By Alison Frankel
April 27 (Reuters) - (The opinions expressed here are those of the author, a columnist for Reuters.)
Was Fox Corp director and former Republican vice-presidential candidate Paul Ryan the blameless Cassandra of the Fox board, warning of disaster from the network’s coverage of 2020 election fraud conspiracies only to be ignored?
Or was Ryan so deeply invested in his relationship with Rupert and Lachlan Murdoch that he deliberately sat on his hands as Fox News repeatedly aired election fraud claims that Ryan believed to be false?
The answer depends on which Fox shareholder complaint you are reading.
The first lawsuit in Delaware Chancery Court to accuse Fox directors and officers of breaching their duties by failing to oversee Fox News' reporting of false election fraud allegations was filed on April 11, even before Fox reached its landmark $787.5 million defamation settlement with Dominion Voting Systems Corp on April 18.
In that complaint, plaintiffs' lawyers from Heyman Enerio Gattuso & Hirzel and Gardy & Notis explicitly carved Ryan out of their list of defendants because, in their view, he repeatedly told both Murdochs that Fox ought to be pushing back against calls by former President Donald Trump to overturn election results.
Ryan “attempted to put an end to FOX’s reporting of false information about the 2020 Presidential election,” the April 11 filing said. “Thus, is not named as a defendant.”
But a second Fox shareholder derivative complaint, newly unsealed on Wednesday, contends that Ryan is all the more culpable for the Fox board’s failure to oversee the network’s coverage because he knew Fox shows were airing baseless conspiracies theories. Ryan had ample power, as head of Fox's nominating and corporate governance committee, to call for action from his fellow Fox board members, the complaint alleged. Instead, shareholders said, he made a bad-faith decision to do nothing.
“Ryan manifestly knew that the accusations were false,” the newly unsealed complaint alleges. “Yet he took no board action, either to stop the libel or to retract it or to put appropriate policies in place.”
In the horns of a dilemma, the new complaint said, “Ryan chose sloth.”
Ryan, who has served on the Fox board since March 2019, did not respond to an email I sent to him via Fox Corp or to a phone message I left at the private equity firm Solamere Capital, where he is a partner.
The latest lawsuit, which also asserts claims against the rest of Fox’s directors and officers, ascribes a particular motive to Ryan: He knew that audience metrics were a factor in the compensation that would be awarded to Rupert and Lachlan Murdoch. So, according to the shareholder suit, he did nothing to stop Fox from appeasing its audience with election fraud reporting in order to keep the Murdochs happy. Otherwise, the suit alleges, Ryan might have made enemies of these kingmakers, dashing any remaining ambitions Ryan might have to run again for elected office.
A Fox Corp spokesman did not respond to my email. In its settlement with Dominion, Fox acknowledged a judicial ruling that it reported dozens of false election fraud allegations about the company.
Shareholder lawyer Kurt Heyman, whose first-filed complaint omits Ryan as a defendant, declined to comment. Plaintiffs' lawyer Samuel Closic of Prickett, Jones & Elliott, who signed a follow-up complaint lambasting Ryan, also declined to comment.
The shareholder derivative litigation against Fox officers and directors is still in early stages. At least one other complaint is expected to be filed, based on an April 19 heads-up letter that a group of prominent plaintiffs' firms sent to Vice Chancellor Travis Laster, who is overseeing the case. My reporting suggests additional shareholder firms are also likely to emerge with their own version of derivative claims against Fox’s directors and officers.
Eventually, Laster will pick one set of lawyers to lead the litigation attempting to recoup money from Fox directors and officers for the cost of their alleged oversight failures. Even then, it’s likely that the case won’t be resolved until after the conclusion of a $2.7 billion defamation suit by voting tech company Smartmatic USA Corp.
I’m focusing now on the divergent views of Ryan’s potential liability because one of the factors Laster will consider when he selects a slate of lawyers to run the case will be their liability theories, so it's notable that the two cases on file disagree so significantly about Ryan's role.
They do not disagree, however, on what Ryan knew and said about the election fraud conspiracies promulgated by former President Trump and his supporters. Ryan believed the conspiracy theories were bunk. He said so publicly, according to a Politico article cited in the new shareholder complaint, at a Bank of America conference on Nov. 24, 2020, just weeks after the election was called for Joe Biden.
Privately, according to discovery from the Dominion lawsuit that is cited in both shareholder complaints, Ryan began warning the Murdochs even before then to stop airing election fraud allegations from the president and his allies.
Fox’s board members and senior executives gathered on Nov. 10, 2020, for a three-day session culminating in the annual shareholder meeting. Evidence from the Dominion case shows that even at that early date, Ryan had already expressed concern to the Murdochs about Fox coverage. Ryan testified in his Dominion deposition that board members discussed Trump efforts to undo the election at the November meeting.
But Fox’s formal board minutes “contain no record of such discussion,” the newly unsealed complaint said. Ryan and the other directors, it alleged, knew Trump allies were already spreading conspiracy theories on Fox, “but faithlessly took no board action, not then and not ever.”
Under Fox’s bylaws, the new complaint claims, Ryan could have teamed up with one other independent director to call for a special board meeting as the network continued to provide a platform for allegations that Ryan had renounced. He could have insisted that his corporate governance committee be appointed to monitor “unreliable” Fox hosts and guests, the complaint said. At the very least, shareholders said, Ryan’s committee could have assigned monitoring responsibility to a different board committee.
Ryan’s failure to take any such actions, despite his own, public repudiation of election fraud conspiracy theories, puts him at “a heightened likelihood of liability,” according to the new complaint.
Or not, according to the April 11 complaint.
Someday we may know if Paul Ryan was an unsung hero or a faithless board member as Fox covered the aftermath of the 2020 election. Clearly, that day is not now.
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Exclusive -- Fox investors seek records in possible step toward suing directors (Reporting By Alison Frankel; editing by Leigh Jones)
