A bankruptcy judge in San Antonio has determined that Dallas-based investment firm Dundon Capital Partners, the biggest investor in the bankrupt Alliance of American Football, does not owe its creditors $180 million.
A 199-page ruling issued Tuesday from Chief U.S. Bankruptcy Judge Craig Gargotta largely cleared DCP and its executives, Tom Dundon and John Zutter, of claims of breach of contract, fraud and breach of fiduciary duty related to the demise of the AAF, a minor league football team that collapsed and filed for Chapter 7 bankruptcy in 2019 during its inaugural season.
The bankruptcy trustee had accused DCP of failing to follow through on an alleged oral agreement to invest $250 million to fund the league, precipitating its downfall, while the defendants alleged they did everything possible to help the league survive, including investing $70 million, but could not overcome preexisting liabilities.
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As it relates to the alleged oral agreement, the judge wrote that the only evidence of its existence was in statements Dundon made to the media and in testimony from Charlie Ebersol, who founded the league. The judge concluded an oral agreement for a $250 million investment was not reached between the two men.
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“While Dundon mentioned the $250 million figure in media messaging, it is unclear whether he and Ebersol discussed, let alone reached an agreement, on Dundon or any entity under his control investing $250 million in the League,” he wrote. “Nor did Ebersol and Dundon ever discuss or agree upon any specific terms or conditions for any hypothetical investment of $250 million in the League.”
The judge, who has been presiding over the bankruptcy and related cases for six years, led a 20-day trial that spanned five weeks, ending with closing arguments June 30.
Tim Cook (20) of the Arizona Hotshots runs around Duke Thomas (21) of the San Antonio Commanders to score a touchdown during an Alliance of American Football game at the Alamodome last month. The league ceased operations earlier this month and filed for bankruptcy protection Wednesday.
Edward A. Ornelas / Getty Images
“This matter ultimately was decided on what the trustee could prove. In doing so, the evidence adduced only supported one claim for relief as discussed in this memorandum opinion,” he wrote. “Further, there was insufficient evidence to support an award of damages or attorney’s fees in this case. The result may be viewed as harsh, but it is appropriate.”
The judge did find that Dundon owes $1 in damages for offering free advertising during league games to “marquee advertisers” such as AT&T, Carvana, Sony Pictures, Invisalign and TopGolf.
“Dundon engaged in self-dealing by providing free or discounted advertising to friends or affiliates, notwithstanding that Dundon testified that his advertising strategy was to get big brands associated with the league by offering them advertising slots, which would, in turn, create buzz around the league and increase the league’s perceived prestige due to its association with major brands,” the judge wrote.
“Free advertising may have exacerbated AAF’s financial condition.”
But because the bankruptcy trustee “was unable to prove any causally related harm,” the judge decided to award just $1 in damages for the “self-interested decisions and self-dealing,” the judge wrote.
The AAF filed for Chapter 7 bankruptcy April 17, 2019. The Chapter 7 bankruptcy trustee, Randolph Osherow, filed this adversary proceeding Nov. 14, 2022.
A message seeking comment from counsel for the trustee was not immediately returned Wednesday afternoon.
According to the adversary complaint, the original primary financier of the AAF was going to be Reginald “Reggie” Fowler, a former part owner of the Minnesota Vikings.
Fowler was sentenced to 75 months in prison in June 2023 for his role in a $700 million cryptocurrency scam facilitated through his company, Global Trading Solutions, and was also found to have defrauded the AAF by claiming certain funds were his and using those funds to purchase a stake in the AAF when they actually belonged to his clients.
Once Fowler’s financial struggles were known to the League, it began seeking other investment partners, and Dundon “quickly became the front runner because he promised a long-term financial partnership with the AAF in addition to having the financial wherewithal to do so.”
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