On June 7, 2013, a pension fund filed a shareholders' derivative lawsuit against 18 directors and officers of News Corp., including its Board Chairman and CEO Rupert Murdoch, alleging that monopolistic practices caused or allowed by the officers and directors have damaged the corporation and the value of its stock. Specifically, the suit claims a subsidiary of News Corp., News America, monopolized the grocery and drug store coupon business through various wrongful acts, including: "(i) entering into long-term exclusive contracts with retailers; (ii) paying large economically unjustifiable cash payments to retailers to derail competitor contracts; (iii) bundling and predatorily pricing its in-store advertising and promotion products and services with its [coupons]; (iv) hacking into competitors' computer files to steal customer lists and marketing materials; (v) dishonestly disparaging competitors' compliance rates and financial viability; and (vi) even defacing competitors' advertisements." The shareholders claim that News America's monopolistic practices were encouraged by News Corp. at the highest levels, including Rupert Murdoch. Other directors and officers are alleged to have breached their fiduciary duties by causing or allowing these illegal practices and by failing to implement and maintain adequate internal controls to detect or prevent those practices.
According to the Complaint, News Corp. has already paid nearly $655 million to settle various lawsuits by competitors alleging that they were harmed by News America's monopolistic conduct. The plaintiff claims a new wave of liabilities is forthcoming, as demonstrated by the recent filings of lawsuits by News America's customers alleging damages from the illegal practices. The shareholders allege that these customer lawsuits will further damage the value of News Corp.'s stock. Based on these facts, the lawsuit alleges that News Corp.'s directors and officers breached their fiduciary duties, wasted corporate assets, and have been unjustly enriched at the expense of News Corp.'s shareholders. As relief, the plaintiff seeks unspecified damages against and restitution by the individual officers and directors. In addition, the shareholders ask the Court to order certain changes to News Corp.'s corporate governance.
The Bottom Line
The lawsuit against News Corp. is a current example of a trend toward follow-on shareholder derivative actions triggered by the public disclosure of an antitrust lawsuit or government enforcement action. Derivative lawsuits have resulted from the revelation of other recent high-profile antitrust disputes, including derivative lawsuits against Bank of America and Citigroup related to the LIBOR price-fixing scandal and against Intel based on alleged fines paid as a result of European antitrust enforcement actions. As with other antitrust risks, follow-on derivative shareholder lawsuits arising from claims of anticompetitive conduct are best anticipated before such litigation or government enforcement occurs. Implementation by the Board and management of a strong compliance program is one of the best ways to rebut claims that an officer or director "allowed" antitrust violations to occur, or "failed" to implement and maintain adequate internal controls to prevent such wrongdoing. An effective compliance program should help prevent the underlying anticompetitive conduct from even occurring. It should also help the officers and directors – and the company – defend against antitrust claims that might arise.