Dundon not liable for AAF’s debts as creditors start to line up

Tom Dundon, who took over the Alliance of American Football League in February only to shut it down less than two months later, does not appear immediately liable for the league’s debts and did not sign a contract to own the startup, according to lawyers who have examined the now defunct league’s recent bankruptcy filing.

The league filed for Chapter 7 bankruptcy on April 17, two weeks after suspending operations of its inaugural campaign, declaring $48 million of liabilities and only $11.4 million of assets. Dundon, the Carolina Hurricanes owner, acquired the league on Feb. 14 when it was on the verge of running out of cash.

However, his Dundon Capital Partners Limited Liability Corp. is not listed as a debtor in the 269-page filing.

“He is not responsible for the debt,” said Stephen Selbst, a bankruptcy attorney with Herrick Feinstein, who reviewed the filing for Sports Business Journal. “If Dundon came into this thing on Feb. 14, even if he controlled all of those debtors for this period, it is only two months, it’s really remote that he could be held liable.”

There are seven listed debtors, all companies apparently affiliated with AAF co-founder Charlie Ebersol, such as Ebersol Sports Media. Dundon Capital Partners Limited Liability Corp. acquired the right to 75 percent of Ebersol Sports in the Feb. 14 transaction, according to a footnote in the filing, and that is the only mention of the name Dundon in the petition.

Because Dundon Capital is an LLC, and American corporate law does not hold such holding companies responsible for the debt of subsidiaries, Dundon is not liable, Selbst said.

However, Dundon could be held liable if the trustee finds fraud, said Paul Rubin, a New York-based bankruptcy lawyer. The court’s trustee acts as the creditors’ advocate and can depose witnesses if necessary.

There are three class action lawsuits filed in other courts, two of them in federal court, alleging fraud and employment violations against Ebersol. The case filed in California superior court also alleges fraud by Dundon.

Selbst personally knows the western Texas federal court bankruptcy judge, Craig Gargotta, having worked with him in the 1980s at Weil, Gotshal & Manges’ Houston office, where the future jurist worked as a paralegal. Selbst described Gargotta as moralistic and akin to a Southern preacher. Told there are lawsuits charging Ebersol with misleading creditors and employees about the integrity of the league’s financing, Selbst replied, “That is the kind of thing that will get the judge’s attention. If the [court-appointed] trustee says there is a reason to investigate, Ebersol would be in front of the wrong judge.”

Intriguingly, the footnote said the “definitive documentation” to formalize Dundon’s February acquisition “was not completed prior to [Chapter 7] filing.”

Selbst described this as “weird,” though he said it is possible a letter of intent is signed. “It’s very unusual,” he added.

However, it is consistent with talk in AAF circles that Dundon and Ebersol did not have a contract.

Ebersol’s bankruptcy attorneys, Trey Wood and Jason Cohen of Bracewell LLP, did not reply for comment. Dundon also did not reply.

By last Thursday, four creditors — of which there are thousands — had filed claims, according to documents found on PACER, a website for federal case information. The first was Joe Bosack, who owns an eponymous branding company and filed for $169,800. The second was The Montag Group, the sports consultancy that advised the AAF on its CBS deal, which filed for $60,000. Former NFL coach and current TV analyst Steve Mariucci ($40,000) and Outdoor America Images ($835,228) filed later. 

The first meeting for creditors is scheduled for May 23 in San Antonio, but there won’t be much money to squabble over. The AAF only generated $11.8 million in revenue from the start of the year, and of its few assets, most of it is equipment and deposits with other companies that the bankruptcy court would need to get back.

The much-touted AAF technology, such as its app and website, are listed as intangibles with no value assigned. However, the court could sell them and conceivably raise funds for creditors.

Also listed as intangibles are the numerous trademarks the AAF filed for, including logos for AAF Canada, China, EU, India, Japan and Mexico.