In the Court of Chancery of the State of Delaware

Home , Chase Carey, James Murdoch, Lachlan Murdoch

EFiled: Jun 10 2011 6:15PM EDT Transaction ID 38082821 Case No. 6285-VCN

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

) In re NEWS CORPORATION ) Consolidated SHAREHOLDER DERIVATIVE ) C.A. No. 6285-VCN LITIGATION )

OPENING BRIEF IN SUPPORT OF DEFENDANTS K. RUPERT MURDOCH, JAMES MURDOCH, LACHLAN MURDOCH, CHASE CAREY, DAVID DEVOE, JOEL KLEIN, ARTHUR SISKIND, JOSE MARIA AZNAR, NATALIE BANCROFT, KENNETH COWLEY, VIET DINH AND JOHN THORNTON’S MOTION TO DISMISS

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP One Rodney Square P.O. Box 636 Wilmington, Delaware 19899-0636 Tel.: (302) 651-3000 Fax: (302) 651-3001

Attorneys for Defendants K. Rupert Murdoch, James Murdoch, Lachlan Murdoch, Chase Carey, David DeVoe, Joel Klein, Arthur Siskind, Jose Maria Aznar, Natalie Bancroft, Kenneth Cowley, Viet Dinh and John Thornton

Dated: June 10, 2011

TABLE OF CONTENTS

TABLE OF CASES AND AUTHORITIES...... iii

PRELIMINARY STATEMENT ...... 1

STATEMENT OF FACTS ...... 3

A. The Parties...... 3

B. The Shine Transaction...... 4

C. The Allegations In The Amended Complaint...... 5

ARGUMENT...... 7

I. THE AMENDED COMPLAINT SHOULD BE DISMISSED BECAUSE PLAINTIFFS HAVE FAILED TO PLEAD PARTICULARIZED FACTS DEMONSTRATING DEMAND FUTILITY...... 7

A. Plaintiffs’ Conclusory Allegations Do Not Excuse Their Failure To Make A Demand Under Rales...... 8

(a) Plaintiffs have not demonstrated that the Audit Committee members are interested or lack independence...... 11

(i) Barnes ...... 11

(ii) Perkins...... 14

(iii) Knight ...... 16

(iv) Eddington...... 18

(b) Plaintiffs have failed to allege that the remaining outside Directors are interested or lack independence...... 21

(i) Thornton...... 22

(ii) Dinh...... 23

(iii) Aznar...... 24

(iv) Bancroft...... 26

(v) Cowley ...... 27

B. Even If Aronson Applies, Plaintiffs Still Have Not Alleged Particularized Facts To Excuse Demand...... 29

II. THE AMENDED COMPLAINT SHOULD BE DISMISSED BECAUSE PLAINTIFFS HAVE FAILED TO STATE A CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST RUPERT MURDOCH OR THE BOARD...... 31

A. Standard Of Review...... 31

B. The Amended Complaint Should Be Dismissed As To The Non- Voting Directors...... 32

C. The Business Judgment Rule Applies To The Shine Transaction...... 33

1. Plaintiffs Have Failed To State A Duty Of Loyalty Claim...... 34

2. Plaintiffs Have Failed To State A Duty Of Care Claim...... 35

(a) Plaintiffs’ allegations relating to the Shine Transaction do not state a care claim...... 35

(b) Plaintiffs’ unsubstantiated charges about Rupert Murdoch and News Corp. generally do not state a claim...... 39

D. Entire Fairness Does Not Apply Because Plaintiffs Have Not Pled Any Facts Demonstrating That Rupert Murdoch Is On Both Sides Of The Shine Transaction Or Otherwise Exercises Control Over The Board...... 42

1. Rupert Murdoch Is Not On Both Sides Of The Transaction...... 42

2. Rupert Murdoch Does Not Dominate And Control The News Corp. Board Or Audit Committee...... 43

III. COUNT THREE OF THE AMENDED COMPLAINT FAILS TO STATE A CLAIM...... 45

CONCLUSION...... 49

TABLE OF CASES AND AUTHORITIES

CASES PAGE(S)

A.R. DeMarco Enters., Inc. v. Ocean Spray Cranberries, Inc., C.A. No. 19133-NC, 2002 WL 31820970 (Del. Ch. Nov. 26, revised Dec. 4, 2002)...... 30

Abraham v. Emerson Radio Corp., 901 A.2d 751 (Del. Ch. 2006)...... 4, 5

Agostino v. Hicks, 845 A.2d 1110 (Del. Ch. 2004)...... 46

Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48 (Del. Ch. 2011)...... 44

Aronson v. Lewis, 473 A.2d 805 (Del. 1984) ...... passim

Ash v. McCall, C.A. No. 17132, 2000 WL 1370341 (Del. Ch. Sept. 15, 2000)...... 30

Atwell v. RHIS, Inc., 974 A.2d 148 (Del. 2009) ...... 40

In re Baxter Int’l, Inc. S’holders Litig., 654 A.2d 1268 (Del. Ch. 1995)...... 21, 22

Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004) ...... 8, 15, 17, 21, 28

Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150 (Del. Ch. 2005), aff’d, 906 A.2d 114 (Del. 2006)...... 27, 35

Blackmore Partners, L.P. v. Link Energy LLC, C.A. No. 454-N, 2005 WL 2709639 (Del. Ch. Oct. 14, 2005)...... 34

Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ...... 10, 14, 16, 25, 26, 27

In re Career Educ. Corp. Deriv. Litig., C.A. No. 1398-VCP, 2007 WL 2875203 (Del. Ch. Sept. 28, 2007) ...... 9, 29

iii

Citron v. E.I. du Pont de Nemours & Co., 584 A.2d 490 (Del. Ch. 1990)...... 21, 35, 36

Coates v. Netro Corp., C.A. No. 19154, 2002 WL 31112340 (Del. Ch. Sept. 11, 2002)...... 38

In re Coca-Cola Enters., Inc. S’holders Litig., C.A. No. 1927-CC, 2007 WL 3122370 (Del. Ch. Oct. 17, 2007), aff’d mem. sub nom. Int’l Bhd. Teamsters v. Coca-Cola Co., 954 A.2d 910 (Del. 2008) ...... 39, 40, 44

In re Cogent, Inc. S’holder Litig., 7 A.3d 487 (Del. Ch. 2010)...... 37

In re CompuCom Sys., Inc. Stockholders Litig., C.A. No. 499-N, 2005 WL 2481325 (Del. Ch. Sept. 29, 2005) ...... passim

Conrad v. Blank, 940 A.2d 28 (Del. Ch. 2007)...... 9

Desimone v. Barrows, 924 A.2d 908 (Del. Ch. 2007)...... 10

Dillon v. Berg, 326 F. Supp. 1214 (D. Del. 1971), aff'd, 453 F.2d 876 (3d Cir. 1971)...... 13

In re Dow Chem. Co. Deriv. Litig., C.A. No. 4349-CC, 2010 WL 66769 (Del. Ch. Jan. 11, 2010)...... passim

Fairthorne Maint. Corp. v. Ramunno, C.A. No. 2124-VCS, 2007 WL 2214318 (Del. Ch. July 20, 2007)...... 3

In re Frederick’s of Hollywood, Inc. S’holder Litig., C.A. No. 15944, 2000 WL 130630 (Del. Ch. Jan. 31, 2000), aff’d sub nom. Malpiede v. Townson, 780 A.2d 1075 (Del. 2001)...... 19, 35

In re Gen. Motors (Hughes) S’holder Litig., C.A. No. 20269, 2005 WL 1089021 (Del. Ch. May 4, 2005), aff’d, 897 A.2d 162 (Del. 2006)...... passim

In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162 (Del. 2006) ...... 3

Globis Partners, L.P. v. Plumtree Software, Inc., C.A. No. 1577-VCP, 2007 WL 4292024 (Del. Ch. Nov. 30, 2007)...... 12, 25, 34

Grobow v. Perot, 539 A.2d 180 (Del. 1988), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ...... passim

Guttman v. Huang, 823 A.2d 492 (Del. Ch. 2003)...... 21

Herd v. Major Realty Corp., C.A. No. 10707, 1990 WL 212307 (Del. Ch. Dec. 21, 1990) ...... 38

Highland Legacy Ltd. v. Singer, C.A. No. 1566-N, 2006 WL 741939 (Del. Ch. Mar. 17, 2006)...... 20, 30

In re IAC/InterActive Corp., 948 A.2d 471 (Del. Ch. 2008)...... 46

In re J.P. Morgan Chase & Co. S’holders Litig., 906 A.2d 808 (Del. Ch. 2005), aff’d, 906 A.2d 766 (Del. 2006)...17, 18, 19, 20, 29

Jacobs v. Yang, C.A. No. 206-N, 2004 WL 1728521 (Del. Ch. Aug. 2, 2004), aff’d mem., 867 A.2d 902 (Del. 2005) ...... passim

Kahn v. MSB Bancorp, Inc., C.A. No. 14712-NC, 1998 WL 409355 (Del. Ch. July 16, 1998), aff’d mem., 734 A.2d 158 (Del. 1999) ...... 11

Kahn v. Roberts, C.A. No 12324, 1995 WL 745056 (Del. Ch. Dec. 6, 1995), aff’d, 679 A.2d 460 (Del. 1996)...... 38

Khanna v. McMinn, C.A. No. 20545-NC, 2006 WL 1388744 (Del. Ch. May 9, 2006) ...... 11, 12, 14, 22, 23, 24

Krim v. ProNet, Inc., 744 A.2d 523 (Del. Ch. 1999)...... 12, 27

Kurz v. Holbrook, 989 A.2d 140 (Del. Ch. 2010), rev’d in part on other grounds sub nom. Crown EMAK Partners, LLC v. Kurz, 992 A.2d 377 (Del. 2010)...... 13

In re Lear Corp. S’holder Litig., 967 A.2d 640 (Del. Ch. 2008)...... 35

Litt v. Wycoff, C.A. No. 19083-NC, 2003 WL 1794724 (Del. Ch. Mar. 28, 2003) ...... 9, 29

In re Lukens Inc. S’holder Litig., 757 A.2d 720 (Del. 1999), aff’d mem. sub nom. Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) ...... 43

Lyondell Chem. Co. v. Ryan, 970 A.2d 235 (Del. 2009) ...... 42

Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) ...... 42

McMillan v. Intercargo Corp., 768 A.2d 492 (Del. Ch. 2000)...... 3, 31

Midland Grange No. 27 Patrons of Husbandry v. Walls, C.A. No. 2155-VCN, 2008 WL 616239 (Del. Ch. Feb. 28, 2008)...... 38

Monroe Cnty. Emps.’ Ret. Sys. v. Carlson, C.A. No. 4587-CC, 2010 WL 2376890 (Del. Ch. June 7, 2010)...... 45

In re Nat’l City Corp. S’holders Litig., C.A. No. 4123-CC, 2009 WL 2425389 (Del. Ch. July 31, 2009), aff’d mem., 998 A.2d 851 (Del. 2010) ...... 12

In re NYMEX S’holder Litig., C.A. Nos. 3621-VCN, 3835-VCN, 2009 WL 3206051 (Del. Ch. Sept. 30, 2009) ...... 6, 31, 35, 43, 46

Pogostin v. Rice, 480 A.2d 619 (Del. 1984), overruled on other grounds, Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ...... 7, 8

Propp v. Sadacca, 175 A.2d 33 (Del. Ch. 1961), aff’d in part, rev’d in part, Bennett v. Propp, 187 A.2d 405 (Del. 1962) ...... 33

Rales v. Blasband, 634 A.2d 927 (Del. 1993) ...... 9

Rattner v. Bidzos, C.A. No. 19700, 2003 WL 22284323 (Del. Ch. Sept. 30, revised Oct. 7, 2003)...... passim

Ryan v. Gifford, 918 A.2d 341 (Del. Ch. 2007)...... 9, 22

In re Sea-Land Corp. S’holders Litig., C.A. No. 8453, 1987 WL 11283 (Del. Ch. May 22, 1987) ...... 45

Solomon v. Pathe Commc’ns Corp., C.A. No. 12563, 1995 WL 250374 (Del. Ch. Apr. 21, 1995), aff’d, 672 A.2d 35 (Del. 1996)...... 32, 45

Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990) ...... 7

Stroud v. Milliken Enters., Inc., 585 A.2d 1306 (Del. Ch. 1988)...... 13, 46

Stroud v. Milliken Enters. Inc., 552 A.2d 476 (Del. 1989) ...... 46

In re Syncor Int’l Corp. S’holders Litig., 857 A.2d 994 (Del. Ch. 2004)...... 6, 46

Tomczak v. Morton Thiokol, Inc., C.A. No. 7861, 1990 WL 42607 (Del. Ch. Apr. 5, 1990)...... 35

Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006), aff’d mem. sub nom. Trenwick Am. Litig. Trust v. Billett, 931 A.2d 438 (Del. 2007) ...... 41

In re Tri-Star Pictures, Inc., Litig., C.A. No. 9477, 1995 WL 106520 (Del. Ch. Mar. 9, 1995) ...... 32, 33

vii

In re Walt Disney Co. Deriv. Litig., 731 A.2d 342 (Del. Ch. 1998), aff’d in part, rev’d in part on other grounds, Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ...... passim

Wayne Cnty. Emps.’ Ret. Sys. v. Corti, C.A. No. 3534-CC, 2009 WL 2219260 (Del. Ch. July 24, 2009), aff’d mem., 996 A.2d 795 (Del. 2010) ...... 33, 34, 42

Weinberger v. UOP, Inc., 409 A.2d 1262 (Del. Ch. 1979)...... 32

In re W. Nat’l Corp. S’holders Litig., C.A. No. 15927, 2000 WL 710192 (Del. Ch. May 22, 2000) ...... 18, 25, 26, 27, 44, 45

In re Wheelabrator Techs. Inc. S’holders Litig., C.A. No. 11495, 1992 WL 212595 (Del. Ch. Sept. 1, 1992)...... 33

White v. Panic, 793 A.2d 356 (Del. Ch. 2000), aff'd, 783 A.2d 543 (Del. 2001) ...... 44

White v. Panic, 783 A.2d 543 (Del. 2001) ...... 8

Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310 (Del. Ch. 2010)...... 18

AUTHORITIES

8 Del. C. § 102(b)(7)...... 2, 42

8 Del. C. § 141(b) ...... 46, 47

8 Del. C. § 141(c)...... 36, 37

8 Del. C. § 223(a)...... 47

Ch. Ct. R. 12(b)(6) ...... 31

D.R.E. 408...... 40

viii

PRELIMINARY STATEMENT

Shine Group (“Shine”) is a fast-growing, international production company that produces several hit television shows. Plaintiffs, however, sidestep the obvious business reasons that would prompt News Corporation (“News Corp.” or the

“Company”), an international media company, to acquire Shine. Instead, they obsessively focus on the relationship between Shine’s founder and majority shareholder

(Elisabeth Murdoch), the daughter of News Corp.’s Chairman and Chief Executive

Officer (Rupert Murdoch). Nothing under Delaware law, however, requires News Corp. to forgo the obvious business opportunity presented by the Shine acquisition just because of a family relationship.

Plaintiffs also go to great lengths to downplay another salient reality about the Shine acquisition – namely, that the full 16-member News Corp. board of directors

(the “Board”) delegated the approval of the Shine acquisition to News Corp.’s Audit

Committee. The Audit Committee is comprised of four independent and disinterested directors, and Plaintiffs have failed to allege particularized facts that suggest otherwise.

Moreover, the Audit Committee members retained their own legal advisor (Wachtell,

Lipton, Rosen & Katz) and financial advisor (Centerview Partners) for this purpose.

Plaintiffs fail to challenge the independence of either of these advisors.

Instead, Plaintiffs raise a host of conclusory allegations about Rupert

Murdoch, his family relationships, and prior transactions and events involving News

Corp. that are unrelated to the Shine acquisition. These allegations are nothing more than a transparent attempt to create provocative, media-worthy sound bites, and do nothing to

rebut the fact that an independent and disinterested Audit Committee, with its own independent advisors, approved the Shine transaction. Indeed, Plaintiffs do not plead any

particularized facts giving rise to a reasonable doubt that a majority of the Board members can exercise their independent and disinterested business judgment in responding to a demand. This pleading failure alone warrants dismissal of both the first and second counts of the Verified Consolidated Shareholder Derivative and Class Action

Complaint (the “Amended Complaint”) under Court of Chancery Rule 23.1.

For similar reasons, Plaintiffs’ breach of fiduciary duty claims must also be dismissed for failure to state a claim. Each member of the Audit Committee is disinterested and independent, as is a majority of the Board. It is well-settled that decisions made by disinterested and independent directors are protected by the business judgment rule. Plaintiffs allege nothing to suggest that this well-settled principle should not apply here to the Audit Committee’s decision to approve the Shine acquisition. In any event, any claim for damages would be barred by the exculpatory provision in News

Corp.’s charter adopted pursuant to 8 Del. C. § 102(b)(7).

Finally, Plaintiffs’ challenge to a potential Board decision to add a board seat for Elisabeth Murdoch also fails. Putting aside the reality that the decision to add a board seat has not yet occurred, this claim is derivative in nature – not direct as Plaintiffs have styled it. Regardless, it fails to state a claim as the decision will be made by an independent and disinterested Board.

For these reasons, and as further explained below, the Amended

Complaint should be dismissed in its entirety.

STATEMENT OF FACTS1

A. The Parties.

Plaintiffs The Amalgamated Bank, Central Laborers Pension Fund, and

New Orleans Employees’ Retirement System (collectively, “Plaintiffs”) all purport to own News Corp. shares at times relevant to this litigation, and also purport to bring this action both derivatively on behalf of News Corp. and directly on behalf of themselves.

(Am. Compl. ¶¶ 1, 12-14.)

At the time Plaintiffs filed both their initial complaints and the Amended

Complaint, the News Corp. Board was comprised of 16 directors: Defendants John

Thornton, Viet Dinh, Jose Maria Aznar, Natalie Bancroft, Peter Barnes, Thomas Perkins,

Andrew Knight, Kenneth Cowley, Roderick Eddington, Arthur Siskind, Joel Klein,

David DeVoe, Chase Carey, Lachlan Murdoch, James Murdoch and Rupert Murdoch

(collectively, the “News Corp. Directors” or the “Directors”). (Am. Compl. ¶¶ 16-31.) A majority of these Directors are admittedly outside directors: Thornton, Dinh, Aznar,

1 The facts set forth in this Statement of Facts and in this Memorandum are drawn from the allegations in the Amended Complaint dated May 13, 2011 (cited herein as “(Am. Compl. ¶ __.)”) and certain News Corp. public filings with the SEC of which the Court may take judicial notice. See Fairthorne Maint. Corp. v. Ramunno, C.A. No. 2124-VCS, 2007 WL 2214318, at *4 (Del. Ch. July 20, 2007) (stating that the “court may consider documents incorporated into the pleadings by reference and [may] take judicial notice of relevant public filings” when ruling on a motion for judgment on the pleadings); McMillan v. Intercargo Corp., 768 A.2d 492, 500 (Del. Ch. 2000) (same); see also In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 170 (Del. 2006). The original complaint filed on March 16, 2011 is cited herein as “(Compl. ¶ __.).”

All exhibits attached to the accompanying Transmittal Affidavit of Amy C. Huffman in support of the Opening Brief in support of the News Corp. Directors’ Motion to Dismiss are cited herein as “(Huffman Aff. Ex. __).”

Bancroft, Barnes, Perkins, Knight, Cowley and Eddington. (Id.) The Audit Committee, which approved the Shine transaction, is composed of four of these outside Directors

(Barnes, Eddington, Knight and Perkins). (Am. Compl. ¶ 84.)

Defendant Rupert Murdoch has been Chief Executive Officer of News

Corp. since 1979 and its Chairman since 1991. (Am. Compl. ¶ 16.) The Murdoch family, through the Murdoch Family Trust, is alleged to own 12% of the overall equity of News

Corp., and less than 40% of News Corp.’s voting power through ownership of voting

Class B common shares. (Id.)

Nominal defendant News Corp., the world’s largest media company, is a

Delaware corporation headquartered in New York, New York. (Am. Compl. ¶ 15.)

B. The Shine Transaction.

Shine is a privately held British-based television and film production company that owns 25 production companies worldwide and produces several hit television shows.2 Elisabeth Murdoch, daughter of Rupert Murdoch and sister of James

2 In a conspicuous attempt to downplay Shine’s “proven track record of developing hit shows and new formats worldwide,” Plaintiffs have deleted from their Amended Complaint references to Shine’s production of hit television shows such as “The Biggest Loser,” “Master Chef,” “The Office,” and “Ugly Betty,” and that Shine had a reported revenue of approximately $400 million in 2009. (Compl. ¶¶ 1, 51, 56.) Moreover, News Corp.’s February 21, 2011 press release, which Plaintiffs cite in the Amended Complaint, makes clear that “Shine Group boasts some of the most respected and prolific production companies in the worlds of scripted and non-scripted television, now numbering 25 across three continents and responsible [for] some of the world’s best known and loved programmes.” News Corp. Form 8-K (filed Feb. 22, 2011) (Huffman Aff. Ex. A). Where, as here, Plaintiffs have only selectively cited press releases, it is proper for the Court to consider their entire text. See, e.g., Abraham v. Emerson Radio Corp., 901 A.2d 751, 758 (Del. Ch. 2006) (noting that the defendant may properly refer to the entire text of a press release from which the plaintiffs had selectively quoted).

and Lachlan Murdoch, is the founder and was the 53% owner of Shine. (Am. Compl. ¶¶

2, 3, 66.)

On February 21, 2011, News Corp. issued a press release announcing that

it had reached an agreement in principle to acquire 100 percent of Shine (the “Shine

Transaction”). (Am. Compl. ¶ 71.) The Shine Transaction closed on April 5, 2011, following the completion of negotiations between News Corp. and Shine, as well as approval by News Corp.’s independent Audit Committee and receipt of an independent fairness opinion. (Am. Compl. ¶¶ 23-26, 71.) Though Plaintiffs contend that News

Corp.’s press releases about the Shine Transaction do not “contain[ ] any suggestion of any synergies to the Company by owning Shine” (Am. Compl. ¶ 80), the Company’s

February 21 press release clearly states that the Shine Transaction is “a unique and exciting opportunity” for News Corp. and “will be an important part of the expansion strategy for [News Corp.’s] worldwide TV operations.” News Corp. Form 8-K (filed Feb.

22, 2011) (Huffman Aff. Ex. A).3

C. The Allegations In The Amended Complaint.

Throughout their Amended Complaint, Plaintiffs attempt to second-guess

the business judgment of the News Corp. Board and Audit Committee. Count I of the

Amended Complaint alleges that the News Corp. Directors breached their fiduciary

3 Plaintiffs have affirmatively cited to the February 21, 2011 and April 5, 2011 press releases in the Amended Complaint. Thus, it is proper for the Court to consider the full releases on this motion to dismiss. See, e.g., Abraham, 901 A.2d at 758. The April 5 press release plainly states that the Shine Transaction was approved by News Corp.’s Audit Committee, not the full News Corp. Board. See News Corp. Form 8-K (filed April 5, 2011) (Huffman Aff. Ex. B). Moreover, the press release makes clear that the Audit Committee received advice from independent financial and legal advisors. See id.

duties to News Corp. and its shareholders by failing to fairly evaluate the Shine

Transaction and “permitting the purchase of Shine at an excessive and inequitable price.”

(Am. Compl. ¶ 120.) Count II of the Amended Complaint alleges that Rupert Murdoch

breached his fiduciary duties by using his control over News Corp. and the Directors to

cause the Company to purchase Shine at an excessive price. (Am. Compl. ¶¶ 125, 126.)

Finally, Count III of the Amended Complaint purports to allege a direct claim for breach of fiduciary duty by Rupert Murdoch and the Directors for improperly expanding the

News Corp. Board to create a seat for Elisabeth Murdoch, who, despite having years of industry experience, is alleged (without support) to be unqualified to serve as a director.

(Am. Compl. ¶ 140 (alleging that adding Elisabeth Murdoch to the Board will “tighten the control that Murdoch and his family exercise over the Company”).) It is well-settled, however, that such a claim premised on entrenchment and mismanagement theories is derivative in nature.4

As explained further below, the Amended Complaint should be dismissed

with prejudice. First, Plaintiffs fail to meet the heightened standards of pleading demand

futility under Court of Chancery Rule 23.1. Plaintiffs have not shown that a majority of

the News Corp. Board was incapable of considering a demand because a majority of the

Board is clearly disinterested and independent. Second, each of Plaintiffs’ conclusory

4 See In re NYMEX S’holder Litig., C.A. Nos. 3621-VCN, 3835-VCN, 2009 WL 3206051, at *9 (Del. Ch. Sept. 30, 2009) (“Entrenchment claims are usually viewed as purely derivative in nature.”); Agostino v. Hicks, 845 A.2d 1110, 1123 (Del. Ch. 2004) (finding that because a claim was “nothing more than a claim of mismanagement that, if proven, represent[ed] a direct wrong to the corporation . . . the wrong alleged [was] entirely derivative in nature”) (citation omitted); In re Syncor Int’l Corp. S’holders Litig., 857 A.2d 994, 997 (Del. Ch. 2004) (explaining that instances of “corporate mismanagement lead[ ] to purely derivative claims”).

allegations fails to state a claim as a matter of Delaware law. In this regard, the Amended

Complaint is most notable for what it fails to allege. Plaintiffs fail to allege facts that

would call into question the independence or disinterestedness of a single member of

News Corp.’s Audit Committee, which approved the Shine Transaction, let alone a

majority of the Board. Plaintiffs have also not alleged sufficient facts to suggest

that Rupert Murdoch dominated or controlled the News Corp. Audit Committee (or the

Board) or otherwise stood on both sides of the Shine Transaction. As a result, neither the

Audit Committee’s approval of the Shine Transaction, nor the potential decision to

expand the Board, forms the basis of a breach of fiduciary duty claim under Delaware

law.5

ARGUMENT

I. THE AMENDED COMPLAINT SHOULD BE DISMISSED BECAUSE PLAINTIFFS HAVE FAILED TO PLEAD PARTICULARIZED FACTS DEMONSTRATING DEMAND FUTILITY.

