TYLER — Officials with the Texas Methodist Foundation are attempting to block the resolution of the Lon Morris College bankruptcy auction unless LMC or a federal judge agree to spare $265,000 in charitable endowments.
The motion objecting to LMC's "third amended plan of liquidation" was filed Tuesday in the U.S. Bankruptcy Court for the Eastern District of Texas. It argues that five charitable endowments are still at risk of unlawfully being liquidated to pay LMC's Chapter 11 bankruptcy costs.
"The Texas Methodist Foundation respectfully requests the court enter an order denying confirmation of the debtor's plan unless it is made clear that the Texas Methodist Foundation's rights are left unimpaired and grant such further relief to which it is justly entitled," the motion reads.
The ongoing LMC bankruptcy auction, held in Dallas, continued into its third day Wednesday. Unless this motion halts proceedings, Federal Bankruptcy Judge Bill Parker is expected to consider confirming the results of the auction on Feb. 4.
In a related matter, representatives with the U.S. Department of Justice Office of the United States Trustee filed a motion Wednesday informing the court that an agreement had been reached with Lon Morris to postpone their deadline for any formal objections or comments regarding the liquidation plan until Jan. 31.
The TMF lawsuit, filed Nov. 6, asserts that the funds were created with the intention of furthering educational, charitable and religious endeavors of the Methodist church and "Methodism" and not to be used to pay the college's liquidation costs.
Austin Attorney Kell C. Mercer, one of the lawyers representing the Texas Methodist Foundation in this matter, declined to elaborate on the filing Wednesday.
TMF's general legal challenge is the second to object to the manner in which the college has managed endowments in the wake of bankruptcy.
The first came from a representative of the Texas Attorney General's Office, who initiated an investigation into a missing $1.3 million from an endowment which should have reverted to Sam Houston State University after the college declared bankruptcy. Dr. Miles McCall, college president from July 2005 until he resigned May 24, was questioned regarding management of that endowment.
The five endowments TMF officials believe will be liquidated total $265,000 and have been an object of concern by the foundation for some time. In November, the foundation formally sued both the Lon Morris College bankruptcy estate and Texas Attorney General Greg Abbott to prevent the liquidation. Tuesday's motion is an extension of that.
The same day the TMF suit was filed late last year, officials with the Texas Attorney General's Office attempted to halt or reschedule this week's auction because AG officials believed the college was improperly attempting to sell restricted assets that are not part of the bankruptcy estate.
In Tuesday's motion, officials with Texas Methodist Foundation — a domestic non-profit organization — are again seeking the declaration they did not get before — that none of the endowments is legally considered property of the bankruptcy estate of Lon Morris college.
Legal action on behalf of the Texas Methodist Foundation was prompted when LMC Chief Restructuring Officer Dawn Ragan alarmed them by requesting TMF wire her $100,635.36, the principal balance of one of the endowment funds.
Ragan could not immediately be reached to comment Wednesday, but in an earlier email said that the college has been the recipient of many gifts over time, and some of those gifts have been restricted, and some have not.
"Monetary gifts are generally held at various foundations that manage the investment of those funds, which then remit earnings or other distributions to the college periodically," she said in the previous email. "The debtor has been seeking to obtain unrestricted funds to be used to help pay its debts, in particular the unpaid employee wages as well as unsecured creditors such as local vendors and suppliers."
Tom Kelley, Texas Attorney General's Office spokesman declined to comment Wednesday.
The endowments at issue by the TMF include:
• The Faubion Endowment Fund, created by Last Will and Testament on May 21, 1996 with a current appropriate principal balance relevant to Lon Morris College of $102,261.25.
• The Buel N. Kiker and Rhena N. Kiker Memorial Fund created by Trust Agreement on June 29, 1989, with a current appraiser Principal balance relevant to LMC of $102,906.87.
• The Herbert E. Dishman and Family Trust; created by Trust Agreement on July 2, 1968, with a current approximate principal balance relevant to LMC of $50,444.67
• The Donald G. And Marjorie L. Willis Fund, created by Trust Agreement on January 12, 1989, with a current approximately principal balance relevant to LMC of $4,161.79.
• The JL "Bo" Wilson Scholarship Fund, created in December 1976; with a current approximate principal balance relevant to LMC of $10,090.23.