‘Symbolically Important’ Libel Case : Laxalt Suit--a Lasting Imprint on Politics, Law?

Before the case ends, one side hopes to show that President Reagan’s closest political ally, a powerful U.S. senator, has ties to organized crime.

The other side hopes to squelch nagging allegations about Nevada’s favorite son, Republican Sen. Paul Laxalt, clearing the record of a man who many believe may one day be a U.S. Supreme Court justice or even the Republican presidential candidate in 1988.

Laxalt’s $250-million libel suit against California’s influential McClatchy Newspapers chain--widely considered America’s most important active libel action--began gaining momentum this month in Reno after a year of procedural maneuvering.

Now that the case has entered the so-called discovery phase, the defense hopes to interview people linked to organized crime about their alleged ties to Laxalt, while the plaintiff hopes to show that the newspaper published a false story based on anonymous sources.

The outcome of this process could leave its imprint not only on American politics, but also on libel law itself.

Two months before last year’s presidential election, the CBS and ABC television networks canceled stories about Laxalt after the senator warned them he was filing the suit. Since then, McClatchy has filed a $6-million countersuit. The senator, McClatchy alleges, contrived his libel suit and used his powerful office merely to scare the press away from writing about him, especially during Reagan’s reelection campaign, which Laxalt chaired.

If successful, some press representatives say, McClatchy’s counterclaim tactic may be adopted by other press organizations seeking to discourage libel suits.

“However this case is resolved, it will tend to send out a symbolic message to potential litigants,” said Bruce W. Sanford, general counsel to the Society of Professional Journalists, Sigma Delta Chi. “It is the most symbolically important case pending at the moment.”

At issue is an article published in McClatchy’s Fresno, Modesto and Sacramento Bee newspapers Nov. 1, 1983, about Laxalt’s proprietorship of the Ormsby House Hotel Casino in Carson City, Nev., from 1972 to 1976.

The story, written by reporter Denny Walsh and filed in court as part of Laxalt’s suit, alleged that during those years Internal Revenue Service agents discovered a scheme at the casino in which perhaps $2 million in profits was skimmed from the gaming tables and hidden from the Internal Revenue Service.

Walsh’s article said it was not known whether Laxalt knew of the alleged scheme.

But, the story claimed, federal investigators believed the casino employees involved were tied to organized crime, as was one of Laxalt’s partners, the man who had hired those implicated.

Walsh also quoted an unnamed IRS agent as saying that he stopped the investigation because of political pressure from the Nixon White House.

According to the story, Laxalt, who had invested only a few hundred dollars of his own and had little collateral, also received loans to build the hotel from a Chicago bank after being introduced there by still another friend with alleged Mafia links.

The senator first asked for a retraction that would state that the McClatchy Newspapers never meant to imply that he or his family were involved in any alleged skimming operation.

McClatchy, however, stood by its story and declined the request, as well as two others for published retractions. Almost a year later, in September, 1984, Laxalt sued the Bee papers, charging that the story went beyond fair comment and “questioned” his “integrity.”

The lawsuit, Laxalt attorney Richard Davenport explained, takes issue first with any implication of Mafia-related financing at the Ormsby, and second, with any implication that the senator was involved in or knew about a skimming operation.

The most obvious issue at stake is political, the reputation of a man closely allied with the President and discussed as a successor to Reagan as leader of the Republican Party.

Laxalt, 64, met Reagan during Barry Goldwater’s 1964 presidential campaign and, the senator said in 1981, the two became “like brothers” during their terms as governors of adjacent states. When Reagan was elected President, the man known in Washington as “the First Friend” became a power in the Senate, and an influential insider at the White House.

As Laxalt’s status has grown, so has interest by the press in his alleged associations with Nevada gambling personalities.

“An extensive review of Sen. Laxalt’s campaign and personal finances doesn’t reveal any illegal conduct by him,” the Wall Street Journal wrote in a front-page profile in June, 1983. “What it does provide is evidence of his long, and continuing, associations with men alleged to have unsavory ties. And it raises serious questions about the judgment of a man who advises the President.”

The questions surround Laxalt’s association with men such as Morris Dalitz, a Las Vegas developer, who the Bee said in its story has been “named by law enforcement officials as a founding father of the national crime syndicate.”

The Journal also reported on Laxalt’s “close” friendship with Edward and Fred Doumani, longtime casino owners who admit to social and business contacts with convicted organized crime figures and who have had trouble with gaming regulators for their business practices.

The Bee stories focused on Laxalt’s association with Delbert W. Coleman, who allegedly introduced the then-former governor to bankers in Chicago. The Bee described Coleman as a close associate of Beverly Hills attorney Sidney Korshak, who is “regarded by law enforcement officials as one of organized crime’s strongest welds to politics and big business in this country.”

Another major figure in the Bee story was Bernard Nemerov, Laxalt’s former partner at the Ormsby House. Nemerov, the story claimed, had acted as a front man in Las Vegas for organized crime interests and was closely tied to Allen Dorfman, a Chicago insurance executive twice convicted of Teamster pension fund fraud, and eventually murdered gangland-style in a Chicago suburb.

