If you own a device connected to the Internet, then you know that on Tuesday Dominion Voting Systems and Fox Corp. agreed to a $787.5 million settlement of Dominion’s defamation lawsuit against Fox relating to Fox News’s coverage of the 2020 Presidential election and its aftermath. The settlement doesn’t mean the end of related litigation, however; there is, for example, the separate lawsuit that voting-machine company Smartmatic brought against Fox Corp. in New York state court that remains pending. There are a host of other lawsuits that Dominion is pursuing related the 2020 Presidential election conspiracy theories, including, for example, lawsuits against Mike Lindell, the MyPillow executive, and news outlets such as Newsmax.

And then there is the derivative lawsuit that a Fox Corp. shareholder filed in Delaware Chancery Court last week against Fox Corp. Chairman Rupert Murdoch and four other Fox executives, in which the plaintiff alleges that the defendants breached their fiduciary duties by permitting the company’s news subsidiary to make false reports about the 2020 presidential election in order to avoid losing viewers. The shareholder suit, in and of itself, presents some interesting issues, but in light of Tuesday’s settlement in the Dominion lawsuit, and the threatening prospects of the additional litigation still pending against Fox Corp., the shareholder lawsuit may now be even more interesting.

The Shareholder Derivative Lawsuit

The shareholder derivative lawsuit was filed in Delaware Chancery Court on April 11, 2023, by a Fox shareholder, and names as defendants Murdoch; his son and Fox Chief Executive Lachlan Murdoch; and directors Chase Carey, Roland Hernandez and Jacques Nasser. A copy of the complaint can be found here. The lawsuit is filed as a so-called Caremark claim, based on allegations that the defendants breached their duty of oversight. The lawsuit alleges that the board’s alleged failure to act on “red flags” subjected the network to defamation claims by the two voting technology companies that Fox reported were involved in the supposed election theft conspiracy.

The “red flags” to which the complaint refers are based on the complaint’s allegation (based on documents and other information that came to light in the course of the Dominion defamation lawsuit) that  “FOX knew – from the Board on down – that Fox News was reporting false and dangerous misinformation about the 2020 Presidential election, but FOX was more concerned about short-term ratings and market share than the long-term damages of its failure to tell the truth.”

The complaint alleges further that “The Board’s decision to chase viewers by promoting the false stolen election claims has exposed the Company to public ridicule and negatively impacted the credibility of Fox News as a media organization that is supposed to accurately report newsworthy events.”

The complaint seeks to recover damages on behalf of the corporation and seeks unspecified corporate governance reforms.


When the Fox derivative lawsuit complaint was filed last week, it wasn’t yet clear how the underlying Dominion defamation lawsuit was going to play out. The defamation case appeared to be headed to trial; among other possible trial outcomes was the possibility that the trial would result in a defense verdict. Were that to have happened, then the derivative lawsuit plaintiff’s theory that the defendants’ alleged misconduct harmed the company would arguably have lacked a solid foundation.

However, now that the company has agreed to pay more than three quarters of a billion dollars to settle the defamation allegations, and with further factually related litigation pending, the assertion that the defendants’ alleged misconduct harmed the company has much greater heft.

As Alison Frankel put it in an April 19, 2023 post on her On the Case blog entitled “Fox Shareholders are Circling Rupert Murdoch” (here), the settlement “gave shareholder lawyers exactly what they need to sue Rupert Murdoch and the rest of the Fox Board” because it provides “tangible evidence of the consequences of Fox’s reporting on election fraud claims.”

There are some further things that need to be considered in assessing just how hefty this settlement is, however. On the one-hand,  $785.5 million represents a significant amount even for a company as large as Fox Corp. – the settlement represents roughly half of the value of Fox Corp.’s 2022 net income of $1.5 billion. But in thinking about the harm to the company, the gross amount of the settlement is not the most accurate measure of the harm to the company; the after-tax value of the settlement is the more accurate measure, as Fox will be able to deduct the settlement amount as a business expense, as a result of which Fox could, according to one source, realize a tax benefit from the settlement of as much as $213 million.

