Inside Fox’s Legal and Business Debacle

In August 2021, the Fox Corporation board of directors gathered on the company’s movie studio lot in Los Angeles. Among the topics on the agenda: Dominion Voting Systems’ $1.6 billion defamation lawsuit against its cable news network, Fox News.

The suit posed a threat to the company’s finances and reputation. But Fox’s chief legal officer, Viet Dinh, reassured the board: Even if the company lost at trial, it would ultimately prevail. The First Amendment was on Fox’s side, he explained, even if proving so could require going to the Supreme Court.

Mr. Dinh told others inside the company that Fox’s possible legal costs, at tens of millions of dollars, could outstrip any damages the company would have to pay to Dominion.

That determination informed a series of missteps and miscalculations over the next 20 months, according to a New York Times review of court and business records, and interviews with roughly a dozen people directly involved in or briefed on the company’s decision-making.

The case resulted in one of the biggest legal and business debacles in the history of Rupert Murdoch’s media empire: an avalanche of embarrassing disclosures from internal messages released in court filings; the largest known settlement in a defamation suit, $787.5 million; two shareholder lawsuits; and the benching of Fox’s top prime-time star, Tucker Carlson.

And for all of that, Fox still faces a lawsuit seeking even more in damages, $2.7 billion, filed by another subject of the stolen-election theory, the voting software company Smartmatic, which can now build on the evidence produced in the Dominion case to press its own considerable claims.

In the month since the settlement, Fox has refused to comment in detail on the case or the many subsequent setbacks. That has left a string of unanswered questions: Why did the company not settle earlier and avoid the release of private emails and texts from executives and hosts? How did one of the most potentially prejudicial pieces of evidence — a text from Mr. Carlson about race and violence — escape high-level notice until the eve of the trial? How did Fox’s pretrial assessment so spectacularly miss the mark?

Repeatedly, Fox executives overlooked warning signs about the damage they and their network would sustain, The Times found. They also failed to recognize how far their cable news networks, Fox News and Fox Business, had strayed into defamatory territory by promoting President Donald J. Trump’s election conspiracy theories — the central issue in the case. (Fox maintains it did not defame Dominion.)

When pretrial rulings went against the company, Fox did not pursue a settlement in any real way. Executives were then caught flat-footed as Dominion’s court filings included internal Fox messages that made clear how the company chased a Trump-loving audience that preferred his election lies — the same lies that helped feed the Jan. 6 Capitol riots — to the truth.

It was only in February, with the overwhelming negative public reaction to those disclosures, that Mr. Murdoch and his son with whom he runs the company, Lachlan Murdoch, began seriously considering settling. Yet they made no major attempt to do so until the eve of the trial in April, after still more damaging public disclosures.

At the center of the action was Mr. Dinh and his overly rosy scenario.

Mr. Dinh declined several requests for comment, and the company declined to respond to questions about his performance or his legal decisions. “Discussions of specific legal strategy are privileged and confidential,” a company representative said in a statement.

Defenders of Mr. Dinh, a high-level Justice Department official under President George W. Bush, say his initial position was sound. Because of the strength of American free speech protections, Dominion needed to clear a high bar. And unfavorable rulings from the Delaware judge who oversaw the case hurt Fox’s chances, they argue.

“I think Viet and Fox carried out just the right strategy by moving down two paths simultaneously — first, mounting a strong legal defense, one that I think would have eventually won at the appellate stage, and, second, continuously assessing settlement opportunities at every stage,” said William P. Barr, the former attorney general under Mr. Trump who worked with Mr. Dinh earlier in his career.

Of course, the case would have been difficult for any lawyer. As the internal records showed, executives knew conspiracy theories about Dominion were false yet did not stop hosts and guests from airing them.

That placed Fox in the ultimate danger zone, where First Amendment rights give way to the legal liability that comes from knowingly promoting false statements, referred to in legalese as “actual malice.”

An Unanswered Letter

The fall of 2020 brought Fox News to a crisis point. The Fox audience had come to expect favorable news about President Trump. But Fox could not provide that on election night, when its decision desk team was first to declare that Mr. Trump had lost the critical state of Arizona.