Plaintiffs’ claims fail because they are derivative in nature and Plaintiffs have not complied with the pre-suit demand requirements of Court of Chancery Rule

23.1.6 The demand requirement of Rule 23.1 requires that a shareholder plaintiff “show

5 To the extent any duty of care claim has been stated, and it has not, damages from such claims would be barred by News Corp.’s § 102(b)(7) charter provision. See News Corp. Form 8-K (Oct. 17, 2008), at Ex. 3.1 Art. IX (Huffman Aff. Ex. C).

6 It is a “cardinal precept” of Delaware law that the corporation’s board of directors, not its stockholders, has the exclusive right to manage the corporation’s “business and affairs.” Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (quoting 8 Del. C. § 141(a)). Like any other business decision, the decision of whether or not to initiate litigation is committed to the corporation’s board of directors. See Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990); Pogostin v. Rice, 480 A.2d 619, 624 (Del. 1984) (explaining that a derivative action “impinges on the managerial freedom of directors”), overruled on other grounds, Brehm v. Eisner, 746 A.2d 244 (Del. 2000). As a result, Delaware law requires a putative stockholder (cont’d)

either that the board wrongfully refused the plaintiff’s pre-suit demand to initiate the suit or, if no demand was made, that such a demand would be a futile gesture and is therefore excused.” White v. Panic, 783 A.2d 543, 550 (Del. 2001).

Where, as here, a demand has not been made, the plaintiff bears the burden of alleging with particularity why demand should be excused as futile. See

Aronson, 473 A.2d at 815. In doing so, the “stockholder plaintiff[ ] must overcome the powerful presumptions of the business judgment rule.” White, 783 A.2d at 551 (citation omitted). As the Delaware Supreme Court has explained, “directors are entitled to a presumption that they were faithful to their fiduciary duties,” and the “burden is upon the plaintiff in a derivative action to overcome that presumption.” Beam ex rel. Martha

Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048-49 (Del. 2004). If a plaintiff fails to demonstrate that demand was excused, the complaint must be dismissed.

See In re Dow Chem. Co. Deriv. Litig., C.A. No. 4349-CC, 2010 WL 66769 (Del. Ch. Jan.

11, 2010) (dismissing claims where a plaintiff had not pled particularized facts demonstrating that demand was futile).

A. Plaintiffs’ Conclusory Allegations Do Not Excuse Their Failure To Make A Demand Under Rales.

Here, the Rales test, rather than the Aronson test,7 applies because the

______(cont’d from previous page) plaintiff to first make a demand upon the board of directors to bring the lawsuit directly or to take other corrective action. See Pogostin, 480 A.2d at 624.

7 Under the Aronson test, demand is excused as futile only where the particularized facts in the complaint create a reasonable doubt that either (1) a majority of the directors upon whom the demand would have been made were disinterested and independent, or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment. See Aronson, (cont’d)

four-member Audit Committee, not the full 16-member Board, approved the Shine

Transaction. See Conrad v. Blank, 940 A.2d 28, 36-37 (Del. Ch. 2007) (holding that

Rales applied to a demand futility claim because the challenged transaction was

authorized by the compensation committee and not the full board, and denying a motion

to dismiss where the company’s board and audit committee had found that options were erroneously labeled but failed to remedy those errors); Ryan v. Gifford, 918 A.2d 341,

353 (Del. Ch. 2007) (explaining that Rales would apply where the compensation

committee, rather than the board, approved a transaction so long as the committee was

less than a majority of the board, and denying a motion to dismiss in part based on the

“unique” and “unusual” facts of the case).

Where, as here, the board on which a demand would be made did not

make the challenged business decision, demand is excused under Rales if the well- pleaded allegations in the complaint give rise to a reasonable doubt that a majority of the board can exercise “its independent and disinterested business judgment in responding to a demand.” Rales v. Blasband, 634 A.2d 927, 933-34 (Del. 1993).8 Thus, for their

Amended Complaint to survive, Plaintiffs must make particularized allegations

establishing that at least eight of the 16 News Corp. Board members were not

______(cont’d from previous page) 473 A.2d at 814; Litt v. Wycoff, C.A. No. 19083-NC, 2003 WL 1794724, at *3 (Del. Ch. Mar. 28, 2003). Plaintiffs cannot meet this standard. See infra Section I.B.

8 Importantly, the Rales test and the first prong of the Aronson test are nearly identical. See In re Career Educ. Corp. Deriv. Litig., C.A. No. 1398-VCP, 2007 WL 2875203, at *12 n.71 (Del. Ch. Sept. 28, 2007) (citing Khanna v. McMinn, C.A. No. 20545-NC, 2006 WL 1388744, at *16 (Del. Ch. May 9, 2006)).

independent or disinterested. See Dow Chem. Co., 2010 WL 66769, at *6 (“Demand is deemed futile, and therefore excused, only if a majority of the directors have such a personal stake in the matter at issue . . . that they would not be able to make a proper business judgment in response to a demand.”) (emphasis added). As explained further below, Plaintiffs have failed to do so.

Plaintiffs have made no well-pleaded allegations demonstrating that a majority of the Board is not disinterested and independent with regard to the Shine

Transaction. Rule 23.1 requires a plaintiff to plead demand with particularity – not with

the sort of conclusory allegations that Plaintiffs make in their Amended Complaint. See

Rattner v. Bidzos, C.A. No. 19700, 2003 WL 22284323, at *7 (Del. Ch. Sept. 30, revised

Oct. 7, 2003) (“A prolix complaint larded with conclusory language . . . does not comply

with these fundamental pleading mandates.”) (citation omitted). Plaintiffs can only

satisfy this burden by complying with “stringent requirements of factual particularity that

differ substantially from . . . permissive notice pleadings . . . .” Brehm v. Eisner, 746

A.2d 244 (Del. 2000); see also Desimone v. Barrows, 924 A.2d 908, 918 (Del. Ch. 2007)

(dismissing suit under Rule 23.1 where plaintiff “rushed into court, making generalized

charges of wrongdoing unaccompanied by fact pleading about the involvement of the

directors in the improprieties he contends occurred”). Therefore, the Amended

Complaint must be dismissed.

(a) Plaintiffs have not demonstrated that the Audit Committee members are interested or lack independence.

(i) Barnes

Plaintiffs make three sparse allegations regarding Barnes – none of which

establish that Barnes is interested or lacks independence. First, Plaintiffs claim that

Barnes “has received well over $1 million in fees and stock option awards” for having served as a director since 2004 and as a member of the Audit Committee. (Am. Compl. ¶

110.) It is well-settled that the payment of customary director compensation does not establish that board members lack independence or are interested. See Grobow v. Perot,

539 A.2d 180, 188 (Del. 1988) (holding that allegations that directors were paid for their services do not establish a financial interest sufficient to find that directors lack independence), overruled on other grounds by Brehm, 746 A.2d 244; Kahn v. MSB

Bancorp, Inc., C.A. No. 14712-NC, 1998 WL 409355, at *3 (Del. Ch. July 16, 1998)

(holding that “the mere fact that the directors receive fees for their service is not enough

to establish an entrenchment motive”), aff’d mem., 734 A.2d 158 (Del. 1999).

Plaintiffs allege that Barnes earned $236,000 for the fiscal year ended

June 30, 2010 for his service as a director. (Am. Compl. ¶ 26.) Plaintiffs do not,

however, allege that Barnes’ compensation is material to him. See, e.g., In re Gen.

Motors (Hughes) S’holder Litig., C.A. No. 20269, 2005 WL 1089021, at *1 n.5, *8 (Del.

Ch. May 4, 2005) (rejecting the argument that director compensation of over $200,000

per year created a conflict of interest because the plaintiffs made “no allegations . . . that

relate a given director’s salary and benefits to that director’s own economic

circumstance”), aff’d, 897 A.2d 162 (Del. 2006); see also Khanna v. McMinn, C.A. No.

20545-NC, 2006 WL 1388744, at *16 (Del. Ch. May 9, 2006) (finding that “the mere fact

that a director receives compensation for her service as a board member adds little or

nothing to the demand-futility analysis . . . unless the pleadings demonstrate, for example,

that the status or compensation was somehow ‘material’ to the director or otherwise outside the norm”).

Additionally, Plaintiffs’ allegation that Barnes receives stock option awards for his service as a director only demonstrates that Barnes’ interests are aligned with those of shareholders, and that Barnes would approve the Shine Transaction only if it was beneficial to News Corp. shareholders. (Am. Compl. ¶¶ 55-57.) E.g., Globis

Partners, L.P. v. Plumtree Software, Inc., C.A. No. 1577-VCP, 2007 WL 4292024, at *8

(Del. Ch. Nov. 30, 2007) (dismissing complaint, and finding that the directors’ stock payments did not create a conflict of interest because “the interests of the shareholders and directors are aligned”); Krim v. ProNet, Inc., 744 A.2d 523, 528 (Del. Ch. 1999)

(accord); see also In re Nat’l City Corp. S’holders Litig., C.A. No. 4123-CC, 2009 WL

2425389, at *4 (Del. Ch. July 31, 2009) (noting that equity interests of directors “align[ed] their interests with that of shareholders”), aff’d mem., 998 A.2d 851 (Del. 2010).

Plaintiffs have also pled nothing that suggests the value of these stock options is material to Barnes. See In re CompuCom Sys., Inc. Stockholders Litig., C.A. No. 499-N, 2005

WL 2481325, at *8 (Del. Ch. Sept. 29, 2005) (rejecting claim that the special committee’s receipt of certain IPO allocation benefits created a disabling interest because the plaintiff had failed to demonstrate value of the benefits, or whether they were material to the directors).

Second, Plaintiffs allege that Barnes lacks independence from Rupert

Murdoch because he allegedly stands to lose 37,282 unvested restricted stock units valued at $682,260 “and thus cannot defy [Rupert] Murdoch without risking forfeit of

[his] equity pursuant to the Company’s compensation policies.” (Am. Compl. ¶¶ 55-57.)

Again, Plaintiffs fail to allege that the value of these unrestricted stock units is even material to Barnes. E.g., CompuCom, 2005 WL 2481325, at *8. Moreover, Plaintiffs have not pled particularized facts demonstrating that Rupert Murdoch has the power to unilaterally terminate Barnes. See Jacobs v. Yang, C.A. No. 206-N, 2004 WL 1728521, at *5 (Del. Ch. Aug. 2, 2004) (rejecting claim that the CEO lacked independence from

Yang because he stood “to lose a significant amount of money [$17 million] in the form of unvested options” if he was terminated, because it was not established that Yang controlled the CEO’s continued employment), aff’d mem., 867 A.2d 902 (Del. 2005).

Indeed, it is incorrect that a fellow board member or officer can simply remove a director from the board.9

Third, Plaintiffs claim that Barnes’ “unremarkable tenure on the Audit

Committee” and the supposed “transactions that the Board simply let Murdoch push

9 See, e.g., Kurz v. Holbrook, 989 A.2d 140, 157 (Del. Ch. 2010) (“For 89 years, Delaware law has barred directors from removing other directors.”), rev’d in part on other grounds sub nom. Crown EMAK Partners, LLC v. Kurz, 992 A.2d 377 (Del. 2010); Stroud v. Milliken Enters. Inc., 585 A.2d 1306, 1309-10 (Del. Ch. 1988) (explaining that under Delaware law, directors do not generally have the power to remove fellow directors); see also Dillon v. Berg, 326 F. Supp. 1214, 1225 (D. Del. 1971) (“To allow the Board to remove one of its own members at any time without cause would seem to be completely violative of shareholder rights. . . . In the opinion of this Court such a provision would violate 8 Del. C. § 211 et seq. and the public policy of the State of Delaware and would thus be void and unenforceable.”), aff'd, 453 F.2d 876 (3d Cir. 1971) (per curiam).

through . . . (most notably the Dow Jones acquisition and the DirecTV sale)” means that

Barnes cannot exercise his business judgment to consider a demand. (Am. Compl. ¶ 110.)

