By Jody Godoy and Helen Coster
(Reuters) - Fox Corp shareholders are demanding company records that may show whether directors and executives properly oversaw Fox News' coverage of former President Donald Trump's election-rigging claims, sources told Reuters, in what could be a prelude to lawsuits seeking to make directors liable for costs.
Investors are using provisions in Delaware corporate law to demand internal Fox records to investigate how Fox's leaders acted as its Fox News network aired segments on Trump's false claims that he lost the 2020 presidential election due to voter fraud, two sources confirmed.
In moves not previously reported, shareholders are looking for records such as board minutes, emails and texts that may contain evidence that Fox directors and executives were derelict by allowing the network to air the false claims.
The shareholders could use these as well as evidence presented in other lawsuits to build a case for the leaders to be held personally liable for costs from two defamation cases by voting-machine companies over the Fox coverage.
The sources requested anonymity to discuss the demands, which are not public, and declined to provide further details. It was not clear how many Fox shareholders are pursuing information demands.
A spokesperson for Fox did not reply to a request for comment.
One individual shareholder has already sued Fox Corp Chairman Rupert Murdoch, his son and Chief Executive Lachlan Murdoch and three other directors, alleging they breached their duties to the company by allowing Fox to perpetuate Trump's false claims.
Two voting technology companies have sued Fox for defamation over its reports that their machines enabled voter fraud. They are seeking a combined $4.3 billion in damages, and costs related to the lawsuits helped increase Fox's expenses by $54 million in the second half of 2022.
The media company faces trial on Tuesday in Delaware on Dominion Voting Systems' claim that Fox defamed it. Dominion is seeking $1.6 billion in damages. Voting technology company Smartmatic USA filed a similar lawsuit in New York.
Documents made public in the Dominion case show top executives, including Rupert Murdoch, and producers and hosts discussed concerns about the network’s reputation and cast doubt on Trump’s claims of election fraud.
To prevail, Dominion must show that Fox knowingly spread false information or acted with reckless disregard for the truth - the legal standard of actual malice. Fox has argued that Dominion's case falls short of proving actual malice and its damages request is "untethered from reality."
If Dominion wins at trial, particularly if there is a large damages award, it will help shareholders argue the board should have put procedures in place to avoid airing defamatory claims that hurt Fox's credibility and finances.
If Fox prevails in the Dominion case, the shareholders' cases would not be as strong, said Ann Lipton, a professor at Tulane University Law School. But investors may still argue Fox leadership failed to prevent an "expensive and embarrassing" episode, she said.
Past shareholder derivative claims led to a $90 million settlement in 2017 over the Fox board's handling of sexual harassment at Fox News and a $139 million settlement by the board in 2013 over a phone hacking scandal at London tabloids, both funded by insurance policies.
Those settlements also led to added disclosure requirements.
Lipton said that investors suing over the 2020 election coverage could seek to create an independent panel to report to the board on news accuracy.