WECT Investigates: Allegations of mismanagement renewed as Yahweh Center bankruptcy case continues

Allegations of mismanagement renewed as Yahweh Center bankruptcy case continues

This story was updated with additional information regarding the status of the lawsuit WECT learned after it was published on April 19.

WILMINGTON, NC (WECT) - More than two and a half years after filing for Chapter 11 bankruptcy, the Yahweh Center Children’s Village is still mired in litigation. Despite a strong rebuke by a bankruptcy judge in March, who called some of the claims implausible, the trustee in charge of the estate continues to allege decades of mismanagement in the latest court filings.

Yahweh Center, Inc. filed for bankruptcy on Aug. 17, 2016, and its plan to move through the bankruptcy process was confirmed on May 26, 2017.

However, as of April 19 of this year, several creditors have yet to be satisfied, because the organization has no money, and few assets to liquidate, and also because of ongoing litigation.

Adversary Proceeding

During the bankruptcy process, the Plan Trustee — generally an attorney put in charge of the case — can file an “adversary proceeding” to try to recover money for the benefit of the estate’s creditors. These proceedings can be filed for a variety of reasons, but typically they are used when the trustee believes that the debtor made some form of improper payment prior to filing for bankruptcy.

Richard Cook, the plan trustee for the case, filed a complaint on July 20, 2018 against former Yahweh Center Executive Director Carla Roberts, former board members Charles Barton, Glenn Fox, Heather Mueller, Michael Roncone and Horace Hawes, and family members of Roberts. Also listed as defendants in the complaint were Suntrust Bank, Burt & Associates, Consilium Staffing, First Insurance Funding Corporation, Wolf Hunter Security and the Internal Revenue Service.

The action sought to pull back around $1 million in fees, interest and penalties paid before Yahweh Center went bankrupt, because, Cook alleged, the mismanagement of Yahweh Center had directly led to those unnecessary payments.

Attorneys for Roberts and Barton filed motions to dismiss on Nov. 2, and Cook reached settlements with several entities originally named in the complaint, including Burt & Associates, Consilium Staffing and First Insurance Funding Corporation, as well as two additional individual defendants.

On March 26, United States Bankruptcy Judge Joseph Callaway issued a strongly-worded order dismissing 23 out of 25 claims for relief in the original complaint against Roberts, as well as a separate order dismissing all of the claims against Barton.

Judge Callaway took particular issue with Cook’s claim that Roberts should be forced to repay the salary she collected during her tenure, typically around $70,000 per year.

The order reads:

“There is no allegation that the annual salary amount was unreasonably high or otherwise unacceptable for a non-objectionable person performing the duties of the Executive Director, or that Mrs. Roberts did not work full time. It is therefore impossible to reconcile a relatively modest annual salary with an argument that a person was not entitled to any salary for full-time work. To allege that Mrs. Roberts is somehow legally required to have worked for free for over a decade is not just implausible but nonsensical.”

The court also criticized Cook for claiming he had “verified” the allegations in the complaint and dismissed some of the other claims against Roberts for a variety of legal reasons.

Notwithstanding these criticisms, the court allowed cook to file an amended complaint, which he did on April 23.

Amended Complaint

The amended complaint recites many of the same factual allegations that were included in the original complaint.

It claims that Roberts’ mismanagement of the organization caused it to incur almost $700,000 dollars in tax penalties and interest stemming from its failure to pay required trust fund and payroll withholding taxes beginning in 2003.

The complaint also alleges Yahweh rarely had enough money in its bank account to cover its employees’ salaries, with up to five weeks elapsing between time worked and pay being issued.

The amended complaint claims employees would “line up” outside the bank in order to be one of the first to cash or deposit their paychecks.

Cook says this was because employees understood if they were not first, there would be insufficient funds in YC’s account, and they would not be paid that week.

As a result, the complaint alleges, when the checks bounced, YC incurred banking fees that over time added up to almost $350,000.

Cook also alleges that Roberts engaged in a number of self-dealing transactions, including lending herself over $600,000 without board approval, and of which at least $56,000 was never repaid.

One example Cook includes alleges Roberts was personally hit with tax liens by the IRS — $90,000 of which was allegedly paid off by funds she borrowed from the Yahweh Center.

The complaint also alleges Roberts hired Wolf Hunter Security, owned by her son, for work that was never done but cost the organization $59,065.

The complaint faults the Yahweh directors named in the suit for not stepping in, and alleges that the board failed to keep adequate records that would have allowed these issues to be discovered sooner.

In its claim for relief, the complaint claims named board members breached their fiduciary duty to Yahweh Center because they failed to:

  • File and pay taxes in a timely manner
  • Ensure payroll was done correctly and employees were paid
  • Ensure sufficient funds were in the bank to cover checks
  • Close the organization when it became insolvent
  • Terminate Carla Roberts for breach of duty
  • Hold meetings as prescribed in the by-laws
  • Maintain records
  • Approve an annual budget
  • Supervise Roberts and stop her from borrowing upwards of $600,000, and taking an unauthorized salary
  • Heed the advice of their attorneys

The claim alleges these actions led to:

  • More than $600,000 borrowed by Roberts without permission, of which more than $56,000 has not been repaid
  • $550,000 in IRS and state tax penalties
  • $350,000 in NSF, overdraft and late fees paid to banks and creditors
  • Almost $200,000 in back pay to former employees
  • $150,000 in interest on unpaid taxes

The complaint alleges that in total, these activities and those of Roberts caused the organization to lose over $1 million.

That money, Cook claims, should be returned to its estate and distributed to its creditors, who include the IRS, and former employees who are still owed unpaid wages.

Response

As of May 8, Roberts has not filed a response or motion regarding the amended complaint, though under the rules of the court she still has time to do so.

When asked to comment by WECT, Roberts submitted the following statement through her attorney:

“While we wish we could discuss this matter more at this time, we have been advised that it would be inappropriate to do so because of the pending litigation - however unfounded it is - except to say that we are pleased that the court dismissed most of the plaintiff’s claims as implausible, and will be asking it to likewise dismiss any amended claims also as unfounded. We remain thankful for the Yahweh Center’s many years of faithful service to some of the most fragile children of our community and sorrowful that it was not able to continue its mission due to economic circumstances beyond its control.”

For his part, Cook says he will continue working on behalf of the former employees of Yahweh Center.

“These employees are good, hardworking people who were taken advantage of by the management of the Yahweh Center and are still owed several hundred thousand dollars in back wages,” he said. “I am determined to do everything I can to help them recover these wages and close this chapter of their lives.”

The trial for the amended adversary proceeding has not been scheduled.

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