Automotive maintenance and repair company Johnson's Tire Service filed for Chapter 11 bankruptcy protection this week, according to court papers.
The Alaska-based company is reeling after unsuccessfully defending itself from a lawsuit brought by the contractor that built its South Anchorage store.
The suit resulted in Johnson's Tire Service owing more than $630,000 in claims and legal fees to H. Watt & Scott of Anchorage as well as the leaseholders at the South Anchorage location.
The company was founded 33 years ago by Jim Johnson, who along with his wife, Janet, owned the business until current owner Kelly Gaede took over in 2006.
It faces a market for auto parts and vehicle service that is much more competitive than it was when the Johnsons opened their first store and service shop.
But a representative for Johnson's said it was the lawsuit that made the difference.
"The lawsuit forced them into Chapter 11," said Jack Sheppard, president of Anchorage public relations firm Walsh|Sheppard.
Chapter 11 bankruptcy proceedings allow a company to delay debt repayment as it reorganizes its business affairs and attempts financial recovery.
The company's creditors include an array of suppliers, utilities and other service providers in Alaska and the Lower 48, according to filings made Monday in federal bankruptcy court in Anchorage.
"They've always had a sterling reputation with all their vendors in terms of paying on time," Sheppard said.
But court documents show that Johnson's attempted to avoid making payments to H. Watt & Scott and the store's leaseholders.
Johnson's argued that the work H. Watt & Scott performed was substandard and incomplete, but Superior Court Judge Eric Aarseth ruled decisively against the company in a decision dated March 4. Aarseth ordered Johnson's to pay H. Watt & Scott and the leaseholders the amounts agreed upon in their contracts, as well as interest and legal fees.
"It defies common sense to sign a contract promising to pay $464,480 and then be surprised when the company that provided that service wants to be paid $464,480," Aarseth wrote in his decision.
Because the bankruptcy claim would allow Johnson's to delay its court-ordered payments, the contractor and leaseholders responded to the bankruptcy filing with motions that include a request to review Johnson's balance sheets and halt lease payments and insurance on Gaede's two Porsches, one in Anchorage and the other in Arizona.
The company, which also sells tires, has locations in Midtown, South Anchorage, Eagle River, Wasilla and Soldotna.
Johnson's Tire does not plan to close locations or lay off any of its 100 employees as it works to emerge from bankruptcy, Sheppard said. He said the company is not sure how much financing it will need to continue operating during the restructuring and anticipates it will recover by the end of 2015.
"The company's first priority is to continue providing services just as they have for the past 33 years," he said. "As far as the general public, they won't notice anything different at all."