McDonald bankruptcy filing removes her from EDA civil suit – July 2022 dates set for remaining civil defendants’ trial

The Front Royal-Warren County Economic Development Authority civil litigation now seeking about $26 million in asset recovery against 24 defendants including its former executive director was dealt a harsh blow the day before scheduled motions hearings Friday morning, September 25. That blow was a notice of former EDA Executive Director Jennifer McDonald’s Chapter 7 bankruptcy filing Thursday afternoon, September 24.

As noted in the filing and as discussed in Warren County Circuit Courtroom “A” Friday, the bankruptcy filing essentially removes McDonald from the civil litigation process. McDonald’s bankruptcy filing included one of her two real estate companies, MoveOn8 LLC.

“As a result of the institution of the bankruptcy proceeding, all actions to collect a debt from Jennifer McDonald, or to recover property from the bankruptcy estate of Jennifer McDonald, have been stayed by reason of the applicability of Section 362(a) of the United States Bankruptcy Code (11 U.S.C. 362(A)),” McDonald attorney Peter Greenspun wrote in the filing received in the Warren County Circuit Court Clerk’s Office Thursday afternoon. The same holds true as to a stay on asset recovery in the MoveOn8 LLC filing.

Jennifer McDonald’s Thursday bankruptcy filing has essentially STOPPED her involvement in the $26-million EDA civil litigation swirling around her alleged embezzlements. Royal Examiner Photos by Roger Bianchini

With EDA lead attorney Cullen Seltzer acknowledging the stay on civil action against McDonald involving her now bankruptcy-trustee seized assets, a scheduled 9 a.m. motions hearing seeking financial sanctions against her for attempting to move a piece of property frozen by the court near the outset of the April 2019 EDA civil litigation filing was removed from the docket. Judge Bruce D. Albertson adjourned the 9 a.m. proceedings 10 minutes after they began.

Motions hearings on the remaining defendants’ cases commenced shortly after 10 a.m. as scheduled. Two defense attorneys connected by remote audio hookup told the court they were likely to file similar “interlocutory appeals” motions to the one April Petty and Jesse Poe attorney William Shmidheiser informed the court in person he would be filing. Those petitions will seek to have defendants removed from the single “mass trial” the plaintiff is seeking in alleging a wide-ranging conspiracy of McDonald and associates to profit from the alleged McDonald-directed embezzlements and misdirection of EDA assets.

Before making his case that his clients should be removed from the single trial of all defendants, as the 10 a.m. hearing began Shmidheiser called McDonald’s bankruptcy “the elephant in the room” that should be discussed with all involved defense attorneys linked in. That led EDA attorney Seltzer to repeat his acknowledgment that the case against primary defendant McDonald was stayed from further action due to the bankruptcy process.

Several times during subsequent discussion McDonald was referred to as “the hub” of the conspiracy “wheel” the plaintiff is alleging existed between the former EDA executive director and those believed to have benefitted financially one way or another from her alleged misdirection and embezzlement of EDA assets.

While criminal charges related to the EDA civil suit have been dropped against McDonald and others due to speedy trial statute concerns, the threat of refiling remains, leading to possible invocation of 5th Amendment rights if called to testify or be deposed in other defendants’ cases.

Former EDA and McDonald Administrative Assistant Michelle Henry’s attorney John Cook told the court the McDonald bankruptcy filing made his client’s case problematic, in that Henry has filed to force McDonald to pay for her legal fees in the civil case.

Also on the table Friday was McDonald’s ability or willingness to testify as a witness as the civil cases proceed in the wake of her bankruptcy filing. That she could be deposed as a witness in other cases seemed agreed upon. But whether she would quickly choose to invoke her 5^th Amendment right not to self-incriminate, with the refiling of criminal charges also still a possibility, remained at issue.

Judge Albertson took defense counsel concerns about the bankruptcy filing’s impact on the other defendant’s cases under advisement, observing, “I think we can proceed with (setting) dates in the event I rule the stay is not warranted.”

EDA attorney Seltzer noted the large number of witnesses to be deposed, over 50 he acknowledged; as well as the limited days per month, three, available for those depositions, depositions he predicted would at a minimum take a full day due to the number of defendants and their counsel involved. Due to those factors, coupled with lingering pandemic limitations on court processes, Seltzer raised an eyebrow or two predicting the civil trial wouldn’t happen before July of 2022.

That prediction led to an added sense of urgency by Petty and Jesse Poe’s attorney. Responding to a question, Shmidheiser told the court he probably would file his interlocutory appeal by the end of the week, as he sought a November date for a hearing on the appeal. Judge Albertson set November 23, at 3:30 p.m., for what is anticipated to be a 30 to 40 minute or so hearing.

Shmidheiser also told Judge Albertson that one of his primary hopes for the day’s hearing was that specific dates would be set for the lengthy deposition process of witnesses, as opposed to the vague “three days a month” tag currently on the table. Agreeing that pinning down dates for depositions was a preferred course of action, Albertson set about finding dates all attorneys could be available for.

Due to varying attorney’s schedules, preferences and other court variables, Tuesdays-Wednesdays-and-Thursdays were set between January and May 2021 to get the deposition ball rolling. Deposition dates agreed to were January 13-14-15; February 16-17-18; March 30, 31, April 1; and May 11-12-13.

Acknowledging the process would likely continue through the remainder of the year, Albertson set a pre-trial motions date of February 19, with a 24-day trial scheduled 4-1/2 months later from July 5 to 29, 2022.

Some of us may need an ambulance to get to the EDA civil trial now scheduled for 24 days in July of 2022.

Seltzer did acknowledge it was possible some defendants’ motions to be removed to individual trials could be successful, leading to earlier trials for those defendants.

As for the bankruptcy situation, one attorney present familiar with bankruptcy cases, later explained to the media that the EDA could file to have certain McDonald assets separated from the bankruptcy sale process to accommodate creditors, citing her alleged embezzlements. However, without a conviction in support of those allegations that filing might be hard to get approved by a bankruptcy trustee, Shmidheiser said. He added that the bankruptcy transfers McDonald’s liability from the EDA civil case now in Warren County Circuit Court to a judge-overseen trial in a Harrisonburg U.S. Western District of Virginia Bankruptcy Court.

According to the McDonald Bankruptcy Docket posted by the U.S. Western District of Virginia Court:

The First Meeting of Creditors is scheduled for 9 a.m. on Friday, November 13, 2020 (by telephone);

Deadline for filing Proofs of Claims has not yet been set, because McDonald filed her case as a “No Asset Case”;

Deadline for filing Complaints for Exception to Bankruptcy Discharge is Tuesday, January 12, 2021. The Warren EDA will have to file a Complaint for Exception to Discharge case by the deadline, or its claim will be discharged in bankruptcy, we were told;

McDonald ‘s Bankruptcy Schedules are due to be filed by October 8, 2020 – but if time extensions are requested, they are generally liberally granted.

The Trustee is listed as Bob Stevens of Charlottesville, along with the Office of the U.S. Trustee, with a Roanoke address.