Alex Jones’ $1 Billion Verdict Puts Focus on Bankruptcy Mediation

A $965 million jury verdict this week against Infowars founder Alex Jones will considerably ramp up his and Sandy Hook shooting victim families’ focus on using bankruptcy mediation to sort out available assets and payments.

Few believe Jones has $1 billion in assets to pay for the defamation judgment levied against him and his bankrupt company, Free Speech Systems, for his lies that the 2012 elementary school shooting was a hoax. Jones and Free Speech, which owns the right wing conspiracy site Infowars, face another nearly $50 million in a judgment from another defamation case in Texas.

As Jones uses Free Speech’s Chapter 11 to limit liability, representatives for Jones and the company already have agreed to engage in mediation with victim families and a bankruptcy trustee investigating its finances. But the stakes in the court-supervised mediation, recently approved by a judge, just got a lot higher for all parties after the Oct. 12 judgment from a Connecticut state court.

Coming together to land a settlement may provide some monetary closure for the parties duking out in Free Speech’s turbulent and controversial Chapter 11 case. But the talks will keep the spotlight bright on Jones’ ten-digit liability that amounts to a breathtaking public censure and his indefatigable attempts to use bankruptcy law to evade the penalty due.

A resolution that could be possibly achieved in a global mediation will avoid the delay and risk associated with Jones’ likely appeal, said Debra Grassgreen of Pachulski Stang Ziehl & Jones LLP. Instead.

“I would think that this judgment would make the mediation more critical,” Grassgreen said.

Complicating the Process

Still, mediation could drag on as there will likely be a long slog of information gathering over Jones’ assets and how much, if any, can be used to pay creditors, said Donald L. Swanson, a bankruptcy attorney and shareholder at Koley Jessen. A quick resolution is a “pie in the sky,” he said.

The large verdict gives the Sandy Hook victim families increased leverage in the bankruptcy, but settling with Jones may still have benefits, said Nicholas Koffroth, a bankruptcy attorney with Fox Rothschild LLP.

“There’s always the litigation reality—that it’s tough to shake someone down for a billion dollars,” Koffroth said.

Free Speech’s case was always destined to run a turbulent course, with heightened public scrutiny on Jones’ actions, questions of assets whereabouts, and layers of corporate entities that exposed deep family ties to the company’s operations.

“The sheer magnitude of this verdict will be an impediment to a consensual plan or reorganization,” said Melanie Cyganowski, a former bankruptcy judge now with the law firm Otterbourg PC.

Dischargeability Question

Jones is personally liable for the damages. But he “is not contemplating any personal bankruptcy,” his attorney Shelby Jordan of Jordan & Ortiz PC told Bloomberg Law on Thursday.

Jones told his listeners of his Infowars talk show on Thursday he plans to appeal the Texas and Connecticut cases. He also said he’s “out of money.”

Jones would likely face the same hurdles over dischargeability in personal bankruptcy as his company faces in its business bankruptcy, Alan Rosenberg of Markowitz Ringel Trusty & Hartog PA said.

If Jones provides victim families full and complete disclosures of his financial wherewithal—and thus, how much he can actually afford to pay—perhaps they can settle at mediation, Rosenberg said.

“Very few people have the liquidity necessary to satisfy such a substantial debt,” Rosenberg said.

While Jones’ hasn’t sought personal bankruptcy, his attorney previously asked that Free Speech extend to Jones the automatic litigation stay afforded debtors, according to bankruptcy court documents filed by Free Speech’s former co-counsels, Kyung S. Lee and R. J. Shannon of Shannon & Lee LLP.

A looming question over the Free Speech Systems bankruptcy is whether damages stemming out of defamation judgments can be discharged. If a judge finds the verdict can’t be discharged, that could have a “dramatic effect on whether the Debtor is able to successfully navigate and then exit the bankruptcy process,” said Rosenberg.

Fourth Circuit precedent allows a bankruptcy court to prevent a small business debtor from discharging debts incurred through “willful and malicious injury,” Cyganowski said. However, Free Speech Systems’ case is in Texas. The US Court of Appeals for the Fifth Circuit, which includes Texas, has not addressed the matter.

There’s also a question of whether “willful and malicious injury,” can be proven since the Connecticut judgment didn’t result from a trial on the merits, Grassgreen said. Instead, Jones was found liable for defamation under default judgment after he failed to respond to discovery.

Some courts have held a bankruptcy court can honor the pre-bankruptcy judgment without retrying the elements of willful and malicious injury, even if it was not litigated to trial on the merits, Grassgreen said.