In the days after, Mr. Trump’s fans switched off in droves. Ratings surged at the smaller right-wing rival Newsmax, which, unlike Fox, was refusing to recognize Joseph R. Biden’s victory.

The Fox host who was the first to find a way to draw the audience back was Maria Bartiromo. Five days after the election, she invited a guest, the Trump-aligned lawyer Sidney Powell, to share details about the false accusations that Dominion, an elections technology company, had switched votes from Mr. Trump to Mr. Biden.

Soon, wild claims about Dominion appeared elsewhere on Fox, including references to the election company’s supposed (but imagined) ties to the Smartmatic election software company; Hugo Chávez, the Venezuelan dictator who died in 2013; George Soros, the billionaire investor and Democratic donor; and China.

On Nov. 12, a Dominion spokesman complained to the Fox News Media chief executive, Suzanne Scott, and the Fox News Media executive editor, Jay Wallace, begging them to make it stop. “We really weren’t thinking about building a litigation record as much as we were trying to stop the bleeding,” Thomas A. Clare, one of Dominion’s lawyers, said recently at a post-mortem discussion of the case held by a First Amendment advocacy group, the Foundation for Individual Rights and Expression.

As Fox noted in its court papers, its hosts did begin including company denials. But as they continued to give oxygen to the false allegations, Dominion sent a letter to the Fox News general counsel, Lily Fu Claffee, demanding that Fox cease and correct the record. “Dominion is prepared to do what is necessary to protect its reputation and the safety of its employees,” the letter warned.

It came amid more than 3,600 messages that Dominion sent debunking the conspiracy theories to network hosts, producers and executives in the weeks after the election.

Such letters often set off internal reviews at news organizations. Fox’s lawyers did not conduct one. Had they done so, they may have learned of an email that Ms. Bartiromo received in November about one of Ms. Powell’s original sources on Dominion.

The source intimated that her information had come from a combination of dreams and time travel. (“The wind tells me I’m a ghost but I don’t believe it,” she had written Ms. Powell.)

Dan Novack, a First Amendment lawyer, said that if he ever stumbled upon such an email in a client’s files, he would “physically wrest my client’s checkbook from them and settle before the police arrive.”

Fox, however, did not respond to the Dominion letter or comply with its requests — now a key issue in a shareholder suit filed in April, which maintains that doing so would have “materially mitigated” Fox’s legal exposure.

The Case

Three months after the election, another voting technology company tied to the Dominion conspiracy, Smartmatic, filed its own defamation suit against Fox, seeking $2.7 billion in damages. Dominion told reporters that it was preparing to file one, too.

Mr. Dinh was publicly dismissive.

“The newsworthy nature of the contested presidential election deserved full and fair coverage from all journalists, Fox News did its job, and this is what the First Amendment protects,” Mr. Dinh said at the time in a rare interview with the legal writer David Lat. “I’m not at all concerned about such lawsuits, real or imagined.”

Mr. Dinh was saying as much inside Fox, too, according to several people familiar with his actions at the time. His words mattered.

A refugee of Vietnam who fled the Communist regime and landed with his family in the United States virtually penniless, he graduated from Harvard and Harvard Law and was a clerk for Justice Sandra Day O’Connor. As an assistant attorney general for George W. Bush, he helped draft the Patriot Act expanding government surveillance powers. He and Lachlan Murdoch later became so close that Mr. Dinh, 55, is godfather to one of Mr. Murdoch’s sons.

Mr. Dinh took a hands-on approach to the Dominion case, and eventually split with a key member of the outside team, Charles L. Babcock of Jackson Walker, according to several people with knowledge of the internal discussions.

After disagreement over the best way to formulate Fox’s defense, Jackson Walker and Fox parted ways. George Freeman, executive director of the Media Law Resource Center and a former assistant general counsel for The Times, said Mr. Babcock’s exit had left Fox down a seasoned defamation defense lawyer. “He’s probably the best trial lawyer in the media bar,” Mr. Freeman said.

By then, Mr. Dinh was fashioning the legal team more in his own image, having brought in a longtime colleague from the Bush administration, the former solicitor general Paul Clement.

Mr. Clement’s presence on the Fox team was itself an indication of Mr. Dinh’s willingness to take the case all the way to the Supreme Court — few members of the conservative legal bar had more experience there.

