“The Fox Effect? Implications of Recruiting Corporate Law to Combat Misinformation,” by Lili Levi

This new article is here. The Introduction:

In the wake of the mega-million-dollar settlement of U.S. Dominion’s defamation action against Fox News over the network’s broadcast of false election fraud claims after the 2020 U.S. presidential election, shareholder derivative actions were brought in Delaware against the parent company Fox Corporation’s board of directors for breach of fiduciary oversight duties under state corporate law. The shareholder plaintiffs claimed that the Fox Corporation board breached its fiduciary duties by allowing Fox News knowingly to air false programming that put the company at risk of massive defamation liability. The Delaware Chancery Court denied Fox Corp.’s motion to dismiss the action for lack of standing, so the derivative action is currently pending.

But should corporate fiduciary duty law be interpreted to impose liability on the boards of companies that own news outlets for failing to control defamation and other speech tort risks associated with the editorial judgments made by their news subsidiaries? What makes the In re Fox Corporation Derivative Litigation (hereinafter “In re Fox“) significant beyond its specific facts is that the plaintiffs’ rationales seek to expand and supercharge the traditional oversight requirements of corporate law. If accepted, this turn to strengthening the disciplinary power of corporate governance in the news media context is likely to undermine press functions and the public interest in a free and independent press.

The expansive interpretations of corporate governance principles advanced in In re Fox could attract support on the basis that corporate oversight duties can serve to minimize misinformation in political discourse. Surveys reveal that many Americans see political misinformation as a social threat. If using corporate law to combat misinformation could lead to robust censorship effects on falsity, then many could consider this a significant public benefit. This could incentivize additional lawsuits against the press.

At the same time, such a development is likely to undermine press activity in ways harmful to public discourse. If these kinds of corporate governance claims are successful, they promise to generate a regulatory regime of editorial control by risk-averse corporate boards with much broader business interests than the protection of press freedom. The possibility of multi-million-dollar personal liability for parent company board members—or at least corporate insurers—is likely to generate excessive board-level micromanagement.

It is reasonable to expect that this would lead directly to journalistic self-censorship by news subsidiaries, deter journalism discouraged by a press-hostile government, and worsen journalistic timidity in covering the powerful and litigious. The self-regulatory compliance and oversight systems likely to be implemented in media companies as a response to heightened governance liability will inevitably extend to coverage of matters beyond clearly false information.

Enhanced board obligations may also lead to uneven effects. If the most likely plaintiffs in defamation actions continue to be the politically powerful, wealthy, or socially notable, parent company boards worried about follow-on oversight lawsuits might feel disproportionate pressure to reduce critical coverage of such elites. Society loses when the powerful are not held to account. Moreover, heightened compliance requirements could provide cover for targeted and politicized efforts by board members to influence the content of their news units. Such results would all be dangerous for the press function and, ironically, for the same public discourse that anti-misinformation initiatives seek to improve.

Proponents of expanded oversight doctrine may attempt to dispute these predictions of a chilling effect on journalism by noting that damages payouts in successful shareholder derivative actions go to the corporate treasury. So if a derivative action based on the company’s prior payments to defamation plaintiffs is successful, the recovery may in fact offset the company’s defamation payouts by recouping the money from the culpable directors themselves.

But such theoretically reallocated liability cannot in fact be expected to temper either the corporate costs of expanded oversight litigations or the expected chilling effect on news companies’ journalist functions. If the Fox plaintiffs’ arguments to change corporate oversight doctrine are successful, the true costs are likely to be extensive. When oversight compliance requirements are effectively dictated by corporate insurers with little or no commitment to journalism, intrusive oversight into and second-guessing of the editorial process is practically guaranteed. Even if this would lead to desirable results for the most extreme cases, the consequences of overzealous compliance are likely to be overbroad and troubling for the public interest.

The functions of an independent press are democratically necessary and already subject to excessive economic, social, and governmental pressure (including legally aggressive lawsuits against FCC-regulated broadcast outlets by a sitting President). Adding even more pressure is bad policy. In light of the sustained recent attacks on constitutional press protections in defamation cases, the limits to other newsgathering protections, and press-skeptical courts and juries, the press is already in a particularly vulnerable spot legally. Recent settlements of lawsuits against CBS and ABC brought by President Trump trigger suspicions that the executive branch is not only demanding but also obtaining exceptional capitulation from conglomerate-owned press entities.

The anti-misinformation frame implicit in In re Fox thus offers an opportunity to address key questions about what types of trade-offs we should accept between two of our foundational social commitments—to the democratic value of the independent press and the democratic value of truthful political discourse. Because the deterrent effects on misinformation of expanding corporate oversight duties to this context are unclear and the negative consequences for the press are predictable, the likely effects of expanding corporate fiduciary liability to parent corporations vis-à-vis the coverage decisions of their news media organizations should be resisted—even by those who deplore Fox News’ 2020 election coverage. Ultimately, the Essay argues that courts should be reluctant to impose oversight liability in the news company context where executives or boards of directors did not actively direct clearly illegal conduct.

The Essay does not advance a doctrinal First Amendment argument. Nor does it request special and disproportionate exceptions or advantages for the press. It is, rather, a plea that before courts decide to advance anti-misinformation efforts by expanding ordinary corporate law principles to reach oversight of defamation risk in journalistic contexts, as proposed in In re Fox, they consider the potential impact of such an expansion on the ability of press organizations to perform their critical democratic functions.

To be sure, media owners are free to engage in intrusive oversight voluntarily. Nevertheless, the Essay argues that the effects of adopting a legal requirement are likely to lead to accelerated and industry-wide owner oversight over editorial decisions than is reported today. This poses a clear threat to journalistic independence. And since such intrusions are also unlikely to be open and transparent to those outside the organization in many instances, they could well obscure independent assessment of the degree of owner constraint on the outlet’s reporting.

The Essay proceeds as follows: Part I.A describes In re Fox, the Delaware Chancery Court’s denial of the defense’s motion to dismiss the suit for demand futility, and subsequent developments. In so doing, it provides a “mini-overview” on shareholder derivative suits to set the context and clarify the procedural posture of the case for the unfamiliar. Part I.B examines the In re Fox litigation through an anti-misinformation lens. Part II.A sketches board oversight duties under current Delaware corporate law. Part II.B unpacks the expanded board monitoring duties sought by the plaintiffs in In re Fox. Part III explores our dual—and here conflicting—social commitments to press editorial freedom and truthful political dialogue. Part III.A takes the first step by showing how the plaintiffs’ theories of liability in In re Fox do not justify expansion of current doctrine. Part III.B then addresses the dangers of expanded monitoring obligations to press functions—particularly since many news outlets are owned by other entities and since the current politico-legal environment amplifies the vulnerability of the press. Part III.C argues that the anti-misinformation benefits of the doctrinal expansion sought in In re Fox are at best uncertain and likely outweighed by the predictable chilling effects of expanded corporate law oversight duties on press functions. While recognizing the limits of its suggestions, Part III.D ends with some thoughts on other ways to promote press accountability.