On the other hand, the derivative lawsuit plaintiff undoubtedly will argue that the harm from the defendants’ alleged misconduct cannot be measured in dollars and cents alone. The reputational harm, the plaintiffs undoubtedly will argue, is the more significant consideration. It is worth noting in that regard that Rupert Murdoch’s media properties include not only Fox Corp.’s Fox News, but also sister company News Corp.’s more venerable and more prestigious outlet, The Wall Street Journal. The Journal itself argued in an April 20, 2023, editorial that the Dominion settlement “harms all of the press.” While it may or may not be true that the settlement harms all of the press, it certainly could be argued (and the shareholder plaintiff undoubtedly will argue) that the situation (including the lawsuit and the settlement) harms all properties associated with Murdoch, including the Wall Street Journal, to be associated with a news organization that allegedly knowingly published falsehoods.

How all of this will play out remains to be seen. Before we get to the end of this story, though, lots of other things will need to happen. For starters, the Smartmatic lawsuit pending in New York state court will need to be resolved, one way or the other. If as seems likely, the Smartmatic lawsuit ends in another settlement, the derivative lawsuit plaintiff will add the amount of the Smartmatic settlement to the quantum of harm from the misconduct alleged in the derivative suit.

The derivative lawsuit itself undoubtedly will also face a serious motion to dismiss. In that regard, readers may want to consider that the Delaware Vice Chancellor Travis Laster, to whom the Fox derivative lawsuit has been assigned, recently granted the motion to dismiss in the Caremark claim lawsuit pending against the McDonald’s board. On the other hand, the Laster denied the motion to dismiss in the same proceeding with respect to a McDonald’s officer. The one thing I know is that, regardless of how all of this plays out, it will be interesting to watch.

The derivative suit presents some very thorny legal issues, as Tulane Law Professor Ann Lipton notes in an April 15, 2023, post on the Business Law Prof Blog (here). Professor Lipton’s discussion of the lawsuit centers on the fact that the complaint alleges that the defendants were aware of the falsehood of the stolen election claims but acquiesced in the continued reporting to preserve Fox News’s viewership. As Professor Lipton puts it, “the actual allegation is that the board was trying to maximize shareholder wealth – not that it neglected its duties, and not even that false political claims benefitted board members personally.”

The theoretical problem for Lipton is “where we draw the line on the hard limits of authorized corporate activity.” That is, how far can corporate executives go in giving primacy to maximizing shareholder wealth? Under existing Delaware case law, intentional lawbreaking crosses over that line. Other Caremark cases have stated that “intentional violation of positive law” also crosses the line. But where does defamation fall with respect to that line? Does conduct such as defamation, which can give rise to civil tort liability, rise to the level of “intentional violation of positive law”? Does it matter that defamation is in fact criminal in 24 U.S. states?

As part of her analysis, Lipton refers to the context of Delaware contract law, which holds that (under the “efficient breach” theory) that “directors can, consistent with their fiduciary obligations to shareholders, choose to break a contract if they deem it profitable to do so, taking into account the penalties the corporation may be forced to pay to the counterparty.”

In other words, there are at least some contexts within which corporate directors can intentionally violate legal duties without breaching their fiduciary obligations.  Lipton ends her post with an open-ended speculation that there may be important differences between contractual liability and tort liability that would limit the possibility of this type of permitted legal violation from applying in the tort context.

Part of the answer to the question may be in the complaint’s allegations that the directors sacrificed the company’s long-term interests in its reputation for candor and veracity in order to achieve more an ephemeral short-term goal of preserving viewership. In other words, the argument will be that in acquiescing in the continued falsehood the directors were not in fact maximizing shareholder value at all but instead were harming the company’s long-term interests.

In any event, it is worth noting that for most of the time since the Caremark decision itself Delaware’s courts have routinely said that breach of the duty of oversight claims are among the most difficult for a plaintiff to sustain. And while more recently questions have been asked whether Caremark claims continue to be one of the most difficult to sustain, the plaintiff in this case will face formidable challenges in seeking to pursue this claim. But in at least some respects, the case may now look more favorable than it did when it was filed.

Indeed, the existing lawsuit may not be the only game in town; according to news reports, at least two other sets of plaintiffs’ lawyers have filed books and records actions in Delaware on behalf of Fox Corp. shareholders. As readers of this blog well know, these types of books and records frequently are the precursor to shareholder litigation. Seems likely there are even further lawsuits to come.

As Alison Frankel put it in her blog post about the Fox derivative lawsuit to which I linked above, “Dominion’s closely-watched case against Fox has already offered a primer on defamation law in the U.S. Get ready for a similar education on Delaware shareholder litigation.”