Hulk Hogan v. Gawker Media and the Problem of Invisible Funding
Yesterday it became known that Peter Thiel, one of the cofounders of PayPal and earliest backers of Facebook, secretly funded Hulk Hogan’s lawsuit against Gawker Media. According to initial reports, Thiel did not have any financial interest in the plaintiff’s claim. Rather, his sole interest was in providing support to Hogan in the latter’s suit against Gawker Media.
Commentators have expressed concern that the secret funding of litigation might be used as a strategy to overwhelm non-funded party’s ability to defend a claim asserted against it, and and hence have a potential chilling effect on the non-funded party’s willingness to prosecute or defend a lawsuit.
One of my colleagues asked me whether there were due process concerns with this practice. This is an interesting question, especially in view of the appeal filed by Gawker.
Due process is fundamentally about access to a fair and efficient system of justice, and there is no doubt but that a disparity in wealth can introduce both unfairness and inefficiency into the litigation process. Certainly, a relatively wealthy party will have more resources to pay attorneys, to hire investigators, and to prepare its case. An underfunded party confronting a fully funded opponent may be forced to settle or default despite what it perceives as the merits of its claim or defense.
To a certain extent the system of justice attempts to ameliorate these wealth disparities. For example, public interest organizations may offer free or reduced-fee representation to an underfunded party. In addition, some procedural rules, such as those permitting class actions, are designed to adjust the power imbalance between individuals seeking redress against powerful institutional defendants. Other rules are designed to limit abusive practices, such as burying an under-funded party with frivolous discovery. But in general, the civil justice system is capitalistic in the sense that it is blind to the relative wealth of the litigants.
That brings us to Thiel’s funding of Hogan’s lawsuit. Certainly, there is nothing inherently wrong with one person paying for another person’s litigation costs. That is obviously what public interest organizations do. And if Hogan found himself in a relatively under-funded position vis a vis Gawker, Thiel’s funding of Hogan’s lawsuit might operate as an equalizer similar to the equalizing of a class action. In addition, it may well be that Thiel has a First Amendment right to support a cause that he deems meritorious. This is clearly what public interest organizations do. There is also strong analogy between the funding of litigation and contributing to a political campaign. If “money talks” in the latter context, it might well talk in the former.
That doesn’t mean there isn’t a problem with the invisible funding of litigation (just as there is a problem in the unrestrained and invisible funding of political campaigns). To begin with, the invisibility itself is troubling. By contrast, a class action is not invisible. Nor is public interest litigation. Rather the judge is fully aware of the context in both types of cases and is free to take action in accord with that awareness. For example, if a matter is proceeding as a class action the judge is and must be attentive to a wide range of potential abuses that arise in the class action context. Since invisible funding can be abusive — for example, it might be designed to overwhelm an under-funded opponent — some type of disclosure of the funding device would be in order. It would, at the very least, alert the judge to be attentive to the potential for abuse.
Next, and relatedly, it is one thing to fund a litigation to level the playing field while it is quite another to disrupt a level playing field. Or to provide funding that ultimately will do nothing more than increase the expense and inefficiency of litigation. A court aware of the outside funding might be more attentive to these possibilities and manage the case accordingly.
Finally, there may be a range of consequences associated with the private funding of litigation, including an overburdening of an already stressed litigation system. If the funding remains invisible there will be no way to measure its impact and assess its costs.
I do not know whether Thiel’s funding of Hogan’s litigation ameliorated a wealth disparity or exacerbated one. Nor do I know what the consequences of this practice might be if it becomes more common. I would say that while the private funding of litigation does not inherently violate due process, it raises sufficient concerns to require some form of transparency to the method.
