"Vindicated." Judge throws out lawsuit against Ebersol over AAF demise
A lawsuit against Tom Dundon is still scheduled for trial next month
A federal bankruptcy judge threw out a more than two-year old lawsuit brought by Tom Dundon against Alliance of American Football league founder Charlie Ebersol seeking $70 million over the failure of the AAF in 2019.
Dundon, who owns the Carolina Hurricanes and the pro pickleball tour, bought the AAF after the inaugural game from Ebersol in February 2019 when the league's main backer failed to come through with the necessary financing. Weeks later Dundon shut the AAF down and by mid April filed for Chapter 7. Who caused the failure–Ebersol, the son of NBC Sports executive Dick Ebersol, or Dundon–is a contentious issue.
The US Trustee overseeing the bankruptcy sued Dundon and his right hand man, Jeff Zutter at the same time of the Ebersol suit. While Dundon alleged Ebersol fraudulently induced him to buy the AAF, the trustee argues Dundon on purpose tanked the league for tax purposes.
Judge Craig Gargotta in addition to tossing Ebersol’s case, did not do so for the Trustee’s lawsuit against Zutter (the judge will rule on Dundon’s motion to scuttle the Trustee’s lawsuit shortly, but it seems unlikely given the Zutter ruling.)
“For the past 6 years Charlie has been maligned in the press while he sat quietly allowing the judicial system to run its course,” Ebersol’s lawyer Michael Saltz said. “However, the course has now run and ended as to Charlie, vindicating Charlie in one of the strongest of ways possible. The court not only found that Dundon’s company had no standing to bring the lawsuit against Charlie in the first instance, but the Court went further to find that Charlie did not commit the fraud alleged against him as a matter of law.”
The court ruled against Dundon for three reasons. One, he did not sign the initial term sheet he and Ebersol agreed to. Second, the Dundon entity that sued Ebersol, Dundon Capital Partners, was not the same entity that wired the $70 million the AAF spent under Dundon’s ownership.
And perhaps most critically, Gargotta ruled that Ebersol and Dundon were sophisticated parties and knew what they were getting into.
“Dundon, as an owner of another professional sports team, understood the risks of running a league such as the AAF,” the judge wrote. “He admitted that no financial due diligence was completed but claimed that it was not an option based on the urgency of the deal. Instead of reviewing documents to confirm any questions about the league, Dundon relied solely on the assumptions he came to during conversations with Ebersol. Dundon knew a sports team needed to pay for certain services and admitted that he assumed all bills were current.”
Now the case against Zutter and Dundon heads to a trial scheduled April 14. The trustee is seeking at least $180 million, which is the difference between the $70 million Dundon spent and the $250 million he pledged at the time of the purchase. Dundon argues the only number that counts is the $70 million in the term sheet, while the Trustee contends there is an oral contract for the larger sum.
Sports has long ago moved on from the AAF, which drew millions of viewers for its inaugural broadcast on CBS. There is now an established minor football league in the UFL. But as for drama, the trial scheduled for next month holds out this tantalizing question: did a billionaire sports team owner destroy a nascent league on purpose, throwing hundreds of players and staffers out of work? Of course, Dundon may look to settle now that he can see which way the judge leans. If it does goes to trial, get your popcorn.