It's a bargain-hunter's heaven. Brand-new Reebok running shoes for $20. Levi's boys jeans for $5. Paperback books at two-thirds off marked price. But if the merchandise at Largo's East Bay Liquidators is a deal for customers, it was an even bigger bargain for the store's owner, Richard E. Johnson. Much of East Bay's inventory is purchased at fire-sale prices from U.S. Bankruptcy Court in Tampa, where the failures of some businesses can mean the success of Johnson's.
In the past few years, records show, Johnson has bought cars, bicycles, sporting goods, clothing, furniture, computer equipment, resort property and more, sometimes below appraised value or even without any appraisal at all. Indeed, records indicate, Johnson is by far the biggest single buyer of property through the court, buying from seven times as many bankruptcy estates as any other individual or business. And while his purchases are legal, many of them are through so-called "private sales" that competitors say create at least an appearance of cronyism and insider dealing.
Some examples of Johnson's purchases:
After a Largo couple declared bankruptcy in 1986, Johnson bought a lot they owned in Sky Valley, a scenic resort community in the mountains of north Georgia. He paid $4,500; a town official says the property's fair market value at the time was around $24,000. According to court records, no appraisal was done before the sale.
"That's a buy and a half," the manager of a Tampa cycle shop says of the racing bikes and other items Johnson bought from the estate of a bankrupt competitor. Among the deals: 300 pairs of Nike, Reebok and other brand-name shoes for an average of $4 a pair.
The inventory of Area Rug Co., a Bradenton store that went bankrupt in 1987, included dozens of dhurries, Orientals and contemporary rugs. A court-appointed appraiser valued the rugs, supplies and office equipment at $7,350 wholesale. Johnson got them for $6,000.
The 1983 Audi Turbo diesel owned by a bankrupt Palm Harbor couple was in "excellent condition," a court-appointed appraiser said, and had a Blue Book value of at least $4,650 wholesale. Johnson got it for $4,250.
Johnson says, and many agree with him, that he performs a valuable service for bankruptcy court, often buying things no one else wants or engaging in bidding contests with other potential buyers that serve to drive up prices. The end result is bankruptcy trustees _ the officials charged with liquidating estates _ get more money to pay back people the debtor owes money.
Johnson "is easy to work with and he'll take anything," said James Kelly, who frequently does appraisals for bankruptcy court. "I think he helps trustees a lot more than anybody wants to admit."
"People want to make a killing and they're not willing to pay anything at all for it so you wind up relying on a few liquidators just to get rid of it," said trustee V. John Brook.
But critics, including other liquidators, say the system for selling property in the Tampa Bay area is so shielded from public view as to create at least an appearance of impropriety. Unless one is close to certain appraisers and trustees, they say, it is almost impossible to know what is for sale or whether the highest price is being obtained.
"I haven't had any luck with bankruptcy court," said John Forcella of Store Fixtures, a Tampa store that sells used racks and display cases. "It seems like everybody knows (about a sale) only after the fact."
"It's just a confidential thing," says Floyd Randall, a Tampa liquidator. "I've bought only three or four things (from Tampa bankruptcy court) in all the years I've been doing it and I buy every day all over the state. That stuff should be auctioned to the public and dealers and should be common knowledge."
Johnson denies he gets favored treatment from trustees or appraisers, although he acknowledged he has on occasion paid one court-appointed appraiser to move merchandise for him. (That appraiser, Robert Bonnell, left a message on his answering machine that he did not want to discuss anything with a Times reporter except the Florida Suncoast Dome, whose construction Bonnell adamantly opposed.)
"I think I'm on a friendly basis with all the trustees and all the appraisers and I would not tell you I ever felt I got any kind of preferential treatment from any of them," Johnson said. "Why would I have to go to the courthouse to (look at cases) if they told me about every deal that ever came along? They don't sell to me because they like me but because I pay more money."
Who's selling what?
Because of the huge number of cases and the fact so few sales are advertised to the public, it is difficult to tell what is being sold to whom in the 14-county Tampa division of U.S. Bankruptcy Court. The number of active cases exceeds 15,000, and at any given time sales could be pending in scores of them.
To get a representative sampling of sales, the Times looked at all cases in which an appraiser was paid in the past three years. (The assumption was that an appraiser would not be hired unless it was to appraise assets that could be sold to pay off creditors.)
In many cases the assets _ typically clothing and household goods _ were either sold back to the debtor or to someone closely connected with the debtor, such as a landlord. In numerous other cases it was impossible to tell from court records who bought the property.
That left 79 cases in which assets were sold to an identifiable outside buyer. Of those, Johnson purchased assets from 31 estates, or almost 40 percent of the total. The closest any other single buyer came was a Sarasota County liquidator who bought from four estates _ and he says he has since been unofficially blackballed because a trustee accused him of failing to clean up the site of a company from which he purchased some furniture.
"It's all hush-hush deals _ no correspondence, no phone calls," said William O'Hara, who runs USA Liquidators in Osprey.
Trustees rarely hold auctions or advertise sales to the general public because, they say, Chief Bankruptcy Judge Alexander Paskay traditionally has refused to authorize the necessary expenditures. Paskay counters he has no objection to advertising as long as the items have some public appeal.
