Settled: June 26, 2013
On July 15, 2011, Labaton Sucharow, on behalf of Massachusetts Laborers' Pension & Annuity Funds, filed a derivative complaint in the Delaware Court of Chancery against the Board of Directors (the "Board") of News Corporation ("News Corp" or the "Company") alleging breaches of its fiduciary duties in connection with the News of the World phone hacking scandal and its related fall-out and for disregarding its fiduciary duties by allowing the Company's founder, CEO, Chairman and controlling shareholder, Rupert Murdoch ("Murdoch"), to engage in nepotism and use News Corp. as his own personal fiefdom. Plaintiffs allege that at all relevant times the Board (which includes Murdoch's two sons, James Murdoch and Lachlan Murdoch) was conflicted and beholden to Murdoch and should be liable for its refusal to investigate and to stop known misconduct at the Company.
The action was subsequently consolidated with a related action and assigned to Vice Chancellor Noble. On September 21, 2011, Labaton Sucharow, together with the plaintiffs firms in the related action, filed a second amended consolidated complaint. On October 5, 2011, defendants moved to dismiss plaintiffs' second amended consolidated complaint. On October 10, 2011, the parties entered into a stipulated briefing schedule. On November 14, 2011, defendants filed additional motions to dismiss. On December 23, 2011, plaintiffs filed an omnibus answering brief in opposition to all of defendants' motions to dismiss. On January 31, 2012, defendants filed their reply briefs.
In the months since the instigation of this action, much light has been shed on the breadth of the abuses at News Corp, News of the World and many other News Corp subsidiaries (including The Sun and The Times of London). The fallout from the scandal has already been significant. In July 2011, the Company was forced to close the 168-year-old publication News of the World. In August 2011, the Company was forced to abandon its effort to acquire 100 percent ownership of highly lucrative satellite network BSkyB. To date, the scandal has resulted in several police and governmental investigations, parliamentary hearings, more than 40 arrests (including former News of the World editor Andy Coulson and former News International CEO Rebekah Brooks), as well as dozens of civil suits filed in Great Britain that center on allegations that News Corp's British newspapers hacked into the voicemails of as many as 4,000 people, bribed police officers and hacked computers to access information for potential stories. In addition, News Corp's subsidiaries are being investigated in Russia and Australia for engaging in other potentially illegal conduct.
On May 1, 2012, a parliamentary panel took the unprecedented action of releasing a report concluding that Murdoch is "not a fit person" to run a huge international company. The report also stated Murdoch exhibited "willful blindness" toward wrongdoing at his organization and said News Corp had made "huge failings of corporate governance." The report also specifically criticized James Murdoch for failing to act much earlier. In April 2013, the parties settled the matter for $139 million, the largest derivative settlement in Court of Chancery history. In addition, News Corp agreed to sweeping corporate governance changes designed to prevent future misconduct. On June 26, 2013, the court gave final approval to the settlement.