On October 13, 2004, O'Reilly sued former O'Reilly Factor producer Andrea Mackris for what he claimed was a politically motivated extortion attempt against him. He also sued her lawyer, Benedict P. Morelli, and Morelli's law firm for the same reason. O'Reilly's lawsuit contended that Mackris had privately demanded more than $60 million (USD) to settle a sexual harassment lawsuit she was planning on filing against O'Reilly, Fox News, and Westwood One in court. A few hours after O'Reilly's lawsuit was filed, Mackris filed her own against O'Reilly for allegedly making sexually inappropriate comments to her.

On October 19, Mackris filed an amended complaint, adding what she claimed were further details of O'Reilly's alleged sexual harassment. In addition to noting that O'Reilly had issued no formal denials, the complaint described actions allegedly taken against her by Fox and O'Reilly for the purpose of retaliation for filing her original complaint, and asked for additional damages.

Fox News contended that Mackris was still on their payroll at the time her lawsuit was amended, and that she had not shown up for work for over two weeks and had stated she was not going to return at any point. They also moved to obtain the court's permission to fire Mackris without it appearing that they were retaliating, which would be illegal according to sexual harassment statutes.

On October 20, O'Reilly and Fox News petitioned the court, asking for any tapes Mackris had of the alleged conversations to be turned over. The court agreed to meet on October 29 to decide whether or not the alleged tapes should be turned over to O'Reilly and his lawyers. However, the case was settled on October 28, 2004 before it ever reached the court, with both parties stating publicly that no wrong had been done by O'Reilly or Mackris, and that the terms of the settlement would remain private.

O'Reilly stated on Charlie Rose the next month that he had no interest in discussing the case further, and that he wanted everyone, including the press, to understand that the settlement indicated "O'Reilly did nothing wrong".