Litigation Funder Sinks News Organisation: Is this type of funding ethical?


Online media company Gawker Media filed for Chapter 11 bankruptcy protection in June 2016. The company is now in the process of auctioning off its assets to the highest bidder.

Its insolvency is on the back of a March 2016 Florida jury verdict to award $140m in compensatory and punitive damages to iconic WWE wrestler Hulk Hogan (Terry Bollea).

Hogan’s claim stems from Gawker’s publication of snippets of a sex-tape involving Hogan in 2012.

A jury ruled that publication of the sex-tape, without consent, was a violation of the wrestler’s right to privacy. Such publication was not deemed to be protected or limited by the American First Amendment right to freedom of speech, and ultimately Gawker’s alleged “right” to determine what is newsworthy.

Many American legal commentators have criticised the verdict and its value in damages and also concluded that Gawker has a high prospect of success in either overturning the verdict or reducing the quantum on appeal.

However, in terms of American law, an appeal application does not automatically stay the execution of a jury verdict in many states in America, as it does in South Africa.

The presiding Florida Judge substantively refused Gawker’s subsequent motion to stay the jury award pending the appeal as, in Gawker’s opinion, the ruling ordered several onerous provisos on the business which would cripple its operations.

The result is that in terms of Florida law Gawker must post a supersedeas bond for the full amount of monetary damages, capped at $50m, as security in order for it to prosecute the appeal.

This ruling has legally snookered and financially sunk Gawker. It must sell its assets in order to proceed with the appeal. This means that even if it is eventually successful on appeal, the business will no longer exist.

The legal merits and equities of the matter are fascinating for a South African making comparisons to our legal system. The damages quantum is alien to us, the nature of weighing right to privacy versus freedom of expression is augmented in an American news and gossip arena, and the legal process which follows a jury verdict to an appeal seems counterintuitive.

The focus of this article, however, is that Hogan’s litigation was funded by a third party funder, Peter Thiel, one of Silicon Valley’s most renowned and successful investors who has an acrimonious history with Gawker.

In a May 2016 interview with the New York Times Thiel revealed that his animus against Gawker follows, inter alia, its publication of private details of his sexuality published in 2007. That, and other Gawker articles which Thiel deemed to amount to “bullying” and “ruined people’s lives for no reason”. Thiel, unlike a conventional commercial litigation funder, is not concerned with the economics of the litigation finance transaction but rather its impact on Gawker as a business.

It has also been revealed that Thiel has funded more than just Hogan’s litigation against Gawker Media. Thiel’s scheme was to finance several on-going matters against the company to seemingly drown them in legal fees and strike at least one fatal blow which would destroy it.

Thiel achieved his vengeful agenda through Hogan’s litigation. Gawker was, understandably, up in arms when the arrangement came to light. Although, it does not change its legal position in any of its legal matters as litigation funding, and Thiel’s conduct, is lawful in the United States.

There is a question of whether this type of litigation funding is ethical. Do Thiel’s intentions matter? After all, his funding did not create Hogan’s claim, it merely armed it.

Ultimately the cases against Gawker will stand on their own merit outside of Thiel’s resources or intentions. It would be a real tragedy if the litigants whose rights were infringed would not have had access to justice due to the high cost of litigation which they could not afford without a funder.

Something does irk me though… The fact that Gawker was forced to file for Chapter 11 bankruptcy protection in order to post a supersedeas bond to proceed to appeal.

One would have thought that the substantial prejudice to Gawker would have been the strongest factor in deciding whether a supersedeas bond was appropriate in the matter.

Even if Gawker is eventually successful in dismissing or reducing Hogan’s claim, the company may not be able to be revived. Its demise is not because of Hulk Hogan or Peter Thiel, but rather the mechanics of a legal system.

Ironically, the only solution to Gawker’s invidious position would be to obtain its own third party litigation funding to post the supersedeas bond.

In this economic day and age, where litigation is a luxury, third party litigation funding will become more and more ubiquitous in order to provide access to justice to David, and even Goliath, litigants who find themselves in high cost and high stakes litigation.

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