The New York Observer reports this morning that CBS may be facing the nightmare it hoped most to avoid. Three of the four people pushed out the door as a result of the fraudulent TexANG documents used by CBS in an attempt to smear George Bush and tilt the presidential election have not only not resigned from the news division, but at least one of them has threatened a lawsuit, complete with subpoenas and full discovery. The prospect clearly has CBS rattled and stuck in limbo while they try desperately to negotiate the trio's exits:

Five weeks later, the crisis is not yet behind Mr. Moonves. And far from resolving the problem of the network’s credibility, the independent report commissioned by CBS appears instead to be leading to a confrontation, with defenders of both the ousted CBS staffers involved in the debacle and top CBS management asserting two different truths from the same document.

Mr. Howard and two other ousted CBS staffers—his top deputy, Mary Murphy, and CBS News senior vice president Betsy West—haven’t resigned. And sources close to Mr. Howard said that before any resignation comes, the 23-year CBS News veteran is demanding that the network retract Mr. Moonves’ remarks, correct its official story line and ultimately clear his name.

Mr. Howard, those sources said, has hired a lawyer to develop a breach-of-contract suit against the network. Ms. Murphy and Ms. West have likewise hired litigators, according to associates of theirs, and all three remain CBS employees and collect weekly salaries from the company that asked them to tender their resignations.

Normally, disputes like these reach resolution with the liberal application of cash, and undoubtedly CBS and its parent, Viacom, has plenty of it to toss at Howard, Murphy, and West. Unfortunately for CBS, Howard has more concern with his reputation than with cash for his long-term prospects, and CBS has done its best to knee-cap him for future jobs in the news business. Howard wants to make clear that he tried stopping the runaway train of Rather's mouth and Mapes' insistence of authenticity in the hours following the criticism of the memos -- something the CBS report also confirms -- and he hints that the responsibility for its continued momentum lies much higher up the food chain:

But Mr. Howard’s complaint about Mr. Moonves’ remarks could pose a serious problem for CBS. Sources close to Mr. Howard said he believes that the report—which was assembled by an outside team of former Attorney General Richard Thornburgh and former Associated Press head Louis Boccardi Jr.—contradicts Mr. Moonves’ statement about Mr. Howard’s share of the blame.

Mr. Howard also believes, those sources said, that the report itself excludes evidence that would implicate top management at CBS and restore Mr. Howard’s reputation in the television news business. ...

According to Mr. Goldberg, if a chief executive made public statements about employees that cannot be supported by facts—i.e., by the narrative of the Thornburgh report or, worse, other unreported material—it could open the company up to trouble.

"They were very foolish to go public with an attack on these people, because they lose their immunity to be sued for defamation," Mr. Goldberg said. "Whereas if they had put these very same things in court paper, they could not be sued."

Martin Garbus, a First Amendment lawyer, said that Mr. Moonves’ statement may well give Mr. Howard grounds for a defamation suit. "He has a claim," said Mr. Garbus.

And of course, this is the nightmare CBS wanted to avoid. The article talks about defamation of character and libel, but only in the context of Howard, Murphy, and West. That isn't the legal problem that keeps Moonves up at night. If a lawsuit brings out any knowledge that CBS executives above the operational level knew that the documents were unauthenticated and ran them anyway, CBS opens itself to all kinds of libel suits, from General Buck Stoudt to the family of Col. Jerry Killian and several others. Even George W. Bush might be able to clear the public-figure threshold, and his father almost certainly could, given the public animosity shown him by Dan Rather and CBS.

More than the follow-on lawsuits, however, would be the embarassment of exposure for top CBS brass of their so-called "independent" report. Most of us thought that the Thornburgh-Boccardi report mostly whitewashed the entire affair, through a lack of reaching conclusions on the core issue: the forgeries of the memos, and the reasons why obviously fraudulent memos got air time on the network. The probe used odd methodology for a supposedly independent investigation, such as holding court just a few doors away from Moonves' office, not recording testimony, and taking a criminal-law threshold for reaching conclusions.

All of that seems designed for a specific purpose -- not to find the truth, but to cover the wide expanse of CBS News' ass.

Time may soon run out for CBS News to reach its resolution with the tarnished trio. As Joe Hagan notes, Dan Rather steps down from his anchor desk on March 9th, with plenty of fanfare planned for his retirement. If CBS wants Rather to promote the televised hoopla of his departure, they will want all loose ends tied up so that Rather doesn't face an inquisition by his fellow reporters instead of softball questions about his battles with Nixon. Right now, it appears that Rather may need to hide out instead.

Oddly, I find myself pulling for Howard. I think he intended on inflicting a smear on Bush and hoped to tilt the election, for both professional and political glory. However, I also think that people higher up the food chain at CBS participated in that decision, and the only way we will ever find that out is if a court subpoenas all of the records regarding the 60 Minutes Wednesday TexANG segment. Only then will we get a truly independent look at the decisions that led to the use of forgeries by one of the most elite news organizations in the world.

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» Josh Howard, Betsy West, and Mary Murphy v. CBS News from Myopic Zeal
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