Daily Progress, Jacksonville, TX

December 4, 2012

BREAKING NEWS: Attorney General: Endowment money should not be used to pay bankruptcy costs

"The AG agrees with the Texas Methodist Foundation that such trust assets are not assets of the bankruptcy estate."

Ben Tinsley
Jacksonville Daily Progress

JACKSONVILLE —

Officials with the Texas Attorney General's Office on Monday reinforced their position that the Lon Morris College bankruptcy estate should not be allowed to use charitable endowment money to pay for its Chapter 11 bankruptcy costs.

This positioning, made in response to a lawsuit filed last month by the Texas Methodist Foundation, is the latest development in an ongoing controversy regarding the manner in which the college estate has managed its bankruptcy.

It also is the latest in Texas Attorney General Greg Abbott's stated efforts to protect the charitable endowments in the Lon Morris bankruptcy orbit and ensure a level playing field for unsecured creditors trying to recover their money. The AG has initiated at least one investigation and filed numerous court documents to that effect.

Hearings on several Lon Morris bankruptcy-related matters, incidentally, will be conducted in Tyler bankruptcy court Wednesday morning.

In their own specific attempt to protect the endowments, officials with the Texas Methodist Foundation filed suit against Lon Morris College and the attorney general last month. Abbott's office is being sued in its capacity as protector of the public interest in charity.

In the Monday response, the AG expressed complete agreement that the Lon Morris College bankruptcy estate was in the wrong in its attempt to liquidate five separate charitable endowments totaling $265,000.

"The AG agrees with the Texas Methodist Foundation that such trust assets are not assets of the bankruptcy estate," according to the paperwork filed Monday in Tyler federal bankruptcy court. "The AG further agrees that such assets must be distributed by a court of competent jurisdiction or as otherwise indicated in the instrument in order to carry out the charitable purpose of the respective donor."

The endowments at issue in the TMF suit include the Faubion Endowment Fund; the Buel N. Kiker and Rhena N. Kiker Memorial Fund; The Herbert E. Dishman and Family Trust; the Donald G. and Marjorie L. Willis Fund; and The JL "Bo" Wilson Scholarship Fund.

Meanwhile, the AG also is investigating $1.3 million missing from an endowment created by Rusk native Dr. James “Jimmie” Duncan Long, an educator, philanthropist and Lon Morris College grad. The endowment should have reverted to Sam Houston State University after LMC declared bankruptcy. Dr. Miles McCall, college president from July 2005 until he resigned May 24, was questioned regarding management of that particular endowment.

The Texas Methodist Foundation lawsuit, filed Nov. 6, asserts that the funds were created with the intention of furthering educational, charitable and religious endeavors of the Methodist church and "Methodism" and not to be used as financial fodder for liquidation costs. The lawsuit specifically seeks to prevent the college's chief restructuring officer, Dawn Ragan, from taking such action.

TMF officials filed suit after Ragan requested they wire her $100,635.36, the principal balance of "The Faubion Funds" endowment. In the request, the lawsuit contends, Ragan stated the funds were needed to "assist in managing current liquidity constraints" and further stated any additional funding provided will be used to cover payroll, utilities, insurance and general overhead costs as well as certain marking/advertising costs," reads the lawsuit.

Ragan did not respond to several LMC bankruptcy estate question until hours after the Jacksonville Daily Progress' stated Monday deadline.

"We have been quite busy but expect to issue a press release on Wed or Thurs after the hearings on a variety of things," she said in her emailed response. "Thanks."