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Saturday, May 28, 2016

Thiel, settlement, and third-party funding

Following up my previous post on Peter Thiel and Gawker, this TNR post is so wrong about so many issues with civil litigation.

First, it derides the ACLU/NAACP analogy (also offered by Eugene Kontorovich) as "ridiculous." That is correct to the extent the ACLU or NAACP are not motivated by private vendettas. But the comparison works at the broader level of someone with an agenda (whether personal or ideological) helping someone else litigate their claims. And the fact that the agenda is personal rather than ideological should not matter. Public-interest organizations are no more consistent than individuals in their positions, as will no doubt be demonstrated when various political groups go silent about President Trump's executive actions.

Second, it argues that Thiel 's "Ahab-like mission" prevented the case from settling, which would have been the better solution to properly balance free speech and privacy concerns. But the prevailing view is that too many cases settle too easily, often under pressure from judges pushing settlement, and often confidentially, thereby depriving the public of knowledge of the case or its outcome and making it harder for repeat-player defendants (such as Gawker) to be held accountable. Moreover, to the extent Thiel's funding hand created a conflict between his interests and a settlement that would have been best for Hogan, this case starts to look quite a bit like NAACP-run impact litigation, where a settlement that might be best for the individual client is not consistent with the funder's long-term ideological or institutional needs and goals. So the non-settlement undermines the supposed ridiculousness of the NAACP/ACLU analogy--the potential for party-funder conflict looms in both.

Third, the focus on settlement as the means to balance speech and privacy and serve the public interest (by making Gawker pay for a violation while not being put out of business) is nonsense. We do not strike the balance by settling individual cases, although the parties themselves might. We strike the balance in the legal rules themselves, protecting speech against civil liability for invasion-of-privacy until the speaker crosses some line (the location of which will be the issue on appeal in this case). If Gawker crossed that line, there is no balance to be struck; it should be on the hook for all the harm it legally caused by violating Hogan's rights. And if that harm is so great that it forces Gawker out of business, so be it.

Finally, the post argues that Thiel's supposed deterrence goal is undermined by the fact that he financed the lawsuit in secret, because deterrence only works if the punishment is publicly known. But this makes no sense. It is not Thiel's funding efforts that punishes Gawker, it is the $ 140 million judgment that Hogan achieved through litigation funded by Thiel. And that judgment is publicly known. And that judgment (if it stands, which I do not believe it will) will have a pretty strong deterrent effect. Thiel's identity is not necessary for deterrence. Although, to the extent we are concerned about anonymous funding, Simona Grossi's argument about transparency in funding offers a solution.

Posted by Howard Wasserman on May 28, 2016 at 05:16 PM in Civil Procedure, Constitutional thoughts, Howard Wasserman, Law and Politics | Permalink


Whether or not public interest firms do, as a factual matter, attempt to drive defendants into insolvency, one might question whether they should. Besides which, it strikes me that a major difference between trying to bankrupt a gun manufacturer, a tobacco company, or a white supremacist organization, and Thiel's efforts to bankrupt Gawker (assuming that's the idea), is that the former set of defendants are engaged pretty much solely in the business of doing or selling something objectionable to the public interest firm, while Thiel is angry at Gawker about an event from the past that, while hardly a completely isolated instance of bad behavior on their part, is representative of a very small fraction of Gawker's product. Suppose that a small newspaper published several articles which, in the opinion of Donald Trump, were defamatory of Donald Trump. Suppose he could even get a court to agree that they were defamatory - yet, for some reason, never sued on his own behalf. Suppose this paper has also defamed or invaded the privacy of Hulk Hogan, but also responsibly covers local news, local restaurants, the weather, etc. Would we be okay with Trump funding Hulk Hogan's lawsuit against the newspaper as part of a scheme to put the paper out of business and get revenge for their defamatory articles? While I am happy to assume that it would be unconstitutional to ban that kind of litigation financing (although in at least my world, though perhaps not a post-Town of Gilbert world, you could write a statute regulating such financing that would be perfectly content-neutral, certainly viewpoint-neutral), that hardly resolves whether such financing is a good or acceptable thing.

Posted by: Asher Steinberg | May 30, 2016 8:33:16 PM

To anon's list, we could add the efforts in the mid-'90s to sue various white-supremacist organizations for damages, with the hopes of imposing crippling/bankrupting liability.

Posted by: Howard Wasserman | May 30, 2016 12:56:51 PM


I agree that fee shifting statutes do not convert public interest litigation into everyday private gain litigation even when the claim seeks only damages. But fee shifting statutes themselves reflect a legislative judgment that certain kinds of lawsuits do serve the public interest. And my observation about the impact of City of Los Angeles v. Lyons still stands -- given the crabbed standing requirements for injunctive relief even when the defendant acts pursuant to official policy, damages are sometimes the only remedy for unconstitutional conduct. The best local example, now somewhat dated, was then Broward Sheriff Nick Navarro's policy of returning all pretrial detainees to jail after a full acquittal in order to run a leisurely warrant check and gather the detainee's personal possessions, often causing three or four additional days of incarceration with no semblance of even arguable probable cause. Because of Lyons, the only remedy was a suit for what were relatively small damages and attorney's fees, and, when that failed to bring the practice to an end, a class action for damages that finally ended the practice. I'm not persuaded that Thiel's crusade against Gawker is anything more than the pursuit of a personal vendetta, though again that may not matter given the disappearance of the tort of maintenance.