Laxalt denies that Coleman had any part in the Chicago bank loans, and says that he had no knowledge of Nemerov’s alleged connections to organized crime when he took the latter in as a partner. Laxalt had a falling out with Nemerov after a year and bought him out.

The senator’s defenders also argue that no Nevada politician can avoid contact with gambling figures, some of whom associate with criminals. The irony, they say, is that Laxalt prides himself on trying to limit Mafia influence in Nevada.

Now, lawyers representing the newspaper say they are looking forward to the suit’s discovery phase because it will allow them to question under oath individuals alleged to have ties with organized crime about their relationship with Laxalt.

“The case has been rather quiet so far,” Bee attorney James Brosnahan said. “It is about to heat up quite a bit. The organized crime figures will supply the heat.”

Some observers, however, believe that Laxalt already has managed a major political victory. He may have persuaded other news organizations to postpone airing similar stories about him--and at a time when it most counted.

His suit was filed six weeks before the last presidential election, a time when allegations about the President’s campaign chairman and close political ally could have hurt Reagan. As it happened, ABC and CBS’ “60 Minutes” were both working on Laxalt stories.

After learning about the pending stories, the senator and New York attorney Seymour Shainswit notified the networks that they were about to file the suit. Shainswit and his client also questioned the reliability of a key source for the pending stories, Joseph Yablonsky, the former FBI special agent in charge of the Las Vegas office. Both networks postponed their stories indefinitely. (Yablonsky has not responded to the criticism.)

The networks deny that Laxalt scared them off. ABC says the story needed more work; CBS says that it independently had begun to doubt Yablonsky. Both also expressed an intention to pursue the story.

However, a spokesman for “60 Minutes” said the story, while “still a work in progress,” was “on the back burner.” A spokesman for ABC also said the story, while not dead, was not now being actively pursued.

Newsweek magazine also was involved in the controversy. Laxalt contacted the magazine about a story it ran on the Bee’s allegations, and Newsweek subsequently published a “correction” assuring readers that its story “did not intend to adopt as its own the Bee’s story on Sen. Laxalt or to impugn the senator’s reputation.”

To some, this is the most unusual element of the Laxalt case. “When a story gets rolling, it tends to get magnified by repetition,” said Society of Professional Journalists attorney Sanford. “That is what Laxalt feared most, and it was already starting to happen.

“What is so remarkable is that this case was brought really as an emphatic, forceful way to silence that proliferation. . . . In that sense, Laxalt already has achieved some of what he set out to achieve.”

Laxalt attorney Richard Davenport denies that the timing of the suit was political. “The filing of the lawsuit was no surprise. We had told McClatchy months before that we intended to file.”

C. K. McClatchy, editor of the Bee newspapers, has written, however, that “Laxalt’s lawsuit is so devoid of merit that we believe the only reason it was filed was to . . . deter (other media) from pursuing the story.”

McClatchy’s countersuit alleges that Laxalt’s suit is an abuse of the legal process and that the senator misused his office to extract favorable letters about the Ormsby episode from the FBI and then-Deputy U.S. Atty. Gen. Ed Schumultz, to pressure Nevada gaming authorities to conduct a “sham investigation” into the skimming allegations and to intimidate news people.

“The most serious question arising from Laxalt’s action is whether the threat of lawsuits demanding absurdly large damages can indeed inhibit” news organizations from “providing information to which the public is entitled. . . . If so, then this society has problems that go far beyond the Laxalt lawsuit.”

Laxalt’s attorneys responded in kind. McClatchy’s counterclaim, they told the court, is a “frivolous and silly . . . side show,” “akin to a rapist suing his victim.”

Some press organizations have hailed the countersuit as the start of a trend. “The media have begun to fight back against libel plaintiffs,” wrote the News Media & the Law, a magazine published by the Reporters’ Committee for Freedom of the Press, about the McClatchy suit.

But David Kendall, a Washington libel attorney who has studied counterclaims for such clients as the Washington Post, said countersuits are difficult to win and usually require evidence that the party filing the libel suit has taken other steps to intimidate the press. “People are indeed watching this case,” Kendall said. “If it is successful, it will inject a little more adrenaline into efforts at counterclaims.”

U.S. Magistrate Phyllis H. Atkins, who heard initial arguments in Laxalt’s suit, has recommended that the U.S district judge hearing the case defer McClatchy’s counterclaim. If Laxalt wins, McClatchy’s suit might be moot.

McClatchy attorney Brosnahan said he hopes to convince the judge, however, that the countersuit deserves to be heard concurrently with the libel suit.

Trial is six months away at least. In the meantime, Laxalt’s daughter, Michelle, a political consultant in Washington, so far has raised $250,000 with the help of a solicitation letter from Sen. Barry Goldwater for the Sen. Laxalt Legal Expense Trust Fund.