UPDATE: Creditors Meet in John L. Smith Bankruptcy Case

A Friday meeting of creditors in the personal bankruptcy of Arkansas Razorbacks football coach John L. Smith produced a few lighthearted moments.

But portions of the cordial half-hour meeting in Fayetteville's John Paul Hammerschmidt Federal Building underscored the stress and damaged relationships from real estate deals gone bad in Kentucky.

Lawyers representing only three of the 38 potential creditors listed in Smith's bankruptcy petition attended the hearing: John D. Rhodes of Louisville, a former business partner; RLBB Acquisition LLC of Louisville; and Signature Bank of Fayetteville.

In a meeting led by bankruptcy trustee John T. "Terry" Lee, creditors had the opportunity to gather more information from Smith, under oath, about his business dealings.

In the end, Lee requested more documents from the parties before he begins divvying up Smith's assets as payment to creditors. Lee said he might hold a second meeting if new questions arose.

During the meeting, Smith said he alone was being sued by other business partners, although other individuals signed personal guaranties as well.

"Everyone signed the note," said Smith, whose business relationships in Kentucky stemmed from his time as head football coach of the University of Louisville Cardinals.

At one point in the hearing, Smith said he made no attempt to collect money owed to him by John R. Mason, one of his former real estate investment partners. Mason filed Chapter 7 bankruptcy in 2011.

Was he friend?

"A partner," Smith said.

"A former friend," added Smith's wife, Diana, who sat at the table alongside her husband of 42 years.

Smith's bankruptcy, originally filed on Sept. 6, stems from real estate investments that foundered after the 2008 financial crisis. Last week, he amended his filing to show $40.7 million in liabilities, up from the $25.7 million he first reported.

Creditors holding the biggest unsecured claims are a quartet of Louisville entities: Terra Springs LLC, for $20 million; Branch Banking & Trust, $15 million; Republic Bank, $2 million; and King Southern Bank, $902,000.

During the hearing, Smith was asked specifically about the $15 million liability linked to a land development loan made by Branch Banking & Trust of Louisville. He wasn't sure who now owned the loan originally made to the Terra Springs investors.

"I assume it was bought by partners for pennies on the dollar," Smith said.

Smith also listed a pending counterclaim of unknown value against Terra Springs LLC among his $1.3 million in assets.

Creditors also learned more about Smith's share of his deceased parents' 8-acre property in Iona, Idaho, valued at $2,000 on his bankruptcy filing. Creditors learned about a home on that property, valued at about $160,000. Because Smith has three siblings who also hold an interest in the property, Smith's share of the home would be worth $40,000.

Smith said he didn't know any additional details about the potential value of real estate listed in his bankruptcy.

"I've been out of the loop with the partners for three years," Smith said.

Smith's bankruptcy has raised some questions about how he and the University of Arkansas negotiated his 10-month, $850,000 employment contract. Smith arranged to have $600,000 of his $850,000 in pay deferred until after the season, with a $300,000 payment on Dec. 31 and another $300,000 on Feb. 23. 

The deferral raised legal questions about whether Smith's salary is accessible to creditors. The university has said it is not out of the ordinary for coaches to negotiate deferred payment as part of their contract.

On Friday, Jill Jacoway of Fayetteville, Smith's bankruptcy attorney, echoed the university's comment.

"Everybody does it different, and it can be structured differently," she told reporters after the hearing. "It’s all negotiable."

Jacoway said creditors will consider going after the money.

"And then what we do is we come in front of Judge [Ben T.] Barry and we fight. And Judge Barry makes up his mind," she said. "And if one side or the other doesn’t like what Judge Barry says, then we appeal and we appeal and we appeal."

The meeting was not without its offbeat moments.

Jacoway had to apologize for mistakenly filing an incomplete draft copy of her client's schedule of creditors. A computer glitch caused Jacoway to file a draft showing only $25.7 million in liabilities instead of the full $40.7 million.

"I made a horrible mistake," she said.

And at the start of the meeting, Smith was asked to provide identification to formally authenticate the proceeding.

"You can't tell who he is?" Jacoway said with a laugh.