Arkansas Razorbacks Football Coach John L. Smith's $40 Million Mistake

by Mark Friedman  on Monday, Nov. 5, 2012 12:00 am  

Rhodes didn’t say in his court filings where the money went — and it didn’t seem to matter. Judge Eckerle said in a ruling in February that Rhodes didn’t have to use Smith’s $70,000 to pay down the promissory notes.

Despite the $70,000 infusion, Smith said the LLCs continued to “have extreme economic difficulties.

Canfield continued to make numerous and substantial capital calls upon the LLCs’ members.”

In early 2010, Smith said he finally told Canfield and the other members of the LLC that he “was no longer able to make these substantial capital contributions.”

It is unclear if any of the other members were continuing to give money to the LLCs.

Rhodes, on May 4, 2010, filed the collection lawsuit only against Smith for the entire balance of the $624,000 September 2009 loan. By the time Eckerle issued her ruling in February of this year, four other lawsuits naming Smith as a defendant had been filed. Those lawsuits were seeking $7.7 million. A fifth lawsuit naming Smith was filed on Aug. 21.

Rhodes had a slam-dunk case against Smith because he had signed for the loan personally guaranteeing the entire amount. Eckerle ruled in Rhodes’ favor on a motion for a summary judgment, meaning he didn’t have to present the evidence at a trial.

Smith said in court filings that he felt that Rhodes was picking on him because Smith was the only person named in the lawsuit. The lawsuit was “in retaliation for Smith’s refusal to continue contributing to the LLCs,” his Kentucky attorney, Jonathan Goldberg, wrote.

Rhodes said in his court filings that he tried to collect from the other members of the LLCs, but he didn’t say why he singled out Smith for litigation. And, ultimately, it didn’t matter why.

“The joint and several liability language of the Note permits [Rhodes] to choose who to enforce the Note against without any preconditions,” Rhodes’ attorney D. Christopher Robin-son wrote in a court filing.

But their business associates were having their own financial problems. John Mason eventually filed for bankruptcy protection on the last day of 2011, listing $21.7 million in debts and $999,615 in assets. In October 2010, Canfield was sued for defaulting on the $400,000 balance of a $1.6 million loan that he took out in 2004. Two more suits filed this year allege that Canfield defaulted on loan balances of $870,000 and $188,000.

Judge Eckerle blasted Smith for not understanding the terms of the loan. “Smith is a sophisticated businessman capable of understanding terms and entering into legally binding contracts,” Eckerle wrote. “Having failed to either read or comprehend the significance of the joint and several liability provisions, he may not now assert that he was fraudulently induced to sign by Plaintiff’s actions.”

 

 

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