Daily Progress, Jacksonville, TX

February 12, 2013

Federal judge confirms Lon Morris College's bankruptcy plan

LMC estate official Dawn Ragan said employees of the college will be paid what they are owed

Ben Tinsley
Jacksonville Daily Progress

TYLER —

Federal Bankruptcy Judge Bill Parker issued a formal order this week confirming the Lon Morris College bankruptcy estate sale and debtor's plan of reorganization — in effect, formally returning certain rodeo grounds and related property back to the city of Jacksonville.

The order, filed Monday in United States Bankruptcy Court Eastern District of Texas, releases the LMC bankruptcy estate from nearly all legal liability arising from this Chapter 11 bankruptcy case, except for action taken by the Texas Attorney General's Office, the Texas State University System or any other "governmental unit."

Payment for the Lon Morris College employees who have not been reimbursed for their final weeks at LMC was not addressed in either the judge's order or the final liquidation plan. But LMC Chief Restructuring Officer Dawn Ragan and Houston attorney Hugh Ray III assured reporters they reached agreements with several Methodist foundations that are expected to result in former employees receiving all the back wages they are owed – pending approval by the foundation boards and their regulatory agencies.

"The Texas Annual Conference of the United Methodist Church organized an earlier humanitarian appeal that generated enough funds to cover one missed payroll for the school’s former employees," Ragan said in a press release.

Parker's order acknowledges the fourth version of LMC bankruptcy estate's liquidation plan, and awards auctioneer Ameribid nearly $170,000 in fees and marketing expenses.

Ameribid accidentally sold the rodeo grounds and city property to a high bidder during a January auction, before Judge Parker later intervened and returned the property to the city.

Ameribid's payment constitutes 7 percent of the $2.2 million the January auction garnered in January plus $16,743.29 that comprises 50 percent of the marketing expenses associated with the auction.

The high bidders for that auction were Jacksonville-based office supplier 11 x 17, which accumulated most of the property, the Jacksonville ISD, and William Adcock Jr.

Ragan, meanwhile, will remain with the estate for awhile. She has effectively nominated herself to become the "Plan Agent" who will oversee its further liquidation efforts following Parker's final order. She will make $300 an hour and no longer answer to the bankruptcy court, although she will report to a three member board comprised of LMC creditors.

In her new capacity as Plan Agent, Ragan will be allowed to sell all remaining collateral and assets of the LMC bankruptcy estate and make financial distributions. She also is charged with establishing a liquidation trust.

By virtue of the judge's order, Texas National Bank will retain its lien on LMC's Cooper House as well as retain certain mineral rights. Legal action filed against the estate by organizations such as the Texas Methodist Foundation and Heartspring Methodist Foundation will be allowed to go forward, as well. Additionally, the estate will pay $15,000 to Methodist Children's Home.

The bankruptcy proceedings were prompted in July after still-undisclosed financial problems forced employees of the longstanding college to miss three payrolls.

The rodeo grounds, meanwhile, were deeded to the college with specific considerations in April 2009. One requirement was that the college invest $250,000 in improvements to the grounds, including painting, roof patching, and regular maintenance.

As part of the arrangement, LMC was required to permit the arena's use by the rodeo association for the annual PRCA Tops in Texas Rodeo event.

A special warranty deed, signed by LMC and Jacksonville employees, stipulated that if the improvements were not made, the property would automatically revert back to the city.

Not immediately addressed in the paperwork is a delinquent $25,600 water bill LMC apparently still owes the city. Due to the finality of the judge's order, recovering it is unlikely.

At last glance, the LMC bankruptcy estate was still wrestling with the Texas Attorney General's office over who has the legal right to claim proceeds from the $3.5 million Directors & Officer's Liability Insurance policy.

Thomas Kelley, spokesman for Texas Attorney General Greg Abbott, declined immediate comment Tuesday on Parker's order.

Still pending is a related lawsuit filed against former LMC President Dr. Miles McCall by Sam Houston State University officials – under the guidance of the AG's office.

Both SMSU and the attorney general – the AG in its capacity as the protector of the public's interest in charity – seek to recover over $1 million in lost endowment monies SHSU officials contend they should have been forwarded when LMC first declared bankruptcy.

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