Hulk Hogan Moves to Take Down Gawker’s Liability Shield in Bankruptcy

Hulk Hogan, stymied by the bankruptcy filing of Gawker Media in the midst of a legal battle over a sex tape, is fighting back using the tools of Chapter 11 law.

Hogan, unable to collect a $140 million jury verdict against the media- and celebrity-focused site because of the bankruptcy petition it filed June 10, said in court papers filed Tuesday that the company is improperly trying to protect its chief executive and founder, Nick Denton, who is liable for part of the judgment. He also claims Gawker or an affiliate made a $200,000 loan to Denton in the week leading up to the bankruptcy.

Gawker’s strategy is to sell itself in a court-supervised auction while it pursues an appeal of the judgment, which Hogan won in a lawsuit over the posting of a tape of him having sex with a friend’s wife. If Gawker loses, sale proceeds would go to pay the claims of creditors including Hogan, a professional wrestler and entertainer whose real name is Terry Bollea.

Hogan’s legal fight is bankrolled by billionaire investor Peter Thiel, with whom Gawker has a contentious history.

“Apparently wasting the court’s time is no big deal when Peter Thiel is footing the bill,” Gawker said in an e-mailed statement to Bloomberg News.

Denton’s Role

New York-based Gawker asked for court permission to extend to Denton the “automatic stay” injunction that shields bankrupt companies from lawsuits. Lead bidder Ziff Davis has agreed to keep the founder on as a consultant as part of a $90 million offer for Gawker’s main assets.

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, and Gawker could thus be harmed if the suits against him personally weren’t blocked, the company said in court filings.

Not so, Hogan argued in the objections filed Tuesday. He said Denton isn’t running day-to-day operations, and cited the numerous professionals hired to guide the company through bankruptcy while Denton is “spending his time blogging, Tweeting, and providing interviews.”

The bid to shield Denton is a “transparent effort” to protect him from a personal bankruptcy, and other issues weigh against him being shielded from his part of the $140 million judgment, Hogan’s lawyers argued.

Loan Claim

Denton isn’t covered for any fees, damages or other losses from lawsuits by Gawker, as the company has claimed, Hogan said. In fact, one agreement between the media company and its founder “expressly disavows indemnification for misconduct and gross negligence,” which he was found guilty of as part of the sex-tape suit, Hogan said. If Gawker was a responsible company, it would contest the agreements to cover Denton’s costs, Hogan added.

The $200,000 loan to Denton to pay for personal bankruptcy counsel was made without forcing him to put up any collateral, according to the objection. Meanwhile, the company has to pay an interest rate approaching 30 percent for its own loan to fund operations, Hogan’s lawyers wrote.

Denton is liable along with Gawker and another former Gawker employee for the $115 million compensatory part of the judgment, according to court papers.

The case is In re Gawker Media LLC, 16-11700, U.S. Bankruptcy Court, Southern District of New York (Manhattan).