Lenders say bankrupt NHL star Johnson complicit in reckless borrowing

Rick Westhead

TSN Senior Correspondent

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Bankrupt NHL star defenceman Jack Johnson is accused of being in cahoots with his parents in taking out a string of high-interest loans.

RFF Family Partnerships, a California-based marketing company which is among Johnson’s largest creditors in his bankruptcy case, accuses the Columbus Blue Jacket of committing “false representation and/or actual fraud” during the year-old case.

Johnson shocked the hockey world nearly a year ago when he filed for bankruptcy, disclosing that he had amassed more than $10 million worth of debt. In an even more startling twist, Johnson said his parents were to blame for his financial distress.

In a Columbus Dispatch story on Nov. 20, 2014, Johnson said he “picked the wrong people” to give him financial advice and in court documents, Johnson charged that his parents John and Kristina took out millions of dollars worth of high-interest-rate loans in his name, without his knowledge.

His parents, Johnson alleged, pledged his future NHL earnings as collateral for the loans.

While Johnson’s case has largely disappeared from the headlines over the past year, his venomous legal battle with his creditors continues. It’s been so contentious that lawyers for his creditors have asked the court for permission to question Johnson’s lawyers themselves over his decision to file for bankruptcy, an extraordinary measure.

Johnson has been forced to disclose minute details about his monthly expenses over the past year, filing his credit card and bank statements with the court each month, sharing details on everything from his purchases of food and gas to gifts. He’s also required to provide information about his NHL income and NHLPA retirement savings plans.

But in what sources close to Johnson say has been among the most difficult developments over the past year, the Blue Jackets defenceman has been accused of working alongside his parents to secure high-interest loans – allegations that are directly counter to his statements with the court.

Johnson’s agent, Pat Brisson, who has started working for the player again after a seven-year split, declined to comment.  Johnson’s lawyer Marc Kessler also declined to comment.

In 2011, three years after he fired Brisson and weeks before he signed a seven-year, $30.5-million contract with the Los Angeles Kings, Johnson signed a power of attorney that granted his mother full control of his finances.

The Columbus Dispatch reported it wasn’t long before his parents began to spend wildly.

Johnson’s parents allegedly each bought a car, and spent $800,000 on upgrades to a Manhattan Beach property, the Dispatch reported.

In a Dec. 24, 2014, court filing, Johnson said lenders took advantage of his mother’s “financial inexperience and naiveté.”

RFF Family Partnerships, the creditor, accuses Johnson of making “false representation and/or actual fraud” in the case and says Johnson owes the company $1.7 million on a loan that calls for him to pay 36 per cent annual interest.

RFF says Johnson and his father agreed to terms on a $1.9-million promissory note on Jan. 21, 2014, using his NHL contract as collateral.

According to documents filed in court by RFF, an Ohio notary public named Alonzo Longshore has sworn Johnson “personally appeared” before him in person in Franklin County, Ohio, on Jan. 23, 2014, and signed the Jan. 21, 2014, promissory note.

Longshore said Johnson also appeared before him the following day, on Jan. 24, 2014, to sign a document pledging his NHL contract as collateral for the loan.

“The documents were not ‘allegedly signed by Johnson’ (or by his parents without his knowledge) as Johnson asserted in his initial filings,” RFF lawyer Jeffrey Levinson wrote in an email to TSN. “Johnson admitted in his testimony (at trial and in depositions) that he personally signed both (the loan document and the document pledging his NHL contract as security) and he initialed every page of each document, met with representatives of RFF in Los Angeles, and received the money.

“The loan was a bridge loan to be paid back in 30 days,” Levinson wrote. “Johnson promised to but never paid it.”

Levinson said the dates were different on the Jan. 21 loan document and the notary public statement because Johnson forgot to sign a page.

“The documents were prepared on the 21st,” Levinson wrote in an email. “He signed the promissory note and the other documents on the 23rd. My client received them by FedEx on the 24th and noticed he forgot or failed to sign one of the documents. He went back to the notary and signed and Fedexed that document to us.”

RFF says that when Johnson signed the loan documents, he purposely avoided including any details about the prior loans he and his parents had allegedly taken out.

“This omission was done by (Johnson) for the purpose of improperly insulating his parents from litigation claims,” RFF said in a court document.

Johnson has not asked the court to demand his parents be forced to testify about the loans and has not demanded any documents from them related to the loans.

“There is nothing in the record (showing) any attempt whatsoever by (Johnson) to investigate the significant claims and causes of action against his advisors and parents,” RFF alleged.

A source close to Johnson confirmed that he did, indeed, sign the Jan. 21, 2014, promissory note.

“Of all the promissory notes, Johnson signed about half of them,” the source said. “His mother would send him just the signature page to sign. But he didn’t read what he was signing. He didn’t understand it. And he didn’t have any reason to mistrust his mother.”

Levinson wrote in an email that creditors are still investigating where the money lent to Johnson has gone.

“The real issue in this case is what Johnson and his parents did with the over $12 plus million they borrowed from all the creditors in this case (over and above the salary he was receiving and not using to pay the money back),” Levinson wrote.

“Despite a year to investigate and report to the court Johnson as the debtor in possession offers no explanation,” he wrote. “That is the real story and everyone has been looking for an answer since the beginning of this case. We do know they spent millions of dollars on luxury items, including two California homes, hundreds of thousands of dollars in improvements to his Ann Arbor home, jewelry, travel, two Ferraris, three BMWs, a Hummer, a $50,000 wedding while in bankruptcy etc. “

“Now, rather than doing the ‘right thing,’ as Johnson has said over and over again that he wants to do, he has spent more than a million dollars more on his attorneys trying to avoid paying the very debts he has admitted are his obligations,” Levinson wrote.

Johnson has spent months trying to convert his case from a Chapter 11 bankruptcy to a Chapter 7 bankruptcy and he spent about a day and a half testifying about his case during a three-day hearing in early September.

His parents were questioned by lawyers for creditors in August.

If his bid to convert his bankruptcy to Chapter 7 is successful, Johnson, who is scheduled to be paid a combined $15 million over the next three NHL seasons, would be able to keep those future earnings for himself, instead of being forced to commit some of his salary to repaying his former lenders, Buffalo bankruptcy lawyer Thomas Denny told TSN in an interview.

“If he goes through Chapter 7, he’ll probably have to liquidate most of what he has, but at the end of it, he gets a fresh start, his debt will be gone,” Denny said.

Chapter 11 proceedings can typically last three to six years, Denny said, compared to about six months for Chapter 7.

Johnson listed real estate in California ($1.65 million) and Michigan ($550,000), two 2007 BMW X5s, a 2012 BMW and a 2011 Ferrari as assets in a Dec. 31, 2014, financial balance sheet.

It’s unclear how much longer Johnson’s bankruptcy proceedings might last. He probably won’t find out whether he can convert his bankruptcy to Chapter 7 until the end of October.