I share the concern with the longstanding limits on statutory federal question and removal jurisdiction (we’re a Motley Crue), but those limits are too deeply embedded to change. Perhaps the Second District Court of Appeal will clean up the mess, but if it doesn’t, Gawker may have to depend on SCOTUS to step in unless the court of appeals certifies the question as one of great public importance. In a worst case scenario, the Second DCA could issue a per curiam affirmance, leaving Gawker to persuade SCOTUS to take the case on the basis of only a trial court order. SCOTUS has done that before after a PCA, most notably in Palmore v. Sidoti, but the odds aren't great.

Posted by: Michael Masinter | May 29, 2016 3:35:47 PM

"Second, public interest firms do not deploy litigation resources for the specific purpose of driving defendants into insolvency."

Except when they do. Search for the NYT article in June 1999, "Lawsuits Lead Gun Maker To File for Bankruptcy" and read the background of the Protection of Lawful Commerce in Arms Act.

Posted by: anon | May 29, 2016 3:34:45 PM

Michael: Thanks for a number of interesting points.

As to the first, I have not read anything saying Thiel paid Hogan or that the decision not to settle came from anyone other than Hogan. The TNR piece assumed that it came from Thiel, but we do not know. Also, a lot of civil rights litigation is for damages, brought by non-organizational private attorneys still deemed to be acting as private attorneys general and looking to be paid via attorney's fees (a different third-party financier). So there is nothing inherently inconsistent with damages as a primary remedy and what we regard as "public-interest litigation."

As to the third, an interesting dilemma. I pointed to this case (and, in fact, tested on it in Civ Pro) to illustrate the problems with both the complete diversity and Well-Pleaded Complaint requirements, as pushing into state court a case, such as this one, that cries out for a federal forum. In deciding whether to retain supplemental jurisdiction, courts generally look at timing (if dismissal comes early enough, the court declines). But perhaps the court also would look at the underlying issues.

For a further aside: I look at the First Amendment less as a defense in a tort case such as this than as an embedded federal issue--the First Amendment imposes a limit on the scope of the claim-creating rule, rather than functioning as an outside issue barring liability from an otherwise-satisfied claim-creating rule. So if "arising under" included every claim in which federal issues truly would be resolved in deciding the state law issue--which would be the case with a privacy claim in a case such as this--this case would have belonged in federal court.

Posted by: Howard Wasserman | May 29, 2016 12:23:32 PM

There are two critical differences between Thiel and the ACLU and the Inc. Fund or, if you like, the ADF and the Beckett Fund, though I'm not sure either matters under current common law tort and first amendment law.

First, litigation is all about relief, and the primary relief public interest organizations seek is injunctive relief to remedy unconstitutional state action or private conduct that violates their underlying legal agenda. Though we do sue exclusively for damages from time to time, particularly under the fourth amendment because of City of Los Angeles v. Lyons, speaking from decades of personal experience, when the ACLU sponsors litigation seeking only damages, its clients' interests always come first; the Rules of Professional Conduct require no less and we observe them scrupulously. We would never advise rejecting a good monetary settlement to keep a lawsuit alive. And though I am not privy to the financial arrangements Thiel may have with Bollea, we never pay our clients to be clients; we fund litigation costs, but we don't pay plaintiffs or lay witnesses to participate in litigation. Period, full stop.

Second, public interest firms do not deploy litigation resources for the specific purpose of driving defendants into insolvency. Although I fully expect Gawker to prevail on appeal, Thiel's obvious goal is to use his enormous resource imbalance to bleed them dry no matter what the ultimate outcome of all the underlying litigation may be. That's the same playbook VanderSloot and Melaleuca deployed against Mother Jones. Ten million may be pocket change for a billionaire, but it's real money for today's increasingly resource limited media defendants.

As an aside drawn from our shared interest in civil procedure, Gawker's lawyers failed to learn the key lesson from Texaco's battle with Pennzoil -- when you defend in a jurisdiction in which the filing and service of an answer terminates your opponent's right to voluntarily dismiss, and you have reason to like the judge or forum, file an answer! Bollea first sued Gawker in federal court based both on copyright law and assorted common law torts, and twice sought takedownn preliminary injunctions; Gawker responded with a 12(b)(6) motion, but even after Judge Whittemore denied the first preliminary injunction, never withdrew the motion and served an answer, leaving the door open for Bollea to voluntarily dismiss the federal lawsuit and refile it in state court without a federal question claim after Whittemore denied the second preliminary injunction motion, naming Ms. Clem as a defendant to ensure the case could not be removed. Add to that the lucky draw in pulling a seemingly incompetent state court judge, and you have this sorry spectacle. Perhaps Judge Whittemore ultimately would have dismissed the copyright claims on the merits while dismissing the supplemental state claims without prejudice, but given the role of the first amendment as a defense to all claims, I suspect he would have ruled on the merits of the state claims if given the chance.

Posted by: Michael R. Masinter, Nova Southeastern University College of Law | May 29, 2016 11:10:33 AM

"We strike the balance in the legal rules themselves, protecting speech against civil liability for invasion-of-privacy until the speaker crosses some line (the location of which will be the issue on appeal in this case)."

Ideally, yes, but in practice perhaps not fully. Enforcement discretion is an accepted part of how we keep criminal laws from being over-broad and arguably the resource constraints most potential plaintiffs face serve a similar function in keeping civil law from being over-broad.

Posted by: Jr | May 29, 2016 4:10:07 AM

Well said.

Posted by: Douglas Levene | May 28, 2016 9:15:25 PM

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