Attorneys spent hours Monday going in and out of the United States Bankruptcy Court Eastern District of Texas courtroom as entities negotiated through objections and concerns related to the school’s liquidation plan.
Attorneys were able to resolve issues, paving the way for Judge Bill Parker to possibly approve a confirmation order as early as Monday, which would finalize sales from the school auction.
Jacksonville ISD and local office supply company 11 x 17 Inc. were high bidders in the auction, which began Jan. 14 in Dallas. Court documents show that winning bids totaled nearly $2.2 million.
Jacksonville ISD agreed to purchase the Wilson Administration Building, along with the school gymnasium, swimming pool and athletic fields, and Jacksonville-based 11 x 17 agreed to purchase most of the school’s academic buildings, the chapel and dormitories, according to a news release. The Jacksonville rodeo grounds — home to the Tops in Texas Rodeo —was deeded to Lon Morris in 2009 and will revert back to the city.
Houston attorney Hugh Ray III, who represents the Lon Morris bankruptcy estate, told Judge Parker about deals that were made with various entities, including the Methodist Children’s Home in Waco.
According to court documents, Willie Ida Brown deeded her home on College Avenue to the college, but if the college “ceases to exist,” it would become the property of the children’s home.
But the college argued that won’t occur as the plan “provides for the continued existence of the debtor for some time.” If a confirmation order is approved, the children’s home would receive $15,000 from the proceeds of closing “in exchange for the release of their claims,” court documents state.
Ray said Heartspring and Texas Methodist foundations also have presented to their boards for approval a plan to pay former employees $500,000, and the foundations indicated the boards would vote in favor. He did not have a time line as to when payments might occur but said the bankruptcy estate looks forward to making payments “as quickly as possible.”
If approved, it would be one of the latest efforts to pay former employees. In December, Parker gave the go-ahead for the Lon Morris bankruptcy estate to distribute $130,000 to former employees who were not paid for work they did before the school’s closure earlier last year.
Texas Assistant Attorney General Hal Morris also announced in court that the Attorney General’s Office reached a settlement with the bankruptcy estate.
Ray said the settlement essentially was that the Attorney General’s Office and the bankruptcy estate will decide later how to divvy a $3.5 million Lon Morris directors and officers liability policy between charities and creditors. He said the office and the bankruptcy estate are both seeking the money, and only the bankruptcy estate’s money would go to creditors.
“Both sides put away their swords. Their primary intent was to get the sale confirmed and pay unsecured priority claims,” he said.
He said a lawsuit against former Lon Morris president Dr. Miles McCall is still also pending. The lawsuit, filed in December, comes from Sam Houston State University via the Texas Attorney General’s Office.
The lawsuit refers to the James Long Endowment, which specifies that if Lon Morris College does not exist anymore, the main library at Sam Houston State University in Huntsville becomes the beneficiary.
The lawsuit claims that McCall “breached his fiduciary duties and failed to ensure that the Long Endowment was protected and used only for the purposes established.”
“McCall, without obtaining authority from the Board of Directors, authorized the inappropriate transfer of the corpus of the trust,” the lawsuit states. “Additionally, McCall failed to provide any documentation or security to preserve the corpus. McCall was aware of the financial difficulties of Lon Morris at the time he authorized the transfer of the funds.”
Lon Morris filed for bankruptcy in July after its ongoing financial problems. In August, the college announced it would close.
Ray has said that changed the nature of the case, which went from selling an operating facility to instead auctioning its assets as real estate.
He has said the auction concluded Jan. 18, when all the bids were accepted.
There were in excess of 85 bids put in by about five bidders, and not all were from East Texas, he said last month. The bids that were finally accepted were the highest bids received, and officials did their best to get bids as high as they could, he has said.
In addition to Jacksonville ISD and 11 x 17 Inc., a bidder identified as “William Adcock Jr./Stephen Allman” was the highest bidder for rental property and former student housing, according to court documents.
Ray said secured creditor Amegy Bank has to wait until Friday or Saturday to file a notice accepting confirmation of the liquidation plan, and Parker will likely sign a confirmation order Monday.