Investors fight early dismissal of suit vs News Corp board

DOVER, Del., Sept 19 Wed Sep 19, 2012 12:59am EDT

DOVER, Del., Sept 19 (Reuters) - Shareholders of News Corp will make their case in a U.S. court on Wednesday for holding its board responsible for phone hacking scandals that cost the company a major newspaper and a deal for full control of the BSkyB satellite business.

The shareholders want a Delaware judge to allow the lawsuit to proceed against Rupert Murdoch, his sons Lachlan and James and the rest of the company's board for failing to oversee the owner of the Fox TV and movie businesses and the Wall Street Journal.

If Judge John Noble denies early dismissal, it would clear the way for shareholders to begin gathering evidence to try to prove the directors were at fault for News Corp's stumbles as the phone hacking scandal emerged.

Since the scandal began to come to light in 2009 the company has closed its News of the World newspaper and lost a deal to make the BSkyB satellite broadcast business wholly owned.

"All of this harm occurred because the Board chose to protect those close to Murdoch rather than investigate the misconduct when it learned about it," the shareholders said in June in their amended complaint, which they updated to add more hacking claims. The lawsuit was originally filed in March 2011.

The shareholders include several public pension funds.

The claim of a lack of board oversight is one of the toughest cases to make under the corporate law of Delaware, which is where the company is incorporated. Essentially the shareholders have to prove the board chose to ignore red flags warning them about the phone hacking.

"I think given all of the publicity around the hacking scandal there is a greater possibility than usual that the court will not dismiss this case," said Jay Brown, a professor at Sturm College of Law in Denver. "However, the odds are on dismissal."

The lawsuits are so-called derivative actions, meaning the shareholders are seeking to step into the shoes of News Corp. Any damages they recover from the directors are paid to the company, so shareholders benefit only indirectly.

The directors have said the lawsuit should be dismissed because too much time has passed since the phone hacking started and because the shareholders did not follow proper steps in filing the case.

While the shareholders have zeroed in on the phone hacking, the lawsuit was originally brought in 2011 against News Corp's board over the company's agreement to buy Shine Group Ltd for $670 million in February last year.

The business was majority owned by Rupert Murdoch's daughter Elisabeth, and plaintiffs argued the board made no attempt to negotiate a better deal for News Corp.

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