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On Tuesday, Gawker asked a bankruptcy judge for permission to conduct an examination into Peter Thiel’s role in funding litigation against the company. The debtor once led by Nick Denton also is suggesting that it could have legal claims against Thiel.
Thiel, a Silicon Valley billionaire who co-founded PayPal and was one of the first investors in Facebook, provided Hulk Hogan with financial backing for a privacy lawsuit against Gawker over the publishing of a sex tape. The case resulted in a $140 million judgment that spurred Gawker to file for Chapter 11 bankruptcy. In bankruptcy, Gawker sold many of its assets to Univision for $135 million.
As the bankruptcy case continues, Gawker has filed a discovery motion to explore how Thiel worked with Hollywood attorney Charles Harder to bring down the company.
Gawker has recently put forward a plan to liquidate its flagship site, Gawker.com, after it was excluded from the Univision sale. There will soon be a vote on Gawker’s plan for reorganization.
U.S. Bankruptcy Court Judge Stuart Bernstein was told that the investigation would help figure out whether the votes of unsecured creditors — those, such as journalist Ashley Terrill, who are represented by Harder’s firm and have asserted claims against Gawker in court — should be rejected for a lack of good faith.
Additionally, Gawker said that the reorganization plan and any settlement of offers will be impacted by any control that Thiel has over creditor claims.
But it’s the potential lawsuit against Thiel that holds the most intrigue.
“Given the apparent motive of Mr. Thiel to destroy the Debtors by his financial support of (and actual or de facto control regarding claims of) major alleged creditors, the Debtors require discovery to ascertain whether certain claims exist on behalf of the estates,” states Gawker’s motion. “For example, the New York Times report of Mr. Thiel’s intent to destroy the Debtors to avenge, inter alia, the Gawker.com’s 2007 publication (of a story about him) raises the possibility that the Debtors have a cause of action for prima facie tort under New York law.”
Gawker’s lawyer admits that such an action would have a “heavy burden.”
According to the court papers, “Such a tort claim would require the Debtors to show: (1) an intentional infliction of harm; (2) without excuse or justification and motivated solely by malice; (3) resulting in special damages; (4) by an act that would otherwise be lawful. As to the second element of prima facie tort, the plaintiff must show that the defendant was ‘solely motivated by malice.’ Other motives, such as ‘profit, self-interest, or business advantage will defeat a prima facie tort claim.’”
The debtor’s lawyer goes on to say that articles about Thiel’s activity “ambiguously suggest that Mr. Thiel both is and is not motivated by pecuniary gain.”
The investigation may help them figure out once and for all Thiel’s motive.
A lawsuit would certainly be closely watched in both the media and legal communities, with the potential for defining boundaries on litigation finance, especially of the revenge caliber. But there’s no guarantee that Gawker will be permitted to undertake this fishing expedition. For one thing, the motion will surely prompt an objection that many of the documents being sought are shielded by attorney-client privilege.
Gawker anticipates such an argument.
“The requested discovery includes documents relating to litigation financing, a law firm’s solicitation materials, and requests to parties that may share the same attorney (Mr. Harder),” states the brief. “Notably, such information is not privileged. For example, courts have held that a litigant waives privilege where he shares (or allows his lawyer to share) due diligence materials related to the strength of his claims with a third-party funder. … Further, litigation financing agreements themselves are not privileged.”