Mr. Dinh hired Dan Webb, a former U.S. attorney, for the role of lead litigator, succeeding Mr. Babcock. Mr. Webb was known for representing a beef manufacturer that sued ABC News over reports about a product sometimes referred to as “pink slime.” The case was settled in 2017 for more than $170 million.

The Fox legal team based much of the defense on a doctrine known as the neutral reportage privilege. It holds that news organizations cannot be held financially liable for damages when reporting on false allegations made by major public figures as long as they don’t embrace or endorse them.

“If the president of the United States is alleging that there was fraud in an election, that’s newsworthy, whether or not there’s fraud in the election,” Mr. Clement told Jim Geraghty, a writer for National Review and The Washington Post. “It’s the most newsworthy thing imaginable.”

Fox remained so confident, the company said in reports to investors that it did not anticipate the suit would have “a material adverse effect.”

But the neutral reportage privilege is not universally recognized. Longtime First Amendment lawyers who agree with the principle in theory had their doubts that it would work, given that judges have increasingly rejected it.

“Most astute media defamation defense lawyers would not, and have not for a very long time, relied on neutral reportage — certainly as a primary line of defense, because the likelihood that a court would accept it as a matter of First Amendment law has continued to diminish over time,” said Lee Levine, a veteran media lawyer.

An early warning came in late 2021. The judge in the case, Eric M. Davis, rejected Fox’s attempt to use the neutral reportage defense to get the suit thrown out altogether, determining that it was not recognized under New York law, which he was applying to the case. Even if it was recognized, Fox would have to show it reported on the allegations “accurately and dispassionately,” and Dominion had made a strong argument that Fox’s reporting was neither, the judge wrote in a ruling.

That ruling meant that Dominion, in preparing its arguments, could have access to Fox’s internal communications in discovery.

That was a natural time to settle. But Fox stuck with its defense and its plan, which always foresaw a potential loss at trial. “There was a strong belief that the appeal could very well be as important, or more important, than the trial itself,” Mr. Webb said at the post-mortem discussion of the case with Mr. Clare.

Things Fall Apart

Fox executives did not foresee how daunting the discovery process would become.

At nearly every step, the court overruled Fox’s attempts to limit Dominion’s access to private communications exchanged among hosts, producers and executives. The biggest blow came last summer, after a ruling stating that Dominion could review messages from the personal phones of Fox employees, including both Murdochs.

The result was a treasure trove of evidence for Dominion: text messages and emails that revealed the doubts that Rupert Murdoch had about the coverage airing on his network, and assertions by many inside Fox, including Mr. Carlson, that fraud could not have made a material difference in the election.

The messages led to even more damaging revelations during depositions. After Dominion’s lawyers confronted Mr. Murdoch with his own messages showing he knew Mr. Trump’s stolen election claims were false, he admitted that some Fox hosts appeared to have endorsed stolen election claims.

That appeared to have undermined Fox’s defense. But Mr. Dinh told Mr. Murdoch afterward that he thought the deposition had gone well, according to a person who witnessed the exchange. Mr. Murdoch then pointed a finger in the direction of the Dominion lawyer who had just finished questioning him and said, “I think he would strongly disagree with that.”

During Mr. Carlson’s deposition last year, Dominion’s lawyers asked about his use of a crude word to describe women — including a ranking Fox executive. They also mentioned a text in which he discussed watching a group of men, who he said were Trump supporters, attack “an Antifa kid.” He lamented in the text, “It’s not how white men fight,” and shared a momentary wish that the group would kill the person. He then said he regretted that instinct.

Mr. Carlson felt blindsided by the extent of the questions, according to associates and confirmed by a video leaked to the left-leaning group Media Matters: “Ten hours,” he exclaimed to people on the set of his show, referring to how long he was questioned. “It was so unhealthy, the hate I felt for that guy,” he said about the Dominion lawyer who had questioned him.

There is no indication that Mr. Carlson’s texts tripped alarms at the top of Fox at that point.

The alarms rang in February, when reams of other internal Fox communications became public. The public’s reaction was so negative that some people at the company believed that a jury in Delaware — which was likely to be left-leaning — could award Dominion over a billion dollars. Yet the company made no serious bid to settle.

