Gawker Media, LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------X
In re: 	:
:
GAWKER MEDIA LLC, et al,1 	: 	Chapter 11
: 	Case No. 16-11700 (SMB)
Debtor. 	:
----------------------------------------------------X
MEMORANDUM DECISION GRANTING IN PART AND
DENYING IN PART PLAN ADMINISTRATOR’S MOTION
FOR LEAVE TO CONDUCT A RULE 2004 EXAMINATION
A P P E A R A N C E S:
ROPES & GRAY LLP
Counsel for the Plan Administrator for the Debtors
1211 Avenue of the Americas
New York, New York 10036
Gregg M. Galardi, Esq.
D. Ross Martin, Esq.
Dalila Argaez Wendlandt, Esq.
Elizabeth Bierut, Esq.
Of Counsel
CHADBOURNE & PARKE LLP
Counsel for Harder Mirell & Abrams LLP and
Charles J. Harder, Esq.
1301 Avenue of the Americas
New York, New York 10019
Samuel S. Kohn, Esq.
James A. Copeland, Esq.
Of Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Counsel for Peter Thiel and Thiel Capital LLC
Four Times Square
New York, New York 10036
Shana A. Elberg, Esq.
Of Counsel
1 	The debtors in these cases (the “Debtors”), together with the last four digits of each Debtor’s
taxpayer identification number, are: Gawker Media LLC (0492); Gawker Media Group, Inc. (3231); and
Gawker Hungary Kft. (f/k/a Kinja Kft.) (5056).
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--and--
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Anthony W. Clark, Esq.
Robert A. Weber, Esq.
Of Counsel
COHEN & GRESSLER LLP
Counsel for Terry Gene Bollea
800 Third Avenue
New York, New York 10022
Daniel H. Tabak, Esq.
Mark Spatz, Esq.
Of Counsel
STUART M. BERNSTEIN
United States Bankruptcy Judge:
William D. Holden, as administrator (the “Plan Administrator”) of the confirmed
and effective Amended Joint Chapter 11 Plan of Liquidation for Gawker Media Group
Inc., Gawker Media LLC, and Gawker Hungary KFT., dated December 11, 2016 (the
“Plan”) 2 seeks to obtain discovery under Federal Rule of Bankruptcy Procedure 2004
(“Rule 2004”) from Peter Thiel, Thiel Capital LLC (together with Peter Thiel, “Thiel”),
Harder Mirell & Abrams LLP (the “Harder Firm”), and Charles J. Harder, Esq. (together
with the Harder Firm, “Harder”) to determine whether he should commence any
litigation against Thiel and/or related parties, including an action for prima facie tort
under New York Law (the “Potential Causes of Action”). 3 The Potential Causes of Action
2 	The confirmed Plan is attached as Exhibit 1 to this Court’s Findings Of Fact, Conclusions Of Law,
And Order Confirming Amended Joint Chapter 11 Plan Of Liquidation For Gawker Media Group, Inc.,
Gawker Media LLC, And Gawker Hungary KFT, dated Dec. 22, 2016 (the “Confirmation Order”) (ECF
Doc. # 638). Unless otherwise noted, all ECF document numbers refer to case no. 16-11700.
3 	Omnibus Reply in Support of Motion for Leave Pursuant to Rule 2004 of the Federal Rules of
Bankruptcy Procedure to Conduct Discovery Concerning Potential Causes of Action and to Establish
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arise primarily out of Thiel’s financial support for prepetition litigation against the
Debtors. (See Rule 2004 Motion at ¶ 18.) Thiel, Harder and Terry Gene Bollea
(“Bollea”) object to the proposed Rule 2004 discovery. 4
The Court grants in part and denies in part the Rule 2004 Motion to the extent
and for the reasons explained below.
BACKGROUND5
A. 	Pre-Bankruptcy Litigation
As of petition date, the Debtor Gawker Media LLC (“Gawker”) operated seven
distinct media brands with corresponding websites covering news and commentary on a
variety of topics, including current events, pop culture, technology and sports. (Holden
Declaration at ¶ 10-11). Also prior to the petition date, the subjects of several articles
published on Gawker’s websites filed lawsuits (the “Prepetition Lawsuits”) against
Gawker and others sounding in defamation and/or similar torts based on the contents
Discovery Response and Dispute Procedures, dated Apr. 24, 2017 (the “Reply”), at ¶¶ 3-4 (ECF Doc. #
883); see also Motion of the Debtors for Leave Pursuant to Rule 2004 of the Federal Rules of Bankruptcy
Procedure to Conduct Discovery Concerning Potential Plan Issues and Potential Causes of Action, and to
Establish Discovery Response and Dispute Procedures, dated Oct. 22, 2016 (the “Rule 2004 Motion”), at
1-2 (summarizing scope and purpose of Rule 2004 examination as originally requested) (ECF Doc. # 341).
4 	Objection of Harder Mirell & Abrams LLP and Charles J. Harder, Esq. to Motion of the Debtors
for Leave Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure to Conduct Discovery
Concerning Potential Plan Issues and Potential Causes of Action, and to Establish Discovery Response
and Dispute Procedures, dated Apr. 18, 2017 (the “Harder Objection”) (ECF Doc. # 869); Objection of
Peter Thiel and Thiel Capital LLC to Motion of the Debtors for Leave Pursuant to Rule 2004 of the
Federal Rules of Bankruptcy Procedure to Conduct Discovery Concerning Potential Plan Issues and
Potential Causes of Action, and to Establish Discovery Response and Dispute Procedures, dated Apr. 18,
2017 (the “Thiel Objection”) (ECF Doc. # 870); Objection of Terry G. Bollea to Motion of the Debtors for
Leave Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure to Conduct Discovery
Concerning Potential Plan Issues and Potential Causes of Action, and to Establish Discovery Response
and Dispute Procedures, dated Apr. 18, 2017 (the “Bollea Objection,” and together with the Harder
Objection and the Thiel Objection, the “Objections”) (ECF Doc. # 871).
5 	. “Holden Declaration” refers to the Declaration of William D. Holden in Support of First Day
Motions, dated June 12, 2016. (ECF Doc. # 7.)
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of the articles and other materials published by Gawker and/or available on Gawker’s
websites. (Id. at ¶ 30.)
One such litigation, Bollea v. Gawker Media LLC, et al., No. 12012447-CI-011
(Fla. 6th Jud. Cir. Pinellas Cty.) (“Bollea Litigation”), brought by Bollea (the
professional wrestler also known as Hulk Hogan) ultimately drove the Debtors into
bankruptcy. Bollea’s claims centered on the publication of a video depicting Bollea
engaged in a sexual act. In March of 2016, the jury in the Bollea Litigation found
Gawker liable for $115 million in compensatory damages and $15 million in punitive
damages. (Holden Declaration at ¶ 37). After Gawker unsuccessfully sought relief from
the judgment and a stay of enforcement, (see id.), it filed a chapter 11 petition on June
10, 2016, and Gawker Hungary Kft. and Gawker Media Group, Inc. filed chapter 11
petitions two days later.
The Bollea Litigation was not the only pre-petition lawsuit that Gawker faced.
Others included Ashley Terrill v. Gawker Media LLC, et al., No. 16-CV-00411 (S.D.N.Y.)
(“Terrill Litigation”), Ayyadurai v. Gawker Media LLC, et al., No. 16-CV-10853 (D.
Mass.) (“Ayyadurai Litigation”) and Huon v. Denton, et al., No. 11-cv-03054 (N.D. Ill.)
(“Huon Litigation”). The Terrill Litigation involved the publication of allegations
regarding the investigation by plaintiff Ashley Terrill into a former executive of a dating
smartphone application company. The Ayyadurai Litigation arose from Gawker’s
publication of three articles regarding the claims by plaintiff Shiva Ayyadurai that he
invented email. Finally, the Huon Litigation related to an article about plaintiff Meanith
Huon and third-party comments posted on one of Gawker’s websites. (Holden
Declaration at ¶ 30.)
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The alleged common thread in the Prepetition Lawsuits is Harder and Thiel.
Harder represented the plaintiffs in the Bollea Litigation, the Terrill Litigation, and the
Ayyadurai Litigation. (Rule 2004 Motion at ¶ 6; see also Harder Objection at ¶ 1
(acknowledging that the plaintiffs in these actions are Harder clients).) In addition,
Huon informed the Court that he had received legal advice and/or information from
Harder, and Harder reimbursed certain of his costs. (Letter from Meanith Huon, Esq.
to the Court, dated Dec. 12, 2016, and annexed emails (ECF Doc. # 582); see also
Amended Declaration of D. Ross Martin in Support of the Motion of the Debtors for
Leave Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure to Conduct
Discovery Concerning Potential Plan Issues and Potential Causes of Action, and to
Establish Discovery Response and Dispute Procedures, dated Oct. 11, 2016 (the “Martin
Declaration”) at ¶ 8 and Ex. F (attaching Forbes article describing Huon’s
representation).) Thiel has acknowledged that he financed the Bollea Litigation, (Rule
2004 Motion at ¶¶ 2-5; see also Martin Declaration at ¶¶ 3, 4, 6 and Exs. A, B, D (media
reports of Thiel’s funding of the Bollea Litigation) and Rule 2004 Reply at ¶ 14 and Ex.
A (excerpting and attaching transcript of interview in which Thiel acknowledges funding
litigation against Gawker)), and the Plan Administrator speculates based on press
reports that he funded the other Prepetition Lawsuits in which Harder participated as
part of “a coordinated campaign against the Debtors.” (Rule 2004 Motion at ¶ 6.)
B. 	The Bankruptcy Case and the Rule 2004 Motion
During the chapter 11 cases, the Debtors sold all of their assets through a
Bankruptcy Code § 363 sale (the “Sale”) to UniModa, LLC on August 22, 2016. (Order
(I) Authorizing the Sale of Substantially All of the Debtors’ Assets Free and Clear of All
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Claims, Liens, Rights, Interests and Encumbrances, (II) Approving and Authorizing
the Debtors’ Entry into the Asset Purchase Agreement and (III) Authorizing the
Debtors to Assume and Assign Certain Executory Contracts and Unexpired Leases,
dated Aug. 22, 2016 (“Sale Order”) (ECF Doc. # 214).) The Sale closed on September 9,
2016. (Notice of Sale Closing, dated Sep. 12, 2016 (ECF Doc. # 258).)
After completing the asset sale, the Debtors filed the Rule 2004 Motion on
October 11, 2016. By this time, they had turned their focus to “formulat[ing] and
seek[ing] confirmation of a plan of reorganization.” (Rule 2004 Motion at ¶ 17.) The
Debtors initially sought discovery in three areas: (1) “[w]hether votes to accept any plan
of reorganization should be designated . . . under section 1126(e);” (2) “[t]he formulation
of amended plans . . . taking into account the economic incentives arising from any of
Thiel’s litigation financing and/or control that Mr. Thiel may have over . . . creditor
claims;” and (3) “[w]hether the Debtors should commence causes of action, arising from
intent to destroy the Debtors’ business, including for prima facie tort . . . against Mr.
Thiel.” (Id. at pp. 1-2.) The Debtors did not prosecute the Rule 2004 Motion, and
instead, agreed with Thiel, Harder and Bollea to adjourn the motion several times to
facilitate a global resolution. (Reply at ¶ 2 n.4.)
While the Rule 2004 Motion was pending, the Debtors confirmed their joint
Plan. The Plan contemplated future litigation and the distribution of litigation
proceeds. It created a “Gawker Media Contingent Proceeds Creditor Account” as a
“separate, segregated bank account to be established on the Effective Date and
administered by the Plan Administrator, into which 45.0% of the Gawker Media
Contingent Proceeds will be deposited for the benefit of the holders of Claims against
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Gawker Media.” (Plan at 7.) The “Gawker Media Contingent Proceeds” included “any
recoveries from the Retained Causes of Action” net of set offs and expenses, (id.), and
the “Retained Causes of Action” referred to “Claims and/or Causes of Action against
third-parties that are not released under the Plan or any Order of the Bankruptcy Court
and are retained and prosecuted by the Debtors on behalf of the Debtors’ estates, as
identified in the Plan Supplement.” (Id. at 12.) The “Retained Causes of Action” listed
in the Plan Supplement included “Causes of Action against Peter Thiel and any other
Entity that result from the investigation that is the subject of the [Rule 2004 Motion]
unless expressly waived or settled.” (Notice of Filing of Plan Supplement Pursuant to
the Debtors’ Amended Joint Chapter 11 Plan of Liquidation for Gawker Media Group,
Inc., Gawker Media LLC, and Gawker Hungary Kft., dated Nov. 30, 2016 (“Plan
Supplement”), Ex. B, at 2 (ECF Doc. # 516).) The Plan designated Holden to serve as
the Plan Administrator, (Plan Administrator Agreement at § 1(a) (Plan, Ex. A), and
authorized him to prosecute the “Retained Causes of Action.” (Id. at § 1(b)(ii).)
The Debtors reached a number of settlement agreements with plaintiffs in the
Prepetition Lawsuits, including with Bollea, Terrill and Ayyadurai, which were
incorporated into the Plan and the Confirmation Order. (Confirmation Order at ¶¶ 37-
45; Plan § 4.01(c)-(d).) Under the Bollea settlement, Bollea was entitled to a cash
payment of $31 million, (Plan Supplement, Ex. C, at ¶ 4), and the right to participate in
the “Gawker Media Contingent Proceeds Creditor Account” against which he was
deemed to have an allowed claim of $84 million. (Id., Ex. C, at ¶ 8.) The Bollea
settlement also placed a significant limitation on the discovery sought through the Rule
2004 Motion. It suspended the Rule 2004 Motion through at least the Effective Date of
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the Plan, and thereafter, if
the Gawker Debtors pursue the 2004 Motion, the Gawker Debtors shall
not seek from Bollea or any other third party any discovery about Bollea,
including, without limitation, discovery concerning the subject matter of
the 2004 Motion, litigation funding or finance, the Bollea I Lawsuit, the
Bollea II Lawsuit, the Bankruptcy Cases, the Denton Bankruptcy Case, the
Daulerio Collection Proceedings, and/or any and all related proceedings,
whatsoever.
(Id., Ex. C, at ¶ 18.)
Ayyadurai and Terrill did not receive an interest in the “Gawker Media
Contingent Proceeds Creditor Account” under their settlements, but both settlements
included identical limitations on discovery, suspending it until the Effective Date and
providing that after the Effective Date:
The Gawker Entities shall not seek from [Ayyadurai/Terrill] or any third
party any discovery regarding [Ayyadurai/Terrill], including, without
limitation, discovery concerning the subject matter of the 2004 Motion,
litigation funding or finance, the [Ayyadurai/Terrill] Action, the Gawker
BK Action, the Denton BK Action, and any and all related proceedings,
except for the following discovery to [Ayyadurai/Terrill] only: any
litigation financing agreement(s) relating to the Lawsuit or claims in the
lawsuit, and any non-privileged retainer agreements with Charles J.
Harder, Esq. or the law firm of Harder Mirell & Abrams LLP relating to the
Lawsuit or claims in the Lawsuit.
(Plan Supplement, Ex. D, at ¶ 9; Ex. E, at ¶ 10.)
The Debtors have narrowed the scope of the Rule 2004 Motion in light of the
confirmation of the Plan and the consummation of the settlements. The proposed
discovery requests are limited to documents and communications regarding two topics:
(i) Thiel’s relationship with Harder and causes of action against the Debtors, and (ii)
Scott Sonnenblick’s efforts to acquire or facilitate the acquisition of Debtor Gawker
Media Group, Inc. (Reply at ¶ 18.)
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According to the Debtors, they need the limited discovery to decide whether to
pursue or settle the Debtors’ claims against Thiel. (Id. at ¶ 4.) It is undisputed that
Thiel funded the Bollea Litigation, they have reason to believe based on press reports
and other documentation and information that he funded other litigation, and the threat
of further litigation depressed the purchase price for their assets and the proceeds they
ultimately received from the Sale. (Id.) The Debtors suggest that the Potential Causes
of Action could yield “millions if not tens of millions of dollars in recovery,” and the
potential benefits of the proposed Rule 2004 examination therefore outweigh any
hardships. (Id.)
B. 	The Objections
The main thrust of the objections is that the Plan Administrator cannot assert a
viable claim for prima facie tort against Thiel, either because Florida law, which may
govern, does not recognize prima facie tort, or if New York law governs, the Plan
Administrator cannot demonstrate malice as required by New York law. (See Harder
Objection at ¶¶ 15-16; Thiel Objection ¶¶ 13-14; Bollea Objection at ¶ 41.) In addition,
Thiel argues that the requests are not proportional. (Thiel Objection at ¶ 19.) The Plan
pays all creditors in full, the discovery is unrelated to creditor recoveries and would not
provide any potential benefits. (Id.) Thiel also argues that if the Rule 2004 Motion is
granted, the discovery procedures the Debtors and Plan Administrator have proposed
should not be “preapprov[ed]” as they impose an expedited time frame and are
therefore unduly burdensome. (Id. at ¶ 20.)
Harder argues that the Debtors must meet a heightened burden in seeking
discovery from Harder and have not met that burden. (Harder Objection at ¶ 22.)
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Harder was opposing “litigation counsel” vis-à-vis the Debtors, and as such, discovery
can only be ordered after this Court “consider[s] ‘the need to depose the lawyer, the
lawyer’s role in connection with the matter on which discovery is sought and in relation
to the pending litigation, the risk of encountering privilege and work-product issues,
and the extent of discovery already conducted.’” (Id. (quoting In re Subpoena Issued to
Dennis Friedman, 350 F.3d 65, 71-72 (2d Cir. 2003).) The requested Rule 2004
discovery threatens attorney-client privilege and work product and impinges Harder’s
clients’ rights. (Id. at ¶ 22.) Therefore, even if the Court grants the Rule 2004 Motion, it
should not allow the Plan Administrator to take discovery directly from Harder. (Id.)
Harder also emphasizes the limitations placed on discovery, and if the Debtors were to
seek discovery from Terrill and/or Ayyadurai, the information the Debtors seek to
obtain from their retainer agreements is “inherently privileged.” (Id. at ¶¶ 30-31
(citation omitted).)
Bollea contends that a prima facie tort claim must fail because it constitutes an
impermissible attempt to bring a “backdoor malicious prosecution claim.” (Bollea
Objection at ¶¶ 17-18). Bollea also invokes the limitations on discovery in the settlement
agreements, and further contends that they preclude the Plan Administrator from
determining whether he can assert a prima facie tort claim as the Debtors released
Harder from any claims and agreed to cooperate and act in good faith in granting Thiel a
release. (Id. at ¶ 47.) In addition, the limitations on discovery in the settlement
agreements prevent the Debtors from bringing a prima facie tort claim against Thiel.
The Debtors have conceded that without the information they seek to obtain they lack a
reasonable basis to believe they can prove such a claim. Accordingly, they cannot
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comply with Federal Bankruptcy Rule 9011(b), “[s]o there is no point to providing [the]
debtors with the . . . discovery they can still obtain because they will be unable to plead
[that claim].” (Id. at ¶ 46.)
DISCUSSION
A. 	Applicable Law
Rule 2004 provides in relevant part that the Court may authorize the
examination of any entity relating “to the acts, conduct, or property or to the liabilities
and financial condition of the debtor, or to any matter which may affect the
administration of the debtor’s estate.” F ED. R. B ANKR. P. 2004(b). In chapter 11 cases,
the examination may extend to matters relating “to the operation of any business and
the desirability of its continuance, the source of any money or property acquired or to be
acquired by the debtor for purposes of consummating a plan and the consideration
given or offered therefor, and any other matter relevant to the case or to the formulation
of a plan.” Id. The party seeking Rule 2004 discovery has the burden to show good
cause for the examination it seeks, and relief lies within the sound discretion of the
Bankruptcy Court. Picard v. Marshall (In re Bernard L. Madoff Inv. Secs. LLC), Adv.
Pro. No. 08-01789, 2014 WL 5486279, at *2 (Bankr. S.D.N.Y. Oct. 30, 2014); see In re
Bd. of Dirs. of Hopewell Int’l Ins. Ltd., 258 B.R. 580, 587 (Bankr. S.D.N.Y. 2001) (Rule
2004 gives the Court “significant” discretion).
Relevance alone is not sufficient to justify a Rule 2004 request. In re Drexel
Burnham Lambert Grp., Inc., 123 B.R. 702, 712 (Bankr. S.D.N.Y. 1991). A party seeking
to conduct a Rule 2004 examination must also show good cause, such as the proposed
examination “‘is necessary to establish the claim of the party seeking the examination,
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or . . . denial of such request would cause the examiner undue hardship or injustice,’” In
re Metiom, Inc., 318 B.R. 263, 268 (S.D.N.Y. 2004) (quoting In re Dinubilo, 177 B.R.
932, 943 (E.D. Cal. 1993)); accord In re AOG Entm’t, Inc., 558 B.R. 98, 109 (Bankr.
S.D.N.Y. 2016); Drexel Burnham, 123 B.R. at 712, and the Court must “balance the
competing interests of the parties, weighing the relevance of and necessity of the
information sought by examination.” Drexel Burnham, 123 B.R. at 712; accord In re
Coffee Cupboard, Inc., 128 B.R. 509, 514 (Bankr. E.D.N.Y. 1991); see In re SunEdison,
Inc., 562 B.R. 243, (Bankr. S.D.N.Y. 2017) (“The spirit of proportionality is consistent
with the historic concerns regarding the burden on the producing party and is relevant
to the determination of cause.”)
B. 	The Thiel-Related Discovery
The Plan Administrator seeks to conduct pre-litigation discovery in order to
determine whether potential causes of action exist and, if they do, whether to prosecute
them. Under the Plan, the proceeds of litigation against Thiel will be paid to the
creditors and the Rule 2004 Motion “fits squarely within the purpose of Rule 2004, as
[the Litigation Trustee] seeks to examine third parties for the purpose of ‘discovering
assets, examining transactions, and determining whether wrongdoing has occurred” on
behalf of the Debtors' estate.’” In re Millennium Lab Holdings II, LLC, 562 B.R. 614,
627 (Bankr. D. Del. 2016) (citation omitted). 	Thiel argues that the Debtors have paid
100% to creditors, and Rule 2004 Motion is unrelated to any creditor recoveries, (Thiel
Objection at ¶ 19), but this ignores Bollea’s $84 million allowed claim payable from the
“Gawker Media Contingent Proceeds Creditor Account” which will be funded by any
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recoveries in a lawsuit against Thiel. Hence, the Debtors have established cause for the
Thiel-related discovery.
The objections to the Thiel-related discovery lack merit except to the extent they
invoke the limitations on discovery contained in the settlement agreements with Bollea,
Ayyadurai and Terrill. Initially, the challenges based on the lack of a viable prima facie
tort claim are premature. A Rule 2004 request does not require a court to determine
whether a pleading that has not been filed and may never be filed states a claim that will
survive a motion to dismiss. See Millennium Lab Holdings, 562 B.R. at 624-25 (A court
is not required to “speculate over possible causes of action that may be pursued after the
[Rule 2004] investigation is complete.”) Moreover, the Bollea Objection argument that
the Plan Administrator’s current lack of a reasonable basis to bring the Potential Causes
of Action demonstrates a lack of cause for a Rule 2004 examination, (Bollea Objection
at ¶ 46), makes no sense. The purpose of Rule 2004 is to allow the debtor to acquire
information it lacks. The lack of information is the reason for granting Rule 2004
discovery, not for denying it. 6
Harder’s argument that the Rule 2004 Motion should be denied because Mr.
Harder is an attorney, (Harder Objection at ¶ 22), is based on an overly broad reading of
In re Subpoena Issued to Dennis Friedman, 350 F.3d 65 (2d Cir. 2002). In Friedman, a
liquidation trustee sued former members of a bankrupt corporation’s board of directors
alleging, among other things, that the directors had breached their fiduciary duties in
6 	Bollea is not a target of the Rule 2004 discovery and is the primary beneficiary of any recovery
from Thiel. While he has the right to assert the limitations on discovery under the Bollea settlement, the
reason for his challenge to the merits of possible claims is a mystery.
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approving a certain merger transaction. Id. at 66. Some of the defendants argued that
they had satisfied their fiduciary duties based their attorney’s advice. Id. The
liquidation trustee sought to depose the attorney (Friedman), but the District Court
quashed the deposition subpoena relying on the rule set forth in Shelton v. American
Motors Corp., 805 F.2d 1323 (8th Cir.1986), that plaintiff-appellant must exhaust all
practical alternative means of obtaining the information sought from Friedman before it
would consider allowing the proposed deposition, and ordered plaintiff-appellant to
proceed first by written interrogatories. Friedman, 350 F.2d at 67-68.
The Second Circuit dismissed the appeal as moot, id. at 72, but nonetheless
issued a written opinion. Rejecting the “rigid Shelton rule, the Court stated that Rule 26
of the Federal Rule of Civil Procedure required a “flexible approach to lawyer
depositions,” and accordingly, where a proposed deponent is a lawyer, the judicial
officer overseeing discovery should “take[] into consideration all of the relevant facts
and circumstances” to determine the propriety of the deposition. Id. at 71-72. “Such
considerations may include the need to depose the lawyer, the lawyer's role in
connection with the matter on which discovery is sought and in relation to the pending
litigation, the risk of encountering privilege and work-product issues, and the extent of
discovery already conducted.” Id. at 72. Importantly, “the fact that the proposed
deponent is a lawyer does not automatically insulate him or her from a deposition nor
automatically require prior resort to alternative discovery devices.” Id.
The concerns that informed the Friedman decision are not present here. The
Plan Administrator hypothesizes that Thiel and Harder entered into a conspiracy to
destroy Gawker’s business. 	Harder did not represent Thiel; he represented Bollea,
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Ayyadurai and Terrill. Hence, he is a fact witness whose communications with Thiel do
not implicate the concerns that attend the attorney-client privilege. Furthermore, a
Rule 2004 examination should not be denied merely because it may touch on privileged
matters. See In re M4 Enters., Inc., 190 B.R. 471, 476 (Bankr. N.D. Ga. 1995)
(acknowledging that certain matters within the scope of proposed examination of
Trustee were “undoubtedly” privileged and directing Trustee to submit to examination
and assert “any meritorious privileges” with respect to “each individual question.”).
Should the responses to the Plan Administrators’ discovery requests implicate a
privilege or seek discovery precluded by the settlement agreements, the Court can
address those issues as it would in any other litigation.
C. 	The Sonnenblick-Related Discovery
With respect to the proposed investigation of Sonnenblick, the Debtors’ papers
only state that an “unidentified Silicon Valley billionaire” – presumably Thiel in the
Debtors’ and Plan Administrator’s minds – hired Sonnenblick “in an attempt to
purchase Gawker Media in January 2016.” (Rule 2004 Motion at ¶ 25 n. 5.) The Reply
repeats the discovery request but does not otherwise refer to Sonnenblick. Sonnenblick
was not a bidder at the auction for the Debtors’ assets, and the Debtors sold their assets
after adequate marketing, (Sale Order at ¶ H), at a fair and reasonable price, (id.), that
was not controlled by an agreement among bidders, (id. at ¶ K), to a good faith
purchaser who did not engage in any collusive conduct. (Id.)
This record is insufficient to establish cause. Thiel’s connection is speculative,
and the Plan Administrator has failed to show that it needs this information or will
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suffer hardship or injustice if he does not get it. Accordingly, this branch of the Rule
2004 Motion is denied without prejudice.
D. 	Conclusion
Although the Plan Administrator has shown good cause for the Thiel-related
discovery, and is entitled to examine Thiel and Harder with respect to Thiel’s
relationship with Harder and potential causes of action, the settlements impose
substantial limitations on his ability to do so. It appears that the Plan Administrator
cannot obtain any discovery from Thiel, Harder or anyone else regarding Bollea,
Ayyadurai or Terrill except for discovery from Ayyadurai and Terrill limited to
“litigation financing agreement(s) relating to the Lawsuit or claims in the lawsuit, and
any non-privileged retainer agreements with Charles J. Harder, Esq. or the law firm of
Harder Mirell & Abrams LLP relating to the Lawsuit or claims in the Lawsuit.” The Plan
Administrator is no longer seeking discovery from Ayyadurai or Terrill through the Rule
2004 Motion, and there does not appear to be much left that is discoverable.
Rather than parse the initial list of requests in light of these limitations, the Court
directs the parties to meet and confer with a view to submitting an order setting forth
the Plan Administrator’s requests and the specific limitations on those requests. If the
parties cannot agree, they may settle proposed orders and counter orders on notice.
Dated:New York, New York
June 27, 2017
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
16-11700-smb Doc 934 Filed 06/28/17 Entered 06/28/17 07:11:13 Main Document
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