Fox Defamation Suits Expose Board of Directors to Fresh Risks

Two high-profile lawsuits against Fox News over its coverage of the 2020 presidential election aftermath are spurring questions about how much responsibility Fox’s board of directors would bear for a court loss.

Voting-device manufacturer Dominion Voting Machines and global voting technology company Smartmatic USA are suing Fox Corp. for $1.6 billion and $2.7 billion, respectively, for allegedly blaming them for former President Donald Trump’s loss.

A handful of firms are already eyeing derivative suits against Fox Corp., Fox News’ parent company, to link allegedly defamatory claims by on-air hosts about the 2020 election results to a lack of board oversight. Plaintiffs traditionally have faced tall hurdles in lawsuits against corporate boards, but election-related litigation against Fox carries the potential to shift that dynamic.

“They’ve got evidence that the company suffered economically, therefore the shareholders suffered economically,” said Doug Chia, a fellow at the Center for Corporate law and Governance at Rutgers Law School. “The board is ultimately accountable for those kinds of things.”

The saga looms over other media company boards, and any litigation may set a fresh precedent over how responsible such boards are for newsroom practices.

Corporate boards of other companies are involved in nearly every aspect of the business. Public media company boards, however, don’t supervise editorial policies, even if news divisions are core revenue-raisers for the company.

Plaintiffs’ firms waiting in the wings have a compelling case, several law professors specializing in corporate governance said. Truth, accuracy and non-defamatory statements are “mission-critical” components for news-media organizations—and it’s the responsibility of the board to oversee such integral operations they said.

“If you’re a news company, and you become known for distributing blatantly false information, people aren’t going to watch your news program or trust it,” said Sarah Haan, a law professor at Washington and Lee University. “A competent board would have some oversight system in place—they would be made aware if there was some major campaign of false news being promoted through their outlets.”

A spokesperson for Fox Corp. declined to comment.

At least two firms have said publicly they were investigating potential breaches of fiduciary duty by Fox’s board across both lawsuits.

The Berger Montague law firm issued a notice March 6 that it was opening an “investigation into Fox’s board of directors for potential breaches of fiduciary duties to Fox and Fox’s shareholders” in the Dominion case.

Scott+Scott Attorneys at Law LLP has opened an investigation against the the company and its board for a potential breach of fiduciary duty, in the Smartmatic case.

A “breach of fiduciary duty” typically is defined as company executives and boards failing to act in the company’s best interest in a way that caused shareholders to lose money.

Shareholders would have to prove a a board member failed to conduct proper oversight or looked the the other way while Fox News hosts made allegedly defamatory statements on air, Lipton said.

That standard stems from an In re Caremark International Inc. Derivative Litigation 698 A.2d 959, 1996, in which Delaware’s Chancery Court established a two-part test to determine if a board is liable for wrongdoing. Shareholders have to prove whether the board unsuccessfully implemented reporting or control procedures, and whether it failed to oversee those practices.

Caremark claims are difficult to argue and have a high legal bar to clear, said Ann Lipton, associate dean for faculty research at Tulane University’s law school. Courts often cut boards and executives slack for their business decisions, whether or not those decisions were profitable for the company.

It’s not too hard to draw a line from alleged misconduct on-air at Fox to mismanagement in the boardroom, however, Lipton said. Precedents set in two other cases in Delaware’s Chancery court involving Blue Bell Creameries and Boeing Co. showed a board could be held liable for a lack of supervision over “mission-critical” functions, Lipton said.

In the case of Blue Bell, the court found the board didn’t adequately oversee food safety procedures that led to a listeria outbreak. In Boeing’s case, the court found that the board failed to establish a reporting system for airplane safety that led to two 737MAX jetliners to crash.

Food safety is critical to an ice cream company, and airplane safety is critical for an aircraft manufacturer. Accuracy, Lipton said, is critical for a news-gathering company.

“It would not be a hard sell for the court to say a news organization should avoid intentionally lying about people—this is core to like their identity and obviously presents legal risks,” she said.

Both Fox Corp. chairman Rupert Murdoch and CEO Lachlan Murdoch are likely to be implicated in any derivative suit, Lipton said. Dominion has disclosed internal Fox communications allegedly showing the pair were directly involved with directing claims of voter fraud made on television while doubting those comments in private.

But shareholders could argue liability extends to the rest of the board, triggering financial remedies—and a board overhaul.

At least one board member—former GOP House Speaker Paul Ryan— voiced concerns days after the Nov. 2020 election about Fox News hosts spotlighting Trump’s claims, according to filings in the Dominion case. Ryan said in a deposition it was the board’s “fiduciary duty,” to stop claims of voter fraud on air.

“Fox News should not be spreading conspiracy theories,” Ryan said. Those comments might provide a defense for the company, to show at least one board member tried to extinguish the fire hosts set, Rutgers’ Chia said.

That defense is shallow, Chia said, because shareholders have stronger arguments that the board failed to oversee critical lapses in judgment.

Ignoring any warning signs or looking the other way while illegal activity was occurring could prove Fox’s liability, University of Virginia law school professor Michal Barzuza said.

“The Delaware court will not tolerate board members just choosing to bury their head in the sand in order not to know,” she said.

To contact the reporter on this story: David Hood in Washington at [email protected]

To contact the editors responsible for this story: Keith Perine at [email protected]; Jeff Harrington at [email protected]

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