Fox’s Dominion Deal Puts Squeeze on Murdoch in Investor Lawsuits

Fox News’ settlement with Dominion boosts claims from irate investors who say the conservative news network’s 2020 election broadcasts led to defamation lawsuits seeking billions of dollars in damages.

Details revealed in depositions of top executives like Rupert Murdoch as part of the $787.5 million settlement with voting machine maker Dominion Voting Systems Inc. give investors valuable fodder as they press fiduciary breach of duty claims against the news network that can typically be difficult to prove.

“It’s more public information than normal” for such lawsuits alleging a board or executives failed to engage in adequate oversight or ignored red flags over many years, said Carliss Chatman, a professor of corporate law at the Washington & Lee University School of Law.

It was surprising for Murdoch and other top executives to agree to depositions before settling with Dominion on April 18, she said.

“Most corporations will try to settle so that information isn’t in the public record to make these follow-up lawsuits harder,” she said.

Two shareholder lawsuits are now pending in Delaware’s Chancery Court, the prime venue for corporate litigation because over 1.8 million businesses are incorporated in the state. Both complaints target Murdoch, and his son Lachlan, and other Fox board members.

Additional shareholder litigation may follow, according to a letter advising the court that at least three other law firms seek Fox’s books and records under Delaware law to investigate claims similar to those already filed in Chancery Court.

The claims brought by the investors are what are commonly known as Caremark claims, after a 1996 Delaware Chancery Court decision. Those complaints often fail to survive a motion to dismiss. But two years of litigation with Dominion produced evidence that Murdoch, other Fox executives, and superstar hosts including Tucker Carlson promoted conspiracy theories about former President Donald Trump’s election loss even as they privately derided them.

Shareholders may get even more ammunition. Anything released from a similar $2.7 billion defamation lawsuit by voting technology company Smartmatic Corp. that’s pending in a New York state court also could boost shareholder claims in Delaware’s Court of Chancery.

A Delaware Superior Court judge previously ruled that Fox couldn’t argue the First Amendment protected the spread of false facts, especially bogus allegations of criminal conduct. “We acknowledge the court’s rulings finding certain claims about Dominion to be false,” Fox said in a statement saying it was “pleased” to have reached a settlement without “the acrimony of a divisive trial.”

The shareholders’ lawsuits in Chancery Court still have to show that Fox’s board knowingly ignored red flags about the broadcasts stating Dominion used computer algorithms to shift votes away from Trump to President Joe Biden, said Michael Dockterman, a partner at Steptoe & Johnson LLP.

But the evidence from the Dominion case gives a step up to the Fox shareholders, especially because Fox didn’t contest the determination that false statements had been made knowingly, he said.

“You have a superior court judge making a finding of fact that was binding on the trial that he was about to start. That’s different. And that’s strong,” he said.

More Depositions Possible

The April 11 complaint focused on blockbuster revelations that emerged from the Fox-Dominion case in February, such as Murdoch’s referring to Trump’s false election claims as “really crazy stuff.”

The Chancery Court complaints open the possibility of more depositions for Murdoch and Fox board members and executives, Chatman said.

“Dominion focused on truth, not truth, and people’s awareness of the truth about the election. That’s not the same as internal controls and governance,” she said. “So you would need those depositions again to see how the board was running things, how the officers were running things, and whether it was just Rupurt exerting his dominance and pushing everyone else to ignore internal controls, which would still be a breach of duty.”

Shareholders also will face scrutiny from the Chancery Court, she added.

“If it makes you a lot of money, and you know there’s some internal documents that say, ‘Our business strategy is to be an on-TV tabloid’—if you know that, it is very hard to argue that this is a breach of duty when you know what you’re investing in,” Chatman said.

Fox probably could beat claims that it didn’t have a monitoring system in place to catch “mission critical” risks because it operates as a news network with journalistic standards to back up its broadcasts, said Paul Weitzel, a professor at the University of Nebraska College of Law.

But Fox would have a harder time fighting claims that it ignored red flags raised directly to board members, he said.

When hosts such as Carlson and Sean Hannity complain via text message about on-air guests repeating claims that are “obviously untrue” and “unbelievably offensive,” “and then you still put the person on, and you hear from them again and again, it’s making it clear that you don’t care that much about your product, and you’re ignoring red flags,” Weitzel said.

Novel Rulings

Where a jury would have decided the case against Fox in Delaware Superior Court, the Court of Chancery leaves all the proceedings to judges who are specialists in business matters.

The April 11 lawsuit is assigned to Vice Chancellor J. Travis Laster, whose novel rulings on Caremark claims made waves in recent months. The second complaint remains under seal and still hasn’t been assigned to one of the seven judges on the Chancery Court.

In investor litigation alleging McDonald’s Corp. board members ignored red flags about a toxic workplace culture of pervasive sexual harassment, Laster explicitly held that CEOs and other executives owed a duty of oversight comparable to that owed by a board of directors. In a shareholder lawsuit over AmerisourceBergen Corp.’s alleged role in the opioid epidemic, Laster applied a new framework for evaluating allegations of corporate wrongdoing over a long period of time.

But in both cases, Laster ultimately dismissed the lawsuits, finding that the companies’ boards had lived up to their legal obligations.

While the McDonald’s ruling on corporate officers took a “more expansive view of Caremark,” Laster has in other cases found a board can’t be held liable under current standards for past practices that met a different standard, said Charles Elson, founding director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

Either way, he’s known for being “quite strict on compliance and oversight,” he said.

Laster is considered a “very intelligent and insightful” judge whose opinions are “incredibly thoughtful,” Dockterman said.

“He will look at this from any angle that the parties ask him to consider. And then he will look at it from more angles than that,” he said. “But he strongly believes, if you read his opinions and take them at face value, that when red flags crop up, you have to take an action and if you don’t take that action, you’re not fulfilling your duty to the company.”

The cases are Schwarz v. Murdoch, Del. Ch., No. 2023-0418, complaint filed 4/11/23; Greenberg v. Fox Corp., Del. Ch., No. 2023-0440, complaint filed 4/20/23.