The legal move, under Chapter 11 of the bankruptcy code, will allow Gawker and its associated media properties to continue operating.
The company will be able to work out payment options with its creditors, including Hogan, real name Terry Bollea. It could also see some or all of its debts discharged.
As a practical matter, the maneuver will give Gawker some leverage to whittle down, or completely discharge, Hogan’s payout. The $140 million court judgment is mentioned in the filing as a “disputed claim,” according to Ad Age.
Update: Gawker Media Sold to Ziff Davis Ziff Davis, a global digital media company is buying Gawker Media, according to a statement today from Gawker on the heels of its bankruptcy filing. “We are encouraged by the agreement with Ziff Davis, one of the most rigorously managed and profitable companies in digital media. A combination would marry Ziff Davis’ strength in e-commerce, licensing and video with GMG’s premium media brands,” Gawker Media founder Nick Denton said. Ziff Davis is a subsidiary of j2 Global, Inc. Other companies could step in with a higher price as part of a court-supervised bankruptcy auction, Denton noted.
Gawker filed a motion for a new trial, the first step in the appeal process. But the trial judge rejected it and refused to reduce the award.
The Web publishing company’s court appeal could see the lower court verdict overturned and the award thrown out on Constitutional grounds.
Lawsuit judgments can be included among discharged debts, but there are exceptions, according to legal references. The nature of the judgment and whether the creditor has already placed a lien on property are factors.
It’s probably safe to say Gawker rushed the bankruptcy petition to court to beat efforts by Hogan’s legal team to file liens, which can’t be dismissed.
There is so-called “nondischargeable debt” that can’t be removed in bankruptcy.
They include judgments for child support and alimony, criminal penalties, fines and restitution, certain taxes, student loans and debts related to frauds. Also included are malicious injury and drunk driving awards.
None of those would apply to Hogan’s judgment, putting him at risk of not getting paid.
Gawker hired an investment banker last month to explore options for the company, including a sale of assets. But bankruptcy was the most obvious option.
Hogan sued Gawker Media and Denton after the company published excerpts of a sex tape. Hogan was filmed having sex with the wife of his best friend, Bubba Clem. The Florida DJ also known as Bubba the Love Sponge, taped the tryst.
The case took an even uglier turn last month when it was revealed that Silicon Valley billionaire Peter Thiel secretly bankrolled Hogan’s case.
Thiel has been attempting to drive Gawker out of business ever since the Web site outed him as gay in 2007.
Thiel’s use of the courts to grind an ax raises serious questions about gross abuse of judicial process. He’s funded several other lawsuits, solely in an effort to bleed Gawker financially.
“Freedom of the press does not mean freedom to publish sex tapes without consent. I don’t think anybody but Gawker would argue otherwise,” Thiel said, explaining his actions, in a recent interview.
To the contrary, the Supreme Court directly addressed a similar situation in 1988 in the landmark case, Hustler Magazine, Inc. v. Falwell.
The Court recognized in a unanimous decision that a Hustler cartoon of the Rev. Jerry Falwell talking about having sex with his mother was protected free speech.
The court specifically ruled that the First Amendment guarantee prohibits awarding damages to public figures to compensate for emotional distress, even it’s intentionally inflicted upon them.
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