Peter Thiel, Internet Villain

In 2007, Gawker published a story revealing that Peter Thiel is a homosexual.  (The site has made a practice of outing homosexuals, some of whom were not at all prominent before being outed.  My bias in this area is that I think it is pointlessly cruel to expose private individuals to this sort of pain.  It is a different matter when the individual is a politician, particularly one who uses his/her public office to make homosexuals' lives worse.)  In 2012, the website posted a video of Hulk Hogan having sex with his friend's wife.  (I use the term "friend" loosely.  Apparently the "friend" had arranged the encounter in order to tape it surreptitiously in the hopes of making money.  It also appears that Hulk Hogan had received his friend's assent before initiating sex.  Hogan was not aware that the liaison would be taped.  Hulk Hogan's real name is Terry Bollea but I will use his better-known pseudonym throughout this post.)  Hogan demanded that Gawker remove the video, and when it refused, he brought a lawsuit.  The lawsuit resulted in a $140 million jury award, forcing Gawker into bankruptcy.  It has emerged that Peter Thiel, who was uninvolved in the events surrounding the sex tape, financed Hogan's lawsuit.

It is worth mentioning that in 2015 Gawker separately published a tape of Hogan expressing dismay that his daughter was dating a black man, whom Hogan referred to as a "nigger."  This incident, which was far more damaging to Hogan's career than the sex tape, may have increased Hogan's animus against Gawker.  However, by the time the "nigger" tape was published, Hogan's lawsuit was well underway, so it does not appear to have been his initial motivation.  As far as I know, Hogan has not claimed that the publication of the second tape was wrongful.

The first thing I think people should remember is that becoming a debtor under chapter 11 of the Bankruptcy Code is not a death sentence—if it were, there would be like 2 airlines at this point, and you couldn't buy a Chevy anymore.  Chapter 11 will allow Gawker to continue to operate while it appeals the jury award.  The website might also be sold as a going concern.  I don't know anything about Florida law, but the jury award seems to me to be about 100 times the appropriate amount, so I hold out some hope that it will be dramatically reduced on appeal.  (A successful wrongful death lawsuit typically results in damages in the neighborhood of $5 million.)  The bankruptcy is probably bad for Nick Denton's finances, but it is not necessarily devastating for Gawker as an institution.

The second thing to bear in mind is that it's generally a good thing when wrongdoers are held responsible for their actions.  In fact, this is the whole point of the tort system ("torts" are harms that can result in legal liability and monetary damages).  It is absolutely true that the fear of legal liability exerts a chilling effect on business activities, and you can choose to regard this as a negative feature of our legal system.  But many people, including me, view this chilling effect as a good thing.  Imagine a company that makes $1 billion in revenue a year with costs of $800,000,000.  The company also causes $x worth of damage to third parties every year (pollution, injuries, whatever).  The point of the tort system is to force the company to bear those costs—the injured parties can sue and recover money to compensate them for the damages they have suffered.  If x is less than $200,000,000, then the company will be able to compensate the people it injures and still make a profit.  If x is greater than $200,000,000, the company will not be profitable and will probably be shut down.  Isn't that the right outcome?  Do we want a business to continue to exist if it imposes social costs that are greater than the private profits that it generates?  I think it's great when this company is driven out of business by lawsuits.  That means the system is working properly.  I'm also happy that people who are injured can obtain some recompense for the harm they have suffered.

Does any of this analysis change if the lawsuits are motivated by parties seeking revenge?  I don't think so.  If a defendant can prove that a plaintiff (who, let's say, lost a leg because of the defendant's negligence) really doesn't need the money, but is only suing because he hates the plaintiff (whom he blames, rightly, for the loss of his leg), should the judge throw the lawsuit out?  To put it another way, should we allow the courts to be used as a forum for revenge-seeking?  Personally, I have no problem with it!  If someone has harmed you, and the law entitles you to damages for that harm, then I think you should be able to bring a lawsuit even if you are suing to get revenge, and not to make money or to vindicate abstract principles of justice.  If all plaintiffs had to have pure motives, then there would be very few lawsuits.