Regardless of how Barnes may have voted on unrelated matters (and Plaintiffs do not

allege how he voted) while on the Board, vague allegations of acquiescence such as this

do not overcome the presumption that Barnes is independent and disinterested. See

Khanna, 2006 WL 1388744, at *15 (rejecting claim that lack of independence is demonstrated by a “pattern” of votes or “acquiescence” in permitting company’s founder and chairman to benefit from alleged self-dealing transactions because the plaintiffs had not “set forth particularized facts showing a pattern of votes . . . from which the Court would draw a reasonable inference”); see also Jacobs, 2004 WL 1728521, at *3

(rejecting allegations that a board would not take an “adversarial position” to certain alleged controlling board members, and finding plaintiffs failed to allege demand futility).

Even if a pattern of voting with Murdoch was alleged, “routine consensus cannot suffice to demonstrate disloyalty on the part of a director” because to find otherwise would

“simply encourage staged disagreements and nonunanimous decisions for the sake of nonunanimous decisions in the boardroom.” Khanna, 2006 WL 1388744, at *15 n.92.

(ii) Perkins

Plaintiffs generally claim that Perkins is beholden to Rupert Murdoch both

because of his director compensation and his relationship with Rupert Murdoch. (Am.

Compl. ¶¶ 88, 109.) First, as to compensation, Plaintiffs’ allegation that Perkins “is paid

handsomely” fails to meet the particularity standard for a Rule 23.1 motion. (Am. Compl.

¶ 109.) See Rattner, 2003 WL 22284323, at *7; Brehm, 746 A.2d at 254 (explaining that

“Rule 23.1 is not satisfied by conclusory statements or mere notice pleading”). Plaintiffs also allege that Perkins received $258,000 for his service as a Director for the fiscal year

ended June 30, 2010. (Am. Compl. ¶ 25.) But Plaintiffs do not allege that Perkins’

compensation is anything more than customary compensation, or that such fees are

material to Perkins, who “has been a partner of Kleiner Perkins Caufield & Byers, a

venture capital company, since 1972.” (Compl. ¶ 21.) See Gen. Motors (Hughes), 2005

WL 1089021, at *1 n.5, *8; see also Grobow, 539 A.2d at 188. Second, to the extent that

Plaintiffs claim that Perkins owns unvested restricted stock units (Am. Compl. ¶ 56), that

claim fails for the reasons discussed above with regard to Barnes. See CompuCom, 2005

WL 2481325, at *8; Jacobs, 2004 WL 1728521, at *5.

Third, Plaintiffs state that Perkins lacks independence because of his

personal and business relationship with Rupert Murdoch. Specifically, Plaintiffs allege

that Rupert Murdoch provided an endorsement for Perkins’ novel and considered

investing in a joint business venture with Perkins over a decade ago. (Am. Compl. ¶ 88.)

Plaintiffs further allege that Perkins is a friend of Rupert Murdoch as well as his “sailing

mentor,” and that Perkins has served on the Board with Rupert Murdoch since 1996. (Id.)

Cursory allegations of personal friendship, such as these, do not support a finding that a

director lacks independence under Delaware law. See Beam, 845 A.2d at 1051

(“Allegations that Stewart and the other directors moved in the same social circles,

attended the same weddings, developed business relationships before joining the board,

and described each other as ‘friends,’ even when coupled with Stewart’s 94% voting

power, are insufficient, without more, to rebut the presumption of independence.”); see

also In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 355 (Del. Ch. 1998) (“The fact that [the Chairman/CEO] has long-standing personal and business ties to [the employee] cannot overcome the presumption of independence that all directors . . . are afforded.”), aff’d in part, rev’d in part on other grounds, Brehm, 746 A.2d 244.

(iii) Knight

Plaintiffs make several attempts to impugn Knight’s independence and disinterestedness, none of which succeed. First, Plaintiffs generally allege that Knight has received “well over $1 million in fees and stock awards as compensation” for serving as a Director. (Am. Compl. ¶ 87.) This allegation clearly fails to meet the particularity standard for a Rule 23.1 motion. See Rattner, 2003 WL 22284323, at *7; Brehm, 746

A.2d at 254. Moreover, Plaintiffs do not allege that Knight’s compensation is anything more than customary compensation, or that such fees are material to Knight. See Gen.

Motors (Hughes), 2005 WL 1089021, at *1 n.5, *8; see also Grobow, 539 A.2d at 188.

Second, Plaintiffs allege that Knight lacks independence from Rupert Murdoch because he allegedly stands to lose 37,282 unvested restricted stock units valued at $682,260 and that the threat of losing these stock units makes him beholden to Rupert Murdoch. (Am.

Compl. ¶¶ 55-57.) Again, as with Barnes, Plaintiffs fail to allege that this amount is material to Knight. E.g., CompuCom, 2005 WL 2481325, at *8. Moreover, Plaintiffs have not alleged, and cannot allege, that Rupert Murdoch has the power to terminate

Knight. See Jacobs, 2004 WL 1728521, at *5.

Third, Plaintiffs claim that Knight’s twenty-year tenure on the News Corp.

Board, and the fact that Rupert Murdoch allegedly at one point named Knight as Rupert

Murdoch’s “backstop and successor,” renders Knight unable to objectively consider a

demand. (Am. Compl. ¶ 87.) As explained above, general allegations regarding personal

or business relationships do not establish a lack of independence. See Beam, 845 A.2d at

1050; see also Disney, 731 A.2d at 355.

Fourth, Plaintiffs state that Knight’s position as Chairman of J. Rothschild

Capital Management Limited (and former position as a director of Rothschild Investment

Trust Capital Partners plc) evidences a lack of independence from Rupert Murdoch. This

is so, according to Plaintiffs, because Lord Jacob Rothschild – the Chairman of the

J. Rothschild group of companies – and Rupert Murdoch have each purchased equity

stakes in Genie Oil and Gas Inc. and both serve on Genie Energy’s Strategic Advisory

Board. (Am. Compl. ¶ 87.) Plaintiffs plead no facts suggesting that Knight’s position at

J. Rothschild Capital Management Limited has anything to do with Rupert Murdoch’s

alleged relationship with Lord Rothschild (or the Genie related investments), or that

Rupert Murdoch has any power to terminate Knight’s relationship with J. Rothschild

Capital Management Limited. Delaware courts routinely reject arguments that a director

is interested or lacks independence simply because of business relationships or a common

investment. See, e.g., In re J.P. Morgan Chase & Co. S’holders Litig., 906 A.2d 808,

821-24 (Del. Ch. 2005), aff’d, 906 A.2d 766 (Del. 2006); Jacobs, 2004 WL 1728521, at

*6 (rejecting claim that business ties between Yahoo! and companies affiliated with

Yahoo! directors would prevent those directors from independently considering demand).

Fifth, Plaintiffs state that Knight lacks independent judgment because he served as the former Chairman of News International – a subsidiary of News Corp. –

from 1990 to 1995. (Am. Compl. ¶¶ 24, 87.) It is well-settled, however, that a director’s

past employment alone does not establish a lack of independence. See In re W. Nat’l

Corp. S’holders Litig., C.A. No. 15927, 2000 WL 710192, at *17 (Del. Ch. May 22, 2000)

(“[U]nder Delaware law a director’s past employment with the company on whose board

he sits does not alone establish that director’s lack of independence.”); see also Yucaipa

Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310, 315 (Del. Ch. 2010) (finding that a director who had been employed by the company ten years prior had “satisfie[d] the

NYSE’s [three-year] cooling-off period” and declining “without more facts, to base a finding of non-independence solely on [the director’s] distant service” as an executive).

(iv) Eddington

Plaintiffs also make several generalized allegations about Eddington’s

ability to impartially consider a demand, all of which fail. Plaintiffs imply that Eddington lacks independence because he has served as the Non-Executive Chairman, Australia and

New Zealand of J.P. Morgan since 2006, and because J.P. Morgan has been retained by

Shine as a financial advisor. (Am. Compl. ¶¶ 23, 86.) Tellingly, there is no allegation whatsoever that Eddington personally stands to benefit in any way from the Shine

Transaction. See J.P. Morgan Chase, 906 A.2d at 821 (noting that “no issue” of self- interest exists where directors did not stand on both sides of transaction or receive any personal financial benefit). Moreover, Plaintiffs have not even pled facts articulating the nature or structure of J.P. Morgan’s fee arrangement with Shine (such as whether J.P.

Morgan is being paid a flat or contingent fee). Plaintiffs also do not allege whether

Eddington is compensated at all for his non-executive position at J.P. Morgan’s Australia

and New Zealand branch, or whether that role and any compensation derived from that

role are material to him in any way. See, e.g., In re Frederick’s of Hollywood, Inc.

S’holder Litig., C.A. No. 15944, 2000 WL 130630, at *7 (Del. Ch. Jan. 31, 2000)

(finding no interest on the part of a director who was a senior vice president of the company’s financial advisor because the advisor “would receive a fee for its services regardless of who the buyer was”), aff’d sub nom. Malpiede v. Townson, 780 A.2d 1075,

1084 n.24 (Del. 2001) (affirming dismissal and stating that the plaintiff had failed to establish a disabling conflict from the allegation that banking “firm was entitled to receive a fee upon the consummation of any merger and [that] the fee was proportional to the sale price”).

Plaintiffs also claim that J.P. Morgan has been hired by British Sky

Broadcasting Group (“BSkyB”) – in which News Corp. has a so-called “controlling minority stake” – regarding its proposed acquisition by News Corp., and served as a book-runner for a $2.5 billion debt offering by News America Inc., a company owned by

News Corp. (Am. Compl. ¶¶ 42, 86.) J.P. Morgan’s alleged ties to News Corp. do not, however, suggest that Eddington lacks independence. See, e.g., J.P. Morgan Chase, 906

A.2d at 822 (rejecting claims that directors lacked independence due to relationships at other companies that conducted business with J.P. Morgan because such allegations “are simply not enough, without more, to raise a substantial question about [the directors’] independence”).10

10 For example, in J.P. Morgan Chase, the Court rejected a claim similar to the one made by Plaintiffs here. In that case, the plaintiffs argued that J.P. Morgan’s CEO, William Harrison, (cont’d)

Plaintiffs’ remaining allegations are equally deficient. Plaintiffs either

suggest in a generalized manner that Eddington has been compensated as a director for

his current position on the News Corp. Board, or from prior appointments at other

companies, neither of which suffices to establish demand futility. (Am. Compl. ¶¶ 106-

07.) See Highland Legacy Ltd. v. Singer, C.A. No. 1566-N, 2006 WL 741939, at *5 (Del.

Ch. Mar. 17, 2006) (dismissing a complaint for failure to plead demand futility where no

particularized allegations were made that certain board members owed their positions at other companies to the chairman who was also a director of and a shareholder of those other companies); CompuCom, 2005 WL 2481325, at *9 (“The allegation that Emmi was

a director of another majority-owned subsidiary of Safeguard does not support an inference that he was dominated and controlled by Safeguard in the transaction to sell.”).

Plaintiffs do not allege that Eddington’s compensation from any of those positions is or was material to him. See Highland Legacy, 2006 WL 741939, at *5 (finding similar

allegations meritless where “the complaint [did] not even allege that [such directors’] fees

were unusually large or material”); see also Grobow, 539 A.2d at 188. Plaintiffs also

suggest that Eddington is not independent because he has a relationship with Rupert

______(cont’d from previous page) Jr., caused J.P. Morgan to overpay to acquire another bank so that Harrison could remain as CEO after the transaction. Among other things, the Court rejected a claim similar to the one made against Eddington here that certain J.P. Morgan directors lacked independence because they had “substantial personal wealth invested in . . . companies . . . which conduct[ed] business with [J.P. Morgan].” 906 A.2d at 821-22. In doing so, the Court rebuffed the plaintiffs’ “attempt to rely on a mere inference” that “because a former executive of a major corporation owns a small percentage of the corporation’s outstanding shares and that corporation does business with a national bank [like J.P. Morgan], somehow that former executive could not act independently of the bank’s CEO as a director of the bank.” Id. at 822.

