By Andrew Longstreth
NEW YORK (Reuters) - News Corp <NWSA.O> shareholders angry over the hacking scandal engulfing Rupert Murdoch's media conglomerate face an uphill fight trying to hold company executives and directors responsible in court.
In the nearly six weeks since the scandal erupted, shareholders have seen roughly $5 billion of market value disappear -- a sum that had been more than twice as large prior to News Corp's report on Wednesday of solid second-quarter results.
Despite the losses and Murdoch's telling the British Parliament that he wanted phone hacking victims to know he was "completely and deeply sorry," legal experts said investors would have a difficult time prying any damages from company management or its board.
"That is pushing a big rock up a very steep hill," said James Cox, a securities law professor at Duke University.
The lawsuits are known as derivative complaints, filed on behalf of News Corp against its directors and officers. Because News Corp is incorporated in Delaware, that state's law will apply to many claims.
But in recent years, Delaware court rulings have been unfriendly to shareholders who question management's business judgments, highlighted by a 2009 decision in a case against Citigroup Inc <C.N> officials over the subprime mortgage meltdown.
"Delaware law doesn't allow you to say this corporation got into trouble and now we're going to look back and say, 'Gee, the directors saw it coming,'" said Jill Fisch, a professor at the University of Pennsylvania Law School.
News Corp shareholders have alleged that company directors were aware of the extent of the phone hacking in Britain, which resulted in last month's closing of the 168-year-old News of the World newspaper, or turned a blind eye to it.
They say Murdoch's alleged control over the board in part may explain the directors' inattention or reticence to act.
According to the complaints, the scandal has cost News Corp, forcing it to abandon its bid to take full control of pay-TV company British Sky Broadcasting Plc <BSY.L>, and opening it up to investigations including an FBI probe.
So far, at least three lawsuits have been filed in Manhattan federal court and one in Delaware Chancery Court.
In addition, shareholders who in March sued News Corp officials in Delaware over its alleged sweetheart purchase of a television and film company run by Murdoch's daughter Elisabeth amended their complaint to add hacking allegations.
Mark Lebovitch, who represents the plaintiffs in that case, said he plans to soon file another amended complaint to include the latest developments from the scandal.
Another lawsuit, filed on July 15 in Delaware state court by the Massachusetts Laborers' Pension & Annuity Funds, accused some officials of knowing what was going on, while others were "purposefully oblivious or simply ignored the now very-public red flags."
A News Corp spokesman declined to comment.
To succeed in a derivative lawsuit, investors must demand that the board take action first or show why a demand would be futile -- directors might appear effectively to be suing themselves, for example.
That's where plaintiffs often get stymied.
BAD DECISIONS NOT ENOUGH
Two years ago, Delaware Chancery Judge William Chandler set back derivative plaintiffs' efforts, in the case against Citigroup officials.
That lawsuit had alleged that bank executives and directors breached their fiduciary duty to shareholders by failing to oversee and manage the bank's subprime exposure despite receiving "red flags."
Their failure, the shareholders said, led to massive write-downs and a plunge in Citigroup's stock price.
Chandler dismissed most of the claims, finding that the plaintiffs had not been specific enough to show the officials had acted in bad faith.
"The warning signs alleged by plaintiffs are not evidence that the directors consciously disregarded their duties or otherwise acted in bad faith," he wrote. "At most they evidence that the directors made bad business decisions."
Delaware decisions involving corporate law are often followed by other courts throughout the United States.
Indeed, U.S. District Judge Sidney Stein in Manhattan cited Chandler's ruling in a May opinion dismissing similar claims against Citigroup officials.
(Reporting by Andrew Longstreth; Editing by Phil Berlowitz)