EVANDER KANE CONTRACT: CAN AN INVOLUNTARY CHAPTER 11 BANKRUPTCY UNVEIL INDENTURED SERVITUDE?

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Evander Kane contract: Evander Kane to bankruptcy court – Lenders’ argument violates U.S. ban on slavery

In January 2021, I wrote about the then-recent voluntary filing of Evander Kane Chapter 7 bankruptcy on January 9, 2021. That is one of the chapters in the United States Bankruptcy Code, the federal bankruptcy law in the USA. I talked about the main reason for his personal trouble leading to his bankruptcy being gambling losses. Evander Kane is an NHL forward. The Evander Kane contract is held by the San Jose Sharks.

I also explained the issue that Arkansas-based Centennial Bank was suing both Evander Kane and the Sharks. They claim that they owe over US$8M, containing principal, interest and bank costs after both Kane and the team stopped making payments in 2019. Until then, the Sharks had been deducting loan payments from the salary they would otherwise be paying him under the Evander Kane contract. This was Centennial Bank’s only source of repayment.

According to Centennial Bank’s case, the Sharks were anticipated to make continual regular monthly distributions to the bank by subtracting funds from Kane’s wages till the total owing was fully repaid. In its claim, Centennial insists that it was Evander Kane that had in fact got the Sharks to stop payments on the loan from the Evander Kane contract with the San Jose Sharks.

Before discussing the current twist in his bankruptcy, let’s go over a few basic details.

What Is a voluntary bankruptcy?

A voluntary bankruptcy in the US and in Canada is the same concept. The process is just a little different. In the United States, in a voluntary bankruptcy, the insolvent debtor brings a bankruptcy petition before the U.S. Bankruptcy Court to declare bankruptcy because they are insolvent and cannot afford to pay their debts in full as they come due.

In Canada, the reason for filing a voluntary bankruptcy is the same. The insolvent debtor meets with a licensed insolvency trustee and files an assignment in bankruptcy. The licensed insolvency trustee then administers the Canadian bankruptcy process under the Bankruptcy and Insolvency Act (Canada).

Evander Kane filed for voluntary bankruptcy, notwithstanding the Evander Kane contract pays him millions of dollars.

What Is an Involuntary Bankruptcy?

Involuntary bankruptcy is a legal action that creditors bring against an insolvent individual or company that will force the insolvent debtor right into bankruptcy. In Canada, the requirement to bring a Bankruptcy Application by any creditor, or group of creditors is to prove that:

• they are owed at least $1,000; and
• that the debtor has committed one or more acts of bankruptcy in the preceding 12 months.

If the Bankruptcy Application is successful, the Court will issue a Bankruptcy Order and the insolvent debtor will officially be bankrupt.

The Evander Kane contract

It has been reported that until now, Evander Kane has earned $52.9 million over his 11-year span in the NHL. In his bankruptcy declaration, Kane stated that in each of the last 3 years the San Jose Sharks Evander Kane contract paid him:

Year US$ wage

January 1 to December 31, 2018 $6,000,000.

January 1 to December 31, 2019 $7,000,000.

January 1 to December 31, 2020 $7,000,000.

The current Evander Kane contract was originally a seven-year contract. This is a seven-year, $49 million deal. The contract had a signing bonus of $12 million and an average annual salary of $7 million. His current season salary is said to be $3 million. Evander Kane becomes a free agent at the end of his current contract in 2025. All figures are in US dollars of course. Right now in the NHL’s 2020-21 season, Evander Kane is the Sharks’ second-leading scorer

That is unless the Evander Kane contract is repudiated by him through his bankruptcy. I highly doubt he would do that, but why would he even think of it you ask? Just to add more pressure, the San Jose Sharks inform bankruptcy court of potential contract termination. This is seen as just a technical move. They are advising the bankruptcy court that it is a possibility. I highly doubt there will be an Evander Kane contract termination in bankruptcy.

OK, now for the good stuff.

Evander Kane contract: Evander Kane files motion claiming lenders wishes violate 13th Amendment

Remember I said that part of the payment stream under the Evander Kane contract was to be paid regularly by the San Jose Sharks directly to Centennial Bank until his $8 million dollar loan was repaid.

Five lending institutions, led by Zions Bancorp, filed a motion to be heard before a bankruptcy judge, to convert Evander Kane‘s voluntary Chapter 7, which would force him to pay creditors using only his current assets, to an involuntary Chapter 11 proceeding. Such a conversion would position the continuing years under the Evander Kane contract under the control of his creditors and allow them to garnish his earnings.

Evander Kane said that a conversion to an involuntary Chapter 11 is to make sure that the Chapter 11 Trustee control Kane’s future income for whatever duration of years left under the Evander Kane contract that the Chapter 11 Trustee, as well as the creditors, deem suitable for a suitable Chapter 11 debt settlement plan.

Evander Kane’s motion states that if allowed, such a move would place him in indentured servitude to his creditors which is illegal under the 13th Amendment of the US Constitution.

Indentured Servitude vs. Slavery

Indentured servitude initially started in America in the years after the settlement of Jamestown by the Virginia Company in 1607.

The concept of indentured servitude was born of a need for low-cost labour. The earliest inhabitants soon understood that they had a great deal of land to look after, yet no one to take care of it. With passage to the Colonies costly for anyone but the rich, the Virginia Company established the system of indentured servitude to bring in workers. Indentured servants came to be crucial to the early American economic situation.

