Fox Stares Down $2.7 Billion Smartmatic Suit After Dominion Deal

Erik Larson
·6 min read
3

(Bloomberg) -- Putting lawsuits behind you can get expensive.

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Fox Corp. started 2023 with about $4 billion in cash — and a pair of high-stakes defamation suits over Fox News election broadcasts that threatened to eat much of it up. The company settled one, by Dominion Voting Systems Inc., on Tuesday for $787.5 million. A related suit seeking $2.7 billion raises the possibility of another big settlement. Fox says it will fight.

Read More: Fox’s $787.5 Million Settlement Doesn’t End Its 2020 Liability

Dominion, a voting machine maker, sued the conservative network and its parent, Fox Corp., in March 2021 for $1.6 billion after it was accused on-air of rigging the 2020 presidential election against Donald Trump. It struck its deal with Fox moments before a six-week trial was to get underway in Delaware state court — with Fox Corp. Chair Rupert Murdoch to be grilled on the witness stand — in one of the largest such settlements ever made public.

Fox said Wednesday it doesn’t expect to see any major impact on its operations or business from the deal.

Up next is Smartmatic Corp., a Dominion competitor that sued Fox around the same time, in New York state court, after the network aired allegations that Smartmatic was part of the same improbable conspiracy.

Read Smartmatic’s lawsuit here

Smartmatic, majority-owned by the families of Chief Executive Officer Antonio Mugica and its president, Roger Piñate, says it has provided election technology and services for two decades in more than 25 countries, and that Fox’s broadcasts put its reputation at risk around the world. Despite its global footprint, it has a far smaller US presence than Dominion, whose voting machines were used across the US in 2020. Smartmatic’s technology was in use only in Los Angeles County.

Byzantine Theory

Its lawsuit is similar to Dominion’s. Both companies were accused of being part of the supposed conspiracy. Trump stalwart Rudy Giuliani, among others, claimed on Fox that Dominion was owned by Smartmatic and that Smartmatic had been formed by three Venezuelans to rig elections. The byzantine theory held that it was Smartmatic’s software Dominion used to send votes to Spain to be manipulated.

Dominion and Smartmatic are separate companies that share no ownership.

“The Earth is round,” Smartmatic says in the introduction to its lawsuit. “Two plus two equals four. Joe Biden and Kamala Harris won the 2020 election for President and Vice President of the United States. The election was not stolen, rigged, or fixed. These are facts. They are demonstrable and irrefutable.”

Fox says it is prepared to defend itself.

“We will be ready to defend this case surrounding extremely newsworthy events when it goes to trial, likely in 2025,” it said in a statement. “As a report prepared by our financial expert shows, Smartmatic’s damages claims are implausible, disconnected from reality, and on its face intended to chill First Amendment freedoms.”

The company points out that the conspiracy theory was reported by other news outlets and even by Trump himself.

‘The Straight-Face Test’

“Smartmatic insists that these phantom losses are all attributable not to the nationwide (indeed, global) coverage of the President’s allegations against it, but to a handful of segments on Fox News,” Fox said in a recent court filing. “That claim does not pass the straight-face test.”

In the filing, Fox goes after Smartmatic’s allegation that the network’s reports on the conspiracy theory would result in as much as $690 million in lost profits for the company’s election business globally from 2021 to 2025, plus at least $2.4 billion in lost enterprise value.

Read More: Fox News Producer’s Secret Recordings Helped Spur Dominion Deal

Fox said its expert examined Smartmatic’s publicly available financial records and concluded that the voting company had lost tens of millions of dollars in the years before the election, undercutting any argument that further lost profits were Fox’s fault.

“The reality that emerges from these financial records is that Smartmatic Elections was a failing business in the five years preceding this lawsuit,” Fox said in the filing. “Viewed through the lens of historical financial performance, the damages to Smartmatic Elections claimed in the amended complaint are deeply implausible.”

Familiar Critique

But the company called Dominion’s damages claim pie in the sky as well, and still ended up writing a very large check.

Smartmatic says it is confident in its damages calculation.

“Fox’s arguments demonstrate a shocking lack of knowledge about financial statements and how companies are valued,” Smartmatic attorney J. Erik Connolly said in a statement. “This is another attempt by Fox to place disinformation over the facts which we will demonstrate at the trial.”

Read More: Private Equity Firm Has 1,500% Gain on Fox’s Dominion Payout

The company argues in its lawsuit that the conspiracy theory, still touted by Trump and his allies as he seeks a return to the White House in 2024, has hampered its ability to expand in the US. And like Dominion before it, Smartmatic has said it is prepared to go to trial to seek the full amount of the claimed damages.

“Smartmatic is determined to realize the goals as stated in the lawsuit – namely appropriate compensatory damages, punitive damages, and full and complete retraction of the disinformation on all of Fox’s platforms,” it said in an earlier statement.

In a counterclaim, Fox says Smartmatic’s litigation violated a New York law barring the use of frivolous lawsuits to chill speech, citing the $2.7 billion in alleged damages as evidence.

“That fanciful claim underscores that this is precisely the type of action” the New York statute is meant to stop, it said.

Fight Over Defendants

An appeals court in February dismissed Fox Corp. from Smartmatic’s suit, finding that its ownership of Fox News wasn’t enough to hold it liable for the broadcasts. In a March 6 amended complaint, Fox Corp. is back on the defendants’ line along with the network.

The appeals court ruling let Smartmatic revise its suit, the company said in its amended complaint, “including identifying the individuals within Fox Corporation responsible for the disinformation campaign at issue.”

Read More: Fox News Settled But Dominion Still Has a Lot of 2020 Lawsuits

Whatever the outcome of the litigation, Fox may not have a huge incentive to change its profitable ways.

Fox Corp. reported sales of $7.8 billion for the first half of its 2023 fiscal year. Earnings before interest, taxes, depreciation and amortization rose 18% to $1.62 billion. Fox’s cable TV networks, which include Fox News, Fox Business and Fox Sports 1, accounted for 67% of that profit.

Fox News has been the most watched cable network in prime time, by total viewers, in the season to date — Sept. 19 through April 16. Its shows, including Tucker Carlson Tonight and Hannity, are regularly among the most watched. Lately the company has been gaining viewers in late night and afternoon programming, according to Nielsen data.

The case is Smartmatic USA Corp. v. Fox Corp., 151136/2021, New York State Supreme Court, New York County (Manhattan).

--With assistance from Christopher Palmeri.

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