By Jessica DiNapoli and Jared Leone
NEW YORK/ST. PETERSBURG, Fla. (Reuters) - Gawker Media LLC, an online publishing pioneer, filed for Chapter 11 bankruptcy and put itself up for sale on Friday after a $140 million court judgment against it in a lawsuit brought by former professional wrestler Hulk Hogan over a sex tape.
The move followed revelations that Hogan's lawsuit, along with several others against Gawker, were being bankrolled by billionaire investor Peter Thiel, an early backer of Facebook (FB.O) and a co-founder of PayPal (PYPL.O).
Thiel's involvement, which stemmed from his ire over Gawker's writings about him and his friends in Silicon Valley, raised alarm bells in U.S. media circles over the prospect of wealthy individuals using the courts to muzzle the press.
Gawker vowed to continue operating its seven websites during the bankruptcy process. Media company Ziff Davis LLC has entered an agreement to buy Gawker's assets for a little less than $100 million, according to people familiar with the matter, but that may be only the initial bid in a court-supervised auction likely to take place at the end of July.
"Even with his billions, Thiel will not silence our writers," Gawker founder and Chief Executive Nick Denton said on Twitter. "Our sites will thrive — under new ownership — and we'll win in court."
Hogan's lawsuit accused Gawker, Denton and former Gawker editor A.J. Daulerio of violating his privacy by publishing a one minute, 41-second edited video clip featuring Hogan having sex with the wife of his then-best friend, the radio shock jock Bubba the Love Sponge Clem.
In March, a six-person jury awarded $60 million to Hogan, 62, for emotional distress and $55 million for economic damages. The jury then added another $25 million in punitive damages.
Gawker has vowed to appeal the verdict, and legal experts believe the company has a good chance of eventually having the award thrown out or reduced. But at a post-trial hearing in St. Petersburg, Florida on Friday, Gawker said it had just $5.3 million in cash on hand and faced massive legal bills.
The judge agreed to postpone payment of the $140 million judgment while Gawker pursued its appeal, but required the defendants to put up their shares of the company as collateral to be held by Hogan's lawyers.
Gawker objected to having Hogan, whose real name is Terry Bollea, hold the collateral and proposed a different arrangement, which the judge rejected. The company then filed for bankruptcy.
Gawker filed a separate lawsuit in bankruptcy court on Friday asking the judge to extend the bankruptcy court protections to Denton, Daulerio and other former and current Gawker employees.