Can 3ABN Survive THIS litigation???
Settle or die would seem to be the options for 3ABN as the
days tick toward an inevitable collision with the law firms of
John Manly and
Jeff Anderson,
battle-hardened predatory pedophile
litigators.
There is virtual silence on the 3ABN side regarding any ongoing
consideration of the demand for settlement, and no leaks in the
wall either, a rather unusual institutional feat. It would clearly
indicate that a very narrow number of officers and directors
are even aware of any ongoing negotiations.
Some have speculated that there is a fracture in the board evidenced
by the recent resignation of Dr. Walter Thompson as the Chairman of
the Board after two decades as only the second 3ABN Chairman.
Dr. Thompson is said to remain on the board and simply resigned
the chairmanship, and sources simply explain it as a combination
of age and growing infirmity that has impacted his ability to
travel as frequently as before. But he has been traveling to
promote his most recent book, and recently spent substantial time
in Loma Linda to promote his latest release.
There is no word on a replacement, officially or unofficially.
Some have proposed that Danny Lee Shelton is intending to take
the position of Chair. There has not yet appeared any documentation
to give clarity to the appointment of a new chair, and with the
pending battle with the Manly-Anderson team it is unlikely anyone
is running for the position, and Danny Lee Shelton could pick
it up by default.
Given the pending hostilities and the probable collapse of
negotiations, the board needs to take a very proactive position
in a way it has only marginally done for the past twenty years.
In fact, it is likely the directors will be defendants, and it would be unwise
to leave that defense to Danny Lee Shelton and James Gilley with
the counsel of Gregory Simpson since they could become liable for
very substantial sums that could prove overwhelming.
3ABN is certainly moving forward with the execution of its
business plan as if no disaster is imminent. The Urban Channel
has an appointed General Manager, and rumors seem to point to
a pending new wedding for Danny Lee Shelton with that new General
Manager, the Naturopathic Doctor, Acupuncturist, and Ancient Chinese
Medicine practitioner, Yvonne Lewis-Bradley-Booth* turned General Manager
following a warm relationship with Danny Lee Shelton for more
than a year, and an old friend of C.A. Murray since at least the early
1990's. Clearly they see no imminent danger, despite
vicious efforts to suppress witnesses in the Virginia pedophile
criminal trial of long alleged and now admitted pedophile Tommy
Ray Shelton.
Sources at the General Conference (GC) and Adventist Risk
Management (ARM) unanimously assert that ARM does not see any
liability regarding these claims despite several church employees
having served as directors over the years. Since there is not
any current litigation and ARM would be invoked upon the need
to defend officers and directors that were direct employees,
and then subrogate those claims against 3ABN if they failed to
reimburse legal fees and judgment awards, it is not surprising
that ARM would be denying any claims liability at this point.
Also, given the size of the claim and since liability is not yet
apportioned, it is clearly not a "priority" for risk management.
The fact that ARM is not at the table and participating in
any mediation process would suggest that any negotiations at
this time are doomed to failure since:
- 3ABN is unlikely to be willing to meet Manly and Anderson's
demands.
- 3ABN is unlikely to be financially able to even seriously
consider an eight figure demand without the help of the officers
and directors, and ARM.
- Counsel for 3ABN is not known to have the experience in
structuring these kinds of settlements.
- Counsel for 3ABN has every incentive to let Manly and
Anderson serve all the parties, advance the litigation agenda,
and reopen the hourly billing deluge upon 3ABN for this sure-to-be-massive
addition to the firm's billable hours in 2011, obviously hoping
that individual directors elect to have his firm represent all
of them in the action, an unlikely and controversial (not to
mention, ethically challenged) effort on the part of Attorney
Simpson and company due to several potential conflicts.
However, based upon expert review, it is these experts' assessment
that 3ABN alone is unable to even remotely meet any demand in
the eight-figure range. And 3ABN's attorney does not have sufficient
experience to prepare a "structured settlement" proposal to fit
3ABN's situation. And it is clear that the board, with several
millionaires that have served over the years, have yet to seriously
enter the fray.
Since there is no evidence that 3ABN has Officers and Directors'
Legal Liability Insurance to cover officers and directors from
claims that Attorneys Manly and Anderson are most certain to
assert, we must fall back to 3ABN's bylaws whereby 3ABN agreed
to indemnify directors for their defense costs and any judgments
of the courts. That agreement would be contingent upon 3ABN
having either sufficient cash-flow or sufficient assets that
they can either sell or leverage (borrow money against) to meet
the costs of this litigation or any pre-litigation settlement.
While there are some who believe that the IRS Form 990 annual
report is an indication of the ministry's real value, an auditor
and an investment banker were recently asked to assess the ability
of the ministry to resolve these claims on its own. They were both
quick to point out that the stated assets are significantly inflated
in the current economy. These are assets that were largely acquired
prior to 2007 and real property values alone have dropped in
Southern Illinois by nearly 40%. The furnishings and equipment,
including electronics, production equipment and communications
equipment is probably worth about 20 cents on the dollar, even
less at auction. And when one considers the liability to various
Trust Department trust instruments, it is unlikely they have
more than a mid to high seven figure real net worth at the present
time for hard assets as collateral.
However, the board could conceivably leverage the entire business,
a process Adventist Health Systems (AHS) did with impunity via
industrial development bonds, a concept that Director Larry Romrell,
Director Ellsworth McKee and former directors Garwin McNeilus
and Stan Smith would be familiar with. However, leverage was
the bane of AHS and would create a serious dilemma to most of
the directors who would be far less likely to accept leverage
as a financial solution, particularly when they are the ministry
created to "counteract the counterfeit," and counsels to the
SDA church discourage borrowing.
Any leverage option would require a look at another valuation
approach that would relate to the value of the business and good
will as an operating entity, and what its sale or merger value
would be. The first issue of sales value is complicated and delimited
because getting any privatization of a non-profit in Illinois
past Attorney General Lisa Madigan's office is extremely unlikely
without a huge tax penalty. As a non-profit, 3ABN assets would
have to be sold and the proceeds (if any were available after
liens and judgments) distributed to another non-profit, limiting
the salable value or merger value of the company.
The other problem is that the combinations of litigation,
and a significant downturn in the economy, has eaten into 3ABN's
income from gifts and sales of products. The current affect on
wills and trusts is not clearly known but is unlikely to have
been positive. With a deteriorating balance sheet and income
and expense ratios, an investment banker is not likely to be
able to loan a sufficient sum to meet even the present value
of a demand under a structured settlement.
Most non-profits end up "merging" or are liquidated to another
non-profit. Given that ARM may well be the largest potential
creditor and is a part of the 501(c)3 qualified General Conference
of Seventh-day Adventists, they and the North American Division
(NAD) may well have a very large incentive to work out a "liquidation
merger" into the NAD, which is sponsoring parent of the HOPE
Channel. This is a good reason for these church entities to
have been at the table for any negotiated settlement from the
beginning.
For all the above reasons, it is highly unlikely that a leverage
solution is viable. Leveraging would also, in fact, bring into
controversy the assets that purportedly back the various trust
instruments and other financial commitments based upon the 3ABN
assets, the disclosure of which would leave state oversight entities
(it varies by state) clearly having to deal with a consumer fraud
concern in the event 3ABN defaulted on these trust instruments
to the investing parties. They could require a bond or even order
them to cease and desist from providing trust instruments to
that states' consumers as has happened in Washington State and
elsewhere.
While we have not yet seen the subject complaint from Manly
and Anderson, we have observed prototypes in other jurisdictions
done by Jeff Anderson and would presume the complaint will be
similar with specific complaints for Racketeering, Personal Injuries,
Negligence, and Fraud. A typical case seems to go into great
detail regarding background to build a foundation to support
the various tort offenses such as RICO violations under 18 U.S.C.
§§ 1962(c)–(d), sexual abuse, battery, breach of fiduciary duty,
vicarious liability (respondeat superior), negligent retention
and supervision, fraud, conspiracy to commit fraud, and the inevitable
intentional infliction of emotional distress.
Once the complaint is served, given the track record of the
flamboyant Manly and the doggedly persistent Jeff Anderson, you
can safely assume this case will cost MILLIONS to defend, and
is unlikely to settle for less than a mid-eight-figure sum as
new plaintiffs emerge from the woodwork and transactional details
lay bare the years of cover up for Tommy Ray Shelton.
It is likely financial issues will be exacerbated by the publication
of this massive litigation and gifts will begin to dry up, wills
and trusts will think twice or cancel, and constituency support
in the Seventh-day Adventist Church becomes uncertain at best.
Assuming they have good counsel it is very likely they will
have to consider very seriously bankruptcy court protection,
making it highly probable the broadcasting board may be forced
to elect to reorganize under Chapter 11 of the U.S. Bankruptcy
Code. Given the devastating effect this would have on credibility
with the stockholders in the pews, it is very likely this would
turn into an orderly liquidation as I do not see that they would
be able to develop a successful reorganization plan.
The result is likely to mirror the massive cross-fire of claims
we saw in In re: Boston Regional Medical Center where at last
count there were 76 claims and cross claims, and many a director
paid dearly for the ignorance and failure to oversee and supervise
the management of this century-old original SDA Medical Institution
whose very site was chosen by Ellen G. White and where Dr. John
Harvey Kellogg mentored his surgical and medical skills.
The saddest part of this arduous journey is that we approached
the directors to deal with the issue in late 2006 and were virtually
and distinctly ignored. Without 3ABN to protect them, it is likely
the directors themselves will find themselves defending against
the claims from their own pockets for charges that could have
been so easily handled in a Christ-like way and been largely
resolved four years ago. But, the officers and directors dug
in their heels with pride-filled hearts and had to ask, "Who
are these people to question us?"
NOW they must deal with a far more powerful Gentile force
. . . . C'est la vie, and may the Lord have mercy on their souls.
G. Arthur Joy
AUReporter
* For Yvonne Lewis-Bradley-Booth and Danny Lee Shelton, this
would be at least the third walk down the aisle for her and the
fourth for Danny, and will be the subject of a future release.
Photo contributions will be accepted.
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