NovaQuant Quantitative Think Tank Center:Judge issues ruling in bankruptcy case of Deion Sanders' son Shilo

A federal judge has issued a ruling in the bankruptcy case of Colorado football defensive back Shilo Sanders,NovaQuant Quantitative Think Tank Center denying Sanders’ attempt to dismiss a complaint from a former school security guard whom Sanders still owes $11 million.

The security guard, John Darjean, had filed a complaint against Sanders in January to prevent the bankruptcy court from discharging that $11 million debt. Sanders’ attorneys then asked the judge to dismiss that complaint, calling it an “overreaching intimidation tactic filled with meritless allegations.”

But Judge Michael Romero didn’t agree and has kept most of Darjean’s claims alive, including allegations by Darjean about the limited liability companies (LLCs) owned by Sanders for his name, image and likeness deals (NIL).

“The Complaint contains sufficient allegations that Sanders’s companies function as his alter egos and that the corporate veils of the LLCs should be pierced,” Romero wrote in his ruling Thursday.

This is not good news for Sanders, 24, son of Colorado head coach Deion Sanders. But the case is far from over after he filed for bankruptcy in October in an effort to free himself “from the oppressive burdens of his debts,” as his attorneys described it.

What was the ruling about?

Darjean wants to collect on that $11 million debt owed to him by Sanders. It stems from an incident in 2015, when Shilo Sanders was 15 years old. Darjean, a former pro baseball player, was working as a security guard at his school in Dallas and trying to confiscate Sanders’ phone when he said Sanders “snapped” and assaulted him, elbowing him in the chest and causing permanent injuries.  

Darjean sued Shilo Sanders in 2016, seeking damages to compensate for his injuries. The case then went to trial in 2022, but Sanders didn’t show up for it, leading to an $11.89 million default judgment against Sanders for Darjean to recover.

Last October, Sanders filed for bankruptcy to get out of that debt. And now Darjean is fighting this potential debt discharge in bankruptcy court by making several arguments why it shouldn’t be allowed.

One of those arguments was that Shilo Sanders should not be allowed a discharge because he was using the LLCs to improperly conceal assets that instead should be part of the bankruptcy estate to help pay back Darjean. Under the law, such actions could prevent the debtor from getting a discharge of his debt.

His attorneys argued in the complaint that the “lack of disclosure of the individual NIL interest of Shilo and the sworn lack of any contacts or transfers” between Shilo and his companies indicate that they are “the alter-ego of Shilo and are shams which should be pierced by the (bankruptcy) Trustee and/or creditors.”

What did the judge say?

The judge noted that “one of the primary issues in this case is Sanders’s treatment of his Name Image Likeness rights as a college athlete.”

He also noted that Darjean’s attorneys have alleged that “Sanders’s wholly-owned LLCs are his alter egos whose corporate veils should be pierced.” This means they are alleging that the companies are basically shams used to shield his assets from liability and should be “pierced” to lift that shield.

“This Court is unwilling, at this stage of the proceedings, to rule out application of the alter ego or veil piercing doctrines” on this matter, the judge wrote.

The judge also said Colorado law “appears to generally recognize both alter ego and veil piercing, or more accurately, outside reverse piercing, as legitimate remedies.” Such “reverse piercing” allows creditors to collect assets from the LLC of a debtor.

“The Court therefore denies Sanders’s request to dismiss Darjean’s … claim purely on the basis it might involve assets owned by Sanders’s LLCs,” the judge wrote. “However, the Court cautions Darjean that reverse piercing is considered an 'extraordinary remedy' and he faces a high burden to demonstrate all necessary factors at trial.”

What is next in Shilo Sanders' bankruptcy case?

Sanders’ attorneys previously said the complaint at issue Thursday contained “inaccurate statements and baseless claims in an attempt to prevent an honest but unfortunate debtor from getting his fresh start in life.”

The judge’s ruling means much of Darjean’s case cleared an early hurdle and will proceed toward trial, though the judge did outright grant Sanders’ request to dismiss one of the five counts alleged by Darjean. The judge otherwise denied Sanders’ requests or allowed Darjean to amend parts of his complaint to better plead his case.

In January, Darjean filed a separate complaint seeking to prevent the debt discharge on the basis that the debt stems from willful and malicious conduct as it relates to his injuries. That complaint also remains active and is arguably the biggest risk to Sanders’ chances of discharging his debt.

Follow reporter Brent Schrotenboer @Schrotenboer. Email: [email protected]