"If you're selling some miscellaneous collection of nothing, what is the sense of putting in a classified ad for 37 widgets?" he said. "Who's going to buy them?"
Several trustees and Kelly, the appraiser, say they do call around in an effort to find buyers, working from lists of liquidators, re-sale merchants and others who have asked to be contacted when assets are sold. They say they sometimes wind up with Johnson because he is the only one willing to make an opening bid.
"A lot of people want to buy, but when it comes down to it they don't have any money" said trustee Charles Medearis.
"Johnson creates a lot of competitive bidding," added Kelly. "Say a debtor wants to buy something back like office furniture or equipment to use in a new business, (Johnson) will give you a bid to force the debtor to pay a reasonable price for it."
Trustee Buddy Ford said he was able to obtain more money for creditors of the Bike Rack after Johnson joined the bidding. An individual connected with the shop _ which reopened soon afterwards as the Bike Rack II _ bid just $5,500 for an inventory that included cycling computers, helmets, racks, 300 items of sportswear, 300 pairs of athletic shoes and several expensive racing bikes. Johnson won the bidding at $6,000.
That price, though, was still well below the appraised value of $8,838 wholesale. "That was a nice deal," Johnson says with a grin. "The bikes and parts sold good."
Johnson was also among those bidding at an informal auction in Ford's office for the inventory of Fox n' Hound, a Lakeland department store that declared bankruptcy earlier this year. Johnson eventually won out with a bid of $97,000, far more than he originally offered but less than half of the wholesale value as shown in an inventory taken two days before the store closed.
Since then, Johnson's East Bay Liquidators has been filled with Fox 'N Hound merchandise, including dresses, men's suits, baby clothes and jewelry, much of it two-thirds off retail price. Even non-Fox n' Hound items are bagged in Fox n' Hound sacks.
"That was the biggest thing I've bought in a long time," Johnson says. "It'll be around a long time."
Money in those hills
In some other cases, though, the court files reflect no advertising, bidding or appraisals on property that ultimately went to Johnson.
When Ronald and Gretchen Barnard of Largo declared bankruptcy in 1986, their assets included an undeveloped lot in Sky Valley, a ski-and-golf resort at the foot of the Blue Ridge Mountains in northern Georgia. According to Johnson, the trustee in the case tried to sell it to somebody else but offered it to him when the deal fell through.
"It's nice _ I went up and looked at it," said Johnson, who paid $4,500 plus three years' worth of back taxes. The lot today has a market value of $23,860 and "there haven't been any more reassessments so it would have been the same back then," said Moody Barrett, a Sky Valley city official.
Johnson said he was surprised to learn the lot was worth that much. "Sooner or later, hopefully I'll make some money on it."
A year or so later, Johnson bought another mountain-view lot, this time near Lake Lure in western North Carolina. The property had belonged to Gary Froid, a prominent St. Petersburg insurance executive who declared bankruptcy in 1987 after a bank in which he was a director collapsed.
Johnson paid $5,000 for the property plus a lien of $930 and some back taxes. "I would think that would be very cheap," said a sales official for Fairfield Mountains. Most property in the area ranges from $20,000 to $50,000, the official said.
In 1986, Johnson bought three off-season time-share weeks at the Breckenridge resort on St. Petersburg Beach for $2,500, compared to the appraised value of $3,000. But that purchase, from the bankruptcy estate of a Largo couple, was not as good as his other real estate transactions, Johnson said.
"At the time I thought I could sell it," he said. "Never could. The maintenance was so high."
Johnson has been in the liquidation business more than 20 years, but said he has been buying from bankruptcy court in Tampa for only about half that time. Although records show he has purchased everything from a 1981 Cadillac limousine to two drywall spray rigs, he prefers the inventories of clothing and gift stores that he can easily put into his own store.
"If you buy something for $6,000 and turn it real quick and make a little money and go on to something else that keeps people coming," he said. East Bay Liquidators relies entirely on word of mouth _ the store does no advertising and doesn't even have a listed phone number "because you'd have customers calling all the time wanting to know what you unloaded this week."
Johnson said most of the merchandise in East Bay comes not from bankruptcy court but other sources. The most popular items now are Halloween costumes from a bay area store that went out of business, and patio furniture sets from a European company that closed its Largo distributorship.
Johnson denies he has an "in" with certain trustees and appraisers, saying his success comes only from hard work. He said he, too, was disappointed when the clerk of bankruptcy court stopped keeping a log of all pending property sales. That means he has to spend more time tracking down leads.
"Just because I buy all the stuff doesn't mean I know about all the stuff," he said. "I go to the court and pull records just like you do. I look at the bankruptcy filings in the newspaper _ I'll take names, I'll keep a little list going _ and I wait three or four weeks and go in and pull the record and see what's being sold. It might take a bit of effort but if (competitors) put effort into doing it, it's available to them like it is to me."
But when trustees and appraisers do call him, Johnson said, he likes to cooperate.
"There are some things I don't particularly want to buy. But if they sell me junk one time I think they'll call me on the next decent thing."