Murdoch as a fellow Board member. (Am. Compl. ¶ 86.) As stated previously, such generic allegations do not suffice to establish demand futility. See Beam, 845 A.2d at

1050; see also Disney, 731 A.2d at 355. In addition, Plaintiffs’ argument relating to certain unvested restricted stock units owned by Eddington fails for the same reasons identified above. See supra Section I.A.a.i; see also CompuCom, 2005 WL 2481325, at

*8; Jacobs, 2004 WL 1728521, at *5.11

(b) Plaintiffs have failed to allege that the remaining outside Directors are interested or lack independence.

As an initial matter, none of the non-Audit Committee Directors approved the Shine Transaction. Thus, as discussed in depth in Section II.B. below, the non-Audit

Committee Directors cannot be held liable for any breaches of fiduciary duty relating to the approval of the Shine Transaction because those Directors played no role in the approval of the Shine Transaction. See, e.g., Citron v. E.I. du Pont de Nemours & Co.,

584 A.2d 490, 499 (Del. Ch. 1990) (finding that only those directors who played a role in the board’s decision-making process to approve a merger could be held liable for claims

11 In addition, Plaintiffs cannot demonstrate that the Audit Committee Directors could not properly consider a demand because those Directors voted to approve the Shine Transaction. It is well-established that “the mere threat of personal liability for approving a questioned transaction, standing alone, is insufficient to challenge either the independence or disinterestedness of directors . . . .” Aronson, 473 A.2d at 815. It is only where the particularized factual allegations establish a “substantial likelihood” of personal liability that a reasonable doubt as to the interest of the director is created. See In re Baxter Int’l, Inc. S’holders Litig., 654 A.2d 1268 (Del. Ch. 1995) (dismissing claims where complaint failed to plead with particularity reasons why directors were disabled by the risk of liability); see also Guttman v. Huang, 823 A.2d 492, 503-04 (Del. Ch. 2003) (granting motion to dismiss where the complaint failed to set forth particularized facts why majority of directors faced a substantial threat of personal liability). A substantial likelihood of personal liability does not exist because, as discussed in depth in Section II below, the Audit Committee’s decision to (cont’d)

related to the merger). The non-Audit Committee Directors cannot, therefore, be found incapable of considering a demand based upon a threat of liability for the approval of the

Shine Transaction, and demand cannot be excused on that ground. See Ryan, 918 A.2d at

352-53 (explaining that, under Rales, if a majority of the board had no role in approving a transaction and thus could not be found liable, it is inappropriate to challenge the business judgment of the board for purposes of demand under Rule 23.1). Demand is also not excused for the reasons set forth below.

(i) Thornton

Plaintiffs fail to allege why Thornton, who Plaintiffs concede is a

“nominally outside director,” would be incapable of considering a demand. (Am. Compl.

¶ 115.) First, Plaintiffs suggest – without any factual support – that Thornton has not

“established a reputation for challenging Murdoch’s authority of control.” (Id.) Such generalized allegations do not suffice to show that Thornton lacks independence or is not disinterested. See Rattner, 2003 WL 22284323, at *7; see also Khanna, 2006 WL

1388744, at *15; Jacobs, 2004 WL 1728521, at *3. Second, Plaintiffs claim that

Thornton received $242,000 for his service as a Director for the fiscal year ended June 30,

2010. (Am. Compl. ¶ 31.) But Plaintiffs do not allege that Thornton’s compensation is anything more than customary compensation, or that such fees are material to Thornton.

See Gen. Motors (Hughes), 2005 WL 1089021, at *1 n.5, *8; see also Grobow, 539 A.2d at 188. Third, Plaintiffs allege that Thornton lacks independence from Rupert Murdoch

______(cont’d from previous page) approve the Shine Transaction is protected by the business judgment rule. See, e.g., In re Baxter, 654 A.2d at 1270.

because he allegedly stands to lose 37,282 unvested restricted stock units valued at

$682,260. (Am. Compl. ¶¶ 55-57.) Again, this argument fails for the same reasons identified above. See supra Part I.A.a.i; see also CompuCom, 2005 WL 2481325, at *8;

Jacobs, 2004 WL 1728521, at *5.

(ii) Dinh

As with Thornton, Plaintiffs concede that Dinh is a “nominally outside

director,” (Am. Compl. ¶ 115) and their allegations regarding Dinh’s ability to

independently consider a demand are equally weak. First, Plaintiffs once again attempt

to imply that Dinh lacks a reputation of challenging Rupert Murdoch (id.), but have failed

to allege particularized facts that overcome the presumption that Dinh is independent and

disinterested. See Khanna, 2006 WL 1388744, at *15; see also Jacobs, 2004 WL

1728521, at *3. Second, Plaintiffs note that Dinh is a professor at Georgetown University

along with Directors Aznar and Siskind. (Am. Compl. ¶ 114.) This conclusory

allegation does not suffice to establish that Dinh is incapable of considering a demand on

the Board regarding the approval of the Shine Transaction by the Audit Committee. See

Dow Chem. Co., 2010 WL 66769, at *9 & n.47 (rejecting claim that three directors would

not “take action to investigate or sue the other” because they were colleagues at a bank,

explaining “[t]hat [because] directors of one company are also colleagues at another

institution does not mean that they will not or cannot exercise their own business

judgment with regard to the disputed transaction”).

Third, Plaintiffs allege that Dinh received $258,000 for his service as a

Director for the fiscal year ended June 30, 2010. (Am. Compl. ¶ 30.) But Plaintiffs do

not allege that Dinh’s compensation is anything more than customary compensation, or

that such fees are material to Dinh. See Gen. Motors (Hughes), 2005 WL 1089021, at *1 n.5, *8; see also Grobow, 539 A.2d at 188. Fourth, Plaintiffs allege that Dinh lacks

independence from Rupert Murdoch because he allegedly stands to lose 37,282 unvested

stock units valued at $682,260. (Am. Compl. ¶¶ 55-57.) Again, this argument fails for

the same reasons identified above. See supra Part I.A.a.i; see also CompuCom, 2005 WL

2481325, at *8; Jacobs, 2004 WL 1728521, at *5.

(iii) Aznar

Plaintiffs likewise concede that Aznar is a “nominally outside director,”

(Am. Compl. ¶ 115), but nonetheless attempt to mount several weak challenges to his

independence. First, Plaintiffs suggest – as with Thornton and Dinh – that Aznar does

not have a “reputation” for challenging Rupert Murdoch. (Id.) As explained above, such vague allegations of acquiescence do not overcome the presumption that Aznar is independent and disinterested. See Khanna, 2006 WL 1388744, at *15; see also Jacobs,

2004 WL 1728521, at *3. Second, Plaintiffs note, as they did with Dinh, that Aznar teaches at Georgetown University with Dinh and Siskind, but for the same reasons as stated above, this does not suffice to establish that Aznar is incapable of considering a demand on the Board regarding the approval of the Shine Transaction by the Audit

Committee. See Dow Chem. Co., 2010 WL 66769, at *9 n.47.

Third, Plaintiffs claim that Aznar is a “long time friend of Murdoch” and that “Murdoch attended the wedding of Aznar’s daughter in 2002.” (Am. Compl. ¶ 114.)

As explained earlier, basic allegations regarding personal or business relationships do not

establish a lack of independence. See Beam, 845 A.2d at 1051 (noting, among other

things, that “attend[ing] the same weddings” is not alone sufficient to rebut the

presumption of independence); see also Disney, 731 A.2d at 355.

Fourth, Plaintiffs state that “Aznar has received hundreds of thousands of dollars in compensation and stock awards” since joining the Board in 2006. (Am. Compl.

¶ 115.) This does not even come close to being a “particularized factual statement[ ].”

Rattner, 2003 WL 22284323, at *7; see also Brehm, 746 A.2d at 254. Plaintiffs also state that Aznar earned $220,000 for his role as a Director for the fiscal year ended June 30,

2010. (Am. Compl. ¶ 27.) But Plaintiffs do not allege that Aznar’s compensation is

anything more than customary compensation, or that such fees are material to Aznar. See

Gen. Motors (Hughes), 2005 WL 1089021, at *1 n.5, *8; see also Grobow, 539 A.2d at

188. And, the fact that Aznar received stock awards aligns his interests with those of

News Corp.’s shareholders. E.g., Globis Partners, 2007 WL 4292024, at *8. Fifth,

Plaintiffs allege that Aznar lacks independence from Rupert Murdoch because he

allegedly stands to lose 32,000 unvested stock units valued at $585,600. (Am. Compl. ¶¶

55-57.) Again, this argument fails for the same reasons identified above. See supra Part

I.A.a.i; see also CompuCom, 2005 WL 2481325, at *8; Jacobs, 2004 WL 1728521, at *5.

Sixth, Plaintiffs allege that “Murdoch appointed Aznar as a Board member

in 2006.” (Am. Compl. ¶ 114.) Such an allegation, however, does not establish that

Aznar is beholden to Murdoch. See Dow Chem. Co., 2010 WL 66769, at *9 (“[T]he

mere fact that a director played a role in nominating new directors does not mean that the

new director is beholden to the nominating director.”); W. Nat’l Corp., 2000 WL 710192,

at *15 (noting that “[t]he fact that a company’s executive chairman or a large shareholder

played some role in the nomination process should not, without additional evidence,

automatically foreclose a director’s potential independence”).

(iv) Bancroft

Plaintiffs’ claims against Bancroft also fail. First, Plaintiffs allege that

Bancroft joined the News Corp. Board as part of News Corp.’s agreement to purchase

Dow Jones & Company, Inc., and that Rupert Murdoch “handpicked” Bancroft to serve

as the Bancroft family’s nominee to the Board. (Am. Compl. ¶ 111.) There are no particularized allegations that support this contention. Moreover, even if Rupert

Murdoch played a role in Bancroft’s appointment to the Board, that does not establish that she is beholden to Rupert Murdoch. See Dow Chem. Co., 2010 WL 66769, at *9; W.

Nat’l Corp., 2000 WL 710192, at *15.

Second, Plaintiffs allege that Bancroft has received “hundreds of

thousands of dollars” for having served as a director since 2007, and “owes her position

and its associated compensation” to Rupert Murdoch. (Am. Compl. ¶ 111.) As

explained above, these allegations fall short of the particularity standard. See Rattner,

2003 WL 22284323, at *7; Brehm, 746 A.2d at 254. Plaintiffs also state that Bancroft

received $220,000 for her service as a Director for the fiscal year ended June 30, 2010.

(Am. Compl. ¶ 28.) Plaintiffs do not, however, allege that Bancroft’s compensation is

anything more than customary compensation, or that such fees are material to Bancroft.

See Gen. Motors (Hughes), 2005 WL 1089021, at *1 n.5, *8; see also Grobow, 539 A.2d

at 188. Plaintiffs also ignore that Bancroft’s interest in continuing to serve as a member

of the Board does not by itself prove a material conflict of interest. See Benihana of

Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150, 175 (Del. Ch. 2005) (explaining that

“Delaware law routinely rejects the notion that a director’s interest in maintaining his

office, by itself, is a debilitating factor”) (citation omitted), aff’d, 906 A.2d 114 (Del.

2006); see also Krim, 744 A.2d at 526-27 (rejecting the claim that directors had a

“substantial conflict” because they would retain “their positions of prestige” by becoming directors of a merged entity) (citation omitted).

Third, Plaintiffs allege that Bancroft lacks independence from Rupert

Murdoch because she allegedly stands to lose 25,000 unvested stock units valued at

$457,000. (Am. Compl. ¶¶ 55-57.) Again, this argument fails for the same reasons identified above. See supra Part I.A.a.i; see also CompuCom, 2005 WL 2481325, at *8;

Jacobs, 2004 WL 1728521, at *5.

(v) Cowley

Plaintiffs have similarly failed to establish that Cowley is not disinterested and independent with respect to the Shine Transaction. First, Plaintiffs claim that

Cowley is a former executive of News Limited. (Am. Compl. ¶¶ 29, 112.) As explained above, such an allegation ignores that a director’s past employment alone does not establish a lack of independence. See W. Nat’l Corp., 2000 WL 710192, at *17.

Second, Plaintiffs state that Cowley “has received millions of dollars for serving as a director” – since 1979. (Am. Compl. ¶ 112.) Clearly, this generalized allegation fails to meet the particularity standard for a Rule 23.1 motion. See Rattner,

2003 WL 22284323, at *7; Brehm, 746 A.2d at 254. Plaintiffs also allege that Cowley

received $231,000 for his role as a Director for the fiscal year ended June 30, 2010. (Am.

Compl. ¶ 29.) Plaintiffs do not, however, allege that Cowley’s compensation is anything more than customary compensation, or that such fees are material to Cowley. See Gen.

Motors (Hughes), 2005 WL 1089021, at *1 n.5, *8; see also Grobow, 539 A.2d at 188.

