Daily Progress, Jacksonville, TX

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December 14, 2012

Texas Attorney General: LMC bankruptcy estate officials shouldn't be allowed to collect liability money by suing former officers

AG describes planned action by the Lon Morris College bankruptcy estate as a tactic to raise money to defray bankruptcy costs

TYLER —

The Texas Attorney General's Office on Friday filed a motion for summary judgment against Lon Morris College in an attempt to keep proceeds from a "Directors and Officers" liability policy out of the hands of the LMC bankruptcy estate.

LMC Chief Restructuring Officer Dawn Ragan and Houston attorney Hugh Ray III did not immediately return a request for comment Friday. Texas Attorney General Spokesman Thomas Kelley declined to comment. A date for the hearing has not been set.

The motion was filed Friday in Judge Bill Parker's U.S. Bankruptcy Court for the Eastern District of Texas.

It's implication? That the plans Lon Morris bankruptcy officials have had to pursue action against LMC officials such as former President Dr. Miles McCall – as illustrated in previous Jacksonville Daily Progress stories – was for the specific purpose of collecting money from this policy to defray bankruptcy costs.

Once a hearing is set and the matter decided, the summary judgment request will determine if the LMC estate is eligible to collect the proceeds, according to the filing.

"Claims by Lon Morris College against its officers and trustees are not covered and Lon Morris College cannot otherwise receive the proceeds," the motion by Attorney General representative Hal F. Morris asserts.

The policy that insures Lon Morris and its officers was taken with Atlanta-based RSUI Indemnity Inc., the motion states.

Additionally, Morris contends the Texas Attorney General itself intends to assert its own claims against some of the officers and trustees. It would be for breach of fiduciary duty, which Morris believes is be covered by the policy.

"The debtor has also indicated it intends to pursue the proceeds of the D&O policy," Morris wrote.

Morris said the policy specifically excludes one insured party from pursuing action against another and does not apply to LMC as a “Debtor In Possession.”

"Therefore, by the plain meaning of its terms, the D&O policy excludes from coverage claims by Lon Morris against its officers and directors," Morris wrote. " … If the Debtor is permitted to receive policy proceeds, it will dilute the distribution available to reimburse the public interest in charity."

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