Hogan’s lawsuit vs. Gawker could have massive impact on journalism

Hulk Hogan’s lawsuit vs. Gawker, and his third-party financial backing, could have a lasting impact on journalism and the media

Hulk Hogan’s $140 million jury verdict against Gawker for unlawful publication of a sex tape was controversial its own right, but now The New York Timesreports that Hogan’s litigation, which spanned more than three years, was financed by billionaire Silicon Valley entrepreneur Peter Thiel. In 2007, the Gawker publication Valleywag revealed that Thiel is gay. Since that time, Thiel has pursued opportunities to assist others in legal claims against Gawker. He struck gold with Hogan, whose real name is Terry Bollea and who in 2006 Gawker posted a video of having intercourse with a friend’s wife.

A brief primer on Hogan’s case

In March, jurors in a Florida court determined that Gawker violated Hogan’s reasonable expectation of privacy by posting and promoting the video. They also rejected Gawker’s chief legal defense, which centered on longstanding legal protections for media companies in publishing information. Further, the jurors found that Gawker’s intrusion caused Hogan massive harm to his reputation and pervasive emotional distress.

The $140 million award was stunning, particularly given how dramatically it exceeds damages in other types of cases. Jurors awarding damages for catastrophic physical injuries often provide six or seven figures, whereas jurors awarded Hogan, whose harm was reputational and emotional, nine figures. Moreover, the average award for the wrongful death of an adult male in the U.S. is $3.5 million, which Hogan’s award exceeds by a whopping 3,900%.

Analyzing Hulk Hogan’s stunning $115M win in lawsuit vs. Gawker

On Thursday, Circuit Court Judge Pamela Campbell rejected Gawker’s petition for a new trial. The company can still petition a Florida appellate court. It stands to reason that appellate judges, who will be very attentive to making sure a ruling complies with longstanding precedent, could prove to be a more a receptive audience for Gawker’s legal arguments than were the six jurors who heard the case. Alternatively, an appeals court might agree with Hogan that Gawker broke the law, but reduce the $140 million judgment on grounds that it is excessive.

However, and as I explained in an earlier SI.com article, Gawker will be forced to provide a “supersedeas bond” in order to appeal. The bond would be an amount of money placed in escrow to prove that if Gawker loses the appeal, it could pay Hogan. Under Florida law, the supersedeas bond normally must equal the lower of the amount of the judgment (here, $140 million) plus interest, or $50 million. Judges have discretion to lower this amount in cases of extreme hardship. Assuming Gawker seeks an appeal, it is unclear if the company could afford to post a $50 million bond or if it could convince a court that such an expensive bond would be tantamount to preventing the company from exercising its right to appeal.

Thiel’s finance of Hogan’s litigation is lawful and strategic

It might strike you as surprising that a third party like Thiel could finance Hogan’s case, but “litigation finance” is not uncommon. Normally in litigation finance, which refers to the practice of a financer funding someone else’s claim in a lawsuit or in an arbitration, the financer receives a portion of any proceeds. The financer knows that there would be no proceeds if the case proves unsuccessful, but believes that the case provides a favorable investment. Think of litigation finance as similar to buying stock in a company: You gamble that the company will thrive and your stock will rise in price, but you also recognize that you could lose your investment if the company fails. It’s a calculated risk.

Litigation finance can be essential for individuals who have been wronged, but who lack the financial wherewithal to wage litigation. This is particularly the case when the defendants are companies that have the means to afford a lengthy case. While individuals of limited means may be able to convince an attorney to take a case on a “contingency fee”—the attorney doesn’t charge the client, but receives a significant percentage of proceeds from any judgment or settlement—many attorneys require that clients pay an hourly billing rate. This is because contingency fees are gambles for attorneys: If the case proves unsuccessful for an attorney working on a contingency fee, he or she receives nothing and has lost many hours that could have been devoted to other client work. With that in mind, litigation finance can help the client afford to pay an attorney’s hourly rate.

The Hulk Hogan vs. Gawker legal saga, explained

There are critics of litigation finance. They charge that it creates perverse incentives where third parties who have no relationship to a legal dispute but for investing money in that dispute become part of the case. Some wonder if the financer is calling the shots rather than the client and whether any resulting conflicts might emerge. For instance, a financer and client might have different expectations on whether to accept a particular settlement offer from the defendant or whether to continue the litigation. Litigation finance is also not subject to substantial oversight by any regulatory agency.

Hogan and Thiel appeared to view Hogan’s lawsuit as mutually beneficial. Hogan clearly believed that Gawker unlawfully humiliated him. Yet it is unclear if Hogan viewed a lawsuit against Gawker as a sensible use of his money. To be sure, Hogan is a person of substantial economic means. Various websites estimate that his net worth is in the ballpark of $25 million. Still, Hogan might have regarded a potential multi-year litigation against Gawker, which has a reported net worth of $83 million, as fairly unappealing. After all, Hogan might have had to spend six or seven figures on attorneys’ fees. He would also have received nothing from Gawker if he lost.

Enter the 48-year-old Thiel, who Forbes estimates has a net worth of $2.7 billion. By financing Hogan’s litigation, Thiel removed the deterrent of cost from Hogan’s calculus on whether or not to sue Gawker. The only remaining deterrents were Hogan’s time and energy, and those factors didn’t dissuade him. For a person of Thiel’s wealth, Hogan’s attorneys’ fees were likely inconsequential costs. Indeed, Thiel had a clear purpose in mind with Hogan’s case. He told the Times he sought “specific deterrence,” which in law means designing a punishment to deter a defendant (here Gawker) from ever repeating its mistake. Should Hogan’s $140 million stand, Thiel could obtain far more than specific deterrence: He might force Gawker to shut down altogether.

Tamara Lush/AP

Implications for other media

Since it launched 13 years ago, Gawker has attracted many critics for its approach to journalism. While the company excels at offering unique commentaries, generating traffic and breaking news items, some of its stories, such as the sex video of Hogan, strike some readers as tasteless and intrusive. Gawker’s integration of gossip and reporting also raises questions about accuracy and fairness. Not surprisingly then, many cheered Hogan’s monumental court victory and news of Thiel financing Hogan’s case as part of a personal mission against Gawker.

Breaking down legal arguments in Hulk Hogan vs. Gawker trial

Still, even Gawker’s harshest critic might worry that the use litigation finance against media companies has potential drawbacks. The more media companies are sued over published content, the more cautious those media companies risk becoming in their reporting and investigating. Even a frivolous lawsuit against a media company can prove costly. Such a lawsuit often requires the media company to make payment to defense attorneys and demands the time and energy of editors and writers who have to meet with attorneys.

A billionaire who sets out to fund lawsuits against a media company could wreak havoc on that company. To be sure, if that company has a tendency to publish misleading and private information, the company becoming more responsible would be a positive development. But what if that media company has a tendency to publish truthful and unflattering information about public figures? Or is willing to undertake investigations that cause it to attract enemies in high places? In an open society such as ours, third-party funded lawsuits against media companies could complicate the work of journalists. It will be worth monitoring if Bollea v. Gawker and the source of its financing prove to be game-changers in journalism.

Michael McCann is a legal analyst and writer for Sports Illustrated. He is also a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. McCann also created and teaches the Deflategate undergraduate course at UNH. He serves on the Board of Advisors to the Harvard Law School Systemic Justice Project and is the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law. He is also on the faculty of the Oregon Law Summer Sports Institute.