Third, Plaintiffs allege that Cowley lacks independence from Rupert Murdoch because he allegedly stands to lose 37,282 unvested stock units valued at $682,280. (Am. Compl. ¶¶

55-57.) Again, this argument fails for the same reasons identified above. See supra Part

I.A.a.i; see also CompuCom, 2005 WL 2481325, at *8; Jacobs, 2004 WL 1728521, at *5.

Fourth, Plaintiffs allege that Cowley’s 30-year tenure on the Board and

“ongoing relationship” with Rupert Murdoch renders him unable to assert independent judgment. (Am. Compl. ¶ 112.) Generalized allegations regarding personal or business relationships do not, however, establish a lack of independence. See Beam, 845 A.2d at

1050; see also Disney, 731 A.2d at 355.12

12 The analysis of the News Corp. Board can stop here, because at least nine of News Corp.’s 16 Board members are independent and disinterested for purposes of considering a demand relating to the Shine Transaction. Plaintiffs’ conclusory (and conflicting) allegations against the remaining Directors are not, however, sufficiently particularized to support a conclusion that they are incapable of considering a demand. (Compare Am. Compl. ¶¶ 101-02 (alleging that James and Lachlan Murdoch are personally interested in the Shine Transaction) with Am. Compl. ¶ 3 (stating that upon her return to the Company, Elisabeth Murdoch will “vie[ ] with her brothers . . . for control of Rupert Murdoch’s global media dynasty”); compare Am. Compl. ¶ 102 (challenging Lachlan’s independence from his father) with Am. Compl. ¶ 40 (noting that Lachlan “left the Company in 2005, disappointing Murdoch’s plan for Lachlan to take over the reins of the Murdoch media empire”).)

B. Even If Aronson Applies, Plaintiffs Still Have Not Alleged Particularized Facts To Excuse Demand.

Even if this Court were to apply the Aronson test rather than the Rales test,

Plaintiffs’ allegations do not establish demand futility. Under the Aronson test, demand is excused as futile only where the particularized facts in the complaint create a reasonable doubt that either (1) the directors upon whom the demand would have been made were disinterested and independent, or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment. See Aronson, 473 A.2d at 814; Litt v. Wycoff, C.A. No. 19083-NC, 2003 WL 1794724, at *3 (Del. Ch. Mar. 28, 2003).

Under the first prong of the Aronson test, Plaintiffs must allege with particularity facts sufficient to create a reasonable doubt that a majority of “the directors are disinterested and independent.” Aronson, 473 A.2d at 814. Plaintiffs fail to do so in the Amended Complaint. As established in Section I.A, above, Plaintiffs’ allegations with respect to the nine outside Directors on News Corp’s 16-member Board do not establish interest or lack of independence. See In re Career Educ. Corp., 2007 WL

2875203, at *12 n.71 (observing that “where particularized facts created a reasonable doubt that a majority of the directors are independent and disinterested, demand futility under Rales or the first prong of Aronson will be met” (citing Khanna, 2006 WL 1388744, at *12)).

The second prong of Aronson requires that Plaintiffs plead “particularized facts sufficient to raise (1) a reason to doubt that the action was taken honestly and in good faith or (2) a reason to doubt that the board was adequately informed in making the decision.” J.P. Morgan, 906 A.2d at 824 (quoting Disney, 825 A.2d at 286). Delaware

courts have held that a plaintiff “faces a substantial burden” in attempting to meet this

prong, which is “directed to extreme cases” in which a “decision is so extreme or curious

as to itself raise a legitimate ground to justify further inquiry and judicial review.”

Highland Legacy, 2006 WL 741939, at *7 (internal citations omitted); see also Aronson,

473 A.2d at 815 (explaining that to satisfy Aronson’s second prong, a plaintiff must show

a “rare case[ ]” in which the board’s decision was “so egregious on its face that board

approval cannot meet the test of business judgment”) (emphasis added).

As explained in Section II below, Plaintiffs have not alleged any facts

suggesting that the Audit Committee (or Board) was uninformed, lacked independence,

was interested in the Shine Transaction, or did not act in good faith. Accordingly,

Plaintiffs’ conclusory allegations do not rebut the “powerful” business judgment rule or come close to satisfying this “substantial burden” directed at “extreme cases.” Highland

Legacy, 2006 WL 741939, at *7 (citation omitted); see also A.R. DeMarco Enters., Inc. v.

Ocean Spray Cranberries, Inc., C.A. No. 19133-NC, 2002 WL 31820970, at *5 (Del. Ch.

Nov. 26, revised Dec. 4, 2002) (finding Aronson’s second prong not satisfied where “[n]o facts [were] alleged which even suggest[ed] that the Ocean Spray directors’ actions were not in the best interest of the corporation except that plaintiff thinks they are not”); Ash v.

McCall, C.A. No. 17132, 2000 WL 1370341, at *10 (Del. Ch. Sept. 15, 2000).

* * * * *

For all of the foregoing reasons, Plaintiffs have failed to allege

particularized facts raising any reasonable doubt that a majority of the News Corp. Board

was independent or disinterested. The Amended Complaint should therefore be

dismissed pursuant to Rule 23.1 for failure to plead demand futility.

II. THE AMENDED COMPLAINT SHOULD BE DISMISSED BECAUSE PLAINTIFFS HAVE FAILED TO STATE A CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST RUPERT MURDOCH OR THE BOARD.

As explained above, there are powerful reasons why the Court should dismiss the claims against the News Corp. Directors under Rule 23.1 without reaching the

merits of these claims. But to the extent that the Court does consider the merits of the

Amended Complaint, it should be dismissed under Rule 12(b)(6) because Plaintiffs have

failed to allege any facts to overcome the presumptions of the business judgment rule.

Moreover, Plaintiffs’ claims for damages are barred by News Corp.’s § 102(b)(7)

provision.

A. Standard Of Review.

Court of Chancery Rule 12(b)(6) requires dismissal of a complaint where it fails to allege well-pleaded facts that would entitle the plaintiff to relief. See Ch. Ct. R.

12(b)(6); see also CompuCom, 2005 WL 2481325, at *1 (dismissing action where allegations in the amended complaint did not support a reasonable inference that the board breached its fiduciary duties).

Though the Court must draw inferences in favor of the non-moving party, conclusory allegations should not be taken as true. See McMillan v. Intercargo Corp.,

768 A.2d 492, 500 (Del. Ch. 2000). The “trial court need not blindly accept as true all allegations, nor must it draw all inferences from them in plaintiffs’ favor unless they are reasonable inferences.” Id. (citation omitted); see also NYMEX, 2009 WL 3206051, at *5.

Thus, at the pleading stage, a defendant “does not concede pleaded conclusions of law or

fact where there are no allegations of specific facts which would support such

conclusions.” Weinberger v. UOP, Inc., 409 A.2d 1262, 1264 (Del. Ch. 1979).

Moreover, courts must apply these pleading requirements “with special care” in shareholder litigation. Solomon v. Pathe Commc’ns Corp., C.A. No. 12563, 1995 WL

250374, at *4 (Del. Ch. Apr. 21, 1995), aff’d, 672 A.2d 35 (Del. 1996). Here, Plaintiffs

do not satisfy the pleading requirements, and the Amended Complaint should be

dismissed.

B. The Amended Complaint Should Be Dismissed As To The Non-Voting Directors.

As a preliminary matter, despite Plaintiffs’ attempts to inculpate the entire

Board,13 Counts I and II against Directors Aznar, Bancroft, Barnes, Carey, Cowley,

DeVoe, Dinh, Klein, Lachlan Murdoch, James Murdoch, Siskind and Thornton must be

dismissed because they did not participate in or vote on the Shine Transaction.

Well-settled Delaware law exempts non-voting and non-participating

directors from liability for challenged board transactions. “Delaware law clearly

prescribes that a director who plays no role in the process of deciding whether to approve

a challenged transaction cannot be held liable on a claim that the board’s decision to

approve that transaction was wrongful.” In re Tri-Star Pictures, Inc., Litig., C.A. No.

13 Indeed, throughout the Amended Complaint, Plaintiffs continue to raise allegations against the entire Board for their alleged participation in the Shine Transaction, despite acknowledging in paragraphs 24-26 that it was the Audit Committee that approved it. See, e.g., Am. Compl. ¶ 5 (stating that “[i)t is not surprising that the [Shine] Transaction was approved by News Corp.’s Board”); Am. Compl. ¶ 8 (“In agreeing to the [Shine] Transaction, the [Board] breached their fiduciary duties to the Company.”).

9477, 1995 WL 106520, at *2 (Del. Ch. Mar. 9, 1995) (granting summary judgment for directors who did not participate in consideration of or vote on transaction); Citron, 584

A.2d at 499 (finding that only those directors who played a role in the board’s decision- making process to approve a merger could be held liable); see also In re Wheelabrator

Techs. Inc. S’holders Litig., C.A. No. 11495, 1992 WL 212595, at *10-11 (Del. Ch. Sept.

1, 1992) (dismissing from the action directors who did not participate in merger negotiations); Propp v. Sadacca, 175 A.2d 33, 39 (Del. Ch. 1961) (finding a director not liable where he did not authorize, approve, ratify or participate in any of the challenged actions), aff’d in part, rev’d in part, Bennett v. Propp, 187 A.2d 405 (Del. 1962).

Accordingly, because Directors Aznar, Bancroft, Barnes, Carey, Cowley,

DeVoe, Dinh, Klein, Lachlan Murdoch, James Murdoch, Siskind and Thornton are not on the Audit Committee and did not approve the challenged Transaction, Counts I and II against them fail.

C. The Business Judgment Rule Applies To The Shine Transaction.

Even if the non-voting Directors were not dismissed from this action for the reason that they did not participate in the Shine Transaction, Plaintiffs have still failed to overcome the presumptions of the business judgment rule and, therefore, have not stated a claim for relief against any director. The appropriate starting place in evaluating fiduciary duty claims against directors of a Delaware corporation is with the “well- established presumption of the business judgment rule, which reflects and promotes the role of the board of directors, and not the Court, as the appropriate body to manage the business and affairs of the corporation.” Wayne Cnty. Emps.’ Ret. Sys. v. Corti, C.A. No.

3534-CC, 2009 WL 2219260, at *10 (Del. Ch. July 24, 2009), aff’d mem., 996 A.2d 795

(Del. 2010). The business judgment rule requires dismissal at the pleading stage of a

plaintiff’s claims for breach of fiduciary duty unless the plaintiff can plead sufficient

facts to rebut the presumption of the rule by stating a claim for breach of the duty of care

or the duty of loyalty. See, e.g., id.; Globis Partners, 2007 WL 4292024, at *5. The burden of rebutting this strong presumption falls on the party challenging the directors’

decision. See Aronson, 473 A.2d at 812.

1. Plaintiffs Have Failed To State A Duty Of Loyalty Claim.

As discussed in Section I.A.1. above, Plaintiffs’ claim for breach of the

duty of loyalty fails as a matter of law because a committee of disinterested and

independent directors approved the Shine Transaction. Where, as here, an independent

and disinterested committee, assisted by independent advisors, approves a transaction, the

presumptions of the business judgment rule are not rebutted. See, e.g., Blackmore

Partners, L.P. v. Link Energy LLC, C.A. No. 454-N, 2005 WL 2709639, at *7 (Del. Ch.

Oct. 14, 2005) (finding that “the Special Committee, created to reinforce the

independence of a majority independent board, operated with sufficient independence to

merit the cloak of business judgment protection”). Indeed, the power to approve the

Shine Transaction was delegated to the Audit Committee that is comprised entirely of

outside, independent directors. (Am. Compl. ¶¶ 24-26 (same), ¶ 80 (citing News Corp.’s

April 5, 2011 press release).) And it was the Audit Committee, not the full Board, which

voted to approve the Shine Transaction. (Id.)

Accordingly, because Plaintiffs fail to present a valid challenge to the

Board’s – much less the Audit Committee’s – independence or disinterestedness, their loyalty claim “fails for lack of a valid premise.” Frederick’s of Hollywood, 2000 WL

130630, at *7-8 (granting a motion to dismiss because the merger was approved by a majority of disinterested directors); see also NYMEX, 2009 WL 3206051, at *6 (holding that to state a loyalty claim, a plaintiff “must plead sufficient facts to show that a majority of the Board of Directors breached the fiduciary duty of loyalty”); Benihana, 891 A.2d at

191 (dismissing a loyalty claim after finding that a majority of disinterested and independent directors approved the transaction at issue).

2. Plaintiffs Have Failed To State A Duty Of Care Claim.

Plaintiffs have also failed to plead a care claim. Director liability for breaching the duty of care is subject to a high standard, and must be predicated upon gross negligence. See Aronson, 473 A.2d at 812. In the duty of care context, gross negligence has been defined as “reckless indifference to or a deliberate disregard of the whole body of stockholders or actions which are without the bounds of reason.”