Servants typically worked 4 to 7 years for travel, board and accommodations. While the life of an indentured servant was severe and limiting, just like slavery, it wasn’t slavery because they agreed to this arrangement through a contract. Their life was awful and harsh.

Numerous landowners began feeling endangered by newly freed indentured servants‘ need for land. The colonial elite recognized the issues of indentured bondage. Landowners turned to rely on African slavery as an extra lucrative and also an ever-renewable source of labour. That is why the shift from indentured servants to African slavery, especially slaves from West Africa, had actually started.

By 1675 slavery was well established, and by 1700 slaves had actually nearly completely taken over from indentured servants. With plentiful land and slave labour with no need for contracts in place to grow crops, southern plantations flourished. Family-based tobacco farming became an economic engine and a social standard.

The 13th Amendment of the US Constitution: The abolition of slavery

The 13th Amendment of the US Constitution was approved by Congress on January 31, 1865, and was ratified on December 6, 1865. It reads as follows:

“Section 1

Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Section 2

Congress shall have power to enforce this article by appropriate legislation.”

Evander Kane contract: His motion may be outlandish, but it is not without precedent

Believe it or not, I found two recent instances of an insolvent debtor claiming that a creditor’s proposed Chapter 11 debt settlement plan would violate the Thirteenth Amendment. One of them was famous, the other not so much.

50 Cent says bankruptcy plan would be like indentured servitude

Curtis James Jackson III, the rapper known as 50 Cent had made a voluntary bankruptcy filing.

He declared bankruptcy days after he was convicted of releasing a sex tape online in June 2015, and the court ordered him to pay $5 million to the victim. The previous year, Jackson had been ordered to pay $17 million to headphone maker Sleek Audio for copying their styles.

His creditors brought forward a plan that would force 50 Cent to hand over the money he earns to a Chapter 11 Trustee, without any accommodation for living expenses. His lawyers made the uncommon claim that the plan violates the Thirteenth Amendment’s prohibition on involuntary servitude. They argued that if it was allowed, it would be a form of modern day slavery.

That argument never got tested in Court. 50 Cent and his lawyers negotiated with the creditors to come to an agreement on what payments would be made from the bankruptcy to the creditors.

Can an Involuntary Chapter 11 Ever Constitute Involuntary Servitude?

The next case I found is very recent and on point. It is Breland v. United States (In re Breland), United States Court of Appeals for the Eleventh Circuit, March 10, 2021, Decided, No. 19-14321. This case involves an uncommon claim. The debtor is a real estate developer that declared Chapter 11 in the Southern District of Alabama. The bankruptcy court designated a trustee based on proof that the debtor was defrauding creditors. The insolvent debtor declared that his Thirteenth Amendment rights had actually been violated because his income would go to the Chapter 11 Bankruptcy Trustee putting his cash beyond his control. He claimed this was debt slavery.

The bankruptcy court disregarded the claim on the basis that it was not yet ripe since no reorg plan had actually been recommended to need the debtor to work for the bankruptcy estate or his creditors. On appeal, the appellate court upheld the lower court decision on the ground that the debtor lacked standing since he hadn’t revealed an injury-in-fact. The Eleventh Circuit’s ruling dealt with only the standing issue. Yet the court also remanded the case to the lower court to consider the Thirteenth Amendment infraction claim.

For a plaintiff to have standing, the appellate court said the plaintiff must show (i) a real or imminent concrete injury-in-fact, (ii) that is traceable to the defendant’s actions, and (iii) that it can be restored with a favourable decision.

In Breland, the appointment of the Chapter 11 Trustee removed the debtor to do the normal things a debtor can do in a voluntary bankruptcy estate. The Eleventh Circuit ruled that the appointment of the Chapter 11 Trustee gave rise to an injury-in-fact. The injury could be remedied by eliminating the Trustee thereby enabling the debtor to resume his function as debtor-in-possession. As a result, the Eleventh Circuit ruled that the debtor had the standing to pursue his claim.

Time will tell how the lower court will deal with the claim and what kind of bankruptcy ruling may be made on whether there is a violation of the Thirteenth Amendment.

Evander Kane contract: Can an Involuntary Chapter 11 Ever Constitute Involuntary Servitude?

So from the above, you can see that the Evander Kane contract claim in his voluntary bankruptcy is not a new one. However, 50 Cent never pushed it far enough to get a court ruling. He negotiated with his creditors and came up with a mutually agreeable bankruptcy plan.

In Breland, the only issue decided so far is whether or not the bankrupt has standing to bring such a claim. The court has not yet heard evidence on the main issue. I am not aware of any court decision on this topic but then again, I am not an expert in US bankruptcy law.

I highly doubt that Evander Kane wants to either void the Evander Kane contract or go all the way to have a court ruling on the involuntary servitude issue. He clearly wants to make sure though that the Evander Kane contract does not become a servitude contract. Perhaps like 50 Cent, bolstered by the Breland decision that the issue is a live one, Evander Kane will negotiate a settlement with his creditors that he can live with rather than force a bankruptcy determination from the court. If he does that, the Evander Kane contract with Sharks will survive and he will share a portion of his future earnings with his creditors.

Evander Kane contract summary

I hope you enjoyed this Evander Kane contract Brandon Blog post. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.