Billionaire backing of Hogan won’t upend $140 million Gawker verdict

May 25, 2016

Eight hundred years ago, the Silicon Valley billionaire Peter Thiel might have been guilty of crime for allegedly funding a privacy suit by the pro wrestler Hulk Hogan.

Nowadays Thiel is safe from prosecution, though his secret backing of Hogan, as reported Tuesday by Forbes and the New York Times, raises questions about the steady erosion of laws barring outsiders from investing in lawsuits.

Hogan, as you surely recall, won a $140 million verdict in March against the online news and gossip company Gawker Media, which had posted snippets of a leaked video showing Hogan having sex with his then best friend’s wife. Gawker, which plans to appeal the verdict, suggested in a statement Wednesday that Thiel’s funding will be an issue as it challenges the state court verdict. Undisclosed details of the alleged arrangement between the billionaire, Hogan and Hogan’s lawyers at Harder Mirell & Abrams could help Gawker’s appeal if, for instance, it turns out that by failing to mention Thiel’s backing, Hogan exaggerated the harm he suffered from the sex tape publication.

But litigation funding experts say the revelation of Thiel’s involvement will probably not, by itself, help Gawker overturn the verdict.

Under Florida case law, it’s okay for plaintiffs like Hogan (who sued Gawker under his real name, Terry Bollea) to receive financial backing from an outsider with a stake in the outcome of the case.

Litigation investors aren’t supposed to meddle in the case or dictate litigation strategy, according to a 1996 ruling from the state’s intermediate appeals court. Some have questioned whether such meddling occurred in the Hogan case. Legal journalist Dan Abrams suggested back in March, during the trial, that an outside investor might be directing Hogan to make otherwise peculiar decisions, such as his rejection of multimillion-dollar settlement offers. Gawker founder Nick Denton sounded the same theme in an interview this week with Dealbook’s Andrew Ross Sorkin.

But even if Thiel did influence Hogan’s legal strategy, that would probably not be grounds to overturn the verdict against Gawker, according to Anthony Sebok, a professor at Benjamin N. Cardozo School of Law and the author of a definitive 2011 law review article on legal doctrines discouraging litigation funding. Some states, Sebok said in an email, have statutes prohibiting such arrangements, and if Hogan had brought his case in one of those states, Gawker might be able to argue the verdict was tainted by Thiel’s alleged involvement.

Florida, however, is not one of those states. At best, Sebok said in an email, Gawker might be able to bring a separate action against Hogan and Thiel for misusing the court system.

Similarly, Christopher Bogart of Burford Capital, a litigation funder that has lobbied against prohibitions on outside financing of litigation, said courts have “affirmatively (and appropriately) generally decided not to inquire” into who is paying for a case. The U.S. court system has strong laws to curtail improper suits, Bogart said, and judges are more inclined to sort good cases from bad than to delve into their financing.

That certainly seems to be the attitude of the Florida judge who oversaw the Hogan trial: At a hearing Wednesday, she denied Gawker’s request to investigate Thiel’s involvement in the case.

The rise of litigation funding has discredited doctrines with ancient roots. British law dating back to 1275 prohibited three forms of promoting litigation: barratry, in which someone stirs a potential plaintiff to file a lawsuit; champerty, in which an investor takes a stake in the lawsuit’s recovery; and maintenance, in which an investor pays the plaintiff to carry on the suit. These “antique laws” remained on the books as criminal offenses in the U.K. until 1967, though rarely enforced in modern times. In the U.S., according to Sebok’s 2011 article in the Vanderbilt Law Review, at least 28 states allow outsiders to invest in litigation. Delaware and Minnesota, which continue to enforce champerty rules, are now considered outliers, according to a January 2016 report by the law firm Dinsmore & Shohl.

Thiel, who co-founded PayPal and was an early Facebook investor, is a noted libertarian, but a fellow libertarian at the Cato Institute told me his supposed investment in Hogan’s case should be an occasion to reconsider whether loosening the rules for litigation funding was a good idea. Walter Olson, a senior fellow at Cato and the author of several books about the legal system, blogged at Overlawyered.com about Thiel’s reported backing of Hogan. In an interview, he pointed out that the old laws were intended to block powerful people from taking advantage of the court system to maximize their own interests – precisely what Thiel is said to have done in the Gawker case.

“Our ancestors were not complete fools,” Olson said. “The rules were there because of concerns the law would turn into a weapon to magnify power.”

Hogan lead counsel Charles Harder of Harder Mirell did not respond to an email requesting comment. He told the Times that he does not discuss his clients’ finances. I reached out to Gawker’s general counsel and outside lawyers at Levine Sullivan Koch & Schulz but did not hear back.

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