Fox News is being sued for defamation by Dominion and Smartmatic

Fox News is currently facing two high-profile lawsuits concerning its coverage of the aftermath of the 2020 presidential election, raising questions about how much responsibility Fox's board of directors would bear if the company were to lose in court.

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Dominion Voting Machines and Smartmatic USA, two producers of voting machines, are suing Fox Corp. for $1.6 billion and $2.7 billion, respectively, for purportedly holding them responsible for the defeat of former President Donald Trump.

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A few companies are already considering bringing derivative lawsuits against Fox Corp., Fox News' parent company, to connect allegedly defamatory statements made by on-air hosts concerning the 2020 election results to a deficiency in board governance. Nevertheless, the election-related litigation against Fox has the potential to change that dynamic. Traditionally, plaintiffs have faced significant obstacles in lawsuits against corporate boards.

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Doug Chia, a fellow at the Center for Corporate law and Governance at Rutgers Law School, stated that the plaintiffs had proof that the corporation had experienced financial hardship, and as a result, the shareholders had also suffered financial hardship. In the end, the board is responsible for such kinds of things.

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The controversy lingers over the boards of other media companies, and any legal action might establish a new standard for how accountable such boards should be for journalistic procedures.

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Nearly every area of the business is linked with the corporate boards of other companies. The boards of public media companies, however, do not oversee editorial decisions, despite the fact that the company's news divisions are its main source of revenue.

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The plaintiffs' firms have a strong case, per numerous corporate governance-focused legal scholars. For news-media firms, truth, accuracy, and the avoidance of libelous comments are "mission-critical" elements. According to the board, it is their duty to manage such crucial activities.

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“People won't watch your news show or trust it if you're a news organization and you get a reputation for disseminating plainly inaccurate material,” according to Sarah Haan, a law professor at Washington & Lee University. “A competent board would have supervision measures in place, and they would be informed if a significant campaign of misleading information was being spread through their outlets.”

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Fox Corp.'s representative declined to comment.

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Firms Circling

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At least two companies have publicly stated that they are looking into possible fiduciary duty violations by Fox's board in connection with both lawsuits.

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On March 6, the law firm of Berger Montague said that it has begun a "probe into the board of directors of Fox for possible violations of fiduciary duties to Fox and Fox's shareholders" in the Dominion matter.

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In the Smartmatic issue, Scott+Scott Lawyers at Law LLP has launched an inquiry into the corporation and its board for a possible fiduciary duty breach.

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Often, a "breach of fiduciary responsibility" is characterized as corporate officers and boards neglecting to act in the best interests of the firm in a way that results in financial losses for shareholders.

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Lipton said shareholders would have to show that a board member ignored potentially defamatory remarks made by Fox News hosts or failed to exercise sufficient monitoring.

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This rule is a result of an In re Caremark International Inc. A two-part test to evaluate whether a board is responsible for misconduct was created by Delaware's Chancery Court in the 1996 case of Derivative Lawsuit 698 A.2d 959. The burden of proof rests with the shareholders to establish if the board failed to monitor reporting or control measures or whether those procedures were unsuccessfully implemented.

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According to Ann Lipton, associate dean for faculty research at Tulane University's law school, Caremark claims are challenging to defend and have a high legal bar to overcome. Whether or whether a choice was advantageous for the company, courts frequently give boards and executives a raw deal.

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Yet according to Lipton, it's not difficult to make the connection between alleged wrongdoing at Fox on-air and poor management in the boardroom. A board might be held accountable for a lack of oversight over "mission-critical" tasks, according to precedents established in two prior instances in Delaware's Chancery court involving Blue Bell Creameries and Boeing Co., Lipton said.

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The court determined that the board's insufficient oversight of food safety standards in the Blue Bell case resulted in a listeria epidemic. In the case of Boeing, the court determined that the lack of a reporting system for aircraft safety contributed to the crashes of two 737MAX aircraft.

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Aircraft safety is crucial for an aircraft manufacturer, just as food safety is crucial for an ice cream business. According to Lipton, accuracy is essential for a news organization.

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“It wouldn't be difficult for the court to rule that news organizations shouldn't purposefully fabricate information about people because doing so is essential to maintaining their identity and obviously poses legal hazards,” she added.

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‘Conspiracy Theories’

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Rupert Murdoch, chairman of Fox Corporation, and Lachlan Murdoch, CEO, are both likely to be named in any derivative lawsuit, according to Lipton. While privately disputing the charges of voter fraud broadcast on television, Dominion has made public internal Fox documents that purport to indicate the two were directly involved.

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Yet, shareholders may contend that the entire board is liable, which would call for monetary compensation—and maybe a new board.

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Based on the most recent court documents related to the Dominion case, at least one board member, former Republican House Speaker Paul Ryan, expressed worries about Fox News presenters highlighting Trump's assertions days after the November 2020 election. It is the board's "fiduciary duty," according to Ryan, who claimed as much in a deposition.

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Ryan stated, "Fox News shouldn't be promoting conspiracy theories. These remarks might help the business defend itself by demonstrating that at least one board member made an effort to put out the fire the hosts had started, according to Rutgers' Chia.

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Chia argued that this defense falls short because shareholders have greater evidence to support their claim that the board neglected to monitor significant errors in judgment.

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According to University of Virginia law professor Michal Barzuza, failing to heed any warning indications or turning a blind eye to illegal activities could establish Fox's responsibility.

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“The board members' choice to stick their heads in the sand and pretend they don't know will not be tolerated by the Delaware court,” she said.