Daily Progress, Jacksonville, TX

December 12, 2012

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

LMC bankruptcy estate investigating potential claims against former president and auditor

Ben Tinsley
Jacksonville Daily Progress


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.

In a previous interview, McCall said the college is the one that owes him money. He said he is a creditor listed in the bankruptcy due to a personal loan he made to the college during the "difficult time."

"I loved both the challenges and successes during my time at LMC and still hope and pray that there will be some educational future for the campus, students in East Texas, and the community of Jacksonville," McCall said in an email.

In a response emailed to the Jacksonville Daily Progress at 2:31 p.m. Wednesday, attorney Gary S. Kessler of the Dallas law firm Kessler Collins, P.C., wrote that he had read that section of the proposed liquidation plan.

"The following is the statement of Acker & Company," he said. "'Acker & Company has fully cooperated with the attorneys for the Estate. We do not believe there is any merit to a claim against the firm or any of its members. The matters that are being investigated by the Estate were known by the members Board of Trustees of the College and all standards applicable to the conduct of the firm’s services for the College were met."

Thomas Kelley, spokesman for Texas Attorney General said Thursday his office is not in any way opposing the disbursement of the money to former Lon Morris College employees.

"Just so we’re clear on this issue, we will not be objecting to the motion to allow this Tennessee Methodist Foundation to provide funds to pay $130,000 to former Lon Morris College employees just before Christmas," he said. "We’re not sure where this concern came from. ...  We have not objected at all."