With prominent First Amendment lawyers declaring that Dominion had an exceptionally strong case, a siege mentality appeared to set in.

In the interview with Mr. Geraghty, Mr. Clement said Fox was being singled out for its politics. Unlike mainstream media, which tend to report on major events the same way and have power in numbers, he said, “conservative media, or somebody like Fox, is in a much more vulnerable position.” He added, “If they report it, and the underlying allegations aren’t true, they’re much more out there on an island.”

Reflecting the view of Mr. Dinh’s supporters even now, Mr. Barr, the former attorney general, said the “mainstream media stupidly cheered on Dominion’s case,” which he said they would come to regret because it would weaken their First Amendment protections. (He made a similar argument in March in The Wall Street Journal.)

But Judge Davis had determined that Fox had set itself apart by failing to conduct “good-faith, disinterested reporting” in the segments at issue in the suit. That was in large part why, just ahead of opening statements, he ruled that Fox could not make neutral reportage claims that the conspiracy theory was newsworthy at the trial, knocking out a pillar of Fox’s strategy. (He also ruled that Fox had, indeed, defamed the company in airing the false statements.)

Mr. Webb, who had already drafted much of his opening statement and tested it with a focus group, had to remove key parts of his remarks, he said in the post-trial discussion with Mr. Clare.

All along, the Fox board had been taking a wait-and-see approach.

But the judge’s pretrial decisions began to change the board’s thinking. Also, in those final days before the trial, Fox was hit with new lawsuits. One, from the former Fox producer Abby Grossberg, accused Mr. Carlson of promoting a hostile work environment. Another, filed by a shareholder, accused the Murdochs and several directors of failing to stop the practices that made Fox vulnerable to legal claims.

The weekend before trial was to begin, with jury selection already underway, the board asked Fox to see the internal Fox communications that were not yet public but that could still come out in the courtroom.

That Sunday, the board learned for the first time of the Carlson text that referred to “how white men fight.” Mr. Dinh did not know about the message until that weekend, according to two people familiar with the matter. Fox’s lawyers believed it would not come out at trial, because it was not relevant to the legal arguments at hand. The board, however, was concerned that Dominion was prepared to use the message to further undermine the company with the jury.

In an emergency meeting that Sunday evening, the board — with an eye on future lawsuits, including those from Smartmatic and Ms. Grossberg — decided to hire the law firm Wachtell, Lipton Rosen & Katz to investigate whether any other problematic texts from Mr. Carlson or others existed.

Over that same weekend, Lachlan Murdoch told his settlement negotiators to offer Dominion more than the $550 million for which he had already received board approval.

In interviews, people with knowledge of the deliberations disagreed about how much Mr. Carlson’s text contributed to the final $787.5 million settlement price.

By the time the board learned of the message, the Murdochs had already determined that a trial loss could be far more damaging than they were initially told to expect. A substantial jury award could weigh on the company’s stock for years as the appeals process played out.

“The distraction to our company, the distraction to our growth plans — our management — would have been extraordinarily costly, which is why we decided to settle,” Lachlan Murdoch said at an investment conference this month.

But there was broad agreement among people with knowledge of the discussions that the Carlson text, and the board’s initiation of an investigation, added to the pressure to avoid trial.

The text also helped lead to the Murdochs’ decision a few days later to abruptly pull Mr. Carlson off the air. Their view had hardened that their top-rated star wasn’t worth all the downsides he brought with him.

Fox’s trouble has not ended. In the weeks since the settlement and Mr. Carlson’s ouster, prime-time ratings have dropped (though Fox remains No. 1 in cable news), and new plaintiffs sued the network, most recently a former Homeland Security official, Nina Jankowicz.

As one of Ms. Jankowicz’s lawyers said in an interview, the Dominion case “signals that there is a path.”

Still pending is the Smartmatic suit. In late April, Fox agreed to hand over additional internal documents relating to several executives, including the Murdochs and Mr. Dinh. In a statement reminiscent of Mr. Dinh’s early view of the Dominion case, the network said that the $2.7 billion in damages sought by Smartmatic — operating in only one county in 2020 — were implausible and that Fox was protected by the First Amendment.

“We will be ready to defend this case surrounding extremely newsworthy events when it goes to trial, likely in 2025,” the statement said.