A couple of years ago, it seemed like NFL Europe and Arena Football were going to have some stiff competition on its hands with the introduction of another Football Minor League. The AAFL was getting some good coverage leading up to its inaugural draft. I even shook hands with players like Chris Leak and Peter Warrick at Team Florida’s draft party. And then everything went down the drain…at least for this year. But what about all those players that got drafted on January 26th? And how about the Protected Players that were signed to each team prior to the draft (Team Florida had 39 such players)? Class Action Lawsuit time!
Atlanta, GA based attorney, Steve Estep, has filed a class action suit against the AAFL and its founder/chairman Marcus Katz. It seems like Estep is targeting Katz under a theory of respondeat superior, allowing Estep to go after the big bucks based on the tort theory of liability.
Marcus Katz was going to be the money behind the league. He said so on several different occasions, so if the league isn’t capitalized, under the piercing-the-corporate-veil theory you can go after the people who were supposed to be capitalizing it. We don’t know if AAFL has a dollar of its own, but we do know that Marcus Katz has lots of dollars, or at least he says he does.
We’re seeking to recover what [the players] were to have been paid plus whatever out of pocket damages they could show, the kind of hard dollar expenses associated with getting new apartment leases and moving, things like that.
I think that the claim seems pretty reasonable based on recovery for reliance damages. A player may not have purchased certain items had he not been promised a spot in the new league. It will be interesting to see how this suit ends up being litigated.
6 replies on “All American Lawsuit”
Wow, very interesting.
“Piercing the corporate veil” comes up in Corporations and grew out of a desire to prevent individuals from escaping the consequences of their individually wrongful acts by using a corporate entity for criminal or fraudulent purposes. So when a corporate veil is pierced, the corporation’s creditors can go after the assets of its shareholders. That’s a radical concept because limited liability of shareholders is a bedrock of modern capitalism. So theoretically one should only ‘pierce’ when absolutely, positively necessary. Thus, judges will look at the totality of the circumstances to make their ruling, and choose to pierce the veil only if it’s necessary to prevent fraud or achieve equity.
Under the undercapitalization test, failure to provide adequate capitalization for the corporation AT THE TIME OF FORMATION is an important element, however MOST courts are reluctant to pierce the veil solely on this basis.
Per one attorney: “Whether a corporation was adequately capitalized when it was formed is a relevant determination with respect to this factor, the idea being that insufficient capital infusion is a red flag that a corporation was started as a sham. Proving a corporation that was adequately funded on formation became undercapitalized due to business losses will not suffice. Nevertheless, IF shareholders fail to infuse needed capital after an existing corporation significantly changes the nature of its business or substantially expands, this may constitute undercapitalization sufficient to satisfy the court.”
So either show Katz didn’t properly infuse the League with capital from the get-go, or that he didn’t do so later. Katz will argue that he properly funded the league, and that the lack of a television contract and/or other deals forced the League under.
[…] From the “interesting lawsuits” category, a class action lawsuit has been filed on behalf of the players in the All-American Football League aga… […]
[…] week Darren wrote about the AAFL, which is temporarily on hiatus and will soon be embroiled in a class action lawsuit on behalf of the players against League founder/chairman Marcus […]
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Such
wonderfully helpful posts! Thanks so much guys! They’re super valuable!