Now admittedly the Thiel situation takes us a step further, because Thiel presumably doesn't care about the wrong that was done to Hogan.  He cares that he was outed in 2007, long before Gawker published the Hogan sex tape.  Thiel's problem is that it's not clear that outing someone is a tort (I think it might be a tort if you did it with the goal of, say, getting the person lynched in Uganda or something—but that wasn't the case with Thiel).  So Thiel waited for Gawker to commit a tort, and then made sure that Gawker paid the price.

I think your view of this probably depends on your view of the legal system.  Imagine a legal system that is 100% accurate:  it correctly determines whether a tort has been committed and it imposes appropriate damages.  In this system, would any problem be created by lawsuits that are funded by third parties seeking revenge?  It's hard for me to see anything to fear.  It's like our example above regarding the "chilling effect" of the tort system.  What exactly is the problem if wrongdoers are held accountable for the harm that they cause in the world?

But of course the legal system isn't perfect.  If you introduce an error rate (either in the determination of liability or the calculation of damages), then a thumb on the scale in favor of more lawsuits can impose excessive costs on the target defendant.  With a low enough error rate, I think we could ignore this problem.  But then again, I don't think we have a particularly low error rate—as noted above, I think the damages were off by a factor of about 100!  In these circumstances, you can see how a rich zealot could destroy a publication even when it has done nothing wrong, or has (as I believe) committed a tort that inflicted only modest harm on its victim.

But note a few things.  First, the initial award of damages will be appealed, and there is a long history of overturning excessive jury awards.  (It's not uncommon for some jury to award hundreds of millions in damages and then to see the award knocked down to a few hundred thousand.  I don't think it will go that low in this case, but a dramatic reduction is not at all unlikely.)  A temporary error like this might force some defendants to capitulate, and that's a problem, but chapter 11 gives a defendant time to seek redress, as I noted above.

Second, it's a bit odd to focus on the outside funding of lawsuits and not on the unacceptably high error rate!  I don't think it would be possible in our society to prevent someone like Thiel from providing resources to bring lawsuits (although it may be possible to force him to reveal his role up front).  Even if he can't pay legal fees, he can always provide other kinds of support.  Imagine an activist group that spends money to collect and publish the facts about a huge toxic spill, which then facilitates a bunch of lawsuits by the injured parties, who depend heavily on the facts that they couldn't have afforded to document on their own.  Personally I wouldn't object to this sort of thing, even if the activist group is targeting the polluter in an effort to shut down its business activities.

But if it is impossible to prevent people from supporting lawsuits, directly or indirectly, it certainly would be possible to exert more control on these insane jury awards!  They seem like a much bigger threat than revenge-funded lawsuits.  If Thiel had financed 10 lawsuits identical to Hogan's, and each had resulted in a $1 million judgment against Gawker, I imagine Gawker would be fine.  (If not, then it should go out of business, along the lines of my example above.  You shouldn't be able to stay in business if you are imposing costs on the world in excess of your revenues.)

All of that said, it's a complicated world, and I certainly don't admire Thiel for what he has done.  And it may be that the legal system is too error-prone for it to withstand this sort of manipulation.  (I'll write another post exploring this issue.)  Definitely you can imagine outside money resulting in a much more punitive, expensive mode of litigation, and it's easy to see why that would be objectionable.  I happen to think that was unlikely to be a big factor in this case, but that doesn't mean it can be ignored in general.

But while I think Thiel is a bad guy, I think the reaction on much of the internet is hugely overblown.  I'll sign off with this thought experiment:  imagine that a billionaire is fed up with the way he is portrayed in the media, so he hires a law firm to draft a thorough, easy-to-read explanation of sexual harassment law in all 50 states.  The billionaire then publishes the report as a smartphone app and makes it free to download for any employee of a media company.  The new awareness of the law (which was very expensive to achieve, and which was motivated solely by revenge) generates hundreds of successful lawsuits and generally makes the news industry far less profitable, at least until the industry cleans up its act and dramatically reduces sexual harassment.  Does this example make you burn with outrage against the billionaire?  If not, then would you be angry if the billionaire also offered free initial consultations with lawyers for women who felt they had been harassed?  What if the sexual harassment took the form of publishing illicitly obtained nude photos of the women on company bulletin boards?  And so on.