by Tiffany Kary and Gerry Smith
June 10, 2016
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Call it the Chapter 11 inverted headlock.
Gawker Media has deployed a desperation move to slip out of a potentially crippling $140 million jury verdict in the invasion-of-privacy case brought by former pro wrestler Hulk Hogan and funded by tech billionaire Peter Thiel: The digital-media company filed for bankruptcy Friday to sell its assets to publisher Ziff Davis or another bidder -- free and clear of legal liabilities.
“The bankruptcy filing is clearly a litigation strategy,” said Chris Ward, vice-chair of the bankruptcy practice at the Polsinelli law firm in Delaware.
The success of that strategy is now in the hands of U.S. Bankruptcy Judge Stuart M. Bernstein in Manhattan federal court, where Gawker is disputing Hogan’s claim and asking the judge to also shield its founder and chief executive officer, Nick Denton, from the verdict.
Hogan, whose real name is Terry Bollea, sued the media- and celebrity-focused web company in 2012 for posting a tape showing him having sex with a friend’s wife. He claimed the publication cost him endorsements and inflicted emotional harm. Thiel, the venture capitalist who co-founded PayPal and sits on the board of Facebook Inc., made a financial contribution to the suit. He and Gawker have a feud that goes back almost a decade.
“We have every intention to continue to pursue our judgment against Gawker and to hold them accountable for violating Mr. Bollea’s privacy whether it be in the bankruptcy court or any other court,” his lawyer, David Houston, said in a statement Friday.
Under U.S. law, bankruptcy courts impose what is called an automatic stay on pending claims against the debtor. That would include the Florida jury’s award to Hogan, which means the ex-wrestler will have to wait and see whether there’s anything for him to collect after the company’s assets are sold, if he doesn’t agree to a settlement before then.
Ziff Davis has agreed to buy the assets absent a better offer at a court-supervised auction, according to a joint statement from the two companies. It’s agreed to pay around $100 million, said a person familiar with the matter who asked not to be identified because the pricing isn’t public.
Gawker said proceeds from the sale will fund its appeal. It also counter-sued Hogan and five other parties who have taken Denton to court for defamation, libel, invasion of privacy or similar claims. Gawker asked the bankruptcy court to broaden the automatic stay to cover its founder, who’s jointly liable for much of the Hogan verdict.
Oxford University-educated Denton, who started Gawker with a single blog out of his New York apartment in 2002, is “instrumental and central to the spirit” of its business, according to the company. Without a blockade on those suits, the plan to sell Gawker’s assets could be harmed, the company said in court papers. Gawker would also have to come up with a bond while challenging the verdict.
“The bankruptcy will give Gawker the opportunity to argue that a bond does not have to be posted on appeal, which would allow them to proceed unfettered with the appeal,” Ward, the bankruptcy lawyer, said in an e-mail.
Gawker said in the statement Friday that it’s “confident it will ultimately prevail in the Hogan lawsuit, but was not able today to obtain from the trial court even a brief stay without onerous conditions to seek relief from the appeals court.”
Gawker and Thiel have a contentious history. In 2007, the website reported that he was gay -- something Thiel has since publicly acknowledged. He called Gawker’s now-defunct blog Valleywag the “Silicon Valley equivalent of al-Qaeda.” In May, Denton challenged Thiel to a debate about free speech and journalistic ethics.
New York-based Ziff Davis is an 89-year-old publishing house known for chronicling the rise of the computing industry with technology-focused titles like PC Magazine. The closely held company has expanded into websites such as AskMen.com and Geek.com as publishers face steep declines in print advertising sales. In 2012, it was sold to internet-services provider J2 Global Inc. for $167 million.
In an internal memo to employees, Ziff Davis CEO Vivek Shah said acquiring the Gawker websites Gizmodo, Lifehacker and Kotaku “would fortify our position in consumer tech and gaming.” Shah’s memo didn’t mention the Gawker.com flagship site.
Ziff Davis is focused on the brands in the tech, gaming and lifestyle categories, which contribute the vast majority of Gawker Media’s revenue, according to the person familiar with the matter. Ziff Davis hasn’t decided what it would do with Gawker.com if it buys the company, the person said.
According to court filings, Gawker’s six other brands make up 85 percent of its revenue, which totaled $49.9 million in 2015 and primarily came from selling ad space. The company went from making $6,000 a month at the end of its second year to generating more than $4 million in monthly revenue in 2015, according to court papers.
The bankruptcy is In re Gawker Media LLC, 16-11700, U.S. Bankruptcy Court, Southern District of New York (Manhattan).