5:05pm PT by Eriq Gardner
Hulk Hogan Says Gawker Made Secret $200K Loan to Nick Denton Before Bankruptcy
Hulk Hogan doesn't think that Gawker's Chapter 11 should save Nick Denton from having to declare personal bankruptcy. In new filings on Tuesday, Hogan's lawyers accuse Denton of doing things like getting a pre-bankruptcy loan from Gawker and making misrepresentations to a Florida court.
The former professional wrestler, whose real name is Terry Bollea, continues his drive to collect on a $140.1 million judgment resulting from a March trial in Florida over Gawker's posting of an excerpt of a sex tape. On June 10, Gawker filed for bankruptcy and also primed the way to sell the company at auction to Ziff Davis or another company. That same day, Gawker brought an adversary proceeding against its legal foes with the intention of holding Hogan and others back on their collection efforts. Denton is personally liable for $10 million.
The parties agreed to a temporary restraining order, but as the bankruptcy judge contemplates converting the TRO into a preliminary injunction that would prevent Hogan from going after Denton, Hogan is lashing back.
According to the latest Hogan court filing, "While Mr. Bollea has no interest in impeding the sale of Debtor’s assets, he does not believe that non-debtor, intentional tortfeasors should be entitled to a stay of execution without either filing for personal bankruptcy protection or complying with Florida law requiring good and sufficient security to stay execution pending appeal."
Hogan's court papers talk about a "very unusual" move that Gawker made on the brink of bankruptcy.
"During the week ending June 10, 2016, at the same time that it was negotiating a DIP loan that has an effective interest rate near 30%, either Debtor or one of its affiliates made a payment of $200,000 'in the form of a loan to the CEO for purposes of paying for personal bankruptcy counsel,'" states Hogan's memorandum. "The sole disclosure we found of this 'loan' was buried in a bullet point to an exhibit to Debtors’ motion for DIP financing. This loan was concealed from the Florida Court."
Gawker responded to the claim, saying, "Apparently wasting the court's time is no big deal when Peter Thiel is footing the bill."
The reason Denton's finances came up in a Florida courtroom was that the judge there who was overseeing the sex-tape case had to decide what amount of bond Gawker and Denton should have to put up to stay the $140.1 million judgment as the invasion-of-privacy case went up on appeal. Per Florida code, the defendants were staring at the possibility of having to pledge the financially ruinous sum of $50 million.
According to Hogan, Denton offered to pledge his Gawker stock as security in exchange for staying execution of the judgment. Hogan says he was willing to accept this offer with conditions like the shares being held in a trust and immediately vesting upon the judgment being affirmed by an appeals court. The sides quarreled about this, with the judge mostly taking Hogan's side. This would all soon become moot — at least with respect to Gawker.
"Unbeknownst to Mr. Bollea and the Florida court at that time, Debtor had already signed its bankruptcy petition (on June 9, 2016) and voted to sell of the assets of Debtor, Kinja and GMGI," states Hogan's brief. "Judgment Debtors never advised the Florida court that the bankruptcy filing was imminent."
Gawker may have prepared its Chapter 11 papers in case it couldn't get the Florida judge to stay the judgment. The bankruptcy filing had the same effect. Now the question is what happens with Denton, who hasn't yet filed for personal bankruptcy. If the TRO becomes a preliminary injunction, Denton might never need to personally declare bankruptcy.
It's argued by Gawker that if Hogan makes collection efforts against Denton, it will harm the news company in several ways.
First, Gawker has indemnified Denton, meaning that it has agreed to pay his legal tab. So theoretically, a judgment against Denton becomes Gawker's liability. But Hogan says that this indemnification agreement specifically precludes anything Denton does that constitutes misconduct or gross negligence. Hogan asserts that what the jury in the sex-tape case concluded qualifies as such and means Denton isn't indemnified. And even if he is, Hogan still doesn't believe this merits an injunction.
Hogan also objects to the contention that Denton is indispensable. Hogan's attorneys say that Gawker can function without him, telling the judge, "Indeed, Mr. Denton was able to absent himself for the entire Bollea trial and the websites did not crash. Instead, Mr. Denton’s role traditionally has been more strategic than day-to-day, as he is 'responsible for developing, communicating and implementing the Company’s go-forward business strategy and vision.' And the strategic vision is now a sale that, as described below, will be implemented by others."
Of course, this wouldn't be a Hulk Hogan brief without a potshot at Gawker's existence at large.
"With all the personnel assisting Debtor in bankruptcy and its day-to-day operations, Debtor should be able to navigate the bankruptcy successfully even if Mr. Denton were distracted by his own personal legal issues," states the brief. "Further, even without a stay, Debtor will be able to continue to operate and continue its 'pioneer[ing]' work publishing articles such as 'Texas Library Cat Ousted From Office by ‘Kitty Hating’ City Hall;' 'George W. Bush Denies Participating in Kanye West Orgy;' and 'Please Enjoy the DEA’s Very Good Guide to "Rave Parties"' (all of which have been published since Debtor’s bankruptcy) because it has arranged for DIP financing. And at the same time, Debtor remains free to publish its 'unique' articles that have caused the litigation costs — including a $130 million judgment — that resulted in this bankruptcy and may depress the value of the bids in the upcoming auction process."
7:55 p.m. PT: Updated to include Gawker's statement.