Who gets to sue News Corp?
Well, here’s a big shocker: Grant & Eisenhofer and Bernstein Litowitz Berger & Grossmann aren’t the only shareholders’ firms that think Rupert Murdoch’s News Corp is ripe for the picking. It’s been a little more than a week since G&E and Bernstein amended the complaint in their already-underway Delaware Chancery Court shareholder derivative suit against the News Corp board to include allegations from the British phone-hacking and bribe-paying scandal. Turns out that’s plenty of time for other shareholder lawyers to fire up their word processors and lodge their own complaints.
On Friday, a Massachusetts union pension fund represented by Labaton Sucharow filed a Delaware derivative suit. And on Monday, Manhattan federal court docketed a derivative complaint filed by Glancy Binkow & Goldberg on behalf of an individual News Corp shareholder. So now what? Who gets to control the shareholder litigation against Murdoch’s embattled company?
There’s no clear answer to that question, which means we may be in for a tussle between the Delaware and New York plaintiffs firms. As I mentioned in a post yesterday, Chancery Court judges are increasingly irritated that shareholders are filing mergers and acquisition and corporate governance suits in courts outside of Delaware. But there’s no formal framework for determining where cases like this should proceed. (That’s in contrast to federal securities class actions, in which the litigation process is strictly governed by the Private Securities Litigation Reform Act.)
As an initial matter, Labaton Sucharow’s Delaware case will be consolidated with the pending News Corp derivative suit, under the judicial order that first combined Grant & Eisenhofer’s case with Bernstein Litowitz’s back in March. Labaton partner Christine Azar told OTC that the firm won’t oppose consolidation and plans to work with G&E and Bernstein Litowitz. I asked Azar if she filed a separate suit just to get the Massachusetts fund a seat at the table alongside the other plaintiffs firms. “My client very much wanted to get involved in this one, as you might imagine,” she said. “A seat at the table may be putting it mildly.”
The New York case, unlike the Labaton suit, isn’t an exact parallel to the pending Delaware suit. The Glancy firm’s complaint includes a federal law claim that News Corp. failed to disclose the true nature of its internal controls to shareholders in proxy materials, and calls for a new board election.
Typically, in these kinds of jurisdictional duels, the defendant makes the opening move, asking for one of the cases to be stayed in favor of the other. (News Corp’s counsel in the Delaware suit, Edward Welch of Skadden, Arps, Slate, Meagher & Flom, didn’t return a call.) Then it’s really up to the judges presiding over the cases to decide which case to stay. Vice-Chancellor John Noble, who’s overseeing the Delaware suit, certainly has a good justification for letting Delaware lead the way, since the Chancery Court suit has been underway for months and Delaware law will govern any court’s consideration of allegations against the Delaware-chartered News Corp.
Bernstein Litowitz, moreover, plans to stay in control, along with Grant & Eisenhofer, of the litigation against News Corp. “My firm and our co-counsel are representing institutions that decided months ago that enough is enough,” said partner Mark Lebovitch. “We have every intention of pursuing our claims and righting the ship at News Corp.”
Lebovitch told OTC he’s all the more fired up about the derivative suit because of comments Monday by News Corp. independent board member Thomas Perkins, the Silicon Valley venture capitalist. Perkins reportedly said that the News Corp. board solidly supports the company’s top officers, including Rupert Murdoch. “I can assure you, there has been no discussion at the board level in connection with this current scandal of making any changes,” Perkins said. “Mr. Perkins’ quote shows what we’ve been saying all along,” Lebovitch said. “So much for any semblance of this board acting like it’s going to conduct a fair and independent inquiry.”
But Glancy Binkow contends the Delaware suit should be halted so it can proceed with the New York case. Glancy associate Louis Boyarsky told OTC the Delaware case originally focused on blocking News Corp’s acquisition of Shine Limited, the production company owned by Elisabeth Murdoch (one of Rupert’s daughters), and not on the phone hacking allegations. “The derivative claims with regard to the hacking scandal are add-ons [in that suit],” Boyarsky said. By contrast, he said, those claims are central to the New York suit. “We believe a stay would be inappropriate in our case,” he said. “We believe the court will look at how aggressively we’re litigating the action and the comprehensiveness of our complaint.” I asked how the firm has demonstrated its aggressiveness; he declined to disclose Glancy’s strategy but said, “We’re prepared to move swiftly.”
Meanwhile, Forbes columnist Robert Lenzner is floating a intriguing idea that could end all of this shareholder trouble for News Corp. Murdoch and his family already own 47 percent of the News Corp voting rights, Lenzner said in a Huffington Post item. The company’s just-announced $5 billion buyback plan will deliver another 6 percent into Murdoch hands. “This $5 billion move,” Lenzner wrote, “could be the first step in taking out the public shareholders-and ensuring that the media and entertainment empire stays in the control of his children.” If Murdoch took the company private, under Chancellor Strine’s reasoning in the recent (and controversial) Massey ruling, shareholders’ derivative claims could essentially be wiped out.
(Reporting by Alison Frankel)