This dispute arose out of the dissolution of the Alliance of American Football League (the “AAF”). An individual investor financed AAF; however, due to the investor’s criminal activity, AAF faced liquidity problems entering its inaugural season in 2019. After realizing the liquidity issue, one of the AAF founders engaged with a millionaire investor and financial company (the “lender”) to secure immediate and long-term funding. Eventually, the lender “allegedly agreed to cover the [AAF]’s entire financial need until the [AAF] became financially profitable.” A term sheet was prepared by a partner of the lender and signed by the lender and the founder, as a representative of his LLC (the debtor). The new investor allegedly promised $250 million and represented the same to the media, but the term sheet only provided for funding requests up to $70 million. The new investor allegedly assured the debtor that the term sheet merely reflected a first installment and that he was agreeing to pay up to $250 million. After receiving an initial payment, the AAF, through the debtor, did not receive that which the lender had promised. Ultimately, the AAF and the debtor filed for Chapter 11 bankruptcy, and the Chapter 11 Trustee brought claims against the lender regarding the funding of AAF, including the following: “(1) breach of oral contract against the new investor; (2) breach of contract against the financial company; (3) breach of covenant of good faith and fair dealing against the new investor and financial company; (4) promissory estoppel against the new investor; (5) breach of fiduciary duty against new investor; (6) fraudulent misrepresentation, fraud by nondisclosure, and constructive fraud; (7) fraud in the inducement; (8) negligent misrepresentation; (9) unjust enrichment; (10) disallowance under 11 U.S.C. § 502(d) against the new investor and financial company; and, (11) equitable subordination.” The lender subsequently filed a summary judgment motion in response to all the debtor’s claims.
In Osherows v. Dundon (In re Legendary Field Exhibitions, LLC), No. 19-50900-CAG, 2025 WL 977175, 2025 Bankr. LEXIS 841 (Bankr. W.D. Tex. Apr. 1, 2025) (opinion not yet released for publication), the court denied summary judgment on all counts, except for the breach of contract claim, which it determined had been rendered moot. The court began its analysis by determining that the investor could not escape liability because his wrongdoing stemmed from more than a single transaction. Further, the court found that genuine disputes of material fact existed as to whether the investor acted as a controlling shadow director. Next, the court analyzed the evidence surrounding the alleged oral agreement. The court determined that the record contained sufficient evidence to identify the investor, the timing of payment, the mechanisms for drawing the commitment, and the terms and conditions of the investment. The court further found a genuine dispute of material fact over whether a meeting of the minds occurred. Additionally, for the lender’s attempted affirmative defense of merger, the court declined consideration because the lender raised the issue for the first time in the summary judgment motion; however, the court allowed the lender to pursue that defense at trial. Next, the court concluded that the lender could not rely on parol evidence because the court had already ruled that the term sheet was not a valid contract under Delaware law. The court concluded that a genuine question of material fact also existed as to whether the debtor’s “oral contract claim is property of the estate,” and thus found summary judgment to be inappropriate. Based on the prior ruling regarding whether a contract had been formed under Delaware law, the court rendered the trustee’s claim for breach of contract regarding the term sheet moot. The court further held that the trustee “properly established its claim for breach of covenant of good faith and fair dealing” because sufficient evidence showed a special relationship between the investor and the debtor. Also, because the court rendered the term sheet moot, it ruled that the issue of preclusion on this type of claim was irrelevant. The court next permitted the promissory estoppel claim to survive summary judgment because the lender failed to show that the trustee sought improper damages. The lender argued that the fraud claims failed because “justifiable reliance is negated as a matter of law.” However, the court disagreed, concluding that “justifiable reliance is not ‘negated’ as a matter of law because the term sheet was not a contract, and the promise was not “too vague and indefinite.” The court additionally found that the lender made statements to the media contrary to the stated amount of money lent, and as such, raised a question of fact, precluding summary judgment on this claim. The court next held the negligent misrepresentation claim to survive summary judgment because, contrary to the lender’s argument of inapplicability, the court determined that the trustee presented sufficient evidence based on the lender’s statements. Next, the court determined that the trustee’s fiduciary duty claims raised a genuine issue of material fact by providing evidence that the lender purposefully failed to preserve player contracts and various other actions evidencing a breach. The court then found that the “fiduciary duty claim [was] not barred by the breach of contract claim,” except for one portion that duplicated the breach of contract claim. On the unjust enrichment claim, the court held that a “genuine issue of material fact remain[ed]” because evidence showed the lender had gained a tax benefit through free advertisement and had pushed funds away from the league before it entered bankruptcy. Finally, the court ruled that an issue of material fact existed “as to whether the economic loss rule applie[d]” because the lender did not allege how the damages “could not relate to anything outside of the oral agreement.” Therefore, the court denied the lender’s motion for summary judgment, with the exception of Count II regarding the term sheet.
By Jace Brown, [email protected]
Edited By Taylor O’Brien, [email protected]
Edited By Kristin Meurer, [email protected]
Edited By Hayden Mariott, [email protected]