Judge tells wrestler’s lawyer to stand down on threat of more litigation for media company’s CEO
Gawker Media Group and former professional wrestler Hulk Hogan agreed to a temporary cease-fire Wednesday in their bitter legal battle, which has landed the digital-media company in bankruptcy.
At Gawker’s first court appearance since filing for chapter 11 protection, Judge Stuart Bernstein of the U.S. Bankruptcy Court in Manhattan told a lawyer for Terry Bollea, whose wrestling name is Hulk Hogan, to “stand down” on threats to ratchet up the pressure in the dispute by targeting Gawker founder and Chief Executive Nick Denton.
Gawker filed for bankruptcy Friday after a judge in Florida upheld a $140 million jury judgment stemming from an invasion of privacy lawsuit Mr. Bollea brought against the company and Mr. Denton, who wasn’t in court Wednesday. Gawker is appealing the ruling.
Eric Fisher, a lawyer for Mr. Bollea, said in court Wednesday that he planned to seek sanctions against Mr. Denton for allegedly misrepresenting the value of stock he pledged to secure a bond that would temporarily halt payment of the judgment while Gawker pursues an appeal.
“He led the court to believe he was pledging something of great value,” Mr. Fisher said in court Wednesday.
Mr. Denton, who owns 30% of Gawker, pledged his shares the day before the company filed for bankruptcy and revealed a preliminary bid for its assets. In a memo posted to Gawker’s website, Mr. Denton confirmed that the legal woes had “undoubtedly depressed” the company’s valuation and had been “financially draining.”
After a private meeting with lawyers in his chambers, Judge Bernstein announced that both sides had agreed to a “complete standstill” on litigation tied to the judgment until next month, when another hearing is slated to take place in bankruptcy court.
Gawker is facing lawsuits from several former subjects of its articles, including Mr. Bollea, blogger Charles C. Johnson, journalist Ashley Terrill and tech entrepreneur Shiva Ayyadurai.
“We can no longer afford to litigate on all of these fronts,” Gregg Galardi, Gawker’s lawyer, told the judge Wednesday.
Gawker is shielded from pending lawsuits while under chapter 11 protection. The media company also is hoping to shield Mr. Denton, Executive Editor John Cook, former Gawker.com Editor in Chief A.J. Daulerio and several current and former writers—all of whom are targets of pending litigation related to Gawker articles—from facing any of the lawsuits, at least while the company pursues a bankruptcy-court supervised sale process.
The prospect of the additional litigation could have a “potentially disastrous chilling effect” on the company’s workforce, Gawker’s lawyers have said in court papers. And the legal tumult could present a “significant burden and distraction” for Mr. Denton, potentially forcing him to file for personal bankruptcy. The next hearing on the matter is scheduled for July 13.
Gawker filed for chapter 11 with a prearranged plan to send its assets to the auction block. Gawker already has lined up a $90 million opening bid from online and magazine publisher Ziff Davis LLC, which is subject to higher bids.
Speculation has swirled that Ziff Davis might shutter Gawker.com if it completes the deal. In a note to employees explaining the move, Ziff Davis Chief Executive Vivek Shah highlighted how Gawker Media’s other properties—such as Gizmodo, Lifehacker, Kotaku and Jezebel—would fit into Ziff Davis’ stable of properties, which include AskMen.com and IGN. But Gawker.com was noticeably absent from that description.
Mr. Denton, however, continues to strike a defiant tone, saying “Gawker.com is as indestructible as a New York cockroach” and “more famous than ever,” in the memo posted on the company’s website.
“If it does not fit an acquirer’s portfolio, Gawker.com will find an investor with a tolerance for controversy,” Mr. Denton wrote. “I will happily contribute.”
At Wednesday’s hearing, Gawker won bankruptcy court permission to begin drawing down $22 million in emergency financing to support its embattled digital media business while it navigates chapter 11. Judge Bernstein signed off on $14 million in fresh cash for the publisher, which could will be followed by another $8 million pending final court approval next month.
An affiliate of Cerberus Capital Management LP is providing the lifeline, the bulk of which, $12.3 million, will pay off existing lender Silicon Valley Bank, court papers show. Cerberus was the only financier willing to provide the new loans, according to Gawker’s lawyers.
Mr. Galardi said Wednesday that the company’s advertising revenue had been hurt by the closely followed dispute with Mr. Bollea and other legal woes. Silicon Valley billionaire and investor Peter Thiel has acknowledged financing Mr. Bollea’s legal fight and other battles involving people who Mr. Thiel feels have been targeted unfairly by Gawker. A post on Gawker’s now-defunct Valleywag blog outed Mr. Thiel as gay in 2007.
In addition to the financing package, Judge Bernstein also approved a number of other routine matters Wednesday that are meant to keep Gawker running smoothly while in bankruptcy, including continued access to its bank accounts, permission to pay taxes and approval to pay wages and benefits to employees.
The bankruptcy sale process is designed to preserve Gawker’s underlying business and raise funds that will be funneled to a trust to finance further litigation or to cover final judgments handed down following appeals, which could take years to resolve. Gawker has said it expects it will ultimately prevail.