Hulk Hogan & Asset Protection Lessons from Bollea v. Clem

December 6, 2016 Asset Protection, Business planning Comments Off on Hulk Hogan & Asset Protection Lessons from Bollea v. Clem

In one of the more highly publicized cases of this year, in March 2016, a Florida jury in the case  Bollea v. Clem  awarded Hulk Hogan $115 Million in compensatory damages and $25M in punitive damages against the owners and operators of the Gawker website.  Gawker was a website founded by Nicholas Denton devoted to media news and gossip.   In the lawsuit, Gawker was accused of violating Hulk Hogan’s privacy by posting private videos of Hogan engaged in sex acts.

Several months after this jury award, both the LLC and corporation which allegedly ran the Gawker website, along with Nicholas Denton filed for bankruptcy.  The Gawker website which reportedly had over 23 million visitors per month in 2015 was permanently shut down in August 2016.   A review of the case along with Gawker’s structure as revealed in the bankruptcy documents illustrates some important asset protection principles to remember.

  1. Keep your Asset and Businesses Separate. In general, our approach to asset protection involves separating your assets from your business so that if your business gets hit with a big lawsuit, your assets are less likely to be at risk because they are held in entities separate from the business.   In this case, the Gawker website was operated by Gawker Media LLC.  Bankruptcy documents show that Gawker Media LLC was in turned owned 100% by Gawker Media Group, Inc.  Nicholas Denton owned approximately 30% of the shares of Gawker Media Group, Inc.   Certainly there could be other practical benefits from this hierarchical parent/subsidiary structure, but one of the risks of having everything owned in this linear structure is the possibility that a significant liability could cause the entire house of cards to fall.     Moreover, bankruptcy documents further show that the operator of the website, Gawker Media, LLC also owned substantial interests in real estate and intellectual property, all of which would be exposed to a significant liability from the website activities.   If you are running a website that posts negative information about rich and famous, does it make sense to also own valuable real estate and other assets in the same entity?  In the case of Gawker Media, LLC,  it also owned other websites and branding which were eventually sold to Univision through the bankruptcy process, but whenever you own significant assets, you should consider whether to segregate these assets into different entities to spread out the risk so that a liability coming from one direction does not infect the entire pool.
  1. Entities are not a License to Engage in Misconduct. One of the main reasons for using an entity like a corporation or LLC is to take advantage of the “corporate veil” which generally protects the owners from being personally responsible for debts incurred by the entity.  However, the corporate veil is not absolute.   In the Gawker case, despite the existence of a multi-entity structure, the jury specifically found that Nicholas Denton personally participated in the posting of the explicit videos that resulted in the lawsuit, in addition to allegations that he personally edited the video that ultimately appeared on the site, which contributed to a finding of personal liability.   Courts will generally disregard or “pierce the corporate veil” if the owners are using the entity to perpetrate fraud or engage in other wrongdoing, and so don’t think that the corporate veil will be there to protect you if you are committing fraud or other intentional misconduct.
  1. There is no 100% Guaranteed Asset Protection Strategy, but the Goal Should be a Multiple Barrier Approach.  As further discussed in Mark Kohler’s book “Lawyers are Liars,” there is no 100% guaranteed approach to asset protection.  Instead, the goals should be to implement as many barriers as you are willing to utilize depending on the cost, complexity and degree of protection afforded by the strategy.  Whether it is having the right insurance, ensuring your contracts are sound, stripping your assets of equity available to creditors, or multiple LLCs, the goal is to implement as many strategies as you can to make it as hard as possible for a creditor who would pursue you.

The Gawker case is a good illustration of the possibility that any asset protection strategy could be toppled if you have a motivated, resourceful litigant.   It was no secret that Hulk Hogan’s lawsuit is and was assisted by financing from billionaire venture capitalist Peter Thiel, who was also a previous target of Gawker’s posts, and was therefore motivated to financially assist Hulk Hogan and other litigants suing Gawker.  Denton has reportedly admitted that Thiel’s campaign against Gawker Media made the Gawker.com website too risky for Univision to purchase, and as a result, the website that had previously drawn the ire of Peter Thiel had to be shut down.

The outcome of litigation is often impacted by the financial resources of the parties, and having a well-designed multiple barrier asset protection strategy could make other adversaries (Peter Thiel excepted) think twice about how far they are willing to go.

The Gawker case, currently on appeal and in bankruptcy, is still pending and given the unpredictability of litigation, the ultimate outcome has yet to be decided.   Nevertheless, Denton has reportedly admitted that, even if the judgment is reversed on appeal, “Peter Thiel has already achieved many of his objectives.”     Therefore, the case is just another reminder that, regardless of whether you are an entrepreneur/executive worth hundreds of millions of dollars, or simply have a 401K and a rental, we all need to be cognizant of the potential legal consequences of our actions, and have a concrete strategy for protecting the fruits of our labor if and when an unexpected liability arises.

About the author

Lee is an attorney at the California office of Kyler Kohler Ostermiller & Sorensen located in Irvine, California. Lee focuses his practice on real estate and business transactional/ litigation, debtor/creditor law, IRS negotiations, business planning, asset protection and estate planning. Lee’s practice includes advising clients on the formation of business entities, partnerships, and general tax planning relating to business entity formations. Lee also provides advice on structuring real estate investment deals and asset protection issues arising from investments in real estate. He also regularly advises and assists clients in IRS matters including audits, collections, installment agreements and offers in compromise.