be foreseen by parties and thus can't be a part of an agreement to arbitrate. He also asserted that Fox can't compel arbitration because it already breached the arbitration provision's confidentiality obligations by leaking information about his client.
At the hearing, Judge Cohen questioned Levander, "How does the conduct [alleged] fall within the scope of the employment?"
Fox News' attorney responded that all the acts occurred within the premises of the employment.
Cohen also asked Lavender to respond to the argument that Fox News waived arbitration by not adhering to confidentiality.
Lavender said that nothing said out of court was prejudicial, and that "if we violated the contract, it goes to the arbitrator to decide."
Burstein had to contend with public policy strongly in favor of arbitration. He said, "This case is different," talking about the contract at hand and how his client allegedly didn't agree to arbitrate a dispute about workplace harassment. He also stressed the arbitration provision's confidentiality clause and Fox News' alleged breach by revealing that an arbitration had been happening. He called it a "first impression" issue, but the judge attacked him for possibly breaching confidentiality himself and mooting the point.
"Who is in breach?" Cohen asked, later ruling that the agreement contained a valid arbitration provision and deeming Burstein to have first breached it.
The subpoena issue arose when Burstein suggested he should have an opportunity to amend the Tantaros complaint. Burstein says he's representing another client connected with what's happened at Fox News and the subpoena gave him cause to try a racketeering claim. Burstein also asserted he wanted to bring claims over Fox News allegedly surveilling Tantaros electronically and interfering with new employment.
The judge denied Burstein's request to amend the complaint, but did so without prejudice. That's likely because Burstein hadn't briefed the issue prior to Wednesday's hearing. He may attempt to ask for leave to amend again, or assert claims on behalf of his other client.
In the meantime, Fox News gets the win, but if there's a government investigation at hand, the company may have bigger problems.
The company's spokesperson has released the following statement: "The court granted Fox News' motion to send Andrea Tantaros' case to arbitration, where it always belonged, and rejected her counsel Judd Burstein's histrionics. Apparently one of Mr. Burstein's other clients has received a subpoena. Neither Fox News nor 21CF has received a subpoena, but we have been in communication with the U.S. Attorney's office for months - we have and will continue to cooperate on all inquiries with any interested authorities."