Daily Progress, Jacksonville, TX

November 30, 2012

BREAKING: Texas Attorney General seeks to halt Lon Morris Dec. 13 auction

The AG contends the Lon Morris bankruptcy estate is trying to sell properties it does not legally own

Ben Tinsley
Jacksonville Daily Progress

JACKSONVILLE —

On Thursday and Friday, representatives of Ameribid LLC gave tours of the empty Lon Morris campus to prospective buyers in anticipation of an anticipated Dec. 13 Dallas bankruptcy auction.

But in a Tyler bankruptcy courtroom, the Texas Attorney General's Office took strong measures to make sure the auction was — at the very least — delayed until after the New Year.

The AG is actively investigating whether the Lon Morris bankruptcy estate is trying to auction off restricted property it does not legally own. The office expects to file a declaratory judgment preventing that property from being sold.

The AG, protector of the public interest in charity, asserts the auction should not be held while it is still conducting an active investigation.

"In light of the fact that any sale would not close until February at the latest, the OAG asserts there is no good justification for conducting the auction on an expedited basis in the middle of the holiday season," reads the objection filed Thursday in United States Bankruptcy Court, eastern district of Texas Tyler division.

As part of the investigation, the AG has already located four parcels believed to be restricted properties that cannot legally be auctioned away, according to the documents provided to the newspaper by Tom Kelley, Texas Attorney General's Office spokesman.

AG officials are attempting to find the source of title to the college's unencumbered assets, according to the paperwork.

"The OAG contends that any dispute over the restricted nature of property should be adjudicated before the court authorizes its sale," according to the docents.

Additionally the AG objects to certain auction procedures as they are not in the best interests of unsecured creditors or the public interest in charity. Subsequently, the AG makes the following requests of the court in the objection:

• That auction procedures be amended and clarified to ensure a liquidated purchase price be allocated for each individual parcel or property;

• That the debtor agrees not to sell any unencumbered restricted assets for less than 70 percent of appraised fair market value;

• That the college be required to seek to surcharge the collateral of the secured creditors for the cost of the auction.

• That the United States trustee should not be restricted to merely observe the auction; and

• That the proceeds from the sale of any unencumbered restricted property is escrowed pending the resolution of the OAG's declaratory action against Lon Morris;

Referenced in this "objection to debtor's expedited motion … authorizing and scheduling an auction for the sale" is a lawsuit the Texas Methodist Foundation filed against the Lon Morris College bankruptcy estate and Texas Attorney General Greg Abbott this month to prevent the college's chief restructuring officer, from liquidating five separate charitable endowments totaling $265,000 to pay Chapter 11 bankruptcy costs.

The Texas Attorney General's Office also is investigating a missing $1.3 million from an endowment that should have reverted to Sam Houston State University after LMC declared bankruptcy.