Tomczak v. Morton Thiokol, Inc., C.A. No. 7861, 1990 WL 42607, at *12 (Del. Ch. Apr.

5, 1990) (citation omitted); see also In re Lear Corp. S’holder Litig., 967 A.2d 640, 652

(Del. Ch. 2008) (“The definition of gross negligence used in our corporate law jurisprudence is extremely stringent.”).

(a) Plaintiffs’ allegations relating to the Shine Transaction do not state a care claim.

The Amended Complaint does not adequately allege that the Audit

Committee or Board acted with gross negligence in considering the Shine Transaction.

Indeed, Plaintiffs admit that the Board formed the Audit Committee “to assist the Board

in its oversight of, among other things, the review, approval and ratification of

transactions with related parties.” (Am. Compl. ¶ 84.) Noticeably absent from the

Amended Complaint are non-conclusory allegations that the Audit Committee acted

hastily or was somehow intentionally uninformed about the Shine Transaction, or the

business and value of Shine. To the contrary, the Amended Complaint alleges that the

Audit Committee received a fairness opinion and that the Shine Transaction was

approved by a fully empowered Audit Committee, comprised entirely of outside

directors.14 (Am. Compl. ¶ 80 (citing News Corp.’s April 5, 2011 press release (Huffman

Aff. Ex. B), which states that the Audit Committee hired Centerview Partners and received a fairness opinion for the Shine Transaction), ¶ 90 (stating that the Audit

Committee “retained Centerview Partners to evaluate the appropriateness of acquiring

Shine and whether the price was fair to News Corp”).) See Citron, 584 A.2d at 510

(rejecting claims that directors acted without due care where their actions were part of a deliberate process in which they consulted and relied upon highly qualified legal and financial advisors).

Plaintiffs’ claims about the Shine Transaction price are equally deficient.

Plaintiffs do nothing more than make unsupported allegations about the price News Corp. is paying for Shine in a thinly-veiled attempt to accuse the Board of waste. Plaintiffs fail, however, to meet the high burden for pleading a waste claim. See Disney, 731 A.2d at

14 Section 141(c) of the DGCL grants boards the power to designate committees of the board to exercise certain of the broad “powers and authority of the board of directors in the (cont’d)

362 (explaining that, to plead waste, the complaint must allege that the director

defendants “authorize[d] an exchange that is so one sided that no business person of

ordinary, sound judgment could conclude that the corporation has received adequate

consideration”) (citation omitted). Nothing in the Amended Complaint comes close to

suggesting that no “business person of ordinary, sound judgment” could find that News

Corp. received adequate consideration for the Shine Transaction. Id. (citation omitted).

Rather, Plaintiffs themselves explain that by purchasing Shine, News Corp. acquired 25

production companies worldwide that produce several hit television shows.15

Also, Plaintiffs’ references to carefully selected analyst opinions that the

price is excessive do not state a claim.16 (Am. Compl. ¶¶ 32, 33, 35.) See CompuCom,

2005 WL 2481325, at *7 (“Nor can the court infer that the price of the challenged merger

was so inadequate as to overcome the business judgment rule. It is not enough to argue

that the financial press published objections to the adequacy of the $4.60 price.”); see

also In re Cogent, Inc. S’holder Litig., 7 A.3d 487, 500 n.32 (Del. Ch. 2010) (finding that the plaintiffs’ use of an equity research analyst’s statement regarding a transaction price was “hardly persuasive” evidence). Even if true, Plaintiffs point to no disloyal motive on

______(cont’d from previous page) management of the business and affairs of the corporation . . . .” 8 Del. C. § 141(c).

15 News Corp.’s February 21, 2011 press release, which Plaintiffs cite in paragraph 80 of the Amended Complaint, makes clear that “Shine Group boasts some of the most respected and prolific production companies in the worlds of scripted and non-scripted television, now numbering 25 across three continents and responsible [for] some of the world’s best known and loved programmes.” News Corp. Form 8-K (filed Feb. 22, 2011).

16 At no point do Plaintiffs explain whether the £415 million price has any material effect on the finances of News Corp. – the “world’s biggest and most influential media company.” (Am. Compl. ¶ 15.)

the part of the Audit Committee or Board that would suggest there is no legitimate business purpose for the Shine Transaction price.17

Nor do Plaintiffs state a claim by requesting that Centerview Partners’ fairness opinion be made public. (Am. Compl. ¶ 90.) The Shine Transaction is not subject to a shareholder vote and, accordingly, Plaintiffs’ attempt to manufacture a disclosure claim is plainly without merit. See Kahn v. Roberts, C.A. No 12324, 1995 WL

745056, at *8 (Del. Ch. Dec. 6, 1995) (“Delaware law does not require a board to divulge material developments with respect to the company’s business if the board does not seek the vote of the shareholders.”), aff’d, 679 A.2d 460 (Del. 1996); Herd v. Major Realty

Corp., C.A. No. 10707, 1990 WL 212307, at *12 n.2 (Del. Ch. Dec. 21, 1990) (“[T]he duty of candor requires disclosure of all material facts only in connection with a transaction on which shareholders are asked to vote.”).

17 Plaintiffs’ references to purported “comparables” analyses to justify their claim of overpayment are equally without merit. (Am. Compl. ¶¶ 76-77.) Plaintiffs assume, without explanation, that these companies or transactions are comparable to Shine and the Shine Transaction. Such a conclusory analysis does not suffice to state a duty of loyalty or care claim. See, e.g., Gen. Motors (Hughes), 2005 WL 1089021, at *29 (rejecting claims that were “at best . . . merely conclusory” and noting that such claims were “entitled to no weight in [the Court’s] analysis”); Coates v. Netro Corp., C.A. No. 19154, 2002 WL 31112340, at *5 (Del. Ch. Sept. 11, 2002) (explaining that, without any supporting evidence, “[a] mere conclusory statement that the defendants breached their fiduciary duties is not enough to survive a motion to dismiss”); see also Midland Grange No. 27 Patrons of Husbandry v. Walls, C.A. No. 2155-VCN, 2008 WL 616239, at *11 n.45 (Del. Ch. Feb. 28, 2008) (finding that a so-called “appraisal” was “of little value because it [was] conclusory and contain[ed] no details supporting the appraiser’s opinion of value”). In addition, because a majority of the Board is disinterested and independent, and the Audit Committee is entirely disinterested and independent, Plaintiffs cannot use this unsubstantiated analysis to second-guess the business decision to acquire Shine. See, e.g., Dow Chem. Co., 2010 WL 66769, at *10 (explaining that the Court will not second-guess a board’s business decision where those decisions were “made by a majority of disinterested, independent board members”).

Plaintiffs’ remaining care allegations are wildly speculative. (See, e.g.,

Am. Compl. ¶ 91 (“It further appears that to the extent the Board did any evaluation whatsoever of the Transaction, it never exercised any initiative to explore meaningful alternatives to Shine or even considered whether News Corp. should buy a television production company at all.”), ¶ 90 (alleging that “[t]here is no real evidence that the

Board, or anyone at News Corp. other than Murdoch, meaningfully analyzed whether this was an appropriate deal or an appropriate price”), ¶ 81 (stating that “the Transaction could compromise News Corp’s efforts to buy the remaining 61% of BSkyB that it does not yet own”) (emphasis added).) These conclusory and openly speculative allegations clearly do not state a claim for breach of the duty of care. See In re Coca-Cola Enters.,

Inc. S’holders Litig., C.A. No. 1927-CC, 2007 WL 3122370, at *3 (Del. Ch. Oct. 17,

2007) (“The Court will not . . . give any credence to conclusory allegations or wildly speculative and unreasonable conjecture.”), aff’d mem. sub nom. Int’l Bhd. Teamsters v.

Coca-Cola Co., 954 A.2d 910 (Del. 2008).

(b) Plaintiffs’ unsubstantiated charges about Rupert Murdoch and News Corp. generally do not state a claim.

Realizing that their allegations regarding the Shine Transaction are weak at best, Plaintiffs raise a series of conclusory allegations about Rupert Murdoch and the

Board that are irrelevant to the matter at hand.18 (Am. Compl. ¶¶ 32-64.) These allegations cannot support a claim for breach of fiduciary duty for several reasons.

18 Notably, many of Plaintiffs’ allegations occurred well beyond the three-year statute of limitations for breach of fiduciary duty claims. (E.g., Am. Compl. ¶ 41 (events occurred in 1996), 48 (events occurred in 2004), ¶ 49 (events occurred in 2006), ¶ 58 (events occurred in 1990), ¶ 59 (events occurred in 2007).) See Coca-Cola Enters., 2007 WL 3122370, at *4 (cont’d)

First, Plaintiffs’ allegations relating to several settled lawsuits plainly do not meet this high standard. (Am. Compl. ¶¶ 49, 63-64.) As Plaintiffs should be well- aware,19 settlements are not admission of wrongdoing and the Courts should not consider them as such. See Atwell v. RHIS, Inc., 974 A.2d 148, 155 (Del. 2009) (“We cannot allow litigants to imply that one party’s decision to settle means that the settling party has admitted liability. Permitting counsel to suggest that settlement amounts to admitting fault discourages parties from settling . . . .”); see also D.R.E. 408 (providing that evidence of a settlement is inadmissible “to prove liability for or invalidity of the claim or its amount”).20

Second, Plaintiffs’ wholly conclusory allegations that the Board has allowed Rupert Murdoch to run News Corp. as a “family business” do not state a claim.

(Am. Compl. ¶¶ 39-47.) See Gen. Motors (Hughes), 2005 WL 1089021, at *29 (rejecting claims that were “at best . . . merely conclusory” because such claims were “entitled to no

______(cont’d from previous page) (finding that breach of fiduciary duty claims were barred by the three-year statute of limitations).

19 Indeed, Plaintiffs refer to the outcome of Unisuper Ltd. v. News Corp., which resulted in a settlement, as further evidence of purported lax Board oversight. (Am. Compl. ¶¶ 48-49.) Plaintiffs’ counsel, which were signatories to that settlement, have apparently forgotten that the Stipulation of Settlement plainly prohibits its use to infer any admission of wrongdoing by the News Corp. defendants. See Unisuper Ltd. v. News Corp., C.A. No. 1699-N, Stipulation of Settlement (Del. Ch. Apr. 13, 2006) (Huffman Aff. Ex. D, ¶ 32).

20 Plaintiffs also attempt to accuse the Board of wrongdoing for having exchanged News Corp.’s stake in DirecTV for Liberty Media’s stake in News Corp. (Am. Compl. ¶¶ 49-50.) In addition to the conclusory nature of the claim, the decision Plaintiffs appear to be challenging occurred in 2006 – well beyond any statute of limitations. E.g., Coca-Cola Enters., 2007 WL 3122370, at *4. Moreover, the Director Defendants note that Plaintiffs’ counsel originally challenged News Corp.’s acquisition of its stake in DirecTV in an action (cont’d)

weight in [the Court’s] analysis”). Indeed, Plaintiffs repeatedly make allegations that

belie the notion that Rupert Murdoch’s children have not had to earn their positions at the

Company. (See, e.g., Am. Compl. ¶ 41 (stating that James Murdoch took a position at

News Corp. only after starting his own record label), ¶ 65 (noting that Elisabeth walked away from prior employment at BSkyB after a dispute with her then-boss, Samuel

Chisholm); ¶¶ 65-66 (explaining that Elisabeth Murdoch has held a series of positions in the media industry, including starting her own successful company – Shine – before returning to News Corp.).)

Finally, Plaintiffs’ remaining irrelevant and conclusory allegations involving Rupert Murdoch’s supposed political agendas do not state a claim.21 Such

makeweight and conclusory allegations do not have a place in the Court’s analysis. See

Gen. Motors (Hughes), 2005 WL 1089021, at *29; Trenwick Am. Litig. Trust v. Ernst &

Young, L.L.P., 906 A.2d 168, 216 (Del. Ch. 2006) (refusing to give weight to

“inflammatory allegations” that were “entirely conclusory and [were] not accompanied

by factual context giving rise to the odor of purposeful wrongdoing or professional

slack”), aff’d mem. sub nom. Trenwick Am. Litig. Trust v. Billett, 931 A.2d 438 (Del.

2007).

______(cont’d from previous page) that was dismissed by this Court and affirmed by the Supreme Court. See Gen. Motors (Hughes), 2005 WL 1089021 (Del. Ch. 2005), aff’d, 897 A.2d 162 (Del. 2006).

