Jim Hoft, publisher of the Gateway Pundit, listens as President Donald Trump speaks in the East Room of the White House, Thursday, July 11, 2019, in Washington. (AP Photo/Evan Vucci)
A federal bankruptcy court in Florida has dismissed Chapter 11 proceedings started by the company that owns the conservative blog The Gateway Pundit. The move opens the publication up to liability from several lawsuits filed by allegedly defamed Georgia election workers and a former employee of an election software company.
On Thursday, U.S. Bankruptcy Judge Mindy A. Mora put the kibosh on efforts by TGP Communications, LLC to shield itself from creditors via corporate debt restructuring. The court’s move came relatively quickly – the abortive bankruptcy process lasted a mere three months.
The company, which is wholly owned by the blog’s founder, Jim Hoft, did not file for bankruptcy protections in good faith, the court found. Rather, the judge found, based on Hoft’s own testimony at a recent hearing, “TGP filed bankruptcy purely as a litigation strategy.”
When TGP filed for bankruptcy in late April, the business was already facing two aforementioned lawsuits: one filed by ex-election workers Ruby Freeman and Wandrea ArShaye “Shaye” Moss; the other filed by ex-Dominion director of product safety and security Eric Coomer.
Those defamation lawsuits concern conspiracy theories about never-proven fraud that allegedly occurred during the 2020 election. Similar defamation lawsuits have, to various degrees, ensnared various other high-profile players within Donald Trump’s orbit. One similar such case is that of Rudy Giuliani – who also briefly sought, and subsequently lost, bankruptcy protections amid a raft of postelection litigation.
“Hoft admits that the defense of those lawsuits pushed TGP to seek bankruptcy relief and argues that rapid depletion of benefits payable under media insurance coverage to pay TGP’s legal fees could eventually harm TGP and its creditors,” the opinion reads. “That prospect is the stated motivation for bankruptcy relief, as TGP is currently able to pay its operating debts in the ordinary course of its business.”
After being sued and before filing for bankruptcy, TGP drew from media insurance funds to pay legal fees incurred from the defamation lawsuits – which are filed in Missouri and Georgia state courts.
The opinion offers an askance view of the insurance issue:
TGP’s explanations regarding the “good faith” nature of its filing color the facts an improbable hue. Because legal fees incurred in the State Court Litigation have already depleted $700,000 of the Policy’s $2 million in gross benefits, TGP insists that it filed bankruptcy to benefit the State Court Plaintiffs and that a subchapter V reorganization plan preserving the remaining $1.3 million in policy benefits would facilitate a robust payout of all claims. That simply isn’t true.
The court noted, however, TGP is not actually in a financial bind.
“For the moment, TGP remains able to pay its operating debts as they come due,” the opinion explains. “TGP’s primary cash flow concern is the rapid depletion of the benefits payable under the Policy. Once the Policy limits are reached, TGP will have to look to other sources of revenue to pay its legal bills, and, potentially, judgments in the State Court Plaintiffs’ favor. That possibility is the driving force behind TGP’s bankruptcy filing, but it remains to be seen whether TGP will ever suffer cash flow insolvency.”
In fact, the court describes the company’s assets as “eye-catching.”
While admitting, “it is difficult to tell where TGP ends and Hoft begins,” the court says the company “holds title to a 2021 Porsche Cayenne that Hoft drives and garages at his home in St. Louis,” along with “investment accounts holding over a million dollars in funds,” but which Hoft considers “to be his personal retirement savings.”
The court also took note of “one post-petition bank account with a sizeable balance” owned by TGP as well as “an account held by another entity that Hoft owns and controls, the Justice League of America” and “a small amount of cryptocurrency.”
In sum, the court offers some math in service of the dismissal.
“TGP’s known, easily reachable assets are over 22 times greater than its liabilities,” the opinion reads. “The total amount of TGP’s scheduled liabilities are only 4% of the value of its assets.”
The wealth owned by the company – along with its sole owner and employee – is part of the problem for the court. The other problem, the judge says, is the way TGP envisions managing the litigation.
“TGP’s desire to fend off and manage liability arising from litigation claims in bankruptcy is not, in and of itself, problematic,” Mora’s opinion reads. “TGP failed to show that it is insolvent or has a present business need to revamp its business model. And, with the Plan TGP just filed, it has similarly failed to show that any proposed reorganization plan would have a reasonable prospect of being confirmed.”
The court outlines the proposed reorganization plan, at length:
The Plan, as envisioned by TGP, which limits the amount required for distributions to TGP’s projected net income over three years, would do three things: (i) restrict the total amount payable to the State Court Claimants to whatever TGP earns over the next few years, effectively capping whatever litigation damage exposure that TGP now faces to an amount that TGP finds palatable, (ii) require the State Court Plaintiffs to share the future revenue allocated to the Plan with all other general unsecured claimants, thereby further limiting the State Court Plaintiffs’ potential recovery, and (iii) dilute the possible recovery for non-litigation general unsecured claimants by likewise requiring them to share the plan-allocated portion of TGP’s future revenue with the State Court Plaintiffs.
TGP’s proposed Plan that mostly seeks to limit litigation exposure to its sole principal — and only that — looks a lot like bad faith. Chapter 11 may be used to manage litigation claims (particularly for some categories of claimants, like asbestos claims), but there are limits …
In the end, the judge says, the proposal to cap litigation payments at three years of the company’s income “begs the question of how reorganization is supposed to benefit TGP, rather than Hoft.”
And, the court observes, the benefits Hoft and his family have accrued are quite substantial.
“TGP’s existing business model has provided sufficient revenue for Hoft to (i) purchase a Florida oceanfront condo titled in the name of 2021 Main Street LLC for cash along with a Porsche that he drives while in Missouri, (ii) fund over $1,000,000 in investment accounts, and (iii) pay his husband a regular income in addition to Hoft’s own distributions,” the opinion goes on.
Mora also says the plan “indicates that TGP’s future business model would be substantially consistent with its current business strategy” and that Hoft “has several strong incentives to maintain TGP’s status quo.”
The court muses along the contours of a brief policy analysis.
“Every chapter 11 bankruptcy case brings different facts, history, and perspectives,” the opinion goes on. “Policy goals supporting chapter 11 bankruptcy relief include preservation of the economy and prevention of harm to innocent third parties, like employees and third party creditors. Congress envisioned bankruptcy as a public policy tool, not a corporate weapon.”
The judge uses a brief section of the opinion to hint at the hearts of the disputes between TGP and some of its various creditors.
“In this unusual bankruptcy case, truth is at the center of all disputes,” Mora writes. “Lack of truthful disclosure, theories based upon half-truths, claims for which truth could provide a defense — all possibilities are on display. Litigation about truth pushed the debtor to file bankruptcy, but that unusual twist does not alter the Court’s duty to remain focused on bankruptcy issues.”
Mora says, despite the Sturm und Drang on all sides, her sole province remains the bankruptcy code – and case law interpreting it.
And, in that regard, the court ruled, TGP fell short.
“This case features charged emotions and polarizing facts,” the opinion concludes. “None of that impacts this Court’s sole duty, which is determining whether TGP demonstrated good faith intent in filing and pursuing this chapter 11 bankruptcy case. The answer is no. The Court will dismiss this bankruptcy case as a bad faith filing.”
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