Daily Progress, Jacksonville, TX

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December 12, 2012

UPDATED: Texas Attorney General comments (1:37 p.m.)

LMC bankruptcy estate investigating potential claims against former president and auditor

JACKSONVILLE —

Lon Morris College bankruptcy estate officials are in the process of determining whether the college's former president or former auditor can be sued in blame for the current financial situation, court documents show.

However, an education expert cautions against reading too much into Article 9 of the estate's proposed plan of liquidation, where the prospect is mentioned.

According to Article 9, nearly all other "parties of interest" in this case should be released from liability or any act short of fraud or willful misconduct once the bankruptcy proceedings are over.

LMC President Dr. Miles McCall and Acker & Company, the college's former auditors, are the only ones who will not be excused from liability once the bankruptcy case concludes, the paperwork shows.

"The debtor is investigating whether potential claims may exist against them including — but not limited to — rights of action for breach of duty, negligence, malpractice, negligent misrepresentation, fraudulent transfer, avoidance action and any other right of action," the plan reads.

But Dennis M. Cariello of New York City pointed out paragraphs are common in such documents. Cariello is chairman of the Regulatory Compliance and Strategies section of DLA Piper’s Education and Education Services industry sector group.

"I don't know that you can really look at this and say 'Aha! Somebody did something wrong!' That would be incorrect," Cariello said. "This isn't boilerplate, but it's certainly not uncommon."

A financial restructuring scenario such as LMC's often prompts parties to include liability releases — or a lack thereof — in bankruptcy plans, Cariello said.

"Whatever the situation, you want to hold open your options," Cariello explained. "I'm not really sure you can say that the president or anyone has done anything wrong."

Chief Restructuring Officer Dawn Ragan and attorney Hugh Ray III and McCall did not immediately return requests for comment Wednesday, although the cited document was forwarded to them for review.

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