21 (E.g., Am. Compl. ¶ 59 (speculating that Rupert Murdoch’s aim in buying Dow Jones was to “further his conservative political agenda”), ¶ 61 (alleging that Murdoch made a donation to the Republican Governors Association “because of his personal friendship with [a] Republican gubernatorial candidate”); see also Am. Compl. ¶ 60.)

In any event, money damages for any breach of the duty of care are barred

by News Corp.’s § 102(b)(7) exculpatory charter provision. See News Corp. Form 8-K

(Oct. 17, 2008), at Ex. 3.1 Art. IX (Huffman Aff. Ex. C)22; see also 8 Del. C. § 102(b)(7);

Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 239 (Del. 2009) (noting that because

“Lyondell’s charter include[d] an exculpatory provision, pursuant to 8 Del. C. §

102(b)(7) . . . th[e] case turn[ed] on whether any arguable shortcomings on the part of the

Lyondell directors also implicate[d] their duty of loyalty, a breach of which is not

exculpated”).23 Accordingly, the claims asserted against the News Corp. Directors,

including Rupert Murdoch, should also be dismissed.

D. Entire Fairness Does Not Apply Because Plaintiffs Have Not Pled Any Facts Demonstrating That Rupert Murdoch Is On Both Sides Of The Shine Transaction Or Otherwise Exercises Control Over The Board.

1. Rupert Murdoch Is Not On Both Sides Of The Transaction.

Plaintiffs allege no facts suggesting that Rupert Murdoch exercised actual

control over either Elisabeth Murdoch or the Shine board of directors. Rather, Plaintiffs

allege in a conclusory fashion that Rupert Murdoch “stood on both sides of the deal.”

(Am. Compl. ¶¶ 8, 99.) Strikingly absent is any allegation that Rupert Murdoch had an

22 “The court may take judicial notice of the certificate in deciding a motion to dismiss.” See In re Baxter, 654 A.2d at 1270.

23 An exculpatory provision enacted pursuant to Section 102(b)(7) may be raised as a complete bar to a due care claim for money damages on a motion to dismiss. See Malpiede v. Townson, 780 A.2d 1075, 1092 (Del. 2001) (“The Section 102(b)(7) bar may be raised on a Rule 12(b)(6) motion to dismiss . . . .”); Wayne Cnty., 2009 WL 2219260, at *9 (granting motion (cont’d)

equity interest in Shine or that he could otherwise manipulate the Shine board of directors to approve the Shine Transaction. See In re Lukens Inc. S’holder Litig., 757 A.2d 720,

728 (Del. 1999) (dismissing complaint and holding that “[w]hat is missing is any allegation of fact that a majority of the Director Defendants either stood on both sides of the merger or were dominated and controlled by someone who did”), aff’d mem. sub nom.

Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000).

Moreover, Plaintiffs have not made a single allegation that Rupert

Murdoch will receive any personal financial benefit resulting from the Shine Transaction at the expense of the minority shareholders. See CompuCom, 2005 WL 2481325, at *10

(rejecting the application of entire fairness where, among other things, the plaintiff did not allege that the majority shareholder received any special financial benefits in the transaction at the expense of the minority shareholders).

2. Rupert Murdoch Does Not Dominate And Control The News Corp. Board Or Audit Committee.

Plaintiffs’ primary allegation is that when the Audit Committee approved the purchase of Shine, it was beholden to Rupert Murdoch and therefore improperly approved the Shine Transaction in breach of its fiduciary duty of loyalty to News Corp.

(Am. Compl. ¶¶ 5-8.) In asserting that claim, however, Plaintiffs weakly rely on the same ill-fated conflict arguments already disposed of in Section I.A.

______(cont’d from previous page) to dismiss and stating that plaintiffs have failed to plead “a non-exculpated claim” against the director defendants); see also NYMEX, 2009 WL 3206051, at *6.

Plaintiffs’ failure to plead facts supporting their conclusory allegations of domination or control is fatal. Indeed, in the absence of factual allegations of a disabling relationship, even a controlling stockholder’s 94% ownership interest has been held insufficient to prove that the directors were beholden to the controlling stockholder. See

Beam, 845 A.2d at 1051; see also White v. Panic, 793 A.2d 356, 366 (Del. Ch. 2000)

(“[T]he law is well-settled that [the defendant’s] involvement in selecting each of the directors is insufficient to create a reasonable doubt about their independence.”), aff'd,

783 A.2d 543 (Del. 2001). Simply because a person or entity designates individuals to serve on the board of directors does not render those designees beholden to their appointer. See Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48, 80 (Del. Ch. 2011)

(explaining that Air Products’ nominees to the Airgas board voted to reject Air Products’ tender offer for Airgas’ outstanding shares ); see also Dow Chem. Co., 2010 WL 66769, at *9.

Moreover, Plaintiffs have made no allegations whatsoever – let alone specific ones – about how Rupert Murdoch controlled and dominated the Audit

Committee during the Shine negotiation process or which of the directors Rupert

Murdoch allegedly influenced during the negotiations.24 See, e.g., W. Nat’l, 2000 WL

24 Instead, Plaintiffs have larded their Amended Complaint with baseless conjecture and inflammatory musings about Murdoch and the Board. (E.g., Am. Compl. ¶ 6 (“Murdoch has treated News Corp. like his family’s candy jar.”), ¶ 32 (claiming that the valuation of News Corp. is subject to the “Murdoch discount”).) But such inflammatory and conclusory allegations should not be considered by the Court. See, e.g., Coca-Cola Enters, 2007 WL 3122370, at *3 (“The Court will not . . . give any credence to conclusory allegations or wildly speculative and unreasonable conjecture.”); Gen. Motors (Hughes), 2005 WL 1089021, at *29 (explaining that conclusory claims are “entitled to no weight in [the Court’s] analysis”).

710192, at *15 (dismissing plaintiffs’ claim, noting the “absence of evidence suggesting

that [an alleged controlling shareholder’s two board nominees] pressured, coerced or

directed other board members into accepting merger terms unfavorable to Western

National”); In re Sea-Land Corp. S’holders Litig., C.A. No. 8453, 1987 WL 11283, at *5

(Del. Ch. May 22, 1987) (dismissing an action, and rejecting a claim that a 39.5%

shareholder was a controlling shareholder because there were no allegations that the

shareholder “actually took any steps to exert leverage” to pressure the company to do an

unfavorable deal, or “acted in any other way so as to influence the Sea-Land directors’

conduct”).25

III. COUNT THREE OF THE AMENDED COMPLAINT FAILS TO STATE A CLAIM.

Plaintiffs’ last cause of action is a purportedly direct claim against Rupert

Murdoch and the Board for improperly expanding the Board to include Elisabeth

Murdoch, whom they allege is unqualified, in order to “tighten the control that Murdoch

and his family exercise over the Company.” (Am. Compl. ¶ 140.)

As a threshold matter, this claim is premature, and can be dismissed on

that basis, because no Board action to expand the Board has taken place – a point

acknowledged by Plaintiffs in the Amended Complaint. (Am. Compl. ¶ 140 (alleging

25 Even if the entire fairness standard of review applied, Plaintiffs have not made sufficient factual allegations demonstrating the absence of fairness. See Monroe Cnty. Emps.’ Ret. Sys. v. Carlson, C.A. No. 4587-CC, 2010 WL 2376890, at *2 (Del. Ch. June 7, 2010) (granting motion to dismiss dismissing entire fairness claims in controlling shareholder transaction); Solomon, 1995 WL 250374, at *5 (“Even in a self-interested transaction in order to state a claim a shareholder must allege some facts that tend to show that the transaction was not fair.”).

that the Directors “will breach their fiduciary duties” by expanding the Board, and that

“[o]nce that Board seat is created” the Directors will offer the seat to Elisabeth)

(emphasis added).)26 Moreover, Plaintiffs claim a variation of entrenchment and mismanagement themes that this Court has repeatedly found to be plainly derivative. See

NYMEX, 2009 WL 3206051, at *9 (stating that entrenchment claims are purely derivative); Agostino v. Hicks, 845 A.2d 1110, 1123 (Del. Ch. 2004) (dismissing superficially direct claims that were claims of mismanagement and therefore derivative);

In re Syncor Int’l Corp. S’holders Litig., 857 A.2d 994, 997 (Del. Ch. 2004) (explaining that instances of “corporate mismanagement lead[ ] to purely derivative claims”).

Therefore, Count III should be dismissed for failure to make a demand on the News Corp.

Board. See infra Section II. Regardless of whether the claims are styled as direct or derivative, Plaintiffs’ conclusory allegations fail to state a claim for breach of fiduciary duty.

Under Delaware law, expansion of the board is not only legally permissible, but is plainly within the purview of the company’s board of directors.

Stroud v. Milliken Enters., Inc., 585 A.2d 1306, 1308 (Del. Ch. 1988) (“Unquestionably,

Delaware law allows the Board to fix the number of directors within the restrictions imposed by the Certificate of Incorporation.”); see also 8 Del. C. § 141(b) (“The number

26 See, e.g., In re IAC/InterActive Corp., 948 A.2d 471, 492-93 (Del. Ch. 2008) (refusing to consider a breach of fiduciary duty claim related to a spin-off because “there ha[d] been no final decision made by the IAC board to do a single-tier spin-off” and the claim was therefore unripe); Stroud v. Milliken Enters. Inc., 552 A.2d 476, 480 (Del. 1989) (explaining that “[w]henever a court examines a matter where facts are not fully developed, it runs the risk not only of granting an incorrect judgment, but also of taking an inappropriate or premature step in the development of the law”).

of directors shall be fixed by, or in the manner provided in, the bylaws, unless the

certificate of incorporation fixes the number of directors . . . .”). Here, Plaintiffs have

made no allegations that the allegedly “improper” expansion will be made in violation of

News Corp.’s certificate of incorporation or its bylaws. Moreover, unless otherwise

provided in the certificate of incorporation, such additional seats “may be filled by a majority of the directors then in office.” 8 Del. C. § 223(a). Again, Plaintiffs have not alleged that any provision in News Corp.’s certificate of incorporation states otherwise.

Plaintiffs also do not allege that shareholders will not be entitled to vote at the next annual meeting to elect a director to fill any newly-created Board seat, whether that director is Elisabeth Murdoch or otherwise. Accordingly, Plaintiffs’ allegation that the

potential board expansion is improper is without merit.27

Plaintiffs’ wholly conclusory allegation that Elisabeth is unqualified to

serve on the News Corp. Board similarly fails. Delaware law specifies no qualifications

for directors other than that they be natural persons. See 8 Del. C. § 141(b) (“The board

of directors of a corporation shall consist of 1 or more members, each of whom shall be a

natural person.”). Although Section 141(b) permits the certificate of incorporation or

bylaws to prescribe other director qualifications, Plaintiffs cite no such provisions here.

Nor do Plaintiffs articulate any other reason why Elisabeth is otherwise unqualified. To

27 Plaintiffs’ allegation that shareholder “control over the Company” will be diluted by virtue of the Board expansion (Am. Compl. ¶ 140) is conclusory and squarely contradicted by other allegations in the Amended Complaint – including Paragraph 1. (See, e.g., Am. Compl. ¶ 1 (alleging that Rupert Murdoch is the Company’s “controlling shareholder”).)

the contrary, Plaintiffs provide a laundry list of Elisabeth’s qualifications.28 That is,

Plaintiffs themselves suggest significant reasons why Elisabeth Murdoch would be a welcome addition to the News Corp. Board. Accordingly, for the reasons stated above and because Plaintiffs have alleged nothing further to overcome the presumption of the business judgment rule, Count III of the Amended Complaint must be dismissed.

28 (See e.g., Am. Compl. ¶ 44 (stating that “Elisabeth’s first position out of college was as a manager for News Corp-owned FX Networks” and that “Elisabeth Murdoch subsequently worked for her father as an executive at BSkyB”), ¶ 66 (“Elisabeth Murdoch formed Shine in 2001.”), ¶ 80 (citing News Corp.’s February 21, 2011 press release, which states that “Shine Group boasts some of the most respected and prolific production companies in the worlds of scripted and non-scripted television, now numbering 25 across three continents and responsible [for] some of the world’s best known and loved programmes”).)

CONCLUSION

For the reasons stated above, this Court should grant the Director

Defendants’ motion to dismiss the Amended Complaint with prejudice.

Respectfully submitted,

/s/ Edward P. Welch Edward P. Welch (ID No. 671) Edward B. Micheletti (ID No. 3794) Jenness E. Parker (ID No. 4659) Amy C. Huffman (ID No. 5022) Lori W. Will (ID No. 5402) SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP One Rodney Square P.O. Box 636 Wilmington, Delaware 19899-0636 Tel.: (302) 651-3000 Fax: (302) 651-3001

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