The Dominion Settlement Is Just the Beginning of Fox’s Nightmare

This commentary originally appeared in Time.

Forget the repetitive media chatter debating the political and societal wins and losses over the historic record $787.5 million settlement between Fox News and Dominion Voting Systems, after the voting machine maker alleged defamation by the cable network for promoting false news stories that Dominion rigged the 2020 presidential election against Donald Trump. Fox settled out of court at the last minute, seemingly panicked over the prospect of a dazed 92-year-old Rupert Murdoch, CEO of Fox News parent company Fox Corporation, having to take the stand to explain how he lost control of his prized creation—his “Foxenstein” monster. But while it’s a historic and record-setting amount to pay to avoid an embarrassing public trial over the airing of an admitted lie, the settlement doesn’t mark the end of Fox’s or Murdoch’s nightmare.

The horror story that is just beginning to unfold and that will continue to haunt the company and its patriarch is the corporate governance catastrophe this case leaves in its wake and the punctured business bravado of the scorching public record of admitted fraud and negligent management oversight. Fox’s celebrity anchors already soiled themselves in emailed evidence revealing they did not believe what they were reporting as truth. Their testimony and emails are in the public record for future litigants. Meanwhile, the judge’s special master, investigating fraudulent representations by Fox and its lawyers in discovery, continue undaunted by this settlement. The rest of Murdoch’s life and the rest of the careers of his board will likely be defined by ongoing fallout.

The Big Winner

There is no disputing that this is a grand slam for Dominion and nothing short of a transformative business success. Dominion is a tiny young company not even 1% the size of Fox, and it was sold to private equity investors Staple Street Capital for just about $40 million in 2018. This week’s settlement is gigantic—more than eight times their company revenues last year of $98 million, which assuming a 20% profit margin means that the settlement results in a whopping 5000% boost in the company’s earnings.

Such a whopping settlement may not have been awarded by a jury in court and very well could have been tossed on appeal. This small a company would have had a tough time proving concrete economic damage and lost revenues equivalent to $787.5 million let alone the $1.6 billion in damages they were seeking had it gone to trial. There are two types of damages—compensatory and punitive—and the idea that a company that may have been valued by its own investors, according to Fox’s lawyers, at no more than $80 million could get anything close to 10 times that as compensatory damages is blatantly ludicrous, while punitive damages are becoming increasingly pegged to the value of compensatory damages.

Even if an appellate court concurred with a possible jury verdict that an actual malice standard was met, the financial damages Dominion asked for were excessive. Plus, unlike the Alex Jones award of $1 billion, which is facing years of byzantine appeals and stalling, Dominion gets this money now—without any more hassle, delay, or expense and without having to deal with anxious insurers and litigation finance hedge funds breathing down their neck.

The Even Bigger Loser

On the other hand, for Fox Corp., the parent company of Fox News, this is a major strikeout. Incredibly, even though $787.5 million, more than half of the company’s total profit last fiscal year, is six times larger than the prior record for a defamation settlement—in 2017, Disney/ABC News paid out $177 million over misleading reporting on pink slime—Fox’s woes are just beginning.

Sure, some Dominion fans or Fox News haters might be upset that the cable channel did not have to publicly accept responsibility or apologize, rather just releasing a statement of meaningless legalese: “We acknowledge the Court’s rulings finding certain claims about Dominion to be false.” But such disappointment ignores the massive business and financial ramifications that Fox will have to live with for years. We are still only in the early innings of Fox’s struggles.

What now stands as a statement of legal fact for future litigants is the judge’s condemning conclusions.

The judge wrote, “the evidence does not support that FNN conducted good-faith, disinterested reporting.”

In another finding, the judge wrote that the “evidence developed in this civil proceeding demonstrates that is CRYSTAL clear that none of the statements relating to Dominion about the 2020 election are true.”

These rulings were accepted by Fox with “no contest” and stand as legal fact and cannot be appealed.

Other companies, such as Smartmatic, will surely be emboldened in their own defamation suits against Fox, which share basically the same fact patterns as Dominion’s. Furthermore, the condemning depositions of Fox anchors and executives, admitting that they knew their stories were false and sources were ludicrous, opens Fox’s board to serious claims of negligence and breaches of fiduciary duty—violations of a board’s duty of care and duty of loyalty under Delaware corporate law.

Plaintiffs’ attorneys are rushing to file derivative shareholder class action lawsuits on behalf of the 60% of Fox shares not held by the Murdoch family. Fox has a sophisticated board with accomplished individuals, such as former House Speaker Paul Ryan, Managing Partner of Quinn Emanuel William Burck, former Ford CEO Jacques Nasser, and Formula One CEO Chase Carey, all of whom have a lot to lose—whether by way of reputation or liability—by more embarrassing disclosures coming out of depositions and trials.

Already two of many law firms queuing up filed suit in Delaware Chancery Court, charging: “Fox knew—from the Board on down—that Fox News was reporting false and dangerous misinformation about the 2020 Presidential election, but Fox was more concerned about short-term ratings and market share than the long-term damages of its failure to tell the truth.”

While some media commentators have suggested that insurance might cover a large portion of Fox’s Dominion settlement, the company’s breaches of fiduciary duty could absolve insurers from having to cover the payout on top of permitting them to charge the company permanently higher insurance premiums. Even worse for Fox, unless the company reforms its coverage and corporate governance processes, insurers might recoil from underwriting the insurance of Fox’s board directors and officers, much the way Elon Musk was once forced to personally underwrite the insurance of Tesla’s board directors and officers after every insurance company refused to stomach the risk.

Admissions by Murdoch, Ryan, Fox News CEO Suzanne Scott, and Fox Corp. Chief Legal Officer Viet Dinh demonstrate a failure to act on what they knew to be false—or a failure of their duties of care and duty of loyalty to the shareholders. Their duties were not to protect management or even to please viewers, but to protect the enterprise and shareholder value. Yet, when asked in a January deposition if he could have intervened when falsehoods were being spread on his cable network, Murdoch succinctly replied on the record, “I could have. But I didn’t.”

Alt-right media such as One America News Network and Newsmax are likely facing even greater financial peril as they are facing similar legal challenges as Fox.

Despite his self-proclaimed willingness to testify in court, Murdoch’s rambling, brutally candid, and self-incriminating answers in deposition raise questions over his judgment. Fox cannot retract Murdoch’s sworn testimony, and when they unsuccessfully tried to hide his actual Fox News executive oversight duties, they had to apologize for such deception. Presumably Murdoch will be forced to continue to shed light on how much he knew, when he knew it, and what he did or didn’t do in response, as the drumbeat of investigations rolls on.

For its part, Fox News is already modifying its approach and seeming to take some of these lessons to heart before they become total Faux News. Nobody would mistake Fox today for MSNBC, but the cable network has severely limited former President Trump’s airtime recently, rarely ever showcasing full Trump campaign rallies and speeches as it used to do, while anchors almost always now resort to pre-taped edited clips of Trump rather than offering the unchecked freewheeling surprise live dial-in privileges Trump used to enjoy. Like Samuel Johnson quipped, nothing so focuses the mind like the prospect of an imminent hanging. Still, as Murdoch tries to restrain his out-of-control creation, he has his work cut out for him.