DOVER (Reuters) — I don’t envy Delaware Chancery Court judge Travis Laster the task he’s soon to face: picking shareholder lawyers to lead the case accusing Fox Corp officers and directors of breaching their duties by allowing the company to become mired in defamation claims.
Two competing complaints against Fox directors, including controlling shareholders Rupert and Lachlan Murdoch were unsealed last Friday in Chancery Court. One was brought by pension funds for public employees of Oregon and New York City. The other is on behalf of eight public pension and union welfare funds.
Each complaint is long – the multi-fund complaint is 172 pages; the New York and Oregon filing is a relatively svelte 120 pages. They’re also notably detailed, featuring not just evidence from the Dominion Voting Systems election fraud defamation lawsuit that Fox settled in April for $787.5 billion but also information the funds obtained directly from Fox under a Delaware law that permits shareholders to access corporate books and records.
Each set of shareholders is represented by eminent plaintiffs’ lawyers. New York and Oregon have Friedlander & Gorris; Lieff Cabraser Heimann & Bernstein; and Cohen Milstein Sellers & Toll. The other funds have lawyers from five shareholder firms, including Bernstein Litowitz Berger & Grossmann; Robbins Geller Rudman & Dowd; and Labaton Sucharow.
And to add to the fun, two previously filed breach-of-duty suits against Fox directors have also been consolidated before Laster, including a 209-page complaint filed by a group of plaintiffs’ firms led by Prickett, Jones & Elliott.
Laster has ordered everyone who wants to be appointed to lead the case to file briefs explaining why by Sept. 21. Prickett Jones’ Samuel Closic confirmed by email that his group intends to apply. None of the shareholder lawyers in the two newly unsealed pension fund complaints was willing to speak on the record, but I will be shocked if those groups don’t also apply. It’s likely, in other words, that Laster will have to pick from at least three competing bids to run the breach-of-duty case. The judge has scheduled a Nov. 9 hearing on the leadership contest.
A spokesperson for Fox, I should note, declined to comment on the Delaware breach-of-duty lawsuits. Fox, which is continuing to defend against election fraud defamation claims in New York state court by voting technology company Smartmatic USA, said when it settled with Dominion that the agreement “reflects Fox’s continued commitment to the highest journalism standards.”
Judges overseeing Chancery Court derivative suits, in which a shareholder sues board members for allegedly harming the corporation, do not have to adhere to the strict framework for lead plaintiff appointments in securities class actions in federal court. In those class actions, judges look first at which applicant has suffered the biggest loss as a result of the alleged fraud. The biggest loser is usually appointed to lead, unless a competing candidate raises serious concerns about its fitness to head up the case.
In Delaware derivative suits, courts also look at the size of a prospective lead plaintiff’s stake in the company. But judges consider intangible factors as well, including the quality of an applicant’s pleading; the vigor of candidates’ pre-suit investigation; and the reputation of their lawyers. Chancery Court judges, in other words, have more leeway.
I don’t think Laster will find a whole lot of difference among the Fox candidates on the ability of their lawyers to prosecute the case. All of these firms have excellent track records. The Friedlander and Lieff firms, which represent the New York and Oregon funds, obtained a landmark $237.5 million settlement in 2021 in breach-of-duty claims against Boeing (BA.N) directors for allegedly failing to assure the safety of 737 MAX aircraft. (They won a lead role in that case, incidentally, after a hot lead-plaintiff contest.)
Labaton and Robbins Geller, two of the firms that signed the multifund complaint, were part of a plaintiffs’ consortium that was just awarded a whopping $267 million fee after winning a $1 billion settlement in a breach-of-duty case against Dell (DELL.N) directors. (The judge who awarded the fee? Laster.) Prickett Jones, meanwhile, was co-counsel in the 2013 case that resulted in the biggest-ever Chancery Court fee award.
All of the lead plaintiff candidates obtained books and records from Fox, and all painstakingly documented in their voluminous complaints the alleged oversight failures of officers and directors who stand accused of disregarding red flag warnings — including defamation claims that predated the 2020 election — and neglecting to adopt control and information systems to assure the quality of Fox’s journalism, a mission-critical duty. All of the complaints assert that shareholders could not rely on board members to bring their own breach-of-duty case since those very board members are at risk of being held liable for failing to protect Fox’s interests.
There are variations among the complaints, of course. The multifund filing, for instance, focused on the Fox board’s alleged abandonment of a compliance system that was put in place as part of the 2013 settlement of a shareholder derivative suit against a Fox corporate predecessor. (Perhaps not coincidentally, Bernstein Litowitz was one the firms in that case.)
The New York and Oregon complaint, meanwhile, asserts a theory of liability that I didn’t see in the other complaints, alleging that Fox’s entire business model “treats potential tort claims and settlements as unlikely or as a cost of doing business.” The complaint cited a 2011 decision in a shareholder derivative case against Massey Energy, in which then-vice chancellor Leo Strine cautioned that board members cannot be considered loyal to their corporation if they knowingly lead the company “to seek profit by violating the law.”
If Laster’s decision comes down to which plaintiffs have the biggest stake in the company, the New York and Oregon funds may have the edge: Between them, according to their complaint, those funds hold more than 720,000 Fox shares, worth about $33 million as of Aug. 31.
The other complaints do not specify the holdings of the prospective lead plaintiffs – an omission that may prove telling.
Stay tuned, as they say in the TV biz.
Reporting By Alison Frankel; editing by Leigh Jones
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