By Tom Hals
DOVER, Delaware (Reuters) - Lawyers for News Corp investors asked a U.S. judge on Wednesday to force the media company's board to face a lawsuit over a phone hacking scandal, while a defense lawyer said board members should be protected from second-guessing by shareholders.
News Corp shareholders argue that Chief Executive Rupert Murdoch and the board of directors, including two of his sons, should be held responsible for damage from the scandal. In their lawsuit, the investors say the board refused to investigate the hacking allegations because the directors sought to protect Murdoch's interests.
Since the breadth of the phone hacking and bribery scandal came to light in 2009, more than 50 people have been arrested, including a British police officer and two journalists from The Sun tabloid on Wednesday.
Facing a public backlash over the scandal, which included allegations of hacking of the phones of crime victims by journalists, Murdoch shuttered one of his tabloids, the News of the World, in July 2011. The scandal also cost New Corp a deal for full control of the BSkyB satellite business.
The investor lawsuit was filed in Delaware's Court of Chancery, the forum for many U.S. shareholder legal disputes.
The board of News Corp, which owns the Wall Street Journal as well as the Fox TV and studio business, wants an early dismissal of the case before the defendants are required to provide evidence to shareholders. If the case survives a motion to dismiss, it could become a bigger headache for board members, exposing them to depositions by the shareholders lawyers and possibly embarrassing revelations.
A lawyer for the board, Greg Varallo, told Chancery Judge John Noble at a hearing in Dover that the board has cooperated with official investigations and should not have to face the shareholder allegations.
Shareholders originally sued the board last year for allegedly overpaying for Shine Group Ltd in 2011, a TV production company majority owned by Murdoch's daughter Elisabeth. News Corp bought the company for $670 million. The lawsuit was later amended to include the claims stemming from the hacking scandal.
In trying to show the board is beholden to the Murdoch family, Mark Lebovitch, the co-lead plaintiffs attorney from Bernstein Litowitz Berger & Grossmann, noted that Elisabeth was attending News Corp board meetings before the Shine deal was announced.
"News Corp board meetings are not a place for 'bring your daughter to work day'," Lebovitch said. "That's not normal."
The comment prompted a reply from the Varallo, the board's attorney, who detailed Elisabeth's experience in creating Shine, which produced the hit "The Office" television series.
Noble did not say at the end of the three-hour hearing when he would rule.
Under the corporate law of Delaware, shareholders will have to prove the board was too conflicted to deal with the hacking scandal, or chose to ignore red flag warnings.
The Delaware case isn't the only pending shareholder case over the hacking scandal. On Tuesday, U.S. District Judge Paul Gardephe in Manhattan declined a request by the News Corp board to stay a nearly identical lawsuit in his court in favor of the Delaware case.
Gardephe found the case in his court included federal claims and two additional defendants that are not included in the Delaware lawsuit.
(Reporting by Tom Hals in Dover, Del.; Editing by Prudence Crowther and Andre Grenon)
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