- Associated Press - Wednesday, September 19, 2012

DOVER, DEL. (AP) - Attorneys for News Corp. asked a Delaware judge on Wednesday to dismiss a shareholder lawsuit alleging that company directors allowed a damaging cover-up of the phone hacking scandal in Britain.

The plaintiffs claim the board, in blind deference to CEO Rupert Murdoch, ignored several red flags about the extent of the hacking, dating back several years, and failed to act until the scandal exploded last year after British authorities reopened an investigation into the Murdoch-owned tabloid News of the World.

The shareholders say the damaging financial fallout included the folding of the best-selling News of the World after 168 years and News Corp. being pressured to withdraw its $12 billion takeover bid for satellite broadcaster British Sky Broadcasting Group PLC.

Investigations into the hacking scandal have resulted in more than 40 arrests. Among those facing criminal charges are Rebekah Brooks, the former chief of News Corp.’s British operations, and Andy Coulson, a former tabloid editor and the former communications chief for Prime Minister David Cameron.

Attorneys for the shareholders argued that the extent of the hacking should have been clear to News Corp. directors no later than July 2009, when The Guardian newspaper, a News Corp. rival, published an article suggesting that the problem extended far beyond a single rogue reporter, as News Corp. had previously claimed.

Shareholder attorney Jay Eisenhofer said News Corp. directors took no action in response to the Guardian article but instead stood by as News Corp.’s British newspaper subsidiary, News International, engaged in a systematic cover-up that included destruction of e-mails and computers

“The directors should be held liable for the cover-up that took place between 2009 and 2011,” Eisenhofer told the judge.

Attorneys for New York-based News Corp. argue that the plaintiffs had not met the standards under Delaware law for bringing the lawsuit or demonstrated that the board acted in bad faith.

Defense attorney Gregory Varallo described the lawsuit as a “dog’s breakfast” mishmash of unsustainable claims.

Varallo said the plaintiffs have conceded that News Corp.’s board did not formally discuss hacking-related issues until February 2011. Once the board became aware of the extent of the problem, it took action, establishing an independent Management and Standards Committee to investigate the phone hacking and setting up a process to compensate victims of phone hacking, Varallo said.

News Corp. directors are not only accused by shareholders of allowing the cover-up, but also of breaching their fiduciary duties by acquiescing to Murdoch’s decision to buy Shine Group, a television production company controlled by his daughter Elisabeth, at an allegedly inflated price of about $670 million.

The shareholders contend the deal, completed last year in the midst of the hacking scandal, was motivated not by legitimate business reasons but by Rupert Murdoch’s desire to ensure a family dynasty.

Defense attorneys argued that the deal was a proper exercise of business judgment, approved by an audit committee of independent directors advised by outside experts.