The battle between Gawker Media and Hulk Hogan may say as much as about paying for lawsuits as it does about winning them.
The company filed on Friday for Chapter 11 bankruptcy as part of a move to finance its appeal of a verdict in March that awarded the former pro wrestler $140 million for Gawker’s allegedly violating his privacy when it published a sex tape of him.
Peter Thiel, a billionaire co-founder of PayPal, bankrolled the lawsuit. Nine years ago, Gawker reported that Thiel is gay before – Thiel maintains – he had declared his sexuality publicly. The report continues to rankle, based on Thiel’s funding lawsuits against Gawker. Thiel says he’s “fighting back” on behalf of himself and others whom Gawker allegedly attacked. For its part, Gawker maintains that Thiel was out to his friends already by the time of Gawker’s piece.
The bankruptcy gives Gawker a mechanism to pay its legal bills, though it may result in the company’s managing partners relinquishing their ownership. The filing begins a court-supervised auction of Gawker’s assets, which include seven websites – among them Deadspin, Gizmodo and Lifehacker – that together had 44.4 million unique visitors in April. Ziff-Davis, a media company, has started the bidding at $90 million.
Both Thiel’s backing and Gawker’s filing shed light on some of the ways to raise capital for claims, though Thiel’s paying the Hulkster’s legal bills has produced consternation among commenters who see in the sponsorship an effort to punish the press.
“It’s a terrifying development for those of us who value a free, democratic media,” wrote Caterina Fake, a co-founder of the photo-sharing site Flickr, wrote on Quartz, referring to Thiel’s backing Hogan. “The laws of capitalism allow—and encourage!—the destruction of one company by another,” wrote Politico’s Jack Shafer, “But the proper jousting grounds for this sort of battle is the marketplace, not the courts.”
Ken Doctor, who analyzes the business of media, told the Financial Times that the financial pressures that led Gawker to file for bankruptcy will “make it even harder for the news media to grow, be profitable, and hold the powerful accountable.”
Still, as a matter of law or journalism there may be little to worry about. Despite the dustup over Thiel’s backing Hogan, the practice of financing other people’s lawsuits is completely legal. Litigants have long funded their claims with other people’s money, which can help to ensure your day in court when the stakes warrant pursuing a claim that exceeds the limits of your pocketbook.
In a story last fall for the Times’ magazine, Mattathias Schwartz chronicled the litigation-finance industry. He reported:
While the amount of litigation funded by outside financiers is still relatively small, the industry — which barely existed outside personal-injury cases until the mid-2000s — is growing rapidly, driven by increasingly permissive laws, the promise of high returns and hourly billing rates that run $500 or more for the largest and most sophisticated law firms.
As Eugene Kontorovich, who teaches law at Northwestern, wrote in The Washington Post following the revelation that Thiel financed Hogan, common law doctrines that prohibited recruiting or sponsoring others for litigation have drifted away over time. “Anyone who donates to the ACLU or a Legal Aid fund is basically underwriting third-party litigation,” he noted.
The chill that some commenters worry could come over newsrooms following the brushback by Thiel seems unlikely to materialize. Kontorovich reminds readers that regardless who pays the legal bill, “a court must also find the defendant liable, award damages and have it sustained on appeal.”
In short, you still have to prevail on the merits. And this battle is far from over.
“For all… the furor over Hogan’s case, there’s nothing especially novel about courts balancing privacy and First Amendment interests,” Alison Frankel at Reuters wrote in March. “Generally, the U.S. Supreme Court has concluded that in matters of public importance, the First Amendment trumps privacy.”
The “judgment was totally out of the range of any normal judgments of the last few years,” George Freeman, executive director of the Media Law Resource Center, told the FT.
In January, Gawker sold a minority stake to investment firm Columbus Nova as part of a plan to capitalize itself to defend against Hogan’s lawsuit. If Gawker prevails, the company’s owners could in theory buy back all or part of the company, depending on what they negotiate with the winning bidder in bankruptcy.
“To those who have offered support, thank you,” Gawker CEO Nick Denton wrote in a post published on Wednesday. “Gawker will be just fine, both in business and in spirit.”