Daily Progress, Jacksonville, TX

December 7, 2012

BREAKING NEWS: Attorney General to Lon Morris College auction bidders: We're not the enemy

"The OAG is simply doing its duty on behalf of the public's interest in nonprofit institutions and preserving such assets." -- Thomas Kelley, spokesman, Texas Attorney General

Ben Tinsley
Jacksonville Daily Progress

JACKSONVILLE —

The Texas Attorney General's Office on Friday issued a strongly-worded letter assuring potential Lon Morris College bankruptcy auction bidders that the ongoing investigation into LMC's financial restructuring dealings is not intended to endanger estate sales.

The letter, released by AG Spokesman Thomas Kelley, was issued in response to criticism in federal bankruptcy court this week from LMC chief restructuring officer Dawn Ragan, Hugh Ray III, LMC attorney, and Stephen Karbelk, founder of AmeriBid.

The three contended during a Wednesday hearing that the publicity from the AG's ongoing investigations into the bankruptcy estate is hurting the sale — and that any further “negative publicity" that is allowed to be published will be to its detriment.

The Attorney General's Office is only doing its job, Kelley said to a reporter.

"The OAG is simply doing its duty on behalf of the public's interest in nonprofit institutions and preserving such assets," Kelley stated in an email.

But the accusations made by LMC officials in court and to reporters outside court alleged AG officials have manipulated the media into publishing negative stories that are hurting the estate.

"The attorney general has been playing poker your honor," Ray said to the judge during the hearing. "They've been communicating with the press."

Despite LMC's repeated attempts to make scrutiny of the bankruptcy estate a focus of the hearing,

U.S. Bankruptcy Judge Bill Parker, Eastern District, shifted to the issues at hand, which included a request to postpone the date of the Lon Morris College bankruptcy estate's upcoming auction until January, which he approved; and LMC's request to take a loan to offset the costs of the coming auction — which the judge approved in part but lowered from $500,000 to $150,000.

The accusations that the office of Attorney General Greg Abbott is taking an adversarial stance against the college were strongly rebutted Friday. AG officials contend they are only interested in enforcing their charge of protecting the public's interest in charity. The AG has initiated at least one investigation and filed numerous court documents to that effect.

As part of the scrutiny, the AG has opposed the efforts of the LMC bankruptcy estate to use charitable endowment money to pay for Chapter 11 bankruptcy costs.

AG officials also have tried to create a level playing field for unsecured creditors. To this effect they unsuccessfully attempted to block the $500,000 loan the LMC was seeking, contending it would amount to a "de facto" sale, as there was no further collateral available to secure such a loan.

The AG's investigation also includes the attempt to determine if the Lon Morris bankruptcy estate is trying to auction off restricted property it does not legally own.

But it's not only party investigating the dealings of the LMC bankruptcy estate. Officials with the Texas Methodist Foundation also are are suing to protect certain endowments from the sale, as evidenced by a recently-filed lawsuit.

The Friday letter with the AG's assurances, meanwhile, was formally addressed to Ragan, although it addresses all parties involved in the upcoming estate sale.

In direct response to the statements made in court by LMC public officials, AG representative Hal Morris said the ongoing investigation should not impact the auction or any bidder's ability to acquire real estate free and clear of any existing liens and claims.

"Potential bidders should be assured that any claims the Attorney General brings would be against certain proceeds of the action and/or against the debtor and/or third parties and NOT against the real property itself or any arm's-length bidders who acquire those assets in a sale approved by his honor U.S. Bankruptcy Judge Bill Parker," Morris wrote. "The Attorney General will not seek to recover any real properties sold at auction as approved by the bankruptcy court."

Ragan, Ray and Karbelk, incidentally, could not be reached by email for comment. A Lon Morris College representative contacted a Jacksonville Daily Progress reporter after Wednesday's hearing and said he, not Ragan, would be the newspaper's point of contact for questions from that point forward.

LMC bankruptcy estate officials have taken an aggressive strategy recently in regards to information released from and about the sale:

• On the day the attorney general was in Tyler bankruptcy court attempting to postpone the LMC auction from December to January, LMC officials (including Ameribid, the bankruptcy estate's official auctioneer) contacted reporters en masse in what amounted to a journalistic cattle call. Reporters who responded were offered tours of the abandoned Lon Morris Campus, during which officials present chatted up the December auction date with no mention of a possible AG-requested postponement.

• Despite all its paperwork regarding the auction having the December auction date stamped on it, LMC officials attempted in federal court to characterize its postponement in court this week as their idea — despite losing nearly $30,000 in advertising to promote the December date.

• During the hearing this week — even as LMC officials were levying their allegations against the media and the AG inside the courtroom — a press release was issued en masse to the media with quotes and facts and figures from LMC officials who could not possibly have made them before the hearing had taken place.

The release announced the news that the college apparently wanted released — that the auction had been postponed until January and that LMC had received approval for a loan to offset the costs of the coming auction. However, the PR writer incorrectly listed information that was true prior to the hearing but altered during it by judge ruling — that the approved loan, which LMC requested to be $500,000, had been lowered to $150,000.

• Also during the hearing, Ragan instructed a Jacksonville Daily Progress reporter to email her his story before it went to press. The reporter refused to do so.