By Jessica DiNapoli
NEW YORK (Reuters) - Gawker Media LLC founder Nick Denton faces personal bankruptcy after a U.S. judge refused on Tuesday to extend protections shielding him from liabilities resulting from a lawsuit over the invasion of privacy of former professional wrestler Hulk Hogan.
The decision represents a victory for Hogan as well billionaire investor Peter Thiel, an early backer and board member of Facebook Inc <FB.O> who helped fund Hogan's lawsuit following the publication of an article by Gawker about Thiel's homosexuality.
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"This story will conclude with Gawker Media's popular brands sheltered under new ownership and the importance of a free and critical press reaffirmed by the courts. In the end, the Facebook board member will have nothing to show for his petty grudge other than legal expenses and a reputation for thin skin," Denton said in a statement.
Thiel did not immediately respond to a request for comment.
Gawker, a U.S. internet publisher, filed for Chapter 11 bankruptcy protection in June after Hogan won a $140 million judgment against the company over the publication of excerpts from a sex tape, $125 million of which Denton is liable for, according to court filings.
Attorneys for Gawker had asked the court for the same protections for its founder, including a shield from lawsuits. The court had only agreed to give Denton temporary protections.
Stuart Bernstein, U.S. bankruptcy court judge for the Southern District of New York, declined on Tuesday to extend the shield.
Attorneys for Gawker argued that without the shield, Denton would be distracted by his own personal bankruptcy process. Gawker's business and its plan to sell itself in bankruptcy would suffer, they said.
Gawker and its investment bankers are now soliciting acquisition offers for the company. When Gawker filed for bankruptcy, it had an agreement from online publisher Ziff Davis LLC to buy the company for $90 million, but this was only meant to be a stalking horse bid setting the floor price in an auction process that is now underway.
Prior to the ruling, Denton said a personal bankruptcy process would be major distraction to him helping navigate Gawker through its auction, arguing that he would be playing a crucial role.
"I know they are going to want to speak to me,” Denton said in court Tuesday of other potential bidders for Gawker. "I’m the founder of the company. I know where all the bodies are buried.”
Hogan's attorneys argued that Denton's personal bankruptcy would not weigh on Gawker because the company already had in place an executive team and outside professionals who would be able to execute the sale.
Denton said that Gawker had loaned him money to pay for his personal bankruptcy attorney, and that he had met with the attorney twice. In court papers, Hogan’s attorney stated that the loan was for $200,000.
Denton said in court that he has two assets, his equity in his apartment and his stock in Gawker. Denton owns about 30 percent of Gawker. The value of the equity of his apartment was not referenced in court.
(Reporting by Jessica DiNapoli in New York; Editing by Alan Crosby and Diane Craft)