The bankruptcy proceedings involving online media purveyor Gawker Media took an interesting turn recently when one of the company’s creditors objected that the Chapter 11 bankruptcy was being improperly used as a shield from personal liability by the Gawker CEO.

The creditor who raised the objection is none other than Hulk Hogan, the former professional wrestler who was awarded a massive judgment against Gawker Media earlier this year. In fact, it was Hogan’s $140 million civil judgment that prompted Gawker to file for Chapter 11 bankruptcy in the first place.

Hulk Hogan’s Lawsuit against Gawker

Hulk Hogan’s high-profile lawsuit against Gawker stemmed from an article that the company published on its main website, Gawker.com. That article included a portion of a video that showed explicit images of Hogan having sex. The publication and online dissemination of the Hulk Hogan sex tape caused severe damage to Hogan’s personal reputation and led the ex-wrestler to file a civil suit against Gawker Media and Gawker CEO Nick Denton. A jury ultimately found in Hogan’s favor and ordered Gawker Media and Denton to pay a combined $140 million in damages. (Denton is personally liable for at least part of the $115 million in compensatory damages awarded by the jury.)

Gawker immediately filed an appeal of the ruling, which meant that Hogan would have to wait to collect on the damages award. Meanwhile, in early June, Gawker filed a bankruptcy petition and declared that it would be unable to continue operations without bankruptcy relief.

Chapter 11 bankruptcy is usually an option for corporations that need to reorganize in order to remain operational while dealing with crippling debts. By filing for Chapter 11, Gawker has said that it needs additional time to pay back its main creditor, Hogan, while the company awaits reorganization in the form of a court-supervised auction of the business. Depending on the outcome of the appeal Gawker filed in the Hogan civil lawsuit, the proceeds of the auction could potentially be used to pay Hogan’s judgment.

Using Chapter 11 Bankruptcy to Shield an Individual from Personal Debts

Hogan recently filed court papers with the U.S. Bankruptcy Court in the Southern District of New York (Manhattan), objecting to Gawker’s use of the bankruptcy to protect the company’s CEO and founder, Nick Denton, against personal liability for the civil judgment.

The main issue here is whether Denton, as an individual, can also receive the automatic stay injunction that Gawker got when it filed for Chapter 11. While the company is shielded from lawsuits and judgments under Chapter 11, there is some doubt about whether Denton, the chief executive officer, can also be shielded from liability and debt obligations.

Hogan has objected to Gawker’s attempt to extend Chapter 11 protection to Denton. Hogan argued that Denton should be forced to seek protections through personal bankruptcy, such as Chapter 7 or Chapter 13.

Meanwhile, Gawker has formally responded, in bankruptcy court, that Denton “is instrumental and central to the spirit” of the company to such a degree that Gawker Media would be harmed as a business if Denton were not shielded from liability.

The case could soon get even more contentious, as Hogan has already argued that Denton no longer runs the day-to-day operations of Gawker Media and spends most of his time “blogging, Tweeting, and providing interviews.”

In papers filed with the Manhattan bankruptcy court, Hogan alleged that Gawker Media has even gone so far as to provide Denton with a $200,000 personal loan. This, said Hogan, would also constitute a violation of both state and federal bankruptcy laws because the loan was used to cover Denton’s bankruptcy attorney fees and there were no requirements that he put up collateral for the loan.

For more information, check out the Bloomberg.com article, “Hulk Hogan Objects to Gawker CEO Denton’s Bankruptcy Shield.”

 

Anyone who is dealing with unmanageable debt and who may need a little help covering their debt obligations should speak with a qualified bankruptcy and debt management attorney as soon as possible. Joel R. Spivack is an experienced bankruptcy lawyer who is prepared to help you explore all of your legal options. Contact Mr. Spivack anytime to schedule a free consultation.