Daily Progress, Jacksonville, TX

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February 7, 2013

Lon Morris estate and Attorney General still tangle over disposition of $3.5 million insurance fund.

Former LMC President Miles McCall denies he is guilty of negligence and breach of fiduciary duty in loss of over $1 million in endowment funds.

CHEROKEE COUNTY —

Despite a confirmation hearing that lasted several hours on Monday, the Lon Morris College bankruptcy estate still has additional matters to straighten out with Texas Attorney General Greg Abbott.

There is, for instance, the issue of who has the rights to claim proceeds from the $3.5 million Directors & Officer's Liability Insurance policy.

Abbott also seeks to resolve a pending motion for summary judgment his attorneys have filed against the LMC estate as well as two pending Declaratory Judgment Actions filed against LMC by Heartspring Methodist Foundation and the Texas Methodist Foundation.

According to court filings, Monday's evidentiary confirmation hearing was concluded for the most part although federal bankruptcy Judge Bill Parker is taking all evidence under advisement. Scheduled next is a telephone status hearing at 11 a.m. Feb. 26.

A couple of additional, after-the-fact minor claims in the amounts of $443 by Great American T-Shirt Company and $1,870.52 by GTM Sportswear were filed against the estate Wednesday.

In regard to the D&O insurance policy, Abbott and his attorneys still contend these proceeds are not and should not be allowed to become property of the bankruptcy estate. The AG, in filings made in bankruptcy court, contends there is no way the bankruptcy estate could not have received the proceeds without a bankruptcy claim.

Neither LMC Chief Restructuring Officer Dawn Ragan or Houston attorney Hugh Ray III from the Texas offices of McKool Smith returned requests for comment on the matter Wednesday. Shantel Dixon, a representative of RSUI Group Inc., the company that issued the D&O policy, responded, "Please be advised that RSUI has no comment."

The LMC bankruptcy estate, meanwhile, contends in its legal filings that the AG's argument is not "ripe" for adjudication.

At the end of Monday's hearing, the LMC bankruptcy estate had apparently settled the objections of nine other related parties to the finalization of its liquidation plan.

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