From In re Fox Corp. Derivative Litigation, handed down yesterday by Vice Chancellor Travis Laster of the Delaware Court of Chancery:
This pleading-stage decision addresses whether the stockholder plaintiffs have standing to pursue a derivative action. When making that determination, the court must accept the complaint's well-pled allegations as true and grant the plaintiffs the benefit of all reasonable inferences. The complaint casts the defendants in a poor light, but at this stage of the case, the court cannot assess the truth of the allegations. The question instead is whether, taking those allegations as true, the plaintiffs have standing to assert their claims.
The plaintiffs have sued over events surrounding the 2020 presidential election. Late on November 3, 2020, the Fox News Channel declared Joseph Biden the winner of Arizona's electoral votes. Then-President Donald Trump contested the call based on allegations about election fraud. Hours later, Trump declared himself the winner. Despite Trump's claim, Fox News called the election for Biden on November 7. The daytime and primetime audiences for Fox News plummeted by over one-third.
Starting the next day, Fox News began airing stories sympathetic to Trump's election-fraud claims. Fox News also hosted guests who championed those claims. Trump advisors Sidney Powell and Rudy Giuliani appeared repeatedly on Fox News and asserted that Dominion Voting Systems and Smartmatic USA provided voting machines and voting software that illegally switched votes from Trump to Biden.
Dominion and Smartmatic sent cease-and-desist letters to Fox News' parent corporation, Fox Corporation ("Fox" or the "Company"). In the "Brainroom"—the Fox News fact-checking department—no one could find evidence to support the accusations against Dominion or Smartmatic. Yet Fox News continued to air the election-fraud narrative and host guests who advanced it.
In February 2021, Smartmatic sued Fox for defamation. Dominion sued Fox in March. The Dominion trial moved forward more quickly. On the first day of the trial, Fox settled with Dominion for $787.5 million. The Smartmatic litigation remains pending.
Corporations don't have minds or bodies. They only act when humans cause them to act. But like humans, corporations can act in ways that harm themselves. Delaware law gives its corporations expansive freedom to pursue any lawful business in pursuit of profit. But Delaware law does not permit a corporation to operate unlawfully. Not only that, but corporate fiduciaries breach their duty of loyalty when they decide to violate the law. Thus, when humans cause a corporation to violate the law in a way that harms the corporation, the corporation can recover from the humans who knowingly caused the corporation to violate the law and suffer harm.
