WILL RICKY WILLIAMS FILE BANKRUPTCY?

An article in today’s Washington Post raises the question of whether Ricky Williams of the Miami Dolphins will file bankruptcy. Under current law the answer is probably yest. Williams, for non-sports fans, was a star running back for the Miami Dolphins who suddenly retired before the beginning of this season, saying that he doesn’t want to play for the Dolphins. In return, an arbitrator ordered him to refund $8.6 million in bonus and payments that he received from the Dolphins.

Is bankruptcy Ricky’s answer? Probably yes. First, he could use bankruptcy to probably get out of the remainder of his contract with the Dolphins and put himself up for bid as a free agent. Second, he could dishcharge the $8.6 million obligation as a claim in the case.

Moreover, Ricky could probably still live pretty large in bankruptcy. Assuming he lives in Florida now that he plays for the Dolphins, and assuming he lives like a usual athlete, his house is probably pretty darn nice (usually in the several million dollar range). Because of Florida’s unlimited homestead exemption, however, he would be entitled to keep his house in bankruptcy.

This also points up the disingenousness of opponents of bankruptcy reform who say that bankruptcy reform should be opposed because it supposedly does “nothing” to close the homestead exemption. Under current law, as just mentioned, Williams can keep his entire Florida homestead, assuming he lives there. But he was traded to the Dolphins from the Saints just two years ago (2002). If the bankruptcy reform act were actually ever enacted, there would be a 40 month waiting period (3 years and 4 months) before Williams could claim the Florida unlimited homestead exemption, and instead his homestead exemption would be capped. Thus, assuming that I am correct that Williams relocated from New Orleans to Miami when he was traded, the bankruptcy reform act would close the currently-existing loophole. Opponents of reform nonetheless seem to belive that the current system, which would allow Williams to keep a mansion, is more equitable than the system under the bankruptcy reform act.

To tell the truth, it has been a mysterty to me why athletes involved in contract disputes have not previously used bankruptcy as a mechanism for getting out of their contracts. Williams’s decision to file bankruptcy to get rid of a contract he doesn’t like follows in the footsteps of a wave of such filings in the 1990s, when recording artists similarly filed bankruptcy to try to get out of employment contracts they didn’t like. Courts sometimes would toss those as bad faith filings, but there is little chance of that happening with Williams.

Update:

A reader called to my attention some news reports that Williams’s agent has been in touch with the agent for Reggie Roby, a former Dolphins punter who threatened to file bankruptcy in the early 1990s in order to get out of his contract. According to reports, the Dolphins “freaked” at the prospect and decided to release him from his contract, so the strategy has never actually been tested (at least tha I have been aware of).

One other reader suggested that rejecting the contract might not make Williams a free agent, however, as the NFL Player’s Association collective bargaining agreement might still tie him to the Dolphins, even if he did not actually have a contract with the Dolphins. There is precedent for this view as well, including Terrell Owens last year, whose contract with the 49ers expired, nonetheless, because his agent failed to file the appropriate papers to make him a free agent he was still stuck with the 49ers (who eventually traded him).

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