Tag Archives: law

The Fate of Gawker – What Happens Next

Despite all the media attention, there is dearth of professional legal opinions as to the fate of Gawker in light of losing the Florida jury trial, as well as Hogan being awarded an additional $25 million in punitive damages, for a total $140 million against Gawker.

Although I’m not a lawyer, I will try my best to assess the situation.

First, the facts: Gawker earns about $40 million a year, of which $6 million is profit, making it a successful business. As of 2014, Gawker’s valuation is estimated between $200-300 million.

From Aaron Clarey of Captain Capitalism: Gawker’s Financial Statements

Mathematically, yes. Gawker will go away. With revenues of $45 million and a a lawsuit, even when paired down, will wipe them out financially, you can safely say Gawker will die as a financially solvent entity. But there are some problems, and this introduces the world of finance.

However, it may be too soon to celebrate. Although Hogan won the jury trial (which Gawker anticipated it would lose), the case will likely be appealed which may rule rule that Gawker is protected under the First Amendment, being that Hogan is a public figure who has also made his personal life public in the past. Hogan starring in his own racy reality TV show doesn’t help his cause.

From Nick Denton himself, The Hogan Verdict:

A state appeals court and a federal judge have already held repeatedly that the 2012 commentary and short video excerpt, which joined an existing conversation and explored the public’s fascination with celebrity sex tapes, were newsworthy. We have had our day in trial court, and we lost. We will have our day back in appeals court, and we will be vindicated.

From the Bloomberg article:

In the meantime, lower courts apply principles derived from the justices’ opinions in related areas. One is that debate on public issues should be uninhibited. A second, closely linked, is that public figures sacrifice a good deal of their privacy when they when they enter the public sphere. Both can be traced back to New York Times v. Sullivan, the 1964 landmark case in which the court said public officials could only collect damages for libel if the statements against them were made with knowing or reckless disregard for their falsehood.

Taken together, these principles clearly indicate that newsworthy speech about a public figure merits full First Amendment protection. And, unfortunate though it may be, Hulk Hogan is a public figure and his sex life is newsworthy.

A distinction must be made between Trial Courts and Appellate/appeals Courts. Gawker lost the jury trial, but the state appeals court does not involve a jury.

Consider the infamous Liebeck v. McDonald’s Restaurants, in which the jury originally awarded Liebeck $3 million (mostly punitive damages), but was eventually reduced to just $600,000 after arbitration.

A twelve-person jury reached its verdict on August 18, 1994.[16] Applying the principles of comparative negligence, the jury found that McDonald’s was 80% responsible for the incident and Liebeck was 20% at fault. Though there was a warning on the coffee cup, the jury decided that the warning was neither large enough nor sufficient. They awarded Liebeck US$200,000 in compensatory damages, which was then reduced by 20% to $160,000. In addition, they awarded her $2.7 million in punitive damages. The jurors apparently arrived at this figure from Morgan’s suggestion to penalize McDonald’s for one or two days’ worth of coffee revenues, which were about $1.35 million per day.[2] The judge reduced punitive damages to $480,000, three times the compensatory amount, for a total of $640,000. The decision was appealed by both McDonald’s and Liebeck in December 1994, but the parties settled out of court for an undisclosed amount less than $600,000.[18]

In light of the very real possibility of losing in the appeals court, it’s likely there will be a settlement that will result a much small payout – maybe only, say, $15 million, which will be low enough for Gawker to continue its operations mostly unharmed. Or as in the case of Liebeck , the judge will reduce the damages.

Should Gawker be forced to pay a much larger sum – $50-140 million – it may still be able to continue, mainly by making it nearly impossible for the plaintiff to collect. As any attorney will attest to, wining a lawsuit is just half the battle – collecting is just as hard, if not harder. Gawker may immediately file bankruptcy, delaying the collection process (automatic stay) and allowing the site to continue as if nothing happened. A trustee will be appointed to oversee the process of liquidation, which will take years to complete – if it ever does.

Using its profitability and valuation as collateral, Gawker may also take out a loan to pay the judgment in small installments – sorta like the conservatorship Fannie and Freddie are in, which allows the business to function but forfeits its profit. The terms of this loan would probably be unfavorable given Gawker’s small size and presumably low credit worthiness.

Although Gawker does have insurance, the cap is likely already exceeded. From the Atlantic: In First Round With Gawker, Hulk Hogan Prevails

. The New York Times reported last year that the site had to pay its legal fees in the Hogan case out of hand after exceeding its insurance cap. Denton also told the Times that there was a one-in-ten chance he would have to sell a controlling interest to keep the company solvent.

The full verdict will exceed the insurance cpa, in which Gawker may sue its insurance company Nautilus, creating more complications.

From the NYT: Jury Tacks On $25 Million to Gawker’s Bill in Hulk Hogan Case

The England-born, Oxford-educated Mr. Denton is well off, with most of his $121 million net worth held as stock in Gawker’s parent company, the Gawker Media Group, which runs multiple websites. The company is worth $276 million, the judge said, with revenue last year of $49 million.

Mr. Denton’s personal wealth includes $3.6 million in equity in a New York City condominium.

Under an unfavorable revolving credit facility, Denton’s equity in Gawker media may be destroyed or reduced substantially, although Gawker will still function. The fact Gawker is profitable should help it secure financing. This is similar to the fate of the currency broker FXCM, which sustained a very large one-time loss of $225 million on short positions against the Swiss Francs after the currency peg was rescinded and the broker was bailed out by Leucadia National Corp at a cost of 90% of FXCM’s equity.

If Gawker is sold, the bankruptcy trustee or the creditor will get the proceeds, with whatever is leftover going to shareholders.

So I doubt Gawker will go away even if they lose the full verdict, although Mr Denton may be much poorer due to loss of equity.

Free Speech, Democracy, and Crime

From iSteve: Kinsley on the Advantage of a Written First Amendment

European countries, obviously, do not have a statute protecting ‘free speech’. The result is people are occasionally apprehended (severty of punishments vary, from being detained for a few hours or days or, in exceptional cases, imprisoned for years) for communication deemed ‘incendiary’ or a ‘threat to order’ (hate speech laws).

The trade-off is, although Europe has no first amendment, it’s otherwise soft on crime, with comfy EU-approved dorm room jail conditions vs. America, which is very hard on crime (with mandatory sentences), with the worst prisons and longest sentences second to Iran or North Korea. In Great Britain, for example, a woman with an extensive history of shoplifting, when finally caught, the punishment was 12 hours of detention upon which she was released with no charges. Or Glen Stacy, Britain’s most prolific shoplifter, who has been arrested 400 times. In America, given the mandatory minimums, he would have to live forever to shoplift that many times.

Britain, as well as much of Europe’s, justice system is dysfunctional, imprisoning ‘thought dissents’ yet giving actual criminals slaps on the wrists, while America’s system may be too functional to the point of putting too many people away for too long.

The thing, is people get mad (especially those on the right it seems) when political dissidents are thrown in jail, but under a reactionary form of government that’s what would happen. And people get mad (both on right and left) when you question the sanctity of free speech. Democracy? No so much. It seems like everyone is on board the anti-democracy train. * But free speech is sacred. But you can’t have it both ways – reactionary government and free speech. And free speech and democracy are, in many ways, intertwined. Although speech laws may seem egregious, one also dig up plenty of egregious examples in America, too, like people serving many years for possession of firearms or drugs. Pick your poison, I guess

On a related note, this raises the question of what is the best way of handling crime: the libertarian/anarchist approach (retributive) or America’s punitive approach. Let’s consider the case of shoplifting, which is a very common crime, yet not so severe of nature that the appropriate punishment is not without a large degree of ambiguity. Libertarians may argue that businesses, not tax payers, should deal with criminals. Under such a system, the business or individual would administer punishment such as a fine and or banishment from the store. But that is not very effective since the thief can go somewhere else, in perpetuity. Or, maybe the store could exact a more severe punishment as a deterrent – beating the thief into a pulp, for example. But that may violate the ‘non aggression’ principle of meeting force with equal force. And some employees may, understandably so, have qualms about carrying out such a heavy-handed punishment. Civil demands are another retributive option, but since it’s civil, not criminal, the thief is under no obligation to pay. A thief with no assets can’t pay, either. That’s why the punitive approach is the most effective, by putting criminals away so they cannot continue to inflict harm on society, possibly with rehabilitation, but also lifting the burden off the private sector in having to choose a suitable punishment for miscreants; the ‘justice system’ deals with that. But as we can see with Europe and their petty crime epidemic, even that isn’t good enough in many instances, since these thieves, once released, continue to steal. On the other hand, putting too many people away for too long can strain resources that can be better spent elsewhere.

*In recent years, online, it’s actually hard to find people, both on the left or the right, who don’t have reservations about democracy. Some of the major criticisms of democracy are that it does a bad job (inefficient) at allocating ‘public goods’ and gives to much power to the ‘ignorant masses’, which are both valid criticisms.

Civil & Criminal Punishment: Libertarian vs. Fed. Government

I would think punishment is worse for civil cases under the hypothetical libertarian form of government, because the damages can be set for an arbitrary high amount, and the debt collections for the losing party renewed in perpetuity. Think frivolous lawsuits, which cost businesses and individuals billions of dollars to fight. While the government offers venues (courts and judges) to mediate these lawsuits, it’s individuals and businesses that initiate them.

The government, on the other hand, has limits (10 years for IRS to pursue back taxes, etc) and can’t just sue for an arbitrary high amount like many private entities can. Everything is itemized. Also the government has pretty generous payment options for the defendant. And the bureaucratic sloth makes such lawsuits take forever, and the collection process even longer.

Being sued by the government is like stepping in a ring against a 300+ pound heavyweight that may occasionally land a hard punch, but is otherwise too encumbered by his girth to do much, and just nods off in the corner most of the fight, only to be occasionally aroused by his cornerman. Being sued by a private entity, on the other hand, is like going against a welterweight that will bloody you before you even lift your gloves. He won’t stop fighting until he loses or the ref calls the fight.

On the other hand, punishment for criminal cases may be worse under the federal government than the libertarian one. For example, the three strikes law, which some argue is too harsh for nonviolent recidivists. Also, issues pertaining to wiretapping and snooping private emails. Maybe the punishment for these criminal cases under the libertarian ‘system’ would be lesser. The government pursues certain criminal matters (chid engagement, homeland security, homicide) quite aggressively, with very long sentences, although the trials can take a long time.