Hockey Star Finds Himself in Chapter 11 Penalty Box With Help From Parents



In 2005, Jack Johnson was the No. 3 pick in the National Hockey League draft. At the close of the 2007-2008 season, he was named Best Newcomer and Outstanding Defenseman for the Los Angeles Kings. In 2010, he played on the Team USA that clinched the silver medal at the Olympics. And then in 2014, the Columbus Blue Jackets player filed for Chapter 11 bankruptcy in Ohio Southern Bankruptcy Court.

That’s an unexpected penalty box for a player who was bringing home over $400,000 per month at the time of filing, according to court documents. How does bankruptcy unfold with that kind of salary? According to a 2009 Sports Illustrated article, Johnson is far from an outlier. Within five years of retirement, the article notes, roughly 60 percent of former National Basketball Association players end up broke, and nearly 80 percent of former National Football League players go bankrupt after two years of retirement.

Johnson’s parents have come under fire for taking out loans in Johnson’s name against his future earnings from the NHL after he granted them power of attorney. Johnson’s total debt at the time of filing rang up to $21,343,723.64. Now, some four years and 986 docket items later (at the time of this writing), the case appears to be winding down. But the road getting there wasn’t smooth.

After Johnson filed for Chapter 11 bankruptcy in October 2014, he attempted to convert the case to Chapter 7 in March 2015. In court documents, Johnson’s lawyers argue that the conversion to liquidate Johnson’s assets “is necessary and equitable because it protects the estate from being dissipated by contentious and extensive litigation threatened by those who have asserted specious claims. Several creditors have informed Debtor that they intend to pursue such tactics, leading to this conversion.”

A group of creditors asserting claims that totaled about $14 million objected to the motion, and in February 2016, the motion to convert the case was denied. The order hints at the complications in the case. “If the Debtor commenced this bankruptcy case intending to comply with his fiduciary duties and use his income to provide creditors with a meaningful recovery,” the order reads, “at some point he went astray.” The order goes on to imply that Johnson’s attorneys were perhaps pushing for the Chapter 7 conversion in order to block the creditors from access to any of Johnson’s future high-dollar NHL earnings.

Furthermore, while Johnson argues that the objecting creditors refused to accept any less-than-full payments and therefore intentionally blocked his ability to successfully reorganize, the objecting creditors asserted that Johnson exhibited “bad faith,” “neglected to take other steps that are necessary to reorganize his financial affairs,” and made “unnecessary and excessive expenditures” that were “consistent with his pre-bankruptcy laissez-faire approach to his finances” and not in keeping with the goal of conserving the value of his estate. (Readers can assess Johnson’s monthly operating reports for themselves.)

One amended Chapter 11 plan was filed, and then came another. Finally, towards the end of August 2016, the plan settlement was filed, and confirmed three months later. Under the plan, Johnson is required to use his post-filing assets as well as his future earnings to pay off the creditors. In addition, once Johnson’s contract is terminated, he will need to hand over his earnings (except living expenses) for the next five years after the confirmation order—a contract through the 2020-2021 NHL season. The deal also involved the sale of Michigan and California residences, two BMW vehicles valued at a total of roughly $30,000, as well as a 2011 Ferrari valued at $125,000.

While certain rumblings—like one of the creditors objecting to the plan—still may force the case into extra minutes, Johnson appears to be exiting the Chapter 11 penalty box, even if his earnings will stay on ice for years to come.

Print Friendly, PDF & Email

About Author

Leave A Reply