Phone-Hacking: News Corp. Shareholder Lawsuits Heat Up

As News Corp. continues to deal with the fallout from the phone-hacking scandal, the company is struggling to battle back the resulting shareholder lawsuits.

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On Tuesday, a federal judge in New York refused News Corp.'s request to stay suits brought by several shareholders, including the Iron Workers Mid-South Pension Fund. News Corp. had argued that the litigation was duplicative of another battle being waged in Delaware state court. The judge rejected the company's motion.

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Then on Wednesday, News Corp. lawyers appeared at a hearing in Delaware to argue that the case should be dismissed on grounds that the company's board has exercised its duties properly. The plaintiffs' lawyer battled back on this issue as a judge has now taken it under consideration.

Both lawsuits allege that that News Corp. officers have breached fiduciary duties, exercised gross mismanagement, abused control, wasted assets and generally didn't do a very good job in handling a scandal that caused a retraction of the company's bid to buy British Sky Broadcasting, shuttered newspapers, led to government investigations and caused the arrest of a top former official at the company.

Naturally, some shareholder lawyers have pounced.

The Delaware derivative lawsuit was filed first on March 16, 2011, and initially had more to do with News Corp.'s purchase of Shine Group, the company run by Rupert Murdoch's daughter Elisabeth. It was later amended to include the phone hacking scandal.

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The New York lawsuits were brought between July and August 2011.

What the New York federal lawsuits have that the Delaware state lawsuit doesn't are claims that defendants violated Section 14(a) of the Exchange Act, which deals with regulation of proxies and the use of fraudulent or misleading information in proxies. The New York lawsuits also include certain defendants including former News International CEO Rebekah Brooks who are not parties in the Delaware lawsuit.

News Corp. argued that the plaintiffs in the federal cases have brought a "meritless" Section 14(a) claim that “is premised entirely on a finding of a breach of the Board’s oversight duties, which is at the core of the Delaware Action.”

On Tuesday, a judge rejected that argument citing several reasons, including that a Section 14(a) claim is under the exclusive jurisdiction of federal courts, that proceeding with the cases wouldn't be inconvenient to a a company that maintains its executive offices in New York City and that a stay wouldn't avoid piecemeal litigation.

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Thus, the motion was denied.

News Corp. lawyers were back in court on Wednesday, arguing that the Delaware case should be dismissed because the plaintiffs didn't meet their burdens in showing how the company's board acted in bad faith in their actions tied to the phone-hacking scandal. The company controlled by Murdoch also argued that the responses were reasonable given the circumstances.

The plaintiffs echoed the case they have been building for more than 18 months -- that the company's board and top officials make actions for the benefit of the Murdochs and not the shareholders.

A judge's decision on the motion to dismiss will likely come in the next few weeks.

E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner