Hulk Hogan case rattles litigation funding firms
By Julie Triedman, From The Am Law Daily
As if Hulk Hogan’s courtroom brawl with Gawker Media wasn’t already spectacle enough, this week brought news that PayPal billionaire and Sullivan & Cromwell alum Peter Thiel has been funding the litigation, possibly thanks to a personal vendetta against Gawker.
The funding revelations add a new dose of drama to Hogan’s extraordinary lawsuit, in which Gawker was hit with a $140 million jury verdict for posting video of the wrestler having sex with a friend’s wife. But there’s one group that’s not necessarily thrilled with the latest twist: the established litigation finance industry.
Executives at commercial litigation funders were quick to distance their own business models from Thiel’s involvement in the Hogan case, and to push back against renewed critiques of third-party litigation funding that have been sparked by the latest headlines.
“It’s really nothing like what we do,” insisted Bentham IMF CEO Ralph Sutton, which invested an average of $3.5 million in at least 19 separate U.S. litigation matters last year. “Billionaires can always insert themselves into litigation for political reasons,” Sutton said. “But we at Bentham don’t have an agenda. Our interest is always in maximizing returns to our shareholders.”
“This is litigation funding,” acknowledged Gerchen Keller Capital managing director Travis Lenkner, “but it’s not litigation finance. That’s a critical difference.” Gerchen Keller, the United States’ largest third-party funder, boasted $1.4 billion under management and 50 active investments as of late last year.
The unusual funding arrangement between Thiel and Hogan, whose real name is Terry Gene Bollea, is fueling calls for greater transparency and regulation in the business.
Courts generally don’t require funding arrangements to be disclosed, although the U.S. Chamber of Commerce has long been lobbying to change that.
The notion that Thiel, pictured right, may be backing Hogan as a result of Gawker’s “outing” him as gay in 2007—and possibly because of other Gawker reports critical of Thiel’s business dealings—is also bringing together some strange bedfellows. Longtime critics of the finance industry such as the Chamber’s Institute for Legal Reform are now joined by a chorus of First Amendment pundits who warn of a possible surge in billionaire “revenge lawsuits” against media companies over unflattering news coverage.
According to The New York Times, Thiel hired a legal team to help determine which cases to fund. The lawyers’ identities could not immediately be confirmed, but Hogan Lovells and predecessor Hogan & Hartson have previously represented Thiel and his hedge fund, Clarium Capital Management LLC, in litigation. Robert Hawk, a Hogan Lovells partner in Silicon Valley who has handled work for Thiel, declined to confirm whether he had advised the wealthy entrepreneur on the Gawker docket, saying that that doing so would violate Thiel’s privacy. Hawk’s law firm profile lists “privacy-related torts” as one of his specialties.
(Howard Caro, a former colleague of Hawk’s at Hogan Lovells, was hired by Thiel as general counsel of his San Francisco-based venture capital firm Founders Fund and served in that role until July 2014.)
In defense of their industry, Sutton and Lenkner said that litigation finance firms can only maximize their returns when plaintiffs are acting in their own economic self-interest. That wasn’t necessarily the case in the Hogan case: The wrestler’s legal team, led by Harder Mirell & Abrams name partner Charles Harder, dropped a claim that would have required Gawker’s insurer to pay for Gawker’s defense, a very counterintuitive move that appeared designed to inflict the most financial pain on Gawker and its chief executive, Nick Denton.
No plaintiff acting in his own financial interest would walk away from the one defendant with the guaranteed wherewithal to pay up, commercial funders noted—nor would a lawyer working on contingency advise such a strategy.
As a commercial litigation funder, “we take no control, and go out of our way not to disturb the attorney-client relationship,” said Gerchen Keller’s Lenkner, who has overseen the explosive growth of the Chicago-based private litigation finance firm since its founding three years ago. “We’re only interested in an outcome that is also the best outcome for the client at the end of the day.”
Even though Hogan won a $140.1 million award, litigation finance executives say the funding of the Hogan lawsuit may have little to do with winning damages, and have more in common with a funder using a case or plaintiff to address a particular issue or grievance—be it personal, political or in defense of certain economic interests. “Plaintiffs with perfect stories don’t find themselves,” Lenkner noted.
There is, however, one similarity between commercial finance and issue-based funding that commercial funders don’t deny: Both allow plaintiffs who otherwise would not be able to bring cases to sue, ideally leveling the litigation playing field. And ultimately, they say, any lawsuit, whether a “revenge” suit or a commercially funded claim, stands or falls on the facts.
“Even if there’s a maniacal person behind the scenes here, the facts and the law will shake out wherever they do,” Lenkner said.
IMAGE